CAAD 270/2018-T: Deductibility of Financial Charges on Loans to Subsidiaries Under Article 23 IRC

ARBITRAL DECISION

The Arbitrator Regina de Almeida Monteiro, designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 06-08-2018, decides as follows:

I - REPORT:

On 29-05-2018, the commercial company "A... S.A.", with Tax Identification Number..., with registered office at ... no...., ..., in Lisbon, filed a request for constitution of an Arbitral Tribunal, in accordance with Decree-Law no. 10/2011, of 20 January, hereinafter RJAT.

The Respondent is the TAX AUTHORITY AND CUSTOMS AUTHORITY.

The Claimant seeks to have reviewed the legality of the decision dismissing the administrative claim number ...2017... filed against the additional corporate income tax assessment for the tax year 2013, by dispatch of the Deputy Director of the Finance Directorate, of 26 February 2018, notified to the Claimant on 27 February 2018; and consequently the review of the legality of the additional corporate income tax assessment no. 2017..., relating to the tax year 2013, which determined a total amount due of €16,509.34 (sixteen thousand five hundred and nine euros and thirty-four cents).

The Claimant further seeks the reimbursement of the amount of tax paid in the amount of €16,509.34, increased by the respective compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax Authority and Customs Authority on 06-08-2018.

In accordance with the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the RJAT, the Deontological Council designated the undersigned as arbitrator, who communicated acceptance of the appointment within the applicable timeframe and notified the parties of this designation.

On 16-07-2018, the parties were duly notified of this designation and expressed no intention to challenge the designation of the arbitrator, in accordance with the combined provisions of article 11, section 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provisions of paragraph c) of section 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 06-08-2018.

On 24-10-2018, the tribunal notified the parties of the dispensation of the meeting provided for in article 18 of the RJAT and of the timeframe for submission of written pleadings.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, section 1, paragraph a), and 10, section 1, of Decree-Law no. 10/2011, of 20 January.

The parties are duly represented, possess legal personality and capacity, are legitimate and are represented (articles 4 and 10, section 2, of the same statute and article 1 of Regulatory Order no. 112-A/2011, of 22 March).

The proceedings contain no nullities.

II - STATEMENT OF FACTS

1. Proven Facts

The facts relevant to the decision of the case are as follows:

a. The Claimant was established on 14 April 1989 under the denomination B..., SA.

b. On 14 July 1995, as a consequence of a change in the shareholder composition, it changed its corporate name to A..., SA, with NIPC....

c. In 2009 the Claimant came to be wholly held by C..., current D... (S.G.P.S), S.A. ("D...").

d. The Claimant declared the commencement of activity on 17/04/1989 with CAE: 41100 – Real Estate Development, having as its purpose real estate management and promotion, construction, purchase, sale and resale of properties as well as their administration; acquisition of quotas or shares in other companies, financing thereof, through supplementary contributions and/or accessory contributions; participation in complementary associations of companies, consortia or other forms of association.

e. In 2013, the Claimant held shareholdings in the following companies:

f. In the financial years 2009, 2010, 2011 and 2012, the Claimant submitted its income tax return within the scope of the Consolidated Tax System (RETGS).

g. According to Information no. 1213/13 of the DSIRC (Department for Corporate Income Tax), by dispatch of the Assistant General Director dated 2 February 2013, the aforementioned consolidated tax system ceased to apply on 31 December 2008, and was resumed only in 2013.

h. The Claimant, not agreeing with the grounds that led to the aforementioned cessation of the Consolidated Tax System with effect from 31 December 2008, filed an action, which as of the present date is being reviewed by the Lisbon Tax Court, in the context of a special administrative action.

i. The Claimant timely filed the corporate income tax return Form 22 for the year 2013, and was subsequently subject to correction through a tax inspection action by the TA.

j. In accordance with an inspection action (OI2015...), for the year 2013 carried out by the Finance Directorate of Porto, corrections were determined, totaling €2,005,953.36 in corporate income tax, based on financial charges not accepted for tax purposes, 50% of the difference in capital gains and losses for tax purposes, and accounting gains, as follows:

In this manner, the tax result was altered:

The inspection action generated the aforementioned assessment, to which corresponds the Collection Document no. 2017..., from which results the total amount due of €16,509.34, based on financial charges not accepted for tax purposes.

| 50% difference in capital gains and losses for tax purposes (to increase) | -1,370,212.50 |
| Accounting gains (to deduct) | -2,403,554.80 |
| Total corrections | 2,005,953.36 |

Thus, the amounts entered in Section 07, Fields 752, 740 and 767 of the Model 22 Declaration were altered as presented:

l. In this manner, the tax result was altered:

m. The inspection action generated the aforementioned assessment, to which corresponds the Collection Document no. 2017..., from which results the total amount due of €16,509.34, based on financial charges not accepted for tax purposes.

n. The Inspection Report states that "(...) A... is bearing financial charges resulting from loans that are financing the activity of its associated companies without the totality of these charges borne being passed on to the beneficial entities of these funds. Thus, the costs associated with financing that is being used by other companies, other than A..., should be disregarded for tax purposes, regarding the differential existing between the costs and the income derived from the financing obtained and granted (...)".

o. In this manner, corrections were made, resulting from the disregard of the tax deductibility of financial charges borne in the interest of other associated companies, in accordance with the apportionment detailed in the following table:

p. According to the accounts, during the financial year 2013, the Claimant obtained loans, either as supplementary contributions or for the purpose of covering cash flow deficiencies, from C..., the outstanding balance of which at the end of 2013 amounted to €25,087,919.50 (twenty-five million eighty-seven thousand nine hundred and nineteen euros and fifty cents).

q. As a counterpart to the aforementioned transfers, the Claimant was charged interest by C..., in the total amount of €1,257,376.91 (one million two hundred fifty-seven thousand three hundred and seventy-six euros and ninety-one cents).

r. The Claimant granted loans to its participated companies in the total amount of €19,406,104.80 (nineteen million four hundred and six thousand one hundred and four euros and eighty cents).

1. Unproven Facts

There are no facts relevant to the decision that have not been proven.

1. Grounds for the Determination of Facts

The proven facts are based on documents submitted by the Claimant.

The Tax Authority and Customs Authority submitted the administrative file.

There is no controversy regarding the factual matters.

1. Legal Matters

The essential issue which is the subject of the present proceedings is to determine whether the financial charges resulting from the financing that the Claimant obtained and with which it financed the companies partially held by it, without passing on the totality of these costs to the benefiting entities, can be classified under article 23, section 1 of the Corporate Income Tax Code, or whether, on the contrary, they do not meet the requirements for admissibility of expenses established in this provision.

Article 23, section 1 of the Corporate Income Tax Code, in 2013 had the following wording:

"Article 23"

Expenses

"1 - Expenses are those that are demonstrably indispensable for the realization of income subject to tax or for the maintenance of the productive source, including in particular:

a) Those relating to the production or acquisition of any goods or services, such as materials used, labor, energy and other general expenses of production, conservation and repair;

b) Those relating to distribution and sale, including transportation, advertising and placement of merchandise and products;

c) Of a financial nature, such as interest on foreign capital applied in the business, discounts, premiums, transfers, exchange differences, expenses with credit operations, debt collection and issuance of bonds and other securities, redemption premiums and those resulting from the application of the effective interest method to financial instruments valued at amortized cost;

d) Of an administrative nature, such as remuneration, including those attributed as profit sharing, allowances, materials of current consumption, transportation and communications, rents, litigation, insurance, including life insurance and operations in the "Life" class, contributions to savings-pension funds, contributions to pension funds and any supplementary social security schemes, as well as expenses with termination benefits and other post-employment or long-term employee benefits;

e) Those relating to analyses, rationalization, investigation and consultation;

f) Of a fiscal and parafiscal nature;

g) Depreciation and amortization;

h) Inventory adjustments, impairment losses and provisions;

i) Expenses resulting from the application of fair value in financial instruments;

j) Expenses resulting from the application of fair value in consumable biological assets that are not multi-annual forestry operations;

l) Realized losses;

m) Indemnities resulting from events whose risk is not insurable."

We conducted an analysis of the jurisprudence on this matter, and we highlight the Decision of the Supreme Administrative Court of 15-11-2017, handed down in Case no. 0372/16, which, analyzing the question of the indispensability of costs for the purposes of article 23, section 1 of the Corporate Income Tax Code, states: "As a rule, all costs incurred by a company will be deducted negatively in the determination of its taxable profit (in accordance with section 1 of article 17 of the Corporate Income Tax Code, 'The taxable profit of legal entities and other entities mentioned in paragraph a) of section 1 of article 3 consists of the algebraic sum of the net result of the period and the positive and negative patrimonial changes verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this Code'.), all the more so because, by constitutional requirement (cf. article 104, section 2 ('The taxation of companies is fundamentally based on their actual income.') of the CRP), the taxation of companies should be based on actual income. This means that all costs incurred in obtaining income must be excluded from the calculation of taxable profit."

In the case under review, what is at issue is to determine the indispensability of the expenses of the Claimant during the financial year 2013, which obtained loans, either as supplementary contributions or for the purpose of covering cash flow deficiencies, from C... S.A., the outstanding balance of which at the end of 2013 amounted to €25,087,919.50 (twenty-five million eighty-seven thousand nine hundred and nineteen euros and fifty cents).

As a counterpart to the aforementioned transfers, interest was charged to the Claimant by C..., S.A., in the total amount of €1,257,376.91 (one million two hundred fifty-seven thousand three hundred and seventy-six euros and ninety-one cents). The Claimant granted loans to its participated companies in the total amount of €19,406,104.80 (nineteen million four hundred and six thousand one hundred and four euros and eighty cents).

What is precisely at issue is whether the costs associated with these loans granted to its participated companies should be considered as a cost indispensable for obtaining income, for the purposes of the provisions of article 23, section 1 of the Corporate Income Tax Code.

Analyzing the jurisprudence of recent times, we can observe that the requirement that these costs relate to the activity of the company itself, i.e., that it be an activity carried out by the company itself, was long ago abandoned. In light of the relevant doctrine and jurisprudence, the finalistic view has long been set aside, according to which a causal relationship, of the type "sine qua non condition," would be required between costs and income.

In this sense, we emphasize the Decision of the Supreme Administrative Court of 04-07-2018 handed down in Case 01432/17, which considers that "... at the date of the facts, the wording of article 23, section 1 of the Corporate Income Tax Code was as follows: 'costs or losses that are demonstrably indispensable for the realization of income or gains subject to tax or for the maintenance of the productive source (...)'.

As this Supreme Court recently had the opportunity to pronounce itself (see the Decision handed down on 28 June 2017 in the context of Case 0627/16), 'as a rule, all costs incurred by a company will be deducted negatively in the determination of its taxable profit (in accordance with section 1 of article 17 of the Corporate Income Tax Code (...)), all the more so because, by constitutional requirement [cf. article 104, section 2 (...) of the Constitution of the Portuguese Republic (CRP)], the taxation of companies should be based on actual income. This means that all costs incurred in obtaining income must be excluded from the calculation of taxable profit.

However, it must be borne in mind that the legislator, in weighing reasons that it considered relevant, did not establish an absolute correspondence between accounting costs and tax costs, and understood that only those costs or losses that 'are demonstrably indispensable for the realization of income or gains subject to tax or for the maintenance of the productive source' should have negative relevance in the calculation of taxable profit (cf. the aforementioned article 23, section 1 of the Corporate Income Tax Code)'.

In this context, 'the control to be exercised by the TA on the verification of this requirement of indispensability must be by the negative, that is, the TA should only disregard as tax costs those that clearly do not have the potential to generate an increase in gains, and the competent administrative agent responsible for determining the taxable base cannot 'arrogate to himself the role of manager and qualify indispensability at the level of good and bad management, according to his personal feeling or sense; it is enough that it be an operation carried out as an act of management, without examining its effects, positive or negative, of the expense or charge assumed for the results of the realization of income or for the maintenance of the productive source' (VÍTOR FAVEIRO, Fundamental Notions of Portuguese Tax Law, volume II, page 601.). (...) That is, the TA cannot interfere with the freedom and autonomy of management of the company, scrutinizing the appropriateness and opportunity of the management's economic decisions. A cost will be accepted for tax purposes if it is suited to the company's productive structure and the obtaining of profits, even if it proves to be an economically unproductive or even ruinous operation'.

Therefore, and in accordance with the reiterated understanding of this Supreme Court, all expenses assumed by the taxpayer for a business purpose, that is, in the interest of the company and with a view to the pursuit of its corporate purpose, should be accepted for tax purposes (see, in this sense and generally, the Decision handed down on 30 November 2011, case no. 0107/11)."

As regards the concept of indispensability of costs, we consider the position expressed in the Decision of the Supreme Administrative Court of 15-11-2017, handed down in case no. 0372/16 to be decisive: "Indispensable costs are equivalent to expenses incurred in the interest of the company or, in other words, in all acts abstractly subsumable in a profitable profile. [...] The essential expense is equivalent to every cost incurred in order to obtain income and which represents an economic decline for the company. As a rule, therefore, tax deductibility depends only on a causal and justified relationship with the company's productive activity" (TOMÁS CASTRO TAVARES, Of the Relationship..., loc. cit., p. 136.). In other words, only costs that have no causal and justified relationship with the company's productive activity will not be indispensable. This is the understanding that has been followed by this Section for Tax Litigation of the Supreme Administrative Court (Among many others, providing an exhaustive treatment of the subject, see the decision of 30 November 2011, handed down in case no. 107/11, available at http://www.dgsi.pt.

More recently, the decision of 28 June 2017, handed down in case no. 627/16,

available at http://www.dgsi.pt.

Thus, the control to be exercised by the TA on the verification of this requirement of indispensability must be by the negative, that is, the TA should only disregard as tax costs those that clearly do not have the potential to generate an increase in gains, and cannot 'the competent administrative agent responsible for determining the taxable base arrogate to himself the role of manager and qualify indispensability at the level of good and bad management, according to his personal feeling or sense; it is enough that it be an operation carried out as an act of management, without examining its effects, positive or negative, of the expense or charge assumed for the results of the realization of income or for the maintenance of the productive source' (VÍTOR FAVEIRO, Fundamental Notions of Portuguese Tax Law, volume II, page 601.).

That is to say, since the rule is the freedom of economic initiative and companies' taxation should fundamentally be based on their actual income (cf. the aforementioned article 104, section 2 of the CRP), the provision of section 1 of article 23 of the Corporate Income Tax Code, in the wording in force at the time, when limiting the relevance of costs to those 'that are demonstrably indispensable for the realization of income or gains subject to tax or for the maintenance of the productive source' must be understood as allowing the tax relevance of all expenses actually incurred that are potentially adequate to provide income or gains, regardless of the result (success or failure) that they actually provided.

'The very wording of that section 1 of article 23 points decidedly in that direction with the use of the future tense 'will be,' rather than the past tense 'were': the appropriate perspective for assessing the indispensability of expenses for obtaining income is that of the economic agent at the moment when it acted, when there is only the possibility that the business options to be taken will produce income, and not that of the tax authority, acting in the presence of the results obtained, assessing the relevance that the expenses actually had for them to be achieved.

In this light, it must be concluded that expenses are to be considered indispensable for the realization of income which, at the moment they are incurred, appear to be potentially generators of income, which has as a corollary that the tax relevance of a cost can only be eliminated when it can be concluded, in light of the rules of common experience, that it had no potential to generate income, that is, when it is demonstrated that the act that generates the costs cannot be considered as an act of management, because it cannot be expected, with reasonable probability, that the expense incurred could result in income" (See decision of 15 June 2012 of the Centre for Administrative Arbitration – CAAD, handed down in case no. 29/2012 – T. This means that, in accordance with the cited article 23 of the Corporate Income Tax Code, all expenses that are assumed in accordance with a business purpose, that is, in the interest of the company and with a view to the pursuit of its corporate purpose, will be considered tax expenses. The use of that legal provision to disregard a cost actually borne for tax purposes is limited to situations of confusion between the company's assets and the personal assets of the shareholders, as well as those in which the company, to the detriment of its assets, intends to benefit third parties. In other words, 'if the expense was motivated by other reasons (personal interest of shareholders, administrators, creditors, other companies in the same group, business partners, etc.), then such cost should not be considered indispensable' (RUI DUARTE MORAIS, Notes on Corporate Income Tax, Coimbra, 2007, p. 87.).

The assessment of indispensability should therefore be based on a case-by-case analysis of the company and each of the expenses or types of expenses in question.

Bearing in mind that the activity of the company involved is the sale of light motor vehicles, it appears to us beyond question that the cost relating to VAT borne on the intra-community acquisition of those vehicles, being clearly within the activity carried out, is, in light of the rules of common experience, potentially generating income. There cannot even be considered to exist, at the relevant moment for assessing indispensability, any doubt as to the correlation of the cost with the activity pursued (If the TA has doubts, in light of a particular cost, as to its correlation with the corporate purpose of the taxpayer, it should request the collaboration of the latter (which is in a better position to do so), indicating the motivation inherent to and the objective pursued with the cost in question. This is a matter, contrary to what the trial judge appears to understand, not of a question of burden of proof, but rather of a 'duty of motivation or "explanation regarding the economic congruence of the operation"' (cf. ANTÓNIO MOURA PORTUGAL, Deductibility…, p. 276, as well as VÍTOR FAVEIRO, Status of the Taxpayer: The Person of the Taxpayer in the Social State under the Rule of Law, Coimbra, 2002, p. 848).)."

"Ultimately, one would have to disregard all expenses for which it was proven that they could have been incurred at a lower value than that at which they were actually incurred. This, it should be noted, without the TA making any demonstration of intent to evade taxes. In that thesis, all options of the corporate income tax taxpayer within the scope of its activity that were not the most economical would be penalized, since the cost, to the extent that it exceeded that economically utopian perfection, would not be deducted for the purpose of determining the taxable base. Taken to the extreme, the thesis would constitute an insurmountable obstacle to private initiative and to all commercial, industrial or agricultural activity, as it would require of the income tax taxpayer that it always make the best economic and legal options, under penalty of being penalized in corporate income tax. Clearly, that is not the will of the legislator, which already in the Fundamental Law (cf. article 104, section 2 of the CRP) consecrated as the object of the taxation of companies actual income and not ideal income.

In the same sense, the arbitral decision of 21 June 2018, handed down in Case no. 637/17-T, with which we are in full agreement, deserves to be reproduced, which states:

"the expense with financing a participated company which, according to parameters of normality, will potentially result in the obtaining of a specific type of profit – the dividend –, is no different from any other expense in which a company incurs with a view to carrying out 'productive' activities – the purchase of a machine for use in a productive process, the purchase of real property for subsequent sale, the payment of salaries with a view to obtaining income derived from the activity of human resources, etc. The fact that, in the case of financing a participated company, there is another company that benefits from the expense incurred by the parent company is not relevant to disqualify the expense as tax deductible by the one who incurs it. It is not for that reason that the expense is incurred solely in the interest of third parties; on the contrary, it is, first and foremost, incurred in the interest of the parent company, which thus intends to maintain one of the sources producing its potential income – precisely, the shareholding in the participated company. This point, which is fundamental to link the expense to the potential income, cannot be ignored in a correct interpretation of the provisions of article 23 of the Corporate Income Tax Code."

We should also highlight the arbitral decision handed down in Case: 695/2015 of 18/05/2016, which states that "there thus emerges, in this provision, a nuclear requirement in the admissibility of expenses for tax purposes: that they be indispensable for the realization of income subject to tax or for the maintenance of the productive source."

It further states that "the doctrinal works most frequently invoked on this question dismiss the interpretation of the concept of indispensability as meaning a necessary causal link between costs and income. Both sustain that any economic decline (cost) that has a relationship with the corporate purpose, whether incurred within the scope of the activity, or in the interest of the company, will meet the requirement of indispensability, and for this reason should not be denied tax acceptance under article 23 of the Corporate Income Tax Code.

The doctrinal anchor that the TA, and some jurisprudence, have gleaned from the work of TOMÁS TAVARES on the matter under review here – according to which the obtaining of funds by a parent company granted without remuneration to a participated company does not constitute an activity or interest of that parent – was thoroughly refuted by him, as can be seen below. In case no. 12/2013-T, within the scope of CAAD, where T. TAVARES was sole arbitrator, T. TAVARES decided on the deductibility of these expenses with the following grounds (bold type of the Court):

'The indispensability between costs and income is assessed in an economic sense: indispensable costs are those incurred in the interest of the company, which are linked to its capacity, by insertion in its profitable scope (whether directly or indirectly) and in the exercise of its concrete activity.

The Tax Authority cannot scrutinize the appropriateness and opportunity of the company's management economic decisions. It cannot interfere with the freedom and autonomy of management of the company. A cost will be accepted for tax purposes if it is suited to the company's productive structure and the obtaining of profits, even if it proves to be an economically unproductive or economically ruinous operation.

The indispensable expense is equivalent to every expense incurred in order to obtain income and which represents an economic decline for the company. Article 23 of the Corporate Income Tax Code requires not only an adequate causal connection between the cost and the income (in the aforementioned economic terms), but is also connected alternatively (as indicated by the word 'or') with the maintenance of the productive source – in the sense of an economic link between the expense and the existence and maintenance of the company and its activity.

A company can obtain funds (and pay interest) and then transfer those funds to a subsidiary without any causal and direct remuneration – and still exercise its activity appropriately, within its capacity and profitable scope: it can carry out a capital increase (article 25 of the Commercial Companies Code), supplementary or accessory contributions without interest (articles 210 and 287 of the Commercial Companies Code) or supplementary loans without interest (article 243 of the Commercial Companies Code) – and in any of those cases it acts entirely within its capacity for exercise and with a profit-making intent and in the exercise of its activity'.

It should also be noted that in this arbitral decision it is considered that 'productive activity should not be understood in a restrictive sense, but rather in a broad sense, meaning activity related to a source producing income for the entity bearing the expenses. We believe this is the appropriate sense of the expression 'productive activity,' both in the work of T. TAVARES, and in the tax sense used by the TA and some jurisprudence.

If it were not so, article 23 would certainly not admit as deductible costs administrative expenses, financing expenses and even losses. These expenses do not have to directly relate to productive activities, tout court, and yet they are provided for in the law. Also, for example, the disposal of inventories or the financing of certain assets that were withdrawn from production (which may be designated, under certain conditions, as 'non-current assets held for sale') would be outside the scope of company activities, understood in that restrictive sense, which would be unacceptable.

When seeking the meaning of the concept of company activity, it cannot be limited to mere or simple operations of production of goods or services. To say that a cost must verify a relationship with productive activity can only mean to verify a relationship with global economic operations, and exploitation, or with operations or management acts that are part of the pursuit of the entity's own interest that assumes such costs.

In this sense, the activity of a company will consist of operations resulting from the use of its assets, in particular its assets and the management of its liabilities. That is, the way in which its management will use company assets in the context of the various operations (productive, commercial, investment and disinvestment, general financing, acquisition of financial and other holdings) which, taken together, allow the entity in question to fulfill its economic purpose: the pursuit (immediate or over time) of an economic surplus (profit).'

We subscribe to this position, and consider that the expense that the Claimant makes in financing a company in which it holds a participation, and bearing in mind its corporate purpose, and also parameters of normality, this expense will result in the obtaining of a specific type of profit: the dividend.

In light of the foregoing, we find that we must conclude that the contested assessment and, consequently, the decision dismissing the administrative claim filed against it, are vitiated by error regarding the legal and factual presuppositions and by misinterpretation and misapplication of the provisions of article 23, section 1, paragraph c), of the Corporate Income Tax Code, which constitutes a violation of law. Thus, these acts must be declared unlawful and, consequently, be annulled.

In our view, and considering also the corporate purpose of the Claimant as stated above, the concept of expenses indispensable for the realization of income, in accordance with article 23, section 1, c) of the Corporate Income Tax Code cannot be understood in a restrictive manner, as the TA claims.

The notion of indispensability presupposed in article 23 of the Corporate Income Tax Code relates to the indispensability of the expense for the realization of the ultimate purpose of the company – profit – through any productive activity.

The indispensability of the expense and its connection to the company's activity, in our view, is delimited by the corporate purpose of the company and the activities that it assumes in the articles of association as those it will carry out. Thus, in our understanding, we must determine what the corporate purpose of the Claimant is in order to assess whether the amounts in question are to be considered as expenses for the Claimant.

Thus, as is evident in the present arbitral proceedings, the corporate purpose of the Claimant establishes all the necessary framing of the financing carried out by the Claimant to its subsidiary, insofar as it derives from the purpose that it can develop its activity, indirectly, through participated companies, and has as its activity "the acquisition of quotas or shares in other companies, financing thereof through supplementary contributions and/or accessory contributions".

What has been stated is sufficient to support the decision that follows.

Having the Claimant proceeded to the voluntary payment of the tax assessed, such amount should also be reimbursed to it together with the compensatory interest that is shown to be due, at the time of payment, in compliance with the provisions of article 43 of the General Tax Law.

III – DECISION

For these reasons, we decide as follows:

a) To declare the unlawfulness and determine the consequent annulment of the additional corporate income tax assessment no. 2017..., relating to the tax year 2013, in the amount of €16,509.34;

b) To judge well-founded the request for arbitral decision and to annul the decision dismissing the Administrative Claim no. ...2017... in the amount of €16,509.34;

c) To determine the reimbursement of the tax induly paid by virtue of the unlawfulness committed;

d) To order payment of compensatory interest from the date of payment of the tax until the date of issuance of the credit note, in accordance with articles 43 of the General Tax Law and 61 of the Tax Procedure Code.

Value of the Case

The Claimant indicated as the value of the case the amount of €16,509.34 (sixteen thousand five hundred and nine euros and thirty-four cents), which was not contested by the Respondent, and corresponds to the value of the assessment that it sought to challenge (article 97, section 1, a), of the Tax Procedure Code).

Costs

In accordance with articles 12, section 2, and 24, section 4, of the RJAT, and 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at €1,224.00, which is a charge upon the Respondent.

Notify.

Lisbon, 21 January 2019

The Arbitrator

(Regina de Almeida Monteiro)