Summary
Full Decision
ARBITRAL DECISION
The arbitrators Fernanda Maçãs (presiding arbitrator), Jorge Carita and Nuno Maldonado Sousa (member arbitrators), appointed by the Deontological Council of the Centre for Administrative Arbitration to constitute the Arbitral Tribunal, hereby decide as follows:
REPORT
A..., S.A. ("A..., S.A."), a company with unique registration and legal entity number..., with registered office at..., pursuant to the provisions of Articles 2, number 1, subparagraph a), 5, number 3, subparagraph a), 6, number 2, subparagraph a), 10, number 1, subparagraph a) and number 2, all of Decree-Law no. 10/2011, of 20 January, which establishes the Legal Framework for Arbitration in Tax Matters ("RJAT"), requests the constitution of a Collective Arbitral Tribunal with a view to declaring unlawful the tax assessment act for Stamp Tax ("IS") and the tax assessment acts for compensatory interest embodied in the IS assessment statement no. 2018... relating to the year 2014.
The present request for arbitral pronouncement aims to declare unlawful the IS tax assessment act no. 2018... and the compensatory interest tax assessment acts nos. 2018... to 2018..., embodied in the IS assessment statement no. 2018... relating to the year 2014 (see doc. no. 1) and which comprises an amount of tax to be paid by the Applicant of €91,963.13 (ninety-one thousand, nine hundred and sixty-three euros and thirteen cents) as well as an amount of compensatory interest to be paid in the amount of €12,383.27 (twelve thousand, three hundred and eighty-three euros and twenty-seven cents), making up a total value of €104,346.40 (one hundred and four thousand, three hundred and forty-six euros and forty cents).
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (AT).
3.1. The Applicant did not appoint an arbitrator, therefore, under the provisions of subparagraph a) of number 2 of Article 6 and subparagraph b) of number 1 of Article 11 of the RJAT, the President of the Deontological Council appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of their appointment within the prescribed period.
3.2. The Parties duly notified of the appointment of the arbitrators did not raise any objections.
3.3. In accordance with the provisions of subparagraph c) of number 11 of the RJAT, the collective arbitral tribunal was constituted on 13 August 2018.
3.4. In these terms, the Arbitral Tribunal is regularly constituted to examine and decide on the subject matter of the proceedings.
GROUNDS OF THE REQUEST FOR ARBITRAL PRONOUNCEMENT
To substantiate the request for arbitral pronouncement, the Applicant alleges, in summary, the following:
A) On the non-existence of financing operations
The Applicant's business purpose is the "Manufacture and commercialisation of pharmaceutical specialties, chemical products, hygiene products, cosmetics, dietary products, clinical, hospital and surgical use products, dental materials, veterinary products and disinfectants. Import and export", being classified under Economic Activities Classification (CAE) with activity 21201 – "Manufacture of medicines".
In 2011, the companies of the B... Group of which the Applicant is part, covered by the Special Tax Treatment Regime for Groups of Companies (RETGS), concluded a treasury centralisation agreement, although not reduced to writing.
Pursuant to the aforementioned informal agreement, the parent company C..., SGPS, S.A. would have assumed the role of treasury centralisation entity of the B... Group, through a bank account to which the other companies in the Group were obligated to transfer at the end of each day the values corresponding to the positive and negative balances of their respective individual bank accounts.
According to the Applicant, although the treasury centralisation agreement resembles what is commonly designated a cash pooling contract, it presents quite differentiated characteristics, inasmuch as, under the agreement sub judice, the treasury centralisation entity does not merely receive the flows from the dominated companies and redistribute part or all of these to deficit companies, but rather exercises the rights and assumes the duties of the dominated companies arising from their respective activities.
What this means is that the convention entered into in the "B... Group" implies that to the treasury centralisation entity there are transferred, not only positive and negative bank balances, but also customers' and suppliers' debts, as well as all payments and receipts from customers and suppliers, through transmission of the respective credits. The centralising entity perceives not only the flows transmitted by the Applicant, but also its obligations.
The Applicant contends that the tax assessment act sub judice thus incurs in error by qualifying the "cash-pooling" contract in force in the B... Group as a credit granting contract by the participated company, the Applicant, to the treasury centralisation entity, C..., SGPS, subsumible under item 17.1 of the TGIS.
Despite the broad wording of item 17.1, it is important to note from the outset that it falls within item 17 whose scope of application is limited to "Financial operations".
Item 17.1 is intended, in the first place, to tax the "use of credit" by virtue of "granting of credit in any capacity", that is only operations which imply the existence of a credit, therefore the mere financial flow between the Applicant and the treasury centralisation entity, C..., SGPS, S.A., corresponding to the positive balance of the participated company transferred daily to it, is not subject to IS, because it does not fall within the letter of 17.1 of the TGIS.
The Applicant recognises that the cash pooling contract concluded in the B... Group constitutes a zero balance cash pooling contract, which shares the essential features of cash pooling contracts: i) joint treasury management with a view to capital profitability and ii) possibility of granting credits to group companies.
However, for the Applicant, the said contract simultaneously presents a different reality which is materialised in the obligation of the treasury centralisation entity to directly carry out "receipts and payments resulting from the operational activity of the participates", which is why these do not constitute financial operations qualifying as credits subsumible under items 17.1 and 17.1.4 of the TGIS.
As had been clarified to the tax administration services and appears in the inspection report draft, because C... SGPS is the entity which carries out the majority of operational payments of A..., the participated company does not grant credit to the first.
What occurs is that the original debtor – the Applicant herein – discharges its original obligation (C... SGPS becomes subrogated in the rights of the various creditors of A... from the moment it fulfils the obligations of the latter).
Only an amount transferred that exceeded this fulfilment/payment could be analysed from the perspective of whether or not it constitutes a grant of credit, which the Tax Inspection Services failed to demonstrate.
Thus, for the Applicant, the tax administration did not analyse concretely all the operations in the account (2682090004-COns.TesourariaTSGP), making a conclusive judgement about the grant of credit, and not fulfilling, in this respect, the burden of proof that lay upon it, pursuant to Article 74, number 1, of the General Tax Law (LGT), nor the inquisitorial principle established in Article 58 of the LGT.
Indeed, the Applicant evidenced – and the tax administration itself does not fail to recognise – that some of the amounts in question do not constitute in any way a grant of credit, but the discharge of the Applicant's obligations.
In the treasury centralisation contract in question, the transfers of funds do not reveal any manifestation of contributory capacity, and thus cannot be considered to fall within the concept of credit use provided for in item 17.1.4 of the TGIS.
The Applicant further alleges that the concrete transfers of funds from the Applicant to the treasury centralisation entity do not provide it with any increase in financial liquidity, contrary to what occurs, as we have seen, in a loan contract, which is why they do not evidence any manifestation of contributory capacity.
Thus, considering that any transfers of funds between two entities fall within the scope of item 17.1 of the TGIS, combined with Article 1, number 1, of the IS Code, the aforementioned regulations would be materially unconstitutional by violation of the principle of contributory capacity arising from Articles 13 and 104 of the CRP, which is hereby invoked for all legal purposes.
B) On the non-existence of a current account
For the Applicant, the Respondent entity also incurs in error when it concludes that the flows transferred by it to the treasury centralisation entity constitute credits used in the form of a current account, since the grant of any credit in the form of a current account is not evidenced, pursuant to Article 344 of the Commercial Code, according to which a current account contract exists whenever two persons having to deliver values one to the other, undertake to transform their credits into items of "debit" and "shall have", so that only the final balance resulting from its liquidation is enforceable.
In truth, in accordance with the arguments developed in section III), A), ii), of the petition for arbitral pronouncement (Articles 128 et seq. of the PI), it is not permissible to qualify the agreement in question as a current account contract, first and foremost because, under that Article 344, an essential element of this contract would be that the two parties had to deliver values one to the other, that is, that there existed reciprocity of credits resulting from reciprocal transactions, which, in this case, would not exist.
The credit facility contract, on the other hand, constitutes a banking operation pursuant to Article 362 of the Commercial Code, and is not the subject of typical regulation.
Such contract constitutes a modality of commercial bank loan governed by the negotiation declarations involved, by banking customs and, subsidiarily, by the rules relating to the loan contract (see Article 363 of the Commercial Code).
It is a contract through which a credit establishment undertakes to have at the disposal of the customer an amount of money, the latter having the possibility to use it through other operations.
Antunes Varela, for his part, defines the credit facility as a "(…) contract by which one of the parties (the lender), as a rule a bank, undertakes to grant credit to the other (the borrower) up to a certain limit, under certain conditions, it being incumbent on the borrower to decide whether, when and on what terms it will use the benefit placed at its disposal (…)" (see Revista de Legislação e Jurisprudência, year 114, p. 116). (See Article 150 of the RI).
Among the various types of credit facility, according to this author, are those which consist of opening a current account credit, in which case customers may make a plurality of withdrawals and amortisations of portions of credit in that account, as long as they are limited, in all circumstances, to the maximum limit of financing permitted.
However, in order to speak of a credit facility, the Applicant would first have to be a credit institution and as such be obligated to grant a certain "ceiling" of credit and, secondly, the treasury centralisation entity to be authorised to make withdrawals and amortisations as it sees fit, according to its needs, on an account of the Applicant, which does not appear to be evidenced.
C) On the non-verification of credit use
The Applicant further alleges error as to the interpretation followed of items 17.1 and 17.1.4 of the TGIS, under which the Tax Inspection Services base the Applicant's duty to liquidate and pay IS, given that subjection to this tax implies a financial operation in which "use of credit" occurs and not "grant of credit", as stated in the Inspection Report.
Currently, pursuant to item 17.1 of the TGIS, the only taxable fact is the actual use of credit and not the obligation to supply funds, hence the manifest error in which the Tax Inspection Services incurred.
D) On the exemption provided for in subparagraph g) of number 1 of Article 7 of the IS Code
Finally, the Applicant alleges that if one were to admit – which is not conceded and is only admitted out of duty of prudent representation – that the flows transmitted by the Applicant in favour of the treasury centralisation entity, i.e. those which exceeded the payments made by the treasury centralisation entity in the course of the Applicant's activity, constitute credit operations, nonetheless these would be exempt from IS under subparagraph g) of number 1 of Article 7 of the IS Code, in the wording in force at the date of the facts.
In this regard, the Applicant alleges that the Respondent merely alleges, without more, that the legal requirements are not met, without disclosing the elements that were taken into account, and once again the burden of proof incumbent on the Respondent is violated.
E) On the unlawfulness of the compensatory interest assessment statement
The Applicant alleges that the Respondent does not substantiate nor demonstrate the verification of the legal requirements for the application of compensatory interest, in violation of Articles 77 of the LGT and number 3 of Article 268 of the CRP.
RESPONSE OF THE TAX AND CUSTOMS AUTHORITY
The Tax and Customs Authority presented a Response and attached the administrative file, invoking, in summary, the following:
The Applicant alleges that although it has been clarified that the treasury convention between the group companies is not reduced to writing, it appears from the annual reports and accounts that, in addition to the transfer to the centralising entity of positive and negative bank balances, the convention concluded implies that customers' and suppliers' debts are, in their generality, transmitted to the centralising entity, which also centralises all payments and receipts (from customers and suppliers), through transmission of the respective credits.
The Applicant alleges that the AT incurs in error when it concludes that the statement of account 2682090004 - Cons. Treasury TSGP corresponds to mutual operations between the parent and the participated, because the flows do not constitute granted capital, since it is C... SGPS which carries out the majority of operational payments of A....
It adds that the participated does not grant credit to the first. What occurs is that the original debtor - the Applicant herein - discharges its original obligation (C... SGPS becomes subrogated in the rights of the various creditors of A... from the moment it fulfils the obligations of the latter).
It happens, however, that for the Respondent the proof that the Applicant annexes to the PI is insufficient to demonstrate that the capital flows recorded in account 2682090004 - Cons. Treasury TSGP do not constitute financings but rather credit assignments of the operational activity of A....
Indeed, the Applicant annexes some invoices which, it alleges, corroborate situations that constitute credit assignments between A... and C... SGPS, intended solely to meet obligations arising from the operational activity of A....
However, in the first place, it does so merely by way of example (as the Applicant itself refers), in the second place, it does not establish a concrete association between each or a set of several invoices to the transfers of flows effected.
In these terms, this cannot, in any way, constitute conclusive proof of the facts alleged by the Applicant, to the extent that accounting must have an exact correspondence between the values recorded, the manner in which they are recorded and the respective documents which substantiate the operations carried out and serve to support the accounting records made. This procedure cannot be carried out merely by way of example, proving only part of the values and taking the part for the whole. And even less so without having demonstrated, in this case, the causal nexus between the invoices in question and the transfers of flows between A... and C... SGPS and the alleged credit assignment.
With regard to the alleged verification of the requirements upon which the right to the exemption provided for in subparagraph g) of number 1 of Article 7 of the CIS depends, contrary to what the Applicant alleges in Articles 182 to 187 of its PI, it is by no means on the AT that the burden of proof of facts preventing the right to assessment lies, rather it is on the taxpayer that the burden of proof of facts constitutive of its right to tax exemption lies.
Just as, moreover, has been the uniform understanding of the jurisprudence of the STA in similar matters, being able to consult in this respect the Decision of 24-04-1991, issued in proceeding 013143, the Decision of 14-01-2005, issued in proceeding 01480/03, as well as the Decision of 29/04/2004, issued in proceeding 01680/03, in whose headnote it can be read: "I - In the absence of special rules, it falls upon the Administration to bear the burden of proof of the verification of the legal requirements of its action, above all the proof of the existence of the taxable facts on which the additional assessment challenged was based. II - Therefore, the Administration having verified, through examination of the books, the existence of inaccuracies or omissions in the declaration of the challenger, the additional assessment must be considered founded, since it was only incumbent on it to prove the verification of the respective indications or requirements of taxation, that is, of the legal requirements of its action. III - Having carried out an intra-community transaction which benefits from exemption, it was incumbent on the challenger to prove the existence of the taxable facts which it alleged as the basis of its right, that is, the existence of the alleged intra-community transmission."
As regards the alleged unlawfulness of the compensatory interest assessments, the Respondent considers that, since the Applicant did not effect the assessment in a timely manner, it is necessary to conclude, given that it is a legal entity which has various resources, human and financial, that the delay must be imputable to it.
PROCEDURAL ASPECTS
Since there were no grounds justifying it, the tribunal dispensed with the holding of the first meeting provided for in Article 18 of the RJAT, which it did under the principles of the Tribunal's autonomy in the conduct of proceedings. The Tribunal set 13 February 2019 for the purpose of pronouncement of the decision.
The Applicant submitted further submissions reiterating the arguments presented in the previous procedural document.
CASE MANAGEMENT
The parties have legal capacity and standing, show themselves to be legitimately interested and are regularly represented (Articles 4 and 10, number 2, of the RJAT and Article 1 of Order no. 112-A/2011, of 22 March).
8.2. The tribunal is competent and is regularly constituted.
8.3. The proceedings are not affected by any nullities.
8.4. No exceptions were raised.
8.5. There are no other circumstances preventing knowledge of the merits of the case.
MERITS
III.1. Factual Matters
A.1. Established Facts
The Applicant is a commercial company with the trading name A..., S.A. and has paid-up capital of €9,000,000.00. [RI, opening: doc.3 pp.6 and R-AT, 3rd: PA1, p.43, PA4, p.90]
The Applicant declared commencement of activity for tax purposes on 1987-12-23, being registered for the exercise of the main activity of "manufacture of medicines" to which corresponds code 21201 of the Classification of Economic Activities. [RI, 5th and 7th: doc.3, p. 6 and R-AT, 2nd: PA1, p. 43]
The Applicant's business purpose consists of the manufacture, import, export and commercialisation of chemical and pharmaceutical products, dermopharmaceutical, veterinary, cosmetic and perfume products, hygiene, disinfection and cleaning articles and products, dietary products, medicinal teas, and other food supplements, reagents and reactants, tests, vaccines, surgical material and related items. [RI, 7th: doc.3 pp.6 and R-AT, 2nd: PA1, p. 43 and PA4, p. 31]]
The Applicant's paid-up capital is wholly held by the company C... SGPS SA with tax number... with registered office at... [RI, 6th: doc.3, p.6 and R-AT, 3rd: PA1, p. 43]
The Applicant in the fiscal year 2014 was part of a group of companies and was covered by the special tax treatment regime for groups of companies (RETGS), having as parent company the company C... SGPS S A. [RI, 5th: doc.3 p.6 and R-AT, 4th: PA1, p. 43]
The group which has as parent company the company C... SGPS S A, in the year 2014, was, for purposes of RETGS, made up of the following companies: [RI, 6th: doc.3, p.7 and R-AT, 4th: PA1, pp. 43-44]
In the "Company Accounts" for 2014, the Applicant entered the following statement in the "Annex to the Balance Sheet and Statement of Results", in the section "12 – Financial Instruments", subsection "12.2 Categories of Financial Assets" under the heading "Financial Assets", that [RI, 9th: PA5, p. 74]:
In the "Company Accounts" for 2014, the Applicant entered the following statement in the "Annex to the Balance Sheet and Statement of Results", in the section "15 – Other Information", that [RI, 9th: PA5, p. 76]:
Under Service Order no. OI2017... of 2017-05-08, with dispatch of 10-05-2017, an internal inspection action was carried out on the fiscal year 2014 of the Applicant [RI, 18th: docs.2 and 3 pp.7 and R-AT, 4th, 6th and PA1, pp. 8-37]
As a result of the aforesaid inspection action, the Tax Inspection Services drew up a draft report proposing corrections to Stamp Tax in the amount of €91,963.13 on the grounds of failure to liquidate and pay over to the State Treasury this tax by the Applicant, resulting from the grant of credit to the parent company of the group to which the taxpayer belongs, pursuant to Articles 2, number 1 subparagraph b), 5 subparagraph g) and 23, number 1 of the IS Code (CIS) and Item 17.1.4 of the General Table of Stamp Tax (TGIS) [RI, 19th and 26th: docs.2 and 3 and R-AT, 5th, PA2, pp. 16-51, 133, PA3, pp1-26, PA4, pp.1-65, PA5, pp.1-148 and PA6, 1-49]
The Applicant was notified through official letter no.... of 22-11-2017 to exercise the right to be heard regarding the Inspection Report draft [RI, 26th: doc.2 and R-AT, 31st: PA2, p. 16]
By petition dated 02-01-2018, the Applicant exercised the prior right to be heard regarding the Inspection Report draft [RI, 27th: doc.4 and R-AT, 32nd: PA1, pp.134-140]
In its report, the Tax Inspection Services considered the following corrections to be necessary, for the reasons set out in the said report, which are reproduced below: [RI, 26th and R-AT, 26th and 29th: PA1, pp. 53-55]
In the report of the Tax Inspection Services, it was considered that Stamp Tax was outstanding in the amount of €91,963.13 in 2014, in the terms which it summarised in the following table: [RI, 30th and R-AT, 26th: PA1, pp. 18-19]
Following the corrections determined in the Tax Inspection Report, the Tax Authority proceeded to issue the corresponding Stamp Tax and compensatory interest assessment [R-AT, 33rd: doc.1 of RI]
The Applicant was notified of the IS Tax assessment statement no. 2018..., which comprises the Stamp Tax assessment no. 2018..., in the amount of €91,963.13, and the compensatory interest assessments in the total amount of €12,383.27, in the total amount to be paid by 05-03-2018 of €104,346.40 [RI, 30th: doc.1.]
The Applicant did not make payment of the amount of the aforementioned assessments in P). [RI, 31st: doc.5]
The Applicant was cited, through citation dated 11-03-2018, of the institution of the tax enforcement proceeding no. ...2018..., with the amount enforceable of €104,346.40, to which is added the cost amount of €412.93, totalling €104,759.33 to be paid [RI, 31st: doc.5]
On 18 April 2018, the Applicant provided a bank guarantee in the amount of €132,857.00 with a view to suspending the respective tax enforcement proceeding [RI, 32nd: doc.6]
In 2014, the Applicant participated in a centralised treasury management system, in the following terms [RI, 8th; R-AT, 7th]:
«0511 A – Costs of loans obtained
12.2. Categories of financial assets and liabilities
Financial Assets
The entity is integrated in a Group of Companies which adopts the zero balance cash pooling system as a treasury management instrument, with treasury surpluses being transferred to the parent company and deficits being covered by it.»
«0532-A Other Information
15 – Other Information
The B... group began, in 2011, the integration of current treasury management and all companies in the group in the parent company C... SGPS, SA, with the objective of optimising financial resources and simplifying treasury administrative tasks.
With this integration, the parent company ensures the management of current financial flows of all companies in the group, directly carrying out receipts and payments resulting from the operational activity of the participates.»
In the fiscal year 2014, C..., SGPS, S.A. had at its disposal a bank account to which the Applicant transferred daily the values corresponding to the balances of its respective individual bank accounts.
In the fiscal year 2014, account 2682090004 – Cons Treasury TSGPS in the Applicant's accounting presented an opening balance on 01-01-2014 of €17,898,739.39 and on 31-12-2014 a closing debit balance of €7,694,737.92, corresponding to a credit position [PA1, p 53]
Throughout the fiscal year 2014, account 2682090004 – Cons Treasury TSGPS constantly had a credit balance in favour of the Applicant, on which it charged interest to the centralising entity C... SGPS, at the rate of 7%, reflected in account 7918 - Other interest received, in the amount of €624,493.22. [PA1, p 54]
In the fiscal year 2014, the sum of the balances in debt apportioned daily in favour of the Applicant and the respective monthly average, are those contained in the table in section N) and it was on these values that the Stamp Tax assessment made by the AT was based [PA1, pp. 55-56]
The credits collected by the Applicant entered directly into its respective individual account whose positive balance was transferred daily to the centralising company;
The payments of the Applicant's debts were directly debited in its respective individual account.
A.2. Facts Considered Not Established
There are no facts relevant to the examination of the case that have not been proven.
A-3 Substantiation of Established and Unestablished Factual Matters
The tribunal does not have to pronounce on all details of the factual matters that were alleged by the parties, it being incumbent on it to select the facts of interest to the decision and to identify the facts that it considers proven and to declare which it considers unproven (cfr. Article 123, number 2, of the CPPT and Article 607, number 3 of the CPC, applicable by virtue of Article 29, number 1, subparagraphs a) and e), of the RJAT).
In this manner, the facts pertinent to the judgment of the case are selected and conformed according to their legal relevance, which is established in attention to the various solutions to the subject matter of the dispute under applicable law (Article 596, number 1 of the CPC, applicable by virtue of Article 29, number 1, subparagraph e), of the RJAT).
Thus, having regard to the positions taken by the parties, in light of Article 110, number 7 of the CPPT, and the documentary evidence which is moreover contained in the administrative file itself, the facts listed above were considered proven, with relevance to the decision. Account is also taken of the fact that, as was written in the Decision of the Central Administrative Court South of 26-06-2014, issued in proceeding 07148/13[1], "the evidential value of the tax inspection report (...) may have probative force if the assertions contained therein are not contested".
No submissions made by the parties were considered proven or unproven of a merely conclusory nature, even though they were presented as facts, as being incapable of proof, it being the case that their accuracy can only be assessed in comparison with the substantiation of the decision on the legal matters, contained in the following chapter.
III.2. Legal Matters
III.2.1. Essential Questions to be Decided
A) On the unlawfulness of the Stamp Tax assessments challenged
The Applicant raises the unlawfulness of the assessments on the following grounds:
-
Error in the factual and legal presuppositions regarding the characterisation of the agreement entered into between the Applicant and the treasury centralisation entity (C..., SGPS, SA.,) as a "cash pooling" contract, in the terms and for the purposes of items 17.1 and 17.4 of the TGIS, because there are no financing operations in the case;
-
Error in the distribution of the burden of proof of the exemption provided for in subparagraph g) of number 1 of Article 7 of the IS Code, given that, in light of the catalogue of established and unestablished facts, the Respondent should have been deemed to have met its requirements in the case at hand.
-
Unconstitutionality of the interpretation of item 17.4 of the TGIS, by violation of the principle of contributory capacity arising from Articles 13 and 104 of the CRP, inasmuch as in the treasury centralisation contract in question the transfers of funds do not reveal any manifestation of contributory capacity;
-
Error in the factual and legal presuppositions of item 17.1.4 of the TGIS, to the extent that the grant of any credit in the form of a current account is not evidenced;
-
Error of interpretation of items 17.1 and 17.4 of the TGIS inasmuch as they imply that the use of credit occurs, which is not the case in the matter at hand.
B) On the unlawfulness of the compensatory interest assessment statement
C) On compensation for provision of unwarranted guarantee
Consideration is given one by one to the questions raised.
A) On the unlawfulness of the Stamp Tax assessments challenged
1. Error in the factual and legal presuppositions regarding the characterisation of the agreement entered into between the Applicant and the treasury centralisation entity (C..., SGPS, SA.,) as a "cash pooling" contract, in the terms and for the purposes of items 17.1 and 17.4 of the TGIS, because there are no financing operations in the case
As is known, the object of so-called "cash pooling" is the consolidated management of the treasury of groups of companies, ensured by one of its members or by a third company designated for the purpose.
Such member or company is, for that purpose, holder of a centralised bank account, aggregating the individual accounts of each of the members of the Group.
To do so, the consolidation, real or virtual, of the bank balances of each member of the Group is effected daily with the consequent determination of a single balance in the aggregated bank account managed by the centralising entity.
In this way, "cash pooling" allows for the offsetting, also real or virtual, in the latter case only for purposes of determining interest, of the creditor and debtor balances of the companies in the Group and equally the financing of these through funds deposited in the centralised account.
It is, thus, essentially a direct or indirect means of financing the companies in the Group which may require it.
It is, of course, not the sole advantage of "cash pooling". Other advantages are the gains in value, economy and efficiency of centralised management, with the consequent freeing up of resources for other activities of the Group and the strengthening of the negotiating capacity of members of the Group before other economic agents and, in particular, before the Banking sector.
"Cash pooling" also allows for the maximisation of returns on the placing of surpluses and the minimisation of financial costs and exchange rate and interest rate risks associated. Treasury management also constitutes an appropriate means of assessing the activity carried out by each structure, company or group of companies.
All these advantages are, however, accessory in relation to the objective of direct or indirect financing of the companies in the group.
"Cash pooling" can take on various forms (on these, in detail, José Fernando Abreu Rebouta, "Fiscal Contextualisation of Centralised Treasury Management - Cash Pooling – in an International Environment", Faculty of Law of the University of Porto, 2005", pages 3 to 7). The "cash pooling" model is contained in the treasury convention entered into between the members of the Group.
In the "notional cash pooling" modality, the participating companies enter into a contract with a Bank, so that it will proceed to merge the balances, positive (creditor) and negative (debtor) of the individual accounts of the members of the Group, for purposes of calculating interest.
With "notional cash pooling", the funds are not, therefore, removed from the individual accounts of the members of the Group where they remain deposited, it being incumbent on the financial intermediary which ensures the operation, generally a Bank, to relate the balances of the different bank accounts and to charge or pay interest on the aggregate sum of the balances.
The calculation of interest on the different bank accounts with the Bank is carried out daily on the basis of the aggregate or overall total, which corresponds to the algebraic sum of the balances of the different bank accounts.
Thus, interest is debited or credited to the centralising entity (unless the participating companies do not authorise this) which then proceeds to distribution among the various participating companies in proportion to the opening balances. In this case, the centralising entity acts in the name and on behalf of the intervening companies, there being no place for any grant of credit and, therefore, for the application of item 17.1 of the TGIS.
In the "cash pooling concentration" or "zero balancing" modality, the centralisation of treasury is also operated on the account of the centralising entity constituted with the Bank, with title held by one of the companies in the group (the centralising entity).
However, in this type of "cash pooling", the consolidation of accounts is real and not virtual.
Thus, the daily consolidation of the bank balances of each company in the group continues to be made so as to constitute a single, global balance, in a bank account managed by the treasury management centre, to which the Bank, in accordance with the mechanisms previously described, debits or credits interest. Subsequently, it is incumbent on the treasury management centre to allocate interest (creditor or debtor) to the bank accounts of each company in the group (adhering or participating companies) on the basis of the balances transferred.
However, by virtue of the real consolidation, all bank accounts are brought to zero in the movement of transfer to the aggregated bank account.
Thus, daily the creditor balances of the individual accounts of the members of the Group are transferred to the aggregated bank account and the debtor balances of those individual accounts are covered by the transfer of treasury surpluses from the aggregated bank account.
In this manner, as indeed José Fernando Abreu Rebouta, op. cit., p. 21, the operations of transfer of balances between the account of the participant or adherent and the account of the centralising entity, as well as the reverse transfer movement of the aggregated account in favour of the debtor bank account constitute financings obtained/granted through the performance of treasury operations, subject to the stamp tax of item 17.1.4 of the TGIS, which applies to the debtor balance of the account determined at the end of each month.
Such operations may also be carried out directly between the members of the Group, without, contrary to the cases previously set out, financial intermediation, although the funds are deposited in a Credit Institution.
In this case, the latter carries out transfers by general order of the various entities involved in the agreement, the centralising entity and the members of the Group. Intragroup interest is calculated on the basis of rates and other conditions defined in the centralised treasury management convention. This possibility results from subparagraph d) of number 2 of Article 9 of the General Regime of Credit Institutions and Financial Companies (RGICSF), which excludes from the application of that regime treasury operations between companies in a relationship of dominance or group. Treasury operations are generally understood to be advances, loans and overdrafts, as well as intragroup offsetting operations.
Thus, it would be necessary subject to this tax not only the surpluses of funds made available by the centralising entity to the adherents, when drawn by them, but, in the opposite direction, the surpluses placed by them at the disposal of the treasury centralising entity, without prejudice, where applicable, to the exemption of subparagraph g) of number 1 of Article 7 of the CIS.
It was proven that, throughout the year 2014, the creditor balances of the Applicant's individual accounts were transferred to the account of C... SGPS, SA.
The Applicant contends that the transfers in question do not constitute financings but are the necessary consequence of an allegedly prior assignment of credits and debts of the participated company to the group's treasury centralising company, integrating itself in its execution.
However, it was also proven that:
a) The credits collected by the Applicant entered directly into its respective individual account and it was only the positive balance, which was transferred at the end of the day to the centralising company;
b) The debts satisfied by the Applicant were directly debited in its respective individual account.
Such facts exclude outright that those rights and obligations of the Applicant with respect to customers, suppliers or other entities were transferred to the treasury centralising entity.
The transfer to C... SGPS SA does not encompass the rights and obligations of the Applicant, but more exactly the pecuniary amounts deposited in the individual accounts, for discharge of this entity's payment obligations.
Such discharge occurred prior, therefore, to the transfer to C... SGPS SA of the positive balances of the Applicant's individual bank accounts.
The question arises as to whether there was any credit assignment between the parties.
Assignment is the legal transaction in which one of the contracting parties transfers to a third party his rights in an obligatory legal relationship.
The fundamental features of the figure of credit assignment defined by Article 577 of the Civil Code are:
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The conclusion of an agreement between the creditor and a third party, included in a contract-type which serves as its source or cause (Article 578);
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The existence of a transmissive fact of the credit relationship, giving rise to the substitution of the original creditor by the person of the assignee, keeping the remaining elements of the obligatory relationship unchanged - which, in its objective elements, remains unaltered;
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The transferability of the credit to which the assignment transaction relates.
In accordance with the description given by the Applicant, it invoices customers directly for services rendered and the consideration for those services is deposited in one of its individual accounts, exclusively devoted to its business activity, pursuant to Article 63-C of the LGT, which institutes that obligation.
That consideration integrates the turnover of the Applicant, thus contributing to the formation of taxable profit of the latter.
On the other hand, services rendered to the Applicant by its suppliers are also debited in that individual account. They are a fiscal cost of this and not of C... SGPS SA.
The rights and duties arising from obligatory legal relationships continue, therefore, to be exercised by the Applicant, which collects and pays the credits and debits generated. Moreover, in accordance with that understanding, the assignment of credits, in the exercise of the taxpayer's economic activity, with the consequent transmission to the assignee of the rights of the assignor, is subject to VAT, pursuant to number 1 of Article 1 and subparagraph a) of number 1 of Article 4 of the VAT Code (in that sense the Decision of the Central Administrative Court of 24 February 2016, Proceeding 09096/15), thus requiring the issue of an invoice pursuant to subparagraph a) of number 1 of Article 29 of the VAT Code.
No invoice is contained in the file for any credit assignment.
If the Applicant had registered a negative balance in its respective individual accounts, there would also be no succession in a debtor position. The debts are paid by the centralising company to the creditors, becoming then extinguished, with the consequent possibility of the centralising company offsetting the amount paid in future deliveries to the Applicant. The invoice for that assignment of debts also was not demonstrated.
The transfer of balances in favour of the treasury centralisation entity in the "cash pooling – zero balance" scheme is, moreover, as results from the cited doctrine, grant of credit, taxed by item 17.1 of the TGIS, and not a deposit contract, excluded from subjection to stamp tax.
Article 1185 of the Civil Code provides that a deposit is the contract by which one person delivers to another a thing, movable or immovable, for the latter to guard and return when demanded.
It is, thus, an essential element of deposit the guarding of the thing, "custodia rei".
The "custodia rei" intervenes in the contract as the principal purpose and never in a subsidiary character as occurs, for example, in mandate, loan, lease and lending, etc.
In all these hypotheses, the guarding of the thing simply results from another perfect and complete contract, which is not that of deposit.
The principal purpose of "cash pooling" is not the guarding of money.
Cash pooling is not an alternative to bank deposit, a solution which would moreover be of doubtful legality.
It is, at least essentially, a means of financing, which is why the transfer of balances referred to cannot be considered a deposit not subject to stamp tax.
The stamp tax of item 17.1.4 of the General Table was, therefore, correctly determined on the basis of the balance-values daily determined of the "Account 2682090004 - Treasury Consolidation TSGPS", which reflected, in a debit-credit modality, the amounts transferred daily to the parent company, since the Applicant's individual account registered a constantly positive balance.
2. Error in the distribution of the burden of proof of the exemption provided for in subparagraph g) of number 1 of Article 7 of the IS Code, given that, in light of the catalogue of established and unestablished facts, the Respondent should have been deemed to have met its requirements in the case at hand
Subparagraph g) of number 1 of Article 7 of the CIS, which the Applicant invokes, exempts from stamp tax the financial operations, including the respective interest, for a period not exceeding one year, provided that exclusively intended to cover treasury shortages and carried out by venture capital companies (SCR) in favour of companies in which they hold participations, as well as those carried out by other companies in favour of companies they dominate or in companies in which they hold a participation of at least 10% of capital with voting rights or whose acquisition value is not less than €5,000,000, according to the last agreed balance sheet and, as well as carried out for the benefit of a company with which it is in a relationship of dominance or group.
Such article thus establishes, as presuppositions for the exemption from stamp tax, the financial operations:
a) Being exclusively intended to cover treasury shortages, which purpose must result from the treasury convention binding the members of the corporate group.
b) Not having a term exceeding one year;
c) Being carried out by the participating company for the benefit of the participated company or between companies in a relationship of dominance or group.
Thus, the said tax benefit depends on:
a) The purpose of the financing, that is, the financial operation being exclusively and demonstrably intended to cover treasury shortages;
b) The term of the financial operation, understood as the term of granting/use of transferred funds not exceeding one year;
c) The relationship between the intervening parties.
The object of treasury is the short-term financial management of companies, therefore treasury shortages occur, according to José Fernando Abreu Rebouta (op. cit., p. 21, note 18), in the absence of express legal definition, in the case of insufficiency of the company's available funds to meet its short-term commitments.
The exemption in question thus presupposes a short-term commitment of the company at the date of financing, which appears in its accounting records and that the financing is intended to extinguish that insufficiency.
Such presuppositions, for the AT (I.1. and pages 16 and onwards of the inspection report), were not demonstrated by the Applicant.
It remains to know the merits of that argument.
The general rule of tax procedure is the documentary proof of facts alleged by the party invoking them.
Thus, the rule of Article 23, number 3, of the CIRC imposes that the expenses deductible for purposes of IRC must be documented, regardless of the nature or support of the documents used for that purpose.
The provision of Article 54, number 3 of the LGT imposes, in coherence that the tax procedure follows written form.
It does not seem to remain in doubt that, intending to produce effects of a given fact, with accounting or tax impact, that fact must be reduced to writing, be through the document itself or its copy or through rigorous transcription, even if not signed, of the conventional declarations which set out the applicable discipline, at least of the aspects which have accounting-tax relevance. Irrespective of what civil law regulates on this matter – and in it the principle of freedom of form contained in Article 219 of the Civil Code prevails – in order to produce effects of a given fact, it must be given written form by some means.
What is obviously not at issue is the validity of the act, which it is incumbent on civil law to assess, but rather the extraction of effects of a tax nature, beneficial to the taxpayer, namely with regard, as is the case, to the presuppositions of tax benefits.
This is, moreover, as we have already referred, the understanding that results from the decision[2] of the Supreme Administrative Court of 09-09-2015, in proceeding 028/15, where it was stated in the respective headnote that "With respect to undocumented costs, that is, without external documentary support, it is incumbent on the taxpayer, by any means at its disposal, to allege and prove that the expense occurred, notwithstanding that omission or formal insufficiency.".
The lack of an external document, citing such Decision, intended to corroborate an operation for which it should exist, necessarily affects, and in principle, the evidential value of the accounting and that lack cannot be made up by the presentation of an internal document. For the evidential value of accounting rests essentially on the respective supporting documents and, as for those which must be, it is the external origin which gives them a character that can be designated as a presumption of authenticity.
An internal origin document can only substitute an external origin document when additional proofs are gathered which confirm the authenticity of the movements reflected therein.
Thus, the lack of external documentation can be made up by other means of proof that unequivocally demonstrate the correctness of the accounting entry carried out which is an internal accounting document, cfr. M. FREITAS PEREIRA, in Opinion of the Centre for Fiscal Studies of the Ministry of Finance with the number 3/92, of 6 January 1992, published in Ciência e Técnica Fiscal no. 365, pages 346 and 347.
It is, thus, a necessary condition of the exemption the existence of a legal obligation of the parties of the contract to exclusively affect treasury shortages the amounts transferred, which should have been proven documentally by the exhibition of a treasury convention binding all members of the B... group.
Now, the obligation to affect treasury shortages the surpluses obtained by C... SGPS SA through the "zero balance cash pooling" modality, in accordance with a treasury convention binding the members of the B... group, was not proven documentally.
Even if this were not the case, that is, if that obligation resulted from a written document or the latter could be replaced by other means of proof, which the Applicant also did not present, it would not be sufficient the mere invocation that the loans between the intervening companies were intended to make up treasury shortages of the beneficiary.
Such invocation does not constitute sufficient proof that the same occurred, given that the contract is a mere legal form which, obviously, may or may not adhere to reality.
In truth, the Applicant did not prove the short-term commitments of the centralising company which would have justified the financing and should have been recorded in the accounts of the latter.
On the other hand, the second requirement - term of financing - was also not met by the Applicant.
By term of the operation should be understood the period between the beginning of use and the repayment of the credit, determined in accordance with bank statements and accounting records, which must contain in detail the movements of the accounts of the companies involved in the operation.
For that purpose, for each inflow of funds there must be the corresponding outflow, which should be effected within the maximum period of one year so that this presupposition of the exemption appears verified.
It is important, therefore, to adequately distinguish insufficiencies of treasury in light of commitments or obligations to be satisfied over a short-term time horizon, the shortage must refer to the beginning of use of the credit and appear disclosed in the accounting records of the company benefiting from the loan.
As is emphasised in the Decision of the CAAD of 22 June 2018, Proc. no. 462/2017- T, the exemption depends, case by case, financial operation to financial operation, on the identification of this, and of the date of beginning of use of the credit and of its repayment.
Between the outflow and corresponding inflow of funds, not more than one year can intervene.
It is not sufficient for the conclusion that the term of use of the credit is not superior to one year, that the total amortised in a given fiscal year be greater than the balance accumulated in the prior year.
Thus, any doubts about the presuppositions of the exemption would have to be, as they were, reversed against the Applicant.
Pursuant to number 1 of Article 74 of the LGT, the burden of proof of facts constitutive of the rights of the tax authority or of taxpayers falls on whomever invokes them.
It is, therefore, the AT that, under that rule, falls the duty to demonstrate the facts constitutive of the right to tax, which, in the present case, it did.
By contrast, it falls on the taxpayer to demonstrate the facts constitutive of the right to exemption and other tax benefits which it invokes.
That principle is settled, as results from the abundant jurisprudence invoked by the AT in Articles 53 and 54 of the Response, among which stand out the Decisions of 24-04-1991, issued in proceeding 013143, of 14-01-2004[3], issued in proceeding 01480/03, and of 29/04/2004, issued in proceeding 01680/03, all of the Supreme Administrative Court, to which is added, focusing on a question identical to that in dispute in the present proceedings, the Decision issued in Proceeding 76/2013-T, of the CAAD.
The distribution of the burden of proof which has been made is also in harmony with number 1 of Article 342 of the CC, which provides that it falls on he who invokes a right to make proof of the constitutive facts of the right alleged, as well as with number 2, in accordance with which the proof of facts which impede, including the right to exemption, which modify or extinguish the right invoked is incumbent on the person against whom it is invoked, in the case, the Applicant.
The inquisitorial principle invoked by the Applicant is, moreover, not a rule of distribution of the burden of proof.
Understood as the amplitude which the Applicant intends, the inquisitorial principle would dispense the taxpayer from the proof of any facts. Any doubt about the existence and quantification of such facts would result from the failure or deficient fulfilment of the inquisitorial principle.
The charge on the taxpayer to demonstrate the facts which, by constituting an exception to the norms of tax incidence, should be considered favourable would thus be emptied of content.
It has no relevance for knowledge of the request for arbitral pronouncement whether the exemption covers only the credit granted by the participated company to the participator or also, irrespective of knowing which company is the granting company, the credit granted between companies in a relationship of dominance or group, as the final part of subparagraph g) of number 1 of Article 7 of the CIS points out.
Irrespective of whether the exemption covers the financings by any companies in the Group to other companies in the Group and not only the financings to participated companies, such question does not affect the lawfulness of the assessments carried out.
3. Unconstitutionality of the interpretation of item 17.4 of the TGIS, by violation of the principle of contributory capacity arising from Articles 13 and 104 of the CRP, inasmuch as in the treasury centralisation contract in question the transfers of funds do not reveal any manifestation of contributory capacity
What is at issue is not, contrary to what the Applicant intends, the constitutionality of any interpretation of item 17.1 of the General Table.
What is at issue is only the question of the mere lawfulness, pursuant to number 1 of Article 11 of the LGT, of the interpretation made by the Applicant of that item 17.1, to the effect that the operations of transfer of balances between the Applicant's individual accounts and the centralising account of C... SGPS SA, which, in the view of the AT, constitute financings obtained/granted through the performance of treasury operations.
That is, there exists only a divergence about the legal-tax classification of the facts which substantiate the Applicant's claim, whose assessment does not depend on any judgment about the compatibility with the principle of contributory capacity, a corollary of the principle of equality, of item 17.1 of the TGIS.
In the grant of credit in "cash pooling", contributory capacity should, moreover, be assessed relative to the members of the group benefiting from the financings.
It is associated with the acquisition by the beneficiaries, in the same manner as in the loan, of the economic advantage resulting from the financing.
Once financing is proven, it could not, therefore, fail to apply item 17.1 of the TGIS.
4. Error in the factual and legal presuppositions of item 17.1.4 of the TGIS, to the extent that the grant of any credit in the form of a current account is not evidenced
The objection also does not hold that in the "zero balance cash pooling" system the exemption does not apply to item 17.1.4 of the General Table, on the ground of the non-existence of a commercial current account, which is supported by Articles 128 to 155 of the request for arbitral pronouncement.
On this subject, the already mentioned Decision of the Central Administrative Court South of 3 December 2015, proc. no. 06794/13, is elucidating, which clarifies that the commercial current account is a typical and named transaction (cfr. Article 344, of the C. Commercial), which implies, first and foremost, an obligation, assumed by the contracting parties to maintain a determined relationship of dealings under the accounting form of a current account, which has, inherent to it, a credit function: depending on the sense of the balance and until the closing of the account, the parties may become, reciprocally, in the situation of creditor and debtor.
Whereas the bank current account constitutes a species of commercial current account which is integrated, with other elements, in a broader contract of opening an account, normally concluded between the banker and his customer (cfr. António Menezes Cordeiro, Banking Law, 5th edition, 2014, Almedina, p.552 et seq.).
Item 17.1.4 of the TGIS, in taxing credit in the form of current account, bank overdraft or other, does not, according to that jurisprudence, erect the commercial current account contract as a presupposition of the incidence of the tax, the application of the contract form to be employed by the taxpayer depending on use of the credit. Moreover, it follows from item 17.1 that the taxation of credit follows the principle of the preponderance of substance over form.
This item thus covers all types of grant of credit and not necessarily only bank credit. The legality of this type of grant of credit, among companies in a relationship of dominance or group, results, moreover, from the aforementioned subparagraph d) of number 2 of Article 9 of the RGICSF.
In the present case, the existence of a current account was proven, on whose daily balance-value the stamp tax was determined.
The credit granted via that current account integrates the scope of item 17.1.4 of the TGIS, which does not make the incidence of stamp tax dependent on any specific form of the contract.
5. Error of interpretation of items 17.1 and 17.4 of the TGIS inasmuch as they imply that the use of credit occurs, which is not the case in the matter at hand
The Applicant's argument finally does not hold that the taxation did not fall on any use of credit.
As has been stated, the positive balances transferred daily to the account of C... SGPS SA correspond to credit used.
The tax fell on those transfers and not on an alleged contract within the B... Group, aiming at the unitary management of its treasury.
Through the acquisition of those financial means, C... SGPS SA thus obtained, an economic benefit abstractly equivalent to what it would have obtained through resort to bank credit.
Concluding:
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The operations of transfer of balances between the account of the participant or adherent and the account of the centralising entity, as well as the reverse transfer movement of the aggregated account in favour of the debtor bank account, constitute financings obtained/granted through the performance of treasury operations, subject to the stamp tax of item 17.1.4 of the TGIS, which applies to the debtor balance of the account determined at the end of each month.
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Such subjection is ruled out, pursuant to subparagraph g) of number 1 of Article 7 of the CIS, when the credit granted is exclusively intended to cover treasury shortages and its duration does not exceed one year.
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In the situation to be resolved in the present proceedings, it was, however, incumbent on the Applicant to demonstrate, pursuant to number 1 of Article 74 of the CIS, the presuppositions of that exemption, which it did not do.
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The assessment of the Applicant's claim does not depend on any judgment of constitutionality of item 17.1 of the TGIS, but solely on observance of the criteria for application of tax law, defined in Article 11 of the LGT, it being that, in the use of credit, contributory capacity is evidenced with the acquisition, by the borrower, of the financial means corresponding to the financing obtained.
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Item 17.1.4 of the TGIS, in taxing credit in the form of current account, bank overdraft or other, does not, according to that jurisprudence, erect the current account contract as a presupposition of the incidence of the tax, nor does such incidence depend on the entity granting the credit being a credit institution.
B) On the unlawfulness of the compensatory interest assessment statement
The lawfulness of the compensatory interest assessments results from an error of law on the part of the Applicant in the interpretation of the applicable rules, which is why it is maintained.
C) On compensation for provision of unwarranted guarantee
There is no place, given the lack of merit of the impugnation, for compensation for provision of unwarranted guarantee.
DECISION
In these terms, this Tribunal hereby decides to:
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Find the request for arbitral pronouncement unfounded as to the unlawfulness of the Stamp Tax assessment and maintain such assessment, amount €91,963.13 (ninety-one thousand nine hundred and sixty-three euros and thirteen cents);
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Find the request for arbitral pronouncement unfounded as to the unlawfulness of the compensatory interest assessment in the amount of €12,383.27 and consequently maintain such assessment;
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Find the request for compensation for provision of unwarranted guarantee unfounded, in light of the decision in the foregoing points.
VALUE OF THE PROCEEDINGS
In accordance with the provisions of Articles 306, number 2, and 297, number 2 of the C.P.C., Article 97-A, number 1, subparagraph a) of the C.P.P.T. and Article 3, number 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of €104,346.40.
COSTS
In accordance with the provisions of Articles 22, number 4, and 12, number 2, of the Legal Framework for Arbitration, Article 2, number 1 of Article 3 and numbers 1 to 4 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, as well as Table I attached hereto, the total amount of costs is fixed at €3,060.00, to be borne by the Applicant.
Let notification be made.
Lisbon, 11 February 2019
The arbitrators,
Fernanda Maçãs (presiding arbitrator)
Jorge Carita (member arbitrator)
Nuno Maldonado Sousa (member arbitrator)
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