CAAD Case 30/2018-T: IRC Deductibility of Financial Charges for Group Loans and Accessory Services Under Article 23 CIRC

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Counselor Maria Fernanda Maçãs (arbitrator president), Prof. Doctor Tomás Castro Tavares and Prof. Doctor Américo Brás Carlos, arbitrator members, decide as follows:

REPORT

1. A..., SGPS, S.A., with the collective person number ..., with registered office at Street ..., ..., ... and ... floors, ...-... Lisbon, came, under the provisions of paragraph a) of no. 1 of article 2 and paragraph a) of no. 1 of article 10 of Decree-Law no. 10/2011, of January 20 (Legal Regime of Arbitration in Tax Matters - RJAMT), and paragraph e) of no. 1 of article 102 of the Code of Tax Procedure and Process (CPPT), to present, following the express dismissal decision that fell upon the Gracious Appeal filed with number ...2017..., a request for arbitral ruling on the legality of:

a) the Corporate Income Tax Liquidation Statement with number 2016..., dated December 23, 2016, for the fiscal year 2013, in the amount payable of € 110,834.74;

b) the Compensatory Interest Liquidation Statement with number 2016..., dated December 28, 2016, in the amount of € 10,010.59;

c) the Settlement Adjustment Statement with number 2016..., dated December 28, 2016, in the amount payable of € 110,834.74;

Petitioning, further

• the consequent revocation of the referred dismissal decision of the Gracious Appeal no. ...2017..., notified on October 27, 2017, as well as the annulment of the correction made by the Tax Authority (AT) to B..., SA, in the amount of € 4,760,289.54, referring to the Corporate Income Tax of fiscal year 2013, and, consequently, that such amount be added to the tax losses accumulated by the group of companies headed by the claimant, which should increase from € 9,897,251.85 to € 14,657,541.39;

• and, further, that the AT be condemned to pay compensation for undue guarantee provision, in the part and amounts in which the tax acts are annulled, pursuant to article 53 of the General Tax Law (LGT) and article 171 of the CPPT.

1. The request for constitution of the arbitral tribunal, in which the arbitrator to be appointed by the Claimant was identified (Prof. Doctor Tomás Cantista Tavares), was accepted by the President of the CAAD and notified to the Tax and Customs Authority (AT) which appointed as arbitrator Prof. Doctor Américo Brás Carlos.

2. The arbitrators appointed by the parties appointed by agreement Counselor Maria Fernanda Maçãs as arbitrator president, having communicated acceptance of the role within the deadline.

3. Notified the parties of such appointment, no reservation was presented, therefore, in accordance with the provisions of no. 1 of article 13 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of December 31, the Collective Arbitral Tribunal was declared constituted on April 16, 2018.

4. To support the request for arbitral ruling, the Claimant presented arguments set forth in 186 paragraphs, in VI Sections, in which it alleged, in summary and namely, the following:

5.1. That "B..., S.A. was subject to an external inspection, of partial scope, in the seat of Corporate Income Tax, for the fiscal year 2013, covered by Service Order no. OI2015..., conducted by DIEFI, for an external examination of accounting-tax elements";

5.2. That "Following the conclusion of the Inspection, B..., S.A. was notified on September 19, 2016 of the Draft Report, with DIEFI planning to make, in summary, the following corrections:

Financial Charges Incurred with the Financing of Loans Granted and Ancillary Contributions – EUR. 4,760,289.54: "(…). B..., S.A. bore, during fiscal year 2013, charges with interest to finance ancillary contributions and loans granted to its investee companies, charges that cannot be considered as respecting borrowed capital applied in the exploitation of this company, nor are they related to the realization of income or gains subject to tax, not meeting the requirements and conditions established in article 23 of the Corporate Income Tax Code to be considered as an expense for purposes of determining taxable profit, resulting in a correction to taxable profit amounting to EUR. 4,760,289.54, as set out in section III.1 of this report. (…)."

Reversal of Taxed Provisions – EUR. 15,234.21: "(…). The taxpayer unduly deducted in field 764 of table 07 of Form 22 Corporate Income Tax the sum of EUR. 15,234.21, relating to the reduction of taxed provisions, pursuant to no. 4 of article 39 of the Corporate Income Tax Code, as set out in Section III.2 of this Report. (…)."."

5.3. That "Since it did not exercise the Right to Be Heard, B..., S.A. was notified, on October 26, 2016, of the Final Inspection Report, which makes definitive the corrections made by DIEFI to its taxable matter relating to (i) financial charges incurred with the financing of supplements and ancillary contributions, in the amount of EUR. 4,760,289.54, and (ii) the reversal of taxed provisions, in the amount of EUR. 15,234.21, in a total of EUR. 4,775,523.75."

5.4. That "given the need to incorporate in Form 22 Corporate Income Tax of the Group the corrections made to B..., S.A., the Claimant, as Parent Company/Participant, was notified on November 7, 2016 of the Draft Inspection Report"

5.5. That "Following the referred inspection action, a correction was made to the taxable result (...) in the amount of EUR. 4,775,523.75. (...)."

5.6. That "the Claimant was, finally, notified on January 3, 2017 of the Tax Acts of Additional Corporate Income Tax Liquidation and Compensatory Interest, as well as the Settlement Adjustment Statement, in the amount of EUR. 110,834.74, having presented a Gracious Appeal of these acts on June 16, 2017."

5.7. That "As it did not exercise the Right to Be Heard, the Claimant was notified on October 27, 2017 of the Express Dismissal of the Gracious Appeal, which thus constitutes the mediate object of this Request for Arbitral Ruling."

5.8. Under the heading "III.A – Regarding the Correction by the AT relating to the Non-Deductibility by B..., S.A., of Financial Charges incurred with the financing of Ancillary Contributions and Supplements to Investee Companies", the Claimant presents arguments that it previously summarized as follows:

"The AT bases its position for not accepting as a fiscal expense in B..., S.A. the financial charges it incurred with the financing of ancillary contributions and supplements to its Investee Companies with the following arguments:

• Part of the financial charges incurred by B..., S.A. in its Investee Companies relate to funds invested not in its own activity, but in that of its investees;

• The financial charges are essential only for the maintenance of the productive source of the Investee Companies and, therefore, could only be considered a fiscal expense in them;

• Such capital participations in the Investee Companies may fail to generate dividends or other income for B..., S.A.;"

5.9. Under the heading "IV.A. – Of the Financial Charges relating to the Financing of Ancillary Contributions and Supplements granted to Investee Companies by B..., S.A.", the Claimant presents arguments that it previously summarized as follows:

• B..., S.A. is exercising its activity and exercising it in its own interest and in complete conformity with its corporate purpose: (i) not only when it acquires other commercial companies with the same or different corporate purpose, but also (ii) when it manages such participations in other companies, providing them financial support – through ancillary contributions or supplements;

• The equity interests held by B..., S.A. are financial investments that qualify, both under the former accounting plan and the current accounting standards, as assets, precisely because of their characteristic of generating (expected) future economic benefits, in the form of profits, capital gains or other benefits that will be subject to taxation under Corporate Income Tax;

• B..., SA's decision to strengthen the equity capital of its investees – by increasing the initial investment through ancillary contributions – as well as its form of financing through supplements constitute legitimate management acts provided for and permitted by commercial law that aim at maintaining a productive source of potential financial income (profits or capital gains), therefore the costs inherent and resulting therefrom should be considered fiscal costs.

• B..., S.A.'s activity is not only its operational activity – normal and current – of public works and construction. Its bylaws also allow it to develop its activity through the taking and strengthening of financial participations in other companies (investees) as a growth strategy. The costs corresponding to the form of financing of such investee companies chosen by the administration of the participating company thus meet conditions of fiscal deductibility.

5.10. Under the heading "IV.A.1 – On the Jurisprudential Position of the Supreme Administrative Court", the Claimant presents arguments that it previously summarized as follows:

• The STA admits the fiscal deductibility of all effectively incurred costs that are potentially adequate to provide profits or gains, regardless of the result (success or failure) that they concretely provided.

• For the STA, the AT cannot examine the soundness and opportunity of the company's management decisions, under penalty of interfering with the freedom and autonomy of the company's management, and therefore a cost will be accepted fiscally if, in a judgment referred to the moment it was incurred, it is adequate to the company's productive structure and the obtaining of profits.

• For the STA, the fiscal 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 profits.

5.11. Under the heading "IV.A.2 – On the Jurisprudential Position of CAAD – Administrative Arbitration Center", the Claimant presents arguments that it previously summarized as follows:

• For the CAAD, tax law contains no concrete rule or specific principle of fiscal disregard of costs if the funds obtained from them do not generate any taxed profits.

• For commercial (and tax) law, the lending company, with the interest-free contribution, is enhancing its financial participation: (i) it provides the subsidiary with the necessary funds so it can better perform its activity, (ii) with its own and selfish advantages also of the lending company, via enhancement of the equity participation and assumption of a business risk that will allow it in the future, hopefully, (iii) to monetize that asset with enhanced return on investment (via capital gains or dividends)

• Article 23 of the Corporate Income Tax Code merely wants to refuse the fiscal acceptance of costs, which although thus accounted for by the company, are not in reality business costs, as they correspond to clearly abusive situations: expenses that do not fall within the scope of its activity – were incurred not in the interest of the company, but for the pursuit of extraneous objectives (for example, concealing personal expenses of administrators).

• In the CAAD's understanding, the fact that the cost is incurred in one legal sphere (that of the Participant) for the borrowed capital to be used in another legal sphere (that of each of the investees that received the financing) does not disqualify the cost as an expense deductible for fiscal purposes, because that financial investment does not cease to be an asset managed in the interest of the entity that acquired and holds it: simply, instead of using it at home, it channels it to its investees to develop an operation that, otherwise, they would not develop.

5.12. Admitting that the AT adopted a complementary reasoning for the disregard of the fiscal deductibility of the financial charges incurred by B..., S.A., because, at the date the charges were deducted (2013), the participations that this company held in the companies in which it made ancillary contributions and supplements had already passed to the sphere of A... – SGPS, S.A.[1], the Claimant develops the following argument:

5.13. Under the heading "IV.B – On the Fiscal Deductibility of Financial Charges incurred by B..., S.A. with the financing of Ancillary Contributions and Supplements to Investee Companies subsequently alienated and respective credits assigned to the Claimant", the Claimant presents arguments that it previously summarized as follows:

• It is not because the equity interests and the respective credits (ancillary contributions and supplements) were alienated and assigned by B..., S.A. to the Claimant that the respective financial charges cannot continue to be deducted by that company, since what is relevant for the subsequent deduction of such financial charges is the initial application of borrowed capital in the activity (of holding and managing equity interests) of this company.

• If the bank loans contracted by B..., S.A. were applied in its activity, in the aspect of managing equity interests, and the respective financial charges were, at the date of their application, essential to profits and to the maintenance of the productive source, and therefore deductible pursuant to article 23, no. 1, letter c) of the Corporate Income Tax Code, so they will have to continue (until the amortization of the loans), whatever the vicissitudes or subsequent modifications of such investments/assets, which may include, among others, the alienation of such equity interests and the assignment of such credits.

5.14. Under the heading "V – On the Violation of the Burden of Proof Rules in the Inspection Report conducted to B..., S.A. and its Lack of Reasoning", the Claimant presents the following arguments:

"The AT appears to justify the correction in question – non-deductibility of financial charges incurred with the financing of ancillary contributions and supplements to Investees (EUR. 4,760,289.54) –, alleging, in summary, that part of such financial charges incurred by B..., S.A. refers to financing to companies in which the Claimant A..., SGPS, S.A. holds participations (and not to companies held by B..., S.A.)."

The Inspection Report, however, does not support such understanding, as it alleges next:

5.15. Under the heading "V.A – On the Violation of the Burden of Proof Rules in the Inspection Report conducted to B..., S.A.", the Claimant presents arguments that it previously summarized as follows:

• Since the burden of proving the facts constitutive of the right to make corrections to the taxable matter of B..., S.A. falls on the AT, it was incumbent on it to ascertain and specify in the Inspection Report which were, with reference to fiscal year 2013, the participations sold and the credits assigned by B..., S.A. to the Claimant, and their respective impact on the calculation of financial charges not accepted as a fiscal expense. And this ascertainment was not conducted at all by the AT.

• Because the AT did not fulfill the burden of proof incumbent upon it, a founded doubt results as to the quantification of the tax fact, thus determining the annulment of the Tax Acts challenged.

5.16. Under the heading "V.A – On the Lack of Reasoning of the Inspection Report conducted to B..., S.A.", the Claimant presents arguments that it previously summarized as follows:

• The Report contains no factually significant fact that can support what was subsequently stated by the AT in the challenged Decision: from reading the Report it is completely unknown which equity interests were assigned and what credits (between supplements and ancillary contributions!) were assigned, their value and, especially, the amount of the corresponding financial charges.

• In fact, the AT does not discriminate or distinguish the participations of the two companies, nor the amounts of the credits assigned and, consequently, does not calculate the financial charges attributable to each of these two companies, limiting itself, conveniently, to a global and generic analysis of these situations and a unitary treatment of distinct realities, giving 1 (one) example (C..., S.A), thus making it impossible for the Claimant to contest the corrections made by the AT specifically.

5.17. Under the heading "VI – On Compensation for Undue Guarantee Provision", the Claimant presents the following arguments:

Having abandoned the request for exemption from guarantee provision, the Claimant requested that this consist of a pledge on a movable property owned by D..., S.A., NIPC..., indirectly held by the Claimant, which was authorized;

b) This implied the liquidation and payment of the respective Stamp Tax, calculated pursuant to Item 10.3 of the General Stamp Tax Table. – cf. Document which protested to attach;

c) The merits of the request must, in the corresponding part, imply the conviction of the AT to pay compensation, with a view to reimbursing the costs incurred.

5.18. It terminates requesting the annulment of the Corporate Income Tax Liquidation Statement with number 2016..., dated December 23, 2016, for fiscal year 2013, in the amount payable of € 110,834.74; the Compensatory Interest Liquidation Statement with number 2016..., dated December 28, 2016, in the amount of € 10,010.59; and the Settlement Adjustment Statement with number 2016..., dated December 28, 2016, in the amount payable of € 110,834.74, for being affected by the defect of violation of law by error in the legal assumptions in view of the erroneous interpretation of article 23, no. 1, letter c), of the Corporate Income Tax Code, or, subsidiarily, because the AT did not fulfill the burden of proving the facts constitutive of the right, pursuant to articles 77, no. 1, of the LGT and 63 of the RCPIT – and, in any case and in consequence, the annulment of the correction made by the AT to B..., SA, in the amount of € 4,760,289.54 referring to fiscal year 2013, increasing that amount to the tax losses accumulated by the group of companies headed by the Claimant, going from € 9,897,251.85 to € 14,657,541.39, as well as the payment of compensation for undue guarantee payment.

1. The AT responded, defending essentially that "B..., S.A. in making loans, in the form of supplements and ancillary contributions to investees, without debiting any charges, incurred financial expenses that are not directly related to its activity but rather to the activity of the investee companies in question, therefore they are not expenses essential to the obtaining of its income or to the maintenance of its productive source pursuant to what is provided in art. 23 of the Corporate Income Tax Code." It added, in summary and namely, the following:

6.1. That "the Claimant does not contest the factual matter ascertained in the Final Report";

6.2. That, in obedience to the principle of taxation of the actual income of companies (article 104, no. 2 of the Constitution), "The Claimant, even in its capacity as the dominant company of the group, cannot ignore the regime imposed by the tax legislator, removing from the results of a participating company the charges which, once the respective conditions are met, would be deductible in the legal sphere of another participating company, even though, in the exercise of its free autonomy, B..., S.A. decided to support them."

6.3. That "even if the financings in question are, indirectly, in the interest of B..., S.A., it is indisputable that such charges are not directly related to its economic activity but rather to the economic activity of the investees."

6.4. That "the loans now in discussion, made in the form of supplements and ancillary contributions, are unremunerated loans, and the granting of financing does not constitute an operational activity of B..., S.A.";

6.5. That "Since financing is not an operational activity of B..., S.A., being outside its corporate purpose, they are not essential to the maintenance of its productive source, pursuant to arts. 23 of the Corporate Income Tax Code."

6.6. That "excluding that framework, the expenses incurred with such loans would only be deductible, pursuant to art. 23 of the Corporate Income Tax Code, if they were essential to the realization of income subject to tax, that is, if they were remunerated loans, which is not the case in the present case."

6.7. That article 32, no. 2, of the Equity Financing Law that was in force at the date of the facts imposed "a restriction on the deductibility of charges incurred by investment holding companies when the income in connection with such charges is not taxed under Corporate Income Tax, implementing the constitutional principle of taxation of companies by their actual income."

6.8. That "The essentiality required by art. 23 of the Corporate Income Tax Code can only occur in the sphere of the investee companies that benefited from such financings, if such were allocated to their economic activity and were concretely eligible for purposes of their fiscal deductibility." – which would not be possible to ascertain with respect to the investees because "they were not debited to the investees that benefited from them, thus not constituting a charge demonstrably assumed" by them and because "only through analysis of the accounting of the investees would it be possible to assess whether the capital obtained, through such unremunerated financings, meet the other requirements of fiscal deductibility, that is, whether concretely they were applied in ways that allow concluding their essentiality for the realization of income subject to tax or for the maintenance of the productive source."

6.9. That "In summary, the concept of essentiality inherent in art. 23 of the Corporate Income Tax Code determines that an expense is deductible if it is incurred within the scope of the company's corporate purpose and corresponding operational activity or that the expense is at the origin of a result subject to tax even though outside its corporate purpose."

6.10. That, applying the Special Tax Regime for Groups (option of the Claimant's group), "the integrated taxation of the Group is based on the determination of the individual result of each company, in accordance with the general rules that apply to any company, to be declared in the respective individual Corporate Income Tax Form 22.", even to be able to tax the actual income of companies.

6.11. That the jurisprudence "has been unanimous in defending the direct imputation of expenses to the company generating the income, rejecting expenses incurred to enhance gains of third companies, even being a participating/dominated company.", citing the Supreme Administrative Court ruling of May 30, 2012, in case 0171/11, and the ruling of the Administrative Court of the South, of April 24, 2012, in case 05251/11.

6.12. That irrelevant are the circumstances and reasons invoked by the Claimant for B..., SA to have contracted the loans of which its investees benefited.

6.13. That "The mere holding and management of equity interests, resulting from the fact that B..., S.A. is a holder of part of the capital of the companies that make up the Group, does not support the argument defended by the Claimant that the disputed charges would be essential to the maintenance of the productive source of B..., S.A. for purposes of art. 23 of the Corporate Income Tax Code."

6.14. Reiterates that "the mere holding and management of equity interests is not an operational activity of B..., S.A.";

6.15. That "there is no omission or breach of the duty of reasoning, with the Final Report and the Annexes that complement it evidencing the factual and legal reasons that justify the legal-tax framework of the analyzed operations, further evidencing the criteria and amounts that were at the basis of the calculation of the corrected and now disputed amount."

6.16. Finally, it invokes that, should the request for arbitral ruling proceed, "the compensation for undue guarantee should be processed within the scope of the execution of the arbitral judgment".

1. By order of June 12, the holding of the first meeting provided for in article 18 of the RJAT was dispensed with and the holding of the judgment hearing was set for July 9, 2018 at 14:00 hours.

2. Subsequently the required Authority came to waive one of the witnesses (E...) and requests the change of the date of the judgment hearing set for July 9 at 14:00 hours.

3. By order of June 24, the request to change the witness list was granted, and, as there was no opposition from the taxpayer, the order of June 12 was set aside, and the holding of the judgment hearing was fixed for September 7, 2018 at 14:00 hours.

4. The judgment hearing took place on September 7 at 14:00 hours, with the questioning of the witnesses indicated by the Parties, as well as the testimony of part of F..., in his capacity as administrator.

The Tribunal notified both parties for written and successive arguments within 15 days and set December 14, 2018 for the pronouncement of the arbitral decision.

1. Following the evidentiary hearing, Claimant and Defendant presented arguments, reinforcing, in essence, the argument previously produced.

However, the Claimant additionally came, using the testimony of the Tax Inspector, to add that, in addition to the "lack of detailed ascertainment of the equity interests and credits assigned by B..., SA to G..., which taint the Inspection Report, and, consequently, the Tax Acts dependent on it, (…) cannot the Tax Inspector now claim that the operations of alienation of participations and assignment of credits by B..., SA to G... are now, UNREMUNERATED LOANS between that company and the latter, reconfiguring operations, (…) and claim, in this way, to make a correction to the taxable profit of B..., SA, under article 23 of the Corporate Income Tax Code, when that reconfiguration would require that other procedures be adopted, by resorting to the general anti-abuse clause or to the transfer pricing regime."

In relation to this aspect the Defendant came in the counter-arguments to invoke, among other things, that "This attempt at reframing lacks any legal support since the reasoning of the disputed correction, properly explained in the Final Report, does not raise either the issue of abuse of legal forms nor the issue of prices contracted between related companies but only and solely the essentiality of the charges incurred in the legal sphere of A... ."

II. CASE MANAGEMENT

• The arbitral tribunal was regularly constituted and the request for ruling is within the scope of its attributions (letter a) of no. 1 of articles 2 and 4 of the RJAMT and articles 1 and 2 of Order no. 112-A/2011, of March 22).

• No dilatory exceptions were invoked, nor do any exist, that may prevent knowledge of the merits of the case.

• The parties have legal personality and capacity, are legitimate, and are regularly represented.

• The process does not suffer from nullities.

• Thus, all seen, it behooves to decide.

III. FACTUAL MATTER

III.1. PROVEN FACTS

(i) The Claimant is a company managing equity interests (SGPS), being the parent company of a group of companies taxed under the Corporate Income Tax by the Special Tax Regime for Groups;

(ii) The correction in dispute in these proceedings, made under service order OI2015..., relates to the taxable matter of one of the Group's companies, B..., SA, held by the parent company in 97.82%;

(iii) In article 3 of the bylaws of B..., SA, (headed "Corporate purpose") it is provided that "The corporate purpose consists of the execution of public or private works and other related activities."

(iv) In article 4 of the same document (headed "Participation in the capital of other companies") it is provided that "The company may, by resolution of the board of directors, acquire participations in companies with corporate purpose different from its own corporate purpose, participate in complementary associations of companies, consortia, companies regulated by special laws and also associations, as well as freely alienate the equity interests of which it is the holder."

(v) The AT made a total correction of € 4,775,523.75 in the individual sphere of that participating company, with only the amount of € 4,760,289.54 now being discussed with financial charges incurred with the financing of loans granted and ancillary contributions to group companies;

(vi) In the year 2013, B..., SA, incurred charges with financings in the total amount of € 6,696,281.96, which it used for the exercise of its activity of civil construction and public works and also in unremunerated loans and ancillary contributions to group companies;

(vii) The ancillary contributions were granted free of charge with the purpose of covering losses resulting from the activity of its investees, contributions that were supported in part through resort to bank credit;

(viii) In determining the financial charges associated with loans obtained, in the total of € 6,696,281.96, the financial expenses evidenced in accounts 69 directly related to bank indebtedness were considered, as well as the charges incurred with stamp tax debited by banking institutions, as they were associated with interest and other charges with obtained financings;

(ix) The AT considered that, of the total amount of financial charges incurred, in the value of € 6,696,281.96, not eligible for fiscal purposes, as they relate to unremunerated loans, including ancillary contributions, the amount of € 4,260,289.54;

(x) The corrections made in the individual sphere of B..., S.A., were subsequently integrated, under service order OI2016..., in the calculation of Corporate Income Tax owed by the group in the name of the now Claimant, in its capacity as dominant company;

(xi) In gracious appeal proceedings, the Claimant requested the partial annulment of the additional liquidation resulting from such corrections, which would be dismissed;

(xii) The Claimant did not make the respective payment, having initially presented a request for exemption from guarantee provision, and then the request for the constitution of a pledge on a movable property of one of its participating companies – which was accepted and implied the payment of stamp tax.

III.2. UNPROVEN FACTS

There are no other facts with relevance for the appraisal of the merits of the case that were not proven.

The same applies to the testimony, insofar as it does not have relevance to the legal question placed before the Tribunal.

III.3. JUSTIFICATION OF FACTUAL MATTER

The tribunal does not have to pronounce on all the details of the factual matter alleged by the parties, being incumbent upon it the duty to select the facts that matter to the decision and discriminate the matter it considers proven and declare the one it considers not proven (cf. article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable ex vi article 29, no. 1, letters a) and e), of the RJAT).

Thus, the facts pertinent to the trial of the case are selected and delimited according to their legal relevance, which is established in view of the various solutions for the object of the dispute under applicable law (article 596, no. 1 of the CPC, applicable ex vi article 29, no. 1, letter e), of the RJAT).

Thus, taking into account the positions taken by the parties, in light of article 110, no. 7 of the CPPT, the documentary evidence and what appears in the administrative process itself, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties, of a merely conclusive nature, were not given as proven or not proven, even if they were presented as facts, as they are not susceptible to proof, and their accuracy can only be assessed in confrontation with the reasoning of the decision on the legal matter, contained in the following chapter.

The testimony produced was not considered relevant in this way, beyond the lack of adherence to the factual statement that should have been invoked in the petition.

IV. LEGAL MATTER

IV.1. QUESTIONS TO BE DECIDED

The central question to be decided is whether the requirements for the application of article 23, no. 1, letter c), of the Corporate Income Tax Code are met for the amounts applied by B... SA, in the form of loans and ancillary contributions, in companies in which it holds participations and which are related.

However, the Claimant formulates a subsidiary request saying that in case it is concluded that the requirements for the application of article 23, no. 1, letter c), of the Corporate Income Tax Code to the amounts applied by B... SA, in the form of loans and ancillary contributions, are not met, there is still the need to verify whether the inspection report violated the rules of the burden of proof or suffers from lack of reasoning, insofar as it admitted the transfer of the participations in such companies to the Claimant.

The Tribunal should also decide on the relevance of the imputation of the defect of form by lack of reasoning due to the non-application of the general anti-abuse clause regime or transfer pricing, instead of article 23, no. 1, letter c) of the Corporate Income Tax Code, raised only in arguments.

IV.2. – ON THE "PROVEN ESSENTIALITY" OF EXPENSES INCURRED BY B..., SA.

At the date of the facts, the relevant part of article 23 of the Corporate Income Tax Code provided:

"1. Expenses are considered those that are provably essential for the realization of income subject to tax or for the maintenance of the productive source, namely:

a) ---------------

b) ---------------

c) Of a financial nature, such as interest on borrowed capital applied in exploitation, 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;"

What is at stake is the fiscal correction of € 4,760,289.54 made in the individual sphere of company B..., S.A. and notified to the dominant company of the group – A... – SGPS, S.A. - taxed under the Special Tax Regime for Groups of Companies.

As regards the reasoning for such correction, reference is made to p. 18/21 of the Tax Inspection Report (RIT):

"Thus, for the reasons above set out and in accordance with no. 1 of article 23 of the Corporate Income Tax Code, the amount corresponding to the proportion of financial charges incurred by the taxpayer to finance the loans granted and ancillary contributions made to its investee and related companies is to be corrected to the tax result, amounting to € 4,760,289.54.". Being that the fiscal correction made by the AT fell only on charges corresponding to free loans (p. 8/21 of RIT) and free ancillary contributions (p. 10/21 of RIT), granted by B... SA.

The tax act sub judice is based on the fiscal non-deductibility of these charges, resulting from the obtaining of financing from a banking institution.

On this subject, the jurisprudence of superior courts in tax matters is clear, and if disrespected, determines the possibility of appeal under no. 2 of article 25 of the Tax Inspection Regime.

The use of the "object or scope of the entity's activity", as a decision parameter to assess the essentiality of expenses for purposes of article 23, no. 1 of the Corporate Income Tax Code, remains very current in the jurisprudence of those courts. And, in the case under analysis, it is important to note the circumstance of whether the providing entity is or is not an equity interest management company.

In line with the Supreme Administrative Court Ruling no. 01046/05, of February 7, 2007, which considered non-deductible the charges incurred by a company to make ancillary contributions, because "they were not related to the corporate purpose and activity pursued by the company", which was engaged in "the manufacture of tiles and not the management of equity interests or financing of risk companies", see also in the same sense the conclusions of the recent Supreme Administrative Court Ruling no. 01206/2017, of February 28, 2018, which are replicable in the case sub judice. This was a question of whether the financial charges incurred by a company pursuing real estate activity with loans subsequently used to make contributions to investee companies were deductible under article 23, no. 1 of the Corporate Income Tax Code. It was then decided:

"I - Being certain that the challenging party is a shareholder of the investee company and may make supplementary contributions to it, if it meets the legal requirements, which is not at issue here, in its legal sphere the decision to make the supplementary contribution is not the exercise of its business activity because it does not have as its object, also, the management of equity interests.

II - The parassocial agreement it celebrated and in compliance with which it came to make the supplementary contributions does not alter/expand the challenging party's corporate purpose, and, as it does not obtain legal framework therein, it is not development of the challenging party's social activity.

III - It is not a question of assessing the soundness of the management acts conducted by the challenging party, but of verifying that, whatever financial operations it may conduct, outside its corporate purpose, they are not an act of management of its business activity, therefore cannot contribute to this the costs that such financial operation produces.

IV - The strengthening of the investee company's capital through supplementary contributions made by the challenging party is not the exercise of the challenging party's business activity, therefore the costs incurred with or because of the realization of such contributions are not costs deductible for Corporate Income Tax purposes under article 23 of the Corporate Income Tax Code."

It is thus important to decide whether B..., SA has as its corporate purpose the management of equity interests.

Articles 3 and 4 of the bylaws of this company read as follows:

"Article 3

Corporate purpose

The corporate purpose consists of the execution of public or private works and other related activities

Article 4

Participation in the capital of other companies

The company may, by resolution of the board of directors, acquire participations in companies with corporate purpose different from its own corporate purpose, participate in complementary associations of companies, consortia, companies regulated by special laws and also associations, as well as freely alienate the equity interests of which it is the holder."

Commercial companies are legal entities bounded in their activity by the corporate purpose. On corporate purpose, see article 11, no. 2 of the Commercial Companies Code (CSC): "As the object of the company should be indicated in the contract the activities that the partners propose that the company come to exercise".

Commercial companies have as their object the practice of acts of commerce (article 1, no. 2 of the CSC) and their corporate purpose is a "certain economic activity" that the company will come to exercise (article 980 of the Civil Code). Activity that, previously determined and specified in sufficiently precise terms, under penalty of nullity of the partnership contract under article 42, no. 1, letter b) of the CSC[2]. And, by economic activity, should be understood a series or succession of habitual acts of that nature and not the isolated practice of an act, such as the acquisition of an equity interest in another company[3].

It is evident that the definition of the corporate purpose of company B..., SA was made, expressly and specifically (as it must be), in article 3 of its bylaws: "execution of public or private works and other related activities", without finding therein, as the Claimant claims, the "management" of equity interests.

Article 4 of the bylaws of the referred company, besides, contrary to what is stated by the Claimant in its request for arbitral ruling (e.g. points 37 to 39 and 58), never referring to the "management" of equity interests, simply represents the possibility granted by law that the partnership contract authorize that it may acquire participations in companies with corporate purpose different from its own (or make other decisions, such as participating in complementary associations of companies). Without the partnership contract permitting it, such an acquisition act would not be possible, precisely because it is not an act comprised in its corporate purpose. It is not a freely realizable corporate act. This is what clearly follows from no. 5 of article 11 of the Commercial Companies Code (CSC) for all companies, regardless of their corporate purpose.

It results, moreover, from the conjunction of nos. 4 to 6 of article 11 of the CSC, that the simple statutory permission to acquire participations in limited liability companies does not configure an extension of its corporate purpose as concluded by the Supreme Administrative Court Ruling no. 01206/2017, of February 28, 2018. The said norm of no. 5 of article 11 of the CSC provides for the possibility that the partnership contract allow the acquisition "of participations in companies with purpose different from the above mentioned". That is, different from the corporate purpose of the company, which remains the same.

Note finally, that the group has a SGPS, which is precisely the Claimant, to which B..., S.A. came, moreover, to pass the credits resulting from loans and ancillary contributions made by it.

So, not being B... an equity interest management company, it is not seen how, in the specific case, the charges incurred by it regarding the obtaining of borrowed capital that it placed at the disposal of other legal entities, even if participating or related, can be considered "provably essential" for purposes of article 23 no. 1 and its letter c) of the Corporate Income Tax Code.

Because: "costs cannot fail to relate to the taxpayer company itself. That is, for a certain item to be considered a cost of that company, it is necessary that the respective activity be developed by it itself, not by other companies." (Supreme Administrative Court Ruling, of May 30, 2012, case no. 171/11[4]).

And "the costs provided for in that article 23 must relate to the taxpayer company itself", so "for a certain item to be considered a cost of that company, it is necessary that the respective activity be developed by it itself, not by other companies, even if in a relationship of domination" (Ruling of July 10, 2002, case no. 0246/02).

It is thus clear that, for the referred requirement of essentiality to be verified, the expense must relate to the taxpayer entity itself, in its own right, being evident that the productive source whose maintenance is linked to the expenses in the relationship of "proven essentiality" by force of no. 1 of article 23 of the Corporate Income Tax Code is that of the company that incurs the charges and not that of the company that benefits from them. As stated in the Administrative Court of the North ruling of March 14, 2013, case no. 01393/06.1, "only expenses that were demonstrably essential for the realization of profits or gains or for the maintenance of the productive source should be considered as expenses of the fiscal year but of the company itself and not of a third party. That is, costs have to be reported to the activity developed by the company in question and not by another company".

Now the loans in question were not applied in the company itself that contracted them and incurred the respective charges, but in commercial companies that, despite being participated or related, have distinct legal and tax personality and capacity and are therefore autonomous in the pursuit of their own corporate purposes and in the independent accounting of their income, expenses and other patrimonial variations. It is not accepted, therefore, that an expense resulting from a financing placed in the legal sphere and at the disposal of another company[5] can be considered essential. And, in truth, the providing company remains as a legal entity with its own legal, tax personality and capacity and autonomous in relation to other group companies. The Special Tax Regime for Groups of Companies (RETGS) itself, enshrined in articles 69 and following, also reflects this fiscal autonomy of each group company.

Similarly, the assessment of the proven essentiality of expenses should be based on the idea of the proven "necessity" of the same (RUI DUARTE MORAIS, Notes on the Corporate Income Tax Code, Almedina, 2007, p. 83) "in view of the corporate purpose of the commercial entity in question" (Rulings of the Administrative Court of the South of February 19, 2015, case no. 8137/14 and of January 22, 2015, case no. 5327/12.). As the same author notes "When it should be concluded that the charge was determined by other motivations (personal interest of shareholders, administrators, creditors, other group companies, commercial partners, etc.) then such cost should not be deemed essential" (cit. work, p. 87). And, recall, that, in the case sub judice, it was, expressly, in function of the interest of other group companies that the charges in analysis were assumed by B..., SA.

Furthermore, letter c) of no. 1 of art. 23 of the Corporate Income Tax Code also expressly makes the fiscal deduction of interest on borrowed capital dependent on the application of such capital in its exploitation, which should be understood as "the productive activity of the company." (Supreme Administrative Court Ruling no. 0627/16, of June 28, 2017). Which did not happen with the application that B... SA made of the capital obtained.

Finally, note that, contrary to what occurs in the acquisition of equity interests, where there is the acquisition of a right to a greater percentage in distributed dividends, greater capital gains or a greater value attributed in case of liquidation of a participating company, even in the case of the provision of free supplements and ancillary contributions to investees there is no "proven essentiality" of expenses inherent to them for purposes of no. 1 of article 23 of the Corporate Income Tax Code, since, in the most favorable scenario, what the providing company acquires is only the right to its reimbursement at nominal value, under the conditions provided for in the CSC.

And if, with respect to financings carried to investee companies, there is no such nexus of "proven essentiality" between the expenses and the income or the maintenance of the productive source of B..., SA, which incurs the charges, still less will such nexus exist in the case of financings delivered to the parent company - in the circumstance, the Claimant, which holds 97.82% of the capital thereof.

In this case, even more clearly, there is no company interest relating to the interest and other charges incurred by the entity that became indebted to third parties: B..., SA.

IV.2.1. - ON THE TRANSFER OF THE CREDITOR POSITION FOR SUPPLEMENTS AND ANCILLARY CONTRIBUTIONS PREVIOUSLY MADE BY B..., SA TO ITS PARENT COMPANY, A...-SGPS HERE CLAIMANT.

Following the contracting of the bank loan and the granting of loans and ancillary contributions by B..., SA, there was the assignment of credits resulting therefrom to the SGPS of the group and dominant company – company A...-SGPS – which holds 97.82% of the capital thereof.

From what has been explained above, it appears that this fact does not alter the judgment reached before. As seen, the Tribunal understands that when the borrowed capital was placed by B... in the sphere of participating entities, the requirement of fiscal deductibility of the respective expenses was not met because the "proven essentiality" of the same was not verified for purposes of article 23, no. 1 of the Corporate Income Tax Code. If this was already the case at the moment of deliveries to participating companies, it will be even more so from the moment such credits passed to the sphere of the parent and dominant company: the Claimant, A...-SGPS. This company, as stated, holds 97.82% of the capital of B..., SA. There is no company interest attributable to B... that minimally grounds the "fiscal essentiality" of charges with financings whose return, if any, would be to its parent company.

IV.3. ON THE COMPLIANCE WITH THE RULES OF BURDEN OF PROOF AND THE DUTY OF REASONING INCUMBENT ON THE DEFENDANT

The taxpayer further requests the annulment of the tax act sub judice because, in summary, the Defendant did not comply with the burden incumbent on it to prove the facts constitutive of the right it invoked; and imputes to the same act the defect of form due to lack of reasoning.

Upon examination of the Tax Inspection Report (RIT) and the remaining documentation joined to the proceedings, it is verified, however, that the Defendant reasoned the fiscal correction to the taxable profit of B..., SA, made only in relation to unremunerated loans and ancillary contributions, in the following tables and respective values, collected from the accounting elements of the Claimant:

• Loans obtained (p. 7/21 of RIT)

  • Average balances of loans obtained – Annex 6;

• Financial charges incurred (p. 7/21 of RIT)

• Loans granted (p. 8/21 of RIT)

  • Average balances of loans granted – Annex 4;

• Ancillary contributions made (p. 9/21 of RIT)

  • Average balances of ancillary contributions – Annex 5;

For the concrete determination of the amount of charges incurred by B..., SA, fiscally non-deductible, the AT used the methodology set out on pp. 16 to 18 of the RIT, which is copied below:

[methodology tables]

By thus concretely specifying the amounts it started from and the methodology it adopted to determine, in particular, the value of the fiscal correction in analysis, in the manner in which it did, the Tribunal understands that the Defendant proved the facts constitutive of the right to the corrective liquidation it invokes. It complied with the burden referred to in article 74, no. 1 of the LGT.

With a view to the intended annulment of the liquidation act sub judice, it would be incumbent on the Claimant to contest the values or methodology presented by the Defendant, pointing out, in particular, the errors or omissions from which they suffer. Which it did not do.

Given articles 77 of the LGT, 63 of the RCPIT and 153 of the CPA, the defect of form due to lack of reasoning, invoked by the Claimant, is also not verified. As seen above, the tax act in question is expressly reasoned in fact and in law, clearly, coherently and sufficiently explaining the motivation for that act. As indeed appears clearly from the arguments of the request for arbitral ruling.

IV.4. ON THE DEFECT OF FORM BY VIRTUE OF THE NON-APPLICATION OF THE GENERAL ANTI-ABUSE CLAUSE REGIME OR TRANSFER PRICING, INSTEAD OF ARTICLE 23, NO. 1, LETTER C) OF THE CORPORATE INCOME TAX CODE, RAISED ONLY IN ARGUMENTS.

At the end of its arguments, the Claimant came, for the first time, to impute to the act sub judice a defect of form due to lack of reasoning by the non-application of the general anti-abuse clause regime or transfer pricing, instead of the regime of article 23, no. 1, letter c) of the Corporate Income Tax Code applied by the Defendant.

This is because, in the expression of the Claimant/G... "in the course of witness questioning procedures, the Tax Inspector clarified that the referred amount relates in fact to unremunerated loans made by B..., S.A. to G...". And that would represent, in the Claimant's understanding, a "reconfiguration of operations or definition of prices" for which the regime of article 23, no. 1 and letter c) would not be appropriate.

Such a defect and ground had not, however, been raised in the request for arbitral ruling as, in line with no. 1, article 108 of the CPPT, imposes letter c) of no. 2, article 10 of the Tax Inspection Regime, which raises the question of the admissibility of this new cause of action.

Now, as referred to by JORGE LOPES DE SOUSA, in commentary to article 120 of the CPPT, as a rule, it is not possible to use arguments "to invoke new facts or raise new questions of illegality of the impugned act"[6]. Hereinafter the same author excepts from this rule the questions of official knowledge (nullity or non-existence of the tax act) and the subjectively supervening facts for the claimant that provide it knowledge of defects that it could not have had knowledge of at the moment of presenting the petition, beyond some defects that can be invoked in opposition to tax enforcement as the "abstract illegality of liquidation enclosable in letter a) of no. 1 of article 204 of the CPPT"[7].

Considering that the referred unremunerated loan from B..., SA to the Claimant, besides being found in annex 4 of the RIT, was also already clearly evidenced on p. 8/21 of the same Report, which is copied below, it is necessary to conclude that there is no supervening subjectivity for the Claimant.

As for nullities or illegalities that may determine the appraisal of the Claimant's contention expended only in arguments, recall that the fiscal correction in analysis resulted from the subsumption of the charges incurred by B..., SA under the sieve of the proven essentiality of expenses, for purposes of their fiscal deductibility. This legal sieve in matters of expenses and losses, enshrined in article 23, no. 1 of the Corporate Income Tax Code, has a prior and general nature applicable to all commercial companies with or without special relations between them, as results from the systematic insertion of the provision in the Subsection "General Rules" of the Chapter "Determination of Taxable Matter" of the Corporate Income Tax Code.

And, in the proceedings, it is by this initial and general sieve that the expenses in analysis do not pass, because they lack the absolute condition of "essentiality" - in the sense that it exists or does not exist, there being no intermediate degrees. It is not necessary more than this to legally support the corrective liquidation act sub judice.

There is thus no question of nullity or the supra cited abstract illegality, which would allow the consideration of that new cause of action raised in arguments. The right to invoke such a defect has become barred.

V. DECISION

Therefore, all seen, this tribunal agrees to judge the illegalities pointed to the impugned liquidation as unproven, with the same to be maintained in the legal order.

VI. VALUE OF THE CASE

The value of the case is fixed at € 110,834.74, in accordance with articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, 97-A, no. 1, letter a) of the CPPT and 306, nos. 1 and 2 of the CPC.

Lisbon, December 11, 2018

The Arbitrator President

Maria Fernanda Maçãs

The Arbitrator Member

Tomás Cantista Tavares
(votes dissenting according to attached declaration)

The Arbitrator Member

Américo Brás Carlos

DISSENTING OPINION (DECLARATION OF VOTE)

I voted dissenting because I disagree with two essential points of the decision: one of fact (in my understanding, the management of equity interests was also part of the corporate purpose [and in fact] of B..., SA) and one of law (in my understanding, one should have followed the legal arguments outlined in the recent Supreme Administrative Court Ruling on the same subject, with no. 0473/2013, decided on February 21, 2018 [hereinafter Ruling]).

Regarding the question of fact:

a) The acquisition and alienation of equity interests [and therefore the management of that asset, in the interim] are expressly provided for in the bylaws of B..., SA (art. 4);

b) I do not subscribe to a nominalist vision of life, law and fiscal reality: can B..., SA not manage equity interests, only because the word "management" is not in the bylaws, despite "acquisition" and "alienation" of equity interests being provided for? It is clear that it can, in my opinion: between the purchase and the sale, the company necessarily must pursue the management (good management) of the equity interest, as it must do with any other asset: a real estate property, a factory, a business enterprise…

c) The testimony confirmed this idea: (i) B..., SA, faced with the crisis, at the time, in the construction of private and public works in Portugal (its core business), sought business alternatives through subsidiary companies (to which it had to provide funds for the activity), in the same and exact activity (but in other geographies – where it could move its human and tangible assets for better exploitation), and in diverse/complementary activities, but that would require civil construction [to be carried out (could be carried out)] by B..., SA (in road public-private partnerships, railway companies…).

d) That is, B..., SA, with the provision of funds to participating companies, apart from the proper management of equity interests, also sought the best management of its civil construction and public works activity (its core business): i) the participating companies would have to carry out many works (roads, railroads), to be carried out (could be carried out) by B..., SA; ii) exploitation in other geographies of B..., SA's construction assets (human resources, structure, machinery, know-how…), underutilized in Portugal, due to shortage of works, at the time.

e) Tax relations are shaped by realism. Economic income is taxed, regardless of forms and vicissitudes: if a company has a profit per fiscal year from the exercise of an activity that does not appear in the bylaws – commercial law may comment on the lawfulness of such behavior, in the tension between the shareholder (who defines the company's object) and the manager (who administers it on his behalf, and did not follow the mandate given to him by the shareholders). But for tax law, everything is simple and elementary: the wealth existing is taxed, period. Moreover, this realism of tax law is elevated to the highest category when the tax law imposes the taxation of wealth generated in unlawful acts (for commercial, criminal law, etc…). Therefore, in the case sub judice, I greatly value the object of fact (the activities pursued, even if they did not appear in the bylaws): the resulting income, positive or negative, will be taxed (and relevant in tax terms, the economic and financial operations in which they materialize, for example, the ancillary contributions) – for the simple reason of contributing to such business activity and (hopefully) profitable activity (art. 10 of the LGT).

Regarding the legal question:

a) I advocate that Arbitral Sentences must comply with the Rulings of the STA (by its highest place in the judicial organization and by force of art. 25, no. 3 of the RJAT), especially if the rulings are recent (the Ruling is from February 2018) and when they address the same substantial question (as happens with the Ruling).

b) The question of the Ruling is substantially identical to that in the proceedings:

i) In both cases, a commercial company, without being an SGPS, makes interest-free supplementary contributions (provisions) to companies in which it holds participations (incurring interest upstream to obtain the funds), and management of equity interests is also part of the corporate purpose;

ii) In both cases, the interpretation and application of the same legal rule is at issue – deduction, or not, of the bank interest incurred upstream, by force of art. 23 of the Corporate Income Tax Code, in its relationship of essentiality with the obtaining of profits or maintenance of the productive source (with the same wording in both situations).

c) The following passages from the Ruling apply like a glove to the case in the proceedings – and would lead, in my opinion, to the annulment of the impugned liquidations:

i) "It is not a question here of knowing whether or not such a loan is legitimate from the perspective of business management. Tax law cannot disregard a cost because it understands that its assumption was a poor management act, as it also cannot consider a cost only because it understands that it was a good management act. Tax law has nothing to do with company management and in relation to it must maintain only conduct of neutrality".

ii) "We agree with the appealing party in its conclusions 17 and 18 when it refers that 'the doctrine has noted that with supplementary contributions there is an increase in the value of the financial investment made by the shareholder company; This financial asset, thus strengthened or increased with the contributions, is a source generating income, therefore, in terms of investment decision, the confrontation between an initial outlay and the cash flows it can generate is identical in investments in operational physical assets, in the acquisition of equity interest or in another type of financial investment'. Thus, 'if the economic logic of the decision and the forms of financing are identical, if, moreover, in all these cases the obtaining of profits was enhanced, there is no reason for financial charges to be deductible in some cases and not in others'".

iii) "Article 23 of the Corporate Income Tax Code provides that costs or losses that are demonstrably essential for the realization of income or gains subject to tax or for the maintenance of the productive source are considered costs or losses. In the absence of a conceptual definition of fiscal cost or even an exhaustive list of fiscally deductible costs, according to this legal provision, all costs or losses incurred by the taxpayer and recorded in its accounting must be selected, and among them, those that concur to the formation of taxable profit that are identified there with the accounting expenses incurred by the company and essential to the realization of profits or to the maintenance of the productive source. Article 23 of the Corporate Income Tax Code uses the accounting terminology of expenses and profits, requiring the establishment of a clear relationship between expenses and profits, so that these appear as a consequence, direct or indirect, of those, to be assessed either in their essentiality to the realization of income or gains subject to tax or to the maintenance of the productive source. It thus appears that the costs provided for in article 23 must be recorded in accounting and relate, from the outset, to the taxpayer company itself, that is, that the respective activity be developed by it itself, and not by other companies" – which the Ruling understood to be verified in the case in question.

iv) In summary: "In deciding to make supplementary equity contributions to some of the participating companies without receiving any interest from them and, to make these financings, it contracted costly loans from financial institutions, the financial charges incurred by these loans are connected with the realization of income or gains subject to tax or to the maintenance of the productive source of the participating company that contracted the loans and paid the corresponding financial charges" – conclusion V of the summary.

Tomás Cantista Tavares

[1] § 110 of the Request for Arbitral Ruling (the bold not underlined was added): "The AT further disregarded the fiscal deductibility of financial charges incurred by B..., S.A. on the ground, if we understand correctly, that they relate to ancillary contributions and supplements made to investee companies that, at the moment they were made, this company was the holder of the respective participations, but, in the fiscal year in which the charges were deducted – 2013 –, the Claimant was the holder of the participations."

[2] On the legal necessity to "specify the activity or activities (not acts) in which consists the object of the company see Jorge Coutinho de Abreu and Others, Commercial Companies Code, Vol. I, Almedina, 2010, p. 226.

[3] "Economic activity presupposes a series or succession of acts", Jorge Coutinho de Abreu and Others, cit. work, p. 32.

[4] In line with multiple previous decisions of this superior court (e.g. Ruling of July 10, 2002, case no. 246/02; Ruling of July 12, 2006, case 186/06; Ruling of February 7, 2007, case no. 1046/05; Ruling of May 20, 2009, case no. 1077/08; Ruling of November 30, 2011, case no. 107/2011).

[5] See in the same sense and for a situation of holding 100% of the capital of the participating company, the Supreme Administrative Court Ruling of July 12, 2006, case no. 186/06.

[6] CPPT Annotated and Commented-Volume I, Áreas Editora, 2006, p. 858.

[7] Idem.