Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
The arbitrators José Poças Falcão (chairman), Sofia Cardoso and Nuno Cunha Rodrigues (members), appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the present arbitral tribunal, hereby agree as follows:
I - REPORT
A... LDA, with registered office at Av. ..., no. ..., ..., registered at the Commercial Registry Office of ... under the single registration number and collective person number ..., came to file a request for arbitral pronouncement having as its object the assessment of the illegality of the tax act of assessment of Corporate Income Tax ("IRC") no. 2013..., and corresponding compensatory interest, upheld following the dismissal dispatch of Hierarchical Appeal no. ...2015..., issued by the Deputy Director-General (by subdelegation), on 11 April 2018, and notified on 16 April 2018.
To substantiate its request, the Applicant alleged, in essence and in summary and without prejudice to better explanation in the context of synthesis of the parties' positions:
a) The Applicant was notified, on 20 December 2013, of the IRC assessment no. 2013 ... now challenged, which originated from a Tax Inspection Action relating to the fiscal year 2011, of which the Applicant was the subject, resulting from the Statement of Account Adjustment no. 2013 ... imposing payment in the total amount of € 720,866.70, including compensatory interest (cf. copy of the respective Statement of Account Adjustment, now attached as Document 2 and which is given as fully reproduced for all legal purposes);
b) The increase to the taxable matter of the Applicant in the fiscal year 2011 ascertained by the AT [Tax Authority], in the amount of € 2,524,500.00, stems from an adjustment under transfer pricing (cf. copy of the body of the Draft Tax Inspection Report (Document 3, with the petition).
c) And results from the analysis by the Tax Authority of the disposal operation, on 31 January 2011, of the totality of the equity interest that the Applicant held in the company B... S.A. (51% of capital), in favor of the company C... S.A.
d) Namely the alleged existence of special relationships between the Applicant and the company C... S.A., under the terms of article 63 of the IRC Code, which led the Tax Authority to analyze whether the value adopted in said operation respected the arm's length principle, concluding in the negative.
e) The AT alleged in this regard that the Applicant "did not justify nor demonstrate adherence to the Arm's Length Principle of the conditions established in the sale of the participations (…) [a]t the same time, considering the substantial amounts invested in the development of the photovoltaic parks, as well as the expectations of future revenues underlying (…) it is to be concluded that the sale of the participations at nominal value does not reflect the value of the transacted companies and therefore does not correspond to the price that would be practiced between independent entities" (cf. pages 49 and 50 of the Draft Tax Inspection Report).
f) The Tax Authority concluded that "it follows from the calculations presented and in accordance with paragraph 8 of article 63 of the CIRC [Corporate Income Tax Code] and paragraph 2 of article 3 of Ordinance 1446-C/2011, of 21.12, that a positive correction to the taxable profit of 2011 of the taxpayer A..., Lda is owed in the amount of € 2,524,500.00" (cf. page 62 of the Draft Tax Inspection Report).
g) In order to determine what would be, allegedly, the value of disposal of the participation in respect of the arm's length principle, the Tax Authority adopted the Comparable Market Price Method ("CMPM"), adopting the following "comparables":
i. Disposal, on 5 April 2010, by D... SGPS, in favor of the company E..., SGPS, S.A., of 14.5% of the equity interest it held in B... S.A., corresponding to 1,450 shares, at the price of € 535,000.00;
ii. Disposal, on 5 April 2010, by F... SGPS, in favor of the company E..., SGPS, S.A., of 14.5% of the equity interest it held in B... S.A., corresponding to 1,450 shares, at the price of € 535,000.00 and
iii. Disposal, on 5 April 2010, by G..., in favor of the company E..., SGPS, S.A., of 1% of the equity interest it held in B... S.A., corresponding to 100 shares, at the price of € 70,000.00.
h) Specifically, the Tax Authority concluded at point III.1.11 of the Draft Report:
i) Exercising the right of hearing, the Applicant alleged that (i) the corrections resulting from the Draft Report have no economic and financial justification, instead constituting a clear violation of the legal provisions that require that market values be contracted, accepted and practiced and (ii) the operations considered in the Draft Report within the scope of application of the CMPM are not comparable
j) The Applicant concluded that the Draft Report of the Tax Inspection should have been amended, concluding that there was no correction to the taxable matter of the Applicant in the fiscal year 2011.
Constitution of the Tribunal and subsequent processing of the case
After the necessary regulatory procedures were completed, this Arbitral Tribunal was constituted on 25 September 2018, and the Respondent, Tax and Customs Authority (AT), was notified to, if willing, present a response, request the production of additional evidence and remit the administrative file (PA).
The AT presented a response (cf. infra, in "Position of the AT") and attached a copy of the PA on 27-11-2018.
By dispatch of 5-2-2019, the production of testimonial evidence was admitted and a date was set for the meeting of the Tribunal with the parties followed by the examination of the witnesses indicated by the parties at hearing.
On 13-3-2019, the aforementioned meeting with the parties took place, after which the examination of the witness, H..., indicated by the Applicant, was proceeded with, and, at the request of the AT, it was decided, with the agreement of the opposing party, to use for this case the testimony of the witness indicated by the AT, I..., given in case no. 336/2018-T.
In this act, both parties were notified to, in successive periods, present written final pleadings, and it was further decided that the Applicant, in the respective period for pleadings, would pronounce itself on the matter of the exception raised by the AT in the Response.
With the grounds set out in the respective minutes, the extension of the period provided for in article 21, paragraph 1, of the RJAT [Arbitration Regulation] was further determined, using the faculty provided for in paragraph 2 of the said rule, an extension which, by dispatch of 23-5-2019, was renewed.
Response of the Tax and Customs Authority
Notified for this purpose, the AT came, on 26-10-2018, to request an extension of the deadline for submitting the Response and attaching a copy of the administrative file.
By dispatch of 6-11-2018 and after hearing the opposing party, the AT's request was granted and, consequently, an extension of 20 more days was granted, of the deadline for submitting the response, beginning on 7-11-2018.
The AT submitted its response on 27-11-2018, defending itself by exception and counter-claim.
It defends therein the AT, in summary and in essence, the position already assumed previously, in the administrative phase of the procedure and which gave rise to or formed the basis for the additional assessment that is the subject of these proceedings.
Exception: lack of timeliness/expiry of the right of action of the request for arbitral pronouncement
In its response, the AT further invokes ex novo the lack of timeliness of the request for arbitral pronouncement, due to expiry of the right of action, based on the fact that the Applicant, attacking only the additional assessment that was notified to it on 20-12-2013, presents the request for arbitral pronouncement at CAAD on 13-7-2018, that is, beyond the 90-day period referred to in article 10 of the RJAT.
Defense of the AT by counter-claim
The AT begins by presenting the following maps/summaries of the events relevant to the object of the case and table of equity interests to conclude, in essence, in the manner in which it did so in the administrative phase of the procedure:
The table of equity interests referred to in these proceedings is as follows:
a. A..., Lda holds a direct participation in the capital of B..., S.A. of 51%;
b. C..., S.A. participates in the capital of A..., Lda, where it holds a quota of 51%;
b. C..., S.A. holds a direct participation of 1% and an indirect participation, via A..., of 26% [0.51 * 0.51]; C..., S.A. holds a total participation of 27% [1% + 26%];
c. J... holds a direct participation of 8% and an indirect participation, via A... of 25% [0.49 * 0.51]; J... holds a total participation of 33%;
d. K... holds a direct participation of 8%;
e. J... and K... hold a total participation of 41% [33% + 8%];
f. G... holds a direct participation of 2%.
With respect to B..., S.A.:
g. A..., Lda holds a direct participation in the capital of B..., S.A. of 51%;
h. C..., S.A. holds a participation in the capital of A..., Lda where it holds a quota corresponding to 51%; C..., S.A. holds a direct participation of 20% and an indirect participation, via A..., of 26% [0.51 * 0.51]; C..., S.A. holds a total participation of 46% [20% + 26%];
i. J... holds a direct participation of 8% and an indirect participation, via A... of 25% [0.49 * 0.51]; J... holds a total participation of 33%;
j. K... holds a direct participation of 8%;
k. J... and K... hold a total participation of 41% [33% + 8%];
l. G... holds a direct participation of 1%.
The AT alleges in particular:
a) The SIT [Inspection Service] notified the taxpayer (cf. annex 17 to the RIT [Inspection Report]) so that it would demonstrate that, in the operations mentioned in a] and b], of paragraph 4 of Article 63 of the CIRC, terms and conditions substantially identical to those normally would be contracted, accepted and practiced between independent entities in comparable operations were contracted, accepted and practiced, presenting for this purpose all the elements referred to in paragraph 6 of article 63 of the CIRC, namely "… the documentation relating to the policy adopted regarding transfer pricing, including the guidelines or instructions relating to its application, the contracts and other legal acts concluded with entities in a special relationships situation with it, with the modifications that occur and with information on their compliance, the documentation and information relating to those entities and also to the enterprises and the goods or services used as a term of comparison, the functional and financial analyses and the sector data, and any other information and elements that it considered in determining the terms and conditions normally agreed, accepted or practiced between independent entities and for the selection of the method or methods used."
b) And responding and corresponding to the aforementioned notification, the taxpayer then alleged that "at the genesis of the contracts for the sale of the shares of the limited companies holding the photovoltaic parks, between the A... and N... SA, is the Partnership Contract signed on 28 March 2008, note between non-related parties (...)"; that "for legal reasons, namely article 16 of DL 312/2001, which establishes conditions for the transmissibility of reception points (…) the A... Lda as holder of the PIP would have to hold the majority of the capital of the limited companies to be constituted for each of the projects"; that A..., "by imposition of K... and J..., only agreed to be a shareholder of the limited companies that developed the projects, on the condition of not assuming any burden or risk for itself, but also aware that it would not obtain any income or benefit from this participation."
c) The A..., Lda was exempt, in accordance with paragraph 6 of article 63 of the CIRC and paragraph 3 of article 13 of Ordinance no. 1446-C/2001, of 21.12 - since, in the fiscal years prior to those verified, it had an annual volume of net sales and other revenues of less than € 3,000,000.00 - from maintaining organized the process of tax documentation relating to the policy adopted in the determination of transfer prices.
d) Similarly, it was exempt from maintaining, in an organized manner, sufficient elements to prove [see paragraph 1 of article 13 of the ordinance]:
(i) The market parity in the terms and conditions agreed, accepted and practiced in the operations carried out with related entities;
(ii) The selection and use of the method or methods most appropriate for determining transfer prices that provide a greater approximation to the terms and conditions practiced by independent entities and that ensure the highest degree of comparability of operations or series of operations carried out with others substantially identical performed.
e) The SIT concluded (cf. pages 60 et seq. of the RIT), that:
"I. The price practiced by A..., Lda in the linked operations of sale of the participations held in the photovoltaic solar parks of the ... [B..., S.A.] and of the ... [B..., S.A.] does not respect the arm's length principle;
II. There is evidence of operations carried out between independent entities with characteristics identical to the linked operations under analysis that may constitute potential comparables for assessing the appropriate market price for them, in the context of applying the Comparable Market Price Method.
Regarding the potential comparables identified, relating to the market price of photovoltaic licenses awarded through public tender, there is a lack of official information in order to verify the comparability differences pointed out and to assess the impact on the price of operations resulting from them, with the subsequent consideration of the feasibility of carrying out comparability adjustments, in accordance with paragraph 1.33 of the OECD Guidelines [2010]5.
In the operations described in points III-1.9.1 C... sells 30% of the participation in the capital of B..., S.A. and III-1.9.2 D... SGPS, F... SGPS and G... sell in total 30% of the participations in the capital of B..., S.A., carried out between C..., S.A. and E..., S.A., as well as between the latter and F..., D... SGPS and G..., there are no special relationships, that is, they are operations between independent entities, since none of the entities exerts significant influence in the management decisions of E..., S.A. nor does this exert such influence in those, considering the available information related to the shareholder structure and corporate bodies as well as the various paragraphs of the provision in paragraph 4 of article 63 of the CIRC.
As such, it is admissible to admit the transactions carried out between those entities, which occurred in November 2009 and April 2010, as potential operations comparable in the context of transfer pricing adjustment, especially because the said transactions have as their object parts of capital in the companies targeted in the linked operations, thus ensuring comparability at the level of the conditions underlying the transacted assets.
As for the impact on the assessment of the parks resulting from the conclusion of their construction and obtaining the Exploitation License, it is concluded that those operations, described in III-1.9.1 and III-1.9.2, occur during the development of the said parks, unlike what happens in the case of the linked operations, where the efforts to develop the photovoltaic solar parks have already been made and these are already in the exploitation phase.
In that sense, the use of the effective price of these operations results in an adjustment solution that is not unfavorable to the taxpayer.
In conclusion, the elements obtained made it possible to demonstrate that different conditions were practiced than those that would be practiced between independent entities, whereby a positive correction to the taxable profit of the fiscal years 2010 and 2011 is owed, in accordance with paragraph 8 of article 63 of the CIRC and paragraph 1 of article 3 of Ordinance 1446-C/2001, of 21.12, so that these are not different from what would be ascertained in the absence of special relationships.
Given that it has been shown that between independent entities the sale of the shares would have been carried out at substantially higher amounts, an adjustment to the taxable profit of each of the fiscal years 2010 and 2011 of the taxpayer A..., Lda is owed for the value ascertained in arm's length conditions.
With respect to C..., S.A., no adjustment is made because it is a financial investment that has no immediate impact on the company's accounting in terms of results."
Meeting of the Tribunal with the parties and examination of witnesses
By dispatch of 5-2-2019, a date was set for the meeting in accordance with the terms and for the purposes provided for in article 18 of the RJAT and for the examination of the witnesses indicated by the Applicant.
On 13-3-2019, these proceedings took place, with the in-person examination of witness H....
With respect to witness I..., it was decided, by agreement of the parties, to use for these proceedings the testimony given and recorded in the context of an analogous case between the same parties (Case CAAD no. 336/2018-T).
The Applicant was also notified in the act to present a response to the matter of the exception raised by the AT, in the final written pleadings or in the respective period, which was set, in successive fashion, at 20 days.
Final Pleadings
Both parties presented pleadings within their respective periods, both maintaining, in essence, the grounds that they had previously invoked in their respective pleadings.
Response to the Exception
With respect to the matter of the above exception, the defendant alleged the total lack of grounds for its invocation insofar as, fundamentally, it is implicit in the object of the claim, the impugn of the immediate act of dismissal of the hierarchical appeal, that is, this is not a direct challenge of an assessment act; consequently, the 90-day period for submission of the request for arbitral pronouncement began with the notification of the dismissal of the hierarchical appeal on 17-4-2018 and would end on 15-7-2018 (Sunday); therefore, the submission of the request on 13-7-2018 was timely.
II – CASE MANAGEMENT
The arbitral tribunal was regularly constituted on the basis of articles 2, paragraph 1, subparagraph a) and 10, paragraph 1 of the RJAT, and is competent to assess and decide the request for arbitral pronouncement.
The parties, who are duly represented, enjoy legal personality and capacity and are legitimate (articles 4 and 10, paragraph 2, of the same statute and 1 of Ordinance no. 112-A/2011, of 22 March).
The case is not subject to any nullities.
III – GROUNDS FOR DECISION
De Facto
Proven Facts
The following essential facts are considered proven for the object of the dispute:
a) The Applicant was notified, on 20 December 2013, of the IRC assessment no. 2013 ... now challenged, which originated from a Tax Inspection Action relating to the fiscal year 2011, of which the Applicant was the subject, resulting from the Statement of Account Adjustment no. 2013 ... imposing payment in the total amount of € 720,866.70, including compensatory interest (cf. copy of the respective Statement of Account Adjustment, joined by the author as Document 2 and which is given as fully reproduced for all legal purposes).
b) The Applicant had been notified of the Draft Tax Inspection Report, within which, in the context of IRC, the increase to the taxable matter of the Applicant in the fiscal year 2011 was proposed, in the amount of € 2,524,500.00, stemming from an adjustment in the area of transfer pricing (cf. copy of the body of the Draft Tax Inspection Report - Document 3, with the petition).
c) The proposed correction to the taxable matter of fiscal year 2011, in the amount of € 2,524,500.00, resulted from the analysis by the Tax Authority of the disposal operation, on 31 January 2011, of the totality of the equity interest that the Applicant held in the company B... S.A. (51% of capital), in favor of the company C... S.A.
d) At the time of that disposal of equity interest, verifying the existence then of special relationships between the Applicant and the company C... S.A. [article 63 of the IRC Code], the Tax Authority went on to ascertain whether the value adopted in said operation respected the arm's length principle…
e) ... coming to conclude that the arm's length principle had not been respected by the Applicant, basing this conclusion with the allegation, in the RIT [Tax Inspection Report] that the Applicant "did not justify nor demonstrate adherence to the Arm's Length Principle of the conditions established in the sale of the participations (…) [a]t the same time, considering the substantial amounts invested in the development of the photovoltaic parks, as well as the expectations of future revenues underlying (…) it is to be concluded that the sale of the participations at nominal value does not reflect the value of the transacted companies and therefore does not correspond to the price that would be practiced between independent entities", resulting from the "(...)calculations presented and in accordance with paragraph 8 of article 63 of the CIRC and paragraph 2 of article 3 of Ordinance 1446-C/2011, of 21.12, that a positive correction to the taxable profit of 2011 of the taxpayer A..., Lda in the amount of € 2,524,500.00 is owed" (cf. PA, pages 49, 50 and 62, of the Draft Tax Inspection Report).
f) In order to determine what would be, allegedly, the value of disposal of the participation in respect of the arm's length principle, the Tax Authority adopted the Comparable Market Price Method ("CMPM") and the following "comparables":
i. Disposal, on 5 April 2010, by D... SGPS, in favor of the company E..., SGPS, S.A., of 14.5% of the equity interest it held in B... S.A., corresponding to 1,450 shares, at the price of € 535,000.00;
ii. Disposal, on 5 April 2010, by F... SGPS, in favor of the company E..., SGPS, S.A., of 14.5% of the equity interest it held in B... S.A., corresponding to 1,450 shares, at the price of € 535,000.00 and
iii. Disposal, on 5 April 2010, by G..., in favor of the company E..., SGPS, S.A., of 1% of the equity interest it held in B... S.A., corresponding to 100 shares, at the price of € 70,000.00.
g) Concluding thus and specifically the Tax and Customs Authority (AT) in the sense that the market value of each share of B... S.A. would correspond to € 500.00, a value that results from the calculation of the average price practiced in the three operations mentioned above.
h) More specifically: the Tax Authority concluded at point III.1.11 of the Draft Report the following:
i) Disagreeing with such conclusions, the Applicant exercised the respective Right of Hearing on 25 November 2013 (cf. copy of the body of the Right of Hearing – Doc 4, attached with the PI;
j) The Applicant alleged, in summary, to substantiate its disagreement, that (i) the corrections resulting from the Draft Report have no economic and financial justification, instead constituting a clear violation of the legal provisions that require that market values be contracted, accepted and practiced and (ii) the operations considered in the Draft Report within the scope of application of the CMPM are not comparable and that, as a consequence, the Draft Report of the Tax Inspection should be amended, concluding that there was no correction to the taxable matter of the Applicant in the fiscal year 2011.
k) Subsequently, the Applicant was notified of the Final Tax Inspection Report, which made definitive the correction previously proposed (cf. copy of the cited and attached Final Tax Inspection Report – Doc 5, with the PI;
l) The Tax Inspection concluded (cf. pages 60 et seq. of the RIT), that:
"I. The price practiced by A..., Lda in the linked operations of sale of the participations held in the photovoltaic solar parks of the ... [B..., S.A.] and of the ... [B..., S.A.] does not respect the arm's length principle;
II. There is evidence of operations carried out between independent entities with characteristics identical to the linked operations under analysis that may constitute potential comparables for assessing the appropriate market price for them, in the context of applying the Comparable Market Price Method.
Regarding the potential comparables identified, relating to the market price of photovoltaic licenses awarded through public tender, there is a lack of official information in order to verify the comparability differences pointed out and to assess the impact on the price of operations resulting from them, with the subsequent consideration of the feasibility of carrying out comparability adjustments, in accordance with paragraph 1.33 of the OECD Guidelines [2010]5.
In the operations described in points III-1.9.1 C... sells 30% of the participation in the capital of B..., S.A. and III-1.9.2 D... SGPS, F... SGPS and G... sell in total 30% of the participations in the capital of B..., S.A., carried out between C..., S.A. and E..., S.A., as well as between the latter and F..., D... SGPS and G..., there are no special relationships, that is, they are operations between independent entities, since none of the entities exerts significant influence in the management decisions of E..., S.A. nor does this exert such influence in those, considering the available information related to the shareholder structure and corporate bodies as well as the various paragraphs of the provision in paragraph 4 of article 63 of the CIRC.
As such, it is admissible to admit the transactions carried out between those entities, which occurred in November 2009 and April 2010, as potential operations comparable in the context of transfer pricing adjustment, especially because the said transactions have as their object parts of capital in the companies targeted in the linked operations, thus ensuring comparability at the level of the conditions underlying the transacted assets.
As for the impact on the assessment of the parks resulting from the conclusion of their construction and obtaining the Exploitation License, it is concluded that those operations, described in III-1.9.1 and III-1.9.2, occur during the development of the said parks, unlike what happens in the case of the linked operations, where the efforts to develop the photovoltaic solar parks have already been made and these are already in the exploitation phase.
In that sense, the use of the effective price of these operations results in an adjustment solution that is not unfavorable to the taxpayer.
In conclusion, the elements obtained made it possible to demonstrate that different conditions were practiced than those that would be practiced between independent entities, whereby a positive correction to the taxable profit of the fiscal years 2010 and 2011 is owed, in accordance with paragraph 8 of article 63 of the CIRC and paragraph 1 of article 3 of Ordinance 1446-C/2001, of 21.12, so that these are not different from what would be ascertained in the absence of special relationships.
Given that it has been shown that between independent entities the sale of the shares would have been carried out at substantially higher amounts, an adjustment to the taxable profit of each of the fiscal years 2010 and 2011 of the taxpayer A..., Lda is owed for the value ascertained in arm's length conditions.
With respect to C..., S.A., no adjustment is made because it is a financial investment that has no immediate impact on the company's accounting in terms of results."
According to the Report of Conclusions of the Tax Inspection Action, a favorable Prior Information Request ("PIP") was issued in favor of the Applicant on 3 July 2007 for the connection to the electricity grid of an electroproduction center photovoltaic to be installed in ..., Madeira.
m) On 31 December 2007, the Applicant had secured the allocation of the reception point, in accordance with subparagraph b) of article 11 of Decree-Law no. 312/2001, of 10 December, for the following projects:
- Photovoltaic 2MW ...;
- Photovoltaic 6MW ...;
- Biomass 5 MW ...; and
- Biomass 5MW ... – Madeira.
n) These projects were recorded in the assets of the Applicant (fixed assets in progress) at the value of € 7,000.00...
o) ... as a consequence of which the balance of the Applicant, on 31 December 2007, presented a technical insolvency situation with negative equity of € 13,880.08 (cf. copy of the Balance Sheet of the Applicant on 31 December 2007 – Doc 6, with the PI)
p) At this stage, the Applicant was faced with compliance with the provision of article 17 of Decree-Law no. 312/2001, of 10 December, concerning the execution deadlines of the installations and expiry, with the expectation, as a consequence, of many difficulties for the Applicant to be able to materialize these projects, taking into account, on the one hand, the embryonic phase in which they were and, on the other, the requirements of deadlines provided for the provision of bonds to the General Directorate of Energy and for the completion of the installation works.
q) At that date (December 2007), the Applicant was a single-member company of which J... ("J..."), tax identification number ..., married to K..., tax identification number ... ... was a member.
r) ... whereby, on 28 March 2008, the Applicant, C..., S.A., D..., SGPS, S.A., L..., SGPS, S.A., F..., SGPS, S.A., K... and J..., entered into a Partnership Contract (cf. Annex 8 of the cited Report of Conclusions of the Tax Inspection Action)...
s) ... in which the parties proposed to develop a set of projects, including photovoltaic parks and biomass plants (cf. Recitals of the said Annex 8 of the Report of Conclusions of the Tax Inspection Action).
t) The parties stipulated in that partnership contract that "all development costs relating to the projects (…), as well as those relating to the maintenance and management of the A..., LDA, will be borne, in their entirety, by N..., except otherwise agreed by signed agreement by both parties" (cf. Recital N) of the said Annex 8 of the Report of Conclusions of the Tax Inspection Action).
u) As a consequence, on 4 April 2008, a public deed of quota assignment, capital increase and amendment of the partnership contract of the Applicant was executed, with the company N..., S.A. (currently called C..., S.A.) being admitted as a member – cf. Annex 1 of the Report of Conclusions of the Tax Inspection Action.
v) ... with C... S.A. then acquiring a quota with the nominal value of € 100.00 at the price of € 50,000.00, "considering the acquired goodwill" and...
x) ...by virtue of the capital increase, in the amount of € 5,000.00, subscribed and paid by C..., S.A., this company came to hold 51% of the capital of the Applicant, with member J... coming to hold 49% of the capital.
z) That is: having as its purpose the participation in the projects that the Applicant proposed to develop, C..., S.A. immediately paid a "participation premium" of € 50,000.00, in addition to the said company undertaking to bear all development costs relating to the projects.
aa) By virtue of the cited partnership contract [clause four – no. 1], the Applicant was obliged to "constitute independent limited companies for each project ["vehicle companies"] that obtains authorization to build and that is decided by the Management to proceed with", with no. 2 of clause four of that contract stating that the limited companies referred to shall be governed by the Statutes that constitute Annex II to the Contract (cf. Annex 8 of the Report of Conclusions of the Tax Inspection Action).
bb) It was thus established or stipulated in the cited partnership contract that "(...)in each photovoltaic project to be undertaken, a limited company shall be constituted with the following distribution of capital:
----a – J... …………………… 10%----
----b – K... ………………….. 10%----
----c – D..., SGPS, S.A. ………. 1%----
----d – L..., SGPS, S.A. ……… 1%----
----e – F..., SGPS, S.A. …… 1%----
----f – A..., LDA. …………………. 51%----
----g – N..., S.A. …. 26%----
cc) It was further stipulated in that partnership contract [4.1, clause four] that "N... [current and subsequently denominated C..., SA] shall finance J... and K... the values, after taxes, necessary for the realization of the capital of each company, on one or more occasions, on the dates of constitution of the company and respective capital increases, up to the time limit corresponding to the moment of the beginning of sale of electricity to the public grid, so that both, together, always possess in the respective companies a participation of 20% of the total capital, calculated on the basis of 20% of the total investment" and also that...
dd) ... "(...) both in the photovoltaic projects and in the biomass projects and/or integrated project, the A... LDA is obliged to sell to N... the totality of its participations referred to in 3 and 4, for a value equal to the total amount of its participations in each project, as from the moment of the occurrence of the deadline provided for in Article 16 of Decree-Law no. 312/2001" [cf, in particular, no. 5 of Clause Four]
ee) In compliance with the said Partnership Contract, the Partners (C..., S.A., K..., J..., G..., F..., SGPS, S.A., and D..., SGPS, S.A), proceeded with the development of a set of projects, constituting for this purpose two "vehicle companies" (cf. Annexes 11, 12 and 14, of the Report of Conclusions of the Tax Inspection Action): (i) B..., SA, constituted on 14-4-2009, holder, as from 27-4-2010, of the exploitation license of the Photovoltaic Park of ... and (ii) B..., SA, constituted on 31-10-2009 and holder, as from 21-12-2010, of the exploitation license of the Photovoltaic Park of the ... (cf. also annexes 9 and 10, of the cited Report.
ff) It was in the sequence of the constitution of the vehicle companies mentioned, that parasocial agreements were concluded with both companies: on 14-4-2009, with M..., with an addendum on 31-10-2009 and on 31-10-2009, with B... [Annexes 13 and 14 of the Tax Inspection Report].
gg) Under the terms of nos. 4, 8, 9 and 10 of the Third Clause of the Parasocial Agreement with B.../Addendum, C... S.A. (at the time called N..., SA), was obliged to place at the disposal of the Applicant the financial means so that it could realize the capital of B..., S.A., and also the future financial means indispensable to provide future capital increases (cf. Annex 14 of the Report of Conclusions of the Tax Inspection):
"(...)
THIRD-
(Equity Capital)
(...)
4. "N..." places at the disposal of K... and J... the financial means indispensable for them to realize the capital of the new company "B..." where each of them subscribes eight percent (8%) of that capital, as well as will place at the disposal of the same K... and J... the financial means indispensable to provide any future capital increases or to realize, in any other form that is decided, namely accessorial services and loans, the funds necessary to contribute to the project, according to the participation they hold in the company and independently of the relationship of equity capital / borrowed capital to contract with the respective financial entities.
8. N... places at the disposal of the A..., Lda., the financial means indispensable for it to realize the initial capital of the new company and, likewise, the financial means indispensable to provide any future capital increases or to realize, in any other form that is decided, the own funds necessary to contribute to the project, according to the participation that the A..., Lda. holds in the company.
9. In return, the "A..., LDA." shall obligatorily assign to "N...", at the moment when the photovoltaic park of the ... enters into operation, its shares in the B..., S.A., without it being necessary in the sequence and because of that assignment, directly or indirectly, to the undersigned, K...and/or J..., as members of the "A..." or to the "A...", as such, any supplementary amount, since the consideration referred to in the preceding number already encompasses and consumes the compensation of all associated values.
10. The present clause of this Parasocial Agreement adapts and replaces, with respect to "B..." what is provided in points 4, 4.1, 4.2, 4.3 and 5 of the Partnership Contract referred to in the initial Recitals" (emphasis and underlining ours).
hh) In compliance with what was thus agreed, C... S.A. realized the capital of B... S.A., in the name and on account of the Applicant, in the amount of € 25,500.00 (51% of capital)...
ii) ... having also realized the capital of B... S.A., in the name and on account of K... and J..., in the amount of € 8,000.00 (16% of capital),
jj) ...and also subscribed 20% of the capital of B... S.A., in the amount of € 10,000.00.
kk) Thus it is that, following the entry into the capital of the Applicant and by virtue of the shareholder structure of B..., S.A., C..., S.A. held, in the capital of B..., S.A., a direct participation of 20%, with an acquisition cost of € 10,000.00, as well as an indirect participation of 26%, via holding of 51% of the capital of the Applicant, with an acquisition cost of € 50,000.00.
ll) However, C..., S.A. further subscribed capital in the name and on account of the Applicant and K... and J..., in the total amount of € 33,500.00.
mm) The participation in the photovoltaic project of ... cost C..., S.A., in an initial phase, approximately € 93,500.00,
nn) With respect to capital subscribed in the name and on account of K... and J..., it resulted from the Parasocial Agreement that they were only obliged to assign to C..., S.A., shares corresponding to 1% of the capital of B..., S.A. (cf. Annex 14 of the Report of Conclusions of the Tax Inspection Action).
oo) K... and J... achieved, exclusively by virtue of an investment supported by C..., S.A., to obtain the financial support necessary for the construction of the photovoltaic park of ...,
pp) And, without any financial effort, came to hold a total participation in B..., S.A., in the amount of 41%, (direct participation of 16% and an indirect participation, via Applicant, of 25%).
qq) C..., S.A. disposed of, in favor of F..., SGPS, S.A. and D..., SGPS, S.A., 19% of the capital that it held in B..., S.A....
rr) ...coming to hold a direct participation of 1% in the capital of B..., S.A., and an indirect participation of 26%, via holding of 51%, of the capital of the Applicant,...
ss) ... but maintained, as above, the exclusive obligation to place at the disposal of the Applicant, as well as K... and J..., all the financial means indispensable for them to realize the initial capital of the new company and, likewise, the financial means indispensable to provide any future capital increases or to realize, in any other form that is decided, the own funds necessary to contribute to the project by those shareholders.
tt) As a consequence, and already after the entry of a new shareholder in the capital of B..., S.A., an Agreement for Realization of Own Funds is concluded on 8 July 2010, in accordance with which C..., S.A. assumed the obligation to realize accessorial services and loans, in an individual capacity and in the name of all shareholders (including the Applicant, K... and J...) in the proportion of 70% (cf. Annex 16 of the Report of Conclusions of the Tax Inspection).
uu) In this sense, and as results from the Report of Conclusions of the Tax Inspection Action (cf. page 34), C..., S.A. realized accessorial services and loans, in an individual capacity and in the name of the Applicant, up to 20 December 2010, in the amount of € 580,398.52 (corresponding to 52% of the loans realized, by virtue of the holding by the Applicant of 51% of the capital of B..., S.A., and by virtue of the holding by C..., S.A., of 1% of the capital of B..., S.A.).
vv) Whereby it realized, in its name, only € 11,161.51, by virtue of the holding of 1% in the capital of B..., S.A., having realized, in the name and on account of the Applicant the remaining amount of accessorial services and loans, in the value of € 569,237.01,
xx) Insofar as J... held 49% of the Applicant, and taking into account that the accessorial services and loans owed by the Applicant were realized by C..., S.A., it is possible to conclude that said shareholder obtained a benefit, albeit indirectly (since it did not need to endow the Applicant with own funds with a view to the obligations assumed regarding B..., S.A.), in the amount of € 278,926.14 (€ 569,237.01*49%).
zz) Additionally, C..., S.A. realized accessorial services and loans, in the name and on account of K... and J..., in the amount of € 178,584.16!
aaa) As a consequence of the foregoing, the participation in the photovoltaic project of ... cost C..., S.A., in an initial phase, approximately € 93,500.00, relating to the acquisition of an equity interest in the Applicant and to the constitution of the capital of B..., S.A., ...
bbb) ... and, in a subsequent phase, it supported an obligation to finance B..., S.A., in the total amount of € 781,305.70, only in fiscal year 2010.
ccc) Thus it is that, as a consequence of all the operations mentioned and of the aforementioned investment realized by C..., SA, the price agreed upon regarding the disposal of the equity interests held by the Applicant in B..., S.A., in favor of C..., S.A., corresponded to market value, being justified the amount of the consideration (realization of capital in the amount of € 25,500.00) in function of which the Applicant was contractually obliged to assign its shares in B..., S.A. (Third Clause, no. 9 of the Parasocial Agreement) to C..., S.A., at the moment when the Photovoltaic Park of ... entered into operation (cf. Annex 14 of the Report of Conclusions of the Tax Inspection Action).
ddd) More specifically: the sales price mentioned was determined in function of the exact value realized by C..., S.A., in the name and on account of the Applicant, in the capital of B..., S.A., equivalent to 51%, that is, € 25,500.00 (sale price)
eee) The loans, also realized by C..., S.A., in the name of the Applicant, since, on the date the Photovoltaic Park of ... entered into operation, had not yet matured and would transfer to the new holder of the shares.
fff) The financing of the photovoltaic park of..., was guaranteed with ... Bank in the "Project Finance" modality, up to the amount of € 18,350,000 (cf. copy of the financing contract - Document 7, with the PI;
ggg) In accordance with the approved financial model and at constant prices, the photovoltaic park of ... would predictably invoice, in the 1st year, € 3,018,000 (cf. copy of the Financial Model - Document 9, attached with the PI);
hhh) A PIP had been issued in the name of the Applicant on 3 July 2007 for the construction of the Photovoltaic Park of ... (cf. page 18 and Annex 4 of the Report of Conclusions of the Tax Inspection Action).
iii) The PIP enabled the submission of a request for allocation of the reception point for electrical energy, in accordance with the terms provided for in article 11 of Decree-Law no. 312/2001, of 10 December, which came to be granted to the Applicant on 20 April 2007 (cf. Annex 6 of the Report of Conclusions of the Tax Inspection Action).
jjj) The allocation of the reception point conferred only the possibility for the Applicant to request the respective installation license, so that it could begin the installation works.
kkk) But then, by legal imposition (Decree-Law no. 312/2001, of 10 December, article 17, paragraph 4) "to guarantee the completion of the works, the promoters must provide to the network operator a bond" and "the non-completion of the works within the deadlines provided for in nos. 1, 2 and 3, for a reason attributable to the promoter, causes the respective installation license and the respective reception point to expire". (article 17-5, of the cited Decree-Law);
lll) Following the allocation of the reception point, it was essential for the Applicant (the balance of the Applicant on 31 December 2007 presents a technical insolvency situation with negative equity of € 13,880.08) to gather the financial means necessary for the development of the photovoltaic solar park construction project, without which it could not, naturally, request the respective installation license and complete the installation works (cf. Document 6).
mmm) By virtue of the need to finance the project in question, the cited Partnership Contract of 28 March 2008 was concluded, which was at the genesis of the constitution of B..., S.A., requiring it necessarily, having in view the effects intended by the Partners, that the latter entity be held in the majority by the Applicant ...
nnn) ...this is because the reception points (in accordance with the terms provided for in Decree-Law no. 312/2001, of 10 December), are non-transferable, except for the assignment, maintaining the respective purpose, to entities that meet one of the following conditions:
a. Are held directly or indirectly, in accordance with the Corporate Companies Code, by the entity holding the reception point;
b. Directly or indirectly hold, in accordance with the Corporate Companies Code, the entity holding the reception point;
c. Are the new technical and financial promoter of a cogeneration contracted by the entity holding the reception point, if this is the priority consumer of the electrical or thermal energy, in accordance with article 7 of Decree-Law no. 538/99, of 13 December;
d. Are heirs of the holder of the reception point.
nnn) Hence the cited constitution, on 31 October 2009, of B..., S.A., held in the majority by the Applicant, having as its sole purpose the development and operation of the photovoltaic park project of ... (cf. cited Annex 12 of the Report of Conclusions of the Tax Inspection Action),
ooo) ... and, on the same date, that is, 31 October 2009, the mentioned Parasocial Agreement was concluded in accordance with which, shortly after the Photovoltaic Park of ... entered into operation, the Applicant should assign the participations it held in B..., S.A., which resulted from capital that had been fully realized by C..., S.A., in its name (cf. Annex 14 of the Report of Conclusions of the Tax Inspection Action).
ppp) The Applicant was never obliged to undertake any financial effort with a view to the development of B..., S.A.
qqq) And all financial contributions with a view to the development of the company B..., S.A., were supported by the very shareholders of B..., S.A., - in particular by C..., S.A. ;
rrr) It was, namely, C..., S.A. that undertook efforts so that B..., S.A. would lease the land for the installation of the Photovoltaic Park of ..., with the contract being concluded on 27 November 2009 (cf. copy of the lease contract - Document 11 with the PI); and ...
sss) ...that succeeded in installing the Park in the Free Trade Zone of Madeira, with Dispatch of 4 March 2010, benefiting all shareholders (cf. copy of the dispatch of the office of the regional secretary for Plan and Finance - Document 12, with the PI;
ttt) ... and obtained from the Ministry of Economy the extension of the available capacity in RAM for obtaining a guaranteed rate for the 6MW of the Park of ... and...
uuu) ...ensured the availability to finance the project in conditions that guaranteed its economic and financial viability;
vvv) In the installation license of 27 August 2008, it can be read that it is expressly conditioned, for tariff purposes, to the quota that comes to be attributed to the Autonomous Region of Madeira, that is, at that date there was not yet a guaranteed tariff (underlined by the Tribunal) (cf. Annex 7 of the Report of Conclusions of the Tax Inspection Action: "This license is subject to the following clause for remuneration purposes for the supply of electricity delivered to the public grid:
- the declared power for the purposes of the remuneration system of Annex II of Decree-Law no. 189/88, of 27 May and subsequent legislation, namely Decree-Law no. 33-A/2005, of 16 February, will depend on the quota to be attributed to R.A.M., and may not satisfy the totality of the power issued for the reception point";
xxx) And it was also by special intervention of C..., S.A. that the DRCIE [Regional Directorate of Energy] confirmed, by Official Letter of 13 October 2008, the guaranteed tariff for B..., S.A., saying expressly (cf. copy of the Official Letter - Document 13 with the PI): "With respect to the above matter, we hereby inform you that the power quota allocated by the General Directorate of Energy and Geology to the Autonomous Region of Madeira for the purposes of the remuneration system of Annex II of Decree-Law no. 189/88, of 27 May, and subsequent legislation, satisfies the totality of the power issued for the reception points allocated relating to the following installations:
- Photovoltaic Installation of ... – 6MW
- Photovoltaic Installation of ... – 2 MW
In light of the foregoing we hereby inform you that the conditions are in place to give continuity to the respective licensing procedures".-
zzz) The Applicant did not accept the assessment that is the object of these proceedings, because it considers that the said corrections made by the Tax Authority are illegal and, as a consequence, filed, on 19 May 2014, a Gracious Objection against that assessment now under arbitral challenge (cf. Document 19, with the PI)
a´) The Applicant was notified of the dispatch of the Director of Finance, issued on 5 November 2014, dismissing the Gracious Objection, with the no. ...2014... (cf. copy of the respective notification - Document 22 with the PI);
b´) As a consequence, the Applicant filed, on 5 December 2014, a Hierarchical Appeal of that dismissal act (cf. Document 23, with the PI);
c´) Subsequently, the Applicant was notified of the Dispatch of the Deputy Director-General (by subdelegation of powers), of 11 April 2018, dismissing the above-mentioned Hierarchical Appeal (cf. copy of the dispatch - Document 24 with the PI);
d´) The present request for arbitral pronouncement was filed at CAAD on 16-7-2018.
Facts Not Proven
The Tribunal did not consider it proven that:
(i) The sales price of the shares or participation of the Applicant in the company B... at the time of its sale to C..., SA, was not the appropriate, fair or market value in the objective and subjective circumstances in which that sale was made and to which reference is made above in the list of proven facts;
Reasoning or Foundation of the Matter of Fact
Preliminarily it will be said, in line with uniform Case Law, that the Tribunal is not obliged to pronounce on all the matters alleged, but rather has the duty to select only that which is of interest for the decision, taking into consideration the cause (or causes) of claim that substantiate(s) the claim filed by the author (cf. articles 596, no. 1 and 607, nos. 2 to 4, of the Civil Procedure Code) and state whether it considers it proven or not proven (cf. also article 123, no. 2, of the Tax Procedure Code, ex vi article 29 of the RJAT).
According to the principle of free appreciation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the case and in accordance with its life experience and knowledge of persons (cf. articles 607, no. 5, of the Civil Procedure Code). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents - cf. article 371 of the Civil Code) does not the principle of free appreciation of the evidence produced dominate the appreciation of the proof.
The matter of fact given as proven has its genesis in the documents used for each of the alleged facts and whose authenticity was not called into question, and which were not impugned by the respondent AT. And in truth, it can be said that the parties have no substantial divergences as to the pure reality of the facts but rather reduce those divergences to conclusions and legal framings.
In any case, beyond the documents and the administrative file, of which a copy was attached by the AT, the following were relevant: the testimony given before the Tribunal, in person, by witness H..., engineer and business administrator, former president of the Board of Directors of D..., SA (currently called C..., SA) and administrator of N..., SGPS, SA. This testimony proved to be fundamental by the manner in which it was given, which the Tribunal considered truthful or credible, by a person who directly and personally accompanied the entire negotiation process to which the above facts refer, confirming, namely, essentially and peremptorily, that C... acquired, by purchase, the participations it held in the capital of the Applicant at their nominal value in accordance with previously agreed terms and no other, because all development of the projects for the installation and connection to the grid of the photovoltaic electroproduction centers of ... and ... was done by C... which also bore all costs; on the other hand, at the time the sales price was set, the applicant only had in its assets the PIPs relating to the installation of photovoltaic panels without, however, having any guarantee as to the guaranteed rates, an essential element for an investment of this type; for all these reasons the sale of the shares that are the object of these proceedings, within the context and presuppositions thereof, could never be identical to those carried out on 5 April 2010 [referred to in f), in the above list of proven facts and which served as the basis for the AT's calculation of the "CMP (Comparable Market Price)]
This testimony, combined with what was given by the witness indicated by the AT, I... – this given in the context of case no. 336/2018-T and used, by agreement of the parties, for the present case - tax inspector who was tasked with conducting the inspection of the Applicant that led to the additional assessment, all combined with the cited documents and analyzed critically, constitute the basis of the Tribunal's conviction as to the reality of the facts described above.
III GROUNDS FOR DECISION (Continued)
De Iure
A – The exception of expiry
In its response, the Respondent AT invokes the lack of timeliness of the request for arbitral pronouncement due to expiry of the right of action by considering that the legally defined period for challenging the tax act of assessment has been exceeded, specifically in arbitral proceedings.
The Respondent AT understands that article 10 of the RJAT establishes, with respect to assessment acts, that the period for submitting the request for arbitral pronouncement is 90 (ninety) days, referring, as to the moment of the beginning of counting, to what is prescribed in nos. 1 and 2 of article 102, nos. 1 and 2 of the Tax Procedure and Process Code (CPPT), inferring for the case at hand that the stipulated period of 90 (ninety) days would be counted from the notification of the statement of additional assessment now challenged – cf. subparagraph b) of no. 1 of article 102, no. 1 of the CPPT.
In the present case, the additional assessment was notified to the taxpayer now Applicant on 20 December 2013 and the request for the constitution of the arbitral tribunal was submitted on 2018-07-13, for which reason the request made by the Applicant and, taking into account that the Applicant only attacks such assessment and the corrections resulting from inspection action that gave rise to it, would be untimely and the tribunal cannot hear it.
For its part, the Applicant understands, in the pleadings presented, that the exception of expiry of the right to action raised by the Respondent AT should be judged ungrounded since in the situation sub judice, the count of the 90-day period referred to in article 10, no. 1, subparagraph a) of the RJAT, begins from the notification of the decision dismissing the Hierarchical Appeal, that is, it begins on 17 April 2018 (the day following the notification mentioned) and would end on 16 July 2018 (the period would end on 15 July 2018, Sunday, so it was transferred to the following working day), whereby, insofar as the request for arbitral pronouncement was submitted on 13 July 2018, the same was submitted timely.
A decision must be made.
As results from the request for arbitral pronouncement made by the Applicant, the request was presented for the purpose of the "assessment of the illegality of the tax act of assessment of Corporate Income Tax ("IRC") no. 2013..., and corresponding compensatory interest, upheld following the dispatch dismissing the Hierarchical Appeal no. ...2015..., issued by the Honorable Deputy Director-General (by subdelegation), on 11 April 2018, and notified on 16 April 2018".
Consequently, the Applicant did not accept the decision dismissing the Hierarchical Appeal, which is also the object and basis of the request for arbitral pronouncement.
It is understood that the 90-day period provided for in article 10 of the RJAT should be counted from the notification of the decision dismissing the Hierarchical Appeal, insofar as, although the Applicant has not expressly petitioned for the annulment of the decision dismissing the Hierarchical Appeal, referring that annulment to the other effects of the success of the request, but only, in an autonomous manner, the express declaration of illegality of the assessment act, the two objects integrate the tribunal's cognition, since the pronouncement on the illegality of the assessment acts stricto sensu will necessarily imply, even if perhaps implicitly, the illegality of the decision dismissing the Hierarchical Appeal, whereby such question does not directly contend with the determination of the period for the purposes of submitting the request for arbitral pronouncement.
In this sense, see the Court of Appeal of the Central Administrative Court South of 17 March 2016, issued in the context of case no. 8998/15, which assesses an appeal filed against an arbitral decision regarding the same exception, which refers to the fact that there are "countless decisions, some of which cited by the appellant, in which it was decided that the period to challenge (the 90-day period that the appellant had to formulate the request to constitute arbitration), in situations where there was a gracious objection followed by an express decision, is counted from the notification of the latter decision and not from the end of the voluntary payment period of the assessment, that there is a close relationship and interdependence between the mediate and immediate objects and that the assessment or interpretation of the request in these situations cannot fail to take into account those circumstances of fact and law" continuing in the sense that "the question of the existence of the objection, even if not expressly translated in the formulation of the request, was not olympically ignored by the appellant, which expressly refers to it in articles 2 and 3 of its initial pleading (...). Therefore, at the limit, the Arbitral Tribunal could not have failed to equate the hypothesis that it was effectively those, or both acts that were the object of the request for challenge, and subsequent annulment".
In light of the foregoing, it is understood that the Applicant did not accept the decision dismissing the Hierarchical Appeal, which will always integrate the object of the arbitral proceedings for the purposes of the provision of article 10, no. 1, subparagraph a) of the RJAT, whereby the exception of expiry invoked by the Respondent AT lacks merit.
B. POSITIONS AND ARGUMENTS OF THE PARTIES
B.I. Position of the Applicant
In the understanding of the Applicant, the assessment in question is illegal because (i) the alleged market value ascertained by the Tax Authority has no economic and financial justification, constituting a clear violation of the applicable legal provisions, and (ii) the lack of comparability of the operations considered by the Tax Authority as comparable, since:
i) The Respondent AT did not succeed in demonstrating, much less in a substantiated manner, that the price practiced in the operation under analysis was not reasonable or market price, taking into account, especially, all the circumstances that involved the definition of the price, insofar as it was satisfied with the mere demonstration that there was a transaction between related entities and others, considered as comparable, between non-related entities;
ii) There is no quantification whatsoever, by the Respondent AT, based on robust and technically unassailable comparability elements and studies, of the market value of B... S.A., which would exclude the elements presented by the Applicant in order to justify the adopted price;
iii) On the other hand, the terms and conditions of the operation of disposal of the equity interest analyzed by the Respondent AT in the area of transfer pricing respected the arm's length principle, insofar as it was demonstrated that the price practiced was defined, between non-related entities, on 28 March 2008, on a date much earlier than the disposal operation that is the subject of adjustment by the Tax Authority (31 January 2011);
iv) Added to this is that C... S.A. was further obliged to place at the disposal of the Applicant, as well as K... and J..., all the financial means indispensable for them to realize the initial capital of B... S.A. and, likewise, the financial means indispensable to provide any future capital increases or to realize, in any other form that is decided, the own funds necessary to contribute to the project by those shareholders;
v) Within the framework of the financing of the photovoltaic park of ..., C... S.A. bound itself to the provision of costly guarantees, which was not the case with respect to the original member of the Applicant (and also shareholder in B... S.A.) and K... (also shareholder in B... S.A.), who were neither party to the financing contract nor to the guarantee provision contract, which naturally influenced the determination of the acquisition price by C... S.A. of the participation in B... S.A.;
vi) Without prejudice, the Applicant understands that, if it is considered that the Respondent AT succeeded in demonstrating that the price practiced in the transaction between related entities did not respect the arm's length principle, it will always be necessary to conclude that the operations qualified by the Respondent AT as allegedly "comparable" must be disregarded for purposes of determining the said market value;
vii) For purposes of assessing the market value of the participations held in B... S.A., the Respondent AT could not have adopted the Comparable Market Price criterion, since the operations used as comparables are not substantially identical, given that their relevant economic and financial characteristics are not demonstrated to be analogous or sufficiently similar, significantly affecting the determination of the terms and conditions that would be practiced in a normal market situation.
B.II. Position of the Respondent
a) In its response, as well as in the pleadings subsequently presented, the Respondent AT maintains the understanding that the disputed assessment constitutes a correct application of the Law, not being subject to any defect.
b) The Respondent AT understands that, in accordance with the provision in no. 2 of article 63 of the CIRC, as well as in article 4 of Ordinance no. 1446-C/2001, of 21 December, the taxpayer must adopt, for the determination of the terms and conditions that
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