CAAD 342/2018-T: SGPS Financial Costs Deduction After Repeal of Article 32 EBF - IRC 2014

ARBITRATION DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Fernando Araújo and João Menezes Leitão, designated to form an Arbitral Court at the Administrative Arbitration Centre, hereby agree as follows:

I – REPORT

On 17 July 2018, A..., SGPS, S.A., NIPC ..., with registered office at ..., n.º..., Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2º and 10º of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by Article 228º of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as RJAT), seeking the declaration of illegality of the acts of dismissal of hierarchical appeal dated 18 April 2018, dismissal of gracious complaint dated 20 September 2017, and the corporate income tax self-assessment act relating to the tax year 2014, in the amount of € 4,572,676.79.

To substantiate its request, the Claimant alleges, in summary, that:

In light of the logic and spirit animating the normative of Article 32º, no. 2, of the Tax Benefits Statute (EBF), logic which in turn is inferred from its own legal text, and also from the Report of the State Budget Law for 2003, it being conclusive (as it is) that the sale of capital shares shall not be susceptible to the application of the normative provided for in no. 2 of Article 32º of the EBF (by force of the most radical event that could be imagined in this regard – elimination of this normative), the exclusion of the deduction of financial charges must be corrected;

This is what results from the interpretation of no. 2 of Article 32º of the EBF, taking into account its text and normative purpose;

And this is also what the principle of justice advises, to which the Administration is subject (Article 8º of the Code of Administrative Procedure; also Article 8º of the General Tax Law);

This was the understanding that the Tax Authority fixed in generic guidelines, the first of which is contained in Circular no. 7/2004, of 30 March 2004, of the IRC Service Directorate (DSIRC), specifically in its point 6;

In this sense, it was also decided in the arbitral award handed down in case no. 645/2017 of CAAD;

Equally, in the Doctrinal Record published in the Tax Authority Portal containing the prescriptive content of the Ruling of 24 February 2011 of the Director-General of Taxes, issued in Process no. 39/2011;

"[T]he tax administration is bound by the generic guidelines contained in circulars, regulations or instruments of identical nature, regardless of their form of communication, aiming at the standardization of the interpretation and application of tax norms." – Article 68º-A, no. 1, of the General Tax Law;

And Article 10º of the Code of Administrative Procedure mandates observance of good faith principles in the relationship between the Tax Authority and taxpayers;

The norm contained in no. 2 of Article 32º of the EBF in the wording effective on 31.12.2013, in the interpretation sought by the Tax Authority in the present proceedings, is unconstitutional;

The norm contained in Article 68º-A, no. 1, of the General Tax Law, in the interpretation that, having the Tax Authority fixed in a first generic guideline the understanding that the tax deductibility exclusion of tax charges provided for in no. 2 of Article 32º of the EBF (in the numbering effective on 31.12.2013; previously, Article 31º) should be corrected "should it be concluded, at the moment of alienation of the shares, that not all requirements for application of that regime [of capital gains exemption, provided for in the same no. 2] are met", and further having the Tax Authority prescribed in a subsequent doctrinal record that this solution is to be applied in a situation where the cited no. 2 of Article 32º of the EBF ceased its application with respect to certain capital shares, would still be unconstitutional by violation of the principle of protection of legitimate expectations derived from Article 2º of the Constitution (principle of the rule of law) and no. 2 of Article 268º of the Constitution (principles of justice and good faith);

The participation exemption regime is not capable of correcting the deductibility exclusion of financial charges at issue here, since we are not faced with the same norm under different guise (article number and systematic insertion) but with substantively (and formally) different norms;

The general quantitative limit to the deduction of financial charges provided for in Article 67º of the Corporate Income Tax Code (CIRC), introduced by Law no. 66-B/2012, of 31 December, already existed before the 2014 IRC reform, applying when Article 32º, no. 2, of the EBF was still in force, and no participation exemption regime yet existed;

Only the application of no. 2 of Article 32º of the EBF to financial charges incurred until 31.12.2013, at a time when the norm that governs is still that of no. 2 of Article 32º of the EBF, in a time of temporal and material validity of the norm, and not of any putative norm or transitional regime;

Only the closing of accounts resulting from the application of Article 32º, no. 2, of the EBF, with respect to events belonging to its temporal and material sphere of competence (financial charges with capital shares, incurred by SGPSs until 31.12.2013), is at issue. This norm also shall no longer govern any future alienation, post 31.12.2013, or any future financial charges, incurred post 31.12.2013, because these events, with this temporal belonging, are already outside its temporal and material sphere of competence;

For this same reason, there is no conflict with the participation exemption regime which entered into force in 2014: we are speaking of financial charges incurred until 31.12.2013, that is, incurred before the entry into force of the participation exemption regime, on 01.01.2014;

The participation exemption regime, in terms of its normative content considered atemporally, also does not oppose what is petitioned, for the simple and radical reason that no exclusion of deduction is prescribed with respect to financial charges;

There is also no problem with the principle of specialization of tax years or the application of law in time;

If it is understood that the Claimant's argument rests solely on unconstitutionality, indemnity interest should not be denied.

On 18-07-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant proceeded to indicate an arbitrator, having indicated the Honorable Prof. Dr. Fernando Borges Araújo, in accordance with Article 11º/2 of RJAT. Pursuant to no. 3 of the same article, the Respondent indicated as arbitrator the Honorable Dr. João Menezes Leitão.

The arbitrators appointed by the parties were nominated and accepted their respective duties.

Following a request presented by the arbitrators designated by the parties for the president arbitrator to be appointed by the Deontological Council, the president arbitrator was appointed pursuant to Article 6º, no. 2, letter b) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228º of Law no. 66-B/2012, of 31 December and Article 5º of the Regulation on Selection and Appointment of Arbitrators in Tax Matters, the present Rapporteur, who, within the applicable period, also accepted the appointment.

On 21-09-2018, the parties were notified of these appointments and did not manifest any intention to refuse any of them.

In accordance with the provision in no. 7 of Article 11º of RJAT, as amended by Article 228º of Law no. 66-B/2012, of 31 December, the collective Arbitral Court was constituted on 12-10-2018.

On 13-11-2018, the Respondent, duly notified for this purpose, filed its reply defending itself by way of exception and contestation.

The Respondent alleges, on the merits of the case, in summary, that:

The reasoning underlying arbitral award no. 610/2017-T, which has already become final, is sufficiently explicit as to why the Claimant's arbitral request should be dismissed;

Regarding the value of the charges under discussion, judicial proceedings are pending where they are being discussed, and in which the Claimant petitions for their deduction in the respective tax year, precisely on the grounds that such circular is illegal/unconstitutional and cannot be applied (arbitral cases no. 333/2017-T, relating to the period of 2010 and no. 471/2017-T, relating to the period of 2009);

From the content of Circular 7/2004 does not result what is sought by the Claimant, as the Circular reconditions that moment to the alienation of the shares, which is not at all what is at issue here (nor indeed an impossibility of future sale by the Claimant);

Regarding the doctrinal record issued in process no. 39/2011, drawing a parallel with the revocation of the SGPS regime is comparing the incomparable;

The common denominator to the transitional provisions contained in Article 12º of Law no. 2/2014, of 16.01, is that it does not provide for any regularization of expenses or income, losses or operations relating to tax periods with commencement before 1 January 2014.

If the legislator did not define any transitional regime in Law no. 83-C/2013, of 31/12, which repealed Article 32º of the EBF nor in Law no. 2/2014, such regime cannot be conceived and applied, whether by the Tax Authority or by taxpayers, under penalty of violation of the principle of legality;

With the revocation of the special regime for SGPSs by Law no. 83-C/2013, effective from 01.01.2014, it cannot be intended that Circular no. 7/2014, which dealt with this, remains in force;

In 2014, Law no. 2/2014, of 16.01, which carried out the reform of the taxation of companies (commonly called the "IRC reform"), introduced into our legal system the so-called participation exemption regime, which, with regard to capital gains and losses realized with the paid transfer, expanded the "exemption method" previously applicable to SGPSs and provided for in Article 32º of the EBF to all corporate income tax subjects who primarily exercise a commercial, industrial or agricultural activity, provided that all the application requirements established in Article 51º-C of the Corporate Income Tax Code are met.

The commencement of the participation exemption regime thus determined the revocation of the special tax regime for SGPSs (cf. Article 210º of Law no. 83-C), by virtue of the fact that it has come to cover all companies regardless of the legal nature they present.

With respect to financial charges which were limited in their deductibility in the legal provision of Article 32º of the EBF, in the IRC reform, as a matter of simplicity the legislator chose to strengthen the restriction on the deductibility of financing costs provided for in Article 67º of the Corporate Income Tax Code, thus avoiding the creation of more special deductibility-limiting rules.

It is not true that the possibility of enjoying the exclusion from taxation of results determined by these companies with the alienation of capital shares has ceased permanently, because, in substance, for SGPSs, in the tax period of 2014 and following, the principles and foundations of the former Article 32º of the EBF are maintained, but now in another legal norm, Article 51º-C of the Corporate Income Tax Code, which presents itself as a New Law for other corporate income tax subjects, but not properly for SGPSs which already enjoyed the tax advantages now defined in Article 51º-C.

Taking as good the work of the legislator, from his own words, expressed in the Report on the Reform Preliminary Draft, it results unequivocally that the repeal of Article 32º of the EBF and the absence of a transitional regime did not correspond to an oversight.

The respect of the principle of protection of legitimate expectations did not require attributing retroactive character to the deduction of financial charges incurred with the acquisition of social shares held on 01-01-2014, insofar as the regime designated by participation exemption does not prove to be penalizing – on the contrary – to SGPSs which benefited from Article 32º of the EBF.

The differentiated treatment to which SGPSs were subject in relation to other companies holding social shares does not allow us to consider that they were, on 01-01-2014, in an equivalent starting position, insofar as SGPSs always benefited from more advantageous treatment in respect of dividends (until the amendment introduced by Law no. 55-A/2010, of 31/12) and capital gains, so that, there having been no identical conditions until 31-12-2013, it cannot soundly be considered that the repeal of Article 32º of the EBF placed SGPSs, on 01-01-2014, in a globally unfavorable situation;

With the elimination of the special regime for taxation of SGPSs, the legislator merely restored formal equality in the tax treatment of capital gains and losses generated with the transmission of capital shares;

What the Claimant claims is the deduction at once of the totality of financial charges it alleges it did not deduct in tax years 2007 to 2011, without, however, such having any support in the law or in Circular no. 7/2004, as well as in the case law cited by it;

Only financial charges incurred by the Claimant in 2014 and following tax years, even if arising from financing contracted in prior years, by force of the criteria governing the temporal allocation of charges (no. 1 of Article 18º of the Corporate Income Tax Code) are encompassed by the general rules of charge deductibility provided for in Articles 23º and 67º of the same Code, which is equivalent to saying that such a fact would occur only at the moment of alienation of the social shares and never in 2014;

The Claimant's claim amounts to filling a lacuna, by referring to the fact that the repeal of the regime of Article 32º of the EBF leaves a legal void;

It would be materially unconstitutional to interpret the normative as proposed by the Claimant, to the effect that deduction is permitted for financial charges incurred between 2003 and 2013, therefore during the validity of Article 32º of the EBF, to the taxable income of 2014, in the face of the absolute absence of a legal norm providing for it, by violation of the principle of tax legality, in the aspect of generality and abstraction of the tax law, and, equally, by violation of the principle of tax equality, which derive, namely, from the provision in Article 13º and Article 103º of the Constitution;

What the Claimant seeks amounts to retroactive application of the law, at once, by way of imputation to the taxable income of 2014 of the rule of deductibility of financial charges incurred between 2007 and 2011 with the acquisition of social shares, whose capital gains and losses realized did not enter into the calculation of taxable income, in accordance with the provision of no. 2 of Article 32º of the EBF;

What is sought by the Claimant is in manifest disregard of the principle of taxation of real profit and of taxpaying capacity, insofar as it violates the principle of specialization of tax years and completely disregards the concrete situation of taxation (or not) of the shares at the time (future) when they come to be alienated.

The Claimant is not correct when it understands that the repeal of Article 32º of the EBF will restrict the possibility of benefiting from the counterpart that led it to disregard for tax purposes financial charges attributable to capital shares, so that it should have the possibility to deduct in the tax period of 2014 the non-deductible financial charges determined in the tax periods of 2007 to 2011, inclusive.

Being that this normative interpretation, permitting the full deduction of financial charges incurred between 2003 and 2013, therefore during the validity of Article 32º of the EBF, to the taxable income of 2014, is unconstitutional by violation of the constitutional principle of taxpaying capacity and taxation of real profit (Article 104º, no. 2 of the Constitution).

The Claimant was afforded the exercise of the right to reply regarding the matter of exception invoked by the Respondent, and such right of reply was duly exercised.

Pursuant to the provisions of letters c) and e) of Article 16º, and no. 2 of Article 29º, both of RJAT, the holding of the meeting referred to in Article 18º of RJAT was dispensed with.

Having been granted a period for the presentation of written submissions, these were presented by the parties, reiterating and developing their respective legal positions.

It was indicated that the final decision would be handed down by the end of the period referred to in Article 21º/1 of RJAT.

The Arbitral Court is materially competent and is regularly constituted, in accordance with Articles 2º, no. 1, letter a), 5º and 6º, no. 2, letter b), of RJAT.

The parties have legal personality and capacity, are legitimate and are properly represented, in accordance with Articles 4º and 10º of RJAT and Article 1º of Ordinance no. 112-A/2011, of 22 March.

The case is free from nullities.

Thus, there is no obstacle to the examination of the case.

Everything having been considered, it is incumbent upon us to hand down:

II. DECISION

A. MATTERS OF FACT

A.1. Facts established as proven

On 28 May 2015, A... SGPS delivered the income statement Model 22 with reference to the tax year 2014 of the Group of companies subject to the Group Regime of which it was the parent company, and also presented a substitute declaration delivered on 24 August 2016, which did not cover the matter under discussion in the present arbitral proceedings and which gave rise to the issuance of assessment no. 2016....

In the declarations referred to, the Claimant did not deduct from the taxable income of the Group € 19,881,203.41 in financial charges relating to capital shares still held by it on 31 December 2013, which in prior tax years had remained undeducted pursuant to Article 32º, no. 2, of the Tax Benefits Statute (EBF), in conjunction with the provision of the DSIRC Circular no. 7/2004.

On 26 May 2017, the Claimant filed a gracious complaint against the self-assessment for the tax year 2014, asserting that it had the right to deduction, in tax year 2014, of the financial charges incurred with the acquisition of the shares in the tax periods of 2007 to 2011.

The gracious complaint was dismissed by ruling dated 20 September 2017, with the Claimant filing, on 20 October 2017, a hierarchical appeal.

The hierarchical appeal was dismissed by ruling dated 18 April 2018.

In the tax periods comprised between 2007 and 2011, the Claimant added, for purposes of determining its taxable income – and, as a consequence, the taxable income of its Fiscal Group subject to the Group Regime of which it is and was the parent company – amounts corresponding to financial charges which, in accordance with the application of the methodology provided for in Circular no. 7/2004, were allocated to the acquisition of capital shares, which amounted to a global amount of € 40,841,537.37, determined in accordance with the methodology defined by the said Circular no. 7/2004 of the IRC Service Directorate.

From that amount, € 21,375,949.12 relate to financial charges relating to shares held by the Claimant on 31 December 2013 (i.e. B..., S.A., C..., S.A., D..., S.A., E..., F..., S.A., G..., S.A., H..., S.A., I... (Portugal), SGPS, S.A.).

By reference to the preceding administrative procedures (hierarchical appeal and gracious complaint) the amount of € 21,375,949.12 was reduced to the amount of € 19,881,203.41, because meanwhile there occurred the finality of a decision which, with a different basis, authorized the tax deduction in 2011 of the financial charges in question, incurred in 2011.

With a different basis, the Claimant petitioned for the deduction of financial charges in the individual sphere of the subsidiary company in tax years 2009 and 2010 in the arbitral actions that took place under cases nos. 471/2017-T and 333/2017-T, respectively, which were the subject of the decisions handed down on 4 December 2018 and on 10 April 2018, having been decided, in the first decision, to grant the claims for declaration of partial illegality of the corporate income tax assessment act relating to the tax year 2009 in the part corresponding to the amount of € 2,419,296.45 and for refund of the said amount of € 2,419,296.45 and, in the second decision, to grant the claims for declaration of illegality of the corporate income tax self-assessment, relating to the tax year 2010, in the part corresponding to the amount of € 3,056,662.62, and for refund of the said amount of € 3,056,662.62.

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Grounds for the facts established as proven and not proven

With respect to matters of fact the Court does not have to pronounce on everything that was alleged by the parties, being incumbent upon it, rather, the duty to select the facts that matter for the decision and to differentiate the proven from the unproven facts (cf. Article 123º, no. 2, of the Code of Tax Procedural Law and Article 607º, no. 3 of the Code of Civil Procedure, applicable ex vi Article 29º, no. 1, letters a) and e), of RJAT).

In this way, the facts pertinent to the judgment of the case are chosen and delimited in function of their legal relevance, which is established in attention to the various plausible solutions to the question(s) of law (cf. former Article 511º, no. 1, of the Code of Civil Procedure, corresponding to current Article 596º, applicable ex vi Article 29º, no. 1, letter e), of RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110º/7 of the Code of Tax Procedural Law, the documentary evidence and the file joined to the case, the facts listed above were considered proven, with relevance to the decision, bearing in mind that, as was written in the Judgment of the South Administrative Court of 26-06-2014, handed down in case 07148/13, "the probative value of the tax inspection report (...) may have probative force if the assertions contained therein are not challenged".

In particular, the facts referred to in points 2 and 8 result from the documentary evidence presented by the Claimant, in arbitral and administrative proceedings, and at no time were the amounts in question, including the amount of the reduction accounted for in point 8 of the proven facts, contested, challenged, or in any way placed in doubt by the Tax Authority. The factuality referred to in point 9, in addition to the indication contained in the parties' pleadings, was established by the public disclosure of the awards indicated in the case law database of CAAD.

No allegations made by the parties, presented as facts, consisting of strictly conclusory statements, incapable of proof and whose truthfulness should be assessed in relation to the concrete matters of fact consolidated above, were established as proven or not proven.

B. ON THE LAW

Matters of Exception

Incompetence of the Arbitral Court as to Subject Matter

The Respondent begins by arguing the incompetence of the Arbitral Court to annul the corporate income tax self-assessment in the specific amount of € 4,572,676.79 and condemn the Respondent to its refund.

The Respondent considers that "even if such a claim could eventually result from the execution of judgments that would be performed in case the arbitral decision handed down was to grant the claim (principal or subsidiary) (...) it cannot be known in the present proceedings, because such claim (in the identified part) exceeds the competence of this Court", since "as to the value of the charges, also the Court cannot establish its exact amount, by virtue of the pending judicial proceedings where they are being discussed and in which the Claimant petitions for their deduction in the respective tax year, such as arbitral cases no. 333/2017-T, relating to the period of 2010 and 471/2017-T, relating to the period of 2009."

The Respondent further concludes that "it does not fall within the scope of these competences the examination of the request for recognition of the right formulated by the Claimant, in the part in which it calculates and petitions the return of the eventual tax (paid by the Group) corresponding to the correction to the taxable matter it seeks to have recognized in its favor (accrued with the corresponding indemnity interest)".

The Respondent further notes that "the definition of the acts in which the execution of arbitral judgments should be concretized is the responsibility, in the first place, of the Tax Authority, with the possibility of recourse to the courts to coercively request execution, within the scope of the process of execution of judgments, provided for in Article 146º of the Code of Tax Procedural Law and Articles 173º and following of the Code of Procedure in Administrative Courts."

However, there is no doubt whatsoever, in doctrine and jurisprudence, both arbitral and state, that an arbitral court in tax matters, constituted under the aegis of CAAD, "similarly to what occurs with tax courts in judicial impugnation proceedings, (...) is competent to examine claims for refund of the sum paid and for payment of indemnity interest.", as is fully subscribed in the Judgment of the South Administrative Court of 28-04-2016, handed down in case 09286/16, cited by the Respondent itself.

Whether or not the amount indicated in the refund request is correct will be a matter that interferes with the granting or dismissal of the claim, but not with the competence of the Court to examine it.

Moreover, the same Judgment of the South Administrative Court of 28-04-2016, handed down in case 09286/16, concludes, in the case judged there, that the arbitral court was incompetent to judge a refund claim, based on two grounds, namely:

• "The arbitral award must be annulled, in the part in which it condemned the Tax Authority to reimburse to the now Impugned the sum of € 559,725.29, because: (i) notwithstanding the fact that such a claim was literally contained in the claim formulated in the request for arbitral ruling, the claimant herself clarified in reply to the exception of material incompetence of the Arbitral Court that this was not her intention in these proceedings, since what she effectively intended was the annulment of the act of express dismissal of the gracious complaint and of the self-assessment act which was the basis thereof";

• "It results from the case file, especially from the proven facts and from the gracious complaint records integrated in these, that the Tax Authority before the present Impugnation of Arbitral Decision, that is, in the gracious complaint proceedings, was not confronted with, nor issued a ruling on, any quantification resulting from a possible annulment, which prevents the integration of this part of its object – recognition of the right underlying the quantification of the calculation of tax to be refunded as unduly paid - in the competence of the Arbitral Court, by violation of Articles 2º of RJAT and Articles 2º and 3º of the Binding Ordinance."

Now, neither one nor the other of the grounds exists in the present case.

In effect:

• The Claimant affirmed, and reaffirmed, expressly, its intention that the Tax Authority be condemned to reimburse the amount of tax it indicated as unduly paid;

• In administrative proceedings, namely in gracious complaint proceedings, the Tax Authority was confronted with a quantification resulting from a possible annulment, and issued a ruling, as the table contained in point 14 of the Respondent's reply shows.

Thus, we are not faced with a case of application of the doctrine of the invoked judgment of the South Administrative Court, and the arbitral jurisprudence invoked by the Respondent is, as demonstrated by the Claimant in its submission on the exceptions, not transposable to the present case.

The Respondent argues that the interpretation according to which the norm of Article 2º of RJAT integrates the competence of Arbitral Courts in tax matters functioning at CAAD to examine and decide claims for reimbursement of unduly paid tax by virtue of the acts of assessment that are subject of arbitral actions that are annulled, violates:

• the principles of certainty and legal security, sub-principles embodying the principle of Democratic Rule of Law, provided for in Article 2º of the Constitution of the Portuguese Republic;

• the principle of access to justice, of equal treatment, of effective judicial protection, provided for, among others, in Articles 13º and 20º of the Constitution;

• it would, equally, be materially unconstitutional by violating the principle of legality, which informs all administrative activity, and its corollary of indisponibility of the tax credit.

Being a matter already abundantly examined, as referred to, both in doctrinal and in jurisprudential terms, both state and arbitral, in consensual manner to the effect that similarly to what occurs with tax courts in judicial impugnation proceedings, arbitral courts constituted under the aegis of CAAD are competent to examine claims for refund of the sum paid and for payment of indemnity interest, and not being, in any manner, concretized the manner in which the Respondent understands that such interpretation violates the norms and constitutional principles it invokes, it is concluded that none of such pointed violations is verified, so that this exception should be dismissed.

As to this matter, the Respondent further maintains that "the tax administration is only necessarily obliged, in case of total or partial grant of administrative complaints or appeals, or of judicial proceedings in favor of the subject, to the immediate and full reconstitution of the situation that would exist if the illegality had not been committed, including the payment of indemnity interest, in the terms and conditions provided for by law.", so that "under penalty of unjust enrichment, the condemnation of the Tax Authority to consider the charges unduly deducted, as well as the refund of the sums unduly paid and the payment of the respective indemnity interest cannot exceed the amounts still to be deducted and the tax actually paid by the Claimant.", therefrom extracting "the material incompetence of the Court to examine that claim by the Claimant".

Recognizing, already here, the Respondent's competence of arbitral courts in tax matters constituted under the aegis of CAAD to condemn the Tax Authority to the "refund of the sums unduly paid and to the payment of the respective indemnity interest", the questions it raises regarding the amount to be refunded are situated at the level of the decision on such a claim, namely in the examination of proof and manner of its quantification, a matter which naturally concerns the merits of the case, and not with the matter of exception, namely, of material incompetence.

Incompetence of the Arbitral Court as to Value

The Respondent proceeds by arguing that "what it effectively intends to submit to Court is the legality of the part of the said self-assessment act that reflects the non-deduction of financial charges in the amount of € 19,881,203.41", so that "the value of the arbitral claim that should effectively be considered, if it is understood that it should be assessed based on the charges that the Claimant intends to have recognized, is € 19,881,203.41."

As results from the Respondent's own reply (cf. Articles 51º and 52º), this allegation rests on the premise of the granting of the exception of material incompetence of this Arbitral Court, previously raised and which has just been examined.

Now, given that the said exception is found to be without merit, the grounds on which the present allegation rests fall away.

Thus, by force of the provision in Article 3º/2 of the Regulations on Costs in Tax Arbitration Proceedings of CAAD, and in Article 97º-A/1/a) of the Code of Tax Procedural Law, the value of the case shall be that of the importance of tax assessed whose annulment the Claimant seeks, that is, €4,572,676.79.

On the Merits

As results unequivocally from the positions of the Claimant and Respondent, from the administrative phase, the substantial question that presents itself for decision in the present proceedings concerns knowing what are the effects of the repeal of Article 32º of the EBF, operated by Law no. 83-C/2013, of 31/12, effective from 01/01/2014, with respect to financial charges with social shares held by SGPSs at the date of said repeal, not deducted in prior tax years, by force of the provision of no. 2 of the said Article 32º of the EBF, now repealed.

The Claimant seeks, in the present proceedings, that such financial charges be deductible in the first tax year subsequent to the repeal of the norm in question (the tax year of 2014), and the Respondent maintains that such charges should be deemed non-deductible, unless, if we understand correctly, at the time of alienation of the social shares in question, the Claimant does not benefit from the participation exemption regime, meanwhile introduced in Article 51º-C of the Corporate Income Tax Code, by Law no. 2/2014, of 16.01.

Without major conceptual concerns, one could say that, given the respective effectiveness, the non-deductibility of an expense incurred by a corporate income tax subject in a given tax year will result from one of three possible hypotheses, namely:

• The non-fulfillment of the general requirements for the deductibility of expenses;

• The incompatibility of the deductibility of the expense with the rules of economic periodization;

• The existence of a specific norm that precludes, conditionally or definitively, the deductibility of the expense.

Being at issue in the present proceedings the assessment of the deductibility of certain expenses effectively incurred by the Claimant, with financial charges related to the acquisition of social shares, it will be necessary to determine whether any of those situations is verified, the subsequent analysis proceeding from the most concrete hypothesis (the one referred to in letter c) above) to the most generic hypothesis (the one referred to in letter a) above).

As relevant facts for the examination and solution of the legal problem raised, and given the proven matters of fact, we have that, in the period in question (2007-2011):

• The Claimant incurred expenses in the global amount of € 21,375,949.12 (meanwhile reduced to the amount of € 19,881,203.41, as stated in point 8 of the proven facts);

• such expenses relate to financial charges with social shares that the Claimant held on 01/01/2014;

• those same expenses were not the subject of deduction from the taxable income of the Claimant in the respective tax period, because the social shares in question had been considered susceptible to, in the future, not contributing with gains or losses to the formation of its taxable income, in accordance with Article 32º/2 of the EBF;

• until 01/01/2014, the said shares had not generated gains or losses that did not contribute to the formation of the Claimant's taxable income, in accordance with Article 32º/2 of the EBF.

Having said that, Article 32º/2 of the EBF provided, in the wording given by Law no. 64-B/2011, of 30 December, and, before it, in materially identical terms as to SGPSs, Article 31º/2 of the same EBF, in the wording given by Law no. 67-A/2007, of 31 December, that:

"The capital gains and losses realized by SGPSs from capital shares of which they are holders, provided that held for a period of no less than one year, and also the financial charges incurred with their acquisition, do not contribute to the formation of the taxable income of these companies."

Before that, the same Article 31º/2, in the wording given by Law no. 32-B/2002, of 30/12, provided that:

"The capital gains and losses realized by SGPSs and by Special Credit Companies by means of paid transfer, whatever the title by which it operates, of capital shares of which they are holders, provided that held for a period of no less than one year, and also the financial charges incurred with their acquisition, do not contribute to the formation of the taxable income of these companies."

The said norms gave rise to various difficulties of practical application, which in the case are not relevant, and, for what now matters, there came to be formed the understanding, in sum, that:

a. the financial charges in question (incurred with the acquisition of financial shares, held for a period of no less than one year, by SGPSs) were not deductible in the tax years in which they were incurred; and

b. It was possible the "correction of costs not deducted in prior tax periods, should the alienation of a capital share not meet the requirements for the application of the special regime for exemption of capital gains" in question.

It was in execution of the cited norms (Article 31º/2 and, subsequently, Article 32º/2 of the EBF), thus interpreted, that the Claimant, in tax years 2007 to 2011, did not deduct the financial charges now at issue.

Assuming that the "costs not deducted in prior tax periods, should the alienation of a capital share not meet the requirements for the application of the special regime for exemption of capital gains", would be considered for purposes of the calculation of taxable income, which is neither, nor, at any moment that is known, was placed in question by the Tax Authority, it should be validated that:

• such "costs"/financial charges are the same ones that were incurred in "prior tax periods", and not a cost/financial charge new that is generated/occurs in the tax period in which the "alienation of a capital share [that] does not meet the requirements for the application of the special regime for exemption of capital gains" takes place;

• the non-deductibility of the "costs"/financial charges in question will be, thus and from this point of view, a "relative" non-deductibility, as opposed to an "absolute" non-deductibility, proper to costs that are not deductible in the year in which they are incurred, and never will be;

• the "costs"/financial charges at issue had a deductibility under "suspensive condition", that is, deductibility would only be "effective" when the "alienation of a capital share does not meet the requirements for the application of the special regime for exemption of capital gains" of Article 32º/2 of the EBF.

That is, and in sum: the regime of Article 32º/2 of the EBF, at the date of its repeal, and of Article 31º/1 of the same act before 01/01/2008, as commonly interpreted, and not contested in the present proceedings, did not postulate a definitive non-deductibility of financial charges incurred with the acquisition of financial shares, held for a period of no less than one year, by SGPSs, but a non-deductibility "conditioned" to the fact that the gains or losses generated by their respective alienation would not come to contribute to the calculation of taxable income of SGPSs.

We are not dealing here, thus and simply, with a norm that precludes the fiscal deduction of certain costs, but rather with a norm that enshrines a non-definitive non-deductibility, in successive tax years, until certain facts are, or are not, verified, from which would result: a) the definitiveness of the non-deductibility "ex ante"; or b) the cessation of that non-deductibility.

The Constitutional Court itself, in the award cited, when substantiating the non-violation of the principle of proportionality of the norm in question, clarifies that the non-deductibility in question integrates a "non-deductibility of financial charges ex ante", that is, non-deductibility operates prior to the cause of that same non-deductibility, and conditioned to the verification of that same cause, that is, to the "application of the special regime for exemption of capital gains".

It happens that, as has been seen, the regime in question, embodied, until 31/12/2013, in Article 32º/2 of the EBF, was repealed, effective from 01/01/2014, by Law no. 83-C/2013, of 31/12, and, by Law no. 2/2014, of 16/01, in Article 51º-C of the Corporate Income Tax Code, the regime called participation exemption was introduced.

The question that arises, then, is whether the new regime is a continuation of the former or whether, rather, it is a new regime, even if partially replicating aspects of the repealed regime.

With all respect due to other opinions, it is believed that a new regime is at issue.

Indeed, and first of all, although not being a decisive argument, it is verified that the repeal of Article 32º of the EBF and the establishment of the participation exemption regime occurred in distinct legislative acts and also in distinct temporal moments, contrary to what would be normal if there were a continuity of regimes.

On the other hand, and this also not being a determining argument, there is no continuity of the legislation where the regimes in question are established.

This circumstance occurs, moreover, and here already more substantive circumstances are presented, because there is a different substantive nature of the regimes at issue.

Thus, whereas the regime of Article 32º/2 of the EBF constituted a genuine tax benefit, in the definition of Article 2º/1 of the EBF itself, the participation exemption regime became part of the general regime of the Corporate Income Tax Code, ceasing to have the exceptional character, instituted for the protection of extrafiscal public interests, postulated by the quality of tax benefit, and becoming a generic norm, applicable to all corporate income tax subjects, integrating the "model of taxation of income from capital shares", making part of a "regime, which finds its ratio in a deepening of the principle of territoriality".

Being that, as the Constitutional Court referred in Award no. 139/2016:

"seeking to ascertain substantial equality of legal positions - on the assumption that only two materially equal or equivalent positions can serve as a parameter for assessing an unequal treatment - it cannot be at all affirmed that such a connection exists between a relationship that leads to taxation-rule and another relationship that leads to the grant or non-grant of the tax benefit."

This aspect is well clear in the "Report of the Preliminary Draft Reform" of the Corporate Income Tax Code, which refers to the fact that "the realization of capital gains and the distribution of dividends are two alternative forms of value apportionment to shareholders, being conceived as close substitutes, in function of their inherent relative substitutability. In these terms, it is considered that a discrepant tax treatment between these two forms of realization of income is susceptible to influence the fundamental decision of retention of capital in companies, thus modifying the "natural" behavior of economic agents, or, in other words, creating inefficiencies."

This was one of two specific reasons, within the general finding of the limitation of the "efficiency of the regime used, at the national level, for elimination of double taxation", that led the Reform Commission to propose "the adoption of a participation exemption regime of universal scope (i.e., applicable to investment regardless of the country or region in which it materializes, except for the indispensable anti-abuse norms) and horizontal (applicable both to the distribution of profits and reserves, as well as to capital gains, and also to the various operations susceptible of being considered as own substitutes of these operations)".

That is: the institution of the participation exemption regime had nothing to do with the regime of Article 32º/2 of the EBF, having been determined by its own and specific reasons, alien to that.

The redundancy (and not substitution) of the "tax regime provided for SGPSs", and its consequent repeal, was a consequence of the adoption of the participation exemption regime, and not a cause.

That is, and in sum: it is believed that, with the participation exemption regime, it is not, first and foremost, a regime of exceptional character, instituted for the protection of extrafiscal public interests, but a choice of fiscal policy, integrated in a set of measures designed to increase the "efficiency of the regime used, at the national level, for elimination of double taxation", with the repeal of Article 32º of the EBF being a consequence of the substantial overlap, in large part, between the new regime created and the special regime of SGPSs, this being one of the "various special fiscal regimes currently existing" that "the adoption of the new participation exemption regime has made redundant".

Thus, and although, as the "Report of the Preliminary Draft Reform" of the Corporate Income Tax Code itself refers, the new regime maintains, "in essence, the advantages that the Tax Benefits Statute granted to this type of entities", they cease to be substantially distinct regimes, as the Claimant points out, and, as has been seen and results from the "Report of the Preliminary Draft Reform" of the Corporate Income Tax Code, the said maintenance, in essence, of the advantages that the EBF granted to SGPSs in the matter, is a side effect of the institution of a new regime whose establishment, causally, is disconnected from the said EBF regime.

Thus, first and foremost, in a strict sense, and for purposes of the application of law in time, one cannot and should not speak of succession of laws.

What occurred was, rather, the repeal of one regime, and the establishment, 17 days later, of another, of distinct scope and nature, which did not succeed, nor intended to succeed, that one.

Having said that, it will be necessary, then, to assess, given the succession of legal regimes, what is the legal status of the financial charges with social shares not deducted by the Claimant, from 2007 to 2011.

As has been seen previously, the said charges should not be deemed, in light of the EBF regime (that is, until 2013), as simply non-deductible, but rather as subject to an advanced or ex ante non-deductibility.

The question that will arise, then, will be, above all, to define whether, given the repeal of Article 32º of the EBF, the said non-deductibility:

• consolidates as non-deductible;

• remains; or

• ceases;

With respect to the first of the hypotheses raised, it is believed there are no great doubts that it is not verified.

Indeed, and first of all, such a hypothesis is not sustained, it is believed, even by the Tax Authority itself, nor would it be coherent either with the interpretation that has been made of the regime of Article 32º of the EBF, specifically with the understanding, pillar of the constitutionality of that regime, that the non-deductibility in question was directly conditioned to the enjoyment of the benefit enshrined in that same regime, or with the principles of proportionality, as understood by the Constitutional Court, or with the very constitutional requirement of taxation of companies by real profit.

It is not believed, also, that the non-deductibility of the charges in question was already consolidated in light of the legislation in force in the tax years in which they were incurred, maximum, of the regime of Article 32º of the EBF, a matter which, moreover, is not raised in the case.

In any case, such an understanding, from which results that the deductibility of such charges, in cases of non-application of the special regime of that Article 32º, would configure a fiscal correction, will not, in the belief of the court, have support either in the legal regime at issue or in the various doctrinal and jurisprudential interpretations known regarding it, nor is any practice known to have existed in that sense.

Moreover, Circular 7/2004 itself, in its point 6, refers that the fiscal correction operates in the same tax year in which the financial charges are incurred, and not in the tax year in which, eventually, such charges may come to be fiscally recognized, because the conditions of their ex ante non-deductibility have ceased.

Although it does not state it expressly, it is believed that the second of the hypotheses listed will be that sustained by the Tax Authority.

The Respondent will understand, if the court's reasoning is correctly understood, that insofar as Article 51º-A of the Corporate Income Tax Code, in force from 01/01/2014, provides a possibility of non-taxation of capital gains, similarly to what occurred with the regime, in force until 31/12/2013, of Article 32º of the EBF, the "suspended" non-deductibility of the financial charges in question should be maintained, until it is verified whether, in fact, the social shares underlying the charges in question generate, or do not, taxable capital gains.

With all respect due to other opinions, it is believed that, first and foremost in deference to the principles of legality and typicality that govern tax law, one can only conclude in this manner based on a legal norm that sustains this same understanding.

For, having examined the legal regimes potentially applicable to the case, no legal norm is discerned that points in this direction, that is, in the sense that the charges in question maintain their status of being anticipatively non-deductible, a conclusion that would always meet, it is believed, the distinct nature of the legal regimes that succeeded each other in time.

Thus, this will not result, first and foremost, from the regime of Article 32º of the EBF, which, as has been seen, only conditioned the deductibility of the charges at issue to the case of "alienation of a capital share not meeting the requirements for the application of the special regime for exemption of capital gains" in question. That is, and stated otherwise, the regime of Article 32º of the EBF suspended the deductibility of the charges in question, or, seen from another angle, imposed their preventive ex ante non-deductibility, until it was verified that SGPSs alienated the corresponding social shares, at which time either the non-deductibility of the financial charges was consolidated, or they became deductible.

Now, with the cessation, by repeal, of the regime of Article 32º of the EBF, the norm that maintained the non-deductibility in question (ex ante) of the financial charges at issue ceases to exist, which, in accordance with the terms of the norms governing the application of law in time, will have its persistence limited to the tax years prior to 2014 (which are not at issue here), to which the respective regime should be considered applicable.

With such a norm ceasing to exist, the deductibility of such charges must be assessed, therefrom (that is, from tax year 2014 onward), in light of the general rules, since, as has been seen, the non-deductibility imposed by the repealed regime was not a definitive non-deductibility and had not been consolidated.

In sum: on 01/01/2014 the special norm (relating to tax benefits) that imposed the non-deductibility of the financial charges now at issue ceased to be in force, so it ceased to condition (to be applicable to) the judgment of deductibility or non-deductibility of such charges.

The maintenance of the ex ante or conditional non-deductibility of the charges at issue does not equally result either from Law no. 83-C/2013, of 31/12, or from Law no. 2/2014, of 16/01, which, either one or the other, contain no transitional provision disposing on such a matter.

Specifically, it is not believed that the norm of Article 14º of that Law no. 2/2014 contains a transitional provision from which results the persistence of the regime of ex ante non-deductibility to which the charges at issue were subject by force of the repealed regime of Article 32º of the EBF, from tax year 2014 onward.

Indeed, and for what matters to the case, the court is assessing, in tax year 2014, the deductibility of charges effectively incurred by the Claimant, which until then were ex ante non-deductible, in light of the regime introduced by that Law 2/2014, thus giving effect to the provision of the said Article 14º, to apply the new law to tax periods commencing after 1 January 2014.

Moreover, one should not fail to bear in mind that the norm of Article 14º of Law no. 2/2014 should not be read as integrating in its scope any transitional provision relating to the regime of Article 32º of the EBF, not only because this had already been previously repealed, but also because the matter on which the regime to which that Law refers disposes, does not refer to tax benefits, but to the general regime of the Corporate Income Tax Code.

In this manner, only in the participation exemption regime, introduced in the Corporate Income Tax Code by that Law no. 2/2014, of 16/01, can one seek any norm that, from 01/01/2014, maintains, in that year, the conditional (or ex ante) non-deductibility theretofore imposed by Article 32º/2 of the EBF.

Now, having examined the regime enshrined in the Corporate Income Tax Code from 01/01/2014, it will not be possible to detect any norm that precludes the deductibility of the financial charges which now occupy us.

Indeed, in the regime at issue, Article 67º/13/d) was introduced, which came to provide that income or charges relating to capital shares to which the regime provided for in Article 51º-C of the Corporate Income Tax Code is applicable do not contribute to the formation of taxable income.

Thus, and first and foremost, it is concluded that it is not possible, based on the regime at issue, to exclude, and still less preventively or ex ante, charges relating to capital shares to which the regime provided for in Article 32º/2 of the EBF would have been applicable, as such a hypothesis does not fit within the statement of the norm.

On the other hand, and although one may question whether the new regime should effectively be operationalized in a manner equal to the regime of Article 32º/2 of the EBF, that is, whether charges with shares susceptible to being covered by the participation exemption regime should have their deductibility "suspended" until the moment of alienation, even assuming that it be so, of necessity such regime will only apply to charges incurred after the entry into force of the new regime.

Thus, by force of this Article 67º/13/d) of the Corporate Income Tax Code, first and foremost, insofar as tax law provides only for the future, for the beneficiaries of the norm of Article 51º-C/1 of the Corporate Income Tax Code, charges relating to capital shares to which the regime provided for in Article 51º-C is applicable, incurred (which are incurred) from 1/1/2014, will not contribute to the formation of taxable income.

This understanding is confirmed by the already cited Award of the Constitutional Court of 09-01-2014, handed down in case 42/2014, which, regarding the entry into force of the regime of Article 32º of the EBF (then Article 31º), which entered into force on 01/01/2003, considered "that no retroactive effect is had regarding financial charges incurred (...) in tax years prior to 2003", reason for which the non-deductibility of financial charges incurred after the entry into force of the regime was deemed constitutional, from which it follows that it would be a case of retroactivity of tax law, if that non-deductibility extended to financial charges incurred in prior years (in the case judged by the Constitutional Court, to 2003, in the case of the participation exemption regime, to 2014).

It should, by the above and in application of the doctrine described, be considered that the regime of non-deductibility deriving from Article 67º/13/d), will only apply to financial charges incurred after 01/01/2014, with the result that, in light of such regime, charges relating to capital shares that may benefit from the regime of Article 51º-C of the Corporate Income Tax Code, incurred in tax years prior to 01/01/2014, shall not suffer any deductibility constraint.

Stated otherwise: if in 2014 a corporate income tax subject holds social shares susceptible of benefiting from the regime of Article 51º-C of the Corporate Income Tax Code, it shall not, under Article 67º/13/d) of the Corporate Income Tax Code, see excluded the deduction of charges that it has incurred with the shares in question, for example, in tax years 2012 and 2013, even if it has not deducted them from its taxable income.

Now, if this is so, as it is believed it will be for all corporate income tax subjects, to whom the norm of Article 51º-C of the Corporate Income Tax Code applies, one does not see how it can fail to be so for SGPSs, mindful, as has been referred, of the absence of any norm currently in force and applicable to tax year 2014, now at issue, that provides otherwise.

Given the foregoing, it is then verified that neither does the participation exemption regime, introduced in the Corporate Income Tax Code by Law no. 2/2014, of 16/01, contain foundation for considering that the ex ante non-deductibility of charges with social shares deriving from the regime of Article 32º/2 of the EBF is maintained, after the repeal of that.

It is concluded, in this manner, and in sum, that:

• on 31/12/2013, the regime of Article 32º/2 of the EBF, which determined the ex ante non-deductibility of financial charges incurred by SGPSs, until that date, with social shares susceptible of benefiting from that regime, ceased;

• given the new regime, in force from 01/01/2014, such charges did not become definitely non-deductible, nor did they maintain their ex ante non-deductibility;

• having neither become definitely non-deductible nor having had their ex ante non-deductibility maintained, it must be concluded that the charges in question shall be deductible, or not, by the application of the general criteria in light of which the deductibility of charges must be assessed.

These conclusions shall be particularly clear, it is believed, by executing the following exercise:

• First, one should abstract from the alterations made to the Corporate Income Tax Code in 2014, and to consider, in isolation, the legal effects of the repeal of Article 32º of the EBF;

• In that scenario, it is believed it will not be sustainable that financial charges not deducted by SGPSs, relating to shares that, at the date of the repeal, had not generated exempt gains or losses under the repealed regime, could not then be deductible;

• In a second step, one should contemplate the new regime, and verify whether from this any legal effect results to the contrary, that is, which maintains the ex ante non-deductibility of the charges at issue or makes it definitive;

• As has been seen, from the new regime only the ex ante non-deductibility of charges with social shares incurred by corporate income tax subjects can be extracted:

  • susceptible to meeting the requirements of Article 51º-C of the Corporate Income Tax Code; and
  • incurred after 01-01-2014;

• So it will be the new regime incapable of altering the conclusion drawn above in ii.

It shall thus be demonstrated, it is believed, that:

• either it is understood that the regime of Article 32º of the EBF enshrined a definitive non-deductibility of the charges to which such regime referred, a situation in which, by force of the application of law in time, such non-deductibility should persist; or

• the application of the norms relating to law in time are not susceptible of founding the persistence of that regime of ex ante non-deductibility, beyond the tax year corresponding to 2013.

For, as has been referred already, the new regime does not succeed the repealed regime, having a distinct scope, teleology and nature. If this is so, as it is believed it is, the question to be posed, at bottom, it is believed, reconditions itself to knowing whether, having been repealed the regime relating to the tax benefit, the deductibility of charges incurred, not deducted, and which did not consolidate, in the pendency of the repealed regime, as non-deductible, should or should not be assessed in light of the general regime in force, after the occurrence of the repeal.

Not subscribing to the first of those supra-referred understandings – which as far as is understood is not even sustained by the Respondent – it is necessarily to be concluded by the second.

Being at issue in the case sub iudice, tax year 2014, such an understanding conforms itself, thus, with the provision both of the already cited Article 14º of Law no. 2/2014, and with Article 12º of the General Tax Law, and with Article 12º of the Civil Code, insofar as the tax regime in force in the tax period of 2014 is being applied to the Claimant's exercise of that same year.

On the other hand, it is not believed to be a case of application of the provision in Article 11º of the EBF, since:

• there is not at issue any alteration to norms relating to "conventional tax benefits, conditional or temporary";

• such a norm only precludes the application by force of the new law, of the part of the regime that is prejudicial to the taxpayer, which is not the case, since what the Respondent seeks is the persistence of a part of the regime unfavorable to the Claimant, which implies the non-fiscal relevance of real and effective expenses in which it incurred.

Having come this far, the question that arises is that of the determination of the tax year in which such deductibility should be effectuated, in case, in light of the general criteria of the deductibility of expenses, it should be concluded for their respective deductibility.

Article 18º of the applicable Corporate Income Tax Code (2014 version) provides that:

"1 - Income and expenses, as well as other components, positive or negative, of taxable income, are allocable to the tax period in which they are obtained or incurred, independently of their receipt or payment, in accordance with the economic periodization regime.

2 - The positive or negative components considered as relating to prior periods are only allocable to the tax period when on the date of closing the accounts of that to which they should have been allocated they were unforeseeable or manifestly unknown."

Given the norm in question, one could, prima facie, conclude that the charges sub iudice should, given that the general requirements of the deductibility of charges are verified, be deducted in the periods in which they were incurred (in the case, from 2007 to 2013).

Nevertheless, in the concrete case, it is believed the solution should be different.

Thus, and first of all, within what was the generally accepted interpretation of the regime of Article 32º/2 of the EBF, previously explained, it was never understood that, the ex ante non-deductibility deriving from such regime ceasing, the charges that would thus become deductible should have to be so in the tax years in which they were incurred.

On the other hand, and seeing things well, in the case what is verified is that:

• in such tax years and given the norms applicable to each of them, the charges in question will continue to have to be regarded as affected by the ex ante non-deductibility imposed by Article 32º/2 of the EBF, which notwithstanding its repeal, will continue to apply to facts occurring during its validity; and

• the repealing regime of Article 32º of the EBF did not provide any transitional norm, to the effect that those charges could/should be deducted in the periods in which they were incurred;

• the legal fact underlying the cessation of the ex ante non-deductibility that affected the charges in question, that is, the repeal of the legal regime of Article 32º of the EBF, occurred only on 01/01/2014, that is, in tax year 2014.

So it should be concluded that the charges in question, being, in light of the general rules, deductible, should be so in tax year 2014.

In any case, and even if it were not understood in this way, it has been recurring jurisprudence of the Supreme Administrative Court that:

"III - The principle of specialization of tax years aims to tax the wealth generated in each year and hence its respective income and costs be accounted as they are obtained and incurred, and not as their respective receipt or payment occurs.

IV - However, this principle should tend to conform and be interpreted in accordance with the principle of justice, with constitutional and legal configuration (Articles 266º, no. 2 of the Constitution and 55º of the General Tax Law), so as to permit the allocation to a tax year of costs relating to prior years, provided that it does not result from voluntary and intentional omissions, aimed at effecting the transfer of results between tax years."

Thus, also in light of the referred understanding should the deductibility of the charges now at issue in tax year 2014 be admitted, given, manifestly, we are not faced with "voluntary and intentional omissions, aimed at effecting the transfer of results between tax years", and seeing that the non-deduction in prior years was due to legal impediment, and that, as has been seen, never, in the interpretation and execution of the regime of Article 32º/2 of the EBF, was it considered that the principle of specialization of tax years precluded the deductibility of charges that were non-deductible ex ante, in a tax year subsequent to that in which they were incurred, and that, moreover, this solution even ends up favoring the tax creditor, as the Claimant points out, specifically at the level of calculation of interest that may be due.

In this manner, and given all the foregoing, it is concluded that the principle of specialization of tax years should not, in concrete, constitute an obstacle to the deductibility of the charges in question, in a tax year subsequent to that in which they were effectively incurred.

Having come this far, it is believed to be made clear that in light of the applicable legal norms it should be concluded that:

• The charges sub iudice saw the ex ante non-deductibility that affected them cease on 01/01/2014;

• The principle of specialization of tax years does not preclude that the charges at issue, meeting the general requirements of the deduct