CAAD Case 39/2018-T: SGPS Tax Benefit and Deductibility of Financial Charges Under IRC

ARBITRAL DECISION (consult full version in PDF)

The arbitrator Pedro Miguel Bastos Rosado, designated by the Deontological Board of the Administrative Arbitration Centre to form the Singular Arbitral Tribunal, decides as follows:

Report

1. A..., SGPS, S.A., holder of the tax identification number..., registered at the ... Property/Commercial Registry Office of Loures under the same number, with registered office at ..., parish and municipality of ..., hereinafter referred to as the Claimant, filed, on 29 January 2018, a request for arbitral decision, having as its object the tacit dismissal of the administrative recourse presented by the Claimant on 6 July 2017 against the additional assessment of Corporate Income Tax (IRC) no. 2017..., of 9 January 2017 (and the respective statements of account correction and compensatory interest payment, all associated with the compensation no. 2017..., of 11 January 2017), relating to IRC for the year 2012, in the amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents), with the Respondent being the TAX AUTHORITY AND CUSTOMS AUTHORITY, hereinafter referred to as the Respondent or AT.

2. The claim in the request for arbitral decision consists of the declaration of illegality and consequent annulment of the AT's decision to tacitly dismiss the administrative recourse presented by the Claimant, determining the annulment of the statement of IRC assessment, the statement of account correction and the statement of interest payment, due to defects of violation of law, error in factual and legal premises.

3. The Claimant further requests the reimbursement of the amounts unduly paid in respect of IRC in the total amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents), as well as the annulment of the compensation unduly made, and that a decision be issued ordering the release of the bank guarantee provided in the tax enforcement proceedings, payment of indemnification for the provision of the undue guarantee and payment of indemnification for damages caused (compensatory interest) resulting from the voluntary payment of the additional IRC assessment, and corresponding compensatory interest.

4. The request for constitution of the arbitral tribunal was accepted by the President of the Administrative Arbitration Centre (CAAD), on 30 January 2018, and subsequently notified to the AT.

5. The Claimant did not proceed with the appointment of an arbitrator, therefore, under the provisions of article 6(1) and article 11(1)(a) of the RJAT, the President of the Deontological Board of CAAD designated, on 9 February 2018, the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the legal deadline.

6. On 15 March 2018, the parties were notified of the arbitrator's appointment, having raised no objections.

7. In accordance with the provisions of article 11(1)(c) of the RJAT, the singular arbitral tribunal was constituted on 5 April 2018.

8. To support the request for arbitral decision, the Claimant alleged, in summary, the following:

8.1. That "the correction to the IRC taxable result self-assessed by the Claimant in the tax period 2012 results from the non-acceptance, by the AT, of financial charges (interest) allegedly incurred by the Claimant with the acquisition of equity interests, by virtue of the interpretation that the AT makes of the combination of the regime provided for in article 32(2) of the EBF (in the wording at the time of the facts) and the provisions of Circular no. 7/2004, of 30 March, issued by the IRC Services Directorate ("Circular no. 7/2004")".

8.2. That "in the understanding of the Tax Authority, the Claimant should have applied blindly the formula provided for in Circular no. 7/2004, ignoring the underlying nature of the interest incurred during the period, in the amount of €779,418.66."

8.3. That "not only did the Tax Authority not question in advance (as would be imperative) whether the financing costs incurred concerned financing obtained for the acquisition of equity interests or to meet treasury needs of the Claimant and its subsidiaries, but also did not make any effort to ascertain whether the loans obtained were intended for the acquisition of the equity interests held by it".

8.4. That "Based on the information made available by the Claimant in the course of the tax inspection action in question, the Tax Authority proceeded to determine the financing costs incurred by it, as well as to determine the assets and liabilities existing as of the balance sheet date of the 2012 financial year and determined the amount it understood as fiscally non-deductible through the application of the aforementioned calculation formula established in Circular no. 7/2004."

8.5. That "Although, in the understanding of the current Claimant, the reading of article 32(2) of the EBF results in a clear interpretation, it is true that, upon the entry into force of this special taxation regime applicable to SGPS, the DSIRC deemed it relevant to issue Circular no. 7/2004, of 30 March ("Circular no. 7/2004"), which aimed to remedy the alleged difficulties in establishing a direct relationship between the loans obtained by those companies and their financial assets."

8.6. That "contrary to law and exceeding the limits of interpretation of the norm, the DSIRC came to sanction the understanding that the allocation of financial charges to the acquisition of equity interests should be carried out through the application of the formula created for that purpose through the aforementioned Circular no. 7/2004."

8.7. That "it was precisely through the application of this methodology created by the DSIRC that the Tax Authority proceeded to determine the amount €210,281.40 relating to financing costs not accepted for tax purposes as they were, allegedly, allocated to the acquisition of equity interests."

8.8. That "Having such methodology been created through a Circular and based on an interpretation extra legem which, in the understanding of the Claimant, of various illustrious Authors and of the Administrative and Arbitral Courts, is manifestly illegal and unconstitutional (...)".

1. Notified in accordance with the provisions of article 17 of the RJAT, the Respondent presented its response and submitted the "administrative proceedings" (hereinafter referred to as PA).

2. In its response, the AT invoked, in summary, the following:

10.1. That "the company A... SGPS SA, as an individual company, incurred financial charges without the corresponding adjustments in section 07 of the IRC tax return declaration - Model 22, pursuant to article 32(2) of the EBF".

10.2. That "the claimant should have increased the net result of the financial year by the financial charges attributable to equity interests, as required by article 32 of the Tax Benefits Statute, in the wording applicable at the time of the facts and according to the allocation criterion provided for in circular no. 7/2004".

10.3. That "as article 32(2) of the EBF establishes the rule that financial charges incurred with the acquisition of equity interests whose capital gains are exempt are not deductible, circular no. 7/2004, in the impossibility of such specific allocation, only contemplates an interpretation in view of that same impossibility".

10.4. That "in the impossibility of specific or direct allocation, it is legitimate for the AT, in view of the letter and spirit of article 32(2) of the EBF, to apply a method of indirect or non-specific allocation, as provided in circular no. 7/2004".

10.5. That "there is no illegality whatsoever in the application of article 32(2) of the EBF, in the formula contained in circular no. 7/2004, even if it is not possible for the AT and the taxpayer to proceed with a specific or direct allocation".

10.6. That "all arguments invoked by the claimant are without merit, therefore, the deductibility of the financial charges that were, and rightly so, increased in the determination of its taxable profit for the year/period 2012 cannot now be accepted, and the arbitral request is, consequently, without merit".

10.7. That "the present request for arbitral decision should be ruled without merit as not proven, and consequently, the Respondent absolved of all claims, all with the due legal consequences".

1. By order of 12 June 2018, the meeting provided for in article 18 of the RJAT was dispensed with and it was determined that the proceedings continue with optional written arguments.

2. In the same order of 12 June 2018, 2 October 2018 was set as the date for pronouncement of the arbitral decision.

3. The Parties presented arguments, in which they reiterated the positions assumed in the initial procedural documents.

4. By order of 2 October 2018, the Tribunal decided to extend the deadline for pronouncement of the arbitral decision for a period of two months, indicating that the arbitral decision would be issued and notified to the parties by 30 November 2018.

5. By order of 30 November 2018, the Tribunal decided to extend the deadline for pronouncement of the arbitral decision for a further period of two months, indicating that the arbitral decision would be issued and notified to the parties by 30 January 2019.

II. Preliminary Issues

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

2. The parties are duly represented, have legal capacity and standing (articles 4 and 10(2) of the same decree and article 1 of Ordinance no. 112-A/2011, of 22 March).

3. The proceedings are not affected by any nullities.

4. On the timeliness of the filing of the request for arbitral decision

The administrative recourse preceding the present request for arbitral decision was filed at a time when the deadline for express decision by the Tax Administration is four months, after which the tacit dismissal of the request is presumed (articles 57(1) and (5) of the LGT).

Consequently, after four months have elapsed from the filing of the administrative recourse, the tacit dismissal of the administrative recourse is presumed, which moment is, in turn, relevant for the calculation and commencement of the deadline for hierarchical appeal, contentious appeal or judicial challenge, according to the provisions of article 57(5) of the LGT and 106 of the CPPT.

Under article 57(3) of the LGT, "in tax proceedings, deadlines are continuous and are calculated in accordance with the Civil Code".

Also under article 20(1) of the CPPT, "the deadlines for tax proceedings and judicial challenge are calculated in accordance with article 279 of the Civil Code", thus clarifying the procedural nature of these deadlines, for purposes of their calculation.

As the administrative recourse was filed with the competent service on 6 July 2017, the calculation of the deadline – 4 months – is fixed at 6 November 2017, in accordance with article 279(d) of the Civil Code.

In the case at hand, tacit dismissal was formed on 6 November 2017, with the deadline for filing a request to constitute the arbitral tribunal beginning on the following day.

In case of presumption of tacit dismissal, the deadline for submitting the request for constitution of an arbitral tribunal is 90 days, in accordance with article 10(1)(a) of the RJAT and article 102(1)(d) of the CPPT.

Consequently, the request for constitution of the arbitral tribunal is timely, as it was filed on 29 January 2018.

1. On the challenge of tacit dismissals and the jurisdiction of the Tribunal

As Councillor Jorge Lopes Cardoso teaches, "the tacit dismissal is not an act, but a fiction intended to enable the use of administrative and contentious means of challenge, as follows from the provisions of article 57(5) of the LGT.

Although article 2(1) of the RJTA makes reference only to the declaration of illegality of acts, it is unequivocal that it encompasses the declaration of illegality of tacit dismissals, as article 10(1) of the RJAT makes reference to the «facts provided for in articles 102(1) and (2) of the Code of Tax Procedure and Process» and the «formation of the presumption of tacit dismissal» is indicated in article 102(1)(d)." (in Guide to Tax Arbitration, 3rd Edition, Almedina, p. 132).

"The tacit dismissal is presumed to be based on merits grounds and not on procedural obstacles. By failing to rule on the taxpayer's claim in which illegalities are imputed to the impugned act, the tax administration dismissed it, being presumed that it did not recognize in that act the illegalities imputed to it. The matter at hand is to assess indirectly the legality of the impugned act, to know whether, if a decision had been issued, it should or should not have been granted." (idem, p. 137)

Consequently, the Tribunal has jurisdiction.

III. Factual Matters

1. Proven Facts

The following facts with potential relevance to the decision are hereby established as proven:

A) The Claimant is a company that manages equity interests;

B) The Claimant is the parent company of group B..., subject to taxation under the special regime for taxation of groups of companies;

C) The Claimant is subject to the general system of taxation for IRC purposes and appears as the parent company of a group of companies – the B... Group – taxed under the Special Regime for Taxation of Groups of Companies ("RETGS").

D) On 30 May 2013, the Claimant submitted the individual IRC income declaration Model 22, relating to the tax period 2012 (document no. 7 attached to the request for arbitral decision, the contents of which are reproduced);

E) On 31 May 2013, the Claimant submitted the Group Model 22 declaration, as the parent company of the RETGS, relating to the tax period 2012 (document no. 8 attached to the request for arbitral decision, the contents of which are reproduced);

F) The Claimant was subject to an external tax inspection procedure of limited scope, relating to IRC for the tax period 2012, carried out by the Tax Inspection Division – Department B – Division IV of the Directorate of Finances of Lisbon, under Service Order no. OI2015....

G) Following this inspection action, the Claimant was notified, through Office no. ... of the Directorate of Finances of Lisbon, dated 12 November 2015, of the draft corrections to the tax inspection report, under which a correction to the IRC taxable result self-assessed by the Claimant in the tax period 2012 was proposed, in the amount of €222,294.70 – (document no. 9 attached to the request for arbitral decision, the contents of which are reproduced);

H) On 2 January 2017, through Office no. ..., dated 30 December 2016, the Claimant was notified of the final report of the tax inspection, of limited scope, relating to the tax period 2012 (document no. 1 attached to the request for arbitral decision, the contents of which are reproduced, which states, among other things, the following:

III – DESCRIPTION OF FACTS AND GROUNDS FOR PURELY ARITHMETICAL CORRECTIONS TO TAXABLE MATTER

In the course of the inspection action, carried out for the years 2011 and 2012, in the accounting-tax areas selected and analyzed in accordance with the methods and procedures adopted and with the depth considered adequate in each situation, the following situations were detected, which triggered the proposals for correction to the determination of taxable result that are systematized and legally justified below.

III.1 – OF THE ANALYSIS CARRIED OUT

All values entered by the taxpayer in section 07 of the IRC income declaration model 22 were subject to analysis, and it was found that they relate to entries evidenced in accounting documents, with no non-conformities found that would be subject to correction.

Financial interests are valued using the equity method, with the company using the cost method for financial interests in non-listed companies.

III.2. FINANCIAL CHARGES NOT ACCEPTED FOR TAX PURPOSES IN LIGHT OF ARTICLE 32 OF THE TAX BENEFITS STATUTE (EBF)

III.2.1. - Legal Framework of Article 32 of the Tax Benefits Statute (EBF)

Article 32(2) of the Tax Benefits Statute (EBF), in the wording in force at the time of the facts now scrutinized by the Tax Inspection (as provided by Decree-Law no. 108/2008, of 26/06), provides that: "the capital gains and losses realized by SGPS and SCR through paid-up transfers, whatever the title by which they are effected, of equity interests of which they are holders, provided they have been held for a period of not less than one year, and, as well, the financial charges incurred with their acquisition, shall not contribute to the formation of the taxable profit of these companies".

With this provision the legislator intended to enshrine the general rule of excluding from taxation the capital gains realized in the paid-up transfer of interests held by SGPS (regardless of the legal transaction that gave rise to it: whether the shares were acquired by purchase or subscription, whether their acquisition value was or was not subject to appreciation, through incorporation of other assets, namely merger...), for a period equal to or greater than one year, whatever the title by which it occurs, and concomitantly, the legislator intended that, as capital gains do not contribute to taxable profit, the financial charges incurred in the acquisition, reinforcement, or maintenance (capital loans) of the equity capital of the interests held should also cease to contribute.

Through instruction no. 7/2004 of 30/03/2004 from the IRC Services Directorate, the Tax Administration comes to clarify that:

• The new regime, concerning financial charges, is applicable "in periods commencing after 1 January 2003, even though they relate to financing obtained before that date" (point 5).

• The financial year in which financial charges should be disregarded as costs, for tax purposes, "should proceed, in the financial year to which they refer, to the fiscal correction of those incurred with the acquisition of interests that are likely to benefit from the special regime established in article 31(2) of the EBF, regardless of whether all the conditions for application of the special taxation regime for capital gains have already been met..." (point 6).

• With regard to the method of calculation and allocation to be used for purposes of allocating financial charges to equity interests, point 7 provides that, "given the extreme difficulty of using... a method of direct or specific allocation and the possibility of manipulation that it would allow, such allocation should be carried out on the basis of a formula, which takes into account the following: the remunerated liabilities of SGPS and SCR should be allocated, first and foremost, to remunerated loans granted by these to the subsidiary companies and to other investments generating interest, with the remainder being allocated to the remaining assets, namely, equity interests, in proportion to their acquisition cost".

III.2.2. – Analysis of Financial Charges Incurred

The factuality resulting from the analysis carried out on the elements submitted by the taxpayer, in compliance with its declaration obligations, implies that, if it is sought that in the financial year in question, financial charges were incurred.

Next, the calculation of the total financial charges non-deductible under article 32(2) of the EBF is carried out, together with what is stipulated in Circular 7/2004 of 30/03.

From Remunerated Loans Granted

From the analysis of accounting and auxiliary documentation (see appendix at p. 4), the following remunerated loans granted are listed:

The value of remunerated loans granted, in the years 2011 and 2012, are €8,259,647.80 and €10,441,171.10, respectively.

From the Acquisition Value of Equity Interests

Based on the accounting documents (appendix at p. 3 verso), the following table is prepared, relating to the acquisition value of equity interests:

Other Non-Remunerated Assets

For the calculation of non-deductible financial charges, having determined the amounts relating to remunerated assets (remunerated loans granted), it is now important, based on the analytical trial balance and balance sheet of the company, to determine the total non-remunerated assets, as per the following table:

The value of other non-remunerated assets, in the years 2011 and 2012, are €9,065,367.18 and €13,077,303.32, respectively.

From Remunerated Loans Obtained

From the analysis of accounting and auxiliary documentation (see appendix p. 4), the following remunerated loans obtained are listed:

The value of remunerated loans obtained, in the years 2011 and 2012, are €9,958,992.22 and €16,424,021.86, respectively.

From Financial Charges Incurred

The taxpayer, for the financial years 2011 and 2012, revealed accounting-wise (analytical trial balance – account 691), expenses/losses, itemized in the following table, which are included for purposes of this calculation, in the concept of financial charges, in the amounts of €776,341.47 and €779,418.66, respectively.

Calculation

It is important to note that, for purposes of calculating the value of non-deductible financial charges, in accordance with what is stipulated in Circular 7/04 of 30/03, the values of equity interests contained in the balance sheet, valued using the equity method and other valuation methods, are not considered.

Having determined the values in the preceding tables, referring to remunerated loans granted, equity interests (acquisition cost), other non-remunerated assets, remunerated loans obtained and financial charges, the determination of the value of financial charges to be disregarded in the determination of taxable profit (in line 779 of section 7 of model 22 declaration) proceeds, as per the following table:

Analyzing section 07 of the income declaration model 22 field 779, it is verified that the taxpayer did not increase any value of financial charges, in accordance with what is provided for in article 32(2) of the EBF.

Having reached this point, the AT is led to make the necessary corrections to the determination of Taxable Profit, and increase in section 07 of the IRC model 22 declaration the expenses incurred, which do not contribute to the determination of taxable profit.

In this sense, the values to be increased to the fiscal result declared by the taxpayer, in the financial years 2011 and 2012, respectively, are €111,115.91 and €222,294.70 (calculation in the table above).

3. Correction

In view of the above, the following presents the values of the correction to the declared fiscal results (income declaration model 22, of the years under analysis), as per the following summary table:

IX – Right to be Heard

In accordance with article 60 of the Supplementary Rules for Tax and Customs Inspection Procedure, the company A... SGPS SA was personally notified on 13-11-2015, to exercise within a period of 15 days, the right to be heard regarding the draft corrections to the Tax Inspection Report through office no. ... of 2015/11/12 – see appendix at p. 5.

The taxpayer exercised the right to be heard within the granted period, having submitted the corresponding documents, via postal service, which was received at the Directorate of Finances of Lisbon on 2014/11/30 (Receipt no. 2015...) – see appendix at p. 6 to 43.

The signatories of the document that implements the right to be heard are recognized as having standing for the performance of the act.

I – Allegations of the Taxpayer

In the document of the right to be heard, consisting of 23 points, the company A... SGPS SA comes to allege that, through inadvertence occurring in the inspection acts, it involuntarily provided incorrect information to the AT, relating to the value of the acquisition cost of equity interests of a subsidiary company, named D... S.A., NIPC:....

The information that the taxpayer refers to is found in the document and, appendix at p. 3, verso, of this report, in which it is stated that the acquisition value of the subsidiary company identified in the previous paragraph was in the order of €20,931,000.00.

The company A... SGPS SA comes to allege that the acquisition value of the equity interests of company D..., S.A., was in the order of €11,102,529.21, attaching the acquisition documents (documents 3 and 4, attached to the right to be heard document), which are indicated below:

• Copy of the deed of acquisition of the 49% interest, dated 1996, in the amount of €427,719.21.
• Copy of the deed of acquisition of the remaining 51% interest, dated 2009, for the amount of €10,674,810.00.

II – Analysis of the Taxpayer's Allegations / Conclusion

From the analysis of the right to be heard document and the annexes that compose it, it is verified that the acquisition value of company D... S.A., was €11,102,529.21.

Thus, in view of the new reality of the facts, the recalculation of the total value of acquired equity interests is carried out below, and sequentially, the recalculation of the amount of financial charges non-deductible for tax purposes, relating to the acquisition of equity interests, pursuant to article 32 of the E.B.F., together with the instructions contained in circular 07/04 of 30/03.

Recalculation of the Total Value of Equity Interests

Recalculation of the Amount of Financial Charges Non-Deductible for Tax Purposes

Thus, the values to be increased to the final result declared by the taxpayer, in the financial years 2011 and 2012, respectively, are €106,593.33 and €210,281.40 (calculation in the table above).

In view of the above, the following presents the values of the correction to the declared fiscal results (income declaration model 22, of the years under analysis), as per the following summary table:

The respective correction documents are prepared and the incident reports are filed.

I) On 11 January 2017, the Claimant was notified of the additional IRC assessment no. 2017..., of 9 January, relating to IRC for the tax period 2012 (and the respective statements of account correction and interest payment, associated with compensation no. 2017...), issued by the Tax Authority and Customs Authority (documents nos. 2, 3 and 4 attached to the request for arbitral decision, whose contents are reproduced);

J) On 6 July 2017, the Claimant filed an administrative recourse, which was not decided until 6 November 2017 (document no. 5 attached to the request for arbitral decision, the contents of which are reproduced);

L) The Claimant provided bank guarantee for purposes of suspending the tax enforcement proceedings no. ...2017..., of 29 March 2017, initiated by the AT, for the coercive collection of the alleged tax debt.

M) The Claimant paid, in respect of IRC, the amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents).

N) On 29 January 2018, the Claimant filed the request for arbitral decision that gave rise to the present proceedings.

2. Substantiation of the Proven Facts

The proven facts are based on the documents attached by the Claimant to the request for arbitral decision and on the administrative proceedings, whose authenticity was not questioned.

3. Unproven Facts

There are no other facts with relevance to the arbitral decision that have not been established as proven.

Matters of Law

1. Question of the Regime Applicable to Financial Charges Incurred with the Acquisition of Equity Interests

At the time of the facts, article 32(2) of the Tax Benefits Statute (EBF), in the wording introduced by Law no. 64-B/2011, of 30 December, provided the following:

"2 - The capital gains and losses realized by SGPS of equity interests of which they are holders, provided they have been held for a period of not less than one year, and the financial charges incurred with their acquisition shall not contribute to the formation of the taxable profit of these companies."

Circular no. 7/2004, of 30 March, of the IRC Services Directorate, establishes in its article 7 the following:

Method to be Used for Purposes of Allocating Financial Charges to Equity Interests

"7. As to the method to be used for purposes of allocating the financial charges incurred to the acquisition of equity interests, given the extreme difficulty of using, in this matter, a method of direct or specific allocation and the possibility of manipulation that such method would allow, such allocation should be carried out on the basis of a formula that takes into account the following: the remunerated liabilities of SGPS and SCR should be allocated, first and foremost, to remunerated loans granted by these to the subsidiary companies and to other investments generating interest, with the remainder being allocated to the remaining assets, namely equity interests, in proportion to their acquisition cost."

The general regime of relevance of capital gains and losses and financial charges for the formation of the taxable profit of entities subject to IRC translated itself into the contribution of capital gains and financial charges, in their entirety [articles 20(1)(h) and 23(1)(a) of the CIRC in the wording resulting from Decree-Law no. 159/2009, of 13 July], and the contribution of losses in 50% [pursuant to articles 23(1)(l) and 45(3) of the same Code].

For SGPS, article 32(2) of the EBF (in addition to other situations provided for in its article 3), established a special regime that did not necessarily translate into a benefit, which translated, in general terms, into the irrelevance for the formation of the taxable profit of SGPS of the capital gains and losses realized on equity interests held for at least one year, accompanied by the non-contribution to the formation of the taxable profit of the financial charges incurred with their acquisition.

In article 32(2) of the EBF it is established that there do not contribute to the formation of taxable profit the "financial charges incurred with their acquisition", referring to equity interests, from which it must be concluded that its literal content indicates that only those financial charges that are connected with the acquisition of equity interests are covered by the non-deductibility established therein. (emphasis added)

Beyond being this the interpretation that results from the literal content, it is corroborated by the explanation for its introduction in the EBF that was given in the Report on the State Budget for 2003 (Law no. 32-B/2002, of 30 December).

As stated in Circular no. 7/2004, the regime of this norm was introduced in the EBF by Law no. 32-B/2002, of 30 December, which approved the State Budget for 2003, giving new wording to article 31, whose regime came to be contained in article 32 after the renumbering carried out by Decree-Law no. 108/2008, of 26 June.

In the aforementioned Report on the State Budget for 2003, the introduction of various measures is announced aimed at "broadening the tax base and measures of moralization and neutrality", among which that of the non-deductibility of financial charges directly associated with the acquisition of equity interests by SGPS, which is announced in the following terms: (emphasis added)

"The non-deductibility, for purposes of determining taxable profit, of financial charges directly associated with the acquisition of equity interests by SGPS is established";

It is manifest that it was intended that only those financial charges directly associated with the acquisition of equity interests would be covered by the non-deductibility.

By virtue of that express reference in the Report to the need for financial charges to be directly associated with the acquisition of equity interests (which is also expressed in the text of the norm through the reference to "financial charges with their acquisition"), it is concluded that it is not sufficient, to determine the non-deductibility of financial charges, to establish that the SGPS holds equity interests and has incurred financial charges, it being necessary to demonstrate that there is a direct relationship between certain financial charges and the acquisition of certain equity interests.

There is thus no legal support for departing from the rule of deductibility of financial charges, which consists of article 23(1)(c) of the CIRC, in relation to charges that are not directly associated with the acquisition of equity interests.

Thus, it is clear, in view of the letter of the last part of article 32(1) and the explanation given in the Report on the State Budget for 2003, that the non-deductibility of charges applies only to those directly derived from financing used for acquisition of equity interests.

Now, being this the regime provided for in law, it cannot be altered by regulatory means, as precepts created by acts of legislative nature cannot be, with external effect, interpreted, supplemented, modified, suspended or revoked by acts of another nature (article 112(5) of the CRP).

Moreover, the definition of the assumptions of taxation is a matter subject to the principle of legality, first and foremost by virtue of the provisions of article 103(2) of the CRP which establishes that "taxes are created by law, which determines the incidence, the rate, tax benefits and the guarantees of taxpayers".

This principle of legality is reaffirmed and expanded by the LGT, in its article 8.

It is thus manifest that the norms relating to tax collection, in particular those that define incidence and tax benefits, are subordinated to the principle of legality, consequently precluding the possibility of, by administrative means, creating norms that result in an effective burden for taxpayers.

The AT, in the tax inspection report, proceeded to calculate the amount of financial charges non-deductible for tax purposes, relating to the acquisition of equity interests, pursuant to article 32 of the E.B.F., together with the instructions contained in circular 07/04 of 30/03.

Now, point 7 of Circular no. 7/2004, to be applied by the Tax Administration, with external effect, in such a way as to preclude the deductibility of charges not proven to be connected with the acquisition of equity interests, would constitute a norm of an innovative nature regarding the determination of the taxable matter of IRC, creating situations of non-deductibility of financial charges not provided for in law (those in which there is no relationship between such charges and the acquisition of equity interests), and would thus be invalid due to violation of the principle of legality.

There is abundant case law from CAAD and the Supreme Administrative Court on this matter, with which we agree, much of it expressly referred to in the request for arbitral decision.

In the Decision of the Supreme Administrative Court of 24 January 2018, proc. no. 0227/16, which is here adopted and subscribed in its entirety, it is stated:

From the careful reading of point 7, whose legality is questioned in the present case, it can be easily discerned that the method chosen by the AT presents itself as an indirect method of allocation of charges, in contrast to a direct method, motivated by the difficulty of using a method of direct or specific allocation and the possibility of manipulation that such method would allow.

That is to say, the AT, faced with the difficulties felt in integrating the provisions of article 32 of the EBF, disinterested itself in obtaining the truth of the facts, the pillar of taxation on actual income, cf. article 104(2) of the CRP, and assumed as the only acceptable method that which departs from a presumption that the remunerated liabilities of SGPS and SCR should be allocated preliminarily and primarily to remunerated loans to subsidiaries and other investments generating interest and, in the remainder, to other assets, proportionally to their acquisition cost.

Therefore, the appellant, by following the generic guidelines of the AT, to which it was not obliged, made use of an indirect, presumptive method of allocation of financial charges, but as the AT itself correctly states in the decision of the hierarchical appeal, it would be to no avail for the appellant to do so differently because, if it did, its assessment would always be corrected in the precise terms of those generic guidelines existing, cf. p. 39 of the case, paragraph 2.

Indeed, by following the AT's guidelines, as long as they are in accordance with law, in their self-assessments, taxpayers later avoid unpleasantness and inconvenience regarding the regularization of their tax situation.

In the situation of the case, the reason is not specifically explained why (it could not) be possible to effect the allocation of financial charges in another way (direct), different from that which was actually used (indirect), it is not explained by the appellant, nor is it explained by the AT, both merely referring to the fact that the method used is that determined by the Circular in question. And the court was satisfied with the fact that the appellant in its self-assessment followed the method that was not mandatory for it.

As the indirect assessment of an operation without correspondence with the truth of the facts, precisely because these cannot be determined with safety and certainty, or because there are very strong indications (near certainty) that the facts evidenced by the taxpayer, and which should serve as the basis for determining the taxable matter, are not true, the legislator provided, in a taxative manner, the concrete situations in which it is possible to resort to such indirect methods in articles 87 to 90 of the LGT.

Therefore, the "norm" issued by the AT cannot be considered per se, in isolation, without any relationship with a concrete situation of a particular taxpayer, as if it were an illegal and prohibited allocation method; if there are reasons that justify its application, it may be a suitable method to effect the respective allocation, but if such reasons are not verified, it is an inadequate method to effect that same allocation.

We have already seen that in the case at hand nothing is said to this effect, that is, nothing is said of the possibility or impossibility of applying a direct allocation method, the indirect allocation method is accepted as good, in an uncritical manner and without intimate connection to the concrete situation of the taxpayer.

However, not having been expressly invoked by the AT that in the concrete case of the appellant it was necessary to resort to an indirect assessment method, which was its responsibility under the provisions of article 74(3) of the LGT, in case of determination of the taxable matter by indirect methods, it falls on the tax administration the burden of proving the verification of the assumptions for its application, with the taxpayer bearing the burden of proving the excess in the respective quantification-, it cannot avail itself of the said "administrative norm" of the Circular in question to maintain the self-assessment made in accordance with it.

It is true that the "administrative norms" contained in the circular being analyzed were issued, precisely, in view of the difficulties and doubts as to the possibility of using a direct allocation method and the possibility of there being manipulation of that same method by taxpayers, however the application of indirect methods, whatever they may be, in a generalized manner and without taking into account the concrete individual situation of which each taxpayer is prohibited by law, resulting from this prohibition from the provisions of articles 104(2) of the CRP, 81(1) and 85 of the LGT, and, as we have also already seen, the said "administrative norms" do not prevail over any of those legal precepts, cf. article 112(5) of the CRP.

We therefore conclude that the appellant was correct in intending that the provisions of point 7 of Circular 7/2004 not be applied to its concrete situation, showing itself affected by a defect of violation of law the self-assessment made.

Furthermore, the fact that the appellant itself proceeded to the self-assessment of the tax, according to the rules established by the AT, does not imply that such is admissible or can be opposed to it, first and foremost because taxpayers do not have the right to submit their income declarations using indirect methods that do not have a direct and immediate correspondence with their accounting reality, which is required by force of the principles of taxation of companies at actual income and equality, according to which, all, and each, shall contribute coercively to the revenue of the State according to their capacities and to the extent of the effort that may be required of them, cf. article 103(1) of the CRP.

And we have already seen that the use of such indirect methods is only permitted to the AT in the situations enumerated in law and according to the legally established parameters, in this case, to safeguard the revenue of the State, thus achieving the distribution of the burden, to the extent possible, among all taxpayers." (sic)

It is our understanding that nothing prevents the Tax Authority and Customs Authority from issuing a circular containing its understanding on the application of article 32(2) of the EBF, to be applicable in cases where direct determination of the charges derived from financing used in the acquisition of equity interests is not viable, as such possibility of issuing generic binding guidelines for its services is provided for in article 68-A of the LGT.

As results from article 68-A(1) of the LGT and has been peacefully understood, circulars have only binding effect for the Tax Authority and Customs Authority, having external effects only of an informative nature for taxpayers, who may know in advance what understanding will be adopted by the latter.

In this line, one can see the Decision of the Constitutional Court no. 42/2014, of 09-01-2014, delivered in process no. 564/12, in the wake of Casalta Nabais, Tax Law, 5th edition, page 201, in which it is stated:

"These are internal regulations that, as they have only the tax administration as their addressee, only the latter must obey them, being thus binding only for the bodies situated hierarchically below the body that issued them.

Therefore they are not binding either on private parties or on courts. And this whether they are organizational regulations, which define rules applicable to the internal functioning of the tax administration, creating methods of work or modes of action, or whether they are interpretative regulations, which proceed with the interpretation of legal (or regulatory) precepts.

It is true that they densify, make explicit or develop legal precepts, previously defining the content of the acts to be performed by the tax administration in their application. But this does not convert them into a standard of validity of the acts they support. In fact, the assessment of the legality of the acts of the tax administration should be carried out through direct confrontation with the corresponding legal norm and not with the internal regulation, which was interposed between the norm and the act".

These acts, in which "circulars" stand out, emanate from the power of self-organization and hierarchical power of the Administration. They contain generic service orders and it is for this reason and only within the respective subjective scope (of the hierarchical relationship) that compliance is assured. They incorporate guidelines for future action, transmitted in writing to all subordinates of the administrative authority that issued them. They are modes of standardized decision-making, assumed to rationalize and simplify the functioning of the services. Although they may indirectly protect the legal certainty of taxpayers and ensure equal treatment through uniform application of the law, they do not regulate the matter on which they deal in confrontation with the latter, nor do they constitute a rule of decision for courts.

Consequently, as it is not illegal to issue circulars that interpret legislative diplomas with internal effect, the illegality of acts in tax matters that apply the understandings profiled therein cannot derive from its application in itself, but only from the illegality of that understanding in the face of the applicable legal regime provided for in the interpreted legislative diploma.

One cannot affirm the abstract illegality of the method provided for in point 7 of the aforementioned Circular, if understood as only being applicable subsidiarily, as an indirect method, in cases in which direct determination of the amount of charges connected with financing used in the acquisition of equity interests is not viable, as permitted by articles 85(1) and 87(1)(b) of the LGT.

Therefore, a method of "direct assessment" not based on ascertaining the real allocation of financial charges to the acquisition of equity interests, but rather on a calculation formula that will have underlying it that the allocation occurs in terms presupposed therein and not proven, lacks legal support.

And, as such, the "extreme difficulty of using, in this matter, a method of direct or specific allocation" that is invoked in point 7 of Circular no. 7/2004, as a reason for using the indirect method, is not, in view of the rule of subsidiarity of indirect assessment in relation to direct assessment that article 85(1) and (2) of the LGT imposes, a ground for the use of an indirect method.

Even if it were understood (as will be underlying point 7 of Circular no. 7/2004, but also without support in the text of the law) that article 32(2) of the EBF has an inherent presumption that there is association between financial charges and the acquisition of equity interests, that hypothetical presumption would always admit proof to the contrary, by virtue of the provisions of article 73 of the LGT, which refers to norms of incidence in the broad sense, which encompasses all those that "define the plane of incidence, that is, the complex of assumptions whose conjunction results in the birth of the tax obligation, as well as the elements of that obligation".

In this sense, norms of incidence are those that determine the active and passive subjects of the tax obligation, those that indicate what the taxable or collectible matter is, the rate and tax benefits.

Therefore, in the case at hand, to conclude that the financial charges referred to by the Claimant in the model 22 declaration should not be deducted from taxable profit by virtue of the last part of article 32(2) of the EBF, it is our understanding that the Tax Authority and Customs Authority should demonstrate that those charges were incurred with the acquisition of the equity interests referred to by the Claimant.

Or, at least, the Tax Authority and Customs Authority could only use the indirect method provided for in point 7 of Circular no. 7/2004, if it were demonstrated that the use of the direct method was not viable and to the strict extent that the direct method was not applicable, as the rules of subsidiarity of indirect assessment in relation to direct assessment, which are contained in articles 85(1) and (2) of the LGT, require.

In the case at hand, the Tax Authority and Customs Authority, faced with the allegation made by the Claimant that it had used the direct allocation method, did not even attempt to assess whether or not such direct allocation was correct, to ascertain the allocation of financial charges to the financing obtained, limiting itself to ruling out that possibility, by understanding that such resulted from the aforementioned Circular.

In this way, in the case at hand, to conclude that the financial charges referred to by the Claimant in the model 22 declaration should not be deducted from taxable profit by virtue of the last part of article 32(2) of the EBF, the Tax Authority and Customs Authority should demonstrate that those charges were incurred with the acquisition of the equity interests referred to by the Claimant.

Not having been expressly invoked by the AT that in the concrete case of the appellant it was necessary to resort to an indirect assessment method, which was its responsibility under the provisions of article 74(3) of the LGT, in case of determination of the taxable matter by indirect methods, it falls on the tax administration the burden of proving the verification of the assumptions for its application, with the taxpayer bearing the burden of proving the excess in the respective quantification-, it cannot avail itself of the said "administrative norm" of the Circular in question to maintain the self-assessment made in accordance with it.

It is thus concluded that, as regards the charges whose deductibility the Claimant alleges, given that the burden of proof of the impossibility of resorting to the direct method was not satisfied by the Respondent as to these, it should be considered that article 32(2) of the EBF does not apply, and such financing charges should be considered fully deductible.

And we also conclude that the impugned act is affected by a defect of violation of law, having been based on a mistaken interpretation of article 32(2) of the EBF.

This defect justifies the annulment of the impugned assessment, under article 163(1) of the Code of Administrative Procedure, subsidiarily applicable under article 2(c) of the LGT.

The tacit (presumed) dismissal of the administrative recourse is affected by the same defect, as it maintains the assessment, with the grounds stated in the Tax Inspection Report.

Compensatory interest is integrated into the very tax debt (article 35(8) of the LGT), therefore the assessment of compensatory interest is affected by the defect affecting the IRC assessment.

In view of the foregoing, and without need for further considerations, it is necessary to conclude that the additional Corporate Income Tax (IRC) assessment no. 2017..., of 9 January 2017 (and the respective statements of account correction and compensatory interest payment, all associated with compensation no. 2017..., of 11 January 2017), relating to IRC for the year 2012, in the amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents), are illegal and should be annulled.

2. Questions Prejudiced

As the request for arbitral decision proceeds on the ground of a defect of violation of law due to error on the legal premises, it is affected by error of interpretation of article 32(2) of the EBF, which ensures effective and stable protection of the Claimant's rights, the examination of the other defects imputed to it is prejudiced.

In fact, as is implicit in the establishment of an order for examining defects, in the aforementioned article 124 of the CPPT, once one defect that prevents the renewal of the impugned act is ruled to be well-founded, there is no need to examine the others imputed to it.

Therefore, once the request is ruled well-founded on the ground of a violation of law defect that prevents the renewal of the impugned acts with the same effect, the examination of the other defects imputed to it is prejudiced.

3. Request for Restitution of Amount Paid and Compensatory Interest

The Claimant makes a request for restitution of the amounts collected by the AT, as well as for payment of compensatory interest, with express reference to articles 43 of the LGT and 61 of the CPPT.

The Respondent does not contest the payment of the tax (see article 2 of the Response), limiting itself to concluding that the request for arbitral decision should be ruled without merit as not proven, and consequently, the Respondent absolved of all claims.

In accordance with the provisions of article 24(b) of the RJAT, the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the Tax Administration from the end of the deadline provided for appeal or challenge, with the latter, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the deadline for voluntary compliance with the judgments of tax courts, "restore the situation that would have existed if the tax act subject to the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in line with the provisions of article 100 of the LGT [applicable by virtue of the provisions of article 29(1)(a) of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial merit of administrative recourse, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2(1)(a) and (b) of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral tribunals operating in CAAD, not making reference to condemnatory decisions, it should be understood that it encompasses in their jurisdiction the powers that in judicial review proceedings are attributed to tax courts, being that the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first directive, that "the tax arbitration process should constitute an alternative procedural means to the judicial review process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial review process, although essentially a process for annulment of tax acts, allows for the condemnation of the Tax Administration to pay compensatory interest, as can be understood from article 43(1) of the LGT, in which it is established that "compensatory interest is due when it is determined, in administrative recourse or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due" and article 61(4) of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to article 2 in the original wording), which "if the decision recognizing the right to compensatory interest is judicial, the deadline for payment is counted from the beginning of the deadline for its voluntary compliance".

Thus, article 24(5) of the RJAT, in saying that "payment of interest is due, regardless of its nature, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as allowing the recognition of the right to compensatory interest in the arbitration process.

On the other hand, as the right to compensatory interest depends on the right to reimbursement of amounts paid unduly, which are its calculation basis, implicit in the possibility of recognition of the right to compensatory interest is the possibility of examination of the right to reimbursement of those amounts.

It is thus necessary to examine the request for reimbursement of the amounts unduly paid and for payment of compensatory interest.

By what was stated, the request for arbitral decision is totally well-founded against the additional Corporate Income Tax (IRC) assessment no. 2017..., of 9 January 2017 (and respective statements of account correction and compensatory interest payment, all associated with compensation no. 2017..., of 11 January 2017), relating to IRC for the year 2012, in the amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents).

Therefore, the Claimant has the right to be reimbursed of this amount, by virtue of the aforementioned articles 24(1)(b) of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would have existed if the tax act subject to the arbitral decision had not been performed".

Therefore, the request for reimbursement of the amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents) is well-founded.

The illegality of this assessment is attributable to the AT, as it issued it on its own initiative, with mistaken interpretation of the law.

Consequently, the Claimant has the right to compensatory interest, under articles 43(1) of the LGT and 61 of the CPPT, relating to the amount to be reimbursed.

The compensatory interest shall be paid from the date on which the Claimant made the payment until full payment of the amount to be reimbursed, at the supplementary legal rate, under articles 43(4) and 35(10) of the LGT, article 61 of the CPPT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

4. Question of the Request for Indemnification for Undue Guarantees

In point J) of its Conclusions of the request for arbitral decision it states:

"Additionally, the Claimant requests that an order be issued for the release of the bank guarantee provided by it for purposes of suspending the tax enforcement proceedings no. ...2017..., of 29 March 2017, initiated by the AT, for the coercive collection of the alleged tax debt, and the payment of indemnification that may be due under article 53 of the LGT and article 171 of the CPPT.".

And in part (iii.) of the Claim, the Claimant requests that a decision be issued "ordering, under articles 43 of the LGT and 61 of the CPPT, the release of the bank guarantee provided in the tax enforcement proceedings and the consequent payment of indemnification for damages caused resulting from the voluntary payment of the additional IRC assessment, and corresponding compensatory interest, which are hereby claimed, in case this request is well-founded".

In its Response (see especially article 2), the AT does not contest having provided the guarantee.

With the constitution, submission, maintenance and cancellation of bank guarantees to suspend the tax enforcement proceedings initiated to coercively collect the amount assessed, the Claimant incurred expenses, the amount of which is not quantified.

Article 171 of the CPPT establishes that "indemnification in case of bank guarantee or equivalent unduly provided shall be requested in the proceedings in which the legality of the debt being enforced is contested".

Following closely the decision of Case 239/2016-T of CAAD, it seems unequivocal that the judicial review proceedings encompasses the possibility of condemnation to pay indemnification for undue guarantee and is even, in principle, the appropriate procedural means to formulate such a claim, which is justified by evident reasons of procedural economy, as the right to indemnification for undue guarantee depends on what is decided about the legality or illegality of the assessment act and its imputability.

The request for constitution of the arbitral tribunal and for arbitral decision has as a corollary that it will be in the arbitration process that the "legality of the debt being enforced" will be discussed, therefore, as results from the express content of that article 171(1) of the CPPT, the arbitration process is also the appropriate one to examine the request for indemnification for undue guarantee.

The regime of the right to indemnification for undue guarantee is contained in article 53 of the LGT, which establishes the following:

Article 53
Guarantee in Case of Undue Provision

1. The debtor who, to suspend enforcement, offers bank guarantee or equivalent shall be indemnified in whole or in part for damages resulting from its provision, if he maintained it for a period of more than three years, proportionally to the time elapsed in administrative appeal, challenge or opposition to enforcement that have as their object the debt secured.

2. The deadline referred to in the previous number does not apply when it is verified, in administrative recourse or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed amount of the rate of compensatory interest provided for in this law and may be requested in the administrative recourse or judicial challenge itself, or autonomously.

4. Indemnification for provision of undue guarantee shall be paid by deduction from the tax receipt of the year in which payment is made.

The reference to "assessment" in the expression "there was error attributable to the services in the assessment of the tax" should be understood in the broad sense, as referring to the assessment procedure, constituted by the set of acts intended at the definition of a tax payment obligation by a particular taxpayer, encompassing not only the assessment stricto sensu (constituted by the act in which the amount to be paid is determined, effecting the arithmetic operations for calculating the tax due), but also the levy phase (in which the taxpayers and the taxable or collectible matter and the rate to be used are determined, in case more than one is potentially applicable).

It is with that broad sense that the expression "assessment" is used, for example, in articles 54(1)(b) of the LGT and 10(1)(a) of the CPPT, in which competencies of the Tax Administration are not specifically indicated relating to the levy of taxes.

But, it is also included in the assessment procedure its notification to the addressee, as, before notification, the operations performed are mere internal acts, freely revocable, which do not define the position of the Tax Administration in relation to the taxpayer.

Indeed, in most cases, the errors of assessment acts do not result from the act itself that concretizes the arithmetic operations for determining the tax due, but from other acts of the procedure that underlie it, therefore it would not be understood an interpretation of the term "assessment" used in article 53(2) with the restricted sense, as there are no reasons to distinguish, for purposes of indemnification for damages suffered with the provision of guarantee, between the injuries caused by non-renewable acts in which the defects relate to the assessment act itself and those derived from defects of other acts of the respective assessment procedure.

Furthermore, the broad sense referred to is the interpretation that best accords with the expression "assessment", which is adequate to refer to the entire assessment procedure - being rather used to refer to the restricted sense, by being more precise, the expression "assessment act".

In addition, article 53 of the LGT aims to facilitate those harmed by unlawful action of the Tax Administration the reparation to which they are constitutionally entitled (article 22 of the CRP) and the principle of equality imposes that this right be recognized to all taxpayers who have borne expenses with the provision of guarantees, by virtue of the performance of an assessment act that is affected by an illegality that makes its renewal impossible, as is the case of the lapse of the right to assess.

Thus, having to presume that the legislator enshrined the most correct solution and knew how to express its intention in adequate terms (article 9(3) of the Civil Code), it is to be concluded that that expression "error attributable to the services in the assessment of the tax" encompasses all illegalities that affect the validity of the assessment, including those relating to its notification, which is the final act of the assessment procedure, as is implicit in the regime of article 45(1) of the LGT.

Consequently, it is to be concluded that the Claimant has the right to be indemnified, as the error that affects the validity of the assessments is attributable to the Tax Authority and Customs Authority, and the guarantee was provided to suspend the tax enforcement proceedings initiated on the basis of these invalid assessments.

In these terms, the request for condemnation of the Tax Authority and Customs Authority to pay to the Claimant, by way of indemnification, the amount incurred for expenses it bore with the provision of bank guarantee, to be determined in execution of the judgment, is well-founded.

Decision

In view of the foregoing, the Arbitral Tribunal decides:

To rule well-founded the present request for arbitral decision and, consequently, to annul the tacit (presumed) dismissal of the administrative recourse presented by the Claimant on 6 July 2017 and the additional Corporate Income Tax (IRC) assessment no. 2017..., of 9 January 2017 (as well as the respective statements of account correction and compensatory interest payment, all associated with compensation no. 2017..., of 11 January 2017), relating to IRC for the year 2012, with the consequent restitution of the tax paid in the amount of €17,250.26 (seventeen thousand two hundred and fifty euros and twenty-six cents);

To rule well-founded the request as to the recognition of the right to compensatory interest in favor of the Claimant, by virtue of the tax unduly paid, from the date on which the Claimant made the payment until full payment of the amount to be reimbursed, at the supplementary legal rate, to be finalized in execution of the judgment.

To rule well-founded the request for release of the bank guarantee provided and for condemnation of the Tax Authority and Customs Authority to pay to the Claimant indemnification for expenses incurred with the provision and maintenance of bank guarantee for suspension of tax enforcement proceedings no. ...2017..., in an amount to be finalized in execution of the judgment.

V. Value of the Case

In accordance with the provisions of articles 306(2) and 297(2) of the CPC, article 97-A(1)(a) of the CPPT and article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is fixed at €17,250.26.

VI. Costs

In accordance with the provisions of articles 22(4) and 12(2) of the RJAT, article 2, article 3(1) and articles 4(1) to (4) of the Regulation on Costs in Tax Arbitration Proceedings, and the Table I attached to this diploma, the total value of costs is fixed at €1,224.00, to be borne by the Tax Authority and Customs Authority.

Lisbon, 30 January 2019

The Arbitrator,

Pedro Miguel Bastos Rosado