IRC Capital Gains and Losses: Fair Value Measurement Deductibility | CAAD 393/2016-T

Arbitral Decision

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Maria Alexandra Mesquita and Dr. Nuno Miguel Morujão, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 04-10-2016, agree as follows:

1. Report

A… SGPS, S.A., NIPC…, with headquarters at Rua …, n.º …, …, …-…, Cascais, (hereinafter referred to as "Claimant"), filed a request for constitution of the collective arbitral tribunal, in accordance with the combined provisions of articles 2.º and 10.º, n.ºs 1 and 2, paragraph a), of Decree-Law n.º 10/2011, of 20 January (hereinafter "RJAT"), with a view to declaring the illegality of the dismissal of the administrative complaint n.º …2015… and, likewise, declaring the partial illegality of the self-assessment of IRC of the fiscal group B… for the tax year 2012, with regard to the amount of € 223.520,24, with its consequent annulment in this part.

The Claimant further requests the reimbursement from the Tax and Customs Authority (AT) of that amount, plus compensatory interest at the legal rate counted, until full reimbursement, with regard to € 145.376,11 from 27 May 2013, and with regard to € 78.144,09 from 1 September 2013.

In the alternative, the Claimant requests that the partial illegality of the self-assessment of IRC of the fiscal group B… for the tax year 2012 be declared with regard to the amount of € 56.383,88, with its consequent annulment in this part and with the consequent reimbursement of this amount and the payment of compensatory interest counted from 27-05-2013 until its full reimbursement.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the TAX AND CUSTOMS AUTHORITY on 04-08-2016.

Pursuant to the provisions of paragraph a) of n.º 2 of article 6.º and paragraph b) of n.º 1 of article 11.º of the RJAT, the Deontological Council appointed as arbitrators the signatories, who communicated acceptance of the assignment within the applicable period.

On 19-09-2016, the Parties were notified of this appointment, having shown no intention to challenge the appointment of the arbitrators, in accordance with the combined provisions of article 11.º n.º 1 paragraphs a) and b) of the RJAT and articles 6.º and 7.º of the Deontological Code.

Thus, in conformity with the provisions of paragraph c) of n.º 1 of article 11.º of the RJAT, the collective arbitral tribunal was constituted on 04-10-2016.

The Tax and Customs Authority responded, arguing for the inadmissibility of the request for arbitral pronouncement and the non-existence of a right to compensatory interest.

By order of 08-11-2016 it was decided to dispense with the holding of the meeting provided for in article 18.º of the RJAT and for the proceedings to continue with written submissions.

The Parties submitted written submissions.

The arbitral tribunal was regularly constituted and is competent.

The parties have legal personality and capacity, are legitimate (arts. 4.º and 10.º, n.º 2, of the same act and art. 1.º of Ordinance n.º 112-A/2011, of 22 March) and are properly represented.

The proceedings are free from nullities.

It remains to decide.

2. Facts

2.1. Established Facts

The following facts are considered established:

· The Claimant A… SGPS, S.A., is the parent company of a group of companies subject to the special tax treatment regime for groups of companies ("RETGS"), and whose corporate purpose is centred on the management of shareholdings in other companies, as an indirect form of exercise of economic activities;

· In its capacity as parent company of the said group of companies, the Claimant proceeded with the self-assessment of IRC and consequent state and municipal surcharge for the tax year 2012 by means of submission of the Model 22 Declaration of the Group, on 08-05-2013 (document n.º 1 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· On 21-05-2013, the Claimant submitted the substitute declaration, a copy of which is contained in document n.º 2 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· In the 2005 tax year, Group B… acquired 1,101,085 shares of C…, Ltd. (hereinafter, C…), formerly called D…, a company listed on the London Stock Exchange, with an acquisition cost of € 11.010.850,00, to which corresponded the acquisition by gratuitous attribution of 1,376,356 preferred shares (C… preferred or …) in 2010 (documents n.ºs 4 and 5 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· The acquisition of the said shares conferred on the Claimant a shareholding representing less than 5% of the share capital of C… (agreement of the Parties, articles 16.º of the request for arbitral pronouncement and 4.º of the Response);

· Until 31-12-2009, the shareholdings in question were measured in the Claimant's financial statements at acquisition cost, in accordance with the accounting principles defined in the Official Chart of Accounts (POC) (document n.º 4 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· Following the approval of the Accounting Standardisation System (SNC), which came into force on 01-01-2010, the Claimant began to measure, in its financial statements, the shareholdings held in the capital of C… in accordance with Accounting and Financial Reporting Standard 27 (NCRF 27) (agreement of the Parties, article 20.º of the request for arbitral pronouncement and 6.º of the Response);

· By virtue of the adoption for the first time of the new accounting rules, the Claimant ascertained a negative equity variation associated with the measurement of the shareholding held in C… in accordance with fair value, in the amount of € 7.982.866,25 (agreement of the Parties, article 26.º of the request for arbitral pronouncement and 7.º of the Response);

· On 22-01-2011, the Claimant made a Binding Information Request in order to confirm the understanding of the Tax Authority (AT) regarding the tax treatment of that equity variation, namely with regard to the limitation of the deduction to 50% set out in article 45.º, n.º 3 of the CIRC;

· In response to the Request, the IRC Services Department informed that "In the event that a loss is ascertained due to reduction in fair value, article 45.º, n.º 3 of the CIRC, establishes that 'other losses relative to shareholdings compete for the formation of taxable income in only half their value', concluding that 'Being the reductions in fair value of these shareholdings qualified as losses should be considered, in accordance with the said article 45.º, n.º 3, of the CIRC, in 50% of their value'" (document n.º 6 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· The Claimant, following the understanding of the AT, considered, for tax purposes, in the self-assessment of IRC for 2012, only 50%, the negative equity variation relating to the shareholding in C… resulting from the transition to the new accounting benchmark (adoption for the first time) regarding fair value recognition (deferred over five tax periods);

· With regard to the appreciation that occurred in 2012 with the financial participation in C…, the Claimant considered it in 100% in the self-assessment of that year, according to the framework confirmed by the AT in response to a new Binding Information Request, dated September 2013;

· On 22-04-2013, the Claimant submitted its individual Model 22 declaration for the 2012 tax period (document n.º 7 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· In field 705 of table 07 of its individual Model 22 declaration for 2012, relating to "Negative equity variations (transitional regime provided for in art.º 5.º, n.ºs 1, 5 and 6 of DL 159/2009, of 13/7)", it considered, as a negative equity variation resulting from the transition to the new accounting benchmark (adoption for the first time) regarding fair value recognition, the amount of € 798.286,70, which corresponds to 50% of 1/5 of the total accumulated negative equity variation (7.982.866,25 €) (document n.º 7 attached with the initial petition);

· In September 2013, the Claimant submitted a new binding information request (document n.º 9 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· On 21-05-2015, the Claimant submitted an administrative complaint of the IRC self-assessment act relating to the 2012 tax period, a complaint which was numbered …2015… (document n.º 3 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· On 21-04-2016, the Claimant was notified, by means of Official Letter n.º…, of 19-04-2016, of the decision dismissing the administrative complaint, by order issued on 18-04-2016, by the Head of the Administrative Justice Division of the Finance Department of Lisbon, which expresses agreement with an opinion and information in which is mentioned, among other things, the following: (document n.º 3 attached with the request for arbitral pronouncement, the contents of which are now reproduced)

III - ANALYSIS OF THE REQUEST

1 - The complainant has standing (art° 9 of the Code of Tax Procedure and Process) and the request is legal and was submitted in time, within the two-year period following the filing of the tax return, in accordance with n° 1 of art° 131° of the CPPT (date of filing of model 22 declaration of the group, 21-05-2013, fl. 37; complaint filed with the Finance Office on 21-05-2015, fl. 4).

For the purposes of the provision in n° 3 of art° 111° of the CPPT, it was verified, by consultation of the computer system, that to date there is no record of any judicial challenge with the object of the complaint under analysis.

2 - The complainant alleges that her procedure of considering only 50% (in field 705 of model 22 individual declaration) the amount of the depreciation referred to above verified in the ordinary shares of C…, Ltd, is not correct, because the rule on which she relied, n° 3 of art° 45° of the CIRC, is not applicable to fair value adjustments provided for in al. a) of n° 9 of art° 18° of the CIRC.

N° 3 of art° 45° (Expenses not deductible for tax purposes) of the CIRC, a rule repealed by art° 13° of Law 2/2014 of 16/1, with effects in tax periods beginning on 01-01-2014, had, until its repeal, the following wording given to it by Law 60-A/2005 (as art° 42°, later renumbered to art° 45° of DL 159/2009): "The negative difference between gains and losses realized through the sale of shareholdings, including their redemption and amortization with capital reduction, as well as other losses or negative equity variations relating to shareholdings or other components of equity, namely supplementary contributions, compete for the formation of taxable income in only half their value."

3 - It alleges, namely, that n° 3 of art° 45° should not apply in this case because variations in fair value result from price fluctuations that the taxpayer does not control (because the price is formed in a regulated market and the shareholding is not greater than 5%), so the rule, in that respect, has no effectiveness in terms of combating fraud and tax evasion, one of its objectives.

It also alleges that the different patterns in terms of price fluctuations that occurred over several tax periods lead, if considered globally, to different results (depending on the patterns) as to the calculation of taxable income and tax.

Such allegations do not appear to be such as to render the said rule inapplicable, especially since they do not appear in, nor can be deduced from, the legal text and the expression "other losses or negative equity variations relating to shareholdings" appears to be sufficient to accommodate the reductions verified in the fair value of the ordinary shares of C….

4 - As for the allegation that "expenses" are not included in the sense of the rule, and to note that, in al. f) of art° 8° of DL 159/2009, a decree-law that implements the adaptation of the IRC Code to the SNC, it is clarified that the concept "costs and losses" is replaced by the concept "expenses". Thus the concept of expenses includes that of losses, this having, moreover, continued to be used in the IRC Code, as is the case with art° 45°.

5 - The complainant also alleges that n° 3 of art° 45° of the CIRC contradicts in part n° 9 of art° 18° of the CIRC (applicable via al. i) of n° 1 of art° 23° of the CIRC, as to reductions in fair value), by creating a limitation that n° 9 of art° 18° does not provide.

However, this allegation is not justified, since it is frequent for norms that limit the scope of application of others to occur. It was, moreover, the effect of art° 45° in relation to the deductibility of different types of expenses provided for in art° 23° of the CIRC, with the current art° 23°-A having the same effect.

6 - The complainant reports that it made two binding information requests, in accordance with art° 68° of the LGT.

In the first (fls. 62 to 64), on the classification of the negative variations in fair value in question in n° 3 of art° 45° of the CIRC, the conclusion of the IRC Services Department was that losses must be treated separately from gains (because the legislator refers to "losses" and not to the "negative difference between gains and losses") and that, as for losses, although they are considered deductible in accordance with al. i) of n° 1 of art° 23° of the CIRC, their respective deductibility is subject to the limitation imposed by the final part of n° 3 of art° 45°, both of the CIRC.

In the second binding information (fls. 77 to 80), the conclusion is that when income associated with gains on the value of assets measured at fair value is involved, the variation in value of which must be recognized in results, as is the case here, those gains compete for the formation of taxable income in their entirety.

The complainant does not allege that the binding information has expired due to subsequent change in the factual or legal assumptions on which it was based, as provided for in n° 15 of art° 68° of the LGT, or that it has been revoked, in accordance with n° 16 of the same article.

Thus, it seems that n° 14 should apply, according to which the AT must proceed in accordance with the information provided, except in compliance with a judicial decision.

7 - In point 186 of the complaint (in conjunction with the reasoning in the binding information request dated 17-09-2013 - cf. fls. 66 to 75), it is argued that, if the AT's understanding of considering n° 3 of art° 45° of the CIRC applicable to the reduction in fair value of the ordinary shares of C… is maintained, the gain of € 402.742,02 obtained with those shares in 2012 (calculation in point 10 of the complaint) should be considered in only half its value, in the calculation of taxable income for that tax period, since those gains constitute a reversal of previous losses, considered in half their value based on the said legal rule.

However, the complainant does not invoke any legal rule in that sense.

Moreover, this issue is addressed in the two binding information documents mentioned in the previous point, particularly in the second, in which an answer is given to this same question, expressing the understanding that those gains compete for the formation of taxable income in their entirety (that is, the said n° 3 of art° 45° applies only to losses).

8 - Given that, as set out in the previous points, the complainant has no reason, it is proposed that the request be dismissed, maintaining the assessment object of complaint.

For the same reason, and because no error attributable to the services is demonstrated, there is no place for the recognition of compensatory interest.

IV - PRIOR HEARING

The complainant was notified of the draft dismissal decision by registered mail on 10-03-2015, as shown in fls. 120 and 121 of the file, to exercise the right to prior hearing provided for in art° 60° of the General Tax Law.

With the notification, a photocopy of the draft decision was sent, the 15-day period provided for in n° 6 of art° 60° of the General Tax Law having been respected.

After the said period elapsed, the complainant did not exercise the right.

Given the foregoing, and taking into account the facts and grounds invoked in the previous points and which reproduce the said draft decision, it is proposed that the request be decided in the same sense as the dismissal (cf. point III-8 above).

· On 27-05-2013, the Claimant paid the amount of € 145.376,11, relating to the self-assessment (document n.º 16 attached with the request for arbitral pronouncement, the contents of which are given as reproduced);

· On 14-07-2016, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

2.2. Unproven Facts and Justification of the Decision on Facts

The facts were given as established based on the documents attached with the initial petition and which form part of the administrative file.

3. Matters of Law

The fiscal relevance of the negative equity variation resulting from the variation in fair value of the equity instrument "shareholding in C…" referred to above, in the amount of € 7.982.866,25, is in question, within the scope of the transition adjustment derived from the adoption of the SNC for the first time (relating to the accumulated amount up to 2009), for the 2012 tax year.

The said negative equity variation contributed to the formation of taxable income for the 2012 tax period in only half (50%) of 1/5 of its total value (€ 798.286,70), when the Claimant understands that it should have contributed in said 1/5 (€ 1.596.573,25), that is, in full (100%), due to the non-applicability of the restriction set out in article 45.º, n.º 3, of the CIRC.

It is accepted by the Parties that the financial participations in question should be accounted for in accordance with the fair value criterion and that the adjustments were recognized through results.

3.1. Normative Framework

Article 45.º, n.º 3, of the CIRC, in the wording given by DL 159/2009, of 13 July, establishes the following:

3 – The negative difference between gains and losses realized through the sale of shareholdings, including their redemption and amortization with capital reduction, as well as other losses or negative equity variations relating to shareholdings or other components of equity, namely supplementary contributions, compete for the formation of taxable income in only half their value.

The general rule on the determination of taxable income from IRC is article 17.º of the CIRC which establishes that

1 – The taxable income of collective persons and other entities mentioned in paragraph a) of n.º 1 of article 3.º is constituted by the algebraic sum of the net result of the period and the positive and negative equity variations verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this Code.

With regard to adjustments resulting from the application of fair value, n.º 9 of article 18.º of the same Code, provides that:

9 – Adjustments resulting from the application of fair value do not compete for the formation of taxable income, being allocated as income or expenses in the tax period in which the elements or rights that gave rise to them are sold, exercised, extinguished or liquidated, except when:

a) They relate to financial instruments recognized at fair value through results, provided that, in the case of equity instruments, they have a price formed in a regulated market and the taxpayer does not hold, directly or indirectly, a participation in capital greater than 5% of the respective share capital; or

b) This is expressly provided for in this Code.

Article 20.º, n.º 1, of the CIRC specifies the concept of income, establishing, for what is relevant here, the following:

"Income is understood as resulting from operations of any nature, as a consequence of normal or occasional action, basic or merely accessory, in particular:

(...)

f) Income resulting from the application of fair value in financial instruments;

(...)

h) Realized gains;".

Article 23.º, n.º 1, of the CIRC defines the concept of "expenses", establishing the following:

1 – Expenses are understood as those which are verifiably indispensable for the realization of income subject to tax or for the maintenance of the income-producing source, in particular:

(...)

i) Expenses resulting from the application of fair value in financial instruments;

(...)

l) Realized losses;".

With regard to positive equity variations, article 21.º, n.º 1, of the CIRC provides that:

"Positive equity variations not reflected in the net result of the tax period also compete for the formation of taxable income, except:

(...)

b) Potential or latent gains, even though expressed in the accounts, including revaluation reserves under tax legislation;

With regard to negative equity variations, article 24.º, n.º 1, of the CIRC states that:

Under the same conditions referred to for expenses, negative equity variations not reflected in the net result of the tax period also compete for the formation of taxable income, except:

(...)

b) Potential or latent losses, even though expressed in the accounts;".

Regarding gains and losses, article 46.º, n.º 1, of the same Code, provides that:

1 – Realized gains or losses are understood to be the profits obtained or losses suffered through sale, whatever the means by which it is carried out and, likewise, those resulting from casualty or resulting from permanent allocation to purposes alien to the activity carried out, relating to:

(...)

b) Financial instruments, with the exception of those recognized at fair value in accordance with paragraphs a) and b) of n.º 9 of article 18.º"

Article 5.º of DL n.º 159/2009, of 13 July, establishes the following:

Article 5.º

Transitional Regime

1 - The effects on equity resulting from the adoption, for the first time, of international accounting standards adopted pursuant to article 3.º of Regulation n.º 1606/2002, of the European Parliament and of the Council, of 19 July, which are considered fiscally relevant in accordance with the IRC Code and respective supplementary legislation, resulting from the recognition or non-recognition of assets or liabilities, or from changes in their measurement, compete, in equal parts, for the formation of the taxable income of the first tax period in which those standards are applied and of the four following tax periods.

(...)

3.2. Analysis of the Issue

In the analysis of this issue, the reasoning of the arbitral award of 25-11-2013, rendered in case n.º 108/2013-T, will be followed closely, which merits the agreement of the signatories.

The said article 45.º, n.º 3, of the CIRC results from the renumbering of the former article 42.º, n.º 3, carried out by Decree-Law DL 159/2009.

This n.º 3 of article 42.º in question was, in turn, introduced by Law 32-B/2002, of 30 December, with the following wording:

"The negative difference between gains and losses realized through the sale of shareholdings, including their redemption and amortization with capital reduction, competes for the formation of taxable income in only half their value."

According to the Report of the Ministry of Finance for the State Budget of 2003 (p. 33), the legislative intervention in the area in question (IRC) was guided by "two priorities, namely the fight against fraud and tax evasion and the broadening of the tax base", with the amendment of interest falling within the scope of "Broadening of the tax base and measures of moralization and neutrality" (p. 51).

The current wording of the rule under analysis resulted from the amendment implemented by Law 60-A/2005 of 30 December, and in accordance with the corresponding Report of the Ministry of Finance (p.31), the measure in question fell within the scope of "COMBATING TAX EVASION AND FRAUD AND OTHER MEASURES AIMED AT BUDGETARY CONSOLIDATION".

Now, n.º 9 of article 18.º of the applicable CIRC obtains its justification directly in the preamble of DL n.º 159/2009, of 13 July, which introduced it in the said Code, where it can be read:

"Still in the field of bringing accounting and taxation closer together, the application of the fair value model in financial instruments is accepted, the counterpart of which is recognized through results, but only in cases where the reliability of the determination of fair value is in principle assured. Thus, equity instruments that do not have a price formed in a regulated market are excluded. Furthermore, the application of the realization principle was maintained with regard to financial instruments measured at fair value, the counterpart of which is recognized in equity, as well as shareholdings that correspond to more than 5% of the share capital, even if recognized at fair value through results. (...)

In the same sense, assets covered by the regime of gains and losses for tax purposes are identified as tangible fixed assets, intangible assets, investment properties, financial instruments, with the exception of those in which the adjustments resulting from the application of fair value compete for the formation of taxable income in the tax period."

These expressed intentions have correspondence in that rule of n.º 9 of article 18.º, as well as in the introduction, by the same legal act, of paragraphs f) and i) of n.º 1 of articles 20.º and 24.º of the CIRC, as well as paragraph b) of n.º 1 of article 46.º.

Within the set of amendments introduced by the said Decree-Law 159/2009, of 13 July, it should further be noted that where previously there was talk of revenues and gains (article 20.º), it began to be talk of income, and where previously there was talk of costs or losses (article 23.º), it began to be talk of expenses.

Prior to the adoption of fair value for shares with the characteristics of the case sub judice, as a result of the entry into force of the SNC, equity variations relating to financial instruments were irrelevant from the point of view of the formation of taxable income of each period, due to the rule of article 21.º, n.º 1, paragraph b), of the CIRC, which established that "potential or latent gains, even though expressed in the accounts, including legally authorized revaluation reserves" did not compete for the formation of taxable income. Only at the moment of realization of the gain or loss did the equity variation become relevant for tax purposes.

This tax framework, which was reduced to single taxation (which occurred only once throughout the entire period of holding of the financial instruments), dependent on a voluntary act of the taxpayer (in so far as the transaction of the instruments generating the equity variation, the condition of tax relevance of that, would only occur if and when the taxpayer sold the assets) and in which the measurement of the equity variation was fixed according to the concrete transaction that triggered its tax relevance provided fertile ground for accounting and tax manipulations, since the taxpayer could seek to trigger the tax relevance at the moment and in the terms that would be more fiscally advantageous to him.

On the other hand, and given the relevance of the taxpayer's will in the mechanism of tax relevance of the equity variation, the system established was suited to the adoption of mechanisms for conditioning that will, in order to conform it to economically more desirable behaviors, which, in this case, pass through the preference for realization of gains, to the detriment of the realization of losses.

It is in this context that the emergence of the rule of the former article 42.º, n.º 3, of the CIRC, which precedes the current article 45.º, n.º 3, of the same, is explained.

Such a rule, whether in its original wording, resulting from Law 32-B/2002, of 30 December, or in that given to it by Law 60-A/2005 of 30 December, is explained objectively and subjectively (that is, in light of the motivation expressed by the legislator) by needs linked to the fight against fraud and tax evasion and to the broadening of the tax base, aimed at the desired consolidation of the public accounts.

The acceptance of the application of the fair value model in financial instruments, operated by Decree-Law 159/2009, of 13 July, came to introduce, in the part covered, a radically different model, both of valuation and of tax relevance of equity variations relating to the holding of those instruments.

Indeed, the intention of the legislator at the time of the adoption of the fair value model, duly evidenced, was, undertaken and expressly, to maintain "the application of the realization principle with respect to financial instruments measured at fair value, the counterpart of which is recognized in equity, as well as shareholdings that correspond to more than 5% of the share capital, even if recognized at fair value through results".

As for "financial instruments" which correspond to less "than 5% of the share capital", "the counterpart of which is recognized through results, (...) in cases where the reliability of the determination of fair value is in principle assured", the legislative intention was to accept "the application of the fair value model", excluding the realization principle.

In keeping with this legislative intention, article 18.º, n.º 9, of the CIRC came to provide that, as a rule, "Adjustments resulting from the application of fair value do not compete for the formation of taxable income, being allocated as income or expenses in the tax period in which the elements or rights that gave rise to them are sold, exercised, extinguished or liquidated", which embodies an evident and deliberate manifestation of the assumed realization principle.

However, the same rule, in its paragraph a), establishes the exception to this regime, "when: a) They relate to financial instruments recognized at fair value through results, provided that, in the case of equity instruments, they have a price formed in a regulated market and the taxpayer does not hold, directly or indirectly, a participation in capital greater than 5% of the respective share capital;".

That is, when the "income or expenses (...) relate to financial instruments recognized at fair value", "compete for the formation of taxable income" "provided that":

a) They are recognized "through results";

b) They concern "equity instruments";

c) "they have a price formed in a regulated market"; and

d) "the taxpayer does not hold, directly or indirectly, a participation in capital greater than 5% of the respective share capital".

When these conditions are met:

a) income resulting from the application of fair value in financial instruments is considered [article 20.º, n.º 1, paragraph f), of the CIRC]; and

b) expenses resulting from the application of fair value in financial instruments are considered [article 23.º, n.º 1, paragraph i) of the CIRC].

In this way, where previously we had single tax relevance, at the time of transaction of those instruments, we now have continued tax relevance. That is, in light of the new rules forming part of the regime of tax relevance of accounting at fair value of financial instruments, income or expenses resulting from the application of fair value to these now directly affect the formation of taxable income [articles 20.º, n.º 1, paragraph f), and article 23.º, n.º 1, paragraph i), of the CIRC] of the same year in which they occur, provided that certain conditions are met (article 18.º, n.º 9, of the CIRC), which include the formation of price in a regulated market, gains and losses not being taxed as capital gains and losses [article 46.º, n.º 1, paragraph b), of the CIRC].

In this framework, there are no longer any needs related to combating fraud and tax evasion, not only because the tax relevance of equity variations is no longer conditioned by an act of will of the taxpayer, but also because the measurement is objectively fixed.

On the other hand, and for the same reasons, any measure conditioning the taxpayer's will, in order to favor economically more "desirable" behaviors and, as such, in conformity with the interests of broadening the tax base and budgetary consolidation, also lacks meaning.

Notwithstanding these amendments introduced by Decree-Law 159/2009, of 13 July, the former article 42.º, n.º 3, of the CIRC, renumbered to article 45.º, n.º 3, maintained its respective validity, with its wording unchanged.

Hence the question that arises, as occurs in this case, whether such rule will, or will not, apply to depreciations relating to financial instruments, which compete for the formation of taxable income, in accordance with article 18.º, n.º 9, paragraph a), of the CIRC.

In a first analysis, based exclusively on the literal content of n.º 3 of article 45.º an affirmative answer is suggested and to this issue, in light of the comprehensiveness of the provision of this rule.

But, a careful and coordinated interpretation of the normative provisions relevant to the analysis of the issue, which have been indicated, leads to a different conclusion.

In fact, article 45.º, n.º 3, of the CIRC states that:

"The negative difference between gains and losses realized through the sale of shareholdings, including their redemption and amortization with capital reduction, as well as other losses or negative equity variations relating to shareholdings or other components of equity, namely supplementary contributions, compete for the formation of taxable income in only half their value."

The analysis of the normative text reveals with clarity that the legislator chose, to include in it, three types of situations that should be understood, according to the presumption of good legislative technique, as distinct, namely:

a) "The negative difference between gains and losses realized through the sale of shareholdings";

b) "other losses (…) relating to shareholdings or other components of equity";

c) "other (…) negative equity variations relating to shareholdings or other components of equity".

Let us then see whether the situation of this case falls into one of the enumerated situations.

The situation alluded to under paragraph a) above will be manifestly inapplicable, not only because there was no realization through sale, but also because article 46.º, n.º 1, paragraph b), of the CIRC excludes the situations described in article 18.º, n.º 9, paragraph a), from the concept of realized gains.

In this way, the possibilities remain for the integration of the situation of this case into one of the situations enumerated in paragraphs b) and c) above.

The apparent indiscriminate comprehensiveness of the provisions in question can, however, be reasonably mitigated by noting that "losses" and "other negative equity variations" are concepts, not redundant, but endowed with a proper and distinct sense.

To understand this fact, it will be necessary to go back to articles 23.º and 24.º of the same Code, paying attention to the terminological evolution operated by article 159/2009, of 13 December.

Indeed, prior to the entry into force of the latter decree-law, the referred articles of the CIRC stated, respectively, that:

– "Costs or losses are understood as those which are verifiably indispensable for the realization of revenues or gains subject to tax or for the maintenance of the income-producing source, in particular the following: (...)";

– "Under the same conditions referred to for costs or losses, negative equity variations not reflected in the net result of the year also compete for the formation of taxable income, except: (...)".

It is thus verified that at the time of the consecration of the wording of article 45.º, n.º 3, of the CIRC effective in 2012, this Code expressly distinguished, for what is relevant here, three types of situations, namely:

a) Costs;

b) Losses;

c) Negative equity variations not reflected in the net result of the year.

The provision of article 42.º, n.º 3 of the CIRC (predecessor of article 45.º, n.º 3, in the wording given by Decree-Law n.º 159/2009, of 13 July), should thus be considered as relating to these concepts, defined in articles 23.º and 24.º, in the wordings prior to this Decree-Law.

In this way, and for obvious reasons, from the provision of that rule costs relating to "shareholdings or other components of equity" should be excluded, including there only losses (as defined in article 23.º) and negative equity variations (as defined in article 24.º), relating to those shareholdings.

And that this is so, that is, that the expression "other losses or negative equity variations" used in article 45.º, n.º 3, of the CIRC, in the wording effective in 2012, does not have an indiscriminately comprehensive sense, but rather a precise sense, defined in articles 23.º and 24.º, results from the fact that the legislator employed the same distinction.

Furthermore, the inclusion in the scope of the said rule not only of losses (as defined in article 23.º) and negative equity variations (as defined in article 24.º), but also of costs (as defined in article 23.º in the wording prior to Decree-Law n.º 159/2009), would lead to the acquisition cost of shareholdings competing only in half their respective value for the determination of taxable income, which would be, obviously, inconceivable in a reasonably prudent legislator and, consequently, this is an interpretation to be rejected, by force of the rule of article 9.º, n.º 3, of the Civil Code, which imposes that it be presumed that the legislator adopted the most correct solutions.

The normative amendment implemented by Decree-Law 159/2009, of 13 July, will not have altered anything of relevance in the matter in question. Indeed, despite the body of article 23.º now referring only to expenses, the fact is that the CIRC continues to use the expression "losses", including in article 23.º itself (cfr. n.º 1, paragraph h)). This occurs in consistency, moreover, with the SNC, which in accordance with point 2.1.3.e) of the annex to Decree-Law 158/2009 of 12 July, maintains the distinction between "expenses" and "losses".

In this way, it is concluded that article 45.º, n.º 3, of the CIRC will relate to:

a) negative differences between gains and losses realized through the sale of shareholdings;

b) other losses relating to shareholdings or other components of equity; and

c) other negative equity variations relating to shareholdings or other components of equity.

Being that by "losses" should be understood facts qualifiable as such in light of the CIRC, and by "negative equity variations" should be understood negative equity variations not reflected in the net result of the year, as defined in article 24.º.

Facts qualifiable as "expenses" in light of the CIRC will not thus be included in the scope of the said rule, even if relating to shareholdings or other components of equity.

The AT itself seems to recognize this, since in the "Instructions for Completing Table 07, Model 22" ( [1] ), regarding field 737, states that "In this field are entered, at 50%, the amounts relating to other losses (which are not losses, since these follow the "mechanism" of gains and losses) relating to shareholdings or other components of equity capital. For example, amounts corresponding to 50% of losses from reductions in fair value are included in this field 737, when they fall within the scope of article 23.º, n.º 1, paragraph i), by force of the provision in art.º 18.º, n.º 9, paragraph a)".

However, article 23.º, n.º 1, paragraph i), of the CIRC does not refer to the amounts in question as "losses", but as "expenses", so their entry in the field in question will be incorrect.

Moreover, and if there were any doubts, if the legislator, when the Decree-Law 159/2009 of 13 December came into force, intended to cover the situations enumerated in article 18.º, n.º 9, paragraph a), of the CIRC, within the scope of article 45.º, n.º 3, of the same, it would have:

– included "Expenses resulting from the application of fair value in financial instruments", not in article 23.º, but in article 24.º of the CIRC ( [2] ); or

– referred to such situations as "losses resulting from the application of fair value in financial instruments" and not as "expenses".

Within the framework just set out, it should then be considered that Decree-Law 159/2009, of 13 July, came to introduce, with respect to the part covered by the acceptance of the application of the fair value model in financial instruments, a special regime of relevance for the computation of taxable income, justified both by its own objectivity and by the confessed intention of bringing accounting closer to taxation.

This circumstance is, in light of the wording of the CIRC resulting from Decree-Law n.º 159/2009, not susceptible of generating any type of doubt, as is verified, in particular, by the wording of articles 20.º, n.º 1, paragraphs f) and h), 23.º, n.º 1, paragraphs i) and l), and, especially 46.º, n.º 1, paragraph b), in light of which it is evident in a clear way the legislator's intention to remove the adjustments resulting from the application of the fair value criterion in financial instruments, in accordance with recognized by the CIRC, from the regime of gains and losses.

Now, the regime resulting from the combination of articles 45.º, n.º 3, and 46.º of the CIRC only makes sense from the perspective of the acceptability of the equity variations in question under the prism of the said realization principle.

For, being in question, in light of that principle, the assessment of the equity variation according to a transaction, there will always be a voluntary factor in relation to that.

That is, in the regime for which the rule of article 45.º, n.º 3, was conceived and instituted, the realization of losses and other situations enumerated was dependent on a voluntary act corresponding to the realization thereof. Now, in this context, it will be understandable that the legislator institutes mechanisms of disincentive to an action that could be considered as disadvantageous, in this case the realization of losses or other negative equity variations. By providing that such situations will only be relevant in 50% of the amount accounted for, the tax legislator is, objectively, conditioning the actions covered by the legal provision, imposing a negative incentive to the same.

On the other hand, and being in question financial instruments of value not objectively quantifiable, the disregard of 50% of the negative equity variations verified would also have a function of "compensating" the natural tendency of economic operators to, at the tax level, inflate losses.

However, those aspects will no longer be verified in the situations covered by article 18.º, n.º 9, paragraph a). Here, being in question adjustments resulting from the accounting of fair value, determined by objective criteria (with "a price formed in a regulated market"), there is no doubt or intervention of the taxpayer's will in the occurrence of the negative or positive equity adjustment. That is, these will or will not occur, regardless of the action and will of the taxpayer.

Now, penalizing, in these cases, the taxpayer with a disregard of 50% of the expenses incurred, would be entirely unjustified, either from an economic point of view, or from a legal point of view.

For, as recalled, this situation of contingent (random, even) unjustified penalization would only occur as a result of the exception of the situations covered by article 18.º, n.º 9, paragraph a), of the CIRC to the regime of the realization principle. That is, if the general regime of the body of article 18.º, n.º 9, were applied to those situations, according to which the same would not compete "for the formation of taxable income, being allocated as income or expenses in the tax period in which the elements or rights that gave rise to them are sold, exercised, extinguished or liquidated", the pointed incoherence would not be verified, since the fact that would trigger the competition for the formation of taxable income would only occur by the will of the taxpayer, so it would be up to him to opt to realize the negative equity variation, with the consequent tax penalization, or defer this to a moment when it was less voluminous or, even positive, reducing or eliminating the penalization resulting from the operation to him and to the State. It is the exception of paragraph a), by removing the situations provided for there from the scope of the realization principle, that justifies the new regime of relevance for taxable income, which was instituted.

Evidence of everything that has been said is presented in the table elaborated below, which demonstrates the irrationality of the application of the rule of article 45.º, n.º 3, to the situations covered by article 18.º, n.º 9, paragraph a):

The non-application of the rule of article 45.º, n.º 3, of the CIRC to expenses, and specifically to "Expenses resulting from the application of fair value in financial instruments", with the full consideration of the equity repercussions verified, whether positive or negative, leads to coherence of taxation regardless of when the financial instrument is sold. That is, at whatever time one chooses to proceed with the sale of the financial instrument, the positive and negative equity alterations offset each other, so that, in the end, the taxpayer only adds to or subtracts from his taxable income the difference between the acquisition value and the sale value.

Now, if the rule of article 45.º, n.º 3, of the CIRC were applied, as the Tax and Customs Authority intends, from the moment a negative equity alteration occurs, there will be a discrepancy between the tax relevance of negative and positive equity variations, without any justification, as has been said, since those variations occur objectively and independently of the action or will of the taxpayer. Thus, if at the end of the second year the taxpayer in the example above proceeded to the realization of the financial instrument in question, despite having realized a gain of only 20 (which would be taxed as such under the realization principle), he would, in fact, have paid tax on 30 (40-10). Similarly, if he proceeded to that realization at the end of the third year, he would have paid tax on 20, despite having had no equity increase from the operation. And if he proceeded to that realization at the end of the sixth year, he would have paid tax as if he had had an equity increase of 30 (80-50), despite having had an actual equity variation of -20, which, under the realization principle enshrined in the CIRC, would be allowable, albeit in only 50% of its respective value (-10)!

Such results, merely random and without any substantial justification supporting them, could not have been intended by a reasonable legislator, who, by force of article 104.º, n.º 2, of the CRP, must base the taxation of companies fundamentally on their actual income.

The incorrectness of a hypothetical legislative solution to which a given interpretation leads is surely a decisive argument for rejecting that interpretation, for, in good hermeneutics, it must be presumed that the legislator adopted the most correct solution for a given legal situation and not an absurd and logically unfounded solution (article 9.º, n.º 3, of the Civil Code).

Furthermore, tax law has interpretive specificities and one of them is that, if there is a situation of doubt about the scope of article 45.º, n.º 3, of the CIRC (as the existence of contradictory arbitral awards evidences), one must pay attention "to the economic substance of the tax facts" (by imposition of article 11.º, n.º 3, of the LGT), which, in situations in which, at the end of the period of holding shareholdings, there was no realization of gains or there was even realization of losses, inexorably leads to the interpretation that removes the incidence of tax on income and not to the one that amounts to taxing the loss as if it were an income.

What allows the conclusion that, contrary to what was understood in arbitral case n.º 90/2016-T, cited by the Tax and Customs Authority, in the interpretation of tax matters, Courts must pay attention to the "merit of the rules" that they apply, in a double sense, at least: interpretations that lead to incorrect solutions cannot be accepted, because article 9.º, n.º 3, of the Civil Code opposes this; nor are interpretations admissible that amount to the taxation of non-existent income, because this does not comply with the teleological directives emanating from the said article 11.º, n.º 3, and the principles underlying it, of material justice, equality and taxation fundamentally based on the capacity to contribute (articles 4.º, n.º 1, and 5.º, n.º 2 of the LGT), which have constitutional support in principles basic to the democratic Rule of Law (articles 2.º, 13.º and 104.º, n.º 2, of the CRP).

It is true that the alternative solution, which excludes the application of article 45.º, n.º 3, leads to the fact that, in the case of a loss ultimately being verified, it ends up having been considered at 100%, and not 50%, as would occur under the realization principle. This would be the case if, in the example of the table above, realization occurred in years 4 or 6. However, this positive discrimination (or rather, non-negative discrimination) by choosing the fair value criterion can be justified, first and foremost, because in the regime of article 18.º, n.º 9, paragraph a), any disincentive to the realization of losses no longer makes sense, since they will have tax relevance independently of their actual realization. One should also not disregard the fact that, on the one hand, accounting at fair value is considered more in line with the aim of bringing accounting and taxation closer together, a purpose confessedly pursued by the legislator of Decree-Law n.º 159/2009, of 13 July, and, on the other, the circumstance that we are dealing with objectively assessed realities, without significant margin for fiscally convenient manipulations.

That is, as had already been advanced, the reasons for combating fraud and tax evasion, nor the reasons for budgetary consolidation, which demonstrably were at the genesis of the rule of article 45.º, n.º 3, of the CIRC, do not exist.

Thus, it must be concluded that situations in which its reason for being does not apply should be removed from the field of application of this article 45.º, n.º 3, in keeping with the old maxim "cessante ratione legis cessat eius dispositio (where the reason for being of the law ends, its scope ends)". ( [3] ). "The teleological method has increasingly moved to the foreground in relation to literal interpretation. According to the long-established principle: cessante ratione legis, cessat lex ipsa, the end and reason for being should matter more than the respective literal sense. The ratio must prevail, not only within the limits of a literal content often equivocal, but also by breaking the bonds of that literal content or restricting a legal formula with excessively broad scope". ( [4] )

In this way, and in summary, in obedience to the hermeneutic impositions of article 9.º of the Civil Code, according to which "The interpretation must not restrict itself to the letter of the law, but reconstitute from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied" (n.º 1), and "In fixing the meaning and scope of the law, the interpreter will presume that the legislator adopted the most correct solutions and knew how to express his thought in adequate terms.º (n.º 3), it is to interpret article 45.º, n.º 3, of the CIRC, in the sense that expenses resulting from the application of fair value in financial instruments, which are relevant for the formation of taxable income in accordance with paragraph a) of n.º 9 of article 18.º, are not included in its provision.

In these terms, considering that article 18.º, n.º 9, paragraph a), of the CIRC imposes the competition "for the formation of taxable income", without reservations or limitations, of "income or expenses" that "(...) relate to financial instruments recognized at fair value", "provided that" they are recognized "through results"; they concern "equity instruments"; "they have a price formed in a regulated market"; and "the taxpayer does not hold, directly or indirectly, a participation in capital greater than 5% of the respective share capital", article 45.º, n.º 3, of the said Code not applying in these cases, to the extent that they are not covered by the normative provision thereof, it is understood that the request deserves approval.

Consequently, the self-assessment is illegal as to the deduction in only 50% of the adjustments resulting from the application of fair value.

By the foregoing, the self-assessment and the decision on the administrative complaint that upheld it suffer from a defect of violation of law, due to incorrect interpretation of article 45.º, n.º 3, of the CIRC, so the declaration of its illegality is justified.

Although the Claimant makes reference to municipal surcharge, the request formulated and quantified in document n.º 15 attached with the request for arbitral pronouncement refers only to IRC and state surcharge, so it is only in that part that the illegality of the self-assessment and the decision on the administrative complaint is declared.

3.3. Questions with Impaired Knowledge

With the main request proceeding as indicated, the knowledge of the remaining issues raised becomes impaired, as it is unnecessary, including the alternative request.

4. Compensatory Interest

The Claimant requests the Tax and Customs Authority be condemned to pay it compensatory interest.

4.1. Admissibility of the Recognition of the Right and Condemnation to Pay Compensatory Interest in Arbitral Proceedings

In accordance with the provision of paragraph b) of art. 24.º of the RJAT the arbitral decision on the merits of the claim against which no appeal or challenge is available binds the tax administration from the end of the period provided for the appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of decisions of tax courts, "restore the situation that would have existed if the tax act object of the arbitral decision had not been carried out, adopting the acts and operations necessary for this effect", which is in keeping with the provision of art. 100.º of the LGT [applicable by force of the provision of paragraph a) of n.º 1 of art. 29.º of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of complaint, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation which is the object of the dispute, comprising the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although art. 2.º, n.º 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of arbitral tribunals functioning at CAAD, making no reference to condemnatory decisions, it should be understood that the powers attributed to tax courts in judicial challenge proceedings are included in their jurisdiction, this being the interpretation that is in keeping 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 proceeding must constitute an alternative procedural means to the judicial challenge proceeding and to the action for the recognition of a right or legitimate interest in tax matters".

The judicial challenge proceeding, despite being essentially a proceeding for annulment of tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as can be inferred from art. 43.º, n.º 1, of the LGT, which establishes that "compensatory interest is due when it is determined, in administrative complaint or judicial challenge, that there was error attributable to the services of which results payment of the tax debt in an amount greater than legally due" and from art. 61.º, n.º 4 of the CPPT (in the wording given by Law n.º 55-A/2010, of 31 December, which corresponds to n.º 2 in the initial wording), which "if the decision that recognized the right to compensatory interest is judicial, the payment period is counted from the beginning of the period for its voluntary execution".

Thus, n.º 5 of art. 24.º of the RJAT, in saying that "payment of interest is due, regardless of its nature, in 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 arbitral proceedings.

4.2. Reimbursement of the Overpaid Amount and Right to Compensatory Interest in Cases of Self-Assessment

In cases of unduly paid tax, the taxpayer has the right to be reimbursed, as results from the provision in articles 100.º of the LGT and 24.º, n.º 1, paragraph b), of the RJAT.

The substantive regime of the right to compensatory interest is regulated in article 43.º of the LGT, which establishes the following:

Article 43.º

Unduly Paid Tax Obligation

1 – Compensatory interest is due when it is determined, in administrative complaint or judicial challenge, that there was error attributable to the services of which results payment of the tax debt in an amount greater than legally due.

2 – It is also considered that there is error attributable to the services in cases where, despite the assessment being made on the basis of the taxpayer's declaration, he has followed, in its completion, the generic guidelines of the tax administration, duly published.

3 – Compensatory interest is also due in the following circumstances:

a) When the legal period for voluntary reimbursement of taxes is not complied with;

b) In case of annulment of the tax act on the initiative of the tax administration, from the 30th day following the decision, without the credit note having been processed;

c) When the revision of the tax act on the initiative of the taxpayer is carried out more than one year after his request, unless the delay is not attributable to the tax administration.

4 – The rate of compensatory interest is equal to the rate of compensatory interest.

5 – In the period between the date of the end of the period for voluntary execution of a judgment final and binding and the date of issuance of the credit note, relating to the tax that should have been refunded by a final judgment, penalty interest is due at a rate equivalent to twice the penalty interest rate defined in general law for debts to the State and other public entities.

In the case of this proceeding, there is payment of unduly paid tax as to the part of the self-assessment which is the object of the request for arbitral pronouncement.

Of the various situations in which compensatory interest is due indicated in article 43.º of the LGT, the same will be due if it is understood that error attributable to the services occurred.

In the case in question, the unduly paid tax was self-assessed, so the Tax and Customs Authority had no intervention in the act on which the payment was based, the Claimant herself being responsible for its carrying out.

For this reason, as to the act of self-assessment, error attributable to the services did not occur, and consequently there is no right to compensatory interest resulting from its carrying out.

However, the same does not apply to the decision on the administrative complaint, for the Claimant's claim regarding the illegality of the self-assessment should have been upheld and the non-acceptance of the claims is attributable to the Tax and Customs Authority.

This case of the Tax and Customs Authority maintaining a situation of illegality, when it should have restored it, should be framed, by mere declaratory interpretation, in n.º 1 of article 43.º of the LGT, for it is a situation in which there is adequate causal nexus between error attributable to the services and the maintenance of an unduly paid amount and the omission to restore legality when the action that would restore it should be taken should be equated with the action. ( [5] )

In the case in question, the administrative complaint was filed on 21-05-2015, so the period for decision terminated on 21-09-2015 (article 57.º, n.º 1, of the LGT).

By what was stated, it should be understood that, from the moment the administrative complaint decision period was completed, compensatory interest begins to be counted.

The compensatory interest will be calculated at the legal rate and paid in accordance with articles 43.º, n.ºs 1, and 35.º, n.º 10 of the LGT, article 24.º, n.º 1, of the RJAT, article 61.º, n.ºs 3 and 4, of the CPPT, article 559.º of the Civil Code and Ordinance n.º 291/2003, of 8 April (or other or others that alter the legal rate).

5. Decision

In accordance with the foregoing, this Arbitral Tribunal agrees to

a) Render the request for arbitral pronouncement admissible regarding the claim for declaration of illegality of the order dismissing the administrative complaint issued on 18-04-2016 by the Head of the Administrative Justice Division of the Finance Department of Lisbon, relating to the partial illegality of the self-assessment of IRC and state surcharge of the fiscal group B… for the 2012 tax year, with regard to the amount of € 798.286,70, entered in field 705 of table 07 of the individual Model 22 declaration for 2012;

b) Annul the said order dismissing the complaint;

c) Annul the self-assessment, in the part relating to adjustments resulting from the application of fair value, with regard to the amount of € 223.520,24 of IRC and state surcharge;

d) Condemn the Tax and Customs Authority to pay to the Claimant the amount of € 223.520,24, plus compensatory interest, counted from 22-09-2015, at the legal supplementary rate, until full reimbursement of the referred amount.

6. Value of the Proceeding

In accordance with the provision of art. 306.º, n.º 2, of the CPC and 97.º-A, n.º 1, paragraph a), of the CPPT and 3.º, n.º 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 223.520.24.

7. Costs

Pursuant to art. 22.º, n.º 4, of the RJAT, the amount of costs is fixed at € 4.284,00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 14-12-2016

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Maria Alexandra Mesquita)

(Nuno Miguel Morujão)

[1] Available at http://info.portaldasfinancas.gov.pt/NR/rdonlyres/BAFFC60A-E1B8-4217-89E1-17440629A6BA/0/ ManualQ07201104052V.pdf, p. 31.

[2] Properly speaking, this would be inconsistent, in that article 18.º/9/a) refers to "financial instruments recognized at fair value through results", and article 24.º refers, as seen, to "negative equity variations not reflected in the net result of the year".

[3] BAPTISTA MACHADO, Introduction to Law and Legitimating Discourse, page 186.

[4] KARL ENGISCH, Introduction to Legal Thought, page 120.

[5] ANTUNES VARELA, On Obligations in General, 10th edition, page 528:

"The omission, as a purely negative attitude, cannot generate physically or materially the damage suffered by the injured party; but it is understood that the omission is the cause of the damage, whenever there is a special legal duty to perform an act which, surely or very probably, would have prevented the consumation of that damage".