CAAD Case 439/2017-T: RETGS Group Taxation Cessation and IRC Substitute Declaration Annulment

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Councillor Fernanda Maçãs (arbitrator-president), Prof. Doctor Paulo Nogueira da Costa and Dr. Marisa Almeida Araújo, designated by the Ethics Council of the Administrative Arbitration Centre to form the Arbitral Court, agree as follows:

1. Report

A..., S.A., collective person no. ..., with registered office at Rua ..., no. ..., ..., ..., ...-... ..., hereinafter designated as "A..." or "Claimant", came pursuant to paragraph a) of article 2(1) and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "RJAT"), to submit a request for arbitral ruling requesting that the decision of partial approval of the Gracious Complaint No. ...2016..., in the part referring to the adjustment under Corporate Income Tax (IRC) (in the amount of € 5,905,944.05) recommended by the Claimant and resulting from the cessation of RETGS in the taxation period of 2011 be annulled and, as a result thereof, that the IRC tax assessment act no. 2016..., in the part that implements the said adjustment (which amounts to € 1,515,477.55 as tax, municipal surcharge and autonomous taxation, and compensatory interest in the amount of € 219,220.91), totalling € 1,734,668.46, be annulled.

The Respondent is the TAX AND CUSTOMS AUTHORITY, hereinafter designated as "AT" or "Respondent".

1.1. The request for constitution of the arbitral court was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 28-07-2017.

In accordance with the provisions of paragraph a) of article 6(2) and paragraph b) of article 11(1) of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral court the signatories, who communicated acceptance of the assignment within the applicable timeframe.

On 12-09-2017, the parties were duly notified of this designation and did not manifest any intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11(1), paragraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in compliance with the provision of paragraph c) of article 11(1) of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral court was constituted on 27-09-2017.

On 02-11-2017, the Tax and Customs Authority submitted a reply in which it contended that the request should be judged as unfounded.

Considering the positions taken by both parties regarding the suspension of these proceedings due to the existence of another with identical contested material relationship and with an appeal pending before the Constitutional Court, until there was a decision by this Court, the Tribunal granted the suspension request and, on 15-06-2018, the judgment of the Constitutional Court was filed regarding case no. 10/2017-T, leaving, according to the order of 16-06-2018, no grounds for maintaining the suspension.

In the same order, the meeting referred to in article 18 of RJAT was dispensed with, and the parties were invited to submit written arguments, with a deadline for issuing this decision set for 28-09-2018, without taking into account the time the proceedings were suspended.

The parties submitted arguments and AT raised a matter of exception, notified to the court after the judicial recess.

In order to comply with the principle of contradiction and considering the procedural circumstances, the court issued an order on 23-09-2018, extending the deadline for the Arbitral Decision by two months, setting as the deadline for its issuance the 27th of November 2018.

The Claimant came to respond to the matter of exception on 01-10-2018.

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

The Respondent raised the exception of material incompetence of the arbitral court to examine part of the request and, in its arguments, raised the exception of res judicata as well as, from what can be gathered from the text of the request, lack of standing to sue due to alleged uselessness of the action.

It is necessary to examine:

Regarding the exception of material incompetence of the arbitral court, the Respondent contends that the knowledge of the request to annul the "IRC tax assessment act no. 2016..., in the part in which it implements the aforementioned adjustment (which amounts to € 1,515,447.55 as tax, municipal surcharge and autonomous taxation, and compensatory interest in the amount of € 219,220.91), totalling € 1,734,668.46, as calculated in doc. 19", goes beyond the competence of this Court, since the knowledge of such consequences of the decision of partial approval of the gracious complaint in question, in the part referring to the adjustment under IRC (in the amount of € 5,905,944.05), and its respective quantification, could only possibly result from the enforcement of judgments that would be carried out in the event that the arbitral decision rendered were to uphold the request.

According to the Respondent, this is a request for recognition of rights, which does not fall within the competence of arbitral courts.

The Respondent contends that any decision to uphold the arbitral request could never imply a decision to return any specific sum, but only an obligation for the Respondent's services to implement and quantify the effects of the upholding of the annulment request.

Thus, the Respondent concludes that this Court is materially incompetent to examine the request identified above, which constitutes a dilatory exception that prevents the continuation of the proceedings, leading to the dismissal of the case regarding the claim in question, in accordance with the provisions of articles 576(2) and 577, paragraph a) of the Code of Civil Procedure (CPC), applicable ex vi article 29(1), paragraph e) of RJAT.

It is therefore necessary to examine and decide on the raised exception.

This court judges the exception of material incompetence raised by the Respondent to be entirely unfounded to examine the requests formulated by the Claimant, namely: (i) the annulment of the decision of partial approval of gracious complaint no. ...2016..., in the part referring to the adjustment under IRC, and (ii) the annulment of the IRC tax assessment act no. 2016..., in the part in which it implements the aforementioned adjustment (which amounts to € 1,515,447.55 as tax, municipal surcharge and autonomous taxation, and compensatory interest in the amount of € 219,220.91), totalling € 1,734,668.46, as calculated in doc. 19.

The knowledge of the said requests falls within the scope of the competence of arbitral courts, as results from the provisions of article 2 of RJAT and Ordinance no. 112-A/2011, of 22 March.

The obligation of the Respondent, in the event of upholding the request to annul the partial approval of the decision to approve the complaint, to restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, results from the law [article 24(1), paragraph b) of RJAT, article 100 of LGT, and article 173(1) of CPTA, applicable ex vi paragraph c) of article 29(1) of RJAT], and is a logical consequence of the decision on the merits of the claim, indispensable to guarantee its useful effect.

This has been repeatedly affirmed by arbitral jurisprudence, which has recognized condemnatory competence to arbitral courts to restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, including the refund of amounts of tax unduly paid, in amounts corresponding to the values of the contested assessments, plus compensatory interest, calculated on that amount, at the legal rate, from the date of payment until the issuance of the respective credit note[1].

Thus, this Court judges the exception of material incompetence raised by the Respondent to be entirely unfounded.

From this it follows that this Court considers correct the calculation of the value of the case. In accordance with the provisions of article 97-A(1), paragraph a) of CPPT, the value of the case, when an assessment is contested, corresponds to the amount whose annulment is sought, which in this case amounts to 1,734,668.46, (of which € 1,515,447.55 as tax, municipal surcharge and autonomous taxation, and € 219,220.91 corresponding to compensatory interest), as is evidenced in Doc. 19.

Regarding the exception of res judicata and lack of standing to sue, the Respondent raises the question of whether the conditions provided for by law in force at the time are met for the applicability of RETGS to all companies in the perimeter of the group dominated by GROUP B... (and the Claimant is one of them) have already been subject to judicial review, at CAAD, within the scope of the proceedings that took place under no. 10/2017-T. Not being, according to the Claimant, solely the matter of fact that is in a relationship of prejudiciality, but also the legal consequences arising from the verification of the facts also at issue here were already submitted to judicial review in that mentioned proceeding under no. 10/2017-T and which, through the order of 03/12/2017, the Arbitral Court granted the request to suspend the proceedings until the final judgment of arbitral case no. 10/2017-T.

According to AT, there is identity of subject matter and there is already a final judgment that examined the specific grounds of fact and law on which the request for annulment of the contested act is based and the decision to cease the application of RETGS to Group B... was already the subject of a final judgment within the scope of arbitral case no. 10/2017-T of CAAD.

AT further adds that, since it is not possible to apply RETGS taxation to the holding company C... SGPS and to all the subsidiaries that were Claimants within case 10/2017-T, this makes manifest the legal impossibility of the effect sought by the Claimant, which is to be taxed in accordance with RETGS within a group that does not exist – in the year 2011 – for purposes of applying such regime.

AT alleges it is prevented from taxing the Claimant here according to RETGS within the group constituted by the holding company C... SGPS and the subsidiaries that were Claimants within case 10/2017-T, by virtue of article 100 of LGT and article 24 of RJAT, leading, in extremis, to disobedience of a final judgment.

Furthermore, AT adds that, admitting it, and only out of extreme caution in legal representation, that the claim made by the Claimant in these proceedings could be upheld, the result would be not only absurd but absolutely useless.

The Claimant came to challenge the exceptions, arguing for their dismissal.

It is necessary to decide:

The exception of material res judicata and the consequent extension of the effect of res judicata requires the cumulative verification of the requirements of identity of subject matter (both proceedings having the same cause of action and formulating the same request) and identity of parties (the same parties are confronted), as results from articles 580 and 581 of CPC.

Now, in casu, the Claimant figures in the legal-tax relationship, formally distinct from any other that may have been examined, and regardless of the subsumption to the applicable substantive regime.

In this way, it is useless to examine the limits of res judicata, especially the prejudiciality issue raised, considering that the raised exception is not met.

In this way, and without further consideration, we conclude that there is no exception of res judicata whatsoever.

Regarding the other allegation by AT, which we summarize in the theme of lack of standing to sue.

Procedural standing consists in the necessity of using a proceeding expressing an idea of necessity or objective situation of lack of judicial protection (Remédio Marques, Declarative Action in Light of the Revised Code, 2nd Ed., Coimbra Editora, p. 393).

A party demonstrates procedural standing when the judicial resolution is necessary, indispensable, justified, reasonable and current.

In the concrete case, for purposes of configuring the procedural relationship, the legal-tax relationship has the Claimant as passive subject on whom the legal effects of the performance or non-performance of the tax obligation arising from the assessment here put in question will fall, and not the holding company or any other entity.

In this way, it can only be concluded that the Claimant has an objective situation of lack, justified and reasonable recourse to judicial proceedings, independent of the legal-tax relationship of the holding company.

In light of the foregoing, it is considered that the Claimant has standing to sue.

The parties are duly represented, enjoy judicial personality and capacity and have legitimacy (articles 4 and 10(2) of the same rule and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings are not subject to nullities.

1.3. The Claimant supports its request by alleging, in summary, that:

The Tax Inspection Services, according to the Claimant, contend that, having company D... recorded in the taxation periods of 2008, 2009 and 2010 tax losses in the amounts of € 154,961.22, € 174,863.02 and € 213,827.29, respectively and, the participation in D... not being held 90% by the holding company for more than two years (by reference to the taxation period of 2011), such company could not have been included in RETGS.

However, according to the Claimant, this understanding suffers from structural defects, in particular because it does not take into account essential facts that justify the proper inclusion of company D... in RETGS which, although timely exposed within the scope of the competent gracious complaint, were not duly considered by AT.

In 2004, the option for RETGS was exercised, with company Grupo C... SGPS, S.A. appearing as the holding company of the group and in 2011, company D... was included in the said special taxation group.

That company was engaged in the operation of two commercial spaces in ..., property of company E... (a company that integrates the group of companies subject to RETGS) and, in the context of the constitution of company D..., a shareholders' agreement was entered into in January 2008 between company F... and individual G....

Within the scope of the said shareholders' agreement, according to the Claimant, the terms were established that should regulate future relations between the shareholders, assigning to shareholder G... the obligation to bear the rents of the commercial spaces subject to future operation, during 2008, if the net result of the company to be constituted relating to that year was less than € 10,000, which came to be verified since the net result of company D... was less than € 10,000 in the first year of activity.

D... was thus constituted on 29 January 2008, with each shareholder holding a quota with a nominal value of € 10,000.

During the period of 2008 and by reference to that same year, D... calculated a negative net result of € 155,163.03, but ended up paying rents due to the use of commercial spaces in the amount of € 185,755.47, even though, according to the Claimant, those rents should constitute a charge on shareholder G....

According to the Claimant, by oversight, D... did not exercise its right to be reimbursed for the rents of the commercial spaces borne in 2008, and therefore did not proceed with the proper increase of the expenses incurred with the said rents in Section 07 of the Income Declaration Model 22 of IRC for 2008, submitted on 26 May 2009, (that is, adjustment to the taxable result of the taxation period of 2008).

Having, D... thus submitted, the income declaration Model 22 of IRC relating to the fiscal year 2008 without having increased the fiscal result by the cost of rents and, consequently, been, according to the Claimant, erroneously calculated by D... a tax loss in the amount of € 154,961.22, 120, when, according to the Claimant, a taxable profit in the amount of € 30,794.25 should have been reported, given the erroneous consideration of € 185,755.47 as a deductible fiscal expense.

Furthermore, by analyzing the accounting impacts of the shareholders' agreement, by reference to 2008, it should also be concluded that the accounts of D... were erroneously prepared and approved, since they did not respect the accounting principles set out in the Official Chart of Accounts ("POC").

In order to restore the truth of the facts, for the Claimant, by reference to the taxation period of 2008, D... proceeded, on 25 November 2015, to submit the replacement declaration, with the number 2015-... (...), following which the respective IRC payment guide was issued, in the amount of € 3,743.15, 136th, and paid on 26 November 2015.

Such declaration was given as certain on 2 December 2015 and an agreement was entered into between G... and company F... – as the company that succeeded to the rights and obligations of D... after its merger into F... during 2014 – for assumption of debt and payment plan in installments, with a view to recovery of the credit of € 185,755.47 against the former shareholder of D....

AT did not consider the foregoing.

According to the Claimant, it is undeniable that D... presented a negative net result of € 155,163.03, but, contrary to what was stated by the Finance Office of ..., the expense recorded with the rents in question should not have been considered fiscally accepted and deductible in the sphere of D..., because it was a charge of a third party, namely shareholder G....

Since, according to the Claimant, in light of article 42(1), paragraph c) of CIRC in force at the time of the facts, this expense would not be deductible under IRC because it would fall under an "expense that falls on third parties that the taxpayer is not legally authorized to bear".

Precisely for that reason, and in order to make the tax-relevant the oversight made, D... proceeded to submit a replacement declaration identified with the number 2015..., on 25 November 2015, 151st Declaration that was given as certain.

The purely binding or inter partes effectiveness of the shareholders' agreement which, in turn, will have, according to the Claimant, tax relevance.

A circumstance that would lead to that in 2008 a taxable profit be calculated in the amount of € 30,794.25, in contrast to the tax loss previously recorded in the amount of € 154,961.22. For this reason, D... proceeded to submit the replacement Model 22 income declaration, thus regularizing its tax situation.

Hence AT is obligated, according to the Claimant, to consider and accept the effects of the shareholders' agreement entered into – or whatever its nature – between company F... and shareholder G..., as well as the effects arising therefrom for D....

There being, according to the Claimant, any nullity whatsoever as to the shareholders' agreement exhibited.

The fact that the replacement Model 22 declaration submitted by D... is found as a "non-taxable document", the Claimant alleges that from the consultation of the document issued by the Finance Portal, where the detail of the IRC declaration resulting from the submission of the replacement model 22 declaration appears, expressly mentions "Certain Declaration".

Thus, according to the Claimant, from the moment a periodic income declaration is centrally validated, and therefore final, with the central databases expressly giving this indication, which is followed, moreover, by the prompt issuance of a payment guide, there is no other way than to conclude that this statement of certainty – "Certain Declaration" – produces legal effects that shape the Claimant's situation.

According to the Claimant, it is the replacement declaration submitted by D..., by reference to the taxation period of 2008, that reflects the actual tax reality of the company and constitutes a presumption of that same reality.

Hence, according to the Claimant, when the Tax Inspection Services of ... determined, regarding the taxation period of 2011, the cessation of the application of RETGS to the group of companies dominated by Grupo C... SGPS, S.A., 'by virtue of' the provisions of articles 69(9), paragraph c) and 69(8), paragraph b) of CIRC, it seems that, according to the Claimant – without more – the presumption of legality resulting from the application of that same article was violated.

Regarding the lapse and untimeliness of the replacement declaration, AT concludes, merely, that the replacement declaration cannot be presented at any time, but exclusively within the limits imposed by law, that is, until 60 days before the end of the period of lapse, and that, according to the Finance Office, even if it were admitted that the year of lapse is the limit year for exercising the right to carry forward the tax losses declared in the concrete case the taxation period of 2014 (6 years) –, the declaration submitted would still be untimely, since it was presented only on 25 November 2015.

The Claimant understands that only the right to the assessment of tax, by reference to the taxation period of 2008, can possibly lapse, something that does not occur with the right/obligation to present a replacement Model 22 Declaration, which can occur at any time when the correction is in favor of the State.

D... had – and still has – the right to proceed with the replacement of the Model 22 income declaration relating to the taxation period of 2008, a declaration that was timely submitted, and such fact was validated by the Central IRC Services by giving the said replacement declaration as a "certain declaration".

In accordance with the provisions of article 47 of the IRC Code, in the version in force in 2008, "Tax losses calculated in a given taxation period, in accordance with the above provisions, are deducted from taxable profits, where they exist, from one or more of the six subsequent taxation periods", this, by itself, according to the Claimant is the reason why the tax loss unduly calculated in 2008 was used within the RETGS of Group B... in 2014, following the merger by incorporation of D... into its sole shareholder F....

Hence tax losses calculated by D... in 2008, in the amount of € 91,395.70 were deducted from the taxable profit that F... reported in the RETGS of Group B..., in the taxation period of 2014.

Having been unduly calculated a tax loss in 2008 and that loss having been unduly used in 2014, due to the fact that it does not exist, should it not be undoubtedly understood that it can be corrected by AT within the period of this institute, since it produced effects in the IRC assessment of 2014.

That period is still open for correction.

Hence nothing prevents D... from proceeding with the submission of a replacement Model 22 Declaration relating to 2008 and, consequently, to the correction of the tax loss unduly calculated in that period and used incorrectly in the taxation period of 2014.

Having been unduly used a tax loss in a given year (year six) that had been calculated in another year (year zero), it would go poorly, according to the Claimant, if it were not possible to correct the calculation of such tax loss because it has direct impact in a year still open for purposes, in particular, of tax inspection.

The Claimant understands, in fact, that the exceptional period of lapse provided for in the cited rules allows the correction of the calculation of tax losses beyond the normal period of lapse.

Even if this is not understood, according to the Claimant, this replacement declaration can be presented at any time.

Replacement declarations are intended to allow the correction of the calculated and declared values, by initiative of the taxpayer, constituting voluntary regularizations of the errors made by the taxpayer, and therefore it must necessarily be concluded that the Legislator intended to establish, here, a special period at any time for the proper correction.

According to article 104(2) of the Constitution of the Portuguese Republic when it determines that "The taxation of companies is fundamentally based on its real income".

Thus, according to the Claimant, the decision of partial approval of the gracious complaint – as well as the additional tax assessment that underlies it, issued regarding 2011 – should be annulled with respect to the decision to cease the application of RETGS.

It seems to the Claimant that AT renounces any responsibility for violation of the principle of proportionality.

According to the Claimant, RETGS does not, in fact, constitute a tax benefit, instead having the quality of a structural taxation regime, which allows companies to be taxed jointly through a simplified model of taxation, with a view to accommodating in the taxation reality of collective entities the pursuit of a broad range of distinct corporate purposes within a philosophy of a common group.

Now, even if it does not constitute a tax benefit, RETGS should always be understood as a taxation regime that allows the taxpayer (i.e., the group of companies) better control of activity, thus ensuring a greater degree of effectiveness in the pursuit of common objectives.

The AT's decision is absolutely inadequate and violative of general principles of law, in accordance with which AT's activity should be guided, violating, first and foremost, the principle of taxation of real profit and the principle of proportionality, as well as with regard to the principle of exigibility – also known as the principle of necessity or the least possible interference.

It is, therefore, according to the Claimant, a matter of equating the means and the ends, "through a balance of judgment, with the objective of assessing whether or not the means used is disproportionate in relation to the end. It is, therefore, a question of "measure" or "excess" to achieve an end: weighing the disadvantages of the means against the advantages of the ends".

The onerous burden that falls on the Claimant and the remaining companies of the Group resulting from the use of this measure (cessation of the application of RETGS), is totally disproportionate, inadequate and excessive in relation to the financial and tax impact that company D... – alleged non-compliant – brings to RETGS.

Company D... represents 0.23% of the total volume of business of all companies included in the perimeter of RETGS. Therefore, according to the Claimant, a situation cannot be considered legitimate in which the company that represents only 0.23% of the total business volume of the total companies that make up RETGS ends up burdening so heavily an economic group of the size of Group B... and may even put into question the economic financial viability of the Group as a whole.

The Claimant alleges a similar situation to the case of....

According to the Claimant, the adequate solution to the present dispute is the one it advocates, as it is in consonance with the aforementioned principle of proportionality, and this was already the understanding of the legislator in making the change to the legally established regime, because it is a regime unnecessarily burdensome for companies.

AT, having not diligently in a timely manner, as it was able to do and is its obligation, in verifying the conditions on which the application of RETGS depends, violated the duties to which it was bound.

Therefore, according to the Claimant, the decision of partial approval of the Gracious Complaint sub judice, as presented, suffers from the vice of illegality, because it grossly violates the principle of proportionality to which AT is equally bound. The application of RETGS to the taxation period of 2011 should therefore be maintained, and, consequently, the IRC assessment issued by AT should be annulled.

1.4. In turn, the Respondent alleges, in summary, that:

Regarding the alleged illegality of the assessments due to error on the grounds of fact and law, AT understands that the contested assessments should be maintained, as a result of the conclusions of the inspection services, in the part in which the Claimant was not given reason, since the gracious complaint was approved "as to the application of RETGS in the taxation period of 2012" and, consequently, the assessments were altered in the corresponding part.

It is certain that the inspection procedure that occurred in 2010 validated the tax losses declared by D..., with the report being notified to the Claimant here, in accordance with article 62 of RCPITA, without the latter having opposed the conclusions.

The Claimant errs, according to AT, in attempting to require that the Tax Authority be bound to consider an alleged shareholders' agreement that remained secret for seven years and which only came to light when it suddenly became necessary to try to refute the conclusion that the application of RETGS to Group B... should cease with reference to 2011.

In fact, it was verified that D... had recorded tax losses for three consecutive years of 2008, 2009 and 2010, and therefore such implied the cessation of the application of RETGS to the entire group perimeter, with effects in 2011.

Therefore, the invoked shareholders' agreement would have the virtue of transforming the declared tax loss (moreover deducted in the calculation of the group's taxable result in 2014) into taxable profit.

What would have been declared in November 2015, by means of the submission of a replacement declaration, contemporaneously with the carrying out of inspection actions.

What, in this case, actually occurred, with the self-assessment of 2008 having been validated by the conclusions of the inspection action carried out in 2010.

Being, moreover, uncontest by D... the conclusions of the inspection action, after notification of the 2010 inspection report.

Therefore, it should be concluded that the intention to alter the legal-tax situation of D..., relating to 2008, in late 2015, during the course of an inspection action on the conditions for the application of RETGS, when the right to assessment had already lapsed and, moreover, after they had conformed with the conclusions of the inspection that in 2010 validated the tax losses declared…

The Claimant intends, according to AT, that, even if it were verified that D... failed to meet the requirements for its inclusion in the perimeter of the group, still it should not be understood that the consequence is the cessation of the application of RETGS.

What implies that each company should be taxed autonomously and individually.

Advocating the mere exclusion of the tax losses generated by D... from the calculation of the taxable profit of the group of companies.

To which it has no support, either in the letter or in the spirit of the law.

Regarding the alleged violation of the constitutional principles of proportionality and taxation of real income, the Claimant invokes (cfr. articles 402 et seq.), in summary, that the application of the cessation of RETGS would be prohibited in this case by virtue of AT's binding to the constitutional principles of proportionality and taxation of real income.

Well, such argumentation is entirely without foundation according to AT.

In this specific case (not in others), there is no use of any legal instrument granting discretionary powers to the Administration, whether by attribution of faculties or through the use of indeterminate concepts.

There is no violation of the principle of proportionality, as the cessation of the application of the special regime is simply a consequence of the application of the law, to which both the Administration and the Courts must obey.

Heeding the Claimant's request, according to AT, would be equivalent to subverting the basic characteristic of taxation (that is, its coercive character), when the Tax Administration is functionally obliged to comply with legal prescriptions and the tax credit is indisposable.

The cessation of the application of RETGS leads to the taxation of each company in the group individually, according to general rules, therefore, as proportionally as any other company that, by its own choice or by non-compliance with legal requirements, is not taxed under this special regime.

Neither is the principle of taxation of real income offended.

Any interpretation that does not apply the rule contained in article 69 of CIRC, having as its basis the assumption that such rule incurs violation of the principle of proportionality, prohibited under the Constitution of the Portuguese Republic, and therefore unconstitutional, or having as its basis the assumption that such rule incurs violation of the principle of taxation of real income, prohibited by the Constitution of the Portuguese Republic, and therefore unconstitutional.

From the unconstitutionality of the interpretation advocated by the Claimant it must always be emphasized that, if the Claimant's interpretation were to prevail, namely that the consequence to be associated with the verification of non-compliance with the legal conditions for the application of RETGS were the simple removal of the tax losses improperly considered in the calculation of the taxable result of the group by virtue of the contribution of company D..., then it would always be said that such interpretation would be materially unconstitutional.

As is evident, the rules of article 69 of CIRC establish the applicable sanction in the case: to the verification of non-compliance with the necessary requirements for the application of the regime (special, more beneficial and dependent on option), the law associates a consequence at the level of Tax Law: the taxation of each of the companies according to general rules, by virtue of the impossibility of applying the special regime of groups.

For all the foregoing, the Claimant sustains that there is no legal support, administrative understanding or reason whatever for the Claimant's request, lacking sustenance the understanding advocated by the same.

For all the foregoing, the compensatory interest was assessed in strict obedience to that legally established.

The Claimant does not allege having paid the contested assessments (according to the Claimant) nor does it petition for condemnation to compensatory interest, and the Tribunal cannot condemn beyond what is sought.

It will always be said that, even if the arbitral request were to be judged as founded (which is only conceived out of extreme caution in legal representation), still compensatory interest would not be due.

Therefore, given that the rules in question have an imperative character, AT could never, in light of the regime applicable to the concrete case according to the provisions of said article 69 of CIRC, have disapplied such legal determination.

2. Matter of Fact

With regard to the matter of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties, its duty being, instead, to select the facts that matter for the decision and to discriminate proven from unproven matters (cfr. articles 123(2) of the Code of Procedure and Tax Process (CPPT) and 607(3) of the Code of Civil Procedure (CPC), applicable ex vi article 29(1), paragraphs a) and e), of RJAT). In this way, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of law (cfr. prior article 511(1) of CPC, corresponding to current article 596, applicable ex vi article 29(1), paragraph e), of RJAT).

Thus, taking into consideration the positions taken by the parties, in light of article 110/7 of CPPT, the documentary evidence and the administrative proceedings file attached to the proceedings, the following facts were considered proven, with relevance to the decision:

2.1. Proven Facts

The Claimant was inserted in a group of companies whose holding company is company GRUPO C... SGPS S.A, NIPC ... which had opted for the Special Taxation Regime for Groups of Companies (RETGS) provided for in article 69 et seq. of the Code of Income Tax on Collective Entities (CIRC).

The tax inspection services of the Finance Office of ... initiated the inspection procedure to the holding company of the group – GRUPO C... SGPS, SA – with service order no. OI2015..., covering 2011, having as its main objective the external verification of elements related to the framework to be given to the taxation regime of the taxpayer's income, in particular whether the conditions were met for the group to be able to benefit from the application of RETGS, having concluded that one of the companies indicated as being part of the group's perimeter – D... – did not meet all the requirements set out in article 69(4) of CIRC.

On 9 June 2015, service orders numbered OI2015... and OI2015... were issued to the Claimant, respectively for the years 2011 and 2012, of partial scope, affecting IRC.

The inspection action was credited by service orders no. OI2015... and OI2015....

In the declaration of option for the application of RETGS, thirty-four companies were indicated:

[table with company names and details]

On 9 June 2015, service orders numbered OI2015... and OI2015... were issued, respectively for the years 2011 and 2012, with the inspection actions having focused on the external verification of elements related to the framework to be given to the taxation regime of the taxpayers' income, having reached conclusions that are not in discussion herein.

Regarding the declarations filed by GRUPO C... SGPS, SA, it was verified that, with reference to 2011, the group filed the following Model 22 IRC declarations:

[table with declaration details]

Being that the first declaration, not taxable, relates to the individual GROUP, and the following, all taxed, to the GROUP as holding company (RETGS).

In view of what was declared by the holding company in the declaration of option for the application of RETGS, regarding the existence of a fiscal group constituted by 34 companies, AT proceeded to verify its perimeter, in order to validate the conditions of application of the special taxation regime provided for in article 69 of CIRC. In the scope of the inspection procedures referred to, AT verified that, namely, alterations to the share capital of D..., Lda. occurred.

D... was constituted in accordance with the limited partnership contract, with a share capital of € 20,000 euros, represented by the following shares:

• Share of € 10,000.00 - belonging to F..., SA with NIPC...;
• Share of € 10,000.00 - belonging to G... with NIF....

On 2009.04.27, a resolution dated 2009.04.22 was registered, altering the partnership contract and designating new members of corporate bodies, with the share capital becoming constituted as follows:

• Share of € 10,000.00 - belonging to F..., SA with NIPC....
• Share of € 10,000.00 - belonging to the same F..., SA with NIPC....

On 2010.11.03, an update to the company's partnership agreement is verified, in which an increase in its capital to € 470,000.00 is verified, corresponding to two shares, as follows:

• Share of € 100.00 - belonging to H..., SGPS, SA with NIPC ...;
• Share of € 469,900.00 - belonging to F..., SA with NIPC....

Company F..., SA with NIF ... has been held 100% by company H..., SA with NIF... since 2004, which in turn is held 100% by GRUPO C... SGPS SA with NIF....

In the scope of the inspection procedures, AT ascertained that "In the years 2008 to 2010, company D..., Lda., filed the annual income declaration model 22, in the general IRC taxation regime, where it declared the following taxable results:

On 30 May 2012, the holding company GRUPO C... SGPS SA proceeded, via internet, to send the 2011 Model 22 IRC declaration, provided for in article 120(6) of CIRC, in which it declared the special taxation regime of groups of companies (RETGS) as defined in article 69 of the IRC Code to be applicable to it.

On 22 May 2012, the subsidiary company D..., Lda. proceeded to file the 2011 Model 22 IRC declaration, in which it declares that it is subject to taxation by the general regime and as belonging to the group of companies dominated by GRUPO C... SGPS SA with nipc..., taxed in accordance with article 69 of CIRC, and for this reason not being taxable."

With respect specifically to the participation of company F..., SA, it was ascertained:

"D... presented tax losses in 2008, 2009 and 2010, that is, in the three years prior to the start of application of the regime, 2011.

• F... held the participation in D... at 50% since its constitution on 2008.01.29 and only acquired the other 50% participation in April 2009, thus holding 100% of the capital;

In the course of the inspection procedures, a copy of a shareholders' agreement relating to D... was presented, entered into between F... (first party) and G... (second party), shareholders in equal parts of D..., dated 2008.01.22, which states "…and further agrees the second party that with respect to the operation of the stores in ... … will assume, individually and personally, the charges resulting from the periodic payments due by the use of the stores in the first year of operation of the said brands, if the net result of the respective year is not positive by at least € 10,000.00".

In 2008, the net result of the year did not reach € 10,000.00 and company D... paid the amount corresponding to the rents of the commercial establishments of the company, in that year, in the amount of € 185,755.47.

D... did not exercise its right to be reimbursed for the rents of the commercial spaces borne in 2008.

There is no accounting record of the shareholders' agreement and the consequent right to receive any rents.

On 25 November 2015, D... filed via internet a replacement IRC Model 22 income declaration for 2008 in which it declared taxable profit of € 30,794.25.

This declaration, with the identification ..., is in the status of "non-taxable document".

This replacement declaration altered an initially presented loss of € 154,961.22 to taxable profit of € 30,794.28 (185,755.47 – 154,961.22);

What was presented within the scope of the inspection procedures under review as a result of that value of € 185,755.47 corresponding to the charges which, according to the shareholders' agreement, would be the responsibility of shareholder G..., which, according to the holding company, would go beyond the issue raised in view of the provisions of article 69(4), paragraph c) of CIRC, since the situation of three consecutive years of tax loss no longer occurred but only two (2009 and 2010).

In a General Meeting held on 2009.03.23, the management report and respective accounts for 2008 were approved without any reservation or mention of the amounts supposedly to be received.

During 2010, D... was subject to an inspection action for 2008 by the tax inspection services, with the declared taxable result being validated by the taxpayer.

In accordance with article 62 of RCPITA, the company was notified of this fact and did not oppose it, it being noteworthy that the first reason for carrying out that inspection action was the analysis of the losses declared by the company;

The said shareholders' agreement was not exhibited when the above-mentioned inspection action was carried out.

After notification to exercise the right to be heard, the same came to be exercised.

In view of the cessation of RETGS, the individual declarations for 2011 of the companies included in the group were corrected, proceeding to the alteration of the taxation regime to the general regime.

In consequence, assessments were issued made in accordance with the general taxation regime.

The Claimant here filed, on 28.07.2016, a gracious complaint against the contested assessment, which was processed under no. ...2016... which came to be partially approved.

2.2. Unproven Facts and Justification of the Fixing of the Matter of Fact

There are no facts relevant to the decision of the case that have not been proven.

The proven facts are based on the documents submitted by the Claimant with the request for arbitral ruling, in the administrative proceedings, as well as on the position of the parties set forth in their respective documents.

3. Matter of Law

On the lapse of the right to submit the replacement declaration:

The group of companies B..., of which the Claimant is a part, subject to RETGS was the object of a tax inspection action, promoted by the Tax Inspection Services of ..., aimed at confirming the eligibility of the companies that integrated the group's perimeter for purposes of the application of that group of companies regime.

AT concluded that company D... was improperly included by the holding company in the perimeter of the companies subject to RETGS since it recorded, in the taxation periods of 2008 to 2010, company D..., Lda.

From the annual income declaration model 22, in the general IRC taxation regime, were declared, by the said subsidiary company, the following taxable results:

Not having the participation in D..., Lda. been held 90% by the holding company for more than two years, such company could not have been included in RETGS, which determines, by itself, the cessation of the application of RETGS to all companies integrated in the group, in accordance with the terms resulting from paragraph b) of article 69(8) and paragraph c) of article 69(9), both of CIRC.

In view of this, all companies in the group's perimeter must have been taxed autonomously and individually in accordance with the general IRC regime.

The Claimant alleged that there was an oversight in the accounts of the said D....

Faced with a shareholders' agreement entered into between F... (first party) and G... (second party), shareholders in equal parts of D..., dated 2008.01.22, which states "…and further agrees the second party that with respect to the operation of the stores in ... … will assume, individually and personally, the charges resulting from the periodic payments due by the use of the stores in the first year of operation of the said brands, if the net result of the respective year is not positive by at least € 10,000.00". That is, the party who should have assumed the rents of the commercial establishments of the company was shareholder G... and not the company, as erroneously happened.

The Claimant confesses the error, that is, confesses the said company paid the rents and that it did not exercise any right to be reimbursed – in the conception and legal framework it sustains – of the rents, as it saw it, unduly paid by D... and which led, wrongly, to a tax loss.

What, according to the Claimant, did not happen, and yet the company paid the rents – according to its perspective unduly – that it recorded and did not charge the shareholder and, only later realizing the oversight, corrected the declaration and formalized the debt with the indebted shareholder, through an assumption of debt with a payment plan.

That is, by reference to 2008, in that this company should have recorded an account to receive from shareholder G..., relating to the credit in the amount of € 185,755.45, what, by oversight, it did not do.

What led to, on 25 November 2015, D... submitting via internet a replacement IRC Model 22 income declaration for 2008 in which it declared taxable profit of € 30,794.25, instead of the said tax loss.

The Claimant understands that the replacement declaration, relating to the taxation period of 2008 and submitted on 25 November 2015, could be submitted at any time.

On this matter, the arbitral court has already ruled, within the scope of case no. 10/2017-T (which may be consulted on the CAAD website at www.caad.pt), whose position we endorse and which we follow and which, as it constitutes a decision on an analogous disputed material relationship, we consider here.

Analyzing:

In the wake of the aforementioned decision "it is known that, in the interpretation of tax rules, the rules and general principles of interpretation and application of laws must be observed (cfr. article 11(1) of the General Tax Law (LGT)).

According to article 9(1) of the same LGT, interpretations based exclusively on the literal wording of the rules are expressly prohibited, when it states that 'interpretation must not be limited to the letter of the law', but should instead 'reconstruct from the texts the legislative thought, taking above all 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'. As for the correspondence between the interpretation and the letter of the law, 'a minimum of verbal correspondence, even if imperfectly expressed' suffices (article 9(3) of the Civil Code), which will only prevent interpretations that cannot at all be reconciled with the letter of the law, even recognizing therein imperfection in the expression of legislative intent. For this reason, the letter of the law is no obstacle to declarative interpretation, which clarifies the scope of the literal content, nor even extensive interpretation, when it can be concluded that the legislator said less than what, in coherence, it would intend to say, that is, when it said imperfectly what it intended to say.

Thus, article 122 of CIRC provides:

Replacement Declaration

1 - When tax has been assessed in an amount less than that due or tax loss has been declared greater than the actual, a replacement declaration may be submitted, even if outside the legally established period, and payment of the missing tax may be made.

2 - The self-assessment from which has resulted tax greater than that due or tax loss less than the actual may be corrected by means of a replacement declaration to be submitted within one year from the end of the legal period.

3 - In case of subsequent administrative decision or judgment, the period provided for in the previous number is counted from the date the declarant becomes aware of the decision or judgment.

4 - Whenever the provision of the previous number is applied, the period of lapse is extended until the end of the period provided therein, plus one year.

5 - When the special taxation regime for groups of companies is applicable and any of the companies in the group files a replacement declaration of the declaration provided for in paragraph b) of article 120(6), the holding company proceeds to the replacement of the periodic income declaration of the group provided for in paragraph a) of said article 120(6)"

As results from the decision under analysis, "(…) in the abstract, to consider that this article includes a set of special rules that depart from the application of the general rule for counting periods provided for in article 59(3) of CPPT regarding the period for replacement of the declarations of taxpayers, in case of error of fact or law in the declarations. This interpretation shows itself to be rigorous when article 122(2) of CIRC is analyzed.

As has already been understood by STA, precisely regarding article 122(2) of CIRC, in judgment no. 0159/14 (13.01.2016): "the rule of CIRC, which fixes in 1 year the period for submission of the replacement declaration must be had as a special rule (Special rule, in that, aiming to complement the general rule-regime, establishes a different discipline for a more restricted circle of relationships (Cf. BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, Almedina, 1983, pág. 95).

With interest and extensive indication of doctrine on the subject of the distinction between general and special law, see Opinion no. 110/2003 of the Office of the Attorney General of the Republic, published in the Official Gazette, II series, no. 28, of 3 February 2004 (https://dre.pt/application/file/a/2906437), págs. 1924 a 1934.) regarding the rule of CPPT, reason why it should prevail over this (In accordance with the provisions of article 7(3) of the Civil Code, '[g]eneral law does not repeal special law, unless it be the unequivocal intention of the legislator otherwise'.)."

Concluding by the special nature of article 122(2) of IRC, this same judgment affirms the following: "It being certain that in article 59(3), paragraph b), II), CPPT allows the replacement of the declaration until the end of the legal period for gracious complaint or judicial impugn of the assessment act and that, in accordance with article 131(1) of the same Code, the period for this, in the case of self-assessment, is 2 years after the submission of the declaration, the rule of CIRC cited in I must be had as special relative to article 59 of CPPT and, for this reason, prevail over it when the replacement of IRC declaration is in question." and that "AT should not have made final the replacement declaration submitted beyond the end of the legal period for gracious complaint and the omission of such finalization being the only ground invoked in the judicial impugn of the additional assessment that replaced the self-assessment stated in I, the same is condemned to failure."

However, we discuss, in this case, the lapse of the right to assessment following the submission of the replacement declaration, in accordance with article 122(1) of CIRC, carried out on 26/11/2015, by company D... and which, according to the Claimant could be done at any time.

And thus being, in accordance with the tenor of the aforementioned decision rendered within the scope of case no. 10/2017-T "The interpretation of article 122(1) should not, moreover, raise any doubts. Let us see: As is correctly affirmed by the Claimants, article 122(1) merely states that the replacement declaration may be submitted outside the legally established period – 31 May of each year" (…).

However, the circumstance that the declaration may be submitted outside the legally established period for assessment – 31 May of each year – is bounded, as to consequences - assessment of declarations -, by the precepts and periods stipulated in article 101 of CIRC, which states that "IRC assessment (…) can only be carried out within the periods and in the terms provided for in articles 45 and 46 of LGT", and in part III of paragraph b) of article 59(3) of CPPT which states that in case of error of fact or law in the declarations of taxpayers, these may be replaced "(…) until 60 days before the end of the period of lapse for the correction of errors attributable to taxpayers from which results tax greater than that previously assessed".

What means that the time limit for the submission of the replacement declaration provided for in article 122(1) of CIRC ends 60 days before the end of the period of lapse.

Were this not so it would result, from the provisions of article 122(1) of CIRC, that the replacement declaration could be submitted outside the legally established period, that is, ad aeternum, an understanding that would not only place in crisis the principle of security and legal certainty but, and more relevant, finds no support whatsoever in the text of the law. In the case at hand, the IRC assessment relating to 2008 is in question, reason for which, under normal conditions, the period of lapse would have occurred 60 days before 31 May 2012 (i.e., four years after the legal period).

As has also been decided within the scope of case no. 10/2017-T "it is certain, however, that article 47 of CIRC, in the version in force in 2008, provided that "Tax losses calculated in a given taxation period, in accordance with the above provisions, are deducted from taxable profits, where they exist, from one or more of the six subsequent taxation periods".

That is, tax losses in 2008 could be deducted from the taxable profits of one or more of the six following years, that is, the losses in question, in the conception of the Claimant, unduly calculated in that period ("year zero") were, wrongly used, in the taxation period of 2014 ("year six") and therefore, understands that it can always be corrected by AT within the period, since it has direct impact in a year still open for purposes, in particular, of tax inspection.

Hence, according to the Claimant, tax losses calculated by D... in 2008, in the amount of € 91,395.70 were deducted from the taxable profit that F... reported in the RETGS of Group B..., in the taxation period of 2014.

According to this understanding of the Claimant, having been unduly calculated a tax loss in 2008 and that loss having been unduly used in 2014, due to the fact that it does not exist, can it not be undoubtedly understood that it can be corrected by AT within the period of this institute, since it produced effects in the IRC assessment of 2014.

Hence, according to the thesis defended by the Claimant, nothing prevents D... from proceeding with the submission of a replacement Model 22 Declaration relating to 2008 and, consequently, to the correction of the tax loss unduly calculated in that period and used incorrectly in the taxation period of 2014.

As was already examined within the scope of the decision we have been following, here "two distinct realities are in question that must be examined distinctly in light of CIRC.

It is that article 45(3) of the General Tax Law is very clear in providing that:

"In case a deduction or tax credit has been made, the period of lapse is that of the exercise of that right."

In other words, in case a deduction of losses has been made, the period of lapse is that of the exercise of the right to deduct losses, which, being 6 years, and having commenced in 2008, ceased, consequently, in 2014.

Were it not so, and following the understanding of the Claimants, the period of lapse provided for in article 45(3) of LGT would be, at the limit, 12 years (i.e., six years for the deduction to the taxable profits of tax losses plus six years for the company or group of companies where such losses had been recorded).

This possibility not only finds no support in the text of the law, in particular in article 45(3) of LGT, but would be incomprehensible in light of the current legal-fiscal regime.

The 12-year period of lapse occurs only exceptionally, in accordance with the terms provided for in law, which correspond to very grave and special situations, provided for in article 45(7) of LGT, in particular whenever the right to assessment concerns tax facts connected with a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by ordinance of the Minister of Finance, which should be declared to the tax administration and are not, or deposit or securities accounts opened in financial institutions not resident in European Union Member States, or in branches located outside the European Union of financial institutions resident, whose existence and identification is not mentioned by IRS taxpayers in the corresponding income declaration of the year in which the tax facts occur.

Thus, the possibility of submitting the replacement declaration by D... ceased, by lapse, in 2014.

Considering that lapsing effect on the possibility of submitting the replacement declaration, in view of the lapse in 2014, the replacement declaration in question cannot be accepted, which was submitted on 25 November 2015, since it relates to the 2008 assessment, in accordance with article 122(1) of CIRC.

The peremptory extinctive exception is thus verified procedurally.

We do not disregard that, upon submission, the replacement declaration was, as advocated by the Claimant, given as "certain".

Also, on this matter, the arbitral court constituted and which decided within the scope of case no. 10/2017-T had the opportunity to rule, a position with which we agree.

Thus, by the "(…) fact that the replacement declaration was given as certain by AT's computer system does not have the meaning that the Claimant intends to attribute to it.

A certain declaration is one that has no anomalies that prevent a possible assessment, which is formally correct and is, in the abstract, susceptible of serving as the basis for assessment.

Article 4(5) of Ordinance no. 1214/2001, of 23/10, invoked by the Claimant, evidences this very thing – certain declaration is one that does not contain errors susceptible of correction by the declarant; for this reason it is provided therein that, if the declaration is not declared certain, the declarant must amend the errors with which it is affected, all with a view to enabling the possible assessment of the tax.

But from this it cannot be withdrawn that to a declaration that the Administration qualifies as "certain" is to follow, inexorably, the assessment.

To such assessment obstacles of another order may be opposed, such is the case with the lapse of the respective right.

Not being able AT already to exercise its right to assessment, it cannot, obviously, draw consequences from the declaration of the taxpayer, whether it is "certain" or not.

Such declaration, even if formally correct, and even if it enjoys the presumption of truthfulness of its content, cannot be considered to exercise a right that no longer exists. This is what, as was seen, now occurs".

Thus, we consider proven the exception of lapse of the replacement declaration submitted on 25 November 2015 relating to 2008.

By omission of verification of the legal requirements, the application of RETGS to the group of companies dominated by group C..., SGPS, S.A. ceases, in accordance with articles 69(8) and 69(9) of CIRS.

In this way, the request to annul the decision of rejection – in the part object of the present action – of the Gracious Complaint sub judice is unfounded and, consequently, the request to annul the respective IRC assessment act is also unfounded.

ii. On the violation of the principle of proportionality and the principle of taxation of real income:

The Claimant further raises that from the non-compliance with article 69 of CIRC, in the light of the concrete circumstances that led to the cessation of the application of RETGS, leads to an inadequate decision and one violative of general principles of law, violating, first and foremost, the principle of taxation of real profit and the principle of proportionality.

On this matter, decision no. 10/2017-T, which we have been following, also takes a position, with which we agree and which we follow.

Let us see.

Establishing, in its current wording, article 69(8) of CIRC:

"The special taxation regime for groups of companies ceases to apply in the following cases:

a) Cease to be verified any of the requirements referred to in article 69(3) with respect to the holding company, without prejudice to cases in which the option provided for in article 69(10) is exercised; (Amended by Law no. 82-C/2014, of 31 December)

b) If any of the situations referred to in paragraphs a), b), d) or g) of article 69(4) is verified with respect to the holding company;

c) The taxable profit of any of the companies in the group is determined using indirect assessment methods;

d) (Repealed.)

e) (Repealed.)

In turn, current article 69(9) of the same precept provides that:

The effects of the waiver or cessation of the present regime are reported to:

a) To the end of the taxation period prior to the one in which the waiver of application in the present regime was communicated in the terms and period provided for in article 69(7);

b) (Repealed.)

c) To the end of the taxation period prior to that in which any of the facts provided for in article 69(8) was verified."

In turn, current article 69(4) of CIRC determines the following:

Companies in the following situations may not be part of the group:

a) Are inactive for more than one year or have been dissolved;

b) An insolvency or bankruptcy proceeding has been instituted against them in which a continuation order has been issued;

c) Record tax losses in the three years prior to the year in which the regime begins to apply, except, in the case of subsidiary companies, if the participation is already held by the holding company for more than two years;

d) Are subject to an IRC rate lower than the highest normal rate and do not renounce its application;

e) Adopt a taxation period not coincident with that of the holding company;

f) (repealed);

g) Do not assume the legal form of a limited partnership, joint-stock company or limited partnership by shares, except as provided for in article 69(11). (Corrected by Rectification Declaration no. 67-A/2009, of 11 September)"

As to this, following the position of the Supreme Administrative Court, in the judgment of 03/12/2014 (case no. 0256/12), which we adopt, in which it considered the following:

«I - For the existence of a group of companies for tax purposes, it is necessary that a company, called holding company, holds, directly or indirectly, at least 90% of the capital of another or other companies called subsidiaries, provided that such participation grants it more than 50% of the voting rights, for more than one year at the date when the regime begins to apply.

II - With respect to subsidiary companies, companies that, at the beginning or during the application of the regime, record tax losses in the three years prior to the year in which the regime begins to apply may not be part of the group, except if the participation (of at least 90% required of the holding company) has already been held for more than two years, which in the case of the file does not occur as to the subsidiary company that, recording losses in the three years prior to the start of the regime, was held for less than two years (see subparagraphs C) to F) and H) of the factual recitation above.

III - This special taxation regime has, therefore, a dynamic aspect and may cease if the respective conditions cease to be met, but may also take place when the conditions not met at a certain moment come to be verified.»

In turn, the Judgment of the Central Administrative Court of the North, rendered within the scope of case no. 00065/11.0BEBRG, on 05/12/2016, decides that:

«V – The Special Taxation Regime for Groups of Companies (RETGS) is applicable, by option, to groups of companies constituted on the basis of the participation relationship established in the IRC Code and which meet the conditions provided for in article 63 of the same Code (amended by Law no. 53-A/2006, of 29/12).

VI – The option for the application of RETGS must be communicated to AT through the