CAAD 471/2017-T: IRC Tax on SGPS Financial Charges Under Article 32 EBF – Arbitral Decision 2018

ARBITRAL DECISION

The Arbitrators António Carlos dos Santos (Presiding Arbitrator), Ricardo Palma Borges and Manuel Pires appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree as follows:

ARBITRAL DECISION

A) REPORT

Request for Constitution of the Arbitral Tribunal

1. On 18.05.2017, the Claimant A..., SGPS, SA, legal entity no..., dominant company of the B... tax group, subject to the special taxation regime for groups of companies (articles 69 et seq. of the Corporate Income Tax Code – CIRC), with registered office in ..., no..., Lisbon and with share capital of €534,000,000.00, requested, pursuant to articles 2, no. 1, paragraph a) and article 10 of Decree-Law no. 10/2011, of 20.01 (hereinafter RJAT), the constitution of an Arbitral Tribunal.

2. The request for arbitral determination concerns both the declaration of illegality and annulment of the tacit refusal (presumed on 14.05.2017) of a hierarchical appeal and the express refusal on 10.02.2017 of the request for official review submitted on 28.05.2014, aiming, in both cases, at the declaration of (partial) illegality of the self-assessment act of Corporate Income Tax (and ancillary taxes) for the fiscal year 2009 (in the amount of €2,733,888.22) and its consequent annulment, as well as the reimbursement of that amount, increased by compensatory interest, calculated from 01.09.2010, for payment of tax considered to have been unduly assessed.

3. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and notified to the Parties. Within the periods provided for in the RJAT, the arbitrators mentioned above were appointed by the Parties and the presiding arbitrator was chosen by them, which fact was communicated to CAAD which subsequently informed the Parties.

4. In accordance with article 11, no. 7 of the RJAT, the Tribunal was duly constituted on 14.12.2017, and may therefore appreciate and decide upon the subject matter of the proceedings.

Specification of the Grounds of the Claimant's Request

1. The Claimant, in its capacity as the dominant company of the group, proceeded to self-assess Corporate Income Tax, state levy and municipal levy for the fiscal year 2009 of the said group by means of submission of Form 22, such self-assessment which, however, it considers illegal, as indeed was already decided in its favour by another arbitral tribunal in a similar request with respect to fiscal year 2011 (arbitral award of 25.05.2016, delivered in case no. 663/2015-T).

2. On 10.02.2017, by order of the Director of the Large Taxpayers Unit, the request for official review of the said self-assessment submitted on 28.05.2014 was refused, such refusal having been notified to the Claimant on 13.02.2017.

3. On 15.03.2017, the Claimant submitted a hierarchical appeal of this refusal, which was never subject to a decision, whereby, according to the Claimant, tacit refusal of that request was verified on 14.05.2017 (by application of the provisions foreseen in articles 66, no. 5 of the Tax Code of Procedure and Process – CPPT and 57, nos. 1 and 5 of the General Tax Law – LGT).

4. The basis of the request for constitution of an Arbitral Tribunal, which the Claimant considers legitimate and timely, is the fact that the said self-assessment did not reflect the tax deduction of financial charges in the amount of €10,935,552.86 which, in the Claimant's interpretation, resulted from article 32 of the Tax Benefits Statute (EBF) then in force. This resulted in, for fiscal year 2009, an amount of tax unduly assessed in the value of €2,733,888.22, the reimbursement of which with compensatory interest calculated, pursuant to article 43 of the LGT, is, as stated, now requested.

5. This discrepancy results, according to the Claimant, from the fact that it followed (as a precaution), in the self-assessment act relating to 2009, the instructions of the Tax Authority contained in the Circular of the Corporate Income Tax Services Directorate no. 7/2004 of 30.03.2004 (hereinafter, Circular), namely those contained in its nos. 6 and 7. This Circular aimed to interpret article 32 of the EBF then in force, being, in its opinion, illegal and even unconstitutional. This resulted in the fact that the Claimant did not proceed to deduct the said financial charges in the value of €10,935,552.86, which, in its understanding, it would have been entitled to, if the provisions of the said article 32, no. 2 of the EBF had been applied and not the Circular.

Facts Described by the Claimant

1. On 28.05.2010, C... SGPS submitted the income tax return Form 22 with reference to fiscal year 2009 of the group of companies subject to the Special Tax Treatment of Groups (RETGS) regime of which it was the dominant company (Doc. no. 2), having, for what is relevant here, excluded from this Corporate Income Tax self-assessment and consequent municipal levy the tax deduction of financial charges in an amount that reached €10,935,552.86.

2. Thus, in its individual Form 22 declaration relating to that fiscal year, the Claimant added, for purposes of determining its taxable profit/fiscal result, the amount of €10,935,552.86 by way of financial charges which, according to the Tax Authority's interpretation, would allegedly be tax non-deductible pursuant to (then) article 32, no. 2 of the EBF.

3. This exclusion, in fiscal year 2009, of the tax deduction of financial charges in the amount of €10,935,552.86 was based on the provisions of the aforementioned Circular (Doc. no. 9). The allocation of this amount by the shareholdings (or capital shares) held by C... SGPS, effected on the basis of the Circular's methodology, presents the following results (cf. Doc. no. 10):

[TABLE with shareholdings and amounts totalling €10,935,552.86 for 2009]

1. According to the Claimant, "no financing obtained by C... SGPS was contractually destined for the acquisition of the said shareholdings". The shareholdings of greater relevance held by the Claimant were not even subject to acquisition generating any consumption or financing or mobilisation of resources, whether own or third-party.

(a) This is the case with the shareholding held in D..., representing approximately 49% (€5,316,265.75) of the total value (€10,935,552.86) of financial charges added to the taxable profit in the said Form 22 (i.e., not tax-deducted).

(i) In fact, the Claimant (then under the corporate name D..., S.A) was incorporated in 1994 following a process of division of (then) E..., S.A., imposed by Decree-Law no. 131/94, of 19.05.1994, its share capital having been realised in kind and by the equity values resulting from legally foreseen valuation (cf. Docs. nos. 11 to 16).

(ii) In 2006, as stated, with the restructuring of the energy sector resulting from the Resolution of the Council of Ministers no. 169/2005, of 24.09 (hereinafter RCM 2005, Doc. no. 18), which gave rise to the B... group proper, the Claimant combined the natural gas transport infrastructure (through the acquisition of natural gas assets held by the P... Group and the execution of a concession contract with the Portuguese State, for a period of 40 years, for the exercise of activities regulated in the gas sector, including its transport, storage and reception) with the electricity transport infrastructure it already held (by division of E... in 1994).

(iii) In order to keep electricity activity separate from natural gas activity, the Claimant (which at that date was not yet a SGPS), proceeded at the end of fiscal year 2006, as determined by the Resolution of the Council of Ministers no. 85/2006, of 30.06 (hereinafter, RCM 2006, Doc. no. 19), to the incorporation of Q..., S.A., current D... (Docs. nos. 20 and 21).

(iv) At the beginning of 2007, the Claimant proceeded to a capital increase of this company which it subscribed, giving as contribution in kind the assets of the National Electricity Transport Network, as determined in point 3, paragraph c), of the said RCM (cf. Doc. no. 22).

(v) Thus, there exists, nor could exist in the circumstances of the case, any financing associated with the (supposed) "acquisition" of the Claimant's shareholding in D...: at a first moment (1994), the assets of the "National Electricity Transport Network" accrued to the Claimant via division of E... (without mobilisation, therefore, of any financing); at a second moment (beginning of 2007), these same assets were used to subscribe, in a capital increase, the overwhelming majority of the capital stock of the investee D... (the initial share capital of this company was some symbolic €50,000 – Doc. no. 21 –, whilst the share capital resulting from the aforementioned contribution in kind was €519,572,718 – Doc. no. 22), therefore and by definition, without mobilisation of any financing.

(b) This would also be the case with the Claimant's shareholdings in F... and G..., whose financial charges added to taxable profit in Form 22, applying the Circular's methodology, represent approximately 40% of the total value of global financial charges not tax-deducted in fiscal year 2009 [respectively, €3,668,833.04 and €692,087.00, in a total of €4,360,920.04 - see Doc. no. 10] which also resulted from an operation of contribution of assets (Docs. nos. 23, 24 and 25), in both cases assets allocated to concessions related to the gas business, as determined by the aforementioned RCM 2006, namely in paragraph a) of point 3 (Doc. no. 19).

(i) As results from the deed of incorporation of F... (Docs. nos. 23 and 24), the Claimant became holder of its shares via delivery for realisation of the capital stock of F... of assets allocated to the national network for high-pressure gas transport.

(ii) As also results from the deed of incorporation of G... (Doc. no. 25), the Claimant became holder of its shares via delivery for realisation of the capital stock of G... of assets allocated to underground storage of natural gas.

(iii) Therefore, also with respect to these shareholdings, there was, by definition, no financing associated: there was instead an exchange of assets given as contribution in kind, the Claimant thereby remaining in their ownership.

1. In conclusion: in relation to approximately 89% of the total of the charges, there was no financing obtained by the Claimant that was contractually destined for the acquisition of the shareholdings of the companies. Strictly speaking, one cannot even speak, in this case, of true acquisition.

2. As for the remaining 11% of the total financial charges not tax-deducted, corresponding to €1,409,660.03, the Claimant maintains, in a general manner, the thesis of the non-existence of any financing contractually destined to acquisition of the shareholdings (cf. article 21 of the initial petition) and invokes the non-applicability of the Circular and the proportional allocation method (adopted by it itself) on the grounds that it suffers from vices of illegality and unconstitutionality.

Legal Grounds Invoked in the Claimant's Claim

1. According to the Claimant, it would have the right to deduct the financial charges mentioned above, as, pursuant to article 32 of the EBF (then in force) only "(...) financial charges incurred with their acquisition (...) do not contribute to the formation of taxable profit of these companies (SGPS, among others)".

2. That is: since only financial charges connected with the acquisition of shareholdings would be covered by the non-deductibility established in that legal provision and, given that the charges referred to in the present case did not result from any acquisition of capital shares (shareholdings), these would be susceptible to deduction and, therefore, to contributing to the formation of taxable profit.

3. The literal element of this interpretation would be supported by the historical element extracted from the Budget Report for 2003. Here it is expressly clarified that the wording of article 32 of the EBF, introduced with the objective of broadening the tax base and moralising and making more neutral the system, implied "the disregard of deductibility, for purposes of determining taxable profit, of financial charges of a nature directly associated with the acquisition of shareholdings by SGPS".

4. In this manner, to determine the non-deductibility of financial charges it would become necessary to demonstrate the existence of a direct relationship between the financial charges incurred in concreto and the acquisition of certain shareholdings. The corollary of this interpretation would be the irrelevance, for purposes of the EBF standard, of cases in which there are shareholdings that have been obtained without recourse to liabilities generating financial charges (as, for example, in the case sub judice, in which there have only been mere contributions of assets).

5. The Claimant, however, applied (according to its allegation, as a precaution) the Circular's methodology in relation to the totality of the charges not deducted, despite understanding that the said Circular, by imposing a criterion of proportional and notional allocation for purposes of application of the non-deductibility of certain financial charges (a sort of pro rata allocation, preliminary and priority, of remunerated liabilities to assets reflected in the balance sheet of a SGPS), directly contradicts article 32, no. 2 of the EBF, suffering, therefore, from the vice of illegality.

6. In the legal sphere, circulars contain generic decision-making guidance that do not prevail over legal provisions (article 112, no. 5 of the Constitution – CRP). They are binding, it is true, on Tax Authority officials (and hence, in the sphere of facts, they are endowed with provisional efficacy), but they do not bind either individuals or Courts (articles 55, no. 3 of the CPPT and 68-A of the LGT), and are invalid when contrary to law.

7. The method imposed by the Circular (in contrast to the method of real allocation or direct imputation of financial charges, which should be the natural method) is an indirect method (hence, presumptive) of evaluating the taxable matter. Although the Tax Authority justifies, in a generic manner, its selection for reasons of practical difficulty in using a direct allocation method, it could only be expressly authorised by law, pursuant to articles 85 and 87 to 90 of the LGT.

8. The Circular's method would, at best, be a supplementary method which, by interfering with the very scope of taxation, in its assumptions or in its concrete results, should always admit proof to the contrary (article 73 of the LGT). And, in the case under analysis, if it were understood to be possibly acceptable, the burden of proof that the concrete conditions for applying that indirect evaluation method had been met would always rest with the Tax Authority (article 74, no. 3 of the LGT). In any situation, we would be faced with a violation of the principles of tax legality and tax procedure, contained in articles 8 and 55 of the LGT.

9. Moreover: that method would go beyond the mere interpretation and application of law, creating an innovative legal norm and thus constituting a usurpation of legislative functions which, in the matter of scope of taxation and determination of the quantum of taxation, would be the responsibility of law from the Assembly of the Republic or the Government, with authorisation from the latter.

10. There would thus be a problem of formal and organic unconstitutionality, with violation of the principle of legality (articles 103, nos. 2 and 3 of the CRP) and of the reserve of law (article 165, no. 1, paragraph i) of the CRP), as well as of the material principles of tax equality, capacity to contribute and taxation of actual income.

11. The Claimant also invokes in favour of the illegality of the Circular the following judgmental decisions delivered in other cases, which would constitute widespread and dominant constant jurisprudence (Docs. attached to the proceedings):

• Supreme Administrative Court Award of 31.5.2017, delivered in case 1229/15;
• Arbitral Award of 2.5.2017, delivered in case no. 710/2016-T;
• Arbitral Award of 26.4.2017, delivered in case no. 581/2016-T;
• Supreme Administrative Court Award of 8.3.2017, delivered in case 227/16;
• Arbitral Award of 24.1.2017, delivered in case no. 277/2016-T;
• Arbitral Award of 9.6.2016, delivered in case no. 581/2015-T;
• Arbitral Award of 5.1.2015, delivered in case no. 269/2015-T;
• Arbitral Award of 11.11.2015, delivered in case no. 292/2015-T;
• Arbitral Award of 21.5.2015, delivered in case no. 738/2014-T;
• Award of the Central Administrative Court of the North of 15.1.2015, delivered in case 946/09.0BEPRT5;
• Arbitral Award of 21.12.2012, delivered in case no. 24/2012-T;
• Arbitral Award of 4.10.2013, delivered in case no. 24/2013-T.

The Defendant's Response: A Defence by Exception

1. In its Response, the Defendant proceeds with its defence by exception and by challenge. There is, above all, the need to decide the preliminary question of the merit or lack of merit of the three types of defence by way of exception raised by the Defendant, since the resolution thereof determines whether this Tribunal has competence and legitimacy to appreciate or not the material facts and law in dispute in the present case. They are the following:

27.1) The question of the incompetence of the Arbitral Tribunal to annul a part of the Corporate Income Tax self-assessment (in the amount of €3,056,662.62, relating to tax paid by the Group) and to condemn the Defendant to reimburse €2,733,888.22, increased by compensatory interest at the legal rate (calculated from 1.09.2010 until full reimbursement).

According to the Defendant, the reimbursement of any tax possibly owed, if it existed, could not be known by this Tribunal, as it would materially exceed the competence of arbitral tribunals which is circumscribed to the matters indicated in no. 1 of article 2 of the RJAT. The quantification of the consequences of an appreciation of the legality of an assessment should always be committed to the Tax Authority, as it is the responsibility of the latter, in the first instance, to define the acts in which the execution of judgements should be concretised. This would, according to the Defendant, be the position defended in the jurisprudence invoked in articles 23 and 24 of its response.

27.2) The question of the material incompetence of the Arbitral Tribunal based on the underlying value, as the Claimant would request the totality of the charges in question in an amount of €10,935,552.86: being this, according to the Tax Authority, the actual value of the arbitral request, it would exceed the limit of €10,000,000 to which, pursuant to no. 1 of article 3 of Order no. 112-A/2011, of 22 March, the tax services and bodies are bound.

27.3) The question of the material incompetence of the Arbitral Tribunal to appreciate decisions refusing official review requests, on the ground that the Tax Authority is only bound to the jurisdiction of arbitral tribunals if and when the request for declaration of illegality has been preceded by recourse to the administrative route by means of gracious complaint in the strict terms of articles 131 to 133 of the CPPT, which do not contemplate the request for official review. According to the Defendant, a contrary understanding would violate various constitutional principles, such as those of the rule of law and separation of powers, of the right of access to justice, of legality ("in its corollary of the principle of indisponibility of tax credits").

Claimant's Challenge to the Exceptions Raised by the Defendant

1. In written submissions, presented 11.05.2018, the Claimant defended the lack of merit of the exceptions raised by the Tax Authority, based on the arguments summarized below, taking into account the order in which the exceptions were set out above:

28.1) The competence of this tribunal to annully partially the illegality of the self-assessment act results from the divisibility of the tax act, now a consolidated matter in jurisprudence. Divisibility is in conformity with the principle of proportionality and allows determining the quantum of tax involved in a dispute, without need for deferment to execution of judgements. In this way, it protects the creditor, as it is thus possible to maintain intact the non-annullable (or annulled) part of the assessment. The tribunal in cases in which the quantum is already determined (as is the case in the proceedings) merely annulls with precision a part of the pre-existing whole. On the other hand, the Tax Authority recognises that the tribunal has powers to condemn a party in compensatory interest. It is irreconcilable with this recognition the denial of the power, logically prior, to condemnation in reimbursement of the amount of tax paid and then annulled. This power would, moreover, be a requirement of the principle of effective judicial protection, as well as of the principle of procedural economy, both of which are also imposed in arbitral justice. Finally, the Claimant contests the interpretation given by the Tax Authority to the awards (minority ones) invoked in articles 23 and 24 of its response.

28.2) The Claimant underscores the confusion existing in the Defendant's Response between request and cause of action and invokes in its favour the sense of the generality of judicial decisions, citing by way of example the arbitral award of 16.12.2015, delivered in case no. 30/2015-PT.

28.3) The Claimant aligns itself expressly with the decision of the Central Administrative Court of the South which, in an award of 27.04.2017, in case no. 08599/15, largely transcribed, which itself relies on various other judicial decisions favourable to its position (see articles 57 and 67 of the submissions). In summary, it is there defended that the regime of arbitral tribunals should be the same as that of judicial tribunals, as arbitration in tax matters, constituting a legal scheme of alternative dispute resolution, does not have a voluntary and conventional nature, but rather a legal one and, as such, is subject to the legal criteria of interpretation of tax legal norms. Now, for a long time, in judicial tribunals, the thesis has been accepted according to which recourse to the administrative route, pursuant to article 131 of the CPPT, may be fulfilled not only by the prior gracious complaint (mandatory), but also by the administrative procedure of official review initiated within the legal period of 4 years (cf. article 78 of the LGT). And thus it is, since, in cases of self-assessment (equated with administrative assessments), what matters is to give the Tax Authority an opportunity to pronounce itself before judicial challenge, as these are cases in which the Tax Authority, at least formally, did not intervene. The ratio legis is the same in each case. The coherence and unity of the legal system imply that the solution should be the same in both types of jurisdiction.

B) CLARIFICATION

The Parties

1. The parties have legal personality and capacity, demonstrate themselves to be legitimate and are duly represented (article 4 and no. 2 of the RJAT and article 1 of Order no. 112-A/2011, of 22.03, hereinafter Binding Order).

2. The request was effected within the periods provided by law, a question which is, moreover, not raised by the Defendant. There is, therefore, the need to decide on the question of the competence or incompetence of this arbitral tribunal to appreciate the merits of the case.

Competence of the Tribunal

1. On the basis of the weighing of the arguments presented by the Parties and the analysis of the various judicial decisions invoked regarding the interpretation of the legal provisions in question, the Tribunal decides that none of the three exceptions defended by the Defendant has merit.

In general terms, the starting point of this determination is the reasoning contained in the arbitral decision delivered on 10.04.2018 in case no. 333/2017-T, in a similar case occurring with the Claimant regarding fiscal year 2010, as well as the reasons explained in the various awards on which that decision is based, as they are equally relevant for the resolution of the present case and to which general reference is made.

1. More specifically, the Tribunal pronounces itself as follows:

32.1 As to the first exception, it has been, since the entry into force of the codes of the Fiscal Reform of 1958-65, an unanimous jurisprudential understanding that, in judicial challenge proceedings that run in tax tribunals, sentences may be delivered condemning the Tax Authority to pay compensatory interest, as well as indemnities for wrongful guarantee, provided there is no need for the quantum of the assessment whose legality is discussed to be made concrete. This same understanding has been logically extended to arbitral tribunals, to whom consistent jurisprudence has recognised competence to decide on the request for reimbursement, as it is still comprised within the powers of annulment, provided there is no divergence as to the amount to be reimbursed. Now it would be contradictory that the Tribunal could condemn the Party as to compensatory interest and could not do so in relation to reimbursement of sums actually paid, but which would prove to have been illegally paid. The power to condemn in reimbursement is a prius which, ultimately, results from the constitutional principle of effective judicial protection and the principle of procedural economy. Recall that, in the present proceedings, the Tax Authority did not call into question the quantification of the amount of the eventual reimbursement.

32.2 As to the second exception, there is, on the part of the Defendant, a repeated confusion between the value of the case (underlying the request) and the cause of action. That, and that alone, is what matters for this purpose, and is limited to the amount of €2,733,888.22, well below the value stipulated by the aforementioned Binding Order which establishes as a limit to the jurisdiction of arbitral tribunals a value not exceeding €10,000,000.

32.3 The third exception is of more complex analysis, so it is important to explain, first and foremost, the legal assumptions of the decision.

a) Those who adopt a perspective closer to classical liberalism - which is not the perspective of the self-configuration of the Portuguese State - tend to privilege the principle of certainty and security (inherent to formal rule of law) over other principles that also guide today's Tax Law. The corollary of that perspective is the defence of closed typicality, the tendency towards absolute prohibition of analogy (and even, according to some, of extensive interpretation), the denial of any active function of jurisprudence and, hence, greater emphasis given to the literal (grammatical) element of interpretation. By contrast, the consideration of the constitutional principle of social and democratic rule of law tends to counterbalance that perspective, seeking to render it compatible (practical concordance) with other constitutional principles, first and foremost, that of equality. The tendency is nowadays in the direction of Tax Law accepting open typicality, indeterminate concepts, an interpretation of law that places the emphasis on the ratio legis, on the systematic and teleological elements of interpretation, of accepting, not only extensive interpretation, but even analogy in certain cases (among us, in everything that does not concern the essential elements of the tax), as well as the definition of legal principles not always derived directly and exclusively from law (as, for instance, that of practicability). Laws contain linguistic statements with a vocation to be of a prescriptive nature. The rigidity of law is frequently confronted with mutation of factual reality, sometimes unforeseeable at the moment of its entry into force and with the very semantic evolution of the terms used in its statement. Hence the need that all legal texts have for interpretation, so as to extract the norm in force for the decision of a specific case and so that, in that decision, the interpreter is not bound to the historical and subjective will of the legislator (the search for what the legislator intended to say) but looks to what the legal text today tells us (objective and current interpretation). Furthermore, in light of article 11 of the LGT (to which is added the growing influence of accounting law in the tax sphere), an important part of legal scholarship has come to argue that, in the application of tax norms, not only the rules and normal criteria of interpretation contained in article 9 of the Civil Code (CC) should be considered, but also motives of an economic and financial nature. From all this it results that it is especially to jurisprudence that the task has been entrusted of adapting legislated law to facts and of ensuring the practicability of legislative statements. Thus, it is difficult to deny an active, albeit supplementary or complementary, function by the tribunals which long ago ceased to be "the mouth of the law". Moreover, decisions, especially in economic and social matters, tend equally to weigh the result of the application of laws. Finally, account must be taken, for reasons of procedural economy and reduction of system complexity, of the growing importance of the consolidation of judicial decisions of superior tribunals in the prevention and resolution of disputes, as indirectly results today, as to the Tax Authority, from no. 4 of article 68-A of the LGT, added by the Budget Law for 2014, and, as to the judge, since long ago, from article 8, no. 2 of the CC.

In this context, it should be recalled that the legislative technique of proceeding to remissions of tax provisions to other tax provisions, although gaining in flexibility, contains, in itself, increased doses of uncertainty. In the present case, by force of article 4, no. 1 of the RJAT, the law remits the definition of the scope of the Tax Authority's binding to arbitral jurisdiction to a governmental order. It is the already mentioned Binding Order which seeks to define that scope. And this Order raises several questions of interpretation, partly resulting from the fact that it itself also resorts to the technique of remission (double remission).

b) The question raised in the present proceedings is the following: In cases in which the taxpayer, in one of the situations foreseen in articles 131 to 133 of the CPPT, did not submit the necessary gracious complaint but instead, pursuant to article 78 of the LGT, a request for official review of the tax act that involves the appreciation of the legality of assessment acts, a request which came to be subject to a decision of refusal, are the conditions foreseen in the Binding Order met, or not, to give as competent the tax tribunals in this matter?

Those who understand that they are not (as occurs with the Arbitral Decisions delivered in Cases no. 51/2012-T and no. 236/2013-T) proceed from the assumption that we are facing a "unilateral declaration of binding with a restrictive character to be interpreted in its strict terms". Proceeding from the consideration of the voluntary nature of arbitration, this position understands that the interpretation of the Tax Authority's binding "could in no case result in a restriction of the sphere of freedom of the Tax Authority, as a party, to establish the limits of its binding".

This assumption does not, however, take into account the legal nature of tax arbitration. One must distinguish the sphere of legal norm-setting, which includes the issuance of the Binding Order by the political-administrative power, from the sphere of the tax procedural relationship in which the Tax Authority appears as a party in a position of equality with the taxpayer. Tax arbitration is, in the framework of the regime in force, an option of the taxpayer (a potestative right), but not an option of the Administration. For the latter, in the cases sub judice, there is no freedom of choice, nor a sphere of freedom, but rather binding to a normative rule of juridical-political origin, in this case, the Binding Order, by remission of a Decree-Law (which contains the RJAT), emanated pursuant to a legislative authorization of the Assembly of the Republic. The issuance of the Order is legally obligatory. The content of the Order may establish limits or restrictions to the Tax Authority's binding, but such limits or restrictions may only operate in the space delimited by the legal regime contained in the RJAT as a whole and the law authorizing this regime, taking into account, as required by the canons of legal hermeneutics, the coherence of the legal system as a whole.

The interpretation of the Order should, therefore, follow the general rules of interpretation arising from article 9 of the CC and article 11 of the LGT, and cannot, a priori, limit itself to a declarative interpretation nor, all the more so, to a restrictive interpretation.

c) What sense does it make to have mandatory recourse to the administrative route and (in the specific case) a remission to article 131 of the CPPT? Is it to limit such route to the gracious complaint proper, privileging the strict terms in which the remission was formulated, or should the expression "recourse to the administrative route" also cover, as an alternative to the complaint, the request for official review, interpreting the remission effected by the Order, not only to article 131 of the CPPT, but to the articulation of this with the legal system as a whole (system coherence)?

According to widely prevailing jurisprudence, it was in this latter sense that the Government, in the Binding Order, interpreted the competencies of arbitral tribunals, when it excluded from their scope, not only proceedings the value of which exceeds €10,000,000, but "claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Tax Code of Procedure and Process".

d) Let us see what the legal statements say.

As to gracious complaint, articles 68 and 70, no. 1 of the CPPT establish:

"Article 68 (Procedure of gracious complaint)

1 - The procedure of gracious complaint aims at the total or partial annulment of tax acts by initiative of the taxpayer, including, pursuant to law, substitutes and responsible parties.

2 - Gracious complaint cannot be lodged when judicial challenge has been submitted with the same ground."

"Article 70 (Submission, grounds and period of gracious complaint)

1 - Gracious complaint may be lodged with the same grounds foreseen for judicial challenge and shall be submitted within a period of 120 days counted from the facts foreseen in no. 1 of article 102."

As to review, article 78 of the LGT stipulates, in turn:

"1 - The review of tax acts by the entity which practised them may be effected by initiative of the taxpayer, within the period of administrative complaint and with grounds in any illegality, or, by initiative of the tax administration, within a period of four years after assessment or at any time if the tax has not yet been paid, with grounds in error attributable to the services.

2 - Without prejudice to the legal burden of complaint or challenge by the taxpayer, error attributable to the services is considered, for purposes of the preceding number, error in self-assessment.

3 - The review of tax acts pursuant to no. 1, independently of whether it is material or substantive error, implies its respective acknowledgement duly reasoned pursuant to no. 1 of the preceding article.

4 - The head of the service may authorise, exceptionally, within three years following that of the tax act, the review of the taxable matter ascertained with grounds in grave or notorious injustice, provided the error is not attributable to negligent behaviour of the taxpayer.

5 - For purposes of the preceding number, only ostensibly evident injustice is considered notorious and grave that resulting from taxation manifestly exaggerated and disproportionate to reality or from which resulted high prejudice to the National Treasury.

6 - The review of the tax act by reason of duplicate collection may be effected, whatever the grounds, within a period of four years.

7 - The period for official review of the tax act or of the taxable matter is interrupted by the request of the taxpayer addressed to the competent body of the tax administration for its realisation."

e) Official review and gracious complaint are, certainly, different institutes, but have similar grounds, whereby they integrate the same genus: both constitute a recourse to the administrative route to settle a tax dispute and, in this sense, are alternative routes that are equivalent for purposes of application of the Binding Orders. Although the body competent to decide on the complaint and review is distinct, that fact, by itself, does not prevent such equivalence for purposes of declaration of the illegality of self-assessment acts, all the more so because the official review regime is, in this particular, more protective. The reason for recourse to the administrative route being prior and mandatory (must be submitted before judicial challenge) is the same in cases of gracious complaint and in those of official review, as defended by the generality of legal scholarship: it consists in giving the Tax Authority the possibility to pronounce itself concretely in cases of self-assessment.

Pursuant to the RJAT, Arbitral Tribunals have competence to appreciate the illegality of a second-degree act. By extension, and taking into account the coherence of the system, nothing prevents that this competence also manifest itself in cases in which the second-degree act is an act of refusal of the request for review of the tax act, "an act which, being effected within the period of gracious complaint, should be equated with a gracious complaint". This extensive interpretation, resulting from the ratio legis and the coherence of the legal system, has a minimum of correspondence in the letter of the law, observes the limits defined by the articulation between the provisions of the RJAT and the diploma of legislative authorisation, and is therefore consonant with the canons of interpretation of article 9 of the CC and 11 of the LGT. It has been the interpretation prevailing in tax tribunals and in arbitral tribunals. Now the legislator, in using the technique of remission to articles 131 to 133 of the CPPT, does not limit itself to remitting to the statement of these articles, but also takes into account the manner in which jurisprudence has come to effect their interpretation and application, that is, how law in the books becomes law in action.

f) It remains to note that, contrary to the understanding of the Defendant, this interpretation has nothing unconstitutional about it, as was, moreover, clarified by the Constitutional Court in its award no. 244/2018, delivered on 11.05.2018, in case 636/17, in which the parties were the Tax Authority (as appellant) and A... (as appellant party). There it was decided "Not to judge unconstitutional the norm that considers requests for review equivalent to situations in which there was «recourse to the administrative route in accordance with articles 131 to 133 of the Tax Code of Procedure and Process» for purposes of the interpretation of paragraph a) of article 2 of Order no. 112-A/2011, such situations thus being covered by the jurisdiction of the arbitral tribunals functioning in CAAD".

g) In conclusion: The law permits taxpayers to submit, alternatively, procedures for review of tax acts, pursuant to article 78 of the LGT, or gracious complaints, pursuant to article 68 et seq. of the CPPT, whereby one cannot infer that, at the moment of challenge, taxpayers are limited to only one means of challenge. Thus, the position according to which the Tax Authority is not bound to the jurisdiction of Arbitral Tribunals in claims relating to the declaration of illegality of self-assessment acts, withholding at source and payment on account that have not been preceded by recourse to the administrative route in the strict terms of article 131 of the CPPT, but have been the subject of a request for review of the tax act pursuant to article 78 of the LGT, must be excluded.

C) ON THE MERITS

Material Facts with Relevance for Appreciation and Decision of the Questions Raised

1. The Tribunal need not pronounce on all facts alleged by the parties. It should, rather, select those that are relevant for the decision of the case, distinguishing proven facts from unproven ones. The facts relevant to the decision are chosen and cut out according to their legal importance, taking into account the various plausible solutions of the question or questions of law that are raised.

2. Of the documents attached to the proceedings by the Claimant, only nos. 10 and 27 were challenged by the Defendant. It should be noted, however, that these declarations consist, as can be read in the Arbitral Decision delivered in case 333/2017-T, in a mere explanation of the accounting underlying the completion of the individual Form 22 Declaration. Now, in accordance with article 75, no. 1 of the LGT, "the declarations of the taxpayers and the data and determinations registered in their accounting and ledger are presumed to be true and made in good faith, it being certain that none of the situations foreseen in no. 2 of the same article are verified." Moreover, although the Defendant argues that the accounting does not comply with the principle of separation, it did not call into question the truthfulness of the values presented by the Claimant regarding the charges considered to be deductible, nor did it invoke any indications that would undermine such a presumption of truthfulness, limiting itself to challenging the probative value of the aforementioned declarations. Consequently, Documents nos. 10 and 27, attached to the request for arbitral determination, were admitted by this Arbitral Tribunal.

Proven Facts

1. It is established as proven that:

a) The Claimant was, at the date of the facts, the dominant company of the B... group of companies subject to the Special Tax Treatment of Groups regime, having on 28.05.2010 submitted the income tax return Form 22 relating to fiscal year 2009 of the mentioned group (Docs. no. 1 and 2 attached to the request for arbitral determination). In that Corporate Income Tax self-assessment (including state levy and consequent municipal levy), it excluded the tax deduction of charges by it considered to be financial, in the amount of €10,935,552.86. The Claimant submitted a replacement Form 22 without alterations in what is discussed here (cf. Doc. no. 3).

b) The Claimant, in its individual Form 22 declaration relating to the same fiscal year, made an increase, for purposes of determining its taxable profit, the amount referred to above, by way of financial charges supposedly not tax-deductible pursuant to (then) article 32 of the EBF (Docs. nos. 8 and 10).

c) The presumption of non-deduction of the aforementioned charges was based on the application by the Claimant of the provisions of Circular no. 7/2004, of 30.03.2004, of the Corporate Income Tax Services Directorate, namely the methodology defined in its articles 6 and 7.

d) From this resulted the allocation of various costs (qualified by the Claimant as "financial charges") by the shareholdings or capital shares held by the Claimant in various companies in the group with which it is notionally related, in the said global amount of €10,935,552.86, as is detailed in Table 1 of this decision taken from article 19 of the initial petition. (Docs. nos. 10 and 27).

e) On 28.05.2014, the Claimant submitted a request for official review of the said self-assessment relating to fiscal year 2009 (Doc. no. 4), such request refused by order of 10.02.2017 of the Director of the Large Taxpayers Unit, notified on 13.02.2017 (Docs. nos. 5 and 6).

f) The reasons adduced by the Defendant for the refusal of the request for official review relate to the obligation of the officials to apply the doctrine of the Circular, although it recognises that taxpayers are not obliged to follow it.

g) In reaction to this refusal, the Claimant submitted a hierarchical appeal on 15.02.2017 (Doc. no. 7).

h) In the absence to date of any decision on the hierarchical appeal, the Claimant submitted, on 09.08.2017, a request for constitution of this arbitral tribunal.

1. It is established as documentarily proven that the majority of the shareholdings held by the Claimant (that is, those whose "financial charges" registered in accounting records resulting from the voluntary application of Circular no. 7/2004 represent approximately 89% of the total value of the total "financial charges" listed by the Claimant) was the subject of contributions of assets (cf. article 73, no. 3 of the CIRC), without mobilisation of own or third-party resources (without self or external financing). This is the case with the following shareholdings, whose global value totals €9,677,185.79, to which corresponds a value of tax assessed in 2009 of €2,419,296.45:

a) D..., S.A. - as results from docs. no. 18 (RCM of 2005), no. 19 (RCM of 2006), no. 20 (permanent certificate of commercial registration), no. 21 (deed of incorporation) and no. 22 (capital increase / contribution of assets) in which an "undeductible financial charge" was allocated in the value of €5,316,265.75.

b) F... - as results from docs. no. 19 (the said RCM of 2006), no. 23 (deed of incorporation) and no. 24 (addendum to the deed) - there only existed a delivery of assets allocated to the national network for high-pressure gas transport and not any acquisition contract (such delivery qualified by the Claimant as "financial charge") in the value of €3,668,833.04.

c) G... - as results from docs. no. 19 (RCM 2006) and no. 25 (deed of incorporation) - there also existed merely a delivery of assets allocated to underground storage of natural gas (also qualified by the Claimant as "financial charges") in the value of €692,087.00.

Unproven Facts

1. The Claimant failed to prove how the remaining shareholdings it held in H..., I..., J..., L..., M..., N... and O... were acquired, or in Treasury Shares, nor the existence or non-existence of "financial charges" representing approximately 11% of the total value of the charges, that is, €1,258,367.07. From the Claimant's exposition, one can only infer that they did not result from contribution of assets, not knowing, however, whether or not there were actual financial charges.

2. The Claimant limited itself, however (without advancing any specific proof), to declaring that there was no financing contractually destined for the acquisition of those shareholdings (article 21 of the initial petition) to then assert that it felt de facto bound to apply Circular no. 7/2004, despite considering it illegal, given this administrative guidance was based on indirect methods of determining taxable matter (cf., among others, article 19 of the said petition).

3. There are no other facts with relevance for the appreciation of the merits of the case that have not been proven.

Matter of Law

The Interpretation of No. 2 of Article 32 of the EBF (In Force In 2009)

1. In the present case, what is at issue, above all, is the interpretation effected by the Claimant of the norm contained in no. 2 of article 32 of the EBF in the version in force in 2009 (subsequently revoked by Law no. 83-C/2013, of 31.12).

The wording of that provision of the EBF relating to companies managing shareholdings (SGPS), venture capital companies (SCR) and venture capital investors (ICR) was as follows:

"2 - Capital gains and losses realised by SGPS, by SCR and by ICR of capital shares of which they are holders, provided they are held for a period not less than one year, and likewise, financial charges incurred with their acquisition, do not contribute to the formation of the taxable profit of these companies." (italics and underline in original)

1. In the part relevant here, the statement of the law points, in principle, in the direction of only financial charges incurred with the acquisition of capital shares held for one year or more contributing to the formation of taxable profit. Conversely, it follows that, in the absence of any acquisition, there will be no financial charges to deduct. The law defines neither what it understands by "financial charges" nor by "acquisition". Note, however, that the Circular also does not define these concepts, as it only concerns itself with the formula for attribution (allocation) of existing financial charges to the various capital shares.

2. To better understand the scope of the special regime contained in article 32 of the EBF, it is appropriate to analyse what it brought new in relation to the prior situation. For that purpose, we resort to Arbitral Decision no. 258/2015-T, of 25.11.2016, the content of which we transcribe below with respect to the historical evolution of the tax regime of SGPS:

"The tax regime of SGPS, from its creation by Decree-Law no. 495/88 until 31 December 2000, was regulated in article 7 of the said statute, which determined that 'to capital gains and losses obtained by SGPS, through the sale or exchange of the quota or shares of which they are holders, the provisions of article 44 of the Corporate Income Tax Code shall apply, provided the respective realisation value is reinvested, wholly or partly, in the acquisition of other shares, equities or securities issued by the State, within the period set there' (wording introduced by Decree-Law no. 318/94). That is, the positive difference between gains and losses did not contribute to taxable profit, provided the realisation value was reinvested by the end of the second fiscal year following that in which it was realised.

From 2001 on, with the approval of Law no. 30-G/2000, of 29 December, which approved the Budget (OE) for 2001, this regime became regulated in article 31 of the Tax Benefits Statute (EBF), which determined that 'to gains and losses obtained by SGPS and SCR, through the sale or exchange of the shares or shares of which they are holders, the provisions of article 45 of the Corporate Income Tax Code shall apply, provided the respective realisation value is reinvested, wholly or partly, in the acquisition of other shares, equities or securities issued by the State, within the period set there'.

This norm is nothing but the transposition of the provisions foreseen in article 45 of the Corporate Income Tax Code, relating to 'non-deductible charges for tax purposes'. Thus, a regime was adopted of deferment of the positive difference between gains and losses for the five following years, provided the intention to reinvest was manifested, and such reinvestment occurred subsequently.

SGPS, on their part, came to benefit from a regime of deferment of the taxation of gains obtained through the sale or exchange of the shareholdings held by them, having to reinvest the realisation value by the end of the third fiscal year following that of realisation.

The entry into force of Law no. 109-B/2001, of 27 December, which approved the Budget for 2002, came to determine the application to SGPS of nos. 1 and 4 of article 45 of the Corporate Income Tax Code, by remission of article 31 of the EBF. Therefore, the new provision determined that, if the shareholding had been held for one year as of the date of disposal, and if in the fiscal year prior to realisation, in the fiscal year itself or by the end of the second following fiscal year, the realisation value was reinvested, taxation of 50% of the net capital gain would proceed (in accordance with no. 1 of article 45 of the Corporate Income Tax Code).

With the publication of Law no. 32-B/2002, of 20 December, which approved the Budget for 2003, the regime of taxation of gains and losses for SGPS was again modified, through amendments introduced in nos. 2 and 3 of article 31 of the EBF, this being the regime that came into force, although with later renumbering of the article (which went from 31 to 32).

The new wording came to provide that gains and losses realised in the onerous transmission of capital shares, and financial charges incurred with their acquisition, would not contribute to the formation of taxable profit, provided such capital shares were held for a period not less than one year (italics in original). From 1 January 2003 (by force of Law no. 32-B/2002) there thus came fully into force that specific regime of SGPS: the application of no. 2 of article 31 of the EBF (later, article 32) made an exception to the general regime foreseen in articles 23, 42 and 45 of the Corporate Income Tax Code, which came again to apply to losses ascertained in the transmission of capital shares if the transmission consubstantiated nos. 5, 6 and 7 of article 23 of the Corporate Income Tax Code but the assumptions of application of the norm of the EBF were not fulfilled.

As a general rule resulting from the application of article 31 (later 32) of the EBF, it will result that losses and financial charges incurred with financing of capital shares do not contribute to the formation of taxable profit (a disregard that would only not occur if one of the exceptions foreseen in no. 3 of that same article 31 was verified).

For what interests us more specifically, in the period under consideration the wording of no. 2 of article 32 of the EBF remained practically unaltered until its revocation:

• Until March 2010 the wording introduced by Law no. 10/2009, of 10 March was in force:

'Capital gains and losses realised by SGPS, by SCR and by ICR of capital shares of which they are holders, provided they are held for a period not less than one year, and likewise, financial charges incurred with their acquisition, do not contribute to the formation of the taxable profit of these companies.'

• The same wording remained in force until December 2010, notwithstanding the amendments introduced in the statute by Law no. 3-B/2010, of 28 April.

• And the same occurred until December 2011, notwithstanding the amendments introduced by Law no. 55-A/2010, of 31 December.

• Only with Law no. 64-B/2011, of 30 December, was a slight modification of the provision introduced, which did not alter its sense and only eliminated the reference to SCR and ICR:

'Capital gains and losses realised by SGPS of capital shares of which they are holders, provided they are held for a period not less than one year, and likewise, financial charges incurred with their acquisition, do not contribute to the formation of the taxable profit of these companies.'

• And this wording remained in force until December 2013, when its revocation occurred by Law no. 83-C/2013, of 31 December.'"

1. Recall that, at the time, there existed the general rule of deductibility of costs provided for in article 23, no. 1 of the CIRC (in the wording then in force), according to which "costs or losses would be considered those that are provably indispensable for the realisation of profit or gains subject to tax or for the maintenance of the source of profit". And, among these, paragraph c) of the same legal provision, when enumerating, by way of example, the "charges of a financial nature", allows for the giving of account of what these are: charges for "interest on third-party capital applied in exploitation, discounts, premiums, transfers, exchange rate differences, expenses with credit operations, collection of debts and issuance of shares, debentures and other securities and redemption premiums".

2. With the introduction of the new special regime contained in the said article 32 of the EBF (in Chapter III with the heading "Tax benefits to the financial system and capital market"), the situation then became the following:

• the provisions of nos. 1 and 5 of article 46 of the Corporate Income Tax Code apply to SGPS, SCR and ICR, without dependence on the requirements established there as to the percentage or value of the shareholding" (no. 1).

• capital gains and losses realised by SGPS, SCR and ICR do not contribute to the formation of taxable profit when not held for a period not less than one year, that is, only contribute to such when held for a period equal or greater than one year. The rule of deductibility of costs or losses provably indispensable for the realisation of profit or gains (in the wording then in force of article 23 of the CIRC) thus remained limited by the need for the passage of a certain period of time, aiming to prevent the proliferation of speculative movements.

• are excluded from the rule of deductibility the "financial charges" incurred with the acquisition of the aforementioned shareholdings or capital shares (held for a period not less than one year). The statement of the law, as stated above, points in the direction that only those incurred with the said acquisition do not contribute to the formation of taxable profit, that is, do not enjoy deduction. Conversely, existing financial charges without connection to this acquisition, they will, as a general rule, increase the taxable profit. The same will occur when the mentioned period of one year has not elapsed.

1. We are thus faced with a "tax benefit" with a sui generis structure consisting of a tax relief in the framework of a prior tax burden. The general rule of deductibility, justified by the principles of taxation of actual profit and capacity to contribute, is disturbed by the non-consideration of certain costs. An exception is thus created which, in practice, amounts to a tax burden and which, as such, should be interpreted restrictively. At the same time, designed as a tax relief, an exception to the exception is outlined which makes possible the deduction of certain charges (financial ones), after the passage of a certain time (holding of shareholdings for the minimum period of one year), only by a small and heterogeneous group of financial institutions (SGPS, SCR and ICR).

2. [This number is not in the original text.]

3. The objective of this regime (manifest objective) is to benefit certain institutions of the financial system (not all of them), although, even within this group formally on equal footing, in practice, some may benefit more than others. This fact is, however, explainable by the fact that this regime has a vocation to be used to favour economic policies of privatisation of state groups which have as their head of direction a holding company (latent objective). The law intended to make possible the deduction of certain financial charges (and, a fortiori, contributions of assets in which such charges by definition do not exist), avoiding a tax burden resulting from the non-application of the general rule of deductibility of financial charges to situations such as those in the present case, justified by the adoption of an economic and energy policy, both European and national, that was favourable to the liberalisation and privatisation of the sector.

4. With respect to the relief relating to financial charges, one must clarify the sense of the term acquisition, as this clarification is decisive for defining the scope of application of the tax exclusion foreseen in this article. Now, in this context, acquisition does not designate any and every act or process which has as its effect the acquirer taking possession of something, but only an act or process from which actual financial charges should result, which excludes, for instance, acquisition on a gratuitous basis. The typical case will thus be that of a bank loan, an act on an onerous basis that entails financial consideration (payment of interest) on the part of the acquirer for obtaining the thing acquired.

5. Put thus the question, one must now know whether the said exception to the exception inserted in article 32 of the EBF applies or does not apply directly in the case sub judice. That this occurred in 2003 and 2004, that is, after the entry into force of article 32 and before the publication on 30.03 of Circular no. 7/2004 of the Corporate Income Tax Services Directorate, offers no doubt.

50-bis. The question does arise, however, of knowing whether the same happens after the entry into force of the said Circular. The answer should also be in the direction of direct application of article 32 of the EBF (that is, without need of any intermediation of Circular no. 7/2004), always when it is proved that there are no "financial charges" with the "acquisition". In truth, the field of application of the aforementioned Circular only concerns actual financial charges incurred with the acquisition (necessarily onerous) of capital shares or shareholdings. Not cessations / receptions of goods on a gratuitous basis, as is the case of an operation of contribution of assets, which does not imply actual and real financial charges, a fact which occurs with the great majority of shareholdings or capital shares provably obtained by the Claimant. In relation to these cases everything happens as before the issuance of the Circular, that is, direct application of the provisions of article 32 of the EBF. For that reason, to the extent that there are no actual financial charges, it makes no sense to fictionalise the existence of virtual financial charges, as would occur with the application of the aforementioned Circular. If there were actual financial charges with the acquisition (which, according to the Claimant herself, is not the case), only then should the conformity or non-conformity of the Circular with the law and the CRP be verified, so that, in case of non-conformity, the method of calculation of real allocation of financial charges be applied (that is, the one that would apply ab initio).

1. The position of the Claimant was, however, not to apply directly the provisions of article 32 of the EBF, but to consider, according to her allegation, in anticipation of the probable position of the Tax Authority, the method of calculation foreseen in the said Circular no. 7/2004, namely in its nos. 6 and 7. It is settled doctrine that, taking into account the framing given by articles 86-A of the LGT and 55 of the CPPT, circulars, as generic administrative guidance, have the function of clarifying and, within the competencies of the services, densifying the content of legal norms, being only legally binding for the officials of the services integrated in the tax administration (their exclusive addressees) and not individuals and, even less, tribunals. It is true that often taxpayers (as a precaution or for other reasons) apply the doctrine of the circulars to specific cases, but this typically occurs when these limit themselves to operationalising the content of the law. In any case, a circular may only be invoked when it is in consonance with the scope of application of the law and not when it goes beyond it. Which is manifestly not what happened in the present proceedings.

2. The question is then whether, regardless of the illegal or not character of the Circular 7/2004, a question, in our opinion, irrelevant for this purpose, its application would have a place in the case sub judice. And, as to that, the answer can only be negative: the field of application of the Circular only concerns financial charges incurred with the acquisition of capital shares and not any contribution of assets obtained without financial consideration. It is also irrelevant for the decision the question of knowing the reason why the Claimant decided to apply the aforementioned Circular (precaution, conviction of obligation, error, legal strategy or financial calculation, etc.).

This results, in the first place, from the letter of the law which, as is known, delimits the field of possible interpretations. Now, as to article 32 of the EBF, a special nature law, the letter of that provision points to financial charges not deductible being only those incurred with the acquisition of capital shares, so that, conversely and following the general rule, all remaining charges would be deductible.

1. It will be said that, by itself, the literal argument would not be decisive, since, in accordance with article 10 of the EBF, the norms establishing tax benefits admit extensive interpretation. Save that, in this case, the literal argument is corroborated by other elements, first and foremost by the historical element.

Indeed, the Budget Report for 2003 clarifies that the introduction of article 32 of the EBF, which, as stated, disregards the deductibility of financial charges "directly associated with the acquisition of capital shares by SGPS", aimed at the "broadening of the tax base and measures of moralisation and neutrality". The mere holding of shareholdings does not suffice, therefore, to determine the non-deductibility of the charges, it being necessary to verify the question of knowing whether or not there was acquisition.

1. Likewise, in another case recognized by the Finance Directorate of Lisbon with concordant order of the Corporate Income Tax Services Directorate - and rightly - that article 32 of the EBF "only covers situations in which capital shares resulted from commercial transactions, not being included here the shares / equities received in consideration for the contribution of shares in kind for the realisation of the capital stock". In fact, "the term acquisition seems to presuppose the existence of a translative act, the property of capital shares passing from one entity to another". Now in an operation of contribution of assets, there is, strictly speaking, no true acquisition, nor exist any financial charges, since there is no indebtedness generating interest. This position of the Tax Authority is also contained in the Doctrinal Sheet relating to case no. 2799/2009, with order of 19.11.2011 (Doc. no. 29).

2. The position of the Defendant is distinct from this. It is inferred from Information no. 14-AIR2/2016 which sustains the order refusing the request for official review (doc. no. 1) that there would be no contradiction between the official position of the Tax Authority and the one expressed in the "controversial decision delivered by the Finance Directorate of Lisbon" and in the doctrinal sheet mentioned above, as these would relate to no. 3 of article 32 of the EBF and that to no. 2 of the same article. As to this no. 2, "the acquisition of capital shares does not cover only 'situations in which capital shares result from commercial transactions', including here operations of contribution of assets as those advocated by the companies D..., in G... and in F...". And the same Information adds that "the argument according to which the capital of these companies was realised with contributions in