Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
The Arbitrator Vera Figueiredo, appointed by the Deontological Council of the Administrative Arbitration Centre, to form a sole arbitral tribunal, constituted on 17 December 2018, decides as follows:
I. REPORT
1. A..., SGPS, S.A., tax identification number..., registered at the Land/Commercial Registry Office of... under the same number, with registered office in..., parish and municipality of..., hereinafter referred to as "Claimant", hereby, under the provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), requests the constitution of an arbitral tribunal and submits a request for arbitral decision, wherein the Tax and Customs Authority is Respondent (hereinafter designated as "Respondent" or "AT"), and which concerns the express dismissal decision of the gracious objection No. ...2018..., presented by the Claimant against the Corporate Income Tax (IRC) statement of calculation No. 2017... (and respective account adjustment statements No. 2017... and interest calculation statement No. 2017..., all associated with the offset No. 2017...), relating to IRC for the tax year 2013.
2. The request for constitution of an arbitral tribunal was presented by the Claimant on 03-10-2018, having been accepted by His Excellency the President of CAAD and notified to the Respondent on 04-10-2018.
3. The Claimant chose not to appoint an arbitrator, and, pursuant to Article 6(1) and Article 11(1) of RJAT, the Deontological Council appointed the undersigned as arbitrator of the sole arbitral tribunal, who accepted the appointment within the legally prescribed deadline.
4. The parties were duly notified of the appointment on 26 November 2018, and did not manifest any intention to refuse it.
5. In accordance with Article 11(1)(c) of RJAT, the sole arbitral tribunal was constituted on 17-12-2018.
6. On 20-12-2018, the Respondent was notified of the order issued by the arbitral tribunal, pursuant to Article 17(1) of RJAT, to present its response, request additional evidence production, and submit the administrative process file.
7. On 01-02-2019, the Respondent filed its response, in which it argued for the legality of the assessment, maintaining that the order dismissing the gracious objection and, consequently, the additional tax act being challenged, should remain in the legal order, concluding that the request was wholly without merit and requesting its dismissal.
8. By order dated 05-02-2019, the Arbitral Tribunal, in accordance with the principles of autonomy in process management, celerity, simplification and procedural informality (Articles 16, 19(2), and 29(2) of RJAT), dispensed with the holding of the meeting provided for in Article 18 of RJAT and determined that the process proceed with optional written arguments. For this purpose, it granted a deadline of 15 days (successive deadline), with the Claimant's deadline commencing with notification of the order and the Respondent's deadline commencing with notification of the Claimant's arguments or with the expiry of the 15-day deadline.
9. The Arbitral Tribunal indicated that the arbitral decision would be rendered by 14 June 2019, warning the Claimant that it should proceed with payment of the subsequent arbitration fee in accordance with Article 4(3) of the Regulation of Costs in Arbitration Proceedings, and communicate its payment to CAAD.
10. The Claimant presented written arguments on 20-02-2019, maintaining the arguments raised in the request for arbitral decision.
11. The Respondent presented written arguments on 07-03-2019, in which it stated that nothing relevant was presented in the Claimant's arguments, and therefore it referred to and considered as entirely reproduced what was stated in its Response and therein petitioned.
12. On 11-04-2019, the Arbitral Tribunal requested the Respondent to comply with Article 17(2) of RJAT, submitting to the arbitral tribunal a copy of the administrative process file, which it had protested it would attach with the Response presented on 20-02-2019.
13. The Respondent attached the administrative process file to the record on 22-04-2019.
II. SANITATION
14. This Arbitral Tribunal considers itself regularly constituted to examine the dispute (Articles 5(1), 5(2), 6(1), and 11 of RJAT).
15. The parties have legal personality and capacity, are legitimate, and are legally represented (Articles 3, 6, and 15 of the Code of Tax Procedure and Process, pursuant to Article 29(1)(a) of RJAT).
16. No preliminary issues were raised that would prevent decision on the merits.
III. FACTUAL MATTERS
A. Facts Established as Proven
17. With relevance to the decision of the case, the following facts are established as proven:
a) The Claimant is a Portuguese limited company, whose principal activity consists of managing shareholdings in other companies as an indirect means of conducting economic activities, being subject to Decree-Law No. 495/88, of 30 December, which defines the legal regime applicable to companies managing shareholdings (SGPS).
b) The Claimant was the dominant company of a group ("Group B...") subject to the Special Taxation Regime for Corporate Groups (RETGS), since 01-01-2007.
c) On 30-05-2014, the Claimant submitted the individual IRC Form 22 tax return, in which it calculated a taxable profit of €44,992.75;
d) On the same date, it submitted the Form 22 tax return for Group B..., relating to the tax year 2013, in its capacity as the dominant company of the Group.
e) On 29-05-2015, the Claimant presented a replacement declaration for the Group B... Form 22 return for 2013, in which it calculated a taxable profit of €312,021.02.
f) In compliance with Service Order No. OI 2015..., the Claimant was subject to an external partial scope tax inspection, focused on IRC for the tax year 2013, conducted by the Tax Inspection Division - Department B - Division IV of the Financial Directorate of Lisbon.
g) The inspection action was aimed at analyzing the procedure adopted by the Claimant with respect to the calculation of financial charges not deductible, under Article 32(2) of the Tax Benefits Statute (EBF).
h) The Claimant was notified, by Letter No. ... of 6-12-2016 from the Financial Directorate of Lisbon, of the draft corrections resulting from the tax inspection report, in which a correction to its 2013 individual taxable result was proposed in the amount of €141,140.81, to exercise the right to prior hearing.
i) Since the Claimant did not exercise the right to prior hearing, the draft corrections were converted into the final tax inspection report, which was notified to the Claimant on 02-01-2017, by Letter No..., dated 30-12-2016.
j) According to the report, the correction resulted from the non-acceptance of the tax deductibility of financial charges borne by the Claimant, under Article 32(2) of the EBF and Circular No. 7/2004, of 30 March, issued by the IRC Services Directorate ("Circular No. 7/2004").
k) The Tax Authority calculated a total amount of €141,140.81, relating to financial charges allegedly attributable to the acquisition of equity interests, which would not be deductible for tax purposes, under Article 32(2) of the EBF.
l) In compliance with Service Order No. OI2017..., the Claimant was subject to a new external partial scope inspection action in the IRC context, by reference to the same period of 2013, in its capacity as dominant company of Group B..., with the objective of transferring the aforementioned corrections made by the Tax Authority to its individual taxable result to the taxable result of the fiscal group.
m) The Claimant was notified on 15-09-2017, by Letter No. ... dated 15-09-2017, to exercise the right to prior hearing regarding the draft corrections resulting from the tax inspection report for Group B...,
n) Since the Claimant did not exercise the right to prior hearing regarding the draft corrections to the inspection report, it was notified on 23-10-2017 of the final tax inspection report relating to the fiscal group, by Letter No..., dated 17-10-2017, which finalized the corrections proposed to the fiscal result of Group B..., following the corrections to the Claimant's individual taxable profit, in the amount of €141,140.81, to which corresponded an adjustment to the tax losses carried forward deducted by Group B..., in the amount of €105,855.61.
o) The Claimant was notified on 08-11-2017 of the statement of IRC assessment No. 2017... and the statement of interest assessment No. 2017... and statement of account adjustment No. 2017..., associated with offset No. 2017..., of 2-11-2017, from which resulted IRC payable by Group B... in the amount of €11,509.96.
p) The Claimant paid the said IRC on 7-12-2017.
q) On 07-03-2018, the Claimant filed a gracious objection against the aforementioned assessments.
r) On 16-08-2018, the Claimant was notified of the draft dismissal of the gracious objection and to exercise the right to prior hearing.
s) The draft dismissal of the gracious objection was based on the following grounds, in summary:
t) Since the Claimant did not exercise the right to prior hearing, the draft dismissal of the objection became final, by order of 11-09-2018.
u) On 14-09-2018, the Claimant was notified of the final decision dismissing the gracious objection procedure No. ...2018... by the Financial Director of Lisbon.
v) On 03-10-2018, the Claimant presented the present request for constitution of the arbitral tribunal with CAAD.
B. Facts Not Established as Proven
There are no facts with relevance to the decision that have not been established as proven.
C. Justification of the Factual Matters Established and Not Established
With respect to factual matters, the Tribunal need not pronounce on all that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and discriminate between established and non-established facts (see Article 123(2) of CPPT and Article 607(3) of CPC, applicable pursuant to Articles 29(1)(a) and (e) of RJAT).
Thus, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is determined in consideration of the various plausible solutions to the legal question(s) (see Article 596, applicable pursuant to Article 29(1)(e) of RJAT).
Therefore, considering the positions assumed by the parties and the documentary evidence attached to the record, the facts listed above were established as proven, being uncontested by the parties, with relevance to the decision.
IV. LEGAL MATTERS
The disputed issue in the present case concerns the special taxation regime applicable to SGPS, more precisely the regime applicable to financial charges incurred with the acquisition of shareholdings, provided for in Article 32(2) of the Tax Benefits Statute ("EBF"), and the interpretation made thereof by Circular No. 7/2004, of 30 March, of the IRC Services Directorate, subdividing into the following issues:
i) To determine the impact of the repeal of Article 32(2) of the EBF on the tax deductibility of financial charges incurred by the Respondent in 2013;
ii) To determine whether Circular No. 7/2004, of 30 March, of the IRC Services Directorate is illegal, by violation of Article 32(2) of the EBF;
iii) To determine on whom rests the burden of proof to demonstrate that there is no alternative to the method of the Circular;
iv) To determine whether the Circular is unconstitutional, by violation of the principle of legality and the reserve of law, established in Articles 103 and 165 of the Constitution of the Portuguese Republic ("CRP").
4.1. Taxation Regime for SGPS in Effect until 31 December 2013
The regime provided for in Article 31(2) was added by Article 38(5) of Law No. 32-B/2002, of 30 December (State Budget Law for 2003).
According to what is stated in the Report of the State Budget for 2003:
"(...) Principal changes in IRC:
• Broadening of the tax base and measures for moralization and neutrality
− It is established that financial charges directly associated with the acquisition of shareholdings by SGPS shall be disregarded for purposes of determining taxable profit;
− The regime excluding capital losses on shareholdings ceases to apply to SGPS and onerous acquisitions of shareholdings made between companies and entities domiciled in countries and territories that are on the list of "tax havens" or with which special relations exist; (...)
• Regime of capital gains
− Capital gains realized by SGPS and venture capital companies with the alienation of equity interests are exempted from IRC, following, in this particular, the Dutch regime. However, measures are adopted to prevent tax planning by determining that such capital gains are taxed whenever they result from the transfer of shareholdings acquired, in certain circumstances, from off-shores or companies with which special relations exist. (...)".
This was, thus, intended to promote a change in the taxation regime for capital gains of SGPS, following a logic of enhancing the competitiveness of such companies, in line with a common trend in most European Union countries, notably the Dutch regime, by establishing a regime of disregard (non-taxation) of capital gains realized with shareholdings, as well as financial charges directly associated with such shareholdings.
The regime provided for in Article 31 of the EBF was subsequently included in Article 32 in the renumbering effected by Decree-Law No. 108/2008 of 26 June, and the wording of Article 32(2) of the EBF was amended by Law No. 64-B/2011, of 30 December (State Budget Law for 2012): "Capital gains and capital losses realized by SGPS on equity interests held by them, provided they are held for a period of not less than one year, and likewise financial charges incurred with their acquisition do not contribute to the formation of the taxable profit of such companies".
The meaning and scope of the provision was not unanimous, the IRC Services Directorate having sanctioned the following understanding regarding certain aspects of the tax regime applicable to SGPS, provided for in what was then Article 31 of the EBF, through the issuance of Circular 7/2004, from which we highlight the following paragraphs for their relevance to the present case:
"(...) Temporal application of the new regime
4. Article 38(5) of Law No. 32-B/2002, in turn, provides that "the alteration introduced in Article 31 of the EBF applies to capital gains and capital losses realized in tax periods beginning after 1 January 2003, without prejudice to the continued application, in respect to the positive difference between capital gains and capital losses realized before 1 January 2001, of the provisions in points a) and b) of Article 7(7) of Law No. 30-G/2000, of 29 December, or, alternatively, in Article 32(8) of Law No. 109-B/2001, of 27 December."
5. Thus, as regards the temporal scope of application of the new regime, it applies to financial charges incurred in tax periods beginning after 1 January 2003, even if they relate to financing entered into before that date.
Exercise in which corrections of financial charges should be made
6. With respect to the exercise in which financial charges should be disregarded as costs, for tax purposes, the correction should be made, in the exercise to which they relate, of the tax correction of those incurred with the acquisition of shareholdings that are likely to benefit from the special regime established in Article 31(2) of the EBF, regardless of whether all conditions for application of the special capital gains taxation regime are already met. If it is concluded, at the moment of alienation of the shareholdings, that not all requirements for application of that regime are met, the tax correction should be made in that exercise by considering as a tax cost the financial charges that were not considered as a cost in prior exercises.
Method to be used for purposes of allocating financial charges to shareholdings
7. As regards the method to be used for purposes of allocating financial charges incurred with the acquisition of shareholdings, given the extreme difficulty of using, in this matter, a method of direct or specific allocation and the possibility of manipulation that such method would allow, such allocation should be made on the basis of a formula that takes into account the following: the remunerated liabilities of SGPS and venture capital companies should be allocated, in the first instance, to remunerated loans made by these to subsidiary companies and other investments generating interest, allocating the remainder to other assets, namely shareholdings, proportionally to their respective acquisition cost. (...)".
4.2. Taxation Regime for SGPS from 1 January 2014
The State Budget Law for 2014 (Law No. 83-C/2013, of 31 December), repealed Article 32 of the EBF.
In the Report of the Ministry of Finance on the State Budget for 2014, there are no justifying notes on the repeal of the taxation regime for SGPS, which are found in the Final Report of the Commission for the Reform of Corporate Income Tax, dated 30 June 2013 regarding the entry into force of the new participation exemption regime:
"(...) In a concern of diametrically opposite scope, the adoption of the new participation exemption regime made, in the Commission's view, various special tax regimes currently in existence redundant. For this reason, it is proposed to eliminate the following regimes: (...)
c) since the new regime also encompasses the tax regime provided for SGPS, and considering that they have failed to achieve the original objective of establishing themselves as a fiscally competitive investment vehicle at the international level, it is proposed to eliminate Article 32 of the EBF, further recommending that the legal-corporate regime of these entities, currently provided for in Decree-Law No. 495/88, of 30 December, be eliminated; for reasons of identical nature, it is deemed appropriate to repeal Article 32-A (venture capital company and venture capital investor) of the same EBF; (...).
Tax expenditure resulting from the exclusion of taxation applicable to capital gains and capital losses obtained by companies managing shareholdings (SGPS), venture capital companies (SCR) and venture capital investors (ICR)
The creation of a participation exemption regime, justified in this report in the respective Chapter f., will result in the transposition into the IRC Code of a model of taxation of capital interest income that maintains, in essence, the advantages that the Tax Benefits Statute granted to this type of entities.
Moreover, it is the Commission's understanding that the elimination of this regime would not result in the collection of an equivalent amount of tax revenue, to the extent that, in its absence, a large number of operations that benefit from it would not be carried out, or would be carried out by means that, using alternative configurations, would produce identical results. (...)".
The IRC reform was to be provided for in Law No. 2/2014, of 16 January, which added Article 51-C to the IRC Code, which provides for a regime of disregard of capital gains and capital losses realized with the onerous alienation of shareholdings by resident companies, provided that certain requirements are met, applicable to all types of companies, SGPS or otherwise.
That is, with the repeal of Article 32 of the IRC Code, SGPS, in particular the Claimant, began to benefit from a regime of:
• Non-taxation of capital gains and capital losses from shareholdings provided for in Article 51-C of the IRC Code;
• Deduction of financial charges in accordance with the general regime of deductibility of charges indispensable for the activity subject to tax, provided for in Article 23, with the limitations provided for in Article 67 of the IRC Code.
No transitional provisions were provided for in the situation of repeal of tax benefits, contrary to other situations of repeal and legislative amendment, which received the legislator's attention.
4.3. Impact of the Repeal of the Regime
The Claimant alleges that, with the repeal of Article 32 of the EBF and without the existence of any transitional regime, the tax benefit that justified the non-deductibility of financial charges was not realized, nor can it ever be realized, such that, not having benefited from the special regime applicable to SGPS nor being able to benefit in virtue of the repeal thereof, the question of deductibility of the Claimant's financial charges cannot even be posed, under penalty of violation of the principles of legality and taxation on actual income provided for in Article 104 of the CRP. The correction made by the Tax Authority regarding the deductibility of financial charges lacks legal basis.
The Respondent has not pronounced on this disputed issue, and it is therefore necessary to decide.
Regarding the implications of the repeal of Article 32(2) of the EBF, there is already jurisprudence from arbitral tribunals constituted under CAAD, which, however, is not unanimous (see arbitral decision in process No. 754/2016-T dated 14-06-2017 and arbitral decision in process No. 610/2017-T, of 17-09-2018).
We transcribe the arbitral decision in process 610/2017-T of the panel presided over by Counselor Fernanda Maçãs: "(...) the repeal alone of the SGPS tax regime cannot be equated with the situation of non-fulfillment of requirements for application of the regime of exclusion of taxation of capital gains provided for in Article 32(2) of the EBF, not constituting, in this regard, a requirement for non-application of Article 32(2) of the EBF with respect to facts occurring during its validity."
Indeed, as explained in the cited arbitral decision which does not follow the arbitral decision in process No. 754/2016-T of the panel presided over by Counselor Jorge Lopes de Sousa, "(...) in that case, the arbitral tribunal pronounced itself to the effect that a company could have considered as an expense in the 2013 exercise the financial charges incurred with the acquisition of shareholdings, which it had disregarded in the exercises from 2003 to 2012, to the extent that it ceased to be an SGPS, from the 2013 exercise onwards, inclusive. Thus, it was concluded that in that exercise it was no longer possible to be taxed according to the regime provided for in Article 32(2) of the EBF".
Adding further that "In summary, when an SGPS ceased to be an SGPS and other companies could not benefit from the capital gains exemption (which is the precedent that is invoked) it could make sense to adjust accounts. The same would be said in case the regime had been suppressed. But it happens that, in the case at hand, the regime was not suppressed, but rather extended in general to companies regardless of the legal form adopted. (...)"
In light of the foregoing, also in the present case the factual and legal circumstances that permitted the tribunal to disapply the provisions of Article 32(2) of the EBF to the Claimant with respect to the 2013 exercise by mere effect of the repeal of said legal provision in 2014 are lacking.
4.4. Illegality of Circular No. 7/2004, of 30 March, of the IRC Services Directorate, by violation of the provisions of Article 32(2) of the EBF
The Respondent made a correction to the taxable profit of the Claimant in its Form 22 declaration for 2013, on an individual basis, which was reflected in the Form 22 declaration of the group taxed according to the Special Group Taxation Regime (RETGS), of which the Claimant is the dominant company, considering an increase to the taxable result, based on the application of Article 32(2) of the EBF.
Indeed, in its Form 22 declaration for the 2013 exercise, the Claimant indicated no value as non-deductible financial charges, in accordance with Article 32(2) of the EBF.
In accordance with the general regime applicable to other entities subject to IRC, capital gains and financial charges generally contributed to the determination of the taxable profit thereof, under Article 20(1)(h), Article 23(1)(c) of the IRC Code, and in the case of capital losses at 50%, under Article 23(1)(l) and Article 45(3) of the same code.
SGPS, in turn, benefited from a special regime provided for in Article 32 of the EBF, which resulted in the disregard for the formation of the taxable profit of the SGPS of capital gains and capital losses realized on equity interests held for at least one year, as well as financial charges incurred with their acquisition.
Thus, "financial charges incurred with their acquisition" do not contribute to the formation of the taxable profit, that is, financial charges that are connected with the acquisition of shareholdings.
In the aforementioned Report of the State Budget for 2003, the following may be derived: "It is established that financial charges directly associated with the acquisition of equity interests by SGPS shall be disregarded for purposes of determining taxable profit";
It thus clearly results that the legislator intended to exclude only the financial charges directly associated with the acquisition of equity interests.
In light of the foregoing, it is concluded that to determine the non-deductibility of financial charges, it is necessary to demonstrate that there is a direct relationship between the financial charges and the acquisition of specific shareholdings.
Thus, only financial charges derived from financing relating to the acquisition of financial shareholdings will not be deductible, and not any other financial charges.
In the case of SGPS, the rule regime of deductibility of financial charges, provided for in Article 23(1)(c) of the IRC Code, shall only be disregarded with respect to financial charges that are directly associated with the acquisition of shareholdings.
4.5. Burden of Proof
Since the regime of non-deduction of financial charges is only applicable to charges directly related to the acquisition of shareholdings, it remains to conclude on who bore the burden of proof.
Article 74 of the General Tax Law establishes the following rules:
"1 - The burden of proof of facts constituting the rights of the tax administration or taxpayers rests on whoever invokes them.
2 – (...)
3 - In case of determination of taxable matter by indirect methods, it is incumbent on the tax administration to prove the verification of the requirements for their application, and on the taxpayer the burden of proof of excess in its quantification."
In turn, Article 75(1) of the General Tax Law provides that: "Tax declarations presented in accordance with the law are presumed to be true and made in good faith, as well as the data and calculations recorded in their accounting records or books, when these are organized in accordance with commercial and tax legislation."
Being that, as a rule, under Article 81(1) of the General Tax Law, "Taxable matter is evaluated or calculated directly according to the criteria specific to each tax, with the tax administration only being able to proceed with indirect evaluation in the cases and conditions expressly provided for in the law," that is, in accordance with the requirements provided for in Articles 87 et seq. of the General Tax Law and in accordance with the procedure provided for in Article 91 et seq. of the General Tax Law.
Not being one of the situations provided for in Article 87 of the General Tax Law, in which the determination of taxable matter may be effected by indirect methods, the use of an indirect allocation method such as that provided for in point 7 of Circular No. 7/2004 is illegal.
Indeed, as the Supreme Administrative Court (STA) reiterated in a ruling of 26-09-2018 pronounced by the full plenum of the tax litigation section, in process No. 0406/18.9BALSB: "Now, for the AT to be able to resort to the method provided for in point 7 of Circular No. 7/2004, it was incumbent on it to demonstrate that it could not make a direct allocation, which it did not do, instead limiting itself, without more, to applying that method. In conclusion, it is the AT that bears the burden of proof for the determination of taxable matter by indirect methods, with Article 74(3) of the General Tax Law not permitting that burden to be placed on the taxpayer."
This understanding had already resulted, in particular, from STA rulings of 08-03-2017 in Process No. 0227/16, of 31-05-2017 in Process No. 01229/15, of 29-11-2017 in Process No. 01292/16, of 24-01-2018 in Process No. 0745/15, and of 31-01-2018 in Process No. 01157/17), closely followed by arbitral decisions in processes No. 333/2017-T of 10-04-2018 and 365/2017-T of 19-02-2018,
It is therefore to be concluded that the use of this method "(...) violates the principle of tax legality (...)" (see STA ruling of 29-11-2017, process No. 01292/16), such that "(...) the IRC self-assessment act effected in obedience to the instructions contained in point 7 of Circular No. 7/2004, of 30.03, of the IRC Services Directorate, is affected by a defect of law violation, to the extent that it establishes an illegal method of allocation of financial charges incurred with the acquisition of shareholdings(...)" (STA rulings of 24-01-2018, process No. 0745/15, and of 31-01-2018, process No. 01157/17)
Thus, not having the Claimant indicated non-deductible financial charges in its individual Form 22 declaration, the presumption of truth being presumed for its declaration, such presumption could only be overturned if the Respondent proved the existence of financial charges directly derived from the acquisition of shareholdings.
Having limited itself to applying the method provided for in point 7 of Circular 7/2004, on the basis of which it concluded that there are financial charges and shareholdings acquired by the Claimant, the direct connection existing between them remains unproven.
In line with the jurisprudence cited, it is to be concluded that the assessment being challenged is vitiated by a defect of law violation, in the part concerning the application of Article 32(2) of the EBF, in that the Respondent applied an illegal indirect method of determination of taxable matter.
This defect justifies the annulment of the correction made and the assessment that applied it, under Article 163(1) of the Administrative Procedure Code, pursuant to Article 2(c) of the General Tax Law.
The constitutional questions raised by the Respondent regarding the interpretation of Article 32(2) of the EBF are without merit, in accordance with the jurisprudence followed in the Ruling delivered by the Constitutional Court (Ruling No. 750/2017, of 15-11-2017, in Process No. 559/16): "It does not declare unconstitutional the normative interpretation, extracted from Article 32(2) of the Tax Benefits Statute, in the wording given by Law No. 55-A/2010, of 31 December, to the effect that the exclusion of the deduction of financial charges for purposes of determining the taxable profit of Companies Managing Shareholdings (SGPS), is limited to those incurred with the obtaining of financing directly related to the acquisition of equity interests".
4.6. Matters Rendered Moot
Given that the request for arbitral decision proceeds on the basis of the defect of illegality due to error of law as to the meaning and scope of Article 32(2) of the EBF, which ensures effective and stable protection of the Claimant's rights, the examination of the other defects imputed to the tax act is rendered moot.
4.7. Indemnity Interest
With respect to the request formulated by the Claimant for indemnity interest, attention is drawn to the provisions of Article 43 of the General Tax Law ("LGT"):
"1 - Indemnity interest is due when it is determined, in a gracious objection or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due.
2 - It is also considered that there is error attributable to the services in cases where, although the assessment is made on the basis of the taxpayer's declaration, the latter followed, in its completion, generic guidance of the tax administration, duly published. (...)" (emphasis added).
Indeed, under Article 100 of the General Tax Law: "The tax administration is obliged, in case of total or partial success of objections or administrative appeals, or of judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of indemnity interest, in the terms and conditions provided for in the law."
Article 61 of the Code of Tax Procedure and Process adds:
"(...) 2 - In case of judicial annulment of the tax act, it falls to the entity that executes the judicial decision from which such right results to determine the payment of the indemnity interest to which there may be entitlement.
3 - The indemnity interest shall be calculated and paid within 90 days from the decision that recognized the respective right or from the day following the end of the legal period for official restitution of the tax.
4 - If the decision that recognized the right to indemnity interest is judicial, the payment period is counted from the beginning of the period for its spontaneous execution.
5 - The interest is counted from the date of payment of the undue tax until the date of processing of the respective credit note, in which they are included. (...)"
In turn, Article 24(5) of RJAT provides that "(...) payment of interest, regardless of its nature, is due in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process," such that it should be understood as permitting the recognition of the right to indemnity interest in the arbitral process.
Thus, as a consequence of the annulment of the assessment, the Claimant is entitled to reimbursement of the amount paid and to indemnity interest, under Article 43(1) of the General Tax Law and Article 61 of the Code of Tax Procedure and Process, calculated on that amount from the date of payment (07-12-2017), until the date on which a credit note is processed, in which they are included (Article 61(5) of the Code of Tax Procedure and Process).
Indemnity interest is due at the statutory default rate (Articles 43(1) and (4), Article 35(10) of the General Tax Law, Article 559 of the Civil Code, and Ordinance No. 291/2003, of 8 April).
V. DECISION
In these terms, this Arbitral Tribunal decides:
1. To declare the request for arbitral decision well-founded and proven in the part in which the annulment of the IRC assessment for the year 2013 is requested, due to defect of law violation, due to error on factual and legal requirements;
2. To declare the request for payment of indemnity interest by the Respondent to the Claimant well-founded and proven, from the date of payment until the date of issuance of the respective credit note, in accordance with the provisions of Article 43(1)(c) of the General Tax Law and Article 61 of the Code of Tax Procedure and Process;
3. To condemn the Respondent to pay costs.
VALUE OF THE CASE:
In accordance with the provisions of Article 306(2) of the Code of Civil Procedure and Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Articles 29(1)(a) and (b) of RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €11,509.96 (eleven thousand five hundred and nine euros and ninety-six cents).
COSTS
Pursuant to Article 12(2) and Article 22(4) of RJAT, and Article 4(4) of the aforementioned Regulation, the amount of costs is fixed at €918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.
Let this arbitral decision be notified to the parties and the process filed.
Lisbon, 31 May 2019
The Sole Arbitrator,
(Vera Figueiredo)
Text prepared by computer, in accordance with Article 131(5) of the Code of Civil Procedure, applicable by virtue of Article 29(1)(e) of RJAT, drafted in accordance with the spelling of the Portuguese Language Orthographic Agreement, approved by Resolution of the Assembly of the Republic No. 26/91 and ratified by Decree of the President of the Republic No. 43/91, both of 23 August.
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