CAAD 531/2015-T: IRC RETGS Group Taxation – Petition Inadmissibility and Arbitral Competence

ARBITRAL DECISION

I. REPORT

A..., Lda., Tax ID…, with registered office at Rua…, …, in Guimarães (hereinafter referred to only as Applicant), submitted, on 31-07-2015, an application for the constitution of a singular arbitral tribunal, pursuant to articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with paragraph a) of article 99 of the Code of Tax Procedure and Tax Administration, in which the Tax and Customs Authority is Respondent (hereinafter referred to only as Respondent).

The Applicant requests a declaration of illegality (i) of the decision rejecting the administrative complaint filed with reference to the Corporate Income Tax (IRC) assessment for the year 2012 and (ii) of this same assessment.

The application for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD on 03-08-2015 and notified to the Tax and Customs Authority on the same date.

Pursuant to paragraph a) of No. 2 of article 6 and paragraph b) of No. 1 of article 11 of the RJAT, the Deontological Council appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 20-10-2015, the Parties were duly notified of this appointment and did not manifest any will to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11, No. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In accordance with the provision of paragraph c) of No. 1 of article 11 of the RJAT, the singular arbitral tribunal was constituted on 04-11-2015.

In the response presented, the Respondent raised the exceptions of inadequacy of the initial petition, material incompetence of the arbitral tribunal, and untimeliness of the application for arbitral pronouncement, and further argued for the dismissal of the application filed by the Applicant.

Notified for this purpose, the Applicant submitted a written response to the exceptions raised by the Respondent, concluding for their dismissal.

By order of 24-01-2016, the meeting provided for in article 18 of the RJAT was dispensed with, and a period was granted for the submission of written arguments, which both parties provided.

The Arbitral Tribunal was duly constituted and is competent.

The parties have tax and judicial capacity and are legitimate (articles 4 and 10, No. 2, of the same legal instrument and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities.

II. THE APPLICANT'S REQUEST

The Applicant is a commercial company that, in 2012, was part of a tax group subject to the Special Tax Treatment Regime for Groups of Companies, of which it was the parent company.

With reference to the fiscal year 2012, the Applicant submitted its individual Form 22, in which it calculated a taxable profit of € 3,690,243.04. This individual result was considered for the purposes of determining the taxable result of the tax group, which was fixed at a profit of € 3,606,563.71.

In the year 2012, the Applicant held a financial stake of 0.0126% in Bank B…, S.A. ("B…") Tax ID…, which was measured at fair value through results.

On 31 December 2010, with the transition to the SNC (System of Accounting Standardization), and in compliance with NCRF 3 and 27, the Applicant recorded in equity the effect of the recognition at fair value of the said stake in B…, which resulted in the recognition of a loss of € 92,948.80.

Pursuant to No. 1 of article 5 of Decree-Law No. 159/2009, of 13 June, this loss would be tax-deductible, in the proportion of 1/5 per year, incumbent upon the Applicant to make the corresponding adjustment in its income declarations for 2010 and the four following years.

Thus, in compliance with the said transitional regime, in the individual Form 22 for 2012, the Applicant deducted the amount of € 9,294.88, corresponding to half of 1/5 of the loss recorded as described above.

Furthermore, in 2012, as a result of the decline in the share price of B…, the Applicant made a new adjustment to the value of the said stake, recognizing accounting an expense of € 57,489.28. In the individual Form 22 for 2012, and in accordance with the completion instructions, the Applicant made the corresponding tax adjustment, adding to the taxable result 50% of the accounting expense, that is, the amount of € 28,744.64.

As mentioned, in both cases, the Applicant made the deduction of the loss in only 50% of the amount actually recorded in accordance with the instructions of the Tax Authority[1] and in compliance with No. 3 of article 45 of the Corporate Income Tax Code (version in force at the time).

The Applicant filed an administrative complaint – which was subsequently rejected – against the Corporate Income Tax assessment, considering that the Applicant's individual taxable profit would have been miscalculated since the expenses resulting from the adjustment of the value of the financial stake held in B… had been considered in only 50% of the respective amount, pursuant to No. 3 of article 45 of the Corporate Income Tax Code.

In the arguments presented, the Applicant concluded as follows:

"W. Based on the applicable regulatory framework, the Applicant believes that the expense resulting from the application of the fair value criterion enshrined in said No. 9 of article 18 of the Corporate Income Tax Code and, likewise, the transitional adjustment resulting from the retrospective application of the same method, is not confused with losses from capital losses provided for in No. 3 of article 45 of the Corporate Income Tax Code.

X. Now, taking into account that, in the case at hand, all the requirements provided for in No. 9 of article 18 of the Corporate Income Tax Code are met, the loss resulting from the application of fair value should have been recognized in its entirety for the purposes of determining the Applicant's taxable profit, there being no reason to consider that the provision in No. 3 of article 45 of the Corporate Income Tax Code is applicable to this situation.

Y. This understanding by the Applicant is based, first of all, on the ratio of the norm that limited the deductibility to half of the capital losses, in its historical context and in the very requirement of "realization" of the loss which is a prerequisite thereof.

Z. Currently, this position is already supported by a considerable number of consistent and discerning Arbitral Decisions of the Administrative Arbitration Centre (CAAD) – handed down in ARBITRAL CASES No. 108/2013-T, 30/2015-T, 59/2015-T, 208/2015-T AND 231/2015-T, which, for all the reasons, are relevant to invoke here, and from which, citing by all that handed down in the context of ARBITRAL CASE No. 208/2015-T, on 25 September 2015: '[i]n the regime for which the norm of article 45, No. 3, was conceived and instituted, the realization of capital losses and other situations listed depended on a voluntary action corresponding to the realization of the same. (…) However, those aspects will no longer apply to the situations covered by article 18, No. 9, paragraph a). Here, being dealing with adjustments resulting from the accounting of fair value, determined by objective criteria (…), there is no doubt or intervention of the will of the taxpayer in the verification of the negative or positive patrimonial adjustment. That is, these will occur or not, regardless of the action and will of the taxpayer. Now, to penalize, in these cases, the taxpayer with a disregard of 50% of the expense incurred, would be entirely unjustified, both from an economic and a legal point of view.'

AA. Also the author Tomás Castro Tavares defends that 'Negative fair value never underlies a motivation of tax evasion, by valuation arbitrariness, for the simple reason that the taxation of fair value is confined to assets traded in an organized market, where the price of the asset (appreciation and depreciation) is entirely detached from the will of the taxpayer.' adding that '[o]nce that standard is chosen, the taxpayer does not have complete freedom to shape it. It must respect certain rules and principles. The main one of which is that of perfect fiscal symmetry of fair value, under penalty of violation of the principles of equality and contributive capacity. The fiscal rule applicable to the appreciation of fair value must be equal to that of the depreciation of the asset. If positive fair value is fully taxed (…) then negative fair value deserves symmetrical treatment, being assumed as a full cost of the year'.

BB. Apart from what has already been mentioned, it is important to note that No. 3 of article 45 of the Corporate Income Tax Code only provided for three distinct situations that contribute to the determination of taxable profit in half its value which, as can be understood, in which the Applicant's situation does not fit.

CC. We have, therefore, to conclude that a new, special regime of relevance for the purposes of determining taxable profit was created, which constitutes an express approximation, in a specific situation, between the accounting regime and the fiscal regime.

DD. The Applicant does not believe that this situation, in the face of the applicable regulatory framework, namely in light of paragraphs f) and h) of No. 1 of article 20, paragraph l) of No. 1 of article 23 and paragraph b) of No. 1 of article 46, is apt to generate any doubt. Instead, a clear intention is discerned to distinguish the adjustments resulting from the application of fair value in financial instruments from the regime of capital gains and losses.

EE. On the other hand, it is also easily apparent that the regime of capital gains and losses only makes sense in the perspective of the principle of realization. And in this regime of capital gains and losses we will always be in the presence of patrimonial variations depending on a transaction, that is, on a voluntary act of the taxpayer.

FF. Now, the limitation resulting from No. 3 of article 45 presupposes this voluntary action and only in light of it does it make sense that mechanisms of discouragement be instituted against actions susceptible of being considered as undesirable, in the case the realization of capital losses or other negative patrimonial variations. On the other hand, and being dealing with financial instruments of objectively quantifiable value, the disregard of 50% of the negative patrimonial variations verified would also have a function of compensating the natural tendency of economic operators to, at the fiscal level, inflate losses'.

GG. In this same sense, it is relevant to the economy of the provision in question a notion of fiscal consideration of the possibility of reducing to half the taxation of capital gains resulting from the disposal of equity stakes in case of reinvestment (article 48 of the Corporate Income Tax Code).

HH. Starting from this pure perspective of contributive capacity, it then seems perfectly legitimate that the legislator wishes to confer symmetrical treatment on the said losses and gains, diminishing the fiscal weight of a capital gain (to half), but also preventing full deductibility of losses (to half).

II. This idea of 'consideration' and 'balance' between gains and losses has, moreover, similar resonance in the fiscal regime of HPCs (cfr. article 32 of the EBF, also, meanwhile, repealed), by providing therein the non-recognition in equal percentage (100%) of capital losses and gains of equity stakes.

JJ. In summary, apart from the ratio, the letter and the context of the law pointing unequivocally to the unfounded nature of the interpretation advocated by the Tax Authority, the solution that derives from it repugns to tax justice and is in clear opposition to the principle of contributive capacity, the most relevant constitutional guideline of the Corporate Income Tax and taxation by real income.

KK. This circumstance demonstrates, with due respect, the fallacy of the arguments presented by the Tax Authority in its Response. Indeed, according to the Tax Authority, the non-application of the limitation to the deductibility of expenses provided for in No. 3 of article 45 of the Corporate Income Tax Code to the expenses resulting from the application of paragraph a) of No. 9 of article 18 of the said Code would introduce an injustice against the taxation of equity stakes measured at fair value, but to which the rule of recognition of fair value variations would not be applicable. And such injustice would exist because, by accepting that negative fair value variations were accepted as an expense in their entirety, whereas capital losses of instruments with the same accounting treatment but different fiscal treatment, would be accepted only in half of their value…

LL. In truth, admitting that the situation put forward by the Tax Authority could constitute an injustice – which is not granted – then one would always have to look at the other side of the same coin, that is, capital gains. For if it is as the Tax Authority intends, in the case of capital gains, we would then have, indeed, a case of injustice, for we would have the equity stakes that met the requirements of paragraph a) of No. 9 of article 18 taxed in their entirety, but the gains from equity stakes which, although measured in accounting at fair value, did not meet such requirements with the possibility of taxation in only 50% (cfr. article 48 of the Corporate Income Tax Code).

MM. Thus, we again follow Tomás Castro Tavares, in the conclusion that 'A hypothetical asymmetrical treatment (…) creates, when viewed correctly, a more unjust fiscal regime than the pure model of realization, which is, therefore, flagrantly unconstitutional, because this disparity is justified only on the need to preserve revenues – and not on any legitimizing reasons of a fiscal, economic or legal basis.'

NN. In line with what has been said are, moreover, the conclusions presented in the Report of the Working Group on the 'Fiscal Impact of the Adoption of International Accounting Standards' which states that 'with respect to (…) financial instruments [representing an equal or less than 5% stake in the capital of the investee], the adoption of the fair value model was recommended for fiscal purposes, but only when fair value variations are recognized in results'. Adding that only '(…) should the fiscal deductibility of losses resulting from fair value variations relating to equity capital instruments not admitted to trading in a regulated market be excluded, having emphasized the difficulty in reliably measuring the fair value of these assets'.

OO. In the same sense, the Report of the Working Group created by Order No. 1467/2006-XVII, of 11 December 2006, of the State Secretary for Tax Affairs, to carry out the necessary changes and adaptation of the rules for determining taxable profit to international accounting standards (pp. 6 et seq.), states that, 'in view of the new accounting regime for financial instruments, the following changes were introduced: - (…) Acceptance of gains and losses resulting from the application of fair value (recognized in the income statement) in financial instruments'.

PP. It was, therefore, effectively, not the intention of the legislator to include negative variations of fair value in the concept of 'other losses relating to equity stakes' provided for in No. 3 of article 45 of the Corporate Income Tax Code, and thus limit their deductibility, even if partially. For the same reason, the value of the transitional adjustment, which constitutes the retrospective application of the fair value method, should be accepted in its entirety and not just in 50%.

QQ. As demonstrated by the analysis of the norm, considering its historical and teleological elements, in light of the principle of partial dependence between accounting and taxation, we are dealing with financial instruments in which the capacity to influence the market quotation is excluded, there being no possibility of control and/or manipulation of fiscal impacts and, therefore, any concerns about control of abuse by the taxpayer are excluded.

RR. On the other hand, it is demonstrated that it was not the intention of the fiscal legislator to include negative fair value adjustments in the concept of 'other losses relating to equity stakes' provided for in No. 3 of article 45 of the Corporate Income Tax Code, but rather to make autonomous the regime of financial instruments recognized at fair value through results from the fiscal regime applicable to capital gains and losses calculated on the onerous transfer of equity stakes, in accordance with the fact that these are realities of a distinct nature and not subject to any analogical application.

SS. But more: by virtue of the existence of a value reduction that finds no reflection in the determination of the taxable matter in the Corporate Income Tax, evidence was presented that proves that the orientation proposed by the Tax Authority would generate manifestly unjust situations devoid of sense, there would be a clear contradiction with the Constitutional Principles of Taxation by Real Income and Contributive Capacity.

TT. In light of all the foregoing, we have that, both the expense resulting from the application of fair value, and the retrospective application of the same method – by virtue of the transitional adjustment to the SNC - will have to compete in full for the formation of the Applicant's taxable profit in the tax period under analysis here, correcting in accordance the act of self-assessment."

III. THE RESPONDENT'S RESPONSE

In the response filed, the Respondent invokes various exceptions which, in its view, will prevent this tribunal from ruling on the application filed, leading to the dismissal of the instance.

It first invokes the inadequacy of the initial petition due to lack or unintelligibility of the cause of action, pursuant to No. 1 and paragraph a) of No. 2 of article 186 of the Code of Civil Procedure, on the grounds that the Applicant did not comply with the duty of specification imposed by paragraph e) of No. 1 of article 552 of the Code of Civil Procedure. In the Respondent's view, it was incumbent upon the Applicant to "(…) allege the corresponding cause of action, namely, the said facts concerning the date of acquisition of the participation in question, the percentage of such participation in the capital of the entity at the date of acquisition, the cost of acquisition, as well as the accounting record of the participation at the cost of acquisition, according to the accounting model that was in force previously" (cfr. article 13 of the Response). It was also incumbent upon the Applicant "(…) the full identification of the factual assumptions for application of the transitional regime provided for in No. 1, 5 and 6 of Decree-Law No. 159/2009, of 13 July, on whose understanding it says it differs with the Tax and Customs Authority, thus alleging the corresponding factual and legal grounds for the request" (cfr. article 15 of the Response). Not having complied with this duty, the application filed is not properly substantiated, justifying the invocation of the omission or unintelligibility of the cause of action, with the inherent procedural consequences.

Next, the Respondent invokes the material incompetence of this tribunal to rule on the application filed by the Applicant in the segment in which it quantifies the effects of the declaration of illegality requested. In the Respondent's view, the quantification of the consequences of the declaration of illegality requested is not contained in the competencies proper to arbitral jurisdiction, so such request filed by the Applicant would exceed the limits provided for in article 2 of the RJAT and Ordinance No. 112-A/2011, of 22 March.

Finally, the Respondent also alleges the untimeliness of the application for arbitral pronouncement. The Respondent believes that, notwithstanding the Applicant's mention that the application for pronouncement is directed, immediately, to the appreciation of the rejection of the administrative complaint filed, and, mediately, to the appreciation of the legality of the 2012 Corporate Income Tax assessment act, ultimately, the Applicant petitions only the partial annulment of the 2012 Corporate Income Tax self-assessment act. In truth, despite the Applicant referring to the rejection order, the fact is that it did not formulate or concretize any request aimed at the annulment of what was decided in that regard. In that measure, the actual object of the present application for arbitral pronouncement would be the 2012 Corporate Income Tax self-assessment act, for which the legal period for challenge would already have expired. It concludes, thus, for the untimeliness of the application that gave rise to the present proceedings.

All the exceptions invoked constitute dilatory exceptions giving rise to the dismissal of the instance, pursuant to article 278 of the Code of Civil Procedure, applicable by remission of paragraph e) of article 29 of the RJAT. This tribunal should therefore refrain from appreciating the application filed and dismiss the Respondent from the instance.

Without prejudice to the exceptions invoked, and as regards the merits of the application, the Respondent argues for its dismissal, presenting the following conclusions in the arguments:

"27. As extensively explained in the Response - which is hereby reproduced without further ado, thus avoiding unnecessary repetitions - the disregard of 50% of losses relating to equity stakes accounted for at fair value is the only one that respects the binding of the Administration and the judge to the legislative choices of conforming the regime applicable to the taxation of legal entities, in accordance with all applicable constitutional requirements.

1. And, there being no substantial innovation in this matter in the Applicant's arguments, it is appropriate here to reiterate only that it is not possible to say that the regime of article 45, No. 3 of the Corporate Income Tax Code constitutes a quid pro quo of the regime of partial exclusion of taxation of the positive difference between capital gains and losses, prescribed in article 48 of the same legal instrument;

2. First of all, because the regime provided for in article 48 of the Corporate Income Tax Code only applies upon the verification of certain assumptions, not operating 'automatically', being necessary, for this purpose, that there is reinvestment.

3. Thus, it may happen, in cases of actual onerous transfers, that a loss be fiscally considered only in 50% and a gain, because there was no reinvestment, be fiscally considered by the entirety, to which is added the fact that such regime is of an optional and not mandatory nature, since it is a deferral of taxation.

4. Nor can it be envisioned how this can happen in the situation provided for in article 46, No. 5, b) of the Corporate Income Tax Code, in which an onerous transfer is assimilated, for fiscal purposes, to a situation of accounting reclassification or of changes in the assumptions of paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code.

5. Therefore, it cannot be considered, as the Applicant intends, that such regime inherent in article 48 of the Corporate Income Tax Code constitutes a quid pro quo of the fiscal treatment established in article 45, No. 3 of the Corporate Income Tax Code for the negative difference between capital gains and losses.

6. It is further stated that, if the legislator, neither before nor after 2010, introduced any provision enshrining a symmetrical solution for incomes/gains and expenses/losses resulting from the application of fair value, in the terms and conditions referred to in article 18, No. 9, paragraph a), neither can the interpreter, whether the Tax Authority or the taxpayer, substitute himself for that task.

7. It should also be noted that the understanding which the now Applicant defends in its application for arbitral pronouncement did, in fact, come to be accepted by the legislator, but this only happened in 2014, with the repeal of article 45, and it should be noted that with the entry into force of the mentioned Law of Reform of Corporate Income Tax these losses became fully deductible, and that is because the legislator, at that time, so understood it, not being an interpretive law, but an innovative law.

8. In this way, the amendment to the Corporate Income Tax Code that in this matter was introduced by the law that came to reform that Code – Law No. 2/2014 – confirms the validity of the understanding adopted by the respondent entity and reflected in the corrections promoted by the Tax Authority.

9. Finally, as a final note, it should be mentioned that gains and losses resulting from the variation of fair value of equity stakes cannot be qualified as capital gains and losses,

10. Reason why the Tax Authority in its Response explained that, contrary to what is intended by the Applicant, in the situation sub judice one is not dealing with a situation that fits in the first part of article 45, No. 3 of the Corporate Income Tax Code, and therefore subject to the fiscal treatment of capital gains and losses, but in the second part.

11. That is, the negative patrimonial variation relating to equity stakes, resulting from the accounting adjustments made by virtue of the transition from the Portuguese Chart of Accounts to the System of Accounting Standardization; and the losses resulting from the variation of fair value, and resulting from the depreciation of the share price, in the year 2012, which it will declare in Field 737 of Table 07 of the Applicant's periodic declaration only concur in the formation of taxable profit in only half of its value because they respect losses or negative patrimonial variations referred to in that normative.

12. And, referring once again to all that was expended in the Response, it is only appropriate to invoke again the well-reasoned arbitral decision handed down in case No. 25/2015-T, which ruled the arbitral application filed there to be dismissed, considering there to be no flaw in the interpretation defended by the Tax Authority, equally argued in the present proceedings.

(…)

1. Thus, as concluded in that arbitral decision, the interpretation of the Tax Authority is not undermined in the present case, so that, before the amendments introduced to the Corporate Income Tax Code by Law No. 2/2014, of 16 January, No. 3 of article 45 was applicable to adjustments resulting from the measurement at fair value of financial instruments with the requirements defined in paragraph a) of No. 9 of article 18, which results in the Applicant should consider, in the year in question in the present case, that the loss reflected in results in the accounting could only be deducted for fiscal purposes in half of its value, in that measure the arbitral application should be ruled to be dismissed."

IV. RESPONSE TO THE EXCEPTIONS

Notified to rule on the dilatory exceptions raised by the Respondent, the Applicant argued for their dismissal.

As regards the inadequacy of the initial petition due to lack or unintelligibility of the cause of action, the Applicant believes that there is no ground for its invocation. In fact, it is demonstrated, both from the petition of the administrative complaint and its respective decision, as well as from the application for arbitral pronouncement, that the matter under discussion is the application of No. 3 of article 45 of the Corporate Income Tax Code (version in force at the time) to expenses resulting from the adjustment of the value of financial instruments, referred to in article 18, No. 9, paragraph a), of the Corporate Income Tax Code, there being no confusion, obscurity or ambiguity that prevents – as it did not prevent – the Respondent from grasping the Applicant's intention.

In the Applicant's view, the exception of material incompetence is also without merit because, contrary to what the Respondent seems to conclude, the Applicant requested a declaration of illegality of the decision rejecting the administrative complaint and of the 2012 Corporate Income Tax self-assessment. The application made is thus within the scope of competencies of arbitral tribunals, as delimited in article 2 of the RJAT and Ordinance No. 112-A/2011, of 22 March.

Finally, the untimeliness alleged is without merit since such conclusion is based on an incomplete analysis of the entire case. At the beginning of the initial petition, the Applicant delimits, from the outset, the subject matter of the present application. This delimitation of the subject matter is concretized in articles 21, 40, 41 and 43 of the initial petition in which mention is made of the administrative complaint filed, so there is no doubt that what is intended is that, immediately, the act of rejection of the administrative complaint be annulled and, mediately, the 2012 Corporate Income Tax self-assessment. Thus, the present application for arbitral pronouncement was filed within the respective legal period, counted from the notification of the decision rejecting the administrative complaint.

It concludes, therefore, the Applicant for the total dismissal of the exceptions invoked.

V. FACTUAL MATTER

A. Facts Established

The following facts are considered established:

1. The Applicant is the parent company of a group of companies subject to the special tax treatment regime for groups of companies.

2. The Applicant held a stake of less than 5% in Bank B…, S.A., Tax ID… .

3. On 31 December 2010, the Applicant proceeded to the accounting record of the said stake in accordance with NCRF 27 and 3, recording in equity a loss in the amount of € 92,948.80.

4. In 2012, the Applicant recorded in accounting expenses from measurement of the said stake at fair value, in the amount of € 57,489.28, corresponding to the negative difference between the value of the share price in question and the value recorded on 31 December 2011.

5. On 25-10-2013, the Applicant submitted the individual Form 22 declaration, identified with No. …-… -…, in substitution of the one initially submitted.

6. In this income declaration, the Applicant calculated an individual taxable profit of € 3,690,243.04.

7. In field 705 of Table 7 of Form 22 – "Negative patrimonial variations (transitional regime provided for in article 5, Nos. 1, 5 and 6 of Decree-Law 150/2009, of 13/7)" – the Applicant entered the amount of € 9,294.88.

8. In field 737 of Table 07 of Form 22 – "50% of other losses relating to equity stakes or other components of equity capital (article 45, No. 3, final part)" – the Applicant entered the amount of € 28,744.64.

9. In its capacity as parent company, the Applicant submitted on 28-10-2013 the Form 22 of the group of companies, identified with No. …-… -…, in substitution of the one initially submitted.

10. From the group declaration submitted resulted tax to be recovered in the amount of € 449,981.78.

11. On 30-10-2013, the assessment note No. 2013…, was issued, with an amount to be reimbursed in the amount of € 449,981.78.

12. On 30-01-2015, the Applicant filed an administrative complaint of the self-assessment made.

13. The administrative complaint was rejected by order of 15-05-2015, made by the Director of Finance of … (in substitution), notified to the Applicant by official letter No.…, of 15-05-2015.

14. The rejection decision referred to the information prepared for the purpose of the exercise of prior hearing of the Applicant, in the following terms:

[Information transcript omitted in original]

1. On 31-07-2015, the Applicant filed the present application for arbitral pronouncement.

B. Facts Not Established

No other facts with relevance for the arbitral decision were established.

C. Substantiation of the Factual Matter

The factual matter given as established is based on the facts alleged by the parties, on the documentary evidence invoked and not contested, and on the administrative proceedings attached to the file, analyzed critically in light of the rules for distribution of burden of proof and the legal presumptions provided for in articles 74 and 75 of the General Tax Law, respectively. It should also be noted that the parties did not diverge with respect to the factual framework described by the Applicant, the discussion being confined to the interpretation and application of law.

VI. LEGAL MATTER

A. The Inadequacy of the Initial Petition Due to Lack or Unintelligibility of the Cause of Action

In its response, the Respondent begins by invoking the inadequacy of the initial petition due to lack or unintelligibility of the cause of action, which would constitute a violation of paragraph e) of No. 1 of article 552 of the Code of Civil Procedure, which would result in the nullity of the entire proceedings, pursuant to paragraph a) of No. 2 of article 186 of the Code of Civil Procedure. Such nullity constitutes a dilatory exception which will imply the dismissal of the instance in accordance with article 278 of the Code of Civil Procedure, applicable by remission of paragraph e) of article 29 of the RJAT.

Let us see:

Pursuant to No. 4 of article 581 of the Code of Civil Procedure "In real actions the cause of action is the legal fact from which the real right derives; in constitutive and annulment actions it is the concrete fact or the specific nullity invoked to obtain the intended effect".

The cause of action thus consists in the allegation of the material relationship from which the author derives the corresponding right and, within that material relationship, in the allegation of the facts constitutive of the right invoked.

Now, contrary to what is alleged by the Respondent, the Applicant enumerates in the initial petition the facts which, in its perspective, are constitutive of the right invoked and support the application ultimately filed. Indeed, the Applicant described the factual situation which, in its view, justifies the request for declaration of illegality made, identifying, in concrete terms, the facts it considers relevant for the appreciation thereof. This is evident from articles 22 and following of the initial petition, in particular articles 25, 26, 27, 28, 31, 35, 36, 40 and 41.

From the initial petition presented it can be concluded with sufficient clarity what is the cause of action that supports the application made: the Applicant intends the annulment of the order rejecting the administrative complaint and, consequently, of the 2012 Corporate Income Tax self-assessment, because it considers that this is illegal due to erroneous quantification of the taxable matter since the expenses recorded with the measurement at fair value of the financial instruments held by the Applicant were only considered, for fiscal purposes, in 50% of the respective value, by effect of the, allegedly illegal, application of No. 3 of article 45 of the Corporate Income Tax Code (version in force at the time).

It should be noted, moreover, that the alleged omission or unintelligibility of the application filed and of the cause of action did not prevent the Respondent from ruling on the merits of the claim, in the same terms and similarly to what had already occurred in the context of the administrative complaint filed.

On this matter, it is appropriate to recall what Alberto dos Reis[2] wrote in defending that one should not "(…) confuse an inadequate petition with a simply deficient petition. It is clear that deficiency may imply inadequacy: this is the case where the petition is omissive as to the application or the cause of action; but apart from this type, from then on, inadequacy and insufficiency of the petition are different figures." Continuing, furthermore, this author to clarify that "When the petition, being clear and sufficient as to the application and the cause of action, omits facts or circumstances necessary for the recognition of the author's right, it cannot be termed inadequate; what then occurs is that the action founders. (…) Little clarity and precision in the deduction of the grounds does not imply inadequacy when, despite this, it can be discerned what the cause of action is. (…) It sometimes becomes difficult to distinguish the deficiency that involves inadequacy from that which should result in dismissal of the application. There is a frontier zone, whose dividing line is not always discovered with precision. These are cases in which the author makes, in the petition, assertions more or less vague and abstract, which sometimes descend into inadequacy due to omission of the cause of action, sometimes into dismissal due to lack of factual material on which the recognition of the right must rest."

In that measure, it should be concluded that a petition should only be deemed inadequate where it is not possible to discern, even if not evidently or clearly, the meaning of the author's application and cause of action. To know whether the alleged cause of action is or is not sufficient to substantiate the application filed is a matter of appreciation of the merits of the action and not a matter of appreciation of compliance with formal procedural rules.

This is precisely what was concluded by the Supreme Administrative Court in the judgment of 02-03-2011, handed down in case No. 0711/10, in considering that "(…) If the factuality alleged is, or is not, adequate and sufficient for the success of the impugners' claim is a question that relates already to the merits of the impugnation and not to the question of the inadequacy of the initial petition."

In light of the foregoing, considering that the cause of action is sufficiently densified in the present case, it is concluded for the dismissal of the exception of inadequacy of the initial petition due to omission or unintelligibility of the cause of action raised by the Respondent.

B. The Material Incompetence of the Arbitral Tribunal

The Respondent also raised the incompetence of the arbitral tribunal to rule on the segment of the application in which the Applicant quantifies the effects of the declaration of illegality requested because it exceeds the scope of competence of arbitral tribunals as provided for in article 2 of the RJAT and Ordinance No. 112-A/2011, of 22 March. In that measure, as regards the claim in question, there should be a dismissal of the instance, pursuant to No. 2 of article 576 and paragraph a) of article 577 of the Code of Civil Procedure, by remission of paragraph e) of article 29 of the RJAT.

First of all, it is necessary to reiterate that the application for arbitral pronouncement filed by the Applicant has as its immediate object the legality of the rejection of the administrative complaint filed with reference to the 2012 Corporate Income Tax self-assessment and, as its mediate object, the 2012 Corporate Income Tax self-assessment itself. Contrary to what the Respondent alleges (see article 29 of the Response), the Applicant did not request the recognition of any right, so it cannot be considered that the reimbursement request, expressly quantified by the Applicant, constitutes an independent or complementary request to the request for declaration of illegality of the acts identified by the Applicant. This reimbursement request is nothing more than the legal consequence of the possible granting of the Applicant's claim, being fully comprised within the powers of action of arbitral tribunals.

With effect, it results from paragraph a) of No. 1 of article 2 of the RJAT that "The competence of arbitral tribunals comprises the appreciation of the following claims: a) The declaration of illegality of tax assessment acts, self-assessment acts, withholding at source acts and payment on account acts".

For its part, the effects of the arbitral decision are expressly provided for in No. 1 of article 24 of the RJAT, making it possible to conclude that, as referred to by Jorge Lopes de Sousa[3], "(…) arbitral decisions also have, in practice, a constitutive effect, for to the declaration of illegality of the acts are associated obligations of execution identical to those provided for annulment decisions, including the performance of the act due in substitution of that declared illegal and reconstitution of the situation that would exist if that act had not been performed (…)".

In that measure, it is incumbent upon the arbitral tribunal to determine and fix in concrete terms the effects of its decision because only thus can legality be restored, removing from the legal order the tax acts declared to be illegal. Jorge Lopes de Sousa likewise refers to this[4] "(…) the express fixing of the effects of the arbitral decision indicated in article 24 of the RJAT and the reference made to them deriving from the 'exact terms of the success of the arbitral decision in favor of the taxpayer', seems to admit, if not even presuppose, the express fixing of such effects in the arbitral decision".

In light of the foregoing, it is concluded that it falls within the scope of competence of this arbitral tribunal not only the strict appreciation of the legality of the contested tax acts, but also the fixing and determination of the effects of any declaration of illegality of the same. And, among these effects, there will fall the determination of the obligation of reimbursement by the Respondent of the amount of the tax paid in excess, plus any compensatory interest. The exception of material incompetence invoked by the Respondent is therefore without merit.

C. The Untimeliness of the Application for Arbitral Pronouncement

The Respondent also raises the untimeliness of the application for arbitral pronouncement on the grounds that, having this as its object the 2012 Corporate Income Tax self-assessment act, as of the date on which it was submitted the legal period provided for in paragraph a) of No. 1 of article 10 of the RJAT would already have elapsed.

In the view of this tribunal, the Respondent is not right.

This is because the Applicant declares initially that it presents "(…) Application for arbitral pronouncement immediately, on the rejection of the administrative complaint (…) and, mediately, on the legality of the assessment act concerning the Corporate Income Tax for the tax period 2012", reiterating this request in article 21 of the initial petition. Throughout the initial petition, the Applicant pronounces itself on the content of the decision rejecting the administrative complaint (see articles 43 and following of the initial petition). In that measure, there is no doubt as to the subject matter of the present application for arbitral pronouncement which encompasses the order rejecting the administrative complaint as well as the 2012 Corporate Income Tax self-assessment.

Having the application for arbitral pronouncement been filed within 90 days of notification of the decision rejecting the administrative complaint, it is timely in light of paragraph a) of No. 1 of article 10 of the RJAT. The exception invoked by the Respondent is therefore without merit.

D. The Illegality of the 2012 Corporate Income Tax Self-Assessment

From all that has been set forth above, it follows that the question to be appreciated in the present case relates to the applicability of the limitation provided for in No. 3 of article 45 of the Corporate Income Tax Code to expenses recorded by adjustments resulting from the application of fair value to financial instruments, pursuant to paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code, in two respects:

(i) as regards the transitional adjustment provided for in article 5 of Decree-Law No. 159/2013, of 13 July (with the consequent entry in field 705 of Form 22 of half of 1/5 of the transitional adjustment); and

(ii) as regards the expense from reduction in fair value verified in 2012 (with consequent entry in field 737 of Form 22 of half of the expense recorded in the year in question).

On this matter there is already jurisprudence from this arbitration centre, and in cases 108/2013-T, 208/2015-T, 231/2015-T and 396/2015-T the claims of the applicants were upheld, with grounds similar to those invoked by the Applicant. Conversely, in case 25/2015-T, the applicant's claim was dismissed, the arbitrator responsible for the said case having concluded that the deduction limitation provided for in No. 3 of article 45 of the Corporate Income Tax Code is also applicable to expenses deductible by virtue of paragraph a) of No. 9 of article 18 of the said Code.

Having considered the arguments and analyzed the question, this tribunal adheres to the decisions handed down in cases 108/2013-T, 208/2015-T, 231/2015-T and 396/2015-T, concluding for the success of the application filed by the Applicant.

Let us see:

No. 9 of article 18 of the Corporate Income Tax Code, introduced by Decree-Law No. 159/2009, of 13 July, applicable to tax periods beginning on or after 1 January 2010, came to provide the following:

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

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

b) This is expressly provided for in this Code."

In complement to this provision, paragraph f) of No. 1 of article 20 of the Corporate Income Tax Code came to expressly provide that they contribute to the formation of the taxable result:

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

For its part, paragraph i) of No. 1 of article 23 of the Corporate Income Tax Code came to expressly provide that they contribute to the formation of the taxable result:

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

This new framework for incomes and expenses from financial instruments accounted for at fair value, under the competent accounting rules, led to the disregarding, as capital gains or losses, of gains or losses resulting from their onerous transfer, adopting a new wording of No. 1 of article 43 of the Corporate Income Tax Code:

"1. Capital gains or losses realized are considered to be gains obtained or losses suffered by onerous transfer, whatever the title by which it is effected, and likewise those resulting from casualties or those resulting from permanent allocation to purposes unrelated to the activity carried on, relating to:

a) Tangible fixed assets, intangible assets, biological assets that are not consumables and investment property, even if any of these assets has been reclassified as a non-current asset held for sale;

b) Financial instruments, with the exception of those recognized at fair value in accordance with paragraphs a) and b) of No. 9 of article 18."

Finally, for the purpose of application of a transitional regime, article 5 of the said Decree-Law No. 159/2009, of 13 July, provided that:

"1. The effects in equity resulting from the adoption, for the first time, of international accounting standards adopted in accordance with article 3 of Regulation No. 1606/2002 of the European Parliament and of the Council, of 19 July, which are considered to be fiscally relevant in accordance with the Corporate Income Tax Code and respective supplementary legislation, resulting from the recognition or non-recognition of assets or liabilities, or from changes in their measurement, concur, in equal parts, in the formation of the taxable profit of the first tax period in which those standards are applied and of the four following tax periods."

The amendments introduced by the said legal instrument are justified, according to its own preamble, in the following terms: "Also in the field of the approximation between accounting and taxation, the application of the fair value model to financial instruments, whose counterpart is recognized through results, is accepted, but only in cases where the reliability of the determination of fair value is in principle assured. Thus, equity capital instruments that do not have a price formed in a regulated market are excluded. Furthermore, the application of the realization principle was maintained with respect to financial instruments measured at fair value whose counterpart is recognized in equity, as well as to equity stakes corresponding to more than 5% of share capital, even if recognized at fair value through results."

From the combination of all these norms it follows that, in accordance with the legislator's intention, the taxation of equity capital instruments (such as shares) representing less than 5% of the respective share capital, recorded in accounting through the fair value through results model and having a price formed in a regulated market, is done continuously during the period of holding of the stake, and not only at the time of its respective sale, extinction, liquidation or exercise (as provided for in the body of No. 9 of article 18 of the Corporate Income Tax Code). Hence, in each fiscal year, the taxpayer must recognize the incomes or expenses resulting from the application of fair value which now become directly relevant to the formation of taxable profit.

It should be noted that, this regime being only applicable to financial instruments whose price is fixed in a regulated market, its application will not be dependent on the will of the taxpayer, the adjustment criteria being objectively fixed by the market without possibility of accounting manipulation. Thus, any norms and measures provided for combating fraud and tax evasion are not justified or necessary here.

Having regard to this legal framework, it is important to assess whether or not the fiscal deduction limitation provided for in No. 3 of article 45 of the Corporate Income Tax Code is applicable to expenses resulting from the application of fair value to financial instruments referred to in paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code.

At the time, the said norm provided the following:

"3. The negative difference between capital gains and losses realized by onerous transfer of equity stakes, including their redemption and amortization with reduction of capital, as well as other losses or negative patrimonial variations relating to equity stakes or other components of equity capital, namely supplementary payments, concur in the formation of taxable profit in only half of their value".

Now, it follows from the legal framework set out above, that adjustments made by application of fair value are not configurable as capital gains or losses, given that they do not result from any onerous transfer (in accordance with No. 1 of article 43 of the Corporate Income Tax Code). In that measure, the first segment of No. 3 of article 45 of the Corporate Income Tax Code will not be applicable here.

The said adjustments, when negative, also do not correspond to negative patrimonial variations relating to equity stakes because, as expressly referred to in article 23 of the Corporate Income Tax Code, they are qualified as expenses of the fiscal year and never as negative patrimonial variations (cfr. article 24 of the Corporate Income Tax Code). In that measure, the segment of No. 3 of article 45 of the Corporate Income Tax Code relating to negative patrimonial variations will not be applicable here.

It remains, thus, to verify whether such expenses can be configured as "losses (…) relating to equity stakes" referred to in the normative in question, as the Respondent contends.

Although the Corporate Income Tax Code does not delimit the concepts of "expenses" and "losses", the truth is that the expressions are used differently by the legislator, in distinct situations, so one cannot, from the outset, assume their correspondence or similitude. See, by way of example, paragraph h) of No. 1 of article 23 of the Corporate Income Tax Code (version at the time) which qualified as "expenses" the "losses from impairment", which makes it possible to conclude that, for the legislator, the concepts are distinct.

In that measure, and based on a literal element, we will be led to conclude that the fiscal deduction limitation provided for in No. 3 of article 45 of the Corporate Income Tax Code, in referring to "losses" will not be applicable to "expenses" resulting from the application of fair value to financial instruments referred to in paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code.

And this literal element is reinforced by the teleological element. With effect, No. 3 of article 45 of the Corporate Income Tax Code[5] appears in a legal context in which losses relating to financial instruments were solely dependent on an act of will of the taxpayer in that they were only considered at the time of their transfer. In that measure, and as was concluded in the decision handed down in case 108/2013-T, "Now, in this framework, it will be understandable that the legislator institutes mechanisms of discouragement to action susceptible of being considered as undesirable, in the case the realization of capital losses or other negative patrimonial variations. By providing that such situations will only be relevant in 50% of the amount recorded, the fiscal legislator is, objectively, conditioning the actions covered by the legal provision, imposing a negative incentive to the same. On the other hand, and being dealing with financial instruments of value not objectively quantifiable, the disregard of 50% of the negative patrimonial variations verified would also have a function of compensating the natural tendency of economic operators to, at the fiscal level, inflate losses".

Now, this possibility of voluntary manipulation of results – which justifies the adoption of dissuasive norms of such practice – does not occur in the cases referred to in paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code. As referred to by Tomás Castro Tavares[6] "Negative fair value never underlies a motivation of tax evasion, by valuation arbitrariness, for the simple reason that the taxation of fair value is confined to assets traded in an organized market, where the price of the asset (appreciation and depreciation) is entirely detached from the will of the taxpayer". In truth, these adjustments will be determined on the basis of objective criteria (the quotation of the regulated market), without any intervention of the will of the taxpayer to whom no conforming power is granted. The adjustments occur independently of their will, imposing themselves only and solely on the basis of objective non-manipulable criteria.

Thus, and as referred to by Tomás Castro Tavares[7], "The will of the taxpayer never shapes the tax fact based on fair value: the economic lock-in obstacle disappears (the tax fact dissociates itself from the decision to sell); if fair value incomes are fully taxed (the regime of capital gains and losses is never applied to them), expenses should also be accepted in full, and there is not, finally, an asymmetric inclination for the realization of the cost of fair value, by comparison with the gain – for the simple reason that the tax fact of fair value (positive or negative) dissociates itself, completely, from the will of the taxpayer".

In light of the foregoing, to penalize the taxpayer with a disregard of 50% of the expense incurred would, thus, be unjustified, both from a legal and from an economic point of view, and it is certain that the institution of No. 3 of article 45 of the Corporate Income Tax Code had as its objective the avoidance of situations of fraud, abuse or manipulation by taxpayers which, as mentioned, do not occur in the situations of paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code.

And to demonstrate the economic and legal irrationality of the Respondent's claim, we take up here the example proposed in judgment 108/2013-T:

And the interpretation made thereof in the said judgment which we hereby endorse and reproduce: "The non-application of the norm of article 45, No. 3, of the Corporate Income Tax Code to expenses, and specifically to 'Expenses resulting from the application of fair value in financial instruments', with the full consideration of the patrimonial repercussions verified, whether positive or negative, leads to a coherence of taxation whatever the time at which the sale of the financial instrument takes place. That is, at whatever time it is chosen to proceed to the sale of the financial instrument, the positive and negative patrimonial alterations offset each other, so that, in the end, the taxpayer only has added or diminished to their taxable profit the difference between the acquisition value and the sale value. Whereas if the norm of article 45, No. 3, of the Corporate Income Tax Code were to be applied, as the Tax and Customs Authority intends, from the moment a negative patrimonial alteration occurs, there will be a discrepancy between the fiscal relevance of negative and positive patrimonial variations, without any justification, as stated, since those variations occur in an objective manner and independently of the action or will of the taxpayer. Thus, if at the end of the second year the taxpayer in the example above proceeded to the realization of the financial instrument in question, notwithstanding having realized a capital gain of only 20 (which would be taxed as such under the realization principle), would, after all, have paid tax on 30 (40-10). Similarly, if the taxpayer proceeded to that realization at the end of the third year, would have paid tax on 20, notwithstanding not having had any patrimonial increase with the operation. And if the taxpayer proceeded to that same realization at the end of the sixth year, would have paid tax as if it had had a patrimonial increase of 30 (80-50), notwithstanding having had an actual patrimonial variation of -20, which, under the realization principle enshrined in the Corporate Income Tax Code, would be acceptable, albeit only in 50% of the respective value (-10)! It seems clear that such results, merely random and without any substantial justification sustaining them, could not have been intended by a reasonable legislator, which, by imperative of article 104, No. 2, of the Constitution, must make the taxation of companies fundamentally rest on their real income."

Thus, it not being No. 3 of article 45 of the Corporate Income Tax Code literally applicable to expenses resulting from adjustments for fair value deductible in accordance with and in the terms of paragraph a) of No. 9 of article 18 of the said Code, and this applicability not resulting from the teleology of the norm itself – rather the contrary – it is concluded that the fiscal deduction of expenses recorded by virtue of the adoption of fair value with respect to equity capital instruments in a percentage lower than 5% of share capital whose price is fixed in a regulated market is not subject to the limitation of the said article 45 of the Corporate Income Tax Code.

That is, the wording of No. 3 of article 45 of the Corporate Income Tax Code is not applicable to expenses from negative adjustments in the value of financial instruments referred to in paragraph a) of No. 9 of article 18 of the Corporate Income Tax Code.

In light of the foregoing, it remains to conclude for the success of the application for arbitral pronouncement and, consequently, declare illegal the decision rejecting the administrative complaint filed by the Applicant with reference to the 2012 Corporate Income Tax, as well as the 2012 Corporate Income Tax self-assessment, due to erroneous interpretation and application of No. 3 of article 45 of the Corporate Income Tax Code which resulted in the error in the quantification of the taxable matter for fiscal year 2012. An error which resulted in the deduction in only 50% of expenses resulting from the application of fair value, both as regards the transitional regime of Decree-Law No. 159/2009, of 13 July, and as regards the negative adjustment recorded in 2012.

E. The Right to Compensatory Interest

Along with the reimbursement of the tax paid in excess, the Applicant further requests the payment of compensatory interest under article 43 of the General Tax Law. The Respondent contests, alleging that the legal assumptions for such payment do not exist, in particular the error attributable to the services.

The request is legally admissible under No. 5 of article 24 of the RJAT, in conjunction with article 100 of the General Tax Law.

Pursuant to No. 1 of article 43 of the General Tax Law "Compensatory interest is due when it is determined, in an administrative complaint or judicial impugnation, that there was an error attributable to the services resulting in payment of the tax debt in an amount superior to that legally due". Furthermore, by No. 2 of the same article "An error attributable to the services is also considered to exist in cases where, although the assessment is made on the basis of the taxpayer's declaration, the taxpayer has followed, in its completion, the generic guidance of the tax administration, duly published."

It results from the present case that, in the 2012 Corporate Income Tax self-assessment contested and now declared illegal, the Applicant adopted the instructions issued by the Respondent, namely the instructions for completion of Form 22 and the binding information of February 2011 published by the Respondent.

The error in the quantification of the taxable matter, derived from an erroneous interpretation and application of No. 3 of article 45 of the Corporate Income Tax Code, is, thus, attributable to the Respondent, so the legal assumptions for the right to compensatory interest on the part of the Applicant exist.

In light of the foregoing, in addition to the reimbursement of the tax unduly paid, the Applicant also has the right to the payment of compensatory interest, at the legal rate in force, counted from the date of reimbursement in an amount lower than that legally due until the date of processing of the respective credit note, in which they are included – cfr. article 43 of the General Tax Law and No. 4 of article 61 of the Code of Tax Procedure and Tax Administration.

VII. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides:

A) To adjudge the application for arbitral pronouncement to be successful, declaring illegal the order rejecting the administrative complaint filed with reference to the 2012 Corporate Income Tax self-assessment as well as the 2012 Corporate Income Tax self-assessment;

B) To annul the 2012 Corporate Income Tax self-assessment, in the terms requested, making the entry in field 705 of the Applicant's individual Form 22 the amount of € 18,589.76, instead of the amount entered of € 9,294.88, and to withdraw from field 737 of the same declaration the amount entered of € 28,744.64, with the other legal consequences at the level of the calculation of the tax due by the group of companies of which the Applicant is the parent company;

C) To condemn the Respondent to the reimbursement of the tax paid in excess, plus compensatory interest at the legal rate in force, counted from the date of payment of the reimbursement in an amount lower than that legally due until the date of processing of the respective credit note, in which they are included – cfr. article 43 of the General Tax Law and No. 4 of article 61 of the Code of Tax Procedure and Tax Administration.

Value of the case: In accordance with the provision of article 306, No. 2, of the Code of Civil Procedure and 97-A, No. 1, paragraph a), of the Code of Tax Procedure and Tax Administration and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 9,509.88.

Costs: Pursuant to No. 4 of article 22 of the RJAT, the amount of costs is fixed at € 918.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let it be recorded and notified this arbitral decision to the parties.

Lisbon, 04-04-2016

The Singular Arbitrator

(Maria Forte Vaz)

[1] Doctrinal Note issued in case No. 39/2011, with order of 24/02/2011 by the Director-General of Taxes.

[2] Code of Civil Procedure Annotated, Vol. II, pp. 369 et seq.

[3] Cfr. Guide to Voluntary Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Pereira, Almedina, 2013, pp. 110 et seq.

[4] Ob. cit. p. 112.

[5] Introduced by Law No. 32-B/2002, of 30 December, and subsequently amended by Law No. 60-A/2005, of 30 December.

[6] Cfr. "Fair Value and Taxation of Capital Gains on Shares of Listed Companies: Regarding the Interpretation of Article 18, No. 9, paragraph a) of the Corporate Income Tax Code", Studies in Memory of Prof. Doctor J.L. Saldanha Sanches, Volume IV, p. 1143.

[7] Cfr. work cited, p. 1144.