CAAD 610/2017-T: SGPS Financial Charges Deduction Under Article 32 EBF After Revocation - Circular 7/2004 Binding Effect on IRC

ARBITRAL AWARD

REPORT

1. A..., S.A., a legal entity no. ..., registered at the Commercial Registry Office of Lisbon with the same number, with registered office at ..., no. ..., ... – ... Lisbon, with share capital of € 3,656,537,715 (in the capacity of dominant company of Group B...), subject to the Special Regime for Taxation of Groups of Companies (hereinafter abbreviated as "RETGS"), hereinafter referred to as the Claimant, filed the request for arbitral ruling on 22 November 2017, with the Tax and Customs Authority being the defendant, hereinafter referred to as the Respondent or AT.

The Claimant requests the declaration of illegality of the decision dismissing the gracious complaint, the partial annulment of the self-assessment of Corporate Income Tax (IRC) for the tax year 2014, as well as the payment of compensatory interest on the amount of tax paid in excess due to the failure to consider the expenditure of € 1,058,232.66, as the AT disregarded the deduction of financial charges incurred with the acquisition of shareholdings in the tax years 2008 to 2013.

The Claimant did not appoint an arbitrator, therefore, pursuant to the provisions of paragraph a) of item 2 of article 6 and paragraph b) of item 1 of article 11 of the RJAT, the President of the Deontological Council appointed as arbitral president Mrs. Counselor Maria Fernanda Maçãs, and as co-arbitrators Dr. Cristina Coisinha and Dr. Vera Figueiredo (arbitrators acting as co-members), who communicated their acceptance of the appointment within the prescribed period.

The parties were notified of the appointment of arbitrators and raised no objection.

On 6 February 2018, the arbitral tribunal was constituted.

1. To substantiate its claim, the Claimant alleges, in summary, that:

• It is subject to the Special Regime for Taxation of Groups of Companies (hereinafter referred to only as "RETGS") since the tax year 2001, being the dominant company of the Group, which included, in 2014, in addition to the Claimant, 31 other companies;

• During that period it was covered by the regime provided for in article 32 of the EBF, under which it could benefit from an exemption of capital gains on the sale of shareholdings held for more than one year (among other conditions), but which limited the deduction of financial charges (financing interest) incurred with the acquisition of such shareholdings;

• Throughout the tax years 2008 to 2013 it resorted to financing in order to acquire shareholdings in other companies and, in compliance with the regime in force at the time, did not deduct the interest borne and added to its taxable profit the overall amount of € 1,058,232.66;

• In the calculation relating to tax year 2014, the amount of financial charges not deducted by C... relating to acquisitions of shareholdings between the tax years 2008 and 2013 was not recognized as an expense of the period;

• The non-deductibility of such financial charges results from the administrative doctrine set forth in Circular no. 7/2004, of 30 March 2004, from the IRC Department;

• By virtue of the application of the calculation methodology arising from Circular no. 7/2004, during the aforementioned period the Claimant did not deduct the interest borne in the amount of € 1,058,232.88, but rather increased this sum to the computation of its taxable profit throughout the tax years (from 2008 to 2013), bearing an annual increase in its taxable base;

• Circular no. 7/2004 is contrary to the principle of specialization and homogeneity between costs and income subject to tax, since SGPS should deduct annually the financial charges incurred with the acquisition of shareholdings but only when the shareholdings in question were disposed of could they be added to the taxable base;

• The shareholdings were not transferred before the revocation of the fiscal regime of SGPS (31 December 2013), with the Claimant beginning to deduct the financial charges incurred annually by reason of financing obtained for the acquisition of shareholdings, without having identified any non-taxed capital gains, from 1 January 2014 onwards;

• The Claimant maintains the possibility of claiming in 2014 the deductibility of the interest which it was unable to deduct in 2013, since the revocation of the fiscal regime of SGPS in 2014 addressed the content of the tax law relationship applying, therefore, to relationships established that subsist at the date of its entry into force[1];

• With the revocation of the fiscal regime of SGPS, with the Claimant having maintained the shareholdings in question without having benefited from the non-taxation of any possible capital gains, the requirements for the non-deductibility of the financial charges incurred with the financing for the acquisition of those shareholdings ceased to be met, in clear violation of the principles of taxation on actual profit and equality;

• The failure to consider these costs constitutes a distortion of the constitutional principle of tax equality;

• The fiscal regime in question did not exclude the possibility of correction of costs not deducted in prior tax periods, should the disposal of the shareholdings not meet the requirements for the application of the special regime excluding the taxation of capital gains;

• In fact, as point 6 of Circular 7/2004, of 30 March, from DSIRC states, "Should it be concluded, at the moment of disposal of the shareholdings, that all requirements for the application of that regime are not met, the financial charges that were not considered as costs in prior tax years shall be considered as fiscal costs in that tax year";

• The requirements for the application of the Participation Exemption regime, introduced into the IRC Code through Law no. 2/2014, of 16 January, are substantially different from the previous rule of exemption of capital gains of SGPS, whose regime was consumed and, in practice, consisted of an extension of the current regime to all companies, regardless of SGPS or SCR status;

• The deductibility of the fiscal expense of financial charges no longer suffered any limitation beyond the general limitation on the deductibility of financial charges valid for the generality of financial charges borne by companies and not for financial charges incurred with the acquisition of shareholdings;

• The introduction of this regime should not affect the legitimacy of SGPS to deduct the financial charges which were increased by them in prior tax years, under the revoked article 32 of the EBF.

In this sequence, the Claimant requests:

a) declaration of illegality of the decision dismissing the gracious complaint;

b) partial annulment of the self-assessment of IRC for tax year 2014;

c) and condemnation of the AT to pay compensatory interest as may be due.

1. Notified for such purpose, the AT presented its response, defending the maintenance of the taxed act and requesting absolution of the claim, alleging as follows:

• Item 2 of Article 32 of the EBF provided that capital gains and losses realized by SGPS on the disposal of shareholdings, verified certain conditions, in particular, provided that such shareholdings were held for a period of not less than one year, did not concur in determining taxable profit;

• On the other hand, financial charges borne by SGPS for the acquisition of such shareholdings also did not concur in determining taxable profit;

• The fiscal regime of taxation of SGPS aimed to provide greater competitiveness through the exemption from taxation at the IRC level of capital gains realized, verified certain conditions, on the other hand it proceeded to the extension of the tax base, by way of the disregard of financial charges that were at the basis of the acquisition of shareholdings;

• The Respondent entity alleges that an interpretive orientation[2] was issued to the effect of imposing the non-deductibility of financial charges incurred with the acquisition of capital shares, as soon as they were incurred regardless of the (possible) future applicability of the exemption provided for capital gains generated by the capital shares with which such financial charges are connected;

• The invocation of the illegality of Circular no. 7/2004 cannot constitute the foundation for the violation of the regime of Article 32, item 2, of the EBF, translated into the non-increase to the net result of the fiscal year of financial charges attributable to capital shares;

• SGPS were obliged to proceed with the allocation of financial charges to the acquisition of capital shares, using a direct or indirect method, being required to prefer the method of direct allocation and only in the impossibility of using the same recourse as a supplementary method to an indirect method (the one recommended in the Circular or another);

• It is unconstitutional Article 32, item 2 of the EBF when interpreted in the sense that, being inapplicable, because illegal, Circular no. 7/2004, all and any financial charges borne with financing related to acquisitions of shareholdings are deductible, independently of the evidence promoted, as it violates the principle of contributory capacity, inherent in article 104, item 2, of the CRP;

• The Claimant cannot seek to deduct the costs of acquisition of shareholdings on the basis of said ground, as the revocation of the fiscal regime of SGPS does not constitute a requirement for its disapplication with respect to facts occurring during its validity;

• The revocation of the fiscal regime of SGPS cannot be equated with the situation of failure to meet requirements for the application of the regime excluding the taxation of capital gains provided for in Article 32, item 2 of the EBF and, accordingly, does not constitute a requirement for the disapplication of Article 32 of the EBF with respect to facts occurring during its validity;

• Thus, there is no support in the letter of the law for the equation between the revocation of the tax regime of SGPS and the situation of failure to meet the requirements for the application of the regime excluding the taxation of capital gains provided for in item 2 of Article 32 of the EBF, especially since the financial charges occurred entirely within the scope of application of the fiscal regime of SGPS, which was provided for in Article 32 EBF;

• The claim of the Claimant is illegal, insofar as it violates the principle of specialization of fiscal years set forth in article 18 of the CIRC – in the sense that costs should be deducted in the fiscal year in which they were incurred – and leads to the violation of the principle of taxation on actual profit;

• To charges accrued until 31.12.2013, in the sphere of the SGPS, the special regime provided for in item 2 of Article 32 of the EBF applies, with the capital gains generated exempt from taxation should these shareholdings be disposed of by the end of the fiscal year 2013;

• Notwithstanding Article 32 of the EBF having been revoked, the exemption from taxation of capital gains continued to be enshrined in the regime designated as "participation exemption (article 51-C of the CIRC), provided that the requirements provided therein are met, e.g., any transfer of shareholdings that occurs during its validity receives the same tax treatment that it would receive should article 32 of the EBF still be in force;

1. By order of 13 March 2018, as evidence production was not requested and without prejudice to the possibility of the parties wishing to produce oral arguments, the meeting referred to in article 18 of the RJAT was dispensed with and the parties were invited to submit written arguments in succession. 6 August 2018 was fixed as the time limit for issuing the arbitral decision, subsequently extended by order of 30 July to 6 October 2018.

2. The parties submitted written arguments. In its arguments, the AT reiterated the argument defended in its response to the effect of the unconstitutionality of the interpretation of Article 32, item 2 of the EBF, when interpreted in the sense of the inapplicability of the provisions of this article, to the extent relating to the non-deductibility of financial charges incurred with the acquisition of capital shares, when it is not possible to proceed with their specific allocation, resulting from such legal rule the requirement that, directly or indirectly, the financing be intended for such acquisitions, as such is violator of the principle of tax equality and the principle of contributory capacity inherent in articles 13, 103 and 104, item 2 of the Portuguese Republic Constitution.

PRELIMINARY MATTERS

6.1. The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to the provisions of articles 2, item 1, paragraph a), 5, and 6, item 1, of the RJAT.

6.2. The parties have legal standing and capacity, are legitimate and are legally represented, pursuant to the provisions of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March.

6.3. The proceedings do not suffer from nullities.

6.4 There are no other circumstances that prevent knowledge of the merits of the case.

ON THE MERITS

III.1. MATERIAL FACTS

7.1. Facts considered proven

• The Claimant is subject to the Special Regime for Taxation of Groups of Companies ("RETGS"), being the dominant company of the Group since 2001 (See PA attached to the file);

• In tax year 2014 the group comprised, in addition to the Claimant, 31 other companies, including C... SGPS, S.A. which is held by D..., S.A., which in turn is held by the Claimant;

• C... has as its corporate purpose the management of shareholdings in other companies as an indirect means of exercising economic activities and is therefore subject to Decree-Law no. 495/88, of 30 December, which defines the legal regime of companies managing shareholdings and, as well, to the provisions of article 32 of the EBF, in force until 31 December 2013;

• C... only came within the scope of the group of which the Claimant is the dominant company in 2009. (See Article 14 of the Initial Request - admission by the Claimant);

• In the course of its activity of management of shareholdings and with the aim of acquiring shareholdings in other entities, in tax year 2008, C... was financed by contributions from its sole shareholder D..., S.A., contributions that bore interest (see document no. 7 attached by the Claimant);

• In 2008 C... acquired a shareholding in E..., in the amount of € 927,599 (see document no. 8 attached by the Claimant);

• In that same year, C... acquired a shareholding in F... in the amount of € 285,927, (see document no. 8 attached by the Claimant);

• In tax year 2008, by application of the calculation formula defined in Circular no. 7/2004, C... increased the amount of € 7,579.14 to its taxable profit, arising from financial charges incurred by reason of financing obtained for acquisition of shareholdings in E... and F... (see document no. 2 attached with the PA);

• In 2009, C... increased the subscribed capital in those two entities (E... and F...) (see document no. 10 attached by the Claimant);

• In tax year 2009 it increased its taxable profit by the amount of € 73,957.42, arising from financial charges incurred by reason of financing obtained for acquisition of shareholdings in E... and F... (See Document no. 3 attached with the PA);

• In 2010 C... again increased the subscribed capital in E... and F... (see document no. 12 attached by the Claimant);

• Also in 2010, C... acquired, in a capital increase operation of G..., a first shareholding in this company (see document no. 12 attached by the Claimant);

• In tax year 2010, by application of the calculation formula defined in Circular no. 7/2004, C... increased the amount of € 143,158.43 to taxable profit (see document no. 4 attached with the PA);

• In tax year 2011 C... subscribed additional capital in E... and F... and acquired a capital shareholding in H... (See Document no. 14 attached by the Claimant);

• In this year (2011) C... increased the amount of € 207,461.10 to its taxable profit, by applying the calculation formula defined in Circular no. 7/2004 (See Document no. 5 attached with the PA);

• In tax year 2012 C... subscribed additional capital in E... and F..., reinforced the investment in H... and I... by reason of capital increase (see Document no. 16 attached by the Claimant);

• And, in the mentioned year, by application of the calculation formula defined in Circular no. 7/2004, it increased its taxable profit by € 260,410.53 (see Document no. 6 attached with the PA);

• In the year 2013 C... carried out new capital subscriptions in E... and F..., which resulted in the updating of the value of the respective shareholdings and reinforced the investment in G... (see Document no. 18 attached by the Claimant);

• In this year it acquired a capital shareholding in G... from a related entity in the amount of € 5,999,860;

• By application of the calculation formula defined in Circular no. 7/2004, in tax year 2013 C... increased the amount of € 365,666.13 to its taxable profit (See Document no. 7 attached with the PA);

• In the period between 2008 and 2013 C... increased taxable profit by financial charges in the total amount of € 1,058,232.66 (sum of increases to its taxable profit in the period 2008 to 2013);

• By the end of tax year 2014 C... was the holder of investments in associated companies in companies G..., I... and J... and in venture capital investment in companies K..., F..., H... (See Document no. 8 attached with the PA);

• In May 2017 the Claimant filed a gracious complaint against the tax act of self-assessment of Corporate Income Tax (IRC), requesting its partial annulment for the tax period 2014, embodied in calculation no. 2016..., of 8 June 2016 (See PA attached to the file);

• In the context of the complaint procedure the Large Taxpayers Unit (UGC) produced the draft decision contained in Information no. 172-AIR2/2017, as well as information no. 204-AIRA/2017, having dismissed the request formulated by the Claimant in the complaint (See PA attached to the file).

7.2. Facts not considered proven

There are no other facts with relevance for the arbitral decision that have not been given as proven.

7.3. Substantiation of the facts considered proven and not proven

With respect to the material facts the Tribunal is not required to pronounce on all that was alleged by the parties, being incumbent upon it, rather, the duty to select the facts that are important for the decision and to differentiate proven from unproven matter (see article 123, item 2, of CPPT and article 607, item 3 of CPC, applicable ex vi article 29, item 1, paragraphs a) and e), of RJAT).

In this manner, the facts pertinent to the determination of the case are chosen and defined according to their legal relevance, which is established in attention to the various plausible solutions of the question(s) of Law (see previous article 511, item 1, of CPC, corresponding to current article 596, applicable ex vi article 29, item 1, paragraph e), of RJAT).

Thus, having regard to the positions assumed by the parties and the documentary evidence attached to the file, the facts listed above were considered proven, with relevance for the decision, which were otherwise not contested by the parties.

III-2. ON THE LAW

The Claimant, dominant company of a group taxed under the RETGS of which C... SGPS formed part, which in the tax years 2008 to 2013 maintained shareholdings in other companies and, by application of item 2 of article 32 of the Tax Benefits Statute (hereinafter referred to as EBF), combined with Circular no. 7/2004, did not proceed with the deduction of interest borne with the acquisition of the same, for IRC purposes, now contends that with the revocation of that provision, the requirements for the non-deductibility of the same ceased to be met.

Thus, the Claimant seeks, by force of the application of said Circular, in particular its item 6, to deduct in 2014 the interest with financial charges which it was unable to deduct from 2008 to 2013.

For its part, the Respondent contends that it makes no sense to equate the revocation of the fiscal regime of taxation of SGPS with the situation of failure to meet the requirements that such regime required for purposes of excluding the taxation of capital gains.

Thus, the central question to be determined consists in determining the fiscal consequences of the revocation of article 32, item 2, of the EBF with respect to shareholdings held at that date. In particular, it concerns determining what fiscal treatment should be given to financial charges incurred by C... from 2008 to 2013 and attributed to said shareholdings arising from the application of the limitation provided for in item 2 of article 32, in accordance with the application that Circular 7/2004, in particular, its item 6, made of that rule.

The answer to the question posed requires that one begin by setting forth, albeit briefly, the applicable rules.

A1) Regime for taxation of SGPS in force until 31 December 2013

The regime provided for in item 2 of article 31 was added by item 5 of article 38 of Law no. 32-B/2002, of 30 December (State Budget Law for 2003):

According to what is set forth in the Report of the State Budget for 2003:

"(...) Principal changes in the IRC:

• Extension of the tax base and measures for moralization and neutrality

− It is established the disregard of deductibility, for purposes of determining taxable profit, of charges of a financial nature directly associated with the acquisition of shareholdings by SGPS;

− The regime of exclusion of losses on shareholdings ceases to be applicable to SGPS and to onerous acquisitions of shareholdings made between companies and entities domiciled in countries and territories that are included in the list of "tax havens" or with which special relationships exist; (...)

• Regime for capital gains

− IRC capital gains realized by SGPS and SCR with the disposal of capital shares are exempted, following, in this particular, the Dutch regime. However, measures are adopted to prevent tax planning by determining the taxation of such capital gains whenever they result from the transfer of shareholdings acquired, in certain circumstances, to off-shores or to companies with which there are special relationships.(...)"

It was thus a matter of promoting a change in the regime of taxation of capital gains of SGPS, following in an objective of reinforcing the competitiveness of such companies a trend common to the majority of countries of the European Union, in particular the Dutch regime, by establishing a regime of disregard (non-subjection) 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 came to be included in article 32 in the renumbering carried out by Decree-Law no. 108/2008 of 26 June:

Having the wording of item 2 of article 32 been amended by Law no. 64-B/2011, of 30 December (State Budget Law for 2012), coming to have the following wording:

With respect to SGPS, the regime provided for in item 2 of article 32 remained unchanged since 2003.

The meaning and scope of the provision was not unanimous, as can be seen from what is stated in the Arbitral Award handed down in case no. 258/2015-T "(...) the stated non-deductibility of charges and losses sought to operate symmetrically with the fact that capital gains realized by SGPS had become exempt from concurring in the formation of taxable profit in IRC – which results from the Report of the State Budget for 2003, in which, under the title 'Principal changes in the IRC,' and with the heading 'Extension of the tax base and measures for moralization and neutrality,' the exemption from taxation in IRC of capital gains realized by SGPS with the disposal of capital shares held for more than one year is pointed out as a measure associated with the establishment of a regime of disregard of deductibility, for purposes of determining taxable profit of such companies, of charges of a financial nature directly associated with the acquisition of the corresponding shareholdings – all seeking to constitute measures conducive to preventing abusive tax planning, bringing the national regime close to the Dutch model (seeking thereby to confer greater competitiveness to the national tax regime and at the same time promote the extension of the tax base)" [3].

"In other words, the objective of the regime instituted in 2003 was to offset the attribution of a benefit – the total exclusion from taxation of capital gains – with the non-concurrence of certain financial charges borne, creating an environment of neutrality between possible gains with certain assets (certain financial fixed assets) and the liability necessary to create the conditions for obtaining such gains, that is, the liability related to the acquisition of such shareholdings."[4]

"In essence, the legislator did not want two benefits to be cumulated: SGPS already saw their capital gains from capital shares remain exempt from tax; therefore, when such occurred, they could not combine with the benefit of fiscal acceptance of interest borne with financing for the acquisition of those capital shares."[5]

As doubts were raised regarding the interpretation of certain aspects of the fiscal regime applicable to SGPS, provided for in the then article 31 of the EBF, the IRC Department sanctioned the following understanding, through the issuance of Circular 7/2004, from which we highlight the following paragraphs for the interest they have in the present case:

"(...) Temporal application of the new regime

1. Item 5 of article 38 of Law no. 32-B/2002, for its part, prescribes that 'the amendment introduced in article 31 of the EBF applies to capital gains and losses realized in tax periods that begin after 1 January 2003, without prejudice to the continuation of application, with respect to the positive difference between capital gains and losses realized before 1 January 2001, of the provisions of paragraphs a) and b) of item 7 of article 7 of Law no. 30-G/2000, of 29 December, or, alternatively, item 8 of article 32 of Law no. 109-B/2001, of 27 December.'

2. Thus, with respect to the scope of temporal application of the new regime and applicable to financial charges borne in tax periods begun after 1 January 2003, even though they relate to financing obtained before that date.

Tax year in which corrections of financial charges should be made

1. With respect to the tax year in which financial charges should be disregarded as costs, for tax purposes, the correction shall be made in the tax year to which they relate, of the tax correction of those that were borne with the acquisition of shareholdings that may be susceptible to benefiting from the special regime established in item 2 of article 31 of the EBF, regardless of whether all conditions for the application of the special regime of taxation of capital gains have already been met. Should it be concluded, at the moment of disposal of the shareholdings, that all requirements for application of that regime are not met, the financial charges that were not considered as costs in prior tax years shall be considered as fiscal costs in that tax year.

Method to be used for purposes of allocating financial charges to shareholdings

1. As for the method to be used for purposes of allocating financial charges incurred to 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 the same 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 SCR should be allocated, first, to loans remunerated by them granted to participated companies and to other investments generating interest, allocating the remainder to the remaining assets, in particular shareholdings, in proportion to their acquisition cost. (...)"

A2) Regime for taxation of SGPS as of 1 January 2014

Between 2012 and 2014 successive legislative amendments succeeded in the area of taxation of companies.

With relevance to the case at hand, the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), revoked article 32 of the EBF. Article 210 of Law no. 83-C/2013, of 31 December (State Budget Law for 2014), under the heading "Repealing provision in the context of the Tax Benefits Statute" merely provided the following: "The following are revoked: article 32, items 1 and 2 of article 32-A and items 4 to 7 of article 41, article 42 and paragraph b) of item 5 and items 9 to 11 of article 60 of the EBF, approved by Decree-Law no. 215/89, of 1 July."

In the Report of the Ministry of Finance on the State Budget for 2014 no notes justifying the revocation of the taxation regime of SGPS are found, 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 a diametrically opposite scope, the adoption of the new participation exemption regime came to render redundant, from the perspective of the Reform Commission, various special fiscal regimes currently in existence. For this reason, the elimination of the following regimes is proposed: (...)

c) since the new regime also consumes the fiscal regime provided for SGPS, and given that these have not succeeded in achieving the objective originally proposed to establish themselves as vehicles for fiscally competitive investment on the international plane, the elimination of article 32 of the EBF is proposed, further recommending that the legal-corporate regime of these entities be extinguished, today provided for in Decree-Law no. 495/88, of 30 December; for reasons of identical nature, it is deemed appropriate the revocation of article 32-A (venture capital company and venture capital investors) of the same EBF; (...).

Fiscal expenditure arising from the exclusion of taxation applicable to capital gains and 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 its respective Chapter f., will result in the transposition to the IRC Code of a model of taxation of income from capital shares that maintains, in essence, the advantages that the Tax Benefits Statute granted to this type of entities.

Furthermore, it is the understanding of the Commission that the elimination of this regime would not result in the capture of an equivalent amount of fiscal revenue, in that, in its absence, a large number of operations that benefit from it would not be undertaken, or would be by means that, using alternative configurations, would produce identical results.(...)"

The reform of the IRC came to be included in Law no. 2/2014, of 16 January, which came to add to the IRC Code article 51-C, which provides for a regime of disregard of capital gains and losses realized with the onerous disposal of shareholdings by resident companies, verified certain requirements, applicable to all types of companies, SGPS or not.

As results from the Report of the IRC Reform Commission, the elimination of the SGPS regime was always related to the entry into force of the participation exemption regime, which is why the interpreter cannot disconnect the two legislative events, the revocation of the regime of taxation of SGPS and the introduction of the participation exemption regime provided for in the new article 51-C of the IRC Code. This is especially so from the perspective of the continuity of the regimes excluding the taxation of capital gains and losses of shareholdings. As far as financial charges are concerned, the revocation of article 32 of the EBF implies the application to SGPS of the regime for deduction of financial charges provided for in articles 23 and 67 of the IRC Code.

That is, with the revocation of article 32 of the IRC Code, SGPS, in particular C... SGPS SA began to benefit from a regime of:

• non-subjection to taxation of capital gains and losses of shareholdings provided for in article 51-C of the IRC Code;

• deduction of financial charges in accordance with the regime of general deductibility of charges indispensable for activity subject to tax, provided for in article 23, but with the limitations provided for in article 67 of the IRC Code.

With relevance to the case at hand it is important to highlight that no transitional provisions were foreseen for the situation of revocation of fiscal benefits, unlike other situations of revocation and legislative amendment, which received the attention of the legislator.

In fact, in article 12 of Law no. 2/2014, of 16 January, the legislator addressed some effects of the current requirements of application of article 51-C of the IRC Code with respect to pre-existing situations:

"3 - The provision of article 51-C of the IRC Code, as reworded by this law, is applicable to the part of the positive difference between capital gains and losses realized before 1 January 2001, still not included in taxable profit in accordance with the provisions of paragraphs a) and b) of item 7 of article 7 of Law no. 30-G/2000, of 29 December, or item 8 of article 32 of Law no. 109-B/2001, of 27 December, when the reinvestment has been realized, within the respective legal period, in the acquisition of shareholdings. (...)

12 - For purposes of calculating the percentage referred to in item 4 of article 51-C of the IRC Code only real property acquired on or after 1 January 2014 shall be considered. (...)

14 – The new period provided for in articles 14, 51, 51-A, 51-C and 91-A of the IRC Code, as reworded by this law, applies to shareholdings held on the date of entry into force of this law, as well as to shareholdings that come to be acquired at a later time, computing in the count of such period the period that elapsed until that date." (underlined).

Recall the transitional provision of Law no. 2/2014, of 16 January, transcribed above, in which the legislator addressed the application of the new law to pre-existing situations.

Thus, in the case of application of the new participation exemption regime, the legislator came to determine that the new period for holding shareholdings would apply to shareholdings held on the date of entry into force of this law (and to those acquired subsequently), with the period of holding that had already elapsed being relevant until the date of entry into force of the new law.

Therefore, the legislator was not unaware that the entry into force of the Reform of the IRC Code could have effects on pre-existing legal relationships, which began to produce effects under the old law that extended into the domain of the new law. Yet, even so, in the case of revocation of article 32 of the EBF the legislator chose not to safeguard any effects.

Similarly, the legislator had also established a transitional period for the application of the limit to the deduction of financial charges (70% in 2013, 60% in 2014, 50% in 2015, 40% in 2016 and 30% in 2017).

Impact of the revocation of article 32 of the EBF with respect to financial charges incurred between 2008 and 2013

As we have seen, in the case sub judice, C... SGPS was between 2008 and 2013 covered by the regime provided for in article 32 of the EBF, under which the following would be disregarded:

i) capital gains and losses realized with the disposal of shareholdings held for more than one year (among other conditions);

ii) financial charges (financing interest) incurred with the acquisition of such shareholdings.

As results from the facts given as proven, C... SGPS which, on the date of the self-assessments of IRC of 2008 to 2013, inclusive, was an SGPS, having not changed its legal form, was, in accordance with the provisions of article 32 of the EBF, subject to a special taxation regime, which allowed it to benefit from non-taxation at the IRC level of possible capital gains, but which also did not permit the deduction of capital losses, nor of financial charges incurred with the acquisition of those same shareholdings.

With revocation of the fiscal regime of SGPS by the State Budget Law for 2014, the Claimant seeks to deduct the charges incurred between 2008 and 2013, in the model 22 declaration for 2014. To do so, it avails itself, among other things, of the administrative interpretation set forth in the final part of paragraph 6 of Circular 7/2004 and of the provisions of article 12 of the Civil Code.

B.1) On the non-application to the case at hand of the provision of item 6 of Circular no. 7/2004

First, regardless of the legal value of said circular, the situation of the case does not fall within the preview of the provision of paragraph 6 of said Circular, in particular, of the second part, the content of which, let it be recalled, is as follows "(...) "Should it be concluded, at the moment of disposal of the shareholdings, that all requirements for application of that regime are not met, the financial charges that were not considered as costs in prior tax years shall be considered as fiscal costs in that tax year."

In fact, the Respondent is correct in the sense that the revocation alone of the fiscal regime of SGPS cannot be equated with the situation of failure to meet requirements for the application of the regime excluding the taxation of capital gains provided for in article 32, item 2, of the EBF, nor constituting, accordingly, a requirement for the disapplication of article 32, item 2, of the EBF with respect to facts occurring during its validity.

It should be emphasized that one of the conditions required for the application of said provision is "the moment of disposal of the shareholdings," a condition relevant given the inseverable binomial underlying article 32, item 2, of the EBF, between non-deductible financial charge/realization of exempt capital gains.

In the case at hand that binomial does not exist. There are only non-deductible financial charges, since the Claimant will not have disposed of the financial shareholdings by that date. Consequently, the essential condition on which the application of item 6 of Circular 7/2004 depends is not met: disposal of financial shareholdings that could benefit from the regime of item 2 of article 32 of the EBF by 2013.

Moreover, the assumptions on which the Arbitral Award no. 754/2016-T, invoked by the Claimant in its arguments, are not transposable to the case at hand.

In fact, in this case, the arbitral tribunal ruled in the sense that a company could have considered as an expense in the fiscal year 2013 financial charges incurred with the acquisition of shareholdings, which it had disregarded in the fiscal years 2003 to 2012, insofar as it ceased to be an SGPS, as of the fiscal year 2013, inclusive. Thus, it concluded that in that fiscal year it was no longer possible to be taxed according to the regime provided for in article 32, item 2, of the EBF.

To this end, the following can be read in the mentioned Award: "(...) The doctrine of said Circular, although referring to the moment of disposal as that in which one can conclude on the verification or not of all requirements for application of the regime should be understood, by declarative interpretation, as admitting the application of such understanding to situations in which one can conclude, before the moment of disposal, that the regime can no longer be applied, since what is relevant to enable the deduction of the charges is the sure conclusion that the requirements for application of that regime are not met.

Therefore, it is to be concluded, in consonance with the understanding to which the Tax Administration is bound, that all financial charges incurred between 2003 and 2012, inclusive, with the acquisition of capital shares held for at least one year should be relevant as expenses of the fiscal year 2013, the fiscal year in which it is ascertained 'that all requirements for application of that regime' are not met and therefore, 'the financial charges that were not considered as costs in prior tax years shall be considered as fiscal costs in that fiscal year.'

For the foregoing it is not the case that consolidation occurs in the legal order of the charges increased by the Claimant in the fiscal years 2003 to 2011, nor their disregard in the fiscal year 2013 contends with the principle of certainty and legal security that results from the principle of the democratic Rule of Law, proclaimed in article 2 of the CRP.

Rather, what would contend with that principle, from the perspective of protection of confidence, would be not to apply the regime provided for in said item 6 of the Circular, to taxpayers who acted in consonance with the understanding that the Tax Administration decided to adopt, as to the possibility of deducting charges when it came to be verified that the regime referred to could not be applied. (...)

In truth, the rule applicable to the generality of companies that are not SGPS is that of deductibility of all financial charges, in accordance with paragraph c) of item 1 of article 23 of the CIRC, in the wording prior to Law no. 2/2014, of 16 January. Therefore, nothing prevents the Claimant, precisely because it ceased to be an SGPS in 2013, from being able to deduct in that fiscal year the financial charges which it did not deduct in prior fiscal years, by reason of having adopted the understanding adopted by the Tax Administration in point 6 of said Circular. In fact, the non-deductibility of financial charges provided for in the final part of item 2 of article 32 of the EBF did not constitute a 'fiscal benefit' of which SGPS enjoyed, being rather a penalizing taxation regime, when compared with the general regime for deduction of financial charges. In any event, ceasing to be SGPS, it has the right to deduct financial charges incurred with the acquisition of shareholdings, in accordance with paragraph c) of item 1 of article 23 of the CIRC. (...)".

The mentioned Award, while not failing to highlight as equally relevant the moment of disposal of shareholdings, concludes that, in that case, one was dealing with an equatable situation, as, the company in question having ceased to be SGPS, one could conclude that "before the moment of disposal, that the regime can no longer be applied, since what is relevant to enable the deduction of the charges is the sure conclusion that the requirements for application of that regime are not met."

In this sequence, the company having ceased to be an SGPS and passed to the general regime for taxation of companies, before the entry into force of the regime of participation exemption, the tribunal found basis to presume with certainty that before the moment of disposal the regime of SGPS could no longer be applied to it.

However, even should one transpose to the case at hand that case law, by agreeing with it, the truth is that there is no parallelism whatsoever between the situation of the Award handed down in case no. 754/2016-T and that of the case at hand.

In the case of the Award supra mentioned there was at issue, as we have seen, an SGPS that ceased to be one, which implied the transition from a special taxation regime to the general regime. It is thus a situation characterized by the mutation of taxation regimes, it being incumbent on the interpreter the responsibility of, interpreting an unchanged regime, subsuming a particular case to it.

Differently, in the case at hand, there is continuity, both as to the form of company and as to the regime applicable characterized, in essence, by the generalization of a regime that was previously the specific one of SGPS.

In fact, while in the case covered in the Award relating to case no. 754/2016-T, the company in question having ceased to be SGPS ceased to be able to benefit in particular from the exemption of capital gains, in the case at hand, as we have seen, the regime denominated participation exemption maintains in essence the regime of SGPS enshrined in article 32, item 2, of the EBF generalizing it to other companies.

In sum, when an SGPS ceased to be SGPS and other companies could not benefit from the exemption of capital gains (which is the precedent being invoked) it could make sense to settle accounts.

The same would be said in the event the regime had been suppressed.

But it happens that, in the case at hand, the regime was not suppressed, but rather extended generally to companies whatever the legal form adopted.

Given the foregoing, regardless of whether one agrees or not with the case law upheld, the truth is that, in the case at hand, the circumstances of fact and law fail that allowed the tribunal in the above-mentioned award to presume that the assumptions for application of the administrative provision of item 6 of Circular 7/2004 were met.

B.2) Legal value of circulars

Circular 7/2004, like any other, is not, in general, binding on the Courts.

On the role of circulars issued by the Tax and Customs Authority in the Portuguese fiscal legal order, article 68-A of the LGT addresses, which establishes that:

"1 - The tax administration is bound by the generic orientations contained in circulars, regulations or instruments of identical nature, regardless of their form of communication, seeking the uniformization of the interpretation and application of tax rules. (...)"

From this it results that circulars have binding effectiveness only for the AT and merely informative effects for taxpayers.[6]

As the STA already decided in case no. 0364/2014, dated 21-06-2017, regarding the judgment of unconstitutionality on Circular 7/2014, "(...) The problem of the normative relevance of the Circulars of the Tax Administration was already raised and examined in the Awards of the Constitutional Court nos. 583/2009 and 42/14, of 18.11.2009 and 09.12.2014, respectively, and that Court decided, with which we agree, that the prescriptions contained in the Circulars of the Tax Administration, regardless of their persuasive irradiation in the practice of taxpayers, do not constitute rules for purposes of the system of control of constitutionality entrusted to the Constitutional Court.

As was underlined in that first judgment (Award 583/2009) "[...] These acts, in which the 'circulars' stand out, emanate from the power of self-organization and the hierarchical power of the Administration. They contain generic service orders and it is for this reason and only within their subjective scope (of the hierarchical relationship) that observance is assured. They incorporate future action guidelines, transmitted in writing to all subordinates of the administrative authority that issued them. They are modes of standardized decision-making, assumed to rationalize and simplify the functioning of services. Although indirectly they may protect the legal security of taxpayers and ensure equal treatment through uniform application of the law, they do not regulate the matter they address in confrontation with these, nor do they constitute a decision rule for the courts. The fact that the Tax Administration is bound (item 1 of article 68-A of the General Tax Law) to the generic orientations contained in circulars that are in force at the moment of the tax fact and has the duty to proceed with the conversion of binding information or other types of understanding provided to taxpayers into administrative circulars, in certain circumstances (item 3 of article 68 of the LGT), does not alter this perspective because it does not transform that content into a rule with external effectiveness. It is true that the administered person can invoke, in confrontation with the administration, the content of the publicly disclosed administrative orientation and, if appropriate, enforce it before the courts, even at the sacrifice of the principle of legality (see Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law, commented and annotated, 3rd ed., p. 344). But it is under the principle of good faith and legal security, not by its normative value, that the content of circulars prevails. The administered person only complies with them if and as long as it is convenient for them, for the same reasons that justify that they may invoke individual binding information that favors them (article 59, item 3, paragraph e) and article 68 of the LGT)."

In the same sense, case no. 379/2017-T of this arbitral tribunal, dated 22-11-2017: "Circulars have binding effectiveness only for the Tax and Customs Authority, having external effects only of an informative nature for taxpayers, who may know in advance what understanding will be adopted by that authority. (...) As the issuance of circulars interpreting legislative provisions with internal effectiveness is not illegal, the illegality of acts in tax matters that apply the understandings adopted therein cannot derive from their application, in itself, but only from the illegality of such understanding in the face of the legal regime applicable provided for in the interpreted legislative text."

Having made this framing, only the AT is bound by the content of Circular 7/2004, in particular the administrative provision item 6 thereof.

From which it follows that neither private parties nor courts are bound by the administrative interpretation that Circular 7/2004 makes of the provisions of item 2 of article 32 of the EBF.

In sum, as results from the case law of the superior courts, the binding nature of the Circular is merely internal, so that, should the interpretation to which one has arrived be applicable, the same would have to result from the general rules of interpretation and application of law in time, in particular the provisions of article 12 of the LGT and article 12 of the Civil Code, and not from the Circular.

Only will this not be the case, in accordance with uniform case law and doctrine, if the observance of the circulars by the administered conduct to a situation violating the principles of good faith, confidence and legal security. The possible relevance of circulars derives, in this manner, not from its intrinsic normative value, but rather from the independent violation of legal-constitutional principles.

Now, in the case it is not apparent that the SP can benefit from the invocation of such principles.

In fact, it is important to note the numerous case law, whether from the CAAD or from the state Courts, on the illegality of the administrative provisions of said circular.

Second, neither is there any situation of possible violation of the principles of good faith, legal security and protection of confidence, since it cannot be said that the participation exemption regime breaks in an innovative manner with the previous regime, which was in force for SGPS, embodied in the rules of article 32 of the EBF.

Quite the opposite.

In truth, the regime of non-taxation of capital gains continues, in essence, to be applicable to SGPS, as - since 2014 - to other companies. It is not, therefore, because there has been revocation of the regime of article 32 of the EBF that the exemption of capital gains ceases to be able to be applied. As has already been demonstrated, we can say that with that regime the legislator merely, in essence, generalized to all companies a regime that was previously specific to SGPS, with the maintenance of the exemption from taxation of capital gains, provided that the other requirements of article 51-C of the CIRC are met and deduction of charges under the general rule of article 23 of the CIRC. Thus, any transfer of shareholdings that occurs during its validity receives fiscal treatment practically identical, if not more favorable at the level of deduction of charges, than it would receive should article 32 of the EBF still be in force.

What the principle of protection of confidence requires is that in the event it is not possible to obtain the advantage (which will only be known at the moment of disposal of the shareholdings - or, e.g., at the moment of the disappearance of the entities to which they relate) one should then – but only then - take into account the financial charges incurred in their acquisition.

Thus, at most, it appears plausible that the Claimant may come to be able to deduct the financial charges related to financial shareholdings, not deducted in the fiscal years 2008 to 2013, in the fiscal year in which it disposes of the shareholdings, should it not come to benefit, ultimately, from an exemption of capital gains provided for in article 51-C of the IRC Code. Only then could one contemplate the invocation in favor of the Claimant's claim of the constitutional principles of equality, taxation on actual profit and protection of confidence.

In fact, this is the procedure recommended in the Circular which, by disregarding fiscally the financial charges in the fiscal year in which they are incurred and deferring their deduction to the moment of disposal of the shareholdings, is nothing more than "determining" the "fiscal allocation" of the financial charges to the acquisition value of the financial shareholdings, such that, at the moment of disposal, should there be exemption, there is no correction to be made (the benefit corresponds to the capital gains, deducted from the allocated financial charges). Should there be subjection to tax, for determination of the fiscal capital gains, the acquisition value of the capital shares should include the value of the allocated financial charges, which corresponds to their acceptance as an expense in the fiscal year of disposal (the taxation corresponds to the capital gains, deducted from the allocated financial charges).

C) On the omission of legal basis for the deduction in 2014 of financial charges not deducted from 2008 to 2013

Beyond those invoked, the Claimant's claim faces still other obstacles.

As has been stated, in the case at hand the new law applies, which is precisely the provision of article 51-C of the IRC Code, which should apply to the Claimant should it have realized capital gains or losses with disposal of the shareholdings described in the file as of 2014. With respect to financial charges incurred as of 2014, the provisions in force as of 1 January 2014 shall also apply, that is, deduction of financial charges under the general rule of article 23 of the IRC Code, with the limitation provided for in article 67 of the IRC Code.

It is true that with respect to financial charges incurred until 2014, only the possibility of capital gains not being realized will allow, as will be seen below, deduction of the expenses incurred, but that is an uncertain possibility (dependent on the devaluation of the shareholdings held in 2014), and it is exactly the same situation in which the Claimant would be if the legislator had not altered the fiscal regime. Having done so in a manner that conferred additional advantages on it (as of 2014 it can benefit from the exemption of capital gains and the deduction of financial charges, on general terms) it makes no sense to seek to invoke for the past an argument that, by legislative option, only applies to the future.

It should be said, moreover, that granting the Claimant's claim would be like admitting the SP's availability to choose the year of deduction of charges, outside the legal framework, whether prior or current.

On the other hand, it would also place the Claimant in a more favorable situation than the one that resulted from the regime of article 32, item 2, of the EBF for SGPS.

In truth, within the framework of article 32, item 2, of the EBF, SGPS were only permitted, at the moment of disposal of the shareholdings, to deduct the charges (until that moment incurred) with the acquisition of the same, should the advantage obtained (the exemption of capital gains) not be able to be obtained.

Now what the Claimant seeks is, without disposing of the shareholdings, to deduct forthwith the charges incurred in the past with the acquisition of shareholdings, within a legal framework in force that guarantees it simultaneously the exemption from taxation of possible capital gains that it may come to obtain.

Which would mean favoring the Claimant in relation to all other SGPS that have not formulated an identical claim.

Moreover, contrary to the Claimant's claim the regime now applicable as of 1 January 2014 does not violate the principle of equality.

Let us see.

All SGPS that transition from one regime to the other while such (i.e., that were SGPS before and after such change of regime) are in the same situation as the Claimant. All, therefore, will have seen their taxable profits increased to the extent of the non-deduction of charges with the acquisition of shareholdings and benefited from the exemption of capital gains.

For other companies deduction of financial charges was accepted, but they did not benefit from the exemption of capital gains.

It is true that with respect to shareholdings in portfolio, which will benefit from exemption in a future transfer, whether or not held by SGPS, the financial charges incurred for their acquisition were not deducted by SGPS and were deducted by other companies.

However, the possibility of, on the pretext of a change of regime, now permitting what was not permitted before – which is what the Claimant claims – would create a situation of retroactive elimination of part of the SGPS regime, precisely the one that is unfavorable to SGPS, that is, the disregard of financial charges.

That is: SGPS had, between the entry into force of the State Budget Law for 2003 and the entry into force of the State Budget Law for 2014, a special fiscal regime in the taxation of capital gains resulting from disposal of shareholdings. That regime had an advantage (exemption of capital gains) and a disadvantage (non-deductibility of financing costs for the acquisition of such shareholdings) in relation to what was applied to other companies. As of 2014, that regime became the rule (with minor adjustments), which is why it was not SGPS that passed to the regime of the remaining companies (which, admittedly, would imply added care in the transition of regimes), but rather the remaining companies that passed to the regime of SGPS.

SGPS remained, therefore, where they had always been, and it does not appear that, now the financial charges disregarded throughout the validity of the regime and which are "allocated" to the acquisition value of financial shareholdings in portfolio should now be accepted fiscally, without there being legal basis for such.

Such a measure, were it to be adopted, would fall within the legislative discretion of the legislator.

Finally, it is necessary to address a problem, which, in essence, is what the Claimant invokes: in conformity with the regime previously in force, and in the expectation of avoiding a future taxation on capital gains, the Claimant ceased to deduct financing charges with the acquisition of such shareholdings that increased the payment of taxes which it paid.

The relevant question is whether the "cost" of formation of a future advantage should be returned to it. It appears obvious that the answer will depend on whether the advantage can still be conferred on it or not. If it incurred costs to obtain a certain advantage that the legislator later denied it, it is entirely just that it be compensated for those costs: another thing would be to violate the most elementary principles of the Rule of Law, if it is not to legitimize legal fraud. If it incurred certain costs and the advantage it intended to obtain with them continues to be due to it, then it seems equally obvious that the decision to dispense it from those costs falls entirely to the legislator.

Therefore, it is to be concluded that, with respect to financial charges incurred with the acquisition of shareholdings and not deducted in the fiscal years 2008 to 2013, inclusive, in accordance with the provisions of item 2 of article 32 of the EBF, the same would only be deductible in 2014 had there been disposal of its shareholdings without capital gains, or had there been an express rule that permitted such deduction.

One may further retort, returning to an argument already used, that the Claimant incurred a cost to obtain an advantage, and that advantage that the legislator continues to recognize it is now extensible to all companies, even those (those that do not adopt the form of SGPS) that did not incur any cost to obtain it. Now, the companies that did not incur the costs imposed on SGPS (non-deductibility of financing costs for the acquisition of shareholdings, with the corresponding increase in taxes paid) also did not have, during the more than a decade in which the divergence of regimes lasted, the possibility of benefiting from the correlate advantage (exemption of capital gains on disposal of shareholdings). To which must be added that it is part of the trend of economic evolution that the first beneficiaries of an advantage pay more for it than the subsequent beneficiaries, when it, finally, becomes generalized.

As mentioned above, the legislator having not provided a transitional rule that safeguarded the effects of the revocation of article 32 of the EBF, with respect to the deduction of previously incurred financial charges, the same cannot seek to deduct the said financial charges in their entirety in 2014.

Considering the general principle of interpretation of law established in item 3 of article 9 of the Civil Code, the interpreter must presume that "(...) the legislator enshrined the most appropriate solutions and knew how to express its thought in adequate terms."

In fact, the legislator provided for transitional rules for the situations described above of the entry into force of new law, so that, had it wanted to safeguard the deduction of the totality of financial charges in the year 2014, it would have provided for it in the Law that revoked article 32 of the EBF or, at the limit, in the Law of the IRC Reform.

Therefore, not having established a transitional rule on financial charges not deducted under the old law, the interpreter cannot create such transitional rule, admitting the deduction of said financial charges, in their entirety, in the fiscal year 2014.

Especially since the Claimant merely alleges that the requirements for exemption of capital gains are diverse in article 32 of the EBF and in article 51-C of the IRC Code. The Claimant does not allege nor prove in which shareholdings it did not benefit/will not benefit from the regime of exemption of capital gains provided for in article 51-C of the IRC Code, because the requirements of the regime that were not required by article 32 of the EBF are not met.

The Claimant repeats itself seeking that the Arbitral Tribunal recognize the possibility of deduction in 2014 of the totality of financial charges incurred with shareholdings and not deducted in the fiscal years 2008 to 2013, inclusive, without the verification of the condition legally imposed (disposal of the shareholdings) and regardless of the fiscal regime of such disposal.

Under these circumstances, granting the Claimant's claim would be to admit the dissociation, for the past, between the non-deducted financial charges and the exempt capital gains, a solution that finds no support in the previous regime nor was safeguarded by the current one.

Terms in which, for all the foregoing, it is held that the present request for arbitral ruling is without merit, with the consequent maintenance in the legal order of the act of dismissal of the gracious complaint and the act of self-assessment of IRC, in the part impugned, relating to tax year 2014.

D. Questions Prejudiced

As the claim is denied it is prejudiced the analysis of the questions of constitutionality raised by the Respondent with respect to the interpretation made by the Claimant of the provisions of article 32, item 2, of the EBF in particular as to the possible violation of the principles of tax equality and the principle of contributory capacity inherent in articles 13, 103 and 104, item 2 of the Portuguese Republic Constitution.

E. Compensatory Interest and Reimbursement of Amount Paid

As the request for arbitral ruling is to be held without merit, the requests for compensatory interest and reimbursement of the amount paid are likewise without merit.

V. DECISION

Terms in which it is decided in this Tribunal:

• To hold the request for arbitral ruling without merit, maintaining the act of dismissal of the gracious complaint and the tax act of self-assessment of IRC, in the part impugned, relating to tax year 2014;

• To absolve, accordingly, the Respondent of the requests formulated;

• To condemn the Claimant in costs.

V. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 1,058,232.66 (one million, fifty-eight thousand, two hundred and thirty-two euros and sixty-six cents), in accordance with article 32 of the Code of Procedure in Administrative Courts and 97-A of the CPPT, applicable by virtue of the provisions of article 29, item 1, paragraphs a) and b), of the RJAT, and article 3, item 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

VI. COSTS

Costs to be borne by the Claimant, in the amount of € 14,688.00, in accordance with Table I of the RCPAT, and in compliance with the provisions of articles 12, item 2, and 22, item 4, both of the RJAT, as well as the provisions of article 4, item 4, of the cited Regulation.

Notify.

Lisbon, 17 September 2018.

The Arbitrators,

(Fernanda Maçãs)

(Cristina Coisinha)

(Vera Figueiredo)

[1] Article 12 of the Civil Code

[2] Circular no. 7/2004, of 30 March

[3] See the extensive analysis of this legislative process in Award no. 42/2014 of the Constitutional Court.

[4] Moura, Luís Graça, "The 'New' Taxation of Income from SGPS: Reflections on the Taxation of Capital Gains within the Framework of the Principle of Legal Security", Legal Review of the Universidade Portucalense Infante D. Henrique, no. 10, 2003, p. 122.

[5] Case no. 12/2013-T of the CAAD.

[6] See Arbitral Decision in case no. 379/2017-T, of 22-11-2017, available at https://www.caad.org.pt/