CAAD 762/2015-T: IRC Transfer Pricing Corrections on Royalties to Non-Residents

ARBITRAL DECISION

I. Report

A…, S.A., collective person no.…, with registered office at Rua do…, no.…, …, came, under Article 2, No. 1, paragraph a), and Articles 10 et seq. of the Legal Regime for Tax Arbitration, provided for in Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter abbreviated as "RJAT") and Articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, to submit a request for arbitral pronouncement on the legality of the additional assessment notice No. 2012…, of 2012/06/03, relating to IRC for the fiscal year 2009.

The Tax and Customs Authority is the Respondent.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 21-12-2015.

The Claimant did not proceed to appoint an arbitrator, whereby, in accordance with paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of RJAT, the President of the Ethics Committee of CAAD appointed the signatories, Councillor Maria Fernanda dos Santos Maçãs (President Arbitrator), Prof. Dr. Daniel Taborda and Dr. Cristina Aragão Seia, as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable timeframe.

On 16-02-2016, the parties were duly notified of this appointment and did not express any wish to challenge the appointment of the arbitrators, in accordance with the combined terms of Article 11, No. 1, paragraphs a) and b) of RJAT and Articles 6 and 7 of the Ethics Code.

Thus, in conformity with the provision in paragraph c) of No. 1 of Article 11 of RJAT, the Arbitral Tribunal was constituted on 02-03-2016.

Duly notified, the Tax and Customs Authority submitted a response in which it defended the lack of merit of the request, defending itself solely through opposition.

On 27-6-2016, the hearing referred to in Article 18 of RJAT took place. At it, the representative of the Claimant, at the request of the tribunal, clarified that the subject-matter of the dispute is that contained in paragraphs a), b) and c) of Article 8 of the request for arbitral pronouncement, which was not opposed by the Respondent. Subsequently, the party testimony of the representative of the Claimant, B…, took place and the examination of the witnesses called by it, C… and D…. The date of 2 September was set for the delivery of the final decision.

The parties submitted written pleadings, pronouncing on the evidence produced and reiterating and developing their respective legal positions.

The Claimant seeks a declaration of illegality and consequent annulment of the additional assessment notice No. 2012…, of 2012/06/03, relating to IRC for the fiscal year 2009, from which results a value payable of €1,278,260.70, resulting from corrections made by the Tax Authority to the taxable profit/tax loss declared, alleging in summary:

1. With reference to the fiscal year 2009, the company E…, SA (hereinafter referred to as E…), a company that is part of a group of companies of which the Claimant is the parent company, paid to the company F…, Limited (hereinafter referred to as F…), as royalties, the total amount of €1,158,461.91.

2. Of this amount, €965,039.99 relates to the licensing and use by E… of the trademarks G…, H…, I… and J…, and €193,421.92 relates to the licensing and use by E… of the trademark K….

3. With regard to the royalties of the trademarks G…, H…, I… and J…, the Tax Authority considers that they are not a fiscally deductible cost because they are of an excessive amount.

4. The Tax Authority's reasoning for the abnormality of the value of these particular Royalties is divided into several aspects: the non-presentation of the document of transfer of the trademarks to F… by E… and non-presentation of the assignment documents; absence of INPI records; the involvement of the company L…, S.A. with Industrial Property Agents; bank transfers; and costs with A&P (Advertisement & Promotion).

4.1. Regarding the non-presentation of the assignment documents

4.1.1. As regards the documents of transfer of the trademarks to F…, neither the Claimant nor E… could have in their possession (and thus present) these documents since it was not these companies that transferred the trademarks in question to the company F….

4.1.2. The Tax Authority considered the value of the Royalties paid excessive in relation to the value of alienation of the trademarks to the holding company of the group (unit amount of two thousand escudos).

4.1.3. Now, the assignment documents do not evidence any alienation of the proprietary rights of the trademarks, but merely the transfer of the registration of the trademarks with INPI.

4.1.4. In fact, F… has been the owner of the trademarks since 1994: from the documents attached it appears that, in 1976, the trademarks of the M… family were transferred by the company N… (which subsequently changed its corporate name to O…) to the company P…, with registered office in the Channel Islands, Jersey, with the latter company transferring, in 1992, the trademarks to the company Q…, which in turn, in 1994, transferred them to F….

4.1.5. With regard to the trademarks of the R… family, the company F… has been their owner since 1988, as appears from the documents attached, not having acquired them in 1996, as the Tax Authority contends.

4.1.6. With regard to the trademarks J… and I…, F… has been their owner since, at least, 1993.

4.1.7. The trademarks were already registered in the name of F… in other countries long before 1996.

4.1.8. If the Tax Authority intends to base the correction at issue on the assignment documents, which are only relevant for the purposes of sales made with these trademarks in Portugal, then it would only make sense to disregard the royalties paid by the Claimant in relation to these trademarks sold in Portugal.

4.1.9. The price mentioned in the assignment documents relates only to the national trademarks registered with INPI, so the mismatch would always have to be assessed by comparison only between that price and the value of the royalties paid on sales of these trademarks in Portugal.

4.1.10. The parties when they signed the assignment documents did not intend to "transfer" the trademarks, especially since the trademarks had long since been transferred, but merely to permit that their registration be effected in the name of F….

4.1.11. In the Tax Inspection Report the Tax Authority emphasizes the fact that the Claimant did not present the documents from which it can be demonstrated when F… acquired the trademarks, nor for what value they were transferred: E… did not present the documents because it does not have them; E… neither transferred nor had any involvement in the transfer of the trademarks to F….

4.2. Absence of INPI Records

4.2.1. With regard to the absence of INPI Records, it is not understood in what terms the same permits a conclusion that the value of royalties paid is or is not of an excessive amount or even that the operations are not effective.

4.2.2. INPI registration merely allows validation of whether the trademarks are registered and who is the holder of that registration.

4.2.3. Trademarks exist and can be economically exploited independently of their registration.

4.2.4. INPI registration results only in the legal means which the economic agent has at its disposal to obtain legal protection as to the exclusive economic exploitation of the trademark in Portuguese territory.

4.2.5. The fact that a trademark is not registered does not mean that it does not exist, nor does it mean that it does not have an owner and that that owner does not have the right to exploit it economically, in particular through its licensing, and thereby derive profits therefrom, namely, receive royalties.

4.2.6. Even if there are some trademarks that are not registered with INPI, or are not registered in the name of F…, this does not mean that the value of royalties paid is not "normal", or even that these do not correspond to real operations.

4.2.7. The non-registration of the trademarks means only and simply that F… cannot invoke in Portugal the right to use and exploit these trademarks exclusively on the basis of industrial property rights.

4.2.8. What the Tax Authority stated in the Dismissal Order of the Gracious Complaint, namely "trademark registration gains added importance, since, through it the owner gains its exclusive use and guarantees the possibility of granting exploitation licenses in favor of third parties", is clearly not correct.

4.2.9. Furthermore, even if it were accepted (which is only conceded by mere hypothesis) that registration with INPI constitutes a sine qua non condition for concluding that the value of royalties paid is not excessive or that they correspond to effective operations, this implies that only royalties relating to the trademarks indicated by the Tax Authority, which having been commercialized in Portugal, are not registered with INPI, can be disregarded.

4.2.10. Now, the trademarks commercialized in Portugal and on which royalties were paid to F… are all registered in the name of F….

4.2.11. In any case, the absence of registration of certain trademarks with INPI, the absence of registration of trademarks in the name of F… or their expiry, do not in any way permit proving or even suggesting that the royalties paid are of an excessive amount or that they do not correspond to effective operations.

4.3. The involvement of the company L…

It is the licensed companies that handle matters relating to the registration of trademarks with INPI, as it is more practical and also for geographical and language reasons, acting always in the name and on behalf of F…, which bears the corresponding costs.

4.4. Bank transfers

4.4.1. The Tax Authority questions whether the royalties paid in 2009 were indeed paid to F… because, in previous fiscal years, the company S… Limited, of the T… of Canada group, appears referred to in documents relating to bank transfers.

4.4.2. S… Limited is nothing more than a financial intermediary contracted by F…, with the function of managing the collection of its invoices.

4.4.3. Once the invoices are collected and paid, the amounts received by S… are transferred to F….

4.5. On the normality of the value of royalties and costs with Advertising & Promotion (Development and promotion)

4.5.1. With regard to the question of "normality" or the alleged "excessive" value of royalties paid, the Claimant understood that the best way to demonstrate the reasonableness (and normality) of the value of royalties paid would be through the use of the principle, rules and procedures established for transfer prices, provided for in Article 58 of CIRC (current Article 63) and in Ordinance No. 1446-C/2001, of 21 December.

4.5.2. Through the provision of Article 58 of CIRC (current Article 63), the legislator sought to ensure that transfer prices in transactions carried out between companies with special relationships with each other comply with the arm's length principle, that is, that transfer prices are identical to those which would normally be contracted and practiced in the market by entities, independent of each other, in comparable operations.

4.5.3. Following the methodology legally imposed by Article 58 of CIRC, E… demonstrated that the contracted royalty rate is within the arm's length interval, more precisely on the median of that interval, that is, that the terms and conditions of the licenses in question correspond to the terms and conditions that are normally agreed in the (free) market between independent parties in comparable circumstances.

4.5.4. Using the comparable market price method, it is found that the royalty rates practiced between F… and E…, which are always 4% on net sales of licensed trademarks, are situated exactly on the median of the arm's length interval (between 1.00%, the minimum, and 10.00%, the maximum, with the median at 4.00%).

4.5.5. Having the Claimant presented documentation in which the value practiced with the (related) entity resident in a territory subject to a privileged tax regime is justified as market-based, it does not appear that the Tax Authority has discretionary margin to effect corrections based on Article 65 of CIRC, simply disregarding the existence of this documentation.

4.5.6. Such conduct clearly violates the principle of presumption of truthfulness and correctness of the taxpayer's accounting, contained in Article 75 of LGT, given that the documentation in question forms part of the accounting records of the taxpayer – see Article 130 of CIRC.

4.5.7. The correction to the taxable matter of the Claimant by the Tax Authority, without the latter having previously demonstrated the lack of "normality" of the values practiced, is marred by a clear lack of reasoning, which should have as a consequence the annulment of the assessment.

4.5.8. The Tax Authority cannot make corrections to the taxable profit of the taxpayer based on the presumption of simulation contained in Article 65, No. 1 of CIRC, when there are special relationships and the prices practiced are properly justified.

4.5.9. With regard to promotional costs, it is clarified that E… does not directly contract any "specialized and independent" entity for the promotion of trademarks outside national territory: U…, indicated as an example by the Tax Authority, is a distributor of alcoholic beverages, a customer of E….

4.5.10. And, as is normal in the context of distribution activity, E… actually participates in expenses incurred by U… for the promotion of products (and not trademarks) which it purchases from E… (and which it sells in its retail spaces).

4.5.11. The contracts between independent entities, which provided the rates for determining the arm's length interval, also provide for a factuality (contracted) identical to that which exists between E… (licensed entity) and F… (licensor entity).

4.5.12. It is thus naturally incumbent on the licensee to bear the costs with A&P, since it seeks to promote the commercialization of its products.

4.5.13. The Claimant proved, as was demonstrated both in the response to the Tax Authority's information request and in its transfer pricing file, that the value of royalties was effectively paid by it, respects the arm's length principle and is not of an excessive amount.

4.5.14. The Tax Authority merely argued that the values of royalties were excessive in relation to the values at which such trademarks were supposedly transacted in the past (and by entities other than E…), when, such transactions having occurred in a distant past, they are irrelevant for the analysis, years later, of the licenses in question.

4.5.15. What should be relevant for determining the amount of a license is the economic right itself that is being licensed: there is no doubt that these are trademarks with undeniable projection (and economic value).

4.5.16. Furthermore, since the royalties relating to the trademarks K… are 4% just as the royalties relating to the other trademarks (G…, H…, I… and J…), it is not understood why the value of the latter are held by the Tax Authority as excessive, but not those relating to the trademark K…, whose normality is not contested.

1. As regards the trademarks associated with the denomination "K…", the Tax Authority considered that the Royalties paid cannot be accepted as a cost to the extent that they do not correspond to provably carried-out operations.

5.1. As appears from INPI records, the holder of the parent trademark with the denomination "K…" is the company V…, Lda, and the registration of the trademarks that are in the name of E…, namely "W…", "W…", could only be effected with the authorization thereof.

5.2. Therefore, the company V…, as the holder of the trademark "K…" with INPI, has the right to be compensated, and E… the obligation to compensate it, in particular through the payment of corresponding royalties for the use made thereof.

5.3. This is because the company V… licensed the use of the trademarks "K…" to the company F…, which in turn sub-licensed them to the company E…, through a contract executed by private document, a form which, despite being that legally provided for, the Tax Authority calls into question.

5.4. It is also important to note that, in 2009, the Claimant did not sell wine with the trademarks "W…" or "W1…", which is why it also did not pay any amount as royalties relating to these trademarks.

5.5. Thus, the Tax Authority's position in disregarding the royalties paid by E…, in the amount of €193,421.92, on the basis that the trademarks "W…" or "W1…" are registered in its name, cannot stand, since the Royalties paid do not include any amounts relating to these trademarks.

5.6. It is odd that the Tax Authority, which has already recognized the fiscal deductibility of Royalties relating to K…, with the exception of those relating to the trademarks K… registered in the name of E…, in the tax inspection procedure relating to IRC of 2010, now opts here, in this dismissal of the Hierarchical Appeal, without any basis, to maintain the corrections!

5.7. The Royalties paid by the Claimant to F… are costs indispensable to obtaining profits, correspond to effectively carried-out operations and are not of an excessive value.

5.8. Therefore their disregard as a fiscal cost corresponds to a clear violation of Articles 23 and 58 (current 65) of CIRC, leading to the illegality of the additional assessment, as well as of the dismissal of the Gracious Complaint and the dismissal of the Hierarchical Appeal, and they should be annulled.

1. The corrections made by the Tax Authority in transfer pricing matters relate to the transactions established between X… Limited (X…) and E….

6.1. The method used by the Claimant in its Transfer Pricing File to assess compliance with the arm's length principle in related transactions, in particular in sales made to X…, was the Mark-up Method (MCM), complemented by the Net Profit Method (MMLO).

6.2. The Claimant did not opt for the Comparable Market Price Method (MPCM) as it understood that the same cannot be applied to the present case.

6.3. Indeed, the MPCM requires "the highest degree of comparability focusing both on the nature and other terms and conditions of the transaction and on the functional analysis of the entities involved", which does not occur in the case in question, given the differences noted and incapable of adjustment in those and other comparability factors.

6.4. In this way, the Claimant understands that it complied with the provision of No. 2 of Article 63 of the Corporate Income Tax Code (IRC), which requires the application of the method capable of "ensuring the highest degree of comparability", precisely by selecting those methods: to repeat, Mark-up Method (MCM), complemented by the Net Profit Method (MMLO).

6.5. The MCM complemented by the MMLO, using external comparables, are the methods most appropriate in the present case because, as provided in the Transfer Pricing Ordinance, in Article 4, No. 2, they constitute those (i) which are capable of providing the best and most reliable estimate of the terms and conditions that would normally be agreed, accepted or practiced in an arm's length situation, (ii) which are more apt to provide the highest degree of comparability, (iii) which have the best quality and greatest amount of information available for their adequate justification and application and, fundamentally, (iv) which imply the least number of adjustments for the purpose of eliminating the differences existing between the facts and comparable situations.

6.6. This choice was made in the understanding that, as established in Portuguese transfer pricing legislation and OECD guidance, the arm's length principle could be correctly assessed in this way.

6.6. In the view of the Tax Authority, as will be seen from what is contained in the Report, the most appropriate method is the Comparable Market Price Method (MPCM).

6.7. However, the MPCM must be rejected because, as provided in the Transfer Pricing Ordinance, in Article 6, No. 1, its adoption requires the highest degree of comparability focusing both on the nature and other terms and conditions of the transaction and on the functional analysis of the entities involved, which is clearly not the case in the present case because although there are transactions with entities independent of the same products that are transacted with X…, the operations are not similar because they do not satisfy the five comparability requirements (characteristics of the goods transacted, functional analysis and risk of transactions, contractual terms of transactions, destination markets of goods, business strategy of entities).

6.8. Having the Claimant tested and validated compliance with the arm's length principle in a contemporary file, as provided by law, the Tax Authority should have rebutted its conclusions, which it failed to do.

6.9. Added to this is the fact that the Tax Authority, in the Tax Inspection Report relating to the fiscal year 2010, recognizes that the MPCM cannot be applied to X… sales, advocating the application of the MCM, with the reason not understood why, in the Dismissal Order of the Hierarchical Appeal, it continues to insist on the application of this method.

6.10. The Claimant understands that, because it used the most appropriate analytical methodologies for the analysis of its related operations relating to sales of goods to related entities, and that from this analysis it is clear that the related parties established terms and conditions in compliance with the arm's length principle, or even above market parameters, the Tax Authority should have refrained from making any kind of correction.

6.11. Therefore the tax act is marred by a gross defect of lack of reasoning and violation of law, and therefore should be annulled.

1. Because the Claimant provided a bank guarantee with the objective of suspending the enforcement proceedings instituted by the Tax Authority for non-payment of the assessment here complained of, it comes to the same under Article 170, No. 2 and 53 of LGT requesting the respective indemnification.

For its part, the Respondent came in response to allege, in summary:

1. According to the Tax Inspection Report, the tax act in question results from the following corrections made by the Tax Authority to the income statement form 22 presented by the Claimant:

1.1. Correction to the tax result of the group, as a consequence of an increase of €2,161,967.68 to the taxable profit declared by the related company E…, resulting from:

a) Expenses, as royalties, not deductible for the purposes of determining taxable profit relating to the period of 2009, in the amount of €1,158,461.91;

b) Autonomous taxation in the context of IRC and relating to the period of 2009, in the total value of €405,461.67;

c) Adjustments in transfer pricing matters (sales for regions/territories with privileged taxation regime, clearly more favorable) in the total value of €1,003,505.77;

d) Adjustment of prior tax losses relating to the period of 2007, in the value of €2,994,780.03;

e) Correction to the tax benefits considered by E…, in the form of a tax credit (SIFIDE), in the value of €68,500.92.

1. It results from the request that the Claimant seeks annulment of the additional IRC assessment referred to above only insofar as it relates to paragraphs a), b) and c).

2. Regarding the correction relating to payment of royalties to non-resident entities subject to a more favorable tax regime

3.1. E… recorded in the fiscal year 2009 in the Account "…-…-ROYALTIES", having considered as a fiscal cost, the payment of €1,158,461.91, as royalties, to the company F… (F…), with registered office in…, Channel Islands.

3.2. From the available elements it was found that the consideration as a fiscal cost of those royalties relates to the alleged cession to E… of the use of the following trademarks which allegedly belong to the ownership of company F…:

a) "G…", "H…", "I…", "J…";

b) "K…".

3.3. The values of royalties paid to F… by E… in relation to the trademarks "G…", "H…", "I…", "J…" are revealed to be manifestly of an excessive amount, assuming an abnormal character.

3.3.1. The disregard of the fiscal cost and the respective autonomous taxation relating to royalties is based on the alienation to F… of the registrations of centennial trademarks at the unit value of two thousand escudos.

3.3.2. Under Article 59, No. 1 of CIRC, it is incumbent upon the Claimant to prove that such charges correspond to effectively carried-out operations and that they do not have an abnormal character or the amount is not excessive.

3.3.3. Now, E… failed to provide such proof, in particular never presented evidence that the trademarks in question were transferred to F….

3.3.4. The Claimant states that the trademarks subject to payment of royalties were not commercialized in Portugal, thus not being necessary their registration with INPI, attaching certificates of registrations in other countries without establishing the necessary cross-reference with the list of sales of trademarks commercialized and which were subject to payment of royalties.

3.3.5. These registrations are not sufficient to demonstrate and prove ownership or sub-licensing of the trademarks to that company, not constituting sufficient evidence to eliminate the correction at issue.

3.3.6. The Claimant states, further, that the right to exploit a trademark does not result from its prior registration with INPI, therefore the value of royalties paid by E… to F… for the use of the trademarks cannot be disregarded by the Tax Authority.

3.3.7. Now, the absence of registration implies that there is no industrial property right over the trademark.

3.3.8. Wherefore, in light of what is provided in No. 1 of Article 59 of the IRC Code such costs are not deductible for the purposes of determining taxable profit, with further autonomous taxation in the context of IRC occurring, in accordance with Article 81, No. 8 of CIRC, in the amount of €337,764.00 (€965,039.99 x 35%).

3.4. With regard to the trademarks "K…" the royalties paid do not correspond to provably carried-out operations.

3.4.1. From the elements in the INPI records it was found that the trademarks "W…" (no.…) and "W1" (no.…) are registered and are held by E…, with commencement date of 31/05/2005 and forecast end date of 17/09/2014 and the trademark Y…(no.…) is registered and is held by E…, with commencement date of 14/09/2004 and forecast end date of 13/02/2018.

3.4.2. From the elements in INPI it results that, in 2009, there are no records (national, community and/or international) in favor of F… and relating to trademarks associated with the denomination "K…".

3.4.3. E… did not present any elements which prove that the trademarks in question are the property of F…, having merely presented a private document designated as sub-licensing of trademarks having only evidentiary force as to the existence of these declarations, not covering the accuracy thereof, in accordance with Article 376, No. 1 of the Civil Code.

3.4.5. Now, with E… holding registrations in its favor of the trademarks in question and also bearing all costs with A&P, this correction as to these royalties appears to be due, without any possible challenge.

3.4.6. It is concluded that the respective charges (royalties paid) do not correspond to provably carried-out operations, wherefore, in light of what is provided in No. 1 of Article 65 of CIRC such costs are not deductible for the purposes of determining taxable profit relating to the fiscal year 2009, with further autonomous taxation in the context of IRC also occurring, in accordance with Article 81, No. 8 of the IRC Code, in the amount of €67,697.67 (€193,421.92 x 35%).

1. Correction to taxable profit by application of norms relating to transfer prices (current Article 63 CIRC)

4.1. E… sent the Annual Declaration of Accounting and Fiscal Information/IES relating to the year 2009, in accordance with No. 7 of Article 63 (former Article 58) of paragraph c) of No. 1 of Article 117 (former Article 109, No. 1, paragraph c)) and No. 1 of Article 121 (former Article 113, No. 1) all of CIRC, having declared in field "H70" [operations with entities subject to privileged tax regime] of Annex H, the value of €1,534,125.00.

4.2. Of this value approximately €1,432,329.75 relate to sales of special categories of Port wine ("Z…" and "AA…") to the entity "X… LTD" (X…).

4.2.1. Considering that, in the fiscal year 2009, E… made sales to X…, it is concluded that, in accordance with paragraph h) of No. 4 of Article 63 (former Article 58) of CIRC, there are special relationships between both companies.

4.2.2. Now, this fact is not even controversial in the present proceedings, to the extent that the Claimant holds a transfer pricing file.

4.2.3. However, E… does not demonstrate, clearly and unequivocally, in its File which method was used from those provided in No. 3 of Article 63 (former Article 58) of the IRC Code, in the operations carried out with X… (related operations) and with the other independent entities.

4.2.4. Now, faced with the gaps and contradictions evidenced in the Claimant's File and in the declaration, the necessary corrections were made in accordance with Article 58 of CIRC and Ordinance No. 1446-C/2001 of 21/12, in the related operations with X… and with the other related entities.

4.2.5. For this purpose, the inspection services verified whether arm's length prices were practiced, that is, whether the prices were substantially identical to those established with the other independent customers, using the comparable market price method (MPCM).

4.2.6. Having concluded that the prices practiced in the invoices issued to related entities (in particular X…) are substantially lower than those practiced for independent customers, in violation of the arm's length principle.

4.2.7. Thus a total value of €1,003,505.77 was determined for the year 2009, resulting from the prices practiced being substantially lower for related entities compared to prices practiced for independent entities.

1. The present request for arbitral pronouncement should be judged to lack merit as unproven and the Respondent absolved of all requests, with the due legal consequences.

II. Clarification of Jurisdiction

The Arbitral Tribunal is materially competent and was regularly constituted.

The parties possess legal personality and capacity, are legitimate and are legally represented (Articles 4 and 10, No. 2 of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from any defects and no exceptions were raised.

Thus there is no obstacle to consideration of the merits of the case.

III. Decision

1. Facts

1.1. Facts found to be proven

The following facts are considered to be proven as relevant to the decision, based on the documentary evidence attached to the case file and statements made by the administrator of the Claimant since 2006, B…, and by the witnesses called, D…, employee of the Claimant, and by the tax consultant of the group since 1989, C….

1. The Claimant holds 100% of company E…, having opted for the application of the special regime for taxation of groups of companies (RETGS).

2. The company E… was subject to tax inspection from which resulted the elaboration of the respective report by the Tax Authority in the terms contained in the administrative process which is hereby considered to be fully reproduced (doc. no. 6 attached with the arbitral request and administrative process).

3. In this sequence, the Claimant was notified of the tax act of additional assessment No. 2012…, of 2012/06/03, relating to IRC for the fiscal year 2009, in the amount of €1,278,260.70 (doc. no. 1).

4. This value results from corrections made to the tax result of the group relating to the expenses presented by the related company E… concerning royalties paid to F… and adjustments in the matter of transfer pricing regime (points a), b) and c) of Article 8 of the arbitral request) (docs. no. 1 and 6 and administrative process).

5. Based on the Tax Inspection Report conducted to E…, the corrections made are grounded in:

• the non-consideration, under Article 59 of CIRC, as fiscally deductible expenses of the following royalties paid by E…:

• relating to trademarks G…, H…, I… and J…, recorded in favor of company F…, in the amount of €965,039.99, as being considered of an excessive amount;

• relating to trademark K…, also recorded in favor of company F…, in the amount of €193,421.92, on the basis that they are understood not to correspond to provably carried-out operations.

• adjustments relating to transfer prices in the amount of €1,003,505.70, corresponding to sales to X… in relation to which the Tax Authority understood that the arm's length principle rules were not observed.

1. The disregard by the Tax Authority of royalties paid resulted both in increase of taxable matter and in increase of autonomous taxation of €405,461.67. (doc. no. 6 and administrative process).

2. The trademark H… was, in 1990, held by the company P… Limited, with registered office in the Channel Islands, Jersey; in 1992 it was transferred to the company Q… Limited, also with registered office in Jersey; in 1994 it was transferred again, this time to F… (docs. 9 and 10).

3. The trademarks of the M… family were transferred in 1976 by the company N… SARL to the company P… Limited, with registered office in the Channel Islands, Jersey (docs. 12, 13 and 14).

4. The trademarks of the R… family were transferred in 1975 by BB…, S.A. to the company CC… Limited, which subsequently transferred them to F… (docs. 25 and 26).

5. The trademarks of the R… family have been owned by F… since at least 1982 (docs. 11, 19 and 21).

6. The trademarks J… and I… have been owned by F… since at least 1993 (doc. 29).

7. The company E… did not pay royalties to F… with regard to any of the trademarks indicated by the Tax Authority as not being registered in Portugal, or not being registered in its name, or whose registration has expired (doc. 32 and statements of the representative of the Claimant, B…, and of its tax consultant, C…).

8. The development and promotion (A&P) of the different trademarks are directly contracted by E…, bearing this the inherent costs, which is practice in the sector in question (statements of B… and C…), where the principle prevails that whoever produces and commercializes is the one who handles marketing.

9. It is also normal to establish a budget for advertising and promotion of products between the producing company and the distributor (as is the case with company U…) since the latter knows the market better allowing the producer to save internal resources for that purpose (statement of B… and C…).

10. The Tax Authority has received since the year prior to 2002 payments on account and withholding on royalties paid for the use of the trademarks at issue, in particular those which were subject to the fiscal disregard referred to in the present proceedings (doc. 6; testimony of C… and D… who demonstrated knowledge of the facts, the first as tax consultant of the Claimant and other group companies since 1989 and the second as employee of the Claimant).

11. The trademarks on which royalties were paid which were subject to fiscal disregard in the said Tax Authority reports relate to Port wine products with a long tradition in Port wine commerce, some whose dates are lost in time, with high capacity to convince consumers and commerce in general. (doc. 50; testimony of B… and C…).

12. The owner of trademark K… is the company V… (doc. 46).

13. Between E… and F… a sub-licensing contract was executed for exploitation, by the first company, of trademark K… (doc. 47 and testimony of C…), with the contracting party F… having contracted on the basis of a prior licensing contract for exploitation of such trademark, entered into between itself and the owner of the trademark, the company V… (docs. 48 and testimony of C…).

14. E… sold products with trademark K… and paid the respective royalties to F… (testimony of B… and C…).

15. The company S… Limited is a financial intermediary contracted by F…, based in the Channel Islands, Jersey and belonging to the T… of Canada group (doc. 39 and consultation by the Tribunal of the website contained in the document), with the function of managing the collection of its invoices.

16. Once invoices are collected and paid, the amounts received by S… are transferred to F….

17. S… no longer had involvement in the invoicing collection process in the period relating to the fiscal year 2009. (testimony of the administrator of E…, B…).

18. The Claimant presented to the Tax Authority the transfer pricing file for 2009 (doc. 40), the contents of which are considered to be fully reproduced.

19. The Claimant demonstrated clearly and unequivocally that, with regard to transfer prices, the methods it used, MCM complemented by MMLO with the use of external comparables (doc. 44), are the most appropriate methods in the present case because, as provided in Article 4, No. 2 of the Transfer Pricing Ordinance, they constitute those (i) capable of providing the best and most reliable estimate of the terms and conditions that would normally be agreed, accepted or practiced in an arm's length situation, (ii) more apt to provide the highest degree of comparability, (iii) having the best quality and greatest amount of information available for their adequate justification and application and, fundamentally, (iv) implying the least number of adjustments for the purpose of eliminating the differences existing between the facts and comparable situations (testimony of C… who participated in the elaboration of the file).

20. The average price of wines of the category Z… varies substantially both with wines of different harvests as over time with wines of a particular harvest.

21. It is not possible to predict which harvests classified as vintage will reach higher prices nor when they will be reached.

22. The Claimant provided, on 25.07.2012, a bank guarantee (Guarantee no. GAR …/…), in the amount of €1,633,096.96, to suspend the enforcement proceedings instituted by the Tax Authority for non-payment of the assessment subject to judicial challenge, the same being increased to the amount of €1,648,433.92 on 27-08-2012 (doc. no. 55).

23. On 13/08/2012, the Claimant filed a Gracious Complaint of the aforementioned tax assessment act, a Gracious Complaint that was dismissed by Order of the Chief of Division of Administrative and Contentious Justice, of 25/11/2012, by subdelegation of the Financial Director of … (docs. 2 and 3).

24. On 21/12/2012, the Claimant filed a Hierarchical Appeal of the Order dismissing the Gracious Complaint, a Hierarchical Appeal that was dismissed by Order of the Director-General of 27/05/2015 (docs. 4 and 5).

25. The Claimant filed the present request for arbitral pronouncement on 18-12-2015.

1.2. Facts found not to be proven

The Tribunal finds not proven all other facts that were alleged, as it is not convinced of their existence in light of the evidence in the case file.

1.3. Reasoning for the findings of fact

1.3.1. The facts found to be proven are based on the documentation attached by the parties to the case file and considered suitable by the Tribunal and on the testimony of the party given by the administrator of the Claimant and E…, B…, who has exercised these functions since 2006 and the witness testimony produced by the witnesses called, C…, tax consultant of the Claimant and group since 1989, and D…, employee of the Claimant, who proved to be reliable, coherent and credible. The witnesses examined appeared to testify with impartiality and with direct knowledge of the facts they stated.

1.3.2. The Tribunal thus judges the facts alleged, in accordance with the principle of free assessment of evidence with respect to documents of non-specified legal value and witness testimony, enshrined in Article 16, paragraph e) of RJAT, of equivalent meaning to Article 655 of CPC.

2. On the Law

The essential issues to be decided and raised by the commercial company A…, S.A., parent company of a group of companies, covered by the "Special Regime for Taxation of Groups of Companies", in its request for arbitral pronouncement are the following:

1. Illegality of the additional assessment No. 2012…, of 3/6/2012, relating to IRC for the fiscal year 2009, in the value of €1,278,260.70;

2. Illegality of the Order dismissing the Hierarchical Appeal, of 27/5/2015, and the Order dismissing the Gracious Complaint, of 25/11/2012;

3. Right to payment of indemnification for provision of unnecessary bank guarantee.

Let us examine.

1) Regarding the alleged illegality of the additional IRC assessment relating to the fiscal year 2009.

The issue that is at the heart of the dispute concerns the correction to the taxable profit of "E…, S.A." (E…), in the value of €2,161,967.61. This amount includes:

• €965,039.99 relating to royalties that were not accepted as a fiscal expense, as being of an excessive amount (Article 59, No. 1 of CIRC then in force);

• €193,421.92 relating to royalties that were not accepted as a fiscal expense, as not corresponding to provably carried-out operations (Article 59, No. 1 of CIRC then in force); and

• €1,003,505.70 corresponding to sales that did not follow arm's length rules (Article 58 of CIRC then in force).

The amount of €965,039.99 corresponds to royalties relating to four trademarks (G…, H…, I… and J…) paid by E… to the company F…, Limited (F…), with registered office in the Jersey islands.

The amount of €193,421.92 refers to royalties associated with trademark K….

The disregard of royalty expenses implied an autonomous taxation of €405,461.67, which results from the sum of €337,764 (€965,039.99 x 35%) with €67,697.67 (€193,421.92 x 35%), in accordance with Article 88, No. 8 of CIRC.

A - Royalties Borne

The wording of Article 59 of CIRC (payments to non-resident entities subject to a privileged tax regime), repealed by Law No. 2/2014, of 16 January, which condensed it in paragraph r) of No. 1 of Article 23-A, which was in force in the fiscal year 2009, was as follows:

1 - Not deductible for the purposes of determining taxable profit are sums paid or due, for any reason whatsoever, to natural persons or legal entities resident outside Portuguese territory and therein subject to a clearly more favorable tax regime, unless the taxpayer can prove that such charges correspond to effectively carried-out operations and do not have an abnormal character or an excessive amount.

2 - A natural person or legal entity is considered to be subject to a clearly more favorable tax regime when the territory of residence of the same is included in the list approved by ordinance of the Finance Minister or when it is not taxed therein by income tax identical or analogous to IRS or IRC, or when, in relation to the sums paid or due mentioned in the previous number, the amount of tax paid is equal to or less than 60% of the tax that would be due if the said entity were considered resident in Portuguese territory.

3 - For the purposes of the previous number, taxpayers must possess and, when requested by the General Directorate of Tax, provide elements proving the tax paid by the non-resident entity and the calculations effected for determining the tax that would be due if the entity were resident in Portuguese territory, in cases in which the territory of residence of the same is not included in the list approved by ordinance of the Finance Minister.

4 - The proof referred to in No. 1 must take place after notification of the taxpayer, carried out with a minimum of 30 days' notice.

This provision is characterized as a specific anti-abuse clause which prevents taxpayers from obtaining a tax advantage on the basis of a certain conduct. Thus the Decisions of the Central Administrative Court South, relating to Cases No. 08126/14, of 19-2-2015, and No. 07022/13, of 5-11-2015, conclude that "We are dealing with a specific anti-abuse norm created with the objective of combating tax fraud and evasion (…) for which purpose the burden of proof is reversed to burden the taxpayer in accordance with No. 1 of the provision".

The tax advantage obtained from the relocation of intangible assets, of which trademarks are examples, to low-taxation territories is easily perceived, with the consequent royalties constituting tax expenses in the sphere of the companies using them (and which transferred them). It is therefore understandable the invocation of the provision established in Article 59 of CIRC, since it concerns the payment of royalties by E…, with registered office in Portugal, to a company based in the Jersey islands.

Point 14 of the Ordinance of the Finance Minister No. 150/2004, of 13 February, includes the "Channel Islands (Alderney, Guernsey, Jersey, Great Sark, Herm, Little Sark, Brechou, Jethou and Lihou)". The company F… has its registered office in the Jersey islands, and therefore is subject to a clearly more favorable tax regime.

Article 59 provides for the reversal of the burden of proof, assigning to the taxpayer the demonstration of the requirements of No. 1, under penalty of the expenses recorded not being accepted fiscally. Thus a first issue that requires an answer consists of knowing whether the appellant complied with the burden of proof that that number imposes upon it.

By means of Office No. …/…, E… was notified to present proof that the charges relating to those royalties correspond to effectively carried-out operations and do not have an abnormal character or excessive amount.

In this sequence, five licensing contracts relating to the trademarks of the families G…, H…, I…, J… and K… were sent (as appears from the administrative process). These contracts make it possible to find that F… granted the right to economically exploit the trademarks to E…. Therefore this company sold products associated with these trademarks, generating income taxed in Portugal. Thus the operations occurred or were effectively carried out.

The amount of royalties was recorded in a sub-account of supplies and external services (…-…ROYALTIES). These expenses were recorded by contra-entry of a liability that was canceled when they were paid - bank transfers made in favor of F… (BANK:…, London UK - ACCOUNT: T… of Canada (Channel Islands) Limited) – implementing the principle of economic accrual.

Basing itself on the value of the supposed transfer of the four trademarks to F… at €9.98 each, the respondent calls into question the reasonableness of the amounts paid as royalties. It contends that the simultaneous existence of expenses borne for the purposes of development and promotion (Advertising and Promotion - A&P) contributes to demonstrating their disproportionate value.

The transfers of unit value of €9.98 date back to 1996. They relate to the registrations with INPI of the four trademarks that were in the name of the companies H…, J…, G… and I…. The trademarks were already at that date held by F…, so these operations aimed only at the regularization of the ownership of the registrations, seeking to restore the truth. As for the second argument, it is important to note that it is normal practice in the sector for the licensee to undertake promotion and advertising of the products, with the respondent having presented several examples in PI (no. 397 to 417). One cannot therefore infer that we are dealing with a case of artificial duplication of deductible expenses.

In conclusion and in line with the jurisprudence of CAAD, the ownership of the trademarks, the existence of licensing contracts and the payment of royalties, which were subject to withholding tax because obtained in Portugal, prove that the operations were carried out. Faced with effective, real and not artificial or simulated operations, royalty payments constitute remuneration for the use of the trademarks, and therefore do not have an abnormal character.

As to their possibly excessive amount, the analysis will be redirected to the provision on transfer prices, since if the price complies with the arm's length principle it will necessarily be a market price, that is, a "non-excessive price". Indeed the value of the transfer (of the registrations) of the trademark does not constitute a universal criterion for assessing the reasonableness of the value of royalties, as the respondent appears to advocate. In this sense, Arbitral Decision No. 146/2013-T states that "(…) the excessive character of the value of royalties cannot be determined simply on the basis of the value of alienation of rights over trademarks or rights relating to trademark registration". Also Decision No. 148/2013-T sustains that "bearing in mind that these are old trademarks with history and recognized, it is natural that in a company as nowadays, in which the trademark has an increasingly distinctive character of the product, they are worth much, independently of how they were acquired. The remuneration cannot therefore be assessed on the basis of the supposed acquisition value, which may even be zero, because those products at dates close to their formation have as a rule an incommensurably smaller value". Note that this criterion does not prove to be adequate for the test of balancing between the expenses borne with royalties for trademarks and the (taxable) income derived from sales of products associated with them.

The assessment of the reasonableness of royalties should focus around the principle of arm's length or independence, which establishes the obligation of adopting prices similar to those which would be practiced between independent entities when valuing transactions between related entities. From this follows the importance of comparability between operations carried out by independent entities and related transactions (carried out by related entities). It is on this principle that the transfer pricing model is based.

According to the preamble to Ordinance No. 1446-C/2001, in line moreover with OECD Recommendations (Guidelines), "transfer pricing rules do not permit acting with the rigor and precision peculiar to an exact science". Now it is not surprising that an interval of values be admitted, termed the arm's length interval.

The claimant complied with its obligation to elaborate the transfer pricing file (doc. 40), in accordance with the (then) Articles 58, No. 6 and 121 of CIRC. The objective of showing that the terms and conditions of the licenses under analysis correspond to those normally agreed in the market between independent parties in comparable circumstances was achieved through the application of the comparable market price method using external comparables.

On the other hand, the claimant made an exhaustive search (whose detailed description evidences rigorous concerns) of comparable external operations carried out between independent companies, using the Lexis Nexis Material Contracts (MCD) database. The agreements compiled in the MCD have their source in the Securities and Exchange Commission (SEC), which requires US entities subject to its supervision to disclose information.

In determining the value of royalties, the rate of 4% applied on net sales of licensed trademarks contracted between E… and F… falls on the median of the arm's length interval (comprised between 1% and 10%), as appears from the schedule attached by the Claimant with the designation of document 44.

Complementing the analysis and using an internal comparable (Newman licensing) it was demonstrated that the royalty rate fixed (between independent parties) corresponds to twice the royalty rate agreed between F… and E… for the four trademarks analyzed here which have moreover greater notoriety. This result reinforces the conclusion that the values of these royalties are not of "excessive amount".

With regard to trademark K…, it was demonstrated that it is held by the company V…. V… licensed the use of trademark K… to F… (document 48 of PI) and which in turn sub-licensed it to E… (document 47 of PI), charging royalties. These facts were corroborated by the testimony of witnesses. E…, which sold products with trademark K…, paid royalties to F…, proving that these are effectively carried-out operations. It should be noted that the rate of these royalties was not considered excessive by the respondent. For this reason and because the calculation of this rate followed the same logic as the others (amounting therefore to 4% on net sales of the sub-licensed trademark) redundant considerations are dispensed with.

Having demonstrated that the payments of royalties associated with the five trademarks referred to correspond to effectively carried-out operations and do not have an abnormal character or excessive amount, such should be deductible from taxable profit.

In these terms the request for annulment of the IRC assessment No. 2012…, of 3/6/2012, is judged to have merit to the extent relating to the correction of €1,158,461.91 (€965,039.99 + €193,421.92) which, based on Article 59 of CIRC, did not accept royalties borne as a fiscal expense, and the associated autonomous taxation (Article 88, No. 8 of CIRC), in the amount of €405,461.67, resulting from the sum of €337,764 (€965,039.99 x 35%) with €67,697.67 (€193,421.92 x 35%).

B - Price of Sales Recorded

Another issue that is important to decide concerns compliance with the arm's length principle in the operations established between E… and X… Limited (X…). More than half of the liters of Wine …of special categories (Z…) is sold to X… (in 2009, it acquired 67,032 liters, corresponding to 50.97% of sales of special categories of E…), which pays at the time of order (frequently before the product is available, acquiring a future good). This company has its registered office in Jersey, in the …Islands, so there is no doubt about the existence of special relationships between E… and X…. It is still important to note for the analysis of transfer prices that, according to the SABI database, the profitability ratios (calculated on turnover and on COGS) of E… reach values exceeding the maximum of the respective arm's length intervals.

The transfer pricing file justifies the inadequacy of the comparable market price method in favor of the mark-up method. Although there are operations with independent entities of the same products that are transacted with the related entity X…, the operations are not similar. In accordance with Article 5 of the Transfer Pricing Ordinance, the degree of comparability between a related transaction and a non-related transaction must be assessed under the following factors: specific characteristics of goods or services transacted (paragraph a)); functions performed by each entity in the transactions, considering the assets and risks involved (paragraph b)); contractual terms that define the allocation of responsibilities, risks and profits (paragraph c)); market conditions (paragraph d)) and, among others, the strategy of the entities (paragraphs e) and f)). Now just to mention some examples (which illustrate the non-satisfaction of these cumulative requirements), the high volumes transacted with X…, as well as the transfer of market risks of losses and damage to stock, exchange and credit to this company, which generally and even making advance payments accepts the burden of disposing of an untested product for the markets of England and the United States affect substantially the level of comparability of transactions carried out. Thus the comparable market price method is not adequate, since it requires the "highest degree of comparability focusing both on the nature and other terms and conditions of the transaction and on the functional analysis of the entities involved" (Article 6, No. 1 of the mentioned Ordinance).

The method used in the sale of Z… wine to the related entity was the mark-up method, complemented with the net profit method. In determining the gross profit margin to be added to production costs the reference base adopted was that obtained in comparable non-related operations carried out by independent entities with similar characteristics and in similar conditions (external comparable). The net profit method functions in an identical way to the resale price method and mark-up method but instead of gross margin, net margin of operations is used. It should be noted that beyond the high profitability rates calculated in the transfer pricing file, X… annually contributes to the expenses incurred by E… with promotion of the trademarks commercialized by it (promotional funding), which has a positive effect on taxable income in Portugal.

In conclusion, the selection of the mark-up method using external comparables is appropriate (as was decided with regard to the fiscal years 2006, 2007 and 2008 – Decisions 145/2013-TCAAD (2006), 148/2013-TCAAD (2007) and 146/2013-TCAAD (2008) not final). Considering that the arguments of the respondent and the claimant are similar to those presented in the said arbitral processes which granted the latter's request for annulment of the tax acts, it was opted to follow in essence that line of jurisprudence.

Thus the adjustment of €1,003,505.77 is not accepted, arising from allegedly the prices practiced with related entities being lower than market, causing a reducing effect on the taxable matter of E….

In these terms it is therefore judged that the request for annulment of the IRC assessment No. 2012…, of 3/6/2012 has merit also as it relates to the correction of this amount corresponding to sales as to which the Tax Authority considered that the rules relating to application of the arm's length principle were not observed, violating Article 58 of CIRC.

Given the grounds set out, the tribunal judges the request for annulment of the additional assessment No. 2012…, of 3/6/2012 relating to IRC for the fiscal year 2009, in the value of €1,278,260.70 to have merit.

2) Illegality of the Order dismissing the Hierarchical Appeal, of 27/5/2015, and the Order dismissing the Gracious Complaint, of 25/11/2012

In this sequence, also illegal are both the Order dismissing the Hierarchical Appeal of 27/5/2015 and the Order dismissing the Gracious Complaint of 25/11/2012, which are equally annulled.

3) Regarding the right to indemnification for provision of unnecessary guarantee

Finally it is important to investigate whether the Claimant has, as it petitions, the right to indemnification for damages resulting from the provision of guarantee to suspend the enforcement process.

Of relevance to the decision results from the facts found to be proven that the Claimant provided a bank guarantee in the value of €1,648,433.92 on 27-08-2012 (doc. no. 55) with the objective of suspending the enforcement proceedings instituted by the Tax Authority.

Article 53 of LGT which under the heading "Guarantee in case of improper provision" provides as follows:

"1. The debtor who, to suspend enforcement, offers a bank guarantee or equivalent shall be indemnified in full or in part for damages resulting from its provision, if it has been maintained for a period exceeding three years in proportion to the settlement in administrative appeal, challenge or opposition to enforcement which have as object the debt guaranteed.

2 - The period referred to in the previous number shall not apply when it is verified in a gracious complaint or judicial challenge that there was error attributable to the services in the assessment of the tax.

1. The indemnification referred to in No. 1 has as maximum limit the amount resulting from application to the guaranteed value of the rate of indemnifying interest provided in this law and may be requested in the administrative or judicial challenge process itself, or autonomously.

2. Indemnification for improper provision of guarantee shall be paid by reduction from tax revenue of the year in which payment was made."

From the combination of Nos. 1 and 2 it follows that in case of error attributable to the services in the assessment of the tax the debtor is indemnified for damages resulting from the provision of the guarantee regardless of the time it had to be maintained.

In the present case the error from which the assessment whose legality is discussed suffers results from error by the services as to the legal presuppositions. On the other hand the assessment subject to challenge was initiated exclusively by the Tax Administration and the Claimant in no way contributed to its being made whereby the error is attributable exclusively to the Tax Administration itself.

The Claimant states having paid a bank guarantee in the value of €1,648,433.92 and therefore has the right to be indemnified for this expense and further for other subsequent expenses which may be proven.

Not having the Tribunal elements which permit determining the amount of indemnification the condemnation must be made having as reference the sum proved to have been spent increased by what may be settled in execution of the present decision (cf. Article 609 of the Code of Civil Procedure and Article 565 of the Civil Code).

The request for indemnification formulated by the claimant is therefore judged to have merit.

IV. Decision

In these terms this collective decides:

a) Judge the request for arbitral pronouncement to have merit and in that sequence annul the additional assessment No. 2012…, of 3/6/2012 relating to IRC for the fiscal year 2009, in the value of €1,278,260.70;

b) Judge the request for annulment of the Orders dismissing the Hierarchical Appeal of 27/5/2015 and the Order dismissing the Gracious Complaint of 25/11/2012 to have merit;

c) Condemn the Tax and Customs Authority to payment of indemnification to the Claimant for provision of unnecessary guarantee in the value to be determined in execution of judgment.

V. Value of the Case

The value of the case is fixed at €1,278,260.70 in accordance with Article 305, No. 2 of CPC and 97-A, No. 1, a) of the Code of Tax Procedure and Process applicable by virtue of paragraphs a) and b) of No. 1 of Article 29 of RJAT and No. 2 of Article 3 of the Regulations of Costs in Tax Arbitration Proceedings.

VI. Costs

The value of the arbitration fee charged to the Respondent is fixed at €17,442.00 in accordance with Articles 12, No. 2 and 22, No. 4 both of RJAT and Article 4, No. 4 of the Regulations of Costs in Tax Arbitration Proceedings and Table I attached thereto.

Let it be notified.

Lisbon, 31 August 2016

The President Arbitrator

(Maria Fernanda dos Santos Maçãs)

The Arbitrator Member

(Daniel Taborda)

The Arbitrator Member

(Cristina Aragão Seia)