IRC State Surcharge (Derrama Estadual) Challenge on Additional Assessment for Group Taxation – CAAD 78/2017-T

ARBITRAL DECISION

The arbitrators Cons. Jorge Manuel Lopes de Sousa (presiding arbitrator), Prof. Doctor Eduardo Paz Ferreira and Prof. Doctor António Martins (member arbitrators), designated by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 30-03-2017, hereby agree as follows:

1. Report

A… SGPS, S.A., legal entity no. …, with registered office at Rua …, no. …, …, …, …-…, hereinafter referred to as "A…" or "Claimant", dominant company of a group subject to the special regime for the taxation of groups of companies, filed, pursuant to articles 2.º, no. 1, subparagraph a), and 10.º of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration - RJAT), a request for arbitral determination, with a view to examining the legality and partial annulment of the additional assessment of Corporate Income Tax (and surtax) and compensatory interest no. 2016…, relating to the fiscal year 2012, in the amount corresponding to € 1.336.488,93 (interest included).

The AUTHORITY FOR TAX ADMINISTRATION AND CUSTOMS is the respondent.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Authority for Tax Administration and Customs on 31-01-2017.

Pursuant to the provisions of subparagraph a) of no. 2 of article 6.º and subparagraph b) of no. 1 of article 11.º of the RJAT, in the version introduced by article 228.º of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.

On 15-03-2017, the parties were duly notified of such designation and did not express any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11.º no. 1, subparagraphs a) and b) of the RJAT and articles 6.º and 7.º of the Deontological Code.

Therefore, in compliance with the provision of subparagraph c) of no. 1 of article 11.º of the RJAT, in the version introduced by article 228.º of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 30-03-2017.

The Authority for Tax Administration and Customs responded, arguing that the claim should be dismissed and defending that the contested tax amount is € 1.328.792,52 and not € 1.336.488,93 (as indicated by the Claimant), presenting calculations according to which the difference in the value of the state surtax corresponding to the challenge of the correction made is € 153.470,51 (article 177.º of the Response).

By order of 15-05-2017, a hearing was dispensed with and it was decided that the proceedings would continue with written pleadings.

On 23-05-2017, the Claimant stated that the Authority for Tax Administration and Customs made a compensation whereby the amount of € 239.486,01 of the contested assessment in the present proceedings was paid, with the consequent reduction of the amount owed from € 1.444.238,64 to € 1.204.752,63, and requests that the Authority for Tax Administration and Customs be condemned to refund the compensated amount. The Claimant states in that application that the amount of tax and compensatory interest corresponding to the corrections of the tax inspection not contested by A…, in the total amount of € 107.749,72, was paid by A…, together with default interest, on 30 January 2017 and that it proceeded to reinforce the bank guarantee, having incurred costs.

The parties presented pleadings. In its pleadings, the Claimant argues that the contested tax amount is what it indicated and that the value of the state surtax resulting from the challenge of the assessment relating to the correction it contests is € 160.279,68.

The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2.º, no. 1, subparagraph a), and 10.º, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The parties are duly represented, have legal personality and capacity, are legitimate and are represented (articles 4.º and 10.º, no. 2, of the same decree and art. 1.º of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities and there are no exceptions or any obstacle to the examination of the merits of the case.

2. The Issue of the Value of the State Surtax Corresponding to the Contested Correction

The Claimant and the Authority for Tax Administration and Customs differ on the value of the state surtax corresponding to the contested correction: the Claimant argues in its pleadings that it is € 160.279.68; the Authority for Tax Administration and Customs considers it to be € 153.470,51 (article 177.º of the Response).

Pursuant to no. 1 of article 87.º-A of the Corporate Income Tax Code, on the part of taxable profit exceeding € 1,500,000 and up to € 10,000,000, the state surtax is 3%.

In accordance with no. 2 of article 87.º-A of the Corporate Income Tax Code (Version of Law no. 64-B/2011, of 30-12), "the amount of the part of taxable profit exceeding (euro) 1,500,000, when exceeding (euro) 10,000,000, is divided into two parts: one, equal to (euro) 8,500,000, to which the rate of 3% applies; another, equal to the taxable profit exceeding (euro) 10,000,000, to which the rate of 5% applies."

With the corrections made by the AT, in the amount of € 4.429.012,39, the taxable profit becomes € 11.881,152,75, to which corresponds a state surtax of € 349.057,64, calculated as follows:

State surtax of 5% applicable to taxable profit exceeding € 10,000,000:

11.881.152,75 – 10.000.000 = 1.881.152,75 x 5% = € 94.057,64

8.500.000 x 3% = € 255.000

Total state surtax with the corrections made by AT = € 349.057,64

In the present proceedings, the Claimant seeks that the taxable profit determined by AT be reduced by the correction relating to interest on C…, in the amount of € 4.088.554,14, becoming € 7.792.598,61. To this taxable profit of € 7.792.598,61 corresponds a state surtax of € 188.777,96, thus calculated:

€ 7.792.598,61 - € 1.500.000 = 6.292.598,61 x 3% = € 188.777,96

Therefore, with the request for arbitral determination, the Claimant seeks to obtain a reduction in state surtax of € 160.279,68 (349.057,64 – 188.777,96).

Thus, the Claimant is correct as to the determination of the value of the contested tax.

Consequently, the value of the case indicated by the Claimant is correct.

3. Material Facts

3.1. Established Facts

Based on the elements on file and documents attached to the request for arbitral determination, the following facts are considered established:

• The Claimant was in 2012 the dominant company of a group subject to the special regime for the taxation of groups of companies;

• The Authority for Tax Administration and Customs carried out a tax inspection of the fiscal year 2012, in accordance with Service Order no. OI2016…, which aimed to reflect in the periodic income statement of the Group the corrections, in the field of Corporate Income Tax, resulting from the external inspection procedure promoted to the Claimant, as an individually considered company, thereby determining the corrected fiscal result of the Group;

• In the tax inspection report relating to this inspection, a copy of which is attached as document no. 3 to the request for arbitral determination, the tenor of which is reproduced in full, the following is stated, among others:

III.1.2.1.1.1. Non-Recorded Operating Income

III.1.2.1.1.1.1. The Facts

Facility B

III.1.2.1.1.1.1. A… SGPS granted a remunerated loan to its subsidiary B…, designated as C…, on 30 January 2007 in the amount of € 25,000,000.00. In the fiscal year 2009, B… reimbursed part of the loan in the amount of € 500,000.00. In the fiscal year under review (2012), this loan remained outstanding and was recorded in the accounts of A… SGPS in account # 4123101 - "Loans Granted – B…", in the amount of € 24,500,000.00.

Interest accrued on this loan, which in the present fiscal year was recorded in the accounts of A… SGPS in account # 272101 - "Debtors for Accrued Income - Interest Receivable B…", in the amount of € 14.695.897,15. However, the interest recorded here relates to interest accrued on this loan up to 30 June 2011, which remained outstanding in this fiscal year. As from 1 July 2011, A… SGPS ceased to record in income the interest generated by this loan.

(...)

III.1.2.1.1.1.2. The Loan/Supplementary Contribution Contracts C…

III.1.2.1.1.1.2.1. The loan granted by A… SGPS to B…, designated as C…, the contract for which is attached as Annex 3, was granted on 30 January 2007, in the amount of € 25,000,000.00, with the purpose of B… making payment to D…, SA of the shares of E… SGPS, SA, respective supplementary contributions and ancillary benefits which it had acquired. In accordance with clause 5.1 of the contract, the loan accrues interest at the rate of 15.68%. From the moment B… amortized another loan that A… SGPS had granted it, designated as F…, in accordance with clause 5.2 of the contract, the interest rate on the loan would become 12.5% (which occurred on 12 March 2008). In clause 5.4 of the contract, it is stated that if B… fails to pay any amount on the due date, daily default interest is owed at the interest rate of the loan plus 2%. Interest is paid semi-annually. The loan has no defined repayment period.

On 9 May 2011, an amendment to the contract (second amendment) was made, attached as Annex 4, in which A… SGPS and B… agreed to modify the interest rate. Effective from 1 January 2011, the loan accrues interest at the rate of 6-month Euribor, plus a fixed spread of 7.883%. If B… fails to pay any amount on the due date, daily default interest is owed at the interest rate of the loan (6-month Euribor, plus a fixed spread of 7.883%), with the 2% surcharge no longer applying.

On 15 December 2011, a new amendment to the contract (third amendment) was made, attached as Annex 5, in which A… SGPS and B… agreed to modify the method of calculating interest. As described in clause (l) of the third amendment, the parties acknowledge that on 30 June 2011, the outstanding principal of the loan C… amounted to € 24,500,000.00 and the accrued unpaid interest corresponding amounted to € 14,695,897.15. In accordance with the provision of clause (L) of the third amendment, as from 1 July 2011, interest is due on the Calculation Date [1], if there is Available Cash-Flow [2] and shall be paid when A… SGPS issues an Interest Payment Notice [3].

In clause 3 of the third amendment to the contract, the changes made to clause 5 (interest) of the original contract are described. Clause 5.2.3 describes how interest is calculated as from 1 July 2011. In accordance with this clause, as from 1 July 2011 and until the issuance of an insolvency declaration against B…, if there is Available Cash-Flow, in a period of 12 months from 1 July 2011, the interest with respect to € 24,500,000.00 shall be due in an amount equivalent to the Available Cash-Flow in that period, with such interest having a limit defined based on the formula described there [4]. The date on which such interest is due is the Calculation Date, if there is Available Cash-Flow. In clause 5.2.4, it is stated that, for purposes of clause 5.2.3, on each Calculation Date, B… must notify A… SGPS of the amount of Available Cash-Flow in each period of 12 months from 1 July 2011 and provide the respective evidence. If there is any Available Cash-Flow, A… SGPS has the responsibility to request payment of interest from B… on the Interest Payment Date, by issuing an Interest Payment Notice to B…. The Interest Payment Date, as from 1 July 2011, corresponds to the 5th business day following receipt of the Interest Payment Notice issued by A… SGPS to B….

It is also stated in the third amendment, in clause 6, that the loan C… is now characterized as a supplementary contribution contract and is subject to articles 243° and following of the Commercial Companies Code.

(...)

III.1.2.1.1.1.3. Cross-Check of Information with B…

III.1.2.1.1.1.3.1. Under the duty of cooperation, in accordance with articles 59° and 63°, both of the General Tax Law, and articles 28° and 29°, both of the Supplementary Tax and Administrative Inspection Procedure Rules, B… was notified to present and justify the accounting reflection of these operations in its financial statements, as well as the corresponding tax treatment.

III.1.2.1.1.1.3.2. According to the response sent, the accounts of B…, as of 30 June 2011, with respect to the loan granted by A… SGPS to B…, designated as C…, reflect that the outstanding principal of this loan amounted to € 24,500,000.00 and the corresponding accrued unpaid interest amounted to € 14,695,897.15. The accounts of B… also reflect an amount payable to A… SGPS in the amount of € 3,321,486.00 for management fees.

III.1.2.1.1.1.3.3. On the date on which A… SGPS disposed of its shareholding in B…, as well as the ancillary benefits, supplementary contributions and corresponding interest and other rights of claim it held over B… (management fees), which became final on 8 August 2013, the accounts of B…, with respect to the loan granted by A… SGPS to B…, designated as C…, reflect that the outstanding principal of this loan amounted to € 24,500,000.00 and the accrued unpaid interest corresponding amounted to € 22,601,597.40. With respect to the supplementary contribution made by A… SGPS to B… in September 2012, the accounts of B… reflect that the amount loaned remains outstanding, € 1,312,000.00, and the accrued unpaid interest corresponding amounts to € 109,995.35. With respect to management fees, the accounts of B… reflect an amount payable to A… SGPS in the amount of € 3,952,937.61 for this title. The bank account statements in which these values are recorded are attached as Annex 7.

In summary:

III.1.2.1.1.1.3.4. In the period between these dates, B… recognized as expenses (i) the interest borne with the loan C… and respective default interest, (ii) the interest borne with the supplementary contribution of € 1,312,000.00, and (iii) the management fees, as summarized in the following table:

[Table]

Reconciling:

[Table]

III.1.2.1.1.1.3.5. Notified to B… to justify the recognition of interest in this period, B… responded that the interest was recognized in accordance with the contracts referred to above.

(...)

III.1.2.1.1.1.3.7. It should also be noted that the following members formed the Board of Directors of B… in this period:

[Table]

The members of the Board of Directors of B… referred to above are also members of the Board of Directors of A… SGPS in those same periods. In this way, A… SGPS cannot claim ignorance of the accounting policies followed by B…, since those members of its Board of Directors approved the accounts of B… in the periods under review.

III.1.2.1.1.1.4. Tax and Accounting Framework

III.1.2.1.1.1.4.1. In tax terms, pursuant to the provision of no. 1 of article 17° of the Corporate Income Tax Code, "The taxable profit of legal entities and other entities mentioned in subparagraph a) of no. 1 of article 3° is constituted by the algebraic sum of the net result of the period and the positive and negative changes in assets and liabilities verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this Code."

In order to allow this determination, in accordance with no. 3 of the cited article, "accounting must:

a) Be organized in accordance with standardized accounting and other legal provisions in force for the respective sector of activity, without prejudice to compliance with the provisions set out in this Code;

b) Reflect all operations carried out by the taxpayer and be organized so that the results of operations and changes in assets and liabilities subject to the general regime of the Corporate Income Tax can be clearly distinguished from those of the remainder."

In accordance with no. 1 of article 18° of the Corporate Income Tax Code, "Income and expenses, as well as other positive or negative components of taxable profit, are attributable to the tax period in which they are obtained or incurred, independently of their receipt or payment, in accordance with the economic accrual basis."

The provision continues in no. 2 of the said article that "Positive or negative components considered as relating to previous periods are only attributable to the tax period when on the date of closing the accounts of the period to which they should have been attributed they were unforeseeable or manifestly unknown."

Pursuant to the provision of no. 1 of article 20° of the Corporate Income Tax Code, "Income derived from operations of any nature is considered, as a consequence of normal or occasional, basic or merely accessory action, in particular: a) Those relating to ... provision of services, ...; c) Of a financial nature, such as interest, ....".

III.1.2.1.1.1.4.2. In accordance with the Conceptual Framework of the Standardized Accounting System, one of the basic assumptions underlying the preparation of traditional financial statements (Balance Sheet and Income Statement) is the accrual basis.

In accordance with the accrual basis, the effects of transactions and other events are recognized when they occur, recorded in the accounting records of the periods to which they relate, and consequently reported in the financial statements of the respective periods.

In other words, such recognition is associated with the moment of occurrence of transactions and other events and not with the moment of financial flows, that is, receipts and payments. In these circumstances, income and expenses are recognized when obtained or incurred, independently of their receipt or payment, and should be included in the financial statements of the periods to which they relate.

III.1.2.1.1.1.4.3. From both the accounting and tax perspectives, it is concluded that for the determination of the net result of each of the periods, all expenses/income generated in each of the periods must be included. Indeed, from the tax perspective as well, it is established that for the determination of taxable profit the accrual basis must be observed.

The recognition of income, on an accrual basis, must be effected in the period to which the effects of the transactions relate and not in the period in which receipts occur or in the period in which receipts are made.

The moment of generation of income cannot be confused with the moment of its receipt, as the generation of income will create a right to receive that amount at the same moment or at a different time.

With respect for this principle, an image is ensured from the accounting perspective that is true and fair of the assets or financial position, performance and changes in financial position. From the tax perspective, the obligation to consider income and expenses in the fiscal year in which they are generated/incurred also prevents taxpayers from deferring income and expenses for purposes of tax planning different from those that the tax legislator intended to privilege in the Portuguese tax system.

III.1.2.1.1.1.5. Application to the Case in Question

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C…

III.1.2.1.1.1.5.2. In the case in question and with respect to the loan C… granted by A… SGPS to B…, we verified that both parties recognize in their accounts that, on 30 June 2011, the outstanding principal of this loan amounted to € 24,500,000.00 and that the corresponding accrued unpaid interest amounted to € 14,695,897.15.

As from 1 July 2011 and until the date of sale of this loan and the respective interest, which became final on 8 August 2013, A… SGPS ceased to recognize income from interest resulting from this loan. On this date, the third amendment to the contract, which we referred to above, came into force, in accordance with which, as from 1 July 2011, interest is due on the Calculation Date, if there is Available Cash-Flow and shall be paid when A… SGPS issues an Interest Payment Notice.

However, on 8 August 2013, when A… SGPS sells this loan and the respective interest, to "H…" (through …), in accordance with the purchase and sale contract already referred to, the interest receivable from B…, alienated in the said contract, amounted to € 22,703,743.00.

On the basis of the same amendment to the contract, which is binding on both parties, B… continued to recognize in its financial statements, from 1 July 2011 until 8 August 2013, the expense with interest borne with this loan, having recognized in the remainder of the fiscal year 2011, an expense in the amount of € 1,740,522.49, in fiscal year 2012 an expense in the amount of € 4,088,554.14 and in fiscal year 2013 an expense in the amount of € 2,076,623.64. On 8 August 2013, the accounts of B… show a debt payable to A… SGPS, relating to interest borne with this loan, in the amount of € 22,601,597.40.

We thus have that A… SGPS did not recognize in its accounts the income from interest generated by this loan as from 1 July 2011. However, in the purchase and sale contract referred to above, A… SGPS assumes that the interest that the company did not account for in the period between 1 July 2011 and 8 August 2013 are owed, amounting to € 8,007,846.00, in addition to those already recognized up to 30 June 2011, making up the total amount of € 22,703,743.00. On the other hand, we have B…, on the basis of the same contract, recognizing as expenses the interest borne with this loan, allocating in the remainder of fiscal year 2011, an expense in the amount of € 1,740,522.49, in fiscal year 2012 an expense in the amount of € 4,088,554.14 and in fiscal year 2013 an expense in the amount of € 2,076,623.64.

In view of the foregoing, we verify that the taxpayer is in violation of the provisions of nos. 1 and 3 of article 17° of the Corporate Income Tax Code, no. 1 of article 18°, and subparagraph c) of no. 1 of article 20°, all of the Corporate Income Tax Code, referred to above, by not accounting for the income from interest generated by this loan which, after all, were owed in the period between 1 July 2011 and 8 August 2013, independently of its receipt, when they constitute taxable income. We do not have the determination contained in the purchase and sale contracts referred to above, so we will take the values determined by B…, validated by us, being € 1,740,522.49 to be allocated to fiscal year 2011, € 4,088,554.14 to fiscal year 2012 and € 2,076,623.64 to fiscal year 2013.

In conclusion, for purposes of determining the taxable profit of 2012, an increase was proposed in the amount of € 4,088,554.14, relating to omitted income from interest in this fiscal year relating to the loan C… granted by A… to B…, in accordance with the provisions of nos. 1 and 3 of article 17° and no. 1 of article 18° and subparagraph c) of no. 1 of article 20°, all of the Corporate Income Tax Code.

III.1.2.1.1.1.6. The taxpayer was notified, in accordance with subparagraph e) of no. 1 of article 60° of the General Tax Law and no. 1 of article 60° of the Supplementary Tax and Administrative Inspection Procedure Rules, of the contents of Letter no. …, of 09-06-2016, registered letter no. RD…PT, received by the taxpayer on 14-06-2016, to exercise the right to a hearing within a period of 15 (fifteen) days.

The taxpayer exercised the right to a prior hearing in writing form, which was filed in these services with registration no. 2016…, of 28-06-2016 and which is attached as Annex 10.

III.1.2.1.1.1.7. In exercising the right to a prior hearing, the taxpayer expressed itself in the following terms:

III.1.2.1.1.1.7.1. As to the manner in which the inspection procedure was conducted, the taxpayer questions the fact that A… SGPS was notified of the note of completion of inspection on 06-05-2016, which stated that no corrections were to be made to the taxable profit determined by the taxpayer, thus concluding the inspection procedure for that tax period, when at the end of that same day A… SGPS is contacted to return the said note of completion of inspection, which allegedly stated by error that "no tax or tax-related unfavorable acts for the taxpayer existed". It considers it strange that the said error was corrected (i) more than a month later; (ii) using information collected/requested in the course of the inspection procedure relating to the tax period 2013 and (iii) using a procedure of "information cross-checking" with Winreason, which was initiated only after the initial note of completion of inspection was issued. A… SGPS declares for now to ignore these questions, but reserves the right to contest them in a later phase.

(paragraphs 3 to 8 of the right to a prior hearing)

III.1.2.1.1.1.7.2. Regarding the non-recording of interest on supplementary contributions and management fees in the amount of € 4,429,012.39, the taxpayer states that it did not proceed to record any income relating to interest receivable from B… in its financial statements, with respect to C…, from 1 July 2011 until the date on which the shareholding was alienated (2013), because only on that date was the right to interest constituted. And, on that date (2013), the interest relating to the period between July 2011 and the date of closing (2013) was recognized. In accordance with the taxpayer, on each of the Calculation Dates, B… did not have Available Cash-Flow. Not having had Available Cash-Flow (not for payment of interest to A… SGPS, but for purposes of the birth of the obligation in the sphere of B…), no maturity of interest occurred on the Calculation Date, so, in accordance with the contract clause, the same were not owed. The taxpayer concludes that A… could not have proceeded to recognition for tax purposes of those amounts for the simple reason that in 2012 it had not yet acquired the right to them. It states that the same occurred with respect to interest arising from supplementary contributions granted in the tax period 2012, in the amount of € 1,312,000.00, as well as regarding management and advisory fees.

A… SGPS considers that, with respect to interest and management fees for the period from July 2011 onwards, it was facing a contingent asset, since the existence thereof would only be confirmed by the occurrence of an uncertain future event, which, in accordance with the definition of Available Cash-Flow referred to above, was not under the control of A… SGPS. According to A… SGPS, as the inflow of economic benefits did not appear probable until the moment of alienation of the receivables, no asset was recognized, nor was any contingent asset disclosed, in accordance with accounting standards.

According to the taxpayer, symmetrically, from the perspective of the counterparty debtor (in this case, B…), one would be facing a contingent liability. It states that it understands the reason why the auditors of B… (indeed, the same as those of A… SGPS) required/approved the accounting recognition of these expenses, although this did not result from the clause of the financing contract. In accordance with the principle of prudence, which allows the inclusion of a degree of caution in making the estimates required under conditions of uncertainty, so that assets or income are not overstated and liabilities or expenses are not understated, the auditors of B… had no alternative but to require the recognition of this liability. However, it considers that such expenses recorded by B… should not have counted for tax purposes because such expenses were not matured.

(paragraphs 9 to 61 of the right to a prior hearing)

III.1.2.1.1.1.8. In response to the right to a hearing, summarized in the points above, we have to state the following:

III.1.2.1.1.1.8.1. Regarding the considerations made by the taxpayer on the manner in which the inspection procedure was conducted:

III.1.2.1.1.1.8.1.1. Pursuant to article 61° of the Supplementary Tax and Administrative Inspection Procedure Rules, the Note of Completion of Inspection determines the date on which the inspection acts are considered concluded, but not, obviously, the date of conclusion of the inspection procedure.

The inspection procedure is considered concluded on the date of notification to the taxpayer of the Final Inspection Report.

The issuance of the Note of Completion of Inspection is intended to inform the taxpayer that on that date the investigations and verifications necessary for the inspection procedure with the taxpayer terminated.

III.1.2.1.1.1.8.1.2. When on 06-05-2016 A… SGPS was initially notified of the note of completion of inspection, from that date onwards, no further inspection acts were carried out by these services in the facilities of the taxpayer within the scope of this procedure.

However, the Note of Completion of Inspection initially issued mentioned that "no tax or tax-related unfavorable acts resulted for the taxpayer", when in fact they did result, a situation which came to be rectified with the issuance of a new Note of Completion of Inspection on 07-06-2016.

Having these services noticed the error and having communicated and explained it to the taxpayer, the latter did not oppose the return of the initial Note of Completion of Inspection, which was filed in these services on 09-05-2016, in accordance with general entry no. 2016… and is archived in the file.

III.1.2.1.1.1.8.1.3. For the preparation of the Draft Report Conclusions, these services made use not only of the elements collected with the taxpayer during the inspection acts carried out within the scope of this inspection procedure, but also of the elements existing in the archives of the Authority for Tax Administration and Customs, in particular, those contained in the inspection procedures carried out by these services to the taxpayer at an earlier date or still in progress (as in the case of the inspection of fiscal year 2013, in accordance with service order no. OI2015…, already referred to, which was in the Draft Report Conclusions phase when the Draft Report Conclusions phase, within the scope of this procedure, was issued), as well as information requested from other entities that is relevant for the inspection procedure under review, a situation provided for in subparagraph e) of no. 2 of article 28° and subparagraph b) of no. 3 of article 29°, both of the Supplementary Tax and Administrative Inspection Procedure Rules. All these elements were analyzed without prejudice to the six-month period defined for the inspection procedure, stipulated in no. 2 of article 36° of the Supplementary Tax and Administrative Inspection Procedure Rules.

(...)

III.1.2.1.1.1.8.2.2. The income of A… SGPS in fiscal year 2013, as can be verified in the general analytical trial balance, attached as Annex 11, is summarized in the following table:

[Table]

(...)

As for the balance sheet of A… SGPS in fiscal year 2013, it is verified that, with respect to C…, A… SGPS has an asset recognized in account # 272101 - "Debtors for Accrued Income - Interest Receivable B…", in the amount of € 14,695,897.15, relating to interest accrued on this loan up to 30 June 2011, which until the date of 8 August 2013 had not been paid by B….

With respect to the supplementary contribution of € 1,312,000.00 that it granted to B… in fiscal year 2012, A… SGPS has no asset recognized relating to accrued interest on this loan.

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III.1.2.1.1.1.8.2.3. In the contract entered into with the entity to which A… SGPS sells its shareholding in the capital of B…, as well as the corresponding ancillary benefits and loans granted by A… SGPS to B… and relating interest of the latter and other rights of claim of A… SGPS over B…, A… SGPS assumes that such amounts are owed by B…, but its accounts do not reflect them. See the summary in the following table:

[Table]

We understand that the sale price contained in the contract referred to above, in the total amount of € 21,701,073.00 was divided between A… SGPS and I… (I…), based on the amounts owed, but the accounts of A… SGPS do not reflect the recognition of such values.

III.1.2.1.1.1.8.2.4. These revenues were not only not recorded throughout the period between 1 July 2011 and 8 August 2013, as the taxpayer himself confirms, as they were not recorded on the date of sale. In conclusion, such revenues were never recorded in the accounts of A… SGPS.

It should be noted that the taxpayer states that such revenues were recorded in 2013, without providing proof of such recording.

We thus have that, not only did these services confirm that such revenues were never recorded in the accounts of A… SGPS, but the taxpayer does not sustain its statements with means of proof that support its claims.

Whereby the taxpayer's request cannot be accepted.

(...)

III.1.2.1.1.1.8.2.8. With respect to the loan C… granted by A… SGPS to B…, the taxpayer states in the right to a prior hearing that as a result of the entry into force of the third amendment to this contract, which occurred on 1 July 2011, from that date and until 8 August 2013, no right to interest materialized in that period and for that reason this income was not accounted for in that period. In accordance with the taxpayer, in that period there was no Available Cash-Flow (note that the non-existence of Available Cash-Flow is assessed in the sphere of B…), so no maturity of interest occurred on the Calculation Date and, thus, in accordance with the contract clause, the same were not owed. In accordance with the taxpayer, this interest was only owed on the date on which the shareholding in the capital of B… would be alienated, that is, on 8 August 2013.

In addition to the fact that these services have already proven that on the date of alienation of the shareholding in the capital of B…, A… SGPS did not account for this income, A… SGPS does not clearly explain the reason why the right to interest is constituted on that date, that is, on 8 August 2013. It is inferred from the reading of the said right to a hearing that, on that date, B… had Available Cash-Flow. However, it is not stated what is the source of this Available Cash-Flow nor is it supported by documentation. The sale price of the shareholding in the capital of B…, as well as the corresponding ancillary benefits and loans granted by A… SGPS to B… and relating interest of the latter and other rights of claim of A… SGPS over B…, constituted Available Cash-Flow, but of A… SGPS and I…, among the most relevant sellers.

On the other hand, in accordance with the provision of clause (L) of the third amendment, as we referred to in the Draft Report Conclusions, as from 1 July 2011, interest is due on the Calculation Date, if there is Available Cash-Flow and shall be paid when A… SGPS issues an Interest Payment Notice.

The Calculation Date means each 31 October following each period of 12 months from 1 July 2011 and the date of repayment of the loan C…. This last date is the one on which: (i) B… pays € 24,500,000.00 to A… SGPS or (ii) B…, directly or indirectly, sells more than 50% of the capital of G… and in the case of indirect sale, the funds are placed at the disposal of B…, in whole or in part.

Not having B… paid € 24,500,000.00 to A… SGPS (nor to …), nor having B…, directly or indirectly, sold more than 50% of the capital of G…, assuming that there was Available Cash-Flow in B… on 8 August 2013, in accordance with the third amendment, the interest owed corresponded to a part of the period and not the entire period from 1 July 2011 to 8 August 2013, as the taxpayer acknowledges is owed in the contract for the sale of the shareholding and confirms in the right to a prior hearing.

Finally, we verify that throughout the period between 1 July 2011 and 8 August 2013, B… is making use of the money that A… SGPS granted to it, B… records the respective expense throughout this period, but A… SGPS recognizes no income. However, as of 8 August 2013, it confesses itself debtor of this income, which means that the interest arising from this loan is matured.

III.1.2.1.1.1.8.2.9. The fact that the financing contract establishes that the maturity of interest is dependent on certain factors which, according to A… SGPS, did not occur in this fiscal year, does not mean that it has not acquired rights over its receipt, so, having regard to the provision of no. 1 of article 18° of the Corporate Income Tax Code, annual accrual must be effected.

The Corporate Income Tax Code establishes for tax purposes the principle of period specialization provided for in article 18° in which all expenses and income must be accounted for in the year in which they are obtained or incurred, independently of their receipt or payment. Thus, A… SGPS cannot state that it considers the total value of interest corresponding to the periods of 2011 and 2012 in fiscal year 2013, since that established in the Corporate Income Tax Code concerning positive or negative components relating to previous fiscal years can only be done if the same are unforeseeable or unknown on the date of the period to which they should have been attributed.

Pursuant to the said provision, it is forbidden to any taxpayer to defer at his discretion the moment for accounting expenses or income as it is the law itself that will establish rules for this purpose, namely, it will oblige him to allocate the expenses or income in the fiscal year to which they relate.

In the contract entered into between A… SGPS and B… the onerous nature of the loan granted was defined.

Thus, A… SGPS should have reflected in fiscal year 2012 the amount of interest owed under the contracts with B…, under penalty of the financial statements not reflecting the economic/financial reality.

On the other hand, A… SGPS should heed the principle of prudence provided for in paragraph 37 of the Conceptual Framework, which states that "Preparers of financial statements, however, have to grapple with uncertainties that inevitably surround many events and circumstances, such as the doubtful collection of receivables (...). It further states that "Prudence is the inclusion of a degree of caution in exercising the judgments necessary to make the estimates necessary under conditions of uncertainty, so that assets or income are not overstated and liabilities or expenses are not understated".

For what was stated, A… SGPS should have recognized in fiscal year 2012 the interest, as in addition to being possible it was required, and although the taxpayer considers the moment of maturity in fiscal year 2013, but in fact the moment in which the interest is owed is in fiscal year 2012.

On the other hand, having regard to the definition of contingent asset provided for in paragraph 8 of NCRF 21 - "... is a possible asset arising from past events and the existence of which will only be confirmed by the occurrence or not of one or more uncertain future events not entirely under the control of the entity", it does not appear to us that the non-accounting of interest by A… SGPS had accommodation in that definition, as the taxpayer intends.

There being special relations between the two companies in accordance with article 63° of the Corporate Income Tax Code and, by way of example, the existence of Available Cash-Flow, a condition necessary for the recognition of interest, would be dependent on A… SGPS granting a new loan or selling part of the capital it held in B…, it does not appear to us that any grounds can be alleged for the non-accounting of interest.

III.1.2.1.1.1.8.2.10. In conclusion, with respect to the loan C… granted by A… SGPS to B…, we have that A… SGPS considers that: the interest arising from this loan relating to the period between 1 July 2011 and 8 August 2013 matured on 8 August 2013 and for that reason were only recorded on that date. However, we verified that A… SGPS did not record in fiscal year 2013 this income, did not demonstrate why this income is owed on that date, and why on that date all the interest relating to that period matures, as this does not result from the third amendment to the contract, while B… during that period continued to make use of the money that A… SGPS granted to it.

Pursuant to the provision of nos. 1 and 3 of article 17° of the Corporate Income Tax Code, no. 1 of article 18° and subparagraph c) of no. 1 of article 20°, all of the Corporate Income Tax Code, the income from interest generated by this loan is owed and attributable to the period to which the dates refer, that is, in which it was in fact generated, relating to fiscal year 2012 the amount of € 4,088,554.14.

Whereby the taxpayer's request cannot be accepted.

III.1.3. MERELY ARITHMETIC CORRECTIONS TO THE FISCAL RESULT OF THE GROUP OF COMPANIES

In accordance with that stated in articles 69° and 70°, both of the Corporate Income Tax Code, the corrections made in fiscal year 2012 to the company A… SGPS, as a company that forms part of the group of companies, have repercussions in the determination of the fiscal result of the group, as demonstrated in the following determination:

[Table]

In view of the factual situation exposed, the fiscal result of the group for fiscal year 2012, contained in the group's income statement, Corporate Income Tax model 22 (taxable declaration) changed from a taxable profit in the amount of € 12,347,780.04 to a taxable profit in the amount of € 16,776,792.43, as shown in the following summary table:

[Table]

Following the inspection, an additional assessment of Corporate Income Tax and compensatory interest was issued, a copy of which is attached as document no. 1 to the request for arbitral determination, the tenor of which is reproduced in full, in the amount of € 1,444,238.64, being € 166,492.12, determined in accordance with assessment no. 2016…;

A… held in 2012 a shareholding of 7.96% in B… S.A. (page 10 of the Tax Inspection Report attached as document no. 3);

B… S.A. had as its principal asset E…, fixed telecommunications operator (Annex 8 of the Tax Inspection Report attached to the request for arbitral determination as document no. 4, specifically

B… S.A. was incorporated in 2006, and on 30-06-2011, accumulated negative results (in retained earnings account) in the amount of € 85,228,563, to which are added the negative results of the fiscal year itself of € 7,773,484, had a negative shareholders' equity of € 26,800,073, despite contributions by way of share capital and supplementary benefits from which it benefited from the shareholders, and accumulated reportable tax losses in the amount of € 33,078,304 (pages 11 and 26 of the 2012 accounts, which form part of document no. 4 attached to the request for arbitral determination);

E…, SGPS, SA, on 31-12-2011, presented negative shareholders' equity of € 112,171,956 (page 23 of the 2012 accounts of B… S.A., which form part of document no. 4 attached to the request for arbitral determination);

From 2011 to 2012, or from 2012 to 2013, the economic-financial scenario of B… S.A. and its subsidiary E… maintained the trend of more losses and a worsening of its economic-financial situation (document no. 4 attached to the request for arbitral determination);

B… S.A. proved incapable of paying the interest owed to A… for financing granted by it;

On 30-06-2011 accrued unpaid interest on the loan designated as C…, in the amount of € 14,695,897.15, representing more than half of the value of the loan in question, which on that date was € 24,500,000 (first paragraph of page 16 of the Tax Inspection Report);

The financing/loan contract of A… to B… S.A. known as C… was signed in the year 2007, involved at that date the amount of € 25,000,000, and provided then a right to interest by mere passage of time, without subjection to any other condition (document no. 6 attached to the request for arbitral determination, the tenor of which is reproduced in full and page 13 of the Tax Inspection Report);

This contract underwent amendments, one of which was the third amendment of 15-12-2011, which changed the regulation of the right to interest (document no. 5 attached to the request for arbitral determination, the tenor of which is reproduced in full, and pages 14 and 15 of the Tax Inspection Report), providing for in clause 5.2.3 that, as from 1 July 2011 and until the issuance of an insolvency declaration against B…, if there is Available Cash-Flow, in a period of 12 months from 1 July 2011, the interest with respect to € 24,500,000.00 shall be due in an amount equivalent to the Available Cash-Flow in that period, with such interest having a limit defined based on the formula described there; [5]

The Claimant paid the amount of € 108,541.72 for partial payment of the Corporate Income Tax and compensatory interest assessment which is the subject of this proceedings, in the part relating to the unchallenged corrections (document no. 2, attached on 23-05-2017, the tenor of which is reproduced in full);

The Claimant provided bank guarantee to suspend the tax enforcement proceedings no. …2016…, instituted for the coercive collection of the amounts assessed, which it then reinforced, in the manner stated in documents nos. 3 and 4, attached on 23-05-2017, whose tenors are reproduced in full);

On 02-05-2017, the Authority for Tax Administration and Customs used the amount of € 239,486.01 of a credit of the Claimant to effect compensation with the amount assessed in this proceedings (document no. 1 attached to the application presented by the Claimant on 23-05-2017, the tenor of which is reproduced in full);

On 19-01-2017, the Claimant presented the request for constitution of the arbitral tribunal which gave rise to the present proceedings.

3.2. Unestablished Facts

There are no facts relevant to the decision of the case that have not been established.

3.3. Grounds for the Determination of Material Facts

The established facts are based on the documents attached by the Claimant to the request for arbitral determination and on the administrative file.

4. Legal Issues

4.1. The Essential Issue Which is the Subject of the Present Proceedings

The Claimant granted a remunerated loan to its subsidiary B…, designated as C…, on 30-01-2017, in the amount of € 25,000,000.00. In fiscal year 2009, B… reimbursed part of the loan in the amount of € 500,000.00. In fiscal year 2012, this loan remained outstanding and was recorded in the accounts of A… SGPS in account # 4123101 - "Loans Granted – B…", in the amount of € 24,500,000.00.

In a second amendment to the contract, made on 09-05-2011, it was agreed that, as from 01-02-2011, the loan accrues interest at the rate of 6-month Euribor, plus a fixed spread of 7.883% (annex 4 to the Tax Inspection Report).

On 15-12-2011, a third amendment to the contract was made, which forms Annex 5 to the tax inspection report.

In accordance with the provision of clause (L) of the third amendment, as from 01-07-2011, interest is due on the Calculation Date [6], if there is Available Cash-Flow [7] and shall be paid when A… SGPS issues an Interest Payment Notice [8].

Interest accrued on this loan, which, in fiscal year 2012, was recorded in the accounts of A… SGPS in account # 272101 - "Debtors for Accrued Income - Interest Receivable B…", in the amount of € 14,695,897.15. But, the interest recorded relates to interest accrued on this loan up to 30-06-2011, which remained outstanding in this fiscal year, as from 01-07-2011, the Claimant SGPS ceased to record in income the interest generated by this loan.

However, on 08-08-2013, when A… SGPS alienated this loan and the respective interest to "H…", in accordance with the purchase and sale contract which forms document no. 8 attached to the request for arbitral determination, the interest receivable from B…, alienated in the said contract, amounted to € 22,703,743.00. As the Claimant explains, "instead of recording in the purchase and sale contract only the amount of interest on C… calculated and recorded by A… as income (although never received) up to 30 June 2011, in the amount of € 14,695,897 (see pages 11 and 12 of the Tax Inspection Report), an amount of interest was recorded in the amount of € 22,703,743 (page 11 of the Tax Inspection Report), with the additional € 8,007,846 (€ 22,703,743 - € 14,695,897) corresponding to the interest that would have been constituted if the said Available Cash-Flow condition imposed by the third amendment to the contract had occurred (see page 22 of the Tax Inspection Report)" (article 70.º of the request for arbitral determination).

B… S.A., as from 01-07-2011, continued to record for itself expenses with interest, notwithstanding any notice of the occurrence of the Available Cash-Flow condition, recording that, on the date of the purchase and sale on 8 August 2013, amounted to the said € 7,905,700.27, and which with respect to the year 2012 in question in this arbitration amounted to € 4,088,554.14 (article 73.º of the request for arbitral determination).

The issue which is the subject of this arbitral proceedings is whether the interest provided for in the contract should be considered for the formation of the taxable profit of fiscal year 2012, despite no payment being made in that fiscal year, nor the condition introduced in the 3rd amendment to the contract, of the existence of Available Cash-Flow by B…, being verified.

4.2. Examination of the Issue

Article 17.º, no. 1, of the Corporate Income Tax Code establishes that "the taxable profit of legal entities and other entities mentioned in subparagraph a) of no. 1 of article 3.º is constituted by the algebraic sum of the net result of the period and the positive and negative changes in assets and liabilities verified in the same period and not reflected in that result, determined on the basis of accounting and possibly corrected in accordance with this Code."

In no. 3 of the same article it is established that "accounting must (...) be organized in accordance with standardized accounting and other legal provisions in force for the respective sector of activity, without prejudice to compliance with the provisions set out in this Code."

The Corporate Income Tax Code thus establishes a model of partial dependence between taxation and accounting, in accordance with which taxable profit is determined on the basis of the accounting result and changes in assets and liabilities not reflected in the same, with adjustments being made to extra-accounting positive or negative adjustments provided for in tax legislation.

In accordance with this model, the treatment resulting from accounting standards is applicable (and accepted) for tax purposes whenever the Corporate Income Tax Code and any complementary legislation do not establish their own rules that determine otherwise. This model of partial dependence between accounting and tax law has been embraced for a long time in the Portuguese tax system. In the preamble to Decree-Law no. 442-B/88, of 30 November, it is stated that: "whenever their own tax rules are not established, the accounting treatment resulting from accounting standards is embraced."

Regarding the "accrual of taxable profit", article 18.º of the Corporate Income Tax Code establishes that "income and expenses, as well as other positive or negative components of taxable profit, are attributable to the tax period in which they are obtained or incurred, independently of their receipt or payment, in accordance with the economic accrual basis" and "positive or negative components considered as relating to previous periods are only attributable to the tax period when on the date of closing the accounts of the period to which they should have been attributed they were unforeseeable or manifestly unknown."

In view of these rules, where there is a right to a receivable relating to interest relating to the period of 2012, it should be considered income of that fiscal year, as it is in that period of validity of the loan contract that the respective right of receivable is generated, which is formed by the passage of time without the loan being paid, independently of whether or not its receipt is realized (without prejudice to the impossibility of recovery of the right of receivable being able to have tax relevance, within the conditioning provided for in articles 35.º, 36.º and 41.º of the Corporate Income Tax Code).

However, in the case in question, pursuant to the third amendment to the contract, the right to interest became dependent on a supplementary condition, which is that B… has Available Cash-Flow, a condition which did not occur, either in fiscal year 2012, or until the moment the Claimant alienated its shareholding in B…, as well as the ancillary benefits, supplementary contributions and corresponding interest and other rights of claim it held over B… (management fees), which became final on 8 August 2013.

Thus, the said contract being valid in view of civil law, its effectiveness for tax purposes must be recognized, as this could only be set aside by activating the general anti-abuse clause provided for in article 38.º of the General Tax Law, which did not occur.

Therefore, in view of the contract, in the version resulting from the 3rd amendment, and the subsequent alienation of the rights of receivable, it must be concluded that the right to interest never entered the sphere of law of the Claimant, as the condition upon which its existence became subordinated was not met.

Thus, one is in a situation different from that which underlay the decision of 14-04-2015, pronounced in arbitral proceedings no. 571/2014-T, invoked by the Authority for Tax Administration and Customs. In fact, in that proceedings no. 571/2014-T, one was in a situation in which the conditions provided for in the contract for the existence of a right to interest had been met, so there a right of receivable existed that entered the sphere of law of the taxpayer, and the issue of contention was whether the interest relating to the periods of 2007 and 2008 should be allocated to the respective fiscal years or to that of 2012, in which the taxpayer recorded it.

But, in the present proceedings, after the 3rd amendment to the contract, the condition upon which the existence of a right to interest became dependent was not met until the alienation of the rights emerging from the loan contract, so no right to interest can be identified that would have entered the sphere of law of the Claimant.

Therefore, the contract being effective for tax purposes, there was no income of the Claimant, so the question of identifying the fiscal year to which it should be allocated if it existed does not arise, but instead one must conclude that there is no basis for taxation in the sphere of law of the Claimant relating to the hypothetical right to interest that did not materialize.

In these terms, it is concluded that the contested assessment suffers from a defect of violation of law (articles 17.º and 18.º of the Corporate Income Tax Code) which justifies its annulment, in accordance with article 163.º, no. 1, of the Administrative Procedure Code, subsidiarily applicable by force of the provision of article 2.º, subparagraph c), of the General Tax Law.

5. Indemnification for Harm Resulting from the Provision of Guarantee

The Claimant requests indemnification for harm suffered with the provision of guarantees.

Article 53.º of the General Tax Law establishes in its nos. 1 and 2, that "the debtor who, to suspend enforcement, offers bank guarantee or equivalent shall be indemnified in whole or in part for the harm resulting from its provision, if he maintained it for a period exceeding three years in proportion to the outcome in administrative review, challenge or opposition to enforcement which have as their subject the debt guaranteed" and that "the period referred to in the previous number does not apply when it is verified, in administrative review or judicial challenge, that there was error attributable to the services in the assessment of the tax."

In the case in question, the error that affects the contested assessment is attributable to the Authority for Tax Administration and Customs which issued it on its own initiative, so the Claimant is entitled to indemnification for the expenses in which it incurred with the provision of guarantees to suspend the tax enforcement proceedings no. …2016…

Not having elements that allow the determination of the amount of indemnification, the judgment must be made with reference to what comes to be assessed in execution of the present decision [article 609.º, no. 2, of the Code of Civil Procedure, subsidiarily applicable, by force of the provision of article 29.º, no. 1, subparagraph c), of the RJAT].

6. Request for Refund and Indemnity Interest

The Claimant requests the refund of the amount that was compensated by the Authority for Tax Administration and Customs, increased by indemnity interest.

On 02-05-2017, the Authority for Tax Administration and Customs used the amount of € 239,486.01 of a credit of the Claimant to effect compensation with the amount assessed in these proceedings, so payment of that amount was made.

Indemnity interest is owed when it is determined, in administrative review or judicial challenge, that there was error attributable to the services resulting in the payment of the tax debt in an amount superior to that legally owed (article 43.º, no. 1, of the General Tax Law).

Having there been payment of undue tax, by compensation, and the assessment being attributable to error attributable to the services, the Claimant is entitled to the refund of that amount of € 239,486.01 and is entitled to indemnity interest calculated on the basis thereof, at the legal default rate, counted from 03-05-2017, until its complete reimbursement, in accordance with articles 43.º, nos. 1 and 4, and 35.º, no. 10, of the General Tax Law, 61.º, nos. 2, 3, 4 and 5, of the Code of Tax and Administrative Procedure, and art. 559.º of the Civil Code and Ordinance no. 291/2003, of 8 April.

7. Decision

In these terms, this Arbitral Tribunal agrees to:

a) Judge the request for arbitral determination well-founded as to the issue of illegality and partial annulment of the additional assessment of Corporate Income Tax (and surtax) and compensatory interest no. 2016… and annul this assessment in the part relating to the correction to taxable profit for fiscal year 2012 in the amount of € 4,088,554.14, which in the Tax Inspection Report is identified as "interest on C…";

b) Annul the Corporate Income Tax and compensatory interest assessment in the part that is based on that correction;

c) Judge the request for indemnification for undue guarantee well-founded and condemn the Authority for Tax Administration and Customs to pay the Claimant the indemnification that comes to be assessed in execution of the present decision;

d) Judge well-founded the requests for refund and for indemnity interest, in the manner referred to in section 6 of this decision.

8. Value of the Case

In accordance with the provision of art. 306.º, no. 2, of the Code of Civil Procedure and 97.º-A, no. 1, subparagraph a), of the Code of Tax and Administrative Procedure and 3.º, no. 2, of the Rules of Costs in Tax Arbitration Proceedings, the value of the case is set at € 1,336,488.93.

9. Costs

Pursuant to art. 22.º, no. 4, of the RJAT, the amount of costs is set at € 18,054.00, in accordance with Schedule I attached to the Rules of Costs in Tax Arbitration Proceedings, to be borne by the Authority for Tax Administration and Customs.

Lisbon, 04-07-2017

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Eduardo Paz Ferreira)

(António Martins)

[1] The Calculation Date means each 31 October following each period of 12 months from 1 July 2011 and the date of repayment of the loan C…. This last date is the one on which: (i) B… pays € 24,500,000.00 to A… SGPS or (ii) B…, directly or indirectly, sells more than 50% of the capital of G… and in the case of indirect sale, the funds are placed at the disposal of B…, in whole or in part. (Note of the Tax Inspection Report)

[2] Available Cash-Flow means, with respect to each period of 12 months from 1 July 2011, the money received by B… from any entity (unless expressly agreed otherwise between … and A… SGPS) including, but not limited to, the money received by B… through the distribution of dividends, redemption of shares, reimbursement of ancillary benefits, reimbursement of loans and payment of respective interest, payment of invoices, disposal of assets or other, and any money received for repayment of € 24,500,000.00, provided that such money has not been applied (and is not intended to be applied in the period of 12 months from 1 July 2011 and thereafter) in: (i) payment of the expenses, debts and investments of B… or (ii) financing of the subsidiaries of B…. (Note of the Tax Inspection Report)

[3] Interest Payment Notice means the Notice issued by A… SGPS to B… for payment of interest. (Note of the Tax Inspection Report)

[4] Interest Limit = € 24,500,000.00 x (12-month Euribor + 7.883%) - Interest Paid. As for default interest, the default interest limit = € 14,695,897.15 x (12-month Euribor + 7.883%) - Interest Paid. (Note of the Tax Inspection Report)

[5] 5.2.3 As from (and including) 1 July 2011 and until the occurrence of an Insolvency Event which is continuing, if there is any Cash-Flow Available in a Relevant Period (IM), interest in respect of the Outstanding Principal Amount will be due at the relevant Interest Due Date in an amount equivalent to the amount of Cash-Flow Available and, in any case, up to the maximum amount of interest ("MAI") calculated at the relevant Calculation Date as follows:

[6] The Calculation Date means each 31 October following each period of 12 months from 1 July 2011 and the date of repayment of the loan C…. This last date is the one on which: (i) B… pays € 24,500,000.00 to A… SGPS or (ii) B…, directly or indirectly, sells more than 50% of the capital of G… and in the case of indirect sale, the funds are placed at the disposal of B…, in whole or in part. (Note of the Tax Inspection Report)

[7] Available Cash-Flow means, with respect to each period of 12 months from 1 July 2011, the money received by B… from any entity (unless expressly agreed otherwise between … and A… SGPS) including, but not limited to, the money received by B… through the distribution of dividends, redemption of shares, reimbursement of ancillary benefits, reimbursement of loans and payment of respective interest, payment of invoices, disposal of assets or other, and any money received for repayment of € 24,500,000.00, provided that such money has not been applied (and is not intended to be applied in the period of 12 months from 1 July 2011 and thereafter) in: (i) payment of the expenses, debts and investments of B… or (ii) financing of the subsidiaries of B…. (Note of the Tax Inspection Report)

[8] Interest Payment Notice means the Notice issued by A… SGPS to B… for payment of interest. (Note of the Tax Inspection Report)