Order — ECLI:EU:C:2019:619
Date: 2019-07-15
Language of the case: Portuguese
Court formation: Eighth Chamber
Subject matter: Approximation of laws
Procedure: Reference for a preliminary ruling
Origin: Portugal

Summary C-438/18 - 1 
Case C-438/18 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
4 July 2018 
Referring court:  
Tribunal Arbitral Tributário (Centro de Arbitragem Administrativa - 
CAAD) (Tax Arbitration Tribunal, Centre for Administrative 
Arbitration) (Portugal) 
Date of the decision to refer:  
14 June 2018 
Applicant:  
Galeria Parque Nascente-Exploração de Espaços Comerciais S.A. 
Defendant:  
Autoridade Tributária e Aduaneira 
      
I. Subject-matter of the dispute; 
The present dispute concerns an application for a declaration that the corporation 
tax and compensatory interest assessments are unlawful and should, therefore, be 
annulled, for failing to take into account the fact that the financial costs incurred 
by the Galeria Parque Nascente-Exploração de Espaços Comerciais S.A. 
stemming from a ‘reverse merger’ are deductible for tax purposes. 
II. Provisions of EU law at issue 
Council Directive 2009/133/EC of 19 October 2009 on the common system of 
taxation applicable to mergers, divisions, partial divisions, transfers of assets and 
exchanges of shares concerning companies of different Member States and to the 
transfer of the registered office of an SE or SCE between Member States: recital 2 
and Articles 4 and 15. 
 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING - CASE C-438/18 
 
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III. Provisions of national law at issue 
Decreto-Lei n.° 442-B/88 que aprova o Código do Imposto sobre o Rendimento 
das Pessoas Coletivas (IRC) (Decree-Law No 442-B/88 introducing the 
Corporation Tax (‘CT’) Code): Article 23(1)(c) (in the version in force in 2013) 
and Article 23(1) and (2)(c) (in the version in force in 2014), and Article 73(10) 
Article 23 
Costs 
1 — Costs shall mean those costs which are shown to be essential in order to earn 
the income subject to the tax or to maintain the income-generating source, 
namely: 
... 
(c) Financial costs, such as interest on third-party capital applied in the 
operation, discounts, agios, transfers, exchange differences, credit operation costs, 
debt recovery and issuance of bonds or other securities, redemption premiums and 
those resulting from the application of the effective interest method to the 
financial instruments evaluated according to amortised cost. 
Article 23 
Costs and losses 
1. In order to determine the taxable profit, all the costs and losses incurred or 
borne by the taxable person in order to obtain or ensure the income subject to 
corporation tax shall be deductible.  
2. The following costs and losses shall be considered to be encompassed by the 
preceding paragraph, namely: 
... 
(c) Financial costs and losses, such as interest on third-party capital applied in 
the operation, discounts, agios, transfers, exchange differences, credit operation 
costs, debt recovery and issuance of bonds or other securities, redemption 
premiums and those resulting from the application of the effective interest method 
to the financial instruments evaluated according to amortised cost. 
GALERIA PARQUE NASCENTE 
 
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Article 73 
Definitions and scope 
… 
10 — The special scheme established in the present sub-section shall not apply 
either in whole or in part, when it is determined that the transactions covered by it 
have as their principal objective or as one of the principal objectives tax 
avoidance, which may be considered to exist, in particular, where the companies 
involved are not all subject to the same system of corporation tax on all their 
income or where transactions have not been carried out for valid commercial 
reasons, such as restructuring or rationalisation of the activities of companies that 
participate in them, making then, if appropriate, the corresponding additional tax 
assessments.’ 
IV. Facts and procedure 
In 2009, a company called GALA DAS CONQUISTAS, S.A. (parent company), 
which had been formed in April of that year, took out loans of approximately 
EUR 70 million in order to purchase a 100% shareholding in another company, 
Galeria Parque Nascente-Exploração de Espaços Comerciais S.A. (GPN) 
(subsidiary company), both companies being resident in Portugal. 
The interest incurred by the parent company GALA DAS CONQUISTAS, S.A. 
(by way of consideration for the financing obtained) was deducted for tax 
purposes from its earnings, as was accepted by the Autoridade Tributária (tax 
authority). 
Also in 2009, the parent company GALA DAS CONQUISTAS, S.A. and GPN 
merged into single entity, with retroactive effect to 22 April 2009: 
(a) by means of the absorption of the parent company GALA DAS 
CONQUISTAS, S.A. (the company being acquired) into GPN (the acquiring 
company), in a ‘reverse merger’; 
(b) with the application of the regime provided for under national law (Articles 
73 and 74 of the CT Code), copied from Council Directive 90/434/EEC of 23 July 
1990, replaced in the meantime by Council Directive 2009/133/EC of 19 October 
2009 (‘the directive’). 
In accordance with that regime under the CT Code, the results (gains and losses) 
stemming from the transfer of assets and legal positions as a result of the merger 
were not taxed; in other words, they were treated as tax neutral, through the 
suspension (deferment) of the tax results of those transfers. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING - CASE C-438/18 
 
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As a legal effect of the merger, the financial charges resulting from the loan 
originally taken out by the company now being acquired (GALA DAS 
CONQUISTAS, S.A.) were transferred to the acquiring company (GPN), which 
were debited to it and for which it became liable and made payment. 
In 2013 and 2014, those loans were still ‘live’ and GPN incurred interest of 
EUR 3 673 438.00 and EUR 3 607 234.24, respectively ‒ which it considered 
deductible for tax purposes from the value of its annual income. 
The tax authority does not accept that that interest may be deducted by the 
acquiring company (that is, GPN), on the basis of the provisions of national law ‒ 
Article 23(1)(c) of the CT Code ‒ which requires there to be an essential causal 
link between the interest (cost) and the profits, the maintenance of the source of 
profits and the application of the funds in the operation of the organisation. 
Three relevant points must be borne in mind: 
(a) If the merger had not occurred, the interest would be deductible for tax 
purposes from the profits of the company which originally took out the loan and 
owned the shareholding (GALA DAS CONQUISTAS, S.A.); 
(b) That interest may not be deducted for tax purposes, according to the tax 
authority, because, as a result of the ‘reverse merger’ referred to, it understands 
that in the 2013 financial year the interest did not satisfy the requirements laid 
down in Article 23(1)(c) of the CT Code and in the 2014 financial year the 
requirements laid down in Article 23(1) and (2)(c) of that code; 
(c) The tax authority refuses the deduction of that interest for tax purposes, as a 
result of the merger referred to, on the basis of the interpretation of the national 
law in force in 2013 and 2014 (Article 23(1)(c) and (2)(c) of the CT Code) and not 
the anti-abuse clause of the directive (Article 15) or the national law transposing it 
(Article 73(10) of the CT Code). 
V. Grounds 
The questions have arisen because, among the other arguments relied on by it in 
the course of the proceedings, GPN stated that if Article 23 of the CT Code were 
interpreted as precluding the deduction of the interest after the abovementioned 
‘reverse merger’, the aims of the directive would be distorted. In that regard, it 
notes that the directive stipulates that operations such as mergers may be 
necessary in order to create within the European Union conditions analogous to 
those of an internal market, so that such operations ought not to be hampered by 
restrictions, disadvantages or distortions arising in particular from the tax 
provisions of the Member States. 
GALERIA PARQUE NASCENTE 
 
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VI. Questions referred 
1. If Article 23(1)(c) of the Corporation Tax Code, in the version in force in 
2013, and Article 23(1) and (2)(c) of that code, in the version in force in 2014, are 
interpreted as meaning that, after the ‘reverse merger’ in question, the interest on 
the loans taken out with third parties (which but for the merger would be 
deductible by the company now being acquired), in order to purchase the shares of 
the subsidiary which is now the acquiring company, and transferred as a result of 
the merger, ceases to be deductible for tax purposes from the profits of the 
acquiring company, will those provisions be compatible with Community law, in 
particular having regard to the fact that that non-deductibility of the interest may 
constitute an impediment or restriction to the merger operations encompassed by 
Council Directive 2009/133/EC, infringing the principles and objectives of that 
directive, as well as Article 4 thereof? 
2. If the first question is answered to the effect that that non-deduction of 
interest for tax purposes is compatible with the directive, will that answer remain 
unchanged by the fact that such a correction was not made on the basis of the anti-
abuse provision of the directive (Article 15) or the national law reproducing it 
(Article 73(10) of the Corporation Tax Code), but another provision of national 
law (Article 23 of the Corporation Tax Code)?