CAAD Case 106/2014-T: IRS General Anti-Abuse Clause and Tax Planning Legitimacy

TAX ARBITRATION CASE LAW

Case No. 106/2014-T

Date of Decision: 2022-06-01

Personal Income Tax (IRS)

Claimed Amount: € 486.908,35

Subject Matter:

Personal Income Tax - General Anti-Abuse Clause – Reform of the Arbitral Decision (attached hereto).
Replaces the Arbitral Decision of 17 October 2014

SUMMARY:

Tax planning consists in the minimization of taxes payable in a legitimate and lawful manner.

The taxpayer's choice of the solution accompanied by lower tax burdens does not, in itself, constitute any illegitimate tax planning.

The elements comprising article 38, section 2 of the General Tax Code (means, result, intellectual, normative and sanctioning elements) require cumulative verification.

In compliance with the judgment delivered by the Central Administrative Court South, in the context of proceedings for impugnation of arbitral decision which took place thereunder under No. 08129/14, instituted by the Tax and Customs Authority, the following is the arbitral decision reformed in accordance with the rescissory judgment of the Central Administrative Court South.

ARBITRAL DECISION

REPORT:

1. A…, taxpayer number … and [his] wife, B…, taxpayer number …;

2. C…, taxpayer number … and [his] wife, D…, taxpayer number …;

3. E…, taxpayer number … and [his] wife, F…, taxpayer number …;

4. G…, taxpayer number …;

5. H…, taxpayer number … and [his] wife, I…, taxpayer number …;

6. J…, taxpayer number … and [his] wife, K…, taxpayer number …;

7. L…, taxpayer number … and [his] wife, M…, taxpayer number …;

8. N…, taxpayer number … and [his] wife, O…, taxpayer number …;

9. P…, taxpayer number … and [his] wife, Q…, taxpayer number …;

10. R…, taxpayer number … and [his] wife, S…, taxpayer number …;

11. T…, taxpayer number …;

12. U…, taxpayer number … and [his] wife, V…, taxpayer number …; and

13. W…, taxpayer number …,

hereinafter designated as Claimants, filed a petition for constitution of an arbitral tribunal in tax matters and a petition for arbitral pronouncement, under the provisions of articles 2, section 1(a), 3, section 1, and 10, section 1(a), all of Decree-Law No. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters, abbreviated as RJAT), petitioning for:

• the illegality of the 13 Personal Income Tax assessment notices relating to the fiscal year 2009, in the total amount of € 486.908,35; and

• the condemnation of the Tax Authority (TA) to reimburse the tax paid unduly, plus compensatory interest, calculated pursuant to article 43 of the General Tax Code.

To substantiate their petition, they allege, in summary:

a) The Claimants were partners in the limited liability company "X…, L.da";

b) By promise-contract executed on 24/06/2008, the Claimants promised to sell to "Y…, SGPS, S.A." the totality of the quotas representing the capital stock of "X…, L.da" held by them;

c) On 02/04/2009, the partners of "Y…, SGPS, S.A." agreed to sell the totality of the capital stock of "Y…, SGPS, S.A." to Z…;

d) Z… imposed as a condition for the acquisition of the shares representing the capital stock of "Y…, SGPS, S.A." the transformation of "X…, L.da" into a joint-stock company;

e) On 09/07/2009, the limited liability company was transformed into a joint-stock company;

f) On 14/07/2009, the Claimants sold the equity interests they held, representing the capital stock of "AA…, S.A.", to "Y…, SGPS, S.A.";

g) On 15/07/2009, the holders of the shares representing the capital stock of "Y…, SGPS, S.A." sold them to Z…;

h) Following the inspection conducted for fiscal year 2009, with a view to inspecting the sales of equity interests in X… carried out by the Claimants, purchase and sale contracts of the equity interests in "AA…, S.A." were requested, with no further clarifications being requested;

i) The TA considered the transformation of "X…, L.da" into a joint-stock company as abusive tax planning, and accordingly, through application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code, disregarded the transformation, taxing the alienations effected as capital gains, as if they were alienations of quotas;

j) The Claimants paid the assessments made;

k) The TA violated the duty of inquiry;

l) The alteration of the legal nature of "X…, L.da", from limited liability company to joint-stock company, occurred for valid economic reasons;

m) There being no, therefore, ground for the application, made by the Respondent, of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code.

The Claimants submitted 50 documents and called five witnesses.

Pursuant to article 6, section 2(b) of the RJAT, the Claimants chose to appoint an arbitrator, appointing the undersigned Alberto Amorim Pereira.

The Respondent, pursuant to article 6, section 2(b) and article 11, section 3 of the RJAT, appointed as arbitrator the also undersigned José Rodrigo de Castro.

The President Arbitrator – Manuel Luís Macaísta Malheiros - was appointed, in accordance with article 11, section 6 of the RJAT, by the arbitrators appointed by the parties.

The collective arbitral tribunal was constituted on 21 April 2014.

Notified pursuant to article 17 of the RJAT, the Respondent presented its response, invoking in summary that the principle of inquiry was not violated and that the requirements of which the law makes dependent the application of the general anti-abuse clause are present in the circumstances of the case.

It further alleged that the interpretation of article 38, section 2 of the General Tax Code as defended by the Claimants violates the constitutional principles of equality, taxpaying capacity, legality, and indisposability of the tax credit.

It concluded by petitioning for the dismissal of the petition and, consequently, the maintenance of the assessment notices in question.

The Respondent submitted six documents and called one witness.

On 11/06/2014 the first meeting of the Arbitral Tribunal took place, pursuant to article 18 of the RJAT, with the date of 30/06/2014 being set for the presentation of witness evidence and a period of 10 days, counted from the date of the presentation of witness evidence, being fixed for the presentation, by the Claimants and Respondent, of successive written submissions.

By petition presented on 26/06/2014, the seventh claimants – L… and [his] wife, M… – reduced the petition filed, limiting the impugnation of the assessment to the amount respecting the correction of the capital gain resulting from the sale of the shares in "AA…, S.A.", in the amount of € 95.149,12, plus compensatory interest.

On 30/06/2014 the presentation of the witness evidence took place, with all witnesses called being examined, with the exception of witness BB…, called by the Claimants, and the witness called by the Respondent, whose testimonies were dispensed with by the parties.

The parties presented written submissions within the set period, in which they maintained their previously assumed positions, with the submissions being taken into consideration in the appreciation of the facts and the law.

JURISDICTION AND PRELIMINARY MATTERS:

The Arbitral Tribunal was regularly constituted and is materially competent.

There are no nullities that invalidate the proceedings.

The parties have legal standing and capacity and are properly represented, with no defects in representation.

There are no nullities, exceptions or preliminary questions that prevent the decision on the merits, and there is nothing that needs to be addressed ex officio.

QUESTIONS TO BE DECIDED:

The questions to be decided are as follows:

1. To determine whether there was a violation, by the TA, of the principle of inquiry;

2. To determine whether the requirements upon which the law makes dependent the application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code are met.

3. To determine whether the interpretation of article 38, section 2 of the General Tax Code advocated by the Claimants is contrary to the Constitution, violating the constitutional principles of equality, taxpaying capacity, legality, and the indisposability of the tax credit.

IV. FACTS:

a. Proven Facts:

For purposes relevant to the decision, the following facts are considered proven:

a) By public deed executed on 14/11/2005, the company "X…, L.da" was incorporated, with the business purpose of purchase, sale and exchange of real property and resale of property acquired for that purpose and property administration;

b) The company "X…, L.da" was incorporated with a capital stock of € 50.000,00, distributed among the following partners, each holding a quota of the following value:

(i) CC…, holder of a quota in the amount of € 1250,00;

(ii) DD…, holder of a quota in the amount of € 1250,00;

(iii) "EE… – L.da", holder of a quota in the amount of € 2500,00;

(iv) "FF…, L.da", holder of a quota in the amount of € 2500,00;

(v) "GG… – L.da", holder of a quota in the amount of € 2500,00;

(vi) "HH… –L.da", holder of a quota in the amount of € 2500,00;

(vii) "II… – L.da", holder of a quota in the amount of € 2500,00;

(viii) "JJ… – L.da", holder of a quota in the amount of € 2500,00;

(ix) "W… – L.da", holder of a quota in the amount of € 2500,00;

(x) R…, holder of a quota in the amount of € 2500,00;

(xi) MM…, holder of a quota in the amount of € 2500,00;

(xii) NN…, holder of a quota in the amount of € 2500,00;

(xiii) OO…, holder of a quota in the amount of € 2500,00;

(xiv) "PP…, L.da", holder of a quota in the amount of € 10.000,00;

(xv) QQ…, holder of a quota in the amount of € 10.000,00.

c) The "X…, L.da" was incorporated with a view to contracting the lease, in real property finance lease, of a parcel of land for construction, and to proceed with the construction thereon of medical services provision infrastructure in the diagnostic area, where the partners would relocate their respective medical activities;

d) On 29/03/2006, a real property finance lease contract was executed between "X…, L.da" and "RR… – Financial Credit Institution, S.A.";

e) The value of the execution of the originally delineated project of construction of medical services provision infrastructure in the diagnostic area amounted to approximately € 20.000.000,00;

f) The partners of "X…, L.da" did not have the capacity to finance a project of this amount;

g) Accordingly, a different project was delineated by the partners of "X…, L.da", which, to be implemented, presupposed the creation of an equity interest management company that would hold "X…, L.da", and the transformation thereof into a joint-stock company;

h) On 11/10/2007, the company "Y…, SGPS, S.A." was incorporated, with a capital stock of € 500.000,00, represented by 100,000 shares with a unit value of € 5,00, thus distributed:

(i) "SS…, S.A.", holder of 40,000 shares, in the total amount of € 200.000,00;

(ii) "TT…, S.A.", holder of 25,000 shares, in the total amount of € 125.000,00;

(iii) "EE…, L.da", holder of 20,000 shares, in the total amount of € 100.000,00;

(iv) "UU…, L.da", holder of 5,000 shares, in the total amount of € 25.000,00;

(v) L…, holder of 10,000 shares, in the total amount of € 50.000,00;

i) By virtue of quota assignment contracts executed between October and November 2007, the capital stock of "X…, L.da" became distributed among the following partners, as follows:

(i) CC…, holder of a quota in the amount of € 1250,00;

(ii) DD…, holder of a quota in the amount of € 1250,00;

(iii) "EE…, L.da", holder of a quota in the amount of € 2500,00;

(iv) I…, holder of a quota in the amount of € 2500,00;

(v) K…, holder of a quota in the amount of € 2500,00;

(vi) C…, holder of a quota in the amount of € 2500,00;

(vii) A…, holder of a quota in the amount of € 2500,00;

(viii) O…, holder of a quota in the amount of € 2500,00;

(ix) T…, holder of a quota in the amount of € 2500,00;

(x) R…, holder of a quota in the amount of € 2500,00;

(xi) MM…, holder of a quota in the amount of € 2500,00;

(xii) NN…, holder of a quota in the amount of € 2500,00;

(xiii) OO…, holder of a quota in the amount of € 2500,00;

(xiv) W…, holder of a quota in the amount of € 2500,00;

(xv) P…, holder of a quota in the amount of € 2500,00;

(xvi) KK…, holder of a quota in the amount of € 2500,00;

(xvii) G…, holder of a quota in the amount of € 2500,00;

(xviii) L…, holder of a quota in the amount of € 10.000,00;

j) At the beginning of 2008, a split began to emerge among the partners of "Y…, SGPS, S.A.", with some partners manifesting the intention to cease participation in the capital stock of this company;

k) By contract executed on 16/06/2008, the company "SS…, S.A." promised to sell to L… and to the company "UU…, L.da", and these promised to purchase, respectively, 20,000 and 5,000 shares representing the capital stock of "Y…, SGPS, S.A." of which the promising seller was holder;

l) Pursuant to the contract referred to in k) above, the company "TT…, S.A." promised to sell to the company "EE…, L.da" and L…, and these promised to purchase, respectively, 15,000 and 10,000 shares representing the capital stock of "Y…, SGPS, S.A." of which the promising seller was holder;

m) By contract executed on 24/06/2008, "EE… L.da" assigned to "Y…, SGPS, S.A." the quota, in the amount of € 2500,00, which it held in the capital stock of "X…, L.da";

n) On the same date, contracts-promise of quota assignment were executed between the partners of "X…, L.da", among whom were the present Claimants, and "Y…, SGPS, S.A.", whereby those promised to assign to "Y…, SGPS, S.A.", and this promised to acquire, the quota which they held in the capital stock of "X…, L.da", the content of which is as set out in the documents submitted with the case files;

o) On 02/04/2009, an agreement was reached between Z… and "EE… L.da", L… and "UU…, L.da" for the sale of shares representing the capital stock of "Y…, SGPS, S.A." of which these were holders, which sale was to take place by 30/06/2009;

p) Z… imposed as a condition for the acquisition of shares in "Y…, SGPS, S.A." the prior transformation of the company "X…, L.da" into a joint-stock company;

q) Pursuant to the provisions of articles 99, 101 and 132 of the Commercial Companies Code, a justificatory report of the transformation was prepared by the management of the company "X…, L.da" and an opinion on the transformation by the Statutory Auditor of the same company, with the content as set out in the documents submitted with the case files and the documents submitted by the Claimants with the initial petition, under number 62;

r) By public deed executed on 09/07/2009, the company "X…, L.da" was transformed into a joint-stock company, henceforth to be denominated "AA…, S.A.", with all partners remaining in the company and participating in its capital stock with the number of shares corresponding to the quota they held, by converting their quotas into shares of a par value of € 5,00 each;

s) In performance of the contracts-promise referred to in n) above, a contract was executed on 14/07/2009 whereby the Claimants sold to "Y…, SGPS, S.A." the shares representing the capital stock of "AA…, S.A." of which they were holders;

t) By contract executed on 15/07/2009, Z… acquired the totality of the shares representing the capital stock of "Y…, SGPS, S.A.";

u) The Claimants were subject to an internal inspection procedure, of limited scope, covering the analysis of Personal Income Tax for the taxation period 2009;

v) In the context of the said internal inspection procedure, the TA notified the Claimants to submit to the files evidence, relating to the year 2009, of the acquisition and realization values set out in their respective Personal Income Tax Return Form 3, Annex G 1 (untaxed capital gains), in particular copies of the purchase contracts and sales contracts of the equity interests and other securities or other documents considered as evidence of the values presented in the said return;

w) Also in the context of the said inspection procedure, the companies "SS…, S.A" and "Y…, SGPS, S.A." were notified to make available documents;

x) In response to the notification made, the Claimants submitted a copy of the contract for the sale of equity interests in "AA…, S.A." to "Y…, SGPS, S.A.";

y) The Claimants were notified to pronounce, if they so wished, pursuant to section 4 of article 63 of the Tax Procedure and Process Code, on the Project for Application of the General Anti-Abuse Clause to the legal transactions which gave rise to the declaration contained in Form G1 attached to the Personal Income Tax Return Form 3 for the fiscal year 2009, the content of which is as set out in the case files submitted by the TA;

z) By petition presented on 02/01/2013, the Claimants exercised the right to be heard, arguing for non-compliance with the legal requirements for application of the general anti-abuse clause, the content of which is as set out in the document submitted by the Claimants under number 63;

aa) The Claimants were notified to pronounce, if they so wished, pursuant to articles 60 of the General Tax Code and article 60 of the Supplementary Tax Inspection Procedure Regulations, on the Project for Corrections to the Inspection Report, the content of which is as set out in the case files submitted by the TA;

bb) The Claimants were notified of the corrections resulting from internal analysis, pursuant to article 62 of the Supplementary Tax Inspection Procedure Regulations, the content of which is as set out in the case files submitted by the TA;

cc) In October 2013, the Claimants were notified of the demonstration of Personal Income Tax assessment and the respective demonstration of account adjustment, in the amounts set out in the assessment notices impugned and submitted to the files by the Claimants with the initial petition;

dd) The Claimants made partial payment of the assessment notices impugned.

b. Facts Not Proven:

For purposes relevant to the decision, it is considered not proven that the operation of transformation of the limited liability company into a joint-stock company occurred for valid economic reasons.

c. Justification of the Facts:

The conviction as to the proven facts was based on the totality of the evidence produced, both documentary and testimonial.

The proof of the facts set out in points a), b), d), h), i), k) to o) and q) to dd) of the proven facts was based on critical and considered appreciation of all documents submitted to the files, in particular copies of the contracts and deeds set out in the administrative files and submitted to the files by the Claimants.

For the proof of the facts set out in points c), e) to g), j) and p) of the proven facts, the tribunal took into account the testimony given by witnesses VV…, WW… and XX…, who, testifying clearly and correctly, with manifest impartiality and objectivity, demonstrated full and direct knowledge of the facts in question, confirming them.

As to the testimony given by witness YY…, the tribunal did not consider it, as they did not demonstrate having direct knowledge of the facts, having only become aware of them after the alienation in question in the present case.

As to the factuality not proven, this was due to the complete absence of proof in that sense.

V. LAW:

1. Regarding Violation of the Duty of Inquiry:

The Claimants invoke the illegality of the assessment notices impugned due to violation of the duty of inquiry, provided for in article 58 of the General Tax Code.

To that end, they allege, in summary, that the TA merely made an analysis of existing documentary evidence – contracts and commercial registration -, having carried out no diligence with a view to ascertaining the motivation underlying the transactions, thus abdicating its duty to ascertain the truth of the facts.

In response, the TA defends itself by alleging that it proceeded to collect the factual elements relevant for application of the general anti-abuse clause and subsequent assessment, and in particular for appreciation of the arguments advanced by the Claimants.

Let us determine, therefore, whether the TA fulfilled the principle of inquiry, provided for in article 58 of the General Tax Code.

Article 58 of the said law provides:

"The tax administration must, in the procedure, carry out all the necessary diligences to satisfy the public interest and to discover the material truth, and is not subordinated to the initiative of the party making the petition."

This principle, embodied in a duty of impartiality imposed on the TA, "requires that the tax administration seek to bring to the procedure all evidence relating to the factual situation on which the decision will be based, even if such evidence is intended to demonstrate facts whose proof would be contrary to the patrimonial interests of the Administration," and it is certain that "the failure by the tax administration to carry out diligences which it is possible for it to carry out, or the failure to request from the interested parties the evidentiary elements necessary to instruct the procedure, constitutes a defect thereof, capable of implying the annulment of the decision taken therein (…)".

Further according to the same authors, this principle imposes on the TA the duty to carry out all diligences necessary to discover the material truth, even those aimed at proving facts invoked by the interested parties.

Nevertheless, although this general duty exists to discover the material truth, it must not be overlooked that it is upon the taxpayers that there rests the duty to provide the TA, which is competent to request them to do so, with the elements and arguments that they deem necessary to the fair resolution of the dispute, as well as to request the carrying out of those evidentiary procedures which they deem indispensable.

Once the elements are made available by the taxpayers, the TA is bound to carry out careful analysis thereof, interpreting the elements in accordance with the various plausible solutions and not only in accordance with the solution that best serves its patrimonial interests.

In the circumstances of the case, the TA notified the Claimants to submit evidence, relating to the year 2009, of the acquisition and realization values set out in their respective Personal Income Tax Return Form 3, Annex G 1 (cf. proven fact v), and further, following analysis of the elements and arguments presented by the Claimants, notified other entities to provide elements which it deemed necessary (cf. proven fact w).

Following the submission to the files, by the Claimants and by the third parties, of the documents which they deemed relevant, and once clarifications deemed opportune had been provided, the TA analyzed the documents submitted and the clarifications provided, drawing a conclusion therefrom.

Although, following the submission to the files of the indicated documents and provision of clarifications, whether by the Claimants or by the third parties, the TA requested nothing further, limiting itself to working on the basis of these elements, nevertheless, strictly speaking, no violation of the principle of inquiry can be defended.

This is because the TA did in fact request elements and analyzed them carefully, critically appreciating the documents and arguments brought to the files, which is evident from reading the Inspection Reports submitted to the administrative files.

Note that the Claimants did not request the carrying out of any evidentiary procedure, having merely submitted documentary evidence.

In light of the foregoing, it cannot be defended that the TA made a clean slate of the elements brought to the files, whether by the Claimants or by the third parties, a circumstance in which, in that case, a violation of the principle of inquiry could be found.

Having carried out these diligences, it would appear that, pursuant to the principle of inquiry, no further diligence could be required of the TA, particularly since the TA is not obliged to carry out instructional diligences not requested.

Accordingly, without need for further consideration, the alleged violation of the principle of inquiry raised by the Claimants lacks foundation and is, consequently, without merit.

2. Regarding the Grounds for Application of the General Anti-Abuse Clause:

The Claimants invoke that the requirements upon which the law makes dependent the application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code are not met in the circumstances of the case.

Let us examine this:

Commercial companies have, as is well known, a profit-making purpose, aiming at the maximization of the profitability of their activity, which presupposes the maximum reduction of charges, whether commercial, financial or fiscal.

The rationality of the management of economic activities thus presupposes that economic agents must minimize their respective commercial, industrial, financial and fiscal costs, with good fiscal management presupposing the minimization of fiscal costs, which doctrine designates as tax economy or tax savings.

There are situations in which tax economy is desired or suggested by the legislator itself, in providing for and regulating fiscal relief itself. In these cases, acts and transactions of tax economy take place intra legem.

Tax economy may further occur through legal transactions not provided for in the norms of tax incidence or through accounting practices permitted technically more favorable to taxpayers. In these situations, tax economy derives from the circumstance that the constitutional principle of legality prohibits analogical application of fiscal laws, only facts provided for in formal law being taxable. In these cases, acts and transactions of tax economy take place extra legem (tax avoidance).

Lastly, tax economy may be obtained through unlawful acts, through action contra legem (tax evasion).

Also jurisprudence has come to defend that the minimization of taxes can be obtained by 3 routes: fiscal management or planning; evasion or tax avoidance; and tax fraud, not distinguishing here evasion from tax avoidance.

Before proceeding, a note is warranted regarding the different terminology adopted and the apparent "confusion" that some authors make between avoidance and tax evasion.

Accordingly, although many authors do not do so, a distinction between the concepts of tax avoidance and tax evasion is truly necessary, by opposition to tax fraud.

To that effect, IVES GANDRA DA SILVA MARTINS, clarifying the two first concepts, explains: "the basic distinction between avoidance and evasion resides in the means adopted for the always unjust burden of the tax charge in the Modern State, such means being legal or illegal, in conformity with avoidance or tax evasion".

Having said this, the said judgment of the Central Administrative Court South, clarifying the said routes, begins by explaining that tax planning consists in the minimization of taxes payable in a totally legitimate and lawful manner, desired even by the legislator, or left to the freedom of choice of the taxpayer, such as fiscal benefits and fiscal alternatives.

Within tax planning, a distinction may be drawn between legitimate planning and illegitimate planning, the first consisting, in accordance with SALDANHA SANCHES, of a technique of reduction of the fiscal burden by which the taxpayer renounces a certain conduct because it is linked to a tax obligation or chooses, among the various solutions provided to it by the legal order, the one which, by intentional action or omission of the fiscal legislator, is accompanied by lower fiscal charges, and the second of any conduct of unjustified reduction, by contravening principles or rules of the tax-legal order, of the fiscal burdens of a determined taxpayer.

Within the scope of legitimate tax planning, the taxpayer may, within the limits of law and of right, choose the less burdensome forms of taxation, having as the limit of its minimizing intention fraud of the law - cf. SALDANHA SANCHES.

The second route - tax evasion or avoidance - is characterized by the practice of acts or transactions which are lawful, but which fiscal law qualifies as not being in conformity with the substance of the economic reality which underlies them, thus having to be qualified as anomalous, abnormal or abusive, also characterized as behaviors "extra legem", in opposition with the route of tax fraud, characterized as "contra legem".

It is precisely with a view to preventing the abuse of these behaviors "extra legem" that general anti-abuse norms arise, also denominated norms anti-fraud to fiscal law or anti-abuse of the right to utilize legal forms to evade tax.

Accordingly, whilst recognizing that taxpayers have the right to good fiscal management, with a view to tax savings, the fiscal legislator establishes norms which aim to repress the abuse of this right to tax savings, considering as abusive the anomalous transactions which, although in principle lawful and genuine, have as their exclusive purpose the evasion of the normal application of tax rules.

As opposed to what occurs with tax fraud, in which a direct violation of the law is produced with a view to obtaining an undue advantage, underlying the anti-abuse clauses is a fraud of the principles of the system, in which the taxpayer carries out a transaction which is initially in conformity with the law but whose contours escape all and any economic rationality, being explained only by the intention to avoid the tax which would result from the resort to more common legal forms.

It is thus in this context, in which States are concerned with establishing means of reaction with a view to guaranteeing compliance with the principle of equality in the distribution of the tax burden, that anti-abuse clauses arise.

These clauses exist in some legal orders, with legal origin (Spain) or jurisprudential origin (France), having been rejected by others or not applied when legally established.

These clauses are subject to constant criticism by doctrine, which defends that they transform taxpayers into "fiscal subjects", violating constitutional principles such as that of legal determination of the essential elements of taxes, of private autonomy, of freedom of management, etc.

In its essence, the general anti-abuse clause is nothing more than an establishment, in fiscal law, of the legal figure of abuse of right, provided for in article 334 of the Civil Code, in the sense of abuse of the right to planning or tax savings.

In the Portuguese fiscal system, the general anti-abuse clause was introduced by Law No. 87-B/98, of 31 December, and is currently provided for in article 38, section 2 of the General Tax Code.

The general anti-abuse clause is often confused with other figures which, despite similarities whether as to scope, purpose, structure and mode of application, differ therefrom.

These are simulation and special anti-abuse norms.

Simulation, provided for in article 39 of the General Tax Code, is one of the most relevant figures for combating tax evasion, distinguishing itself from the general anti-abuse clause essentially as to the validity of the transaction underlying it.

Accordingly, whereas in simulation there exists a real transaction, corresponding to the will of the taxpayer, and a simulated transaction, in the general anti-abuse clause all acts carried out are in fact real and intended by the parties, never being simulated or concealed.

On the other hand, whereas in simulation the simulated transaction is void, the transaction underlying the application of the general anti-abuse clause is always a lawful and valid transaction.

Indeed, following the position defended by DIOGO LEITE DE CAMPOS and JOÃO COSTA ANDRADE, for the tax legal order to censure acts or legal transactions, determining their ineffectiveness for tax purposes, it will be necessary that such acts or transactions be valid within the scope of the branch of law in which they are situated. If they are invalid, then (in principle) the problem of their invalidity will not arise in tax law, for such acts, upon which tax law must be based, not producing effects "by themselves".

Now in special anti-abuse norms, in all respects similar to the general clause as to purpose and structure, the legislator adopts an analytical method applicable case by case and only for the future.

Accordingly, as opposed to the general anti-abuse clause, which acts truly in the fight against tax evasion, special anti-abuse clauses only arise as the legislator detects evasion, and thus only act for the future, with the consequent effect of the respective ineffectiveness of the fight against evasions verified in the past, which would not arise if there were a general anti-abuse law.

Having said this, under the heading "ineffectiveness of acts and legal transactions", section 2 of article 38 of the General Tax Code provides:

"Acts or legal transactions which are essentially or primarily directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferral of taxes which would be due as a result of facts, acts or legal transactions of identical economic purpose, or to the obtaining of fiscal advantages which would not be achieved, wholly or in part, without use of such means, are ineffective within the tax sphere, with taxation being then carried out in accordance with the norms applicable in their absence and the said fiscal advantages not being produced."

This general anti-abuse clause is nothing more than a norm of supremacy over the entire fiscal order, which allows, where the conditions and requirements which it establishes are met, the extension of tax incidence of that order or the diminution of the negative cut-out or exclusions of incidence operated in that order. What is established in this norm, in its essence, is an extension of the taxation provided for in other norms of incidence, to cases in relation to which, notwithstanding the lack of subsumption of the same in these other norms of incidence, the conditions further provided for in our general anti-abuse clause are met.

Doctrine and jurisprudence have come to decompose the letter of article 38, section 2 into five elements, namely: (i) the means element; (ii) the result element; (iii) the intellectual element; (iv) the normative element; and (v) the sanctioning element.

GUSTAVO LOPES COURINHA defines the indicated elements as follows:

The means element corresponds to the route chosen by the taxpayer to obtain the desired gain or fiscal advantage, that is, the act or legal transaction whose structure is determined in function of a given fiscal result.

In addition to being directed to the obtaining of the fiscal advantage, the legal transaction should also present an anomalous, unusual, artificial, complex or even contradictory form, in consideration of the economic purposes sought by the taxpayer – cf. ANTÓNIO LIMA GUERREIRO.

In the same sense, NUNO SÁ GOMES defends that, under penalty of unconstitutionality, the less burdensome fiscal transactions provided for in article 38, section 2 of the General Tax Code must be qualified as anomalous transactions in fraud of fiscal law, and thus it is not sufficient that they be transactions directed at obtaining lower fiscal cost, being necessary that it be proved that fraud of fiscal law was committed.

But, continues the same author, there will be fraud of fiscal law only when the abusive transaction is based on law that was issued for purposes distinct from those which were used by the taxpayer to escape taxes, not preventing citizens, under cover of contractual freedom, from utilizing the less burdensome transactions.

GRAEME S. COOPER, cited in the same work of GUSTAVO LOPES COURINHA, clarifies that it is from the level of incoherence between the form or structure chosen and the practical economic purpose of the taxpayer, between the purpose for which that adopted form is concretely employed and the cause which is proper to it, that the existence or non-existence of the means element will be assessed.

The result element relates to the obtaining of a fiscal advantage, being understood as such any situation whereby, by virtue of the practice of certain acts, there is obtained a tax burden more favorable to the taxpayer than that which would result from the practice of normal acts and of equivalent economic effect, subject to taxation. Accordingly, we will be in the presence of a comparison between the normal tax burdens borne and those avoided by the action produced. If from such analysis there results an effective difference which is objectively advantageous for the taxpayer, this requirement will be considered met.

The intellectual element requires that the choice of that means be "essentially or primarily directed to the reduction, elimination or temporal deferral of taxes", with the obtaining of the fiscal advantage presenting the principal motivation of the taxpayer for the practice of the acts, with the non-fiscal purpose being secondary.

The normative element has as its primary function the distinguishing of cases of tax avoidance from cases of legitimate tax savings, in consideration of the principles of Tax Law, and it is only in cases in which an intention contrary to or not legitimating the result obtained is demonstrated that one can speak of the former.

The sanctioning element, presupposing the verification of the remaining elements, leads to the sanction of ineffectiveness, for tax purposes, of the acts or legal transactions deemed abusive.

Note that these elements require cumulative verification, being possible to sanction only with tax ineffectiveness of the acts or legal transactions practiced (sanctioning element) when the means, result, intellectual and normative elements are cumulatively met.

Similarly, at the international level, particularly in the French legal order, it has been understood that the application of general anti-abuse clauses – there provided for as abuse of fiscal right – can only be admitted when it is verified that the operation carried out cumulatively meets the following requirements: (i) it constitutes a distortion of the legislator's intention; (ii) it does not present itself as a response to any economic interest; and (iii) it has an exclusively fiscal motivation, being carried out solely to avoid the tax.

Having analyzed the elements in which the general anti-abuse clause is decomposed and which make possible its application, let us examine, in the circumstances of the case, whether the elements of the norm are met.

Accordingly, in the present case, the Respondent qualified the operation of transformation of the limited liability company into a joint-stock company and the subsequent sale, by the Claimants, of the equity interests held in the joint-stock company as illegitimate tax planning, considering that underlying the operation of transformation there was no economic reason but solely and only the objective of transforming a transaction subject to taxation into a capital gain excluded from taxation, thus the said operation having as its principal objective the obtaining of an economic advantage.

In consequence, applying the general anti-abuse clause, the TA disregarded the said operation of transformation, taxing the alienation of the equity interests as capital gains, as if it were an alienation of quotas.

The Claimants, for their part, contest the application, by the Respondent, of the general anti-abuse clause, alleging, in summary, that the alteration of the legal nature of the company "X…, L.da" occurred for valid economic reasons, having resulted from a requirement on the part of the investor who proposed to acquire the company "Y…, SGPS, S.A.".

In light of the foregoing, it is important to determine the verification or non-verification, in the circumstances of the case, of the elements which permit the application of the sanctioning element of the general anti-abuse clause, that is, the tax ineffectiveness of the acts and legal transactions practiced by the Claimants.

Let us examine:

As to the means element, relevant for the appreciation of its verification or non-verification are the means utilized and the form, essentially or primarily artificial or fraudulent, in which they are utilized.

This means that, in the situation in question, the means element could only be considered met if the acts or legal transactions practiced by the Claimants presented an anomalous, unusual, artificial or fraudulent form.

In the circumstances of the case, however, the acts and legal transactions practiced by the Claimants present a perfectly usual, typical and adequate form to the intended effect, with no utilization of artifice or fraud being discerned to achieve such effect.

Indeed, it should not be said, as does the Respondent, that the situation in the case constitutes a "fiscal engineering (…) of an unusual, complex and artificial character".

In the circumstances of the case there are in question only two acts/transactions: the transformation of the limited liability company into a joint-stock company and the subsequent sale of shares, acts and transactions which are perfectly usual in our legal order.

As to the result element, there is no doubt that the acts and legal transactions practiced by the Claimants led to the obtaining of a fiscal advantage.

In fact, the transformation of the limited liability company into a joint-stock company and the subsequent alienation of the equity interests held therein leads to the application of a more favorable fiscal regime, as whilst the alienation of a quota is considered a capital gain taxed in accordance with article 10, section 1(a) of the Personal Income Tax Code, the alienation of an equity interest in a joint-stock company is a capital gain excluded from taxation.

However, it cannot be considered, without further consideration, as abusive the taxpayer's choice of the less burdensome route.

In fact, and following BERGERÉS, "no principle of fiscal law implies that the choices of taxpayers be made by the more taxed route. The taxpayer can perfectly well establish a legal construction that leads to a relatively moderate taxation. The abuse of right does not condemn fiscal ability, even if this leads to unorthodox legal constructions".

In the words of DIOGO LEITE DE CAMPOS and JOÃO COSTA ANDRADE, "Tax Law determines the tax situations, but there is no obligation to place oneself in a certain situation provided for in the law".

Indeed, the interpretation of this article in the sense that the Tax Administration would intend to oblige the taxpayer to choose the more taxed route has been one of many criticisms advanced against this general anti-abuse clause, with various authors considering that, not by celebrating the taxpayer the fiscally more burdensome transaction, "all of its economic activity will run the risk of being invalidated".

Now as to the intellectual element, as stated above, its verification depends on proof that the choice of the means was essentially or primarily directed to the reduction, elimination or temporal deferral of taxes.

It is certain that proof of the motivation will have to be made with recourse to facts or elements which permit the interpreter to extract, with reasonable certainty and in accordance with criteria of reasonableness and normality, the conclusion that the taxpayer attributed to the forms adopted a preponderant fiscal purpose.

However, as it is a fact constitutive of the right of the application, by the Tax Administration, of the general anti-abuse clause, the burden of proof of the verification of this intellectual element falls upon the Tax Administration, as, in accordance with the provisions of article 74 of the General Tax Code, "the burden of proof of facts constitutive of the rights of the tax administration or of taxpayers falls upon those who invoke them".

It is, accordingly, upon the Tax Administration that falls the burden of proof of the constitutive fact of its right, thus incumbent upon it, the burden of proof that the transformation carried out had as its principal or essential purpose the elimination of the tax.

To defend, as the Respondent attempts, that the arguments advanced by the Claimants do not prove that the principal or essential purpose was not directed to the elimination of the tax represents an inversion of the burden of proof which has no legal basis.

It is certain that the reduced temporal period which mediated between the transformation of the company and the alienation of the respective equity interests by the Claimants legitimizes the suspicion, on the part of the TA, that the transformation had the objective of excluding the alienation effected from taxation as capital gains.

However, merely to infer the intention of the Claimants, proof of the short gap in time which mediated between the transformation of the company and the sale of the equity interests is not sufficient, it being incumbent upon the TA to prove that, effectively, the transformation of the company had the purpose of avoiding the payment of capital gains tax by the Claimants.

Note, inclusive, that, in the case, the alienation of the equity interests by the Claimants was carried out in performance of previously executed contracts-promise, not catching here the thesis, which although the Respondent does not expressly defend, seems to insinuate, that, if at the date of the execution of the contracts-promise the company was a limited liability company, and quotas were the object of the contract, then the capital gains resulting from their alienation are subject to taxation. This is because, on the one hand, in the contracts-promise themselves is found the possibility of the company transforming into a joint-stock company, in which case the object of the contract would be shares; and, on the other hand, the contract-promise of quota assignment does not have real effect, the transfer of ownership of the titles representing the capital stock of a company only taking place with the respective definitive contract. In the case, at the date of the execution of the definitive contract, the company was a joint-stock company and the titles alienated were shares, excluded, therefore, from taxation as capital gains.

No indication is found, therefore, minimally, in the files that the intention underlying the transformation of the company was the exclusion of the subsequent alienation of the equity interests from taxation as capital gains, and it is certain that, as a fact constitutive of the right of the application of the general anti-abuse clause, the burden of proof thereof fell upon the Tax Administration, which failed to meet this burden.

The fact that the Tax Administration failed to meet this burden of proof does not mean that the opposite has been proven, as, as is known, a negative answer to a question does not result in proof of the opposite of what it contained, a negative answer signifying purely and simply that such matter has not been proven.

On this point, both jurisprudence and doctrine have converged, understanding unanimously that a negative answer does not determine that the inverse fact be considered proven.

And, having analyzed the arguments expended by the Claimants for proof of the economic reason justifying the transformation, it is certain that such economic reason cannot be judged as proven.

This is because the arguments advanced by the Claimants are not apt to, by themselves or combined with others, prove the economic motivation of the transformation.

In fact, the Claimants limit themselves to alleging that the transformation of the limited liability company into a joint-stock company was motivated by a requirement on the part of the investor who proposed to acquire the company "Y…, SGPS, S.A.".

However, with due respect, and following in this aspect the Tax Administration, although it resulted proven this requirement on the part of the investor – cf. proven fact l) -, the truth is that it cannot be defended, without further, that the transformation of the company "X…, L.da" into a joint-stock company could not have been carried out by its acquiree "Y…, SGPS, S.A.".

In effect, nothing in the files indicates that the requirement on the part of the investor had to be concretized prior to the acquisition, on the part of "Y…, SGPS, S.A." of the totality of the quotas representing the capital stock of "X…, L.da".

If, as resulted proven, the investor required, for the concretization of the business of acquisition of the totality of the capital stock of "Y…, SGPS, S.A." that the company wholly held by it – "X…, L.da" – be a joint-stock company, such transformation of the company could have occurred after the alienation, by the Claimants, to "Y…, SGPS, S.A." of the quotas representing the capital stock of "X…, L.da". In other words, if the Claimants had sold the quotas they held in the capital stock of "X…, L.da" to "Y…, SGPS, S.A." and the partners of the latter, prior to the alienation of its capital stock to the investor, had promoted the transformation of the company "X…, L.da" into a joint-stock company, the requirement made by the investor would still have been satisfied.

Indeed, as well defended by the Respondent, symptomatic of the non-existence of such necessity is the fact that neither the justificatory report of the transformation, nor the opinion prepared by the Statutory Auditor refer to such necessity.

It was therefore incumbent upon the Claimants to bring to the files the facts necessary to proof that the requirement on the part of the investor would have to be met prior to the alienation of the capital stock of "X…, L.da" by the Claimants.

Not having done so, this tribunal cannot determine the economic reasons for the transformation as proven.

In any case, it is certain that it fell to the Tax Administration to prove the intellectual element, that is, proof that the choice of the means was "essentially or primarily directed to the reduction, elimination or temporal deferral of taxes", proof which it failed to carry out, and accordingly the intellectual element cannot be considered as met.

But, even if the Tax Administration had managed to prove that the transformation of the company and subsequent alienation of the equity interests did not have underlying any economic motive, but solely and only the intention of tax avoidance, this transaction would still be exempt from the payment of capital gains tax.

This is because, and entering into the analysis of the normative element, "it is necessary to find, in the tax-legal order and as a sine qua non condition for application of the anti-abuse clause, the unequivocal signs of an intention to tax (…) first, because abusive tax avoidance cannot be confused with the permanent attempt of the taxpayer to reduce his taxation or to carefully ponder – non-abusive tax planning – the consequences of fiscal law in his enterprise or personal activity [...], second, because in this permanent effort to reduce the fiscal burden we can find the utilization by the taxpayer of what we can qualify as deliberate omissions - fair, or not, is another matter - of the fiscal legislator, and, if this happened, cannot be attributed to the applicator of the law the task which falls primarily to the legislator".

This "intention to tax" is reduced, in its essence, to the principle in accordance with which only facts provided for in law as subject to tax can be taxed.

In the circumstances of the case, it seems clear that this "intention to tax" does not exist, which derives from the outset from the coexistence, in the tax-legal order, of the taxation as Personal Income Tax of capital gains resulting from the alienation of quotas with the exclusion from taxation of capital gains resulting from the alienation of shares.

Indeed, SALDANHA SANCHES, op. and loc. cit, faced with a circumstance in all respects similar to that of the present case, considers it to be a "conscious lacuna of taxation", concluding that "if the legislator, whilst taxing capital gains from alienations of quotas, leaves untaxed the capital gains of alienations of shares or taxed them at a lower rate, it cannot but be accepted fiscally the transformation of a commercial company into a joint-stock company even if the transformation is motivated by exclusively fiscal reasons".

Also at the international level, particularly the French law, has jurisprudence understood that the regular transformation of a limited liability company into a joint-stock company, followed by the sale of equity interests of the latter company, does not fall within the domain of application of the general anti-abuse clause.

This is because, even if the transformation were motivated by exclusively fiscal reasons, it was the legislator who made the choice of taxing the alienation of quotas and excluding from taxation the alienation of shares.

It is further added that the option to establish a limited liability company or a joint-stock company falls within the scope of private autonomy, and the State cannot impose on citizens the establishment of a determined type of company to the detriment of another nor sanction citizens for having established a company with greater fiscal benefits.

It is certain that the principle of private autonomy and the legitimacy of fiscal planning find their limit when taxpayers make use of transaction schemes manifestly artificial, manipulating legal forms with the principal intent of escaping the payment of the tax which would be due if the more common negotiation practices were employed to achieve the same economic result.

As SALDANHA SANCHES states, what is not – nor can be – in question is the freedom of choice of the taxpayer in the configuration of his transactions, that is, the exercise of his private autonomy: what is limited is the possibility of the will of the taxpayer being relevant as to the degree of his fiscal burden.

This is because, permitting without any limits fiscal planning would collide with the general duty to pay taxes and with the constitutional principles of fiscal equality and taxpaying capacity.

As to the sanctioning element, since all the elements which permit the application of the general anti-abuse clause have not been met, in particular the means, intellectual and normative elements, this element will not apply, concluding thus that it is not possible, through resort to the application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code, to sanction with ineffectiveness, for tax purposes, the acts and legal transactions practiced by the Claimants.

Note that the understanding here defended as to the verification of the elements in question, particularly the means, intellectual and normative elements, is in full accordance with the orientation that has been taken by this tribunal.

In fact, in the context of the very same question of law, successive arbitral tribunals constituted under the RJAT have come to uphold the understanding here propounded, as to the verification of the elements necessary for application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code.

From all that has been set forth it results that the acts and legal transactions in question in the present case fall within the scope of legitimate tax planning, such that the requirements for application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code are not met.

Accordingly, the petition of the Claimants regarding the non-verification, in the present case, of the requirements which the law makes dependent upon the application of the general anti-abuse clause provided for in article 38, section 2 of the General Tax Code should be upheld.

3. Regarding Violation of Constitutional Principles:

The Respondent further invokes that the interpretation of article 38, section 2 of the General Tax Code advocated by the Claimants is shown to be contrary to the Constitution, violating the constitutional principles of equality, taxpaying capacity, legality, and also the principle of indisposability of the tax credit.

To substantiate its understanding, the Respondent alleges, in summary, that the legislator, in excluding from taxation capital gains from the alienation of shares, did not intend to provide some with tax savings, and that to grant this advantage simply to provide a route of tax savings, satisfying particular interests, is at odds with the tax legal system and the constitutional principles of legality and of indisposability of the tax credit, deriving from the principles of legality and equality.

With due respect for better opinion, however, it is not seen in what sense the interpretation of article 38, section 2 of the General Tax Code advocated by the Claimants can, in any way whatsoever, be contrary to the indicated constitutional principles.

Let us examine:

The principle of equality is provided for in article 13 of the Constitution, which provides as follows:

"1. All citizens have equal social dignity and are equal before the law.

1. No one can be privileged, benefited, prejudiced, deprived of any right or exempt from any duty by reason of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, education, economic situation or social condition."

As has come to be understood by jurisprudence, particularly constitutional jurisprudence, "the principle of taxpaying capacity expresses and concretizes the principle of fiscal or tax equality" - cf. Judgment of the Constitutional Court No. 84/03, in www.tribunalconstitucional.pt.

As explained in Judgment of the Constitutional Court No. 602/12, "if the principle of tax equality presupposes the equal treatment of equal situations and unequal treatment of unequal situations, taxpaying capacity is the tertium comparationis – that is, the criterion – which must serve as the basis for the comparison. In this sense, the principle of taxpaying capacity operates both as a condition or presupposition and as a criterion or parameter of taxation (cf. Judgment No. 601/04, available at www.tribunalconstitucional.pt). It operates as a presupposition or condition in that it prevents taxation from reaching wealth or income which does not exist; it serves as criterion or parameter because it determines that the exaction of the assets of taxpayers be carried out in accordance with their "capacity to spend" (ability to pay). That is, taxpayers with the same capacity to spend should pay the same taxes (horizontal equality), and taxpayers with different capacity to spend should pay different taxes (vertical equality)".

For its part, the principle of legality, provided for in article 106, section 2 of the Constitution, is translated into the rule of legal reservation for the creation and determination of the essential elements of taxes. This implies legal typicity, with the tax needing to be designed in the law in a sufficiently determined form, without room for regulatory development nor for administrative discretion as to its essential elements.

The principle of legality thus imposes the prohibition of analogical application of fiscal laws, with only facts provided for in formal law being taxable.

For its part, the principle of indisposability of the tax credit, provided for in article 30, section 2 of the General Tax Code, determines that only conditions can be fixed for the reduction or extinction of the tax credit in respect of the principle of equality and tax legality.

The public interest which the Respondent is bound to pursue – the obtaining of revenues – must necessarily be harmonized, both with the constitutional principle of legality, and with the interests and rights of individuals who may be affected by the acts of the Respondent.

To that effect, it is necessary to recall, as set out, that the law does not prohibit tax planning, understood as the minimization of taxes in a totally legitimate and lawful manner.

Within the scope of legitimate tax planning, the taxpayer chooses, among the various possible solutions, the one which entails fewer fiscal charges, with a view to obtaining a tax saving.

In the circumstances of the case, the Claimants limited themselves to choosing, among the various possible solutions, the one which entails fewer fiscal charges, which the law, it is reiterated, does not prohibit.

To defend that such choice is apt to violate the principles of equality and legality seems to be taking to its ultimate consequence the public interest in obtaining revenues, as if imposing upon the taxpayer the choice of the more burdensome route, which manifestly cannot be defended.

In casu, there is no violation of the principle of equality, as the Claimants obtained no differentiated treatment. Rather, any taxpayer, placed in the position of the Claimants, would have exactly the same tax treatment, which is furthermore, imposed by the law.

Whence it results, equally, that the application of article 38, section 2 of the General Tax Code in the sense advocated by the Claimants does not violate the principle of tax legality, as, the law not providing for the subjection to taxation of the facts practiced by the Claimants, it cannot be defended that any analogical application of the fiscal law occurs, so as to obtain their taxation.

Similarly, there is no violation of the principle of taxpaying capacity, as, through the transactions carried out, the Claimants did not obtain a gain superior to what they would have had they concretized the transactions in the manner "intended" by the TA, having obtained only a tax savings, it is reiterated, totally legitimate and lawful.

No such superior gain being verified, no ground exists, in particular by way of application of the principle of taxpaying capacity, to tax the transaction carried out by the Claimants, furthermore when such taxation, as we have seen, is not legally provided for.

Lastly, for the possible violation of the principle of indisposability of the tax credit to be found, there must, upstream, be concluded the existence of a tax credit.

In the circumstances of the case, this prior condition of the existence of a tax credit is not verified, as the transactions carried out by the Claimants are not capable of being taxed, being fiscally neutral.

And if this is so, naturally it cannot be found that the tax credit (non-existent) be reduced or extinguished in violation of the principle of equality and tax legality, no such disconformity with the principle of indisposability of the tax credit being verified.

In light of all that has been set forth, we believe that the interpretation of article 38, section 2 of the General Tax Code advocated by the Claimants is not susceptible to constituting any violation of the constitutional principles of equality, taxpaying capacity and legality, nor of the principle of indisposability of the tax credit, as defended by the Respondent.

The alleged violation of the indicated principles raised by the Respondent is thus without merit.

VI. DISPOSITIVE:

In light of the foregoing, it is decided:

a) The petition for declaration of illegality of the Personal Income Tax assessment notices relating to fiscal year 2009, in the amount of € 472.401,62, is upheld;

b) The petition for reimbursement of amounts which may have been unduly paid is upheld; and

c) The petition for payment of compensatory interest at the legal rate, calculated on the amounts unduly paid, from the date of payment until actual and complete payment by the Respondent, is upheld.

The value of the case is fixed at € 472.401,62, pursuant to article 97-A, section 1(a) of the Tax Procedure and Process Code, applicable by virtue of subsections a) and b) of section 1 of article 29 of the RJAT and section 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

Costs are charged to the Claimants, pursuant to article 22, section 4 of the RJAT.

Register and notify.

Lisbon, 01 June 2022.

The Arbitrators,

Manuel Luís Macaísta Malheiros

José Rodrigo de Castro

Alberto Amorim Pereira (Rapporteur)