EU Pension Fund Dividend Tax Exemption Under EBF Article 16 – CAAD Case 106/2015-T

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Ricardo Jorge Rodrigues Pereira and Catarina Gonçalves, appointed by the Ethics Committee of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree as follows:

ARBITRAL DECISION

I – REPORT

On 18 February 2015, A…, a Pension Fund established in accordance with Dutch law, with registered office in …, …, Holland, Portuguese taxpayer …, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012 of 31 December (hereinafter abbreviated as RJAT), seeking a declaration of illegality of acts of withholding at source of Corporate Income Tax (IRC), on dividends received in Portugal, relating to the year 2011, in the amount of €96,032.98.

To substantiate its request, the Claimant alleges, in summary, that the provision in number 7 of Article 16 of the EBF is not applicable to the situation sub judice, since the said rule only came into force on 1 January 2012 (the date of entry into force of the law that approved the State Budget for 2012) and the facts now under scrutiny relate to the year 2011, whereby Portugal by subjecting, on the date of the tax facts in question, the withholding at source of IRC on dividends distributed by joint-stock companies resident in Portugal to Pension Funds established in a Member State of the European Union (in this case Holland), at the same time as it exempted from taxation the distribution of dividends to Pension Funds established and domiciled in Portugal, would flagrantly violate the provision of Article 8 of the CRP and Articles 18 and 63 of the Treaty on the Functioning of the European Union.

On 20-02-2015, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant did not proceed to appoint an arbitrator, whereby, pursuant to the provision in subparagraph a) of number 2 of Article 6 and subparagraph a) of number 1 of Article 11 of the RJAT, the President of the Ethics Committee of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated their acceptance of the assignment within the applicable period.

On 12-04-2015, the parties were notified of these appointments and did not express any objection to any of them.

In accordance with the provision in subparagraph c) of number 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 28-04-2015.

On 03-06-2015, the Respondent, duly notified for this purpose, filed its reply defending itself solely by way of contestation.

Considering the general procedural principles of procedural economy and the prohibition of useless acts, pursuant to the provision in subparagraphs c) and e) of Article 16 of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

Following the submission of documentation and the provision of an opportunity for reply, the parties were given the possibility of submitting written pleadings, which they did, commenting on the evidence produced and reiterating and developing their respective legal positions.

A period of 30 days was set for the pronouncement of the final decision, following the presentation of pleadings by the Tax Authority.

The Arbitral Tribunal has material competence and is properly constituted, in accordance with Articles 2, number 1, subparagraph a), 5 and 6, number 1, of the RJAT.

The parties have legal capacity and personality, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Order No. 112-A/2011 of 22 March.

The proceedings do not suffer from any nullities.

Thus, there is no obstacle to considering the merits of the case.

All things considered, it is necessary to render

II. DECISION

A. FACTS

A.1. Facts Established as Proved

1. The Claimant is, and was already in 2009, a pension fund established in accordance with Dutch law and pursuant to Directive No. 2003/41/EC, with residence in Holland.

2. At that date, the fund managed by the Claimant ensured exclusively the payment of retirement benefits for old age or disability, survivor benefits, pre-retirement or early retirement, post-employment health benefits and, when complementary and ancillary to these benefits, the grant of death subsidies.

3. In the year 2011, the Claimant held the following portfolio of shares representing the capital stock of the following companies resident in Portugal:

[Table omitted in original]

1. The Claimant made, in Portugal, requests for refund of the tax withheld at source in excess of the rate provided for in the Agreement to Avoid Double Taxation ("ADT") concluded between Portugal and Holland (corresponding to 10%), through the submission of Form Model 21 RFI.

2. By virtue of the refund requests made with the Portuguese Tax Authority, the Claimant only seeks the restitution of the amount of withholdings borne by the Claimant in Portugal in the year 2011, corresponding to the difference between the total amount withheld at source and the amount subject to the refund requests made under the ADT (i.e. 10%).

3. In the year 2011 the Claimant received dividends from entities resident in Portugal and on which the following withholdings at source were made:

[Table omitted in original]

1. These withholdings were made under Articles 2, number 1, subparagraph c), Article 3, number 1, subparagraph d), Article 4, numbers 2 and 3, subparagraph c), sub-subparagraph 3), all of the CIRC, and effected in accordance with Articles 94, number 1, subparagraph c) and number 3, subparagraph b) of the CIRC, with the rate of 21.5% being applied for the year 2011.

2. On 26 December 2012, the Claimant submitted a gracious complaint, based on Article 132 of the CPPT, requesting the refund of the sum of €110,392.93, plus indemnity interest.

3. On 13 November 2014, the Claimant was notified of a draft decision of the gracious complaint, by the Administrative Justice Division of the Finance Directorate of Lisbon, to the effect of rejecting the Claimant's request on the grounds that it had not proved the verification of the requirements on which the grant of the exemption depends.

4. On 28 November 2014, the Claimant exercised its right to a hearing, submitting documentation:

5. By order of 19-12-2014, from the Head of Division of the Administrative Justice Division of the Finance Directorate of Lisbon, notified by registered mail sent on 23-12-2014, the gracious complaint was rejected, on the grounds that:

"6. However, the non-conformity between the acts complained of and Article 63 of the TFEU must be recognised 'in the same terms and limits' (page 66-v), that is, it is dependent on proof of the verification of the requirements necessary to obtain the benefit of number 1 of Article 16 of the EBF, on equal terms with Pension Funds and comparable entities established and operating in national territory.

It is concluded that the admissibility of the request is dependent on the cumulative verification of the requirements listed in number 7 of Article 16 of the EBF, the content of which is hereby deemed to be fully reproduced.

Now, pursuant to number 1 of Article 74 of the LGT, 'the burden of proof of the constitutive facts of the rights ... falls on whoever invokes them', that is, it falls on the complainant to prove the fulfilment of all legal requirements to benefit from the exemption of Article 16 of the EBF.

In the case at hand, the complainant does not prove that, under number 7 of Article 16 of the EBF, its residence in a Member State of the European Union, the nature of the fund (subparagraph a), which are managed by institutions for the realisation of professional pension plans under Directive No. 2003/41/EC, of the European Parliament and of the Council of 3 June (subparagraph b) and that the equity interests that originated the income were held, uninterruptedly, for at least one year (subparagraph d).

It is concluded, therefore, that, not proving the cumulative verification requirements listed in number 7 of Article 16 of the EBF, the complainant's claim to benefit from the exemption of Article 16 of the EBF is to be rejected."

A.2. Facts Established as Not Proved

1. That the equity interests referred to in point 3 of the facts established as proved were, at the moment they generated their respective income, held by the Claimant for more than one year.

A.3. Reasoning on the Matters of Fact Proved and Not Proved

Regarding the facts, the Tribunal does not have to pronounce on everything that was alleged by the parties, rather it is its duty to select the facts that matter for the decision and to distinguish the matter proved from the not proved (cf. Article 123, number 2, of the CPPT and Article 607, number 3 of the CPC, applicable ex vi Article 29, number 1, subparagraphs a) and e), of the RJAT).

In this way, the facts relevant to the judgment of the case are selected and cut according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of Law (cf. former Article 511, number 1, of the CPC, corresponding to the current Article 596, applicable ex vi Article 29, number 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, the documentary evidence and the case file submitted to the proceedings, the facts listed above were considered proved, as relevant to the decision.

In particular, the fact established as proved in Article 2, in addition to being supported by a statement from the entity representing the legal entity of the Claimant, which enumerates in detail the types of coverage ensured by it, flows from its bylaws, in force in the year 2011, submitted to the proceedings, as well as from the circumstance that Directive No. 2003/41/EC is applicable to it, which implies, by reason of the provision of Article 7 thereof, compliance with such limitation.

The considerations put forward by the Tax Authority do not stand in the way of the judgment made, according to which the bylaws presented would be of a later date (2014)[1], that the objectives and principles of the pension fund may be revised periodically[2], and that a declaration should have been issued by a Dutch public law entity with supervisory competencies. Indeed, and as regards the first two objections, the Claimant submitted to the proceedings a copy of its bylaws in force in the year 2011, and as regards the latter, it completely lacks legal support, since at that date the number 8 of the EBF, added by Law No. 64-B/2011, of 30/12)[3] was not yet in force, whereby the principle of free assessment of evidence by the court applies in this matter.

The fact established as not proved is due to the absence of conclusive proof thereof, taking into account the degree of difficulty of such proof for the party burdened with it.

Thus, and regarding this matter, the Claimant only made available a document which, according to it, was issued by the entity responsible for the custody of the securities.

Upon examination of the said document, it appears that it is issued by a managing entity (H… NV), which declares that the income contained in the attached table was derived from interests held for more than one year.

However, upon examining such table, it is noted that the same does not indicate any date relating to the acquisition of any of the interests, in particular.

Now, given the matter in question, and taking into account that the acquirer (or whoever, on its behalf, acted as such), is the one in a position to demonstrate, conclusively, the terms (particularly, and in this case, the date) of the acquisition, a generic declaration, produced without reply, will be considered insufficient to establish, with the necessary certainty, that such corresponds to what, in reality, occurred.

Not having been, consequently, produced proof that, beyond a reasonable doubt, supports the fact in question, the same was established as not proved.

B. ON THE LAW

At issue in the present arbitral proceeding is assessing the legality of acts of withholding at source of Corporate Income Tax on dividends received by the Claimant in Portugal, relating to the year 2011, in the amount of €96,032.98, identified above (mediate object), and of the decision of the gracious complaint duly presented by the Claimant (immediate object).

As is clear from this latter act, the Tax Authority understood that it should reject the Claimant's claim, on the grounds that it considered "that the admissibility of the request is dependent on the cumulative verification of the requirements listed in number 7 of Article 16 of the EBF".

That is, it is unquestionable that the decision of the gracious complaint has as its legal ground the provision of Article 16, number 7 of the EBF.

As has been repeatedly stated by the Supreme Administrative Court, "It is exclusively in light of the reasoning given by the Tax Authority when making the additional assessment of VAT that the legality of such tax act must be assessed."[4], whereby the Tribunal must, in assessing the legality of the act in question, confine itself to the grounds, both of fact and of law, given in that decision.

Now, as the Claimant pertinently points out, and the Respondent itself acknowledges[5], the provision in number 7 of Article 16 of the EBF is not applicable to the situation sub judice, since the said rule only came into force on 1 January 2012 (the date of entry into force of the law that approved the State Budget for 2012).

By proceeding to the retroactive application of the said rule, the Tax Authority, in the act of deciding the gracious complaint, incurred in violation of Article 12/1 of the LGT, and in an error in the presuppositions of law, which is sufficient for its annulment to be determined.

The argument brought ex novo by the Tax Authority in the arbitral proceedings will not stand in the way of the conclusion referred to, namely that "the former number 11 of Article 88 of the CIRC, pursuant to which residents did not benefit from the exemption provided for in Article 16 of the EBF when 'the equity interests to which the profits relate have not remained in the ownership of the same taxpayer, uninterruptedly, during the year prior to the date of their distribution and are not to be kept during the time necessary to complete that period'."[6], for two reasons.

The first is that the rule of Article 88/11 of the CIRC applicable does not form part of the grounds of the decision of the gracious complaint, whereby such act would always have to be annulled.

The second is that the said rule did not say what the Tax Authority now claims, as will be seen below.

In this way, and for the reasons stated, the decision-making act of the gracious complaint would always have to be annulled.

However, from the annulment of that said act (immediate object of the present proceeding), the annulment of the acts of withholding at source (mediate object of the present proceeding) against which the Claimant also objects does not follow.

Regarding these, it is consensual, even with the Respondent, that the limitation in force at the time of the same, contained in Article 16/1 of the EBF, which restricted the benefit provided therein to pension funds "which are established and operate in accordance with national legislation", was non-conforming to Community Law, whereby, it is acknowledged, the tax acts subject of the present proceeding cannot be maintained in the legal order on the grounds that the Claimant is not a pension fund established and operating in accordance with national legislation, since such is violative of Article 8 of the CRP and Articles 18 and 63 of the Treaty on the Functioning of the European Union.

It will be consensual, too, it is thought, that, such being the case, pension funds established and operating in accordance with the legislation of another Member State would be entitled to the Corporate Income Tax exemption provided for in that said Article 16 of the EBF, on the same terms and conditions as funds established and operating in accordance with national legislation.

In accordance with the understanding expressed by the Tax Authority, which is subscribed to, such conditions would be met through the fulfilment of the requirements provided for in Decree-Law No. 12/2006 of 20 January, which transposed Directive No. 2003/41/EC into the Portuguese legal system, that is, and in particular, that the funds:

a) Were resident in a Member State of the European Union;

b) Ensure exclusively the payment of retirement benefits for old age or disability, survivor benefits, pre-retirement or early retirement, post-employment health benefits and, when complementary and ancillary to these benefits, the grant of death subsidies;

c) Are managed by institutions for the realisation of professional pension plans to which Directive No. 2003/41/EC of the European Parliament and Council of 3 June is applicable.

With respect to these requirements, the Tax Authority considers that the Claimant has not proved "that the contingencies ensured to its beneficiaries ensured exclusively the payment of retirement benefits for old age or disability, survivor benefits, pre-retirement or early retirement, post-employment health benefits and the grant of death subsidies."[7]

However, as results from the facts established as proved, it is verified that this is not the case, and that, indeed, the Claimant Fund ensures exclusively that type of benefits, as could not but be the case, since Directive No. 2003/41/EC is applicable to it.

Furthermore, the Tax Authority considers that the Claimant was obliged "to prove that it held the equity interests in question, uninterruptedly, for a period equal to or greater than one year"[8]

According to the Tax Authority, national funds "did not benefit from the exemption provided for in Article 16 of the EBF when 'the equity interests to which the profits relate have not remained in the ownership of the same taxpayer, uninterruptedly, during the year prior to the date of their distribution and are not to be kept during the time necessary to complete that period'.".

With all due respect, it is understood that the combined reading that the Tax Authority makes of the rules of Article 16 of the EBF and 88/11 of the CIRC, in the applicable versions, is not correct.

Indeed, that Article 88/11 provided (in its entirety) that:

"Profits distributed by entities subject to Corporate Income Tax to taxpayers who benefit from total or partial exemption are taxed separately, at the rate of 20%, including, in this case, capital income, when the equity interests to which such profits relate have not remained in the ownership of the same taxpayer, uninterruptedly, during the year prior to the date of their distribution and are not to be kept during the time necessary to complete that period."

Now, as clearly emerges from this rule, the same is not a requirement of the benefit provided for in Article 16 of the EBF, the non-proof of which results in its non-operability, but, at most[9], an exception to it, the proof of which results in a modification to the scope of the benefit in question, consisting of the separate taxation of the amounts[10] provided therein, but not otherwise affecting the benefit provided for in the said Article 16, which was constituted with the proof of the requirements provided for therein.

From this it follows, immediately, that the burden of proof of the presuppositions of Article 88/11 of the CIRC, in accordance with Article 74/1 of the LGT, falls on the Tax Authority, which seeks to avail itself of it, taxing separately the profits distributed to an exempt entity.

On the other hand, the consequence of the fulfilment of the presuppositions of the exception to the regime of Article 16 of the EBF resulting from the provision of Article 88/11 of the CIRC is, not the taxation of these income on the terms in which (admittedly[11]) it took place, that is, "under Articles 2, number 1, subparagraph c), Article 3, number 1, subparagraph d), Article 4, numbers 2 and 3, subparagraph c), sub-subparagraph 3), all of the CIRC, and effected in accordance with Articles 94, number 1, subparagraph c) and number 3, subparagraph b) of the CIRC, with the rate of 21.5% being applied for the year 2011 (cf. Articles 94, number 5 and Article 87, number 4, subparagraph d) of the CIRC).", but rather a separate taxation at the rate of 20%, in accordance with the said Article 88/1.

Therefore, by these two routes it must be concluded to the illegality of the acts of withholding at source, against which the Claimant objects, that is:

• Insofar as those acts did not proceed to the application of a rate of 20%, as would result from the provision of the (now) invoked rule of Article 88/11 of the CIRC, applicable at the time; and

• In any case, proof would always have to be made, positively, of the presuppositions of that same Article 88/11, since, being an exception to the regime of Article 16 of the EBF, and presuppositions of a separate taxation that the Tax Authority seeks to carry out, the burden of such proof would always fall on it.

Although this latter ground is, in itself, sufficient for the total annulment of the tax acts subject to the present arbitral proceeding, it will still be said that the same solution is also imposed by the first of those grounds, since, as has been the case-law of the Supreme Administrative Court[12], "the court cannot substitute the tax rate effectively applied in the disputed assessment for another, that is, cannot substitute itself for the tax administration in the application of another tax rate to the taxable income", nor is it equally legal to maintain the rate at 21.5%, since, as decided in the Supreme Administrative Court decision of 27-11-2013, handed down in proceeding 0654/13, confirmed by the decision of the same court of 18-12-2013, handed down in proceeding 0568/13, there will be "a restriction on the free movement of capital not permitted by Article 56 of the Treaty of the European Community (current Article 63 TFEU), (...) if this restriction [is] embodied in greater taxation of a non-resident entity", whereby it would always be discriminatory to maintain the tax acts, since a non-resident entity (Claimant) would be taxed at 21.5%, while a resident would be taxed at 20%.

It should be noted, finally, that the situation could be different if, in the wake of this latter case-law cited, the Tax Authority had alleged and demonstrated that the ADT with Holland "allows, in the concrete case, to neutralise the taxation, and, consequently, to respect the Community requirement of free movement of capital". Not having done so, however, it will not be the Tribunal's duty, on penalty of incurring in excess of pronouncement, to ascertain such facts.

Thus, and for all the reasons stated, the arbitral request should be granted in full.

The Claimant cumulates with the request for annulment of the tax act subject to the present proceedings, the request for condemnation of the Tax Authority to payment of indemnity interest on the amount paid by it following the tax acts now annulled.

It is a presupposition of the award of indemnity interest that the error in which the Tax Authority laboured is attributable to it (cf. Article 43 of the LGT).

In the case at hand, it is manifest that, in the wake of the illegality of the tax acts subject to the present proceeding, for the reasons pointed out previously, there is due a refund of the tax borne by the Claimant, by force of the provision in the said Articles 24, number 1, subparagraph b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been made".

On this matter, both parties consider, supported by doctrine and case-law which is subscribed to, that "the error will become attributable to the Tax Administration following a possible rejection of the claim presented by the taxpayer, that is, from the moment when, for the first time, the Tax Administration takes a position on the situation of the taxpayer, having at its disposal the elements necessary to make a decision with correct presuppositions".

The Tax Authority considers, however, that it will not, in this measure, be attributable to it the error, since there has not been "an error in the rejection of the complaint", and that "the request made by the Claimant in the proceedings of complaint is not even equal to the one it made in the present proceedings", since "While there it complained of/and requested the refund of the amount of €110,392.93, in the present proceedings it contests and requests the refund of €96,032.98".

It does not, however, have reason.

As to the first of those arguments, as seen above, the decision of the gracious complaint proceeded to the application of a rule that was not applicable, whereby, without further ado, it is illegal.

On the other hand, the difference (further) in the amount requested was not, in any way, an obstacle to the Tax Authority making the decision that, legally, was due in the case, restricted to the amount due.

For the reasons stated, the Claimant has the right to receive indemnity interest, in accordance with the provision of Articles 43, number 1, of the LGT and 61 of the CPPT.

Indemnity interest is due to the Claimant from the date of the decision of the gracious complaint, until the full refund of the amount paid, at the legal rate.

C. DECISION

By these reasons, this Arbitral Tribunal decides to judge the arbitral request filed as well-founded and, in consequence:

a) Annul the tax acts subject to the present proceeding;

b) Condemn the Tax Authority to refund to the Claimant the tax improperly borne, based on the tax acts now annulled, in the amount of €96,032.98, plus indemnity interest, at the legal rate, from the date of the decision of the gracious complaint, until the full refund of the amount paid;

c) Condemn the Tax Authority to pay the costs of the proceeding, in the amount of €2,754.00.

D. Value of the Proceeding

The value of the proceeding is fixed at €96,032.98, in accordance with Article 97-A, number 1, a), of the Code of Procedure and Tax Process, applicable by force of subparagraphs a) and b) of number 1 of Article 29 of the RJAT and of number 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €2,754.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was wholly well-founded, in accordance with Articles 12, number 2, and 22, number 4, both of the RJAT, and Article 4, number 4, of the cited Regulation.

Notify.

Lisbon

28 October 2015

The Presiding Arbitrator

(José Pedro Carvalho - Rapporteur)

The Arbitrator

(Ricardo Jorge Rodrigues Pereira)

The Arbitrator

(Catarina Gonçalves – dissenting, in accordance with declaration)

Dissenting Opinion

Dissenting vote of arbitrator Catarina Gonçalves.

The Arbitral Tribunal, by majority, decided to annul the tax acts subject to the present proceeding.

Dissenting vote regarding this decision for the reasons which I hereby set out.

In accordance with the applicable rules at the date of the facts (Article 16 number 1 of the EBF), it was verified that the income of Pension Funds which were established and operated in accordance with national legislation were exempt from Corporate Income Tax.

Furthermore, Article 88 number 11 of the CIRC provided that "Profits distributed by entities subject to Corporate Income Tax to taxpayers who benefit from total or partial exemption are taxed separately, at the rate of 20%, including, in this case, capital income, when the equity interests to which such profits relate have not remained in the ownership of the same taxpayer, uninterruptedly, during the year prior to the date of their distribution and are not to be kept during the time necessary to complete that period."

At that date, no exemption was provided for the income of Pension Funds that did not meet such requirements, namely if resident in a Member State of the European Union. Therefore, in the tax year under analysis (2011), since no mechanisms were activated that would allow a reduction of the rate, the dividends distributed to non-resident pension funds by companies resident in Portugal would be subject to withholding at source at a rate of 21.5%.

In this way, and in summary:

1. the income obtained by Pension Funds properly regulated by national legislation could benefit from an exemption, provided that, when relating to dividends, the equity interests to which they relate had remained in the ownership of the beneficiary, uninterruptedly, during the year prior to the date of their distribution;

2. the income obtained by non-resident Pension Funds (namely dividends) was subject to taxation in Portugal, by means of withholding at source.

Thus, and as was acknowledged by the CJEU in the Judgment of 6 October 2011 (Case C-493/09), "it must be concluded that, with respect to the taxation of dividends paid by companies established in Portuguese territory as equity interests held by a pension fund for more than one year, the regulation in question constitutes a restriction on the free movement of capital prohibited, in principle, by Article 63 TFEU.[13]"

That is, for the purposes of Community Law, only discriminatory treatment was observed at the time in situations where the interest had been held for more than one year, but this was no longer the case if it had been held for a shorter period, as in that case there would be no difference in relation to the treatment of a resident investor.

Thus, I consider that what should be analysed by this tribunal is the existence or otherwise of discrimination, by the fact that the different treatment given to dividends imposes a restriction on a fundamental freedom, in this case the free movement of capital (Article 63, number 1, TFEU) and does not find a rule of application (positive or negative, or an exemption) that grounds, or not, the withholding carried out.

And, once the existence or otherwise of discrimination has been analysed, the tribunal should draw the appropriate conclusions for all legal purposes.

In my opinion, the proof of the holding of the equity interests for the period of one year thus becomes necessary and fundamental, since only if the equity interests had been held for that minimum period would a potential discrimination be verified.

Not having been proven that holding, proof that would be incumbent on the Claimant, it becomes irrelevant to evaluate a possible effective discrimination and no longer merely in the abstract, as already analysed by the Supreme Administrative Court in a case of similar characteristics[14]

Thus, it must be concluded that, not having been proven the holding period, the act should be maintained in the legal order as no defect should be imputed to it.

Catarina Gonçalves

[1] Article 98 of the Reply.

[2] Article 101 of the Reply.

[3] On this point, in a different but transposable case, see the Supreme Administrative Court decision of 07-12-2010, handed down in proceeding 01075/09 (available at www.dgsi.pt, as with the rest of the case-law cited without mention of source), where it was written that "Only with the rule introduced in number 4 of Article 14 of the CIRC by Law No. 30-G/2000 of 29 December was it required in Portuguese legislation, for the purposes of applying that exemption, the presentation of a certificate of residence composed of a 'declaration confirmed and authenticated by the competent tax authorities of the Member State of the European Union of which the entity beneficiary of the income is a resident' for the purposes of obtaining the exemption", whereby although the Tax Administration should demand, during the year 2000, proof of residence of the entity beneficiary of the income for the purposes of proving the exemption, it could not make such proof dependent on a single and specific means of proof, particularly the document referred to in that number 4 of Article 14 of the CIRC, given that this rule only came into force on 1 January 2001, and was not thus in force during the year 2000.".

[4] Supreme Administrative Court decision of 23-09-2015, handed down in proceeding 01034/11.

[5] Cf. note 3 of the Reply, on page 11 thereof.

[6] Cf. Article 45 of the Reply.

[7] Cf. Article 80, point 2, of the Tax Authority's reply in the proceedings.

[8] Cf. Article 80, point 1, of the Tax Authority's reply in the proceedings.

[9] Accepting here, for the sake of argument, the understanding which may underlie the position of the Tax Authority but which is far from being unanimous, that the separate taxation referred to in Article 88/11 of the CIRC has as taxpayer the entity to which the profits are distributed, and not the entity which distributes them.

[10] As it is dispensable for the judgment of the case, the discussion, currently in vogue, on the nature and subject matter of separate taxation, or the one which, in particular, is now relevant, will not be undertaken here. Nevertheless, it will always be said that, whether it is considered that such falls on the profit-distributing entity, on the income of the latter or on the income of the entity to which the profits are distributed, the conclusions now drawn will not change.

[11] Cf. Article 3 of the Tax Authority's reply in the proceedings.

[12] Decision of 09-07-2014, handed down in proceeding 01146/13.

[13] Because they are no less relevant, the other paragraphs supporting this position are also recalled: "§29 As to the question of whether the national regulation in question constitutes a restriction on the movement of capital, it should be observed that, for Corporate Income Tax not to apply to dividends distributed to pension funds by companies established in Portuguese territory, such dividends must meet two requirements. On the one hand, they must be paid to pension funds which are established and operated in accordance with Portuguese law. On the other, those dividends must be distributed as equity interests which have remained in the ownership of the same pension fund, uninterruptedly, during a minimum period corresponding to the year prior to the date of their distribution or have been maintained during the time necessary to complete that period.§30 It follows therefrom that, owing to the first requirement laid down by the national regulation in question, investment that could be made in a Portuguese company by a non-resident pension fund is less attractive than investment that could be made by a resident pension fund. Indeed, only in the first case are the dividends distributed by the Portuguese company taxed at a rate corresponding to 20%, as Corporate Income Tax, even if they derive from equity interests which have remained in the ownership of those funds during a minimum period corresponding to the year prior to the date of their distribution. This difference in treatment has the effect of discouraging non-resident pension funds from investing in Portuguese companies and Portuguese residents from investing in those pension funds. §31 The said difference in treatment does not, however, exist when the dividends paid by a resident company derive from equity interests that have not remained in the ownership of the same taxpayer during the year preceding the date of their distribution. Indeed, by virtue of Article 88, number 11, of the CIRC, the exemption provided for in Article 16, number 1, of the EBF is not applicable in these circumstances, so that Corporate Income Tax applies to these dividends irrespective of the country of residence of the pension fund to which they are paid."

[14] Supreme Administrative Court Decision Case 0568/13 of 18/12/2013: " In summary, for the conclusion to be drawn that there is a restriction on the free movement of capital and the discriminatory nature of the regime that subjects to withholding at source the non-resident companies (in this case, Dutch companies), it would have to be demonstrated that by means of the withholding at source carried out in Portugal and the rate of tax applicable in Holland on the income obtained globally there resulted a more onerous taxation for non-resident entities than that applicable to resident companies".