Summary
Full Decision
The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. Marcolino Pisão Pedreiro and Dr. Maria Celeste Cardona, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 30-04-2014, agree as follows:
- Report
A..., VAT number … and B..., VAT number ..., residing at street …, Cascais, came pursuant to article 10 of Decree-Law no. 10/2011 of 20 January (hereinafter "RJAT") to request the Constitution of an Arbitral Tribunal seeking the annulment of the additional Personal Income Tax assessment no. ..., dated 22-11-2013 and the subsequent statement of account rectification (document 2013 ...), as well as the recognition of the Applicants' right to compensation for undue guarantee, with the consequent condemnation of the Tax and Customs Authority to pay the Applicants such compensation in the amount to be determined in execution of the award.
The respondent is the Tax and Customs Authority.
The Applicants opted for the non-appointment of an arbitrator.
Pursuant to the provisions of paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal Counsellor Jorge Lopes de Sousa, Dr. Marcolino Pisão Pedreiro and Dr. Maria Celeste Cardona, who communicated their acceptance of the appointment within the applicable period.
The parties were notified of such appointment and did not express any intention to challenge the appointment of the arbitrators, pursuant to the combined provisions of article 11, section 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.
Thus, in accordance with the provision in paragraph c) of section 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 30-04-2014.
The Tax and Customs Authority submitted a reply in which it defended the lack of merit of the request for arbitral pronouncement and its acquittal from the claim.
At a hearing on 30-06-2014, witness evidence was produced.
At the same hearing, the parties produced oral arguments.
The Arbitral Tribunal was properly constituted and is competent.
The parties possess legal personality and capacity and are entitled to sue (arts. 4 and 10, section 2, of the same statute and art. 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings are not affected by any nullities.
- Matters of Fact
2.1. Established Facts
The following facts are considered established:
a) The Applicants were holders of the share capital of the company "C..., S.A." (hereinafter "C..."), whose activity was carried out within CAE 791010 – Travel Agency Activities;
b) The aforementioned company was incorporated on 03-06-1997, in the form of a private company, with share capital of € 99,759.58, and was entirely held in equal parts by the now Applicants, who were also its managers;
c) On 26-12-2007, the Applicants, in their capacity as shareholders and in representation of "C...", entered into a contract with the company "D..., S.A" (hereinafter "D..."), a company that "engages in the activities of a tour operator and travel agency";
d) In that contract the now Applicants declared that they wished to sell and "D..." to buy "all of the social shares representing the share capital of C...";
e) Furthermore, the parties obliged themselves to carry out a set of legal operations, namely, in accordance with what results from the tenor of the contract attached as annex 1 to the inspection report (pages 54 et seq. of the administrative file):
"(...) the SHAREHOLDERS undertake, up to the DATE OF CLOSING 1, to increase the share capital of C... to the amount of € 100,000.00 (one hundred thousand euros), and to transform C... into a public limited company, so that on the DATE OF CLOSING 1 and on the DATE OF CLOSING 2, the SHAREHOLDERS hold in equal parts the shares representing the totality of the respective share capital;" [considering f) and Second Clause of the contract];
f) It was also agreed that "C... intends to sell to D..., which intends to buy from it, on the DATE OF CLOSING 1, the ASSETS", which, in accordance with the definition contained in Clause One, paragraph b) of the contract, shall consist of all of the computer system, the database, the internet domains and movable property;
g) The parties further agreed to conduct "in accordance with the terms established in the CONTRACT, up to the DATE OF CLOSING 2, a FINANCIAL VERIFICATION;" [considering g) of the contract];
h) In accordance with the definitions contained in Clause One, the date of "Closing 1" shall correspond to the moment when the sale of assets is effected, a moment that would be determined by "D..." and would take place within a maximum period of five (working) days from the date on which it was notified of the decision of non-opposition from the Competition Authority;
i) The date of "Closing 2" would correspond to the moment when the sale of shares would be effected and would be indicated by "D..." within a maximum period of fifteen (working) days from the date on which it had the final report and the final price of the shares [considering p) of the contract];
j) The moment corresponding to "Closing 1" occurred on 29-02-2008, with the following operations having been carried out by then:
– The increase of share capital of "C..." (from € 99,759.58 to € 100,000.00), carried out on 27-12-2007 (that is, on the very day following the execution of the share transfer contract) and also on the same date, the transformation of the private company into a public limited company [copy of the notarial deed of "division, transfer of shares, increase of capital and transformation of private company into public limited company", annex 2 to the Inspection Report, pages 98 et seq. of the administrative file;
– The transfer of assets of "C...";
– The payment, by "D...", on account of the total agreed final value, of the amount of € 3,000,000.00 (amount corresponding to 74.47% of the final value of the transactions);
k) From 29-02-2008 ("Closing 1"), "D..." became the holder of the computer system, databases and Internet domains that until then belonged to "C..." [clauses three, four and five of the contract];
l) From 29-02-2008, "D..." assumed the contractual position of "C..." in Leasing contracts, service contracts and Internship contracts, in accordance with the provisions of clauses eight, nine, ten and eleventh of the contract;
m) From 29-02-2008, "D..." was able to use (free of charge) the trademarks of "C...", namely the national "..." [clause twenty-two of the contract];
n) It was further agreed to maintain the commercial activity of "C..." in accordance with the criteria and practices previously followed, and that "(...) all operations of C... from 1 January 2008 until the DATE OF CLOSING 1 shall be considered as if they had been directly carried out by D..." [clause nineteen of the contract];
o) With respect to the operation of purchase/sale of the social share in "C..." the shareholders, now Applicants, undertook to transfer to "D..., on the date defined as "Closing 2", all of the (already) shares of the company;
p) Given that the transformation of the corporate type required the incorporation of (at least) three additional shareholders, the assumed obligation to sell (all of the share capital) meant that the now Applicants would have to reacquire, as in fact occurred, by the date of "Closing 1", the shares of the other shareholders, in order to allow the deposit of all shares in a national financial institution [clause thirteen];
q) Although the "contract" was executed by "D..." its contractual position was assumed by the company (entirely held by "D...") "E..., Lda";
r) On 13-05-2009, the date on which "Closing 2" occurred, with the global price of the transaction having been agreed, the said "E..., Lda" became the entire holder of the share capital of "C..., S.A.";
s) In compliance with the service order no. OI..., an inspection action was undertaken, of an internal nature and partial scope, concerning Personal Income Tax, with a view to checking capital gains generated by the transfer of social shares;
t) As a result of the inspection procedure, corrections were made to the taxable base of Personal Income Tax of the Applicants, relating to the year 2009, motivated by the application of the general anti-abuse clause contained in article 38, section 2 of the LGT, for the reasons set out in the Inspection Report contained in the administrative file, whose tenor is reproduced, which contains, among others, the following:
"(...) the means element corresponds to the path chosen by the taxpayer to obtain the desired tax gain or advantage, i.e., the acts or legal transactions entered into whose structure is determined in function of a given tax result.
In the present case, the taxpayers, with a view to the "immediate" transfer of the entire business reality of the private company of which they held all of the share capital (with the exception of the transfer of the real estate), opted for its transformation into a public limited company, with a view to the transfer of the respective shares.
The transfer, with immediate effects of almost the entire business reality of "C...", is of such evident nature that the parties agreed from the outset that the operation of the company, from the Date of Closing 1 (the moment when the company should already adopt the type of public limited company), would be considered as carried out by the Buyer, until the moment of Closing 2, when the formalization of the transfer of shares and payment of the amounts still due would be completed. See the above mentioned in paragraph G) of the facts enumerated above.
Now, given the negotiating scope intended by the taxpayers it seems to us that it would be expected to resort to a transfer of shares, in accordance with article 228 and following of the Commercial Companies Code, as the legal procedure to adopt for the intent it was designed for. Apart from being appropriate to the situation prevailing at the moment the contract was entered into, that is, in 2007, when the company assumed the type of private company, it would be more immediate and far less complex, as regards all the formalities that the constitution of a public limited company requires, as provided in articles 271 and following of the Commercial Companies Code.
Through a transfer of shares, it would only be necessary to carry out a notarial deed or private document of transfer of shares, preceded by an instrument safeguarding the non-transfer of the real estate.
However, from the business strategy adopted, the transformation of the corporate type was from the start an imposition for the transfer of the business reality to be effected to the legal sphere of the second contracting party.
In light of the above, it becomes evident that this transformation was not just conceived as a means to achieve the intended negotiating goal mentioned above, but rather to prevent the application of tax taxation, that is, tax evasion.
If we consider otherwise, the initial contract was entered into at the end of December 2007.
Under the legal provisions in force at the time, capital gains resulting from the onerous transfer of social shares were subject to taxation under Personal Income Tax, this being the applicable rule, in accordance with articles 9, section 1 a), art. 10, section 1 b) of the Personal Income Tax Code. However the same statutory text excepted certain situations, on which this type of tax did not fall, namely, if the capital gains came from the transfer of shares, held by its owner, for a period exceeding 12 months. This was what article 10, section 2 a) of the Personal Income Tax Code defended before the entry into force of
Law no. 15/2010 of 26 July.
Now, from careful analysis of the contract entered into and its respective amendments, it is clear that the path taken for the sale of the company, went through adapting the initial situation of the same to the necessary legal requirements, in order to frame it in the exceptional regime above discriminated, preventing the taxation of the economic operation under Personal Income Tax.
Even by the existence of the so-called "Closings", which were nothing more than a temporal systematization of the various operations inherent to all the negotiating will, we can assess the premeditation in the choice of this path as deviating from the tax intent.
Other negotiating details verified in the strategy of the taxpayers now under analysis corroborate the option for the legal path that harms the State and the Public Treasury.
If this were not the case, by consulting the book of registration of shares required by law under ordinances no. 289/2000 and 290/2000, both of 25 May, one would see reflected all the legal-economic operations set out in the contract, in consequence of the true negotiating objective.
However, as the Tax Authority ascertained, from the examination of such legal document, presented by the company in question on 20/03/2013, as Doc. no. 4 in annex, only the economic operations involving the shareholders A... and B... were recorded.
At no point was the business strategy appropriately and legally required to be recorded to enhance the alleged negotiating scope carried out in the contract under discussion.
Now, if the inspected taxpayers transformed the company into a public limited company, in compliance with the provision in article 273 and following of the Commercial Companies Code, and for this purpose included in the constitution of the same F..., VAT: …, G..., VAT: … and H..., VAT: …, it would be expected that such shareholders would appear in the book of registration of shares of "C...", as initial holders of 100 shares each, in accordance with what was determined in a notarial deed executed at the Notarial Office of …, dated 27/12/2007.
Strangely this is not the case, which allows us to conclude the artificial will with which the entire legal-factual strategy was delineated, conducive to tax avoidance.
Verifying only, in the book of records the constitution of shares in favor of the taxpayers now in question, and their transfer to the acquiring company, there is no doubt that the entire plot above discriminated was nothing more than a fraudulent business artifice. (cfr. annex 4 of the information in annex 1 to the report).
If this were the case, the option for the instrument of transfer of shares, instead of transformation and transfer of shares, in accordance with the understanding sustained by the Tax Authority, would be even more justified from the outset.
Moreover, the fact of requiring the transformation of the corporate type before the Date of Closing 1, that is, before the delivery of the first amounts as pecuniary consideration, as well as the obligation of bank deposit of shares, at a moment prior to the contractual formalization of said transfer, denounce the verification of eloquent maneuvers of the will to distract the tax incidence.
Although it would be in the interest of the buyer to hold social shares in the form of shares, it could acquire the company in its original form, that is, as a private company, and subsequently proceed to change its capital and transform it into a public limited company.
Had it been executed in this way, the taxpayers now inspected would have had to bear the tax on the capital gains obtained with the transfer of the corporate shares of which they were owners.
Having opted for the change and transformation of the company, at a moment prior to the transfer operation, it seems clear to us that the main objective pursued by the taxpayers was the elimination of tax liabilities.
Thus, it is clearly verified by the taxpayers, the resort to legal acts primarily directed at the avoidance of taxes that would be due as a result of legal transactions of identical economic purpose, in accordance with the provision in article 38, section 2 of the LGT.
- Element Result
As stated in section 2 of article 38 of the LGT, the acts or legal transactions "anomalous" should be "essentially or mainly directed... at the reduction, elimination or temporal deferment of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or at the obtaining of tax advantages that would not be achieved, in whole or in part, without the use of such means...".
In summary, the result element consists of the tax advantage achieved through the activity of the taxpayer, which in the case under consideration is embodied in the obstacle to taxation under Personal Income Tax that would fall on the income obtained from the transfer of social shares, which assume the form of capital gains, in accordance with articles 9, section 1 a), and 10, section 1 b) of the Personal Income Tax Code.
Effectively the taxpayers achieved the elimination of the tax liabilities, having presented to third parties, namely to the Tax Administration, a scenario that at first sight would be appropriate to the situation existing at the date, in which the legal transaction entered into would be innocent of fraudulent intentions and dissuasive of fiscal liabilities, the negotiating purpose pursued by the taxpayers was clearly the transfer of the entire business reality of which they were owners, namely the company "C...", LDA., without any tax burden falling on the income derived therefrom.
Now, the legal transaction considered as expected and appropriate for achieving the objectives explained, would be the transfer of the shares of which they were owners, as provided in art. 228 and following of the Commercial Companies Code. On such economic operation tax on the income of natural persons would have fallen, as provided in articles 10, section 1 b), section 4 a) and art. 43, section 3, 44, 48 and 51 of the Personal Income Tax Code.
It happens that the legal transaction entered into, the transfer of shares, is subject to a tax burden distinct from the foregone transaction, namely because it falls within the provision of article 10, section 2 a) of the Personal Income Tax Code in force at the time, which contemplated the non-taxation under Personal Income Tax of capital gains resulting from the transfer of shares held by its owner for more than 12 months.
This requirement was duly safeguarded by the taxpayers, since, from the moment they entered into the initial contract, they undertook the immediate transformation of the corporate type of the company "C...", LDA. into a public limited company, safeguarding the effective formalization of the transfer of social shares for a later moment, which would allow the occurrence of the lapse of time required in article 10, section 2 a) of the Personal Income Tax Code.
Thus, the initial contract that premeditated such a situation was entered into on 27/12/2007.
On the same date the taxpayers proceeded to transform it into a public limited company, cfr. notarial deed in annex 2 to the information. (cr. annex 1 to the report)
Although the Personal Income Tax Code in its article 43, section 4 b) reports the acquisition of shares resulting from the transformation of the private company into a public limited company, to the date of acquisition of the shares that gave rise to it, to guarantee the non-taxation of this operation under Personal Income Tax, the taxpayers took care to formalize the transfer of the shares on 13/05/2009, so as to safeguard the said tax exception, cumulatively, by the deferment of the moment generating the tax fact as provided for in article 10, section 2 a) of the Personal Income Tax Code.
Reviewing the elements contained in the annual income declaration – Form 3 of Personal Income Tax, the reporting obligation imposed by article 57 of the Personal Income Tax Code, relating to the year in which all the contracted operations were completed and the transfer of the shares of "C..., S.A." occurred (economic year 2009), it is verified that, as a result of all the dilatory maneuver made explicit here, the taxpayers had Personal Income Tax calculated at € 5,555.50, by application of the exceptional regime provided for in article 10, section 2 of the Personal Income Tax Code.
If the taxpayers had not altered the business situation prevailing at the time of entry into the initial contract, opting for the implementation of the legal operation appropriate to the situation, as explained above, in the determination of the taxable base under Personal Income Tax there would have been applied the regime for taxation of capital gains from the transfer of social shares, provided in art. 9, section 1 a) and art. 10, section 1 b) both of the Personal Income Tax Code, the tax being calculated in accordance with the rules established in articles 10, section 4 a), 43, 44, 48, 51 and 72 of the same statutory text.
As a result of the use of the legal subterfuge analyzed here, Personal Income Tax in the amount of €392,825.00 ceased to be paid into the State Treasury [(realization value - acquisition value x 10% = (€4,028,250.00 - €100,000.00) x 10%]."
u) By order of 15-11-2013, the Director-General of the Tax and Customs Authority authorized the application of the general anti-abuse clause (document no. 2 attached with the request for arbitral pronouncement, whose tenor is reproduced);
v) It was D... that contacted the company C..., for the purpose of its acquisition, as it wanted to obtain expansion of its travel activity and it was in its interest a niche in the leisure travel market in which C... had activity which is that of snow travel (testimony of witness I...);
w) The first contacts between D... and C... were in 2005 (testimony of witness I...);
x) On the advice of …, the final price of the transaction entered into between D... and C... became dependent on the evolution of an initial phase and the ascertainment of all the debts to be paid and collections this company had to make, a period in which the persons who had previously held these positions at C... remained in office (testimony of witnesses I... and J...);
y) It was D... that required as a condition for the execution of the contract that C... be transformed into a public limited company, with the objective of the shares being deposited in a banking institution covered by a withdrawal contract, as it had advanced, on account of the transfer, the payment of the greater part of the price and had an interest in the transfer of the share capital of C... to D... to be able to be effected immediately, at the moment agreed, by mere act of will of D..., through the withdrawal of the deposited shares, avoiding possible judicial dispute that could arise if, instead, the transfer was dependent on the execution of a promise to transfer shares contract (testimony of witnesses I... and J...);
z) Following the correction to the taxable base of the Applicants, the Tax and Customs Authority drew up the additional Personal Income Tax assessment no. ..., dated 22-11-2013 and the subsequent statement of account rectification (document 2013 ...), from which resulted an amount to be paid of € 452,852.54, which includes € 53,347.04 of compensatory interest (document no. 1 attached with the request for arbitral pronouncement, whose tenor is reproduced);
aa) The deadline for payment of the additionally assessed amount occurred on 02-01-2014 (document no. 1 attached with the request for arbitral pronouncement, whose tenor is reproduced);
bb) On 17-02-2014, the Applicants submitted the request for the constitution of the arbitral tribunal that gave rise to the present proceedings.
2.2. Unproven Facts
It was not proven that it was the Applicants who decided to transform the private company into a public limited company, nor that any of the acts they performed had been carried out with the design of obtaining tax advantages, in particular at the level of Personal Income Tax taxation.
2.3. Justification of the Determination of the Facts
The facts were established on the basis of the documents contained in the investigative file and the witness evidence.
The witnesses I... and J... appeared to testify with impartiality and with direct knowledge of the facts to which they testified.
The first witness is an executive administrator of D... and the second participated in the acquisition process, and it is not alleged or demonstrated that either of them has any personal relationship with any of the Applicants or has any interest in defending their position in the present proceedings.
- Matters of Law
The essential issue which is the subject of the present proceedings is that of verifying or not the requirements for the application of the general anti-abuse clause.
3.1. Legitimate and Illegitimate Tax Planning
In the definitions elaborated by Saldanha Sanches ([1]): legitimate tax planning "consists of a technique for reducing the tax burden whereby the taxpayer renounces certain behavior because it is linked to a tax obligation or chooses, among the various solutions provided by the legal system, that which, by intentional action or omission of the tax legislator, is accompanied by fewer tax burdens"; whilst illegitimate tax planning "consists of any behavior of improper reduction, because it contravenes principles or rules of the legal and tax system, of the tax burdens of a given taxpayer".
Within the framework of tax planning we can thus distinguish situations in which the taxpayer acts against the law, beyond the law and within the law.
When the taxpayer acts against the law, their action is direct and unequivocally unlawful, as it directly infringes the tax law, and constitutes tax fraud ([2]) capable, moreover, of being the subject of administrative offense or criminal sanctions.
Action beyond the law occurs when the taxpayer takes abusive advantage of the law to achieve a more favorable tax result, even though this does not directly violate it. This adopts "a behavior which has as its exclusive or principal purpose to circumvent one or several tax legal norms, in order to achieve the reduction or suppression of the tax burden" ([3]). Since from those one or several tax legal norms there should be detected an attempt to circumvent "a clear intention to tax affirmed by the structuring principles of the system" ([4]). This type of action is commonly designated as "fraud against tax law" but, as Saldanha Sanches alerts, intending to better illustrate and distinguish these situations from tax fraud, also designated as "abusive avoidance of tax burdens", "abusive tax avoidance" or "tax evasion" ([5]).
Only action within the law appears to be legitimate – and thus legitimate tax planning or non-abusive – appears to be legitimate. Indeed, obtaining a tax saving does not constitute a behavior prohibited by law, provided that the action does not fit within the above-mentioned action beyond the law ([6]).
Sub iudice, in summary, the Applicants contest that the transformation of a private company into a public limited company constitutes abusive tax planning, as that transformation was required by the acquiring company as a condition of the transaction in order to guarantee the transfer of the shares through the withdrawal of the shares deposited in a banking entity with a withdrawal contract.
The Tax and Customs Authority understands that it constitutes abusive tax planning, in that through that transformation into a public limited company, which it considers unnecessary and fiscally motivated, and the subsequent sale of shares (instead of shares), the Applicants avoid taxation of capital gains under Personal Income Tax.
Accordingly, the question posed to this tribunal, following the procedure for the application of the general anti-abuse clause — one of the legal mechanisms to which the legislator resorts to respond to behaviors of abusive tax planning — resides in whether the action of the taxpayers lies or not beyond the law, that is, whether there is illegitimate tax planning, whether it was abusive.
3.2. Elements of the General Anti-Abuse Clause
Under the heading "Inefficacy of acts and legal transactions", article 38, section 2 of the LGT provides in relation to the so-called general anti-abuse clause (GAAC) in tax law.
The wording laid down by Law no. 30-G/2000, of 29 December, became the following:
"Acts or legal transactions essentially or mainly directed, through artificial or fraudulent means and with abuse of legal forms, at the reduction, elimination or temporal deferment of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or at the obtaining of tax advantages that would not be achieved, in whole or in part, without the use of such means, are inefficacious within the tax context, and taxation shall then be effected in accordance with the norms applicable in their absence and the tax advantages referred to shall not be produced".
This norm is complemented by the extensive article 63 of the CPPT, which contains a set of provisions that specify the parameters shaping the procedure for applying the anti-abuse provisions.
Doctrine and case law have been deconstructing the wording of the norm pointing to five elements within it. Corresponding to one of the elements the statement of the norm, the remaining four appear to be cumulative requirements that allow to assess – as if it were a test – as to the verification of an activity characterizable as abusive tax planning ([7]).
These elements, around which both parties build their arguments, consist of:
– the means element, which concerns the path freely chosen – act or legal transaction, isolated or part of a structure of acts or sequential, logical and planned legal transactions, organized in a unitary manner – by the taxpayer to obtain the desired tax gain or advantage ([8]);
– the result element, which concerns the obtaining of a tax advantage, by virtue of the choice of that means, when compared to the tax burden that would result from the performance of the acts or legal transactions "normal" and of equivalent economic effect ([9]);
– the intellectual element, which requires that the choice of that means be "essentially or mainly directed [...] at the reduction, elimination or temporal deferment of taxes" (article 38, section 2 of the LGT), that is, which requires not merely the verification of a tax advantage, but rather that it be assessed, objectively, whether the taxpayer "intends an act, a transaction or a given structure, solely or essentially, because of the prevailing tax advantages they provide it" ([10]);
– the normative element, which "has as its primary function to distinguish cases of tax avoidance from cases of legitimate tax saving, in consideration of the principles of Tax Law, and only in cases in which it is shown an intention of law contrary to or not legitimizing the result obtained can one speak of that" ([11]);
– and, finally, the sanctioning element, which, presupposing the cumulative verification of the remaining elements, leads to the sanction of inefficacy, in the exclusive tax context, of the acts or legal transactions deemed abusive, "and taxation shall then be effected in accordance with the norms applicable in their absence and the tax advantages referred to shall not be produced" (final part of article 38, section 2 of the LGT).
Despite this deconstruction, the analysis of the elements cannot be watertight, as, as Courinha emphasizes, "the establishment of one element can, in practice, depend on another", so these "will frequently [...] assist each other" ([12]).
Let us assess, taking this aspect into consideration, the elements of the general anti-abuse clause taking into account the justification of the decision, the established facts, and the legal argumentation of the parties.
In this analysis, one must proceed from the assumption that the justification of the act that decided the application of the general anti-abuse clause that must be appreciated is only that which appears in the act itself and elements to which it refers, as the arbitral tax proceeding, as an alternative means to the judicial challenge process (section 2 of article 124 of Law no. 3-B/2010, of 28 April), is, like this, a procedural means of mere legality, in which the aim is to eliminate the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [articles 2 of the RJAT and 99 and 124 of the CPPT, applicable by virtue of the provision in article 29, section 1, paragraph a) of that]. For this reason, the acts that are the subject of the proceeding must be appreciated as they were practiced, and the tribunal cannot, on finding the invocation of an illegal ground as support for the administrative decision, assess whether its action could be based on other grounds.
3.2.1. Result Element
Comparing in an isolated and objective manner the legal transactions of the transformation of the company into a public limited company and the subsequent sale of shares (acts or legal transactions carried out) and of the eventual maintenance of the company as a private company and the subsequent sale of shares (acts or legal transactions equivalent or of identical economic purpose), it is unequivocal that the first situation benefited from a more favorable legal tax regime than the second, as, whilst the first is not the subject of taxation, in accordance with article 10, section 2 of the Personal Income Tax Code, in the wording of Decree-Law no. 228/2002, of 31 October, the second is considered a capital gain, in accordance with article 10, section 1, paragraph b) of the Personal Income Tax Code, income taxed at a rate of 10%, in accordance with article 72, section 4 of the Personal Income Tax Code, in the wording of Decree-Law no. 192/2005, of 7 November.
3.2.2. Means and Intellectual Elements
Although the aforementioned finding is sufficient to meet that requirement, its meeting is, in itself, irrelevant for the application of the general anti-abuse clause, in function of the structure of acts and legal transactions performed: "in no case shall an advantage or a tax benefit on its own indicate any idea of legal abuse" ([13]).
The so-called "step transaction doctrine", a theory constructed in Anglo-Saxon legal systems and which underlies the argument of the Tax and Customs Authority, consists in the consideration of the complex set of acts or legal transactions that arise in a global, planned architecture, composed of preparatory and complementary acts or legal transactions, apart from the act or legal transaction that is objectively censured, in that only through its complete vision is the avoidance design detected ([14]).
As regards the fulfillment of the requirements for the application of the general anti-abuse clause relating to the means and intellectual elements, the Applicants allege the existence of non-fiscal reasons to justify the performance of the operations in question, from the outset, for the nuclear transformation of the private company into a public limited company.
It clearly resulted from the evidence produced that it was not the Applicants who took the initiative of transforming the private company into a public limited company, that transformation being required by the acquirer as an essential condition for the realization of the transaction.
Furthermore, beyond this being affirmed by the witnesses examined and there being no reason to doubt the veracity of their statements, as there is no indication that any of them has a direct or indirect interest in the present dispute, the explanation for such requirement is absolutely credible, as the deposit of the shares in an entity independent of the parties to the transaction, associated with a contract relating to their withdrawal at the disposal of the acquirer provided a guarantee of the possibility of immediate execution of the transfer, by mere act of will of the acquirer, that could not be provided by a promise to transfer shares contract.
Thus, it was not demonstrated that the transformation of the private company into a public limited company had been intended by any of the Applicants nor that the purpose of the transformation of the private company into a public limited company was of a fiscal nature and much less principal or essentially fiscal, as the only objective that was proven to be sought by the Applicants was to enable the realization of the transaction, in view of the requirement imposed on them by the acquirer, with a perfectly plausible justification.
For this reason it must be concluded that one of the requirements for the application of the general anti-abuse clause, required by article 38, section 2 of the LGT, is not verified, which is that the act or legal transaction be essentially or mainly directed at the reduction, elimination or temporal deferment of taxes that would be due if it were not practiced.
Since the requirements provided for in article 38, section 2 of the LGT are cumulative, it must be concluded, without more, that the application of the general anti-abuse clause and the subsequent correction of the taxable base of Personal Income Tax of the Applicants effected on the basis of that application is affected by illegality.
- Conclusion
It is concluded, therefore, that one of the factual requirements on which the application of the general anti-abuse clause depends is not verified, which is that the act or transaction had been essentially or mainly directed at the reduction, elimination or temporal deferment of taxes that would be due as a result of facts, as it was only proved that the transformation of the company was directed to the satisfaction of a requirement of the acquirer perfectly explained and justified.
And, in view of article 38, section 2, when stating that, for the application of the general anti-abuse clause, the transactions must be directed at the reduction, elimination or temporal deferment of taxes that would be due, it is not enough that tax advantages be obtained, but it is essential that the obtaining of these was an objective essentially or principally pursued by the taxpayer.
Consequently, the assessment act whose declaration of illegality is requested is illegal, which has as its presupposition the verification of the requirements for the application of the general anti-abuse clause, by violation of the provision in article 38, section 2 of the LGT.
For this reason, the request for annulment of the acts of additional Personal Income Tax assessment relating to the year 2009 no. ..., dated 22-11-2013 and the subsequent statement of account rectification (document 2013 ...), from which resulted an amount to be paid of € 452,852.54, which includes € 53,347.04 of compensatory interest, must be judged well-founded.
- Compensation for Undue Guarantee
The Applicants affirm that they did not pay the amount owed and, after service of the tax enforcement proceedings, they would constitute a bank guarantee to suspend the tax enforcement proceedings and that, for the provision of such guarantee, the Applicants incurred costs, in addition to the inherent costs of maintenance and cancellation, which at this moment are still not determinable.
The arbitral proceeding is an appropriate means for the recognition of the right to compensation for a guarantee improperly provided, as article 171 of the CPPT is applicable subsidiarily, by virtue of the provision in article 29, section 1, paragraph c) of the RJAT.
However, what is established in that article 171 is that "compensation in case of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the enforceable debt is disputed".
For this reason, only when a guarantee is "provided" is the right to compensation able to be requested, such provision being able to occur in the very pendency of the proceeding, situation in which it shall constitute a supervening fact, invocable in accordance with section 2 of article 171 of the CPPT.
In fact, this is the solution that accords with the role of the courts as a service of justice, as their function is to resolve existing concrete disputes and not merely hypothetical or abstract ones. For this reason, if the recognition of the right to compensation is requested prior to the provision of the guarantee, the request should be dismissed, without prejudice to such request being able to be formulated in the pendency of the proceeding, if the provision of the guarantee occurs in the meantime, as, in this case, one is faced with a supervening ground, invocable within the 30-day period provided for in section 2 of article 171 of the CPPT.
Thus, since it is not alleged and proved that a guarantee was provided, the request for recognition of the right to compensation must be judged without merit, without prejudice to such right being able to come to be recognized even in execution of judgment, if such provision occurs.
- Value of the Case
In accordance with the provision in article 306, section 2 of the CPC and 97-A, section 1, paragraph a) of the CPPT and 3, section 2 of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at € 452,852.54.
- Decision
In accordance with the foregoing, the arbitrators agree to:
a) Judge well-founded the request for arbitral pronouncement insofar as the annulment of the additional Personal Income Tax assessment relating to the year 2009, with no. ..., dated 22-11-2013 and the subsequent statement of account rectification (document 2013 ...), from which resulted an amount to be paid of € 452,852.54, which includes € 53,347.04 of compensatory interest, is requested;
b) Annul the assessment and statement of account rectification referred to;
c) Judge without merit the request for arbitral pronouncement insofar as compensation for undue guarantee is requested.
- Costs
Pursuant to article 22, section 4 of the RJAT, the costs are fixed at € 7,344.00, in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.
Lisbon, 21-07-2014
The Arbitrators
(Jorge Lopes de Sousa)
(Marcolino Pisão Pedreiro)
(Maria Celeste Cardona)
[1] Cfr. Saldanha Sanches, J.L., Os Limites do Planeamento Fiscal, Coimbra Editora, Coimbra, 2006, p. 21.
[2] Cfr. AcTCAS of 12-02-2011, proc. no. 04255/10.
[3] Cfr. Jónatas Machado and Nogueira da Costa, Curso de Direito Tributário, Coimbra Editora, Coimbra, 2009, pp. 340-341.
[4] Cfr. Saldanha Sanches, J.L., Os Limites..., p. 181.
[5] Cfr. Saldanha Sanches, J.L., Os Limites..., pp. 21-23; also Award of the Central Administrative Court South of 12-02-2011, proceeding no. 04255/10.
[6] Cfr. Saldanha Sanches, J.L., Reestruturação de empresas e limites do planeamento fiscal, As duas constituições – nos dez anos da cláusula geral antiabuso, Coimbra Editora, Coimbra, 2009, pp. 49-50, which states, in this regard: "the establishment of the general anti-abuse clause implies [...] that from its introduction it is clearly delimited what the taxpayer can and cannot do. Tax skills, tax cunning are no longer possible (artificial and fraudulent operations that have as their main or sole purpose the obtaining of a tax saving through fraud against the law) and the taxpayer begins to have their behavior judged in accordance with this criterion. [...] the evolution of the law is clear in the direction of providing legal foundation for tax planning, provided that it is practiced without the abuse of legal forms, without artificial and fraudulent legal transactions but limiting itself to choosing the path that is open and that allows them to achieve tax savings". Cfr., also, Marques, Paulo, Elogio do Imposto, Coimbra Editora, Coimbra, 2009, pp. 360-364.
[7] That is, a "planned activity of the taxpayer that translates into an apparently lawful behavior, generating a tax advantage not admitted by the tax system" (cfr. Courinha, Gustavo Lopes, Cláusula Geral Antiabuso no Direito Tributário: Contributos para a sua compreensão, Almedina, Coimbra, 2009, pp.15-17 and 163-165; as well as Award of the Central Administrative Court South of 15-02-2011, proc. no. 04255/10, conclusions XIII and XIV).
[8] As it follows from the following part of article 38, section 2 of the LGT: "acts or legal transactions essentially or mainly directed, through artificial or fraudulent means and with abuse of legal forms, at the reduction, elimination or temporal deferment of taxes".
[9] This follows from the following segment of article 38, section 2 of the LGT: "reduction, elimination or temporal deferment of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or at the obtaining of tax advantages that would not be achieved, in whole or in part, without the use of such means". It also follows from article 63, section 3, paragraphs a) and b) of the CPPT, as amended by Law no. 64-B/2011, of 30 December, which require that the Tax Administration include in its reasoning, respectively, "the description of the legal transaction entered into or of the legal act carried out and of the transactions or acts of identical economic purpose, as well as the indication of the norms of application that apply to them" and "the demonstration that the entry into of the legal transaction or practice of the legal act was essentially or mainly directed at the reduction, elimination or temporal deferment of taxes that would be due in case of transaction or act with identical economic purpose, or at the obtaining of tax advantages".
[10] Cfr. Courinha, Gustavo Lopes, Cláusula..., p. 180.
[11] Cfr. Courinha, Gustavo Lopes, Cláusula..., p. 211.
[12] Cfr. Courinha, Gustavo Lopes, Cláusula..., p. 165. Identically, Saldanha Sanches, J.L., Os Limites..., p. 170, which points to a "relationship of connection and interdependence in relation to the requirements demanded by the law".
[13] Cfr. Leite de Campos, Diogo, and Costa Andrade, João, Autonomia Contratual e Direito Tributário, A norma geral anti-elisão, Almedina, Coimbra, 2008, p. 82.
[14] "Whether legal acts, whether legal transactions, can arise isolated (adapted to the obtaining of economic utility and tax advantage), or, which is perhaps the most common hypothesis, form a whole – a set of acts or a set of transactions. To do so, they should form a logical, sequential and indivisible unity thereto directed – a structure [...]. Doctrine and British case law [...] ascertained the verification of such unity when – step-by-step doctrine – at the moment of the realization of the first act, it would be little reasonable to admit that others would not forcibly follow it, in order to complete it, and thus obtaining the sought tax advantage and the ensured economic purpose" (cfr. Courinha, Gustavo Lopes, Cláusula…, pp. 166-167).
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