CAAD Process 200/2014-T: IRS General Anti-Abuse Clause in Arbitral Tax Decision

ARBITRAL DECISION

Process no. 200/2014-T

The Arbitrators Counsellor Jorge Lopes de Sousa (designated by agreement of the other Arbitrators), Dr. Ricardo da Palma Borges and Professor Doctor Manuel Pires, designated, respectively, by the Claimant and by the Defendant, to form the Arbitral Tribunal, constituted on 20-06-2014, agree as follows:

1. Report

A - SGPS, S.A., NIPC …, (hereinafter "A SGPS" or "Claimant") filed on 27-02-2014 a request for constitution of a collective arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), against which the Tax and Customs Authority (AT) is the Defendant.

In exercise of the option to designate an arbitrator provided for in subparagraph b) of article 6, no. 2 of the RJAT and in compliance with the provision of subparagraph g) of article 10, no. 2 and article 11, no. 2, of the same decree-law, the Claimant designated as Arbitrator Professor Doctor Tomás Cantista Tavares.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 03-03-2014.

In accordance with the provision of subparagraph b) of article 6, no. 2 and article 11, no. 3 of the RJAT, and within the deadline provided for in article 13, no. 1 of the RJAT, the highest-ranking official of the Tax Administration service designated as Arbitrator Professor Doctor Manuel Pires.

In accordance with the provisions of article 11, nos. 5 and 6 of the RJAT, the President of CAAD notified the Claimant of the designation of the Arbitrator by the highest-ranking official of the Tax Administration service on 14-04-2014, and notified the arbitrators designated by the parties to designate the third arbitrator who assumes the position of presiding arbitrator.

On 28-04-2014 and 29-04-2014 the Honourable Arbitrators designated by the parties communicated to CAAD the designation of Counsellor Jorge Lopes de Sousa as Presiding Arbitrator.

Subsequently, following a request for recusal by the Arbitrator designated by the Claimant, the latter designated Dr. Ricardo da Palma Borges.

The signatories designated to form part of this collective Arbitral Tribunal accepted the designations in accordance with legally provided terms.

In accordance with and for the purposes of the provision of article 11, no. 7 of the RJAT, the President of CAAD informed the Parties of this designation on 30-05-2014.

On 03-6-2014, the Claimant came to request the extension of the claim to the annulment of the express decision dismissing the administrative review claim it had filed.

Thus, in conformity with the provisions of article 11, no. 7 of the RJAT, after the deadline provided for in article 13, no. 1 of the RJAT had elapsed, the collective arbitral tribunal was constituted on 20-06-2014.

In the request for arbitral decision, the Claimant sought a declaration of illegality:

(i) of the statement of tax withholding assessment for Income Tax (IR) no. 2013 ...02, of 30-01-2013 and corresponding statement of compensatory interest assessment no. 2013 ...34, relating to the year 2009;

(ii) of the statement of tax withholding assessment for IR no. 2013 ...03, of 30-01-2013 and corresponding compensatory interest assessments nos. 2013 ...35 and 2013 ...36, relating to the year 2010, and

(iii) of the statement of tax withholding assessment for IR no. 2013 ...04, of 30-01-2013 and corresponding compensatory interest assessment no. 2013 ...37, relating to the year 2011.

Following the extension of the claim, the Claimant seeks the annulment of the decision of 24-04-2014, which dismissed the administrative review no. ... REC …/13, a copy of which it attached to the request for extension filed on 03-06-2014.

The Tax and Customs Authority filed a response in which it concluded by stating that the request for arbitral decision should be judged to lack merit, dismissing the claims against the Defendant Entity, with the assessments to be maintained as they were made.

On 29-09-2014, the hearing provided for in article 18 of the RJAT took place, at which party statements and questioning of two witnesses occurred.

At that hearing it was agreed that the proceedings would continue with successive submissions with a period of 15 days.

The Claimant filed submissions concluding in the following terms:

On these grounds we respectfully request that Your Excellency be pleased to uphold this request for constitution of an arbitral tribunal and for arbitral decision on the acts more clearly identified in the preamble and, as a consequence:

i) to declare the illegality of the tax acts identified in the preamble, determining their annulment;

ii) to declare the illegality of the express decision dismissing the administrative review filed pending this arbitral proceeding, determining its annulment;

iii) to determine compensation to the Claimant, in accordance with article 53 of the LGT, for any expenses incurred with the provision of undue guarantee for suspension of tax enforcement proceedings; and,

iv) to determine the restitution of the tax and compensatory interest unduely paid, with added indemnificatory interest.

The Tax and Customs Authority filed submissions in which it concludes by stating that it understands that all the requirements for application of the general anti-abuse clause are met, and therefore the request for arbitral decision should be judged to lack merit, dismissing the claims against the Defendant Entity, with the assessments to be maintained as they were made, as is in accordance with Law and Justice.

The arbitral tribunal was regularly constituted and is materially competent to consider the claims.

The parties have legal personality and capacity and are legitimate (articles 4 and 10, no. 2, of the same decree-law and article 1 of Order no. 112-A/2011, of 22 March).

The proceedings are not affected by nullities and no further exceptions were raised.

1. Matters of Fact

2.1. Proven Facts

Based on the elements contained in the proceedings and in the administrative file attached to the record, the following facts are deemed to be proven:

a) A A –, SA (hereinafter "A SA") is a financial brokerage company subject to supervision by the Bank of Portugal (BP) and Securities Market Commission (CMVM) which was established on 01-06-1999, under the name "B, S.A.;

b) Company C, SA, NIPC …, hereinafter "C") had as its preferred market institutional clients: pension funds, insurance companies and banks among others;

c) In order to enter the institutional client market, between the end of 2004 and mid-2005, the shareholders of both companies proceeded with the purchase and sale of shares in A SA and C with the objective of coming to hold the same shareholder structure with the objective of proceeding with the merger of both companies;

d) The shareholders of A SA and C opted for a strategy of taking identical shareholder positions in both companies, through the purchase and sale among the involved shareholders of shares in both companies, to subsequently facilitate the process of merging both companies;

e) On 20-10-2005 the deed of merger and capital increase between C and A SA is executed, with the representative of C being D;

f) On 04-08-2005 the merger project was registered through incorporation, by means of global transfer of the assets of the incorporated company, C, SA, to the incorporating company, A SA, with capital reinforcement in the amount of € 242.109,00.

g) On 02-12-2005 the merger is registered, in which the share capital of A SA becomes € 3.742.109.00, represented by 1.069.174 registered shares with a nominal value of €3.50, with the new 69.174 shares distributed among shareholders in accordance with their percentage in share capital and voting rights, which remained unchanged after the merger, in the following terms:

[TABLE - Shareholders and percentages]

h) From 2007 onwards A SA proceeds to acquire treasury shares and also to sell to new shareholders, who are admitted to the share capital of the company following the philosophy of "partnership", these shareholders who came to lead new areas of business or brought relevant share portfolios to the company;

i) On 30-03-2007 A, SA proceeds to acquire 53.456 treasury shares at the unit value of € 28,81, in the total of € 1.540.124,98;

j) The acquisition of shares referred to in the previous subparagraph was decided by resolution (minutes 21 in annex 9 to the Tax Inspection Report) and was carried out in accordance with the proportion of the percentage of share capital and voting rights of the company and represents 0.5% of the shares of each of the partners representing 5% of the total share capital;

k) On 02-10-2007 shareholder E, resident in Spain, is admitted, acquiring 15.236 shares at the unit value of € 28,90, in the total of € 440.437,25 and comes to hold 1.43% of the share capital of A SA;

l) With the entry of shareholder E, A SA also proceeds to exercise its activity in Spain through free provision of services, whereby a company that is registered in one country and with authorization from the supervisory body of its country notifies the supervisory body of the destination country that it will also exercise its service provision activity there;

m) On 16-01-2008 the percentage of share capital of shareholder F is reinforced from 1.5% to 2.87%, through the acquisition of 15.464 shares at the unit value of €8,61, in the total of €133.145,04;

n) On 20-02-2008 shareholder G, NIF …, acquires a total of 15.236 shares from the majority shareholders and which represent more than 90% of share capital at the unit value of €10,30;

o) On the same day 20-02-2008 said shareholder sells 5.232 shares to A SGPS at the global price of €140.000,00, which was decided by resolution (minutes 24 in annex 14 to the Tax Inspection Report) and which corresponds to the unit value of € 26,75;

p) The total value of the acquisition made by shareholder G is (15.236 x €10,30 = €156.930,80) whilst the value of the sale of 5.232 shares to the company itself is (5.232 x €26,75 = €139.956,00), with this shareholder continuing to hold 10.004 = (15.236 - 5.232) shares in portfolio, at a net cost of €16.974,80 = (€156.930,80 - €139.956,00), a value lower than the nominal value (€16.974,80 / 10.004 =€1.6968);

q) On 16-04-2008, A SA proceeds once more to acquire treasury shares, in the total of 57.267, at the unit value of €44,06, in the total of €2.523.184,02, which represent 5.3% of total share capital, this acquisition having been decided by resolution (minutes 26 in annex 15 to the Tax Inspection Report);

r) On 03-07-2008, due to illness, shareholder G manifests his intention to withdraw from the company, so his 9.454 shares are sold to H, SA, hereinafter designated as "H", with registered office in Switzerland;

s) On 20-07-2009, the 9.454 shares sold by H were sold to A SA at the unit value of €27,56;

t) In the contract for sale of shares by H to A SA, who signs on behalf of H is D, NIF …, resident in Switzerland and also one of the shareholders with the highest percentage in share capital and voting rights of A SA, respectively 12.0555% and 13.2272%;

u) The sale price of the shares varied over time, and especially depending on the purchaser, in these terms:

[TABLE - Price variations by purchaser]

v) From December 2004 onwards, A SA came to hold a majority reference and stable shareholder structure, as well as a board of directors that has been successively renewed for the three-year periods 2006/2007, 2008/2010 and 2011/2013;

w) According to the permanent certificate, the administration structure of A SA is the responsibility of a board composed of three to twenty-one members, elected for mandates of three years, but in the successive mandates for the three-year periods of 2005/2007, 2008/2010 and 2011/2013, the composition of the board of directors has remained unchanged, as set out in the appointment contained in said permanent certificate:

Chairman: I NIF: …;

Member: J NIF: …;

Member: K NIF: ….

x) Claimant A SGPS is a company managing participations constituted on 27-07-2009, by the same shareholders of A SA;

y) A SGPS was constituted with a share capital of €50.000,00 corresponding to 50.000 registered shares with a nominal value of €1,00, distributed among the following shareholders:

[TABLE - Shareholders and percentages]

z) The administration of A SGPS is the responsibility of a board of directors composed of three members, elected for four-year mandates;

In the mandate for the four-year period of 2009/2012, the composition of the board of directors is:

Chairman: I NIF: …;

Member: J NIF: …;

Member: K NIF: …,

aa) On 31-07-2009, immediately before the sale of available shares of A SA to A SGPS, the share capital of A SA was distributed as follows:

[TABLE - Capital distribution]

bb) On 31-07-2009 the shareholders of A SA sold at the price of €660.000.000,00 the totality of 974.463 available shares of this company to A SGPS, in the terms of the following table:

[TABLE - Share sale distribution]

cc) All shares were held by their holders for more than one year;

dd) Until 31-07-2009, there was no distribution of reserves for payment of dividends in A SA;

ee) Until 31-07-2009, the change in the equity capital of A SA occurred through payment of bonuses (€38.075,00 in the year 2005, €100.250,00 in the year 2006) or acquisition of treasury shares (in total, from 2007 to 2009, of €3.566.698,54);

ff) From 04-08-2009 (4 days after the sale of shares in A SA to A SGPS), A SA proceeds to distribute free reserves for payment of dividends, which constitute the only operating revenues/income of A SGPS, with the distribution of dividends having been decided in minutes no. 30 of the general assembly of A SA;

gg) These revenues of A SGPS, which constitute financial flows coming from A SA, are then used for reimbursement of the advances and supplementary contributions made by the shareholders, respecting the voting rights and capital percentages held by the same shareholders;

hh) The capital gains obtained by shareholders with the sale of shares in the years 2007 to 2009 were declared for Personal Income Tax (IRS) purposes;

ii) According to the information provided by A SGPS to the Tax and Customs Authority, the reason for the establishment of a SGPS is related to the objective of promoting the expansion and diversification of the activities of A SA, through entry into new areas of business in the financial sector and also outside national territory, namely in the Angolan market;

jj) The new activities to be pursued could not be exercised by A SA given various factors:

the corporate purpose of "financial brokerage company",

the new activities can only be exercised by a specific type of financial company, such as "investment fund management company";

expansion to other markets such as Angola raises the issue of different jurisdictions and different regulators given that a financial company can in principle only develop activity in the country where it is authorized and supervised;

kk) A SGPS further informed the Tax and Customs Authority that the Bank of Portugal intends that the different companies of the same shareholder group be brought together under the same "holding" company so that it can exercise prudential supervision on a consolidated basis;

ll) On 04-08-2009 A SA decided in general assembly the distribution to shareholders of free reserves in the value of €12.450.000,00;

mm) The dividends referred to in the previous subparagraph were subject to withholding tax in the value of €2.490.000,00, so the value received by A SGPS was €9.960.000,00 and this value was credited to the account of … of A SGPS;

nn) On 07-08-2009, reimbursement to the partners of advances was made in the total of €9.960.000,00;

oo) On 30-07-2010, A SGPS received the value of €2.490.000,00 relating to the reimbursement of Corporate Income Tax (IRC) resulting from the self-assessment made in form 22 of IRC for the financial year 2009;

pp) The value of this reimbursement refers entirely to the withholding tax made by A SA in August 2009 for the payment of dividends to A SGPS;

qq) As a consequence of this inflow of money, A SGPS proceeded to reimburse the partners of advances in the total of €2.490.000,00;

rr) On 10-09-2010 A SA decided in general assembly the distribution to shareholders of free reserves in the value of €6.398.000,00, with these dividends being exempt from withholding tax in accordance with article 97 of the IRC Code.

ss) On 17-09-2010 it was decided in minutes of the board of directors of A SGPS the reimbursement of supplementary contributions of €3.448.000,00, with the shareholders being reimbursed from the balance of advances in the total of €50.000,00 and from supplementary contributions in the amount decided in minutes, of €3.448.000,00

tt) On 05-05-2011, A SGPS received dividends in the total of €6.511.964,55 and on 07-07-2011 the board of directors of A SGPS decides in minutes the reimbursement of supplementary contributions of €6.500.000,00, with reimbursement to the shareholders being made on the same day, in accordance with extract from the accounting of the bank account, a decision that occurred after the notification was made and authorization obtained from the Bank of Portugal;

uu) Both A SA and A SGPS are subject to supervision by the Bank of Portugal;

vv) The Tax and Customs Authority proceeded with an external inspection action against the Claimant relating to the years 2009, 2010 and 2011, in compliance with Service Orders nos. OI…, OI… and OI…, respectively;

ww) In the course of the external inspection action, the application of the anti-abuse procedure was proposed, referred to in article 63 of the Code of Tax Procedure and Process (CPPT), which was authorized by decision of the Director General of the Tax and Customs Authority on 14-11-2012;

xx) In the Tax Inspection Report, whose contents are reproduced, it states, among other things, the following:

III - 4.6. Origin and destination of A SGPS financial flows

It results from the above that the relevant financial flows of A SGPS consist in the receipt of dividends from A SA, which are used in the reimbursement of advances and supplementary contributions recorded in the accounting of A SGPS in favor of its shareholders.

It is concluded that the advantage of the appreciation of shares at the time of their sale to A SGPS is to allow the exit of financial flows relating to distribution of profits of A SA which are then directed to the shareholders by way of reimbursement of advances and supplementary contributions.

There is a tax advantage in the financial flows resulting from the conclusion of these legal transactions: establishment of A SGPS and sale of shares at a value above nominal value. The conclusion of the same legal transactions with the sale of shares at nominal value would have as a consequence two different moments of dividend distribution:

1. first the distribution of dividends from A SA to A SGPS, which is exempt from withholding tax (article 97 of CIRC) and also excluded from taxation by virtue of the deduction referred to in article 51 of CIRC;

2. secondly the distribution of dividends from A SGPS to its shareholders, however these dividends would be taxed for Personal Income Tax (IRS) purposes of each of these shareholders as Category E income.

(...)

Despite having sold all available shares of A SA to A SGPS, the shareholders remained with ownership and the same voting rights of A SA, but indirectly, through the holding of A SGPS, in the same proportion of percentage of share capital and voting rights.

It is concluded that the shareholders of A SGPS are the same shareholders of A SA prior to the sale of shares to A SGPS, with the same percentage of voting rights and there is total coincidence in the board of directors of both companies.

The members of the board of directors of A SGPS receive Category A income which is paid by company A SA,

In summary, the absence of objective indicators, such as spending on personnel, fixed assets or other equipment, demonstrate the non-existence of human and technical resources with which A SGPS could pursue its restricted corporate purpose so that, not possessing A SGPS any physical and human structure, it is found that all administrative and financial services of this company are provided by A SA.

This situation combined with the coincidence/proximity of dates between the distribution of dividends from A SA to A SGPS and reimbursement of advances and supplementary contributions to shareholders, evidences that it is A SA and its shareholders (indirectly) who are the decision-making and managing entity of these operations of share appreciation, dividend distribution and reimbursement to shareholders. The involvement of shareholders is so high that there is no reason other than fiscal for the appreciation of shares above nominal value at the time of their sale to A SGPS.

It is important to emphasize and clarify that it is not the establishment of A SGPS, as a holding company, that the Tax Administration calls into question but only the dividends that it receives and then pays to shareholders in the form of reimbursement of advances and supplementary contributions. In that sense the tax act called into question by the Tax Administration is related to the reimbursement to shareholders of advances and supplementary contributions, which should however given the elements proven in this report consist in the receipt of dividends.

III-4.10. Entry of New Partner

On 26 July 2011 it was decided in General Assembly (annex 45), in its first point, the entry of a new partner, L, which will be made through the acquisition of 105 shares at the unit price of €1 each, during the next 5 years from each of the partners I, K, M, N, O and P. In the second point of the agenda of this General Assembly it was decided that the same partners would partially transfer to the new partner L their respective contractual position in the Contract of Advances and Supplementary Contributions concluded between the shareholders and the company on 31 July 2009.

On 26 July 2011, it was decided in minutes no. 4 of the general assembly of A SGPS that;

"... in the course of the next 5 years, each of the following shareholders of the company, I, K, M, N, D, O and P, intend to sell to L, 105 shares of the company, in a total of 735 shares. Each share will be sold at the unit price of 1 € per share and the sale will be made in accordance with the draft contract that was presented for that purpose being attached to these minutes or on similar terms. ...] The shareholders then decided, unanimously, that the company does not exercise its right of first refusal in the purchase of shares.

They further decided that "...each of the following shareholders of the company, I, K, M, N, D, O and P, intends to partially transfer to L, who wishes to assume the respective contractual position in the Contract of Advances and Supplementary Contributions concluded between the shareholders and the company on 31 July 2009 f...) It further stated that, in the course of the next 5 years, and in the context of the sale of shares referred to in the point, there will also be transferred part of the contractual position of each of the shareholders referred to above in the Contract of Advances and Supplementary Contributions concluded between the shareholders and the company on 31 July 2009, in terms proportional to the shares sold. The shareholders then decided, unanimously, to give the consent of the company to the aforementioned partial transfer of contractual position of each of the shareholders in the Contract of Advances and Supplementary Contributions concluded between the shareholders and the company on 31 July 2009.

This transfer of contractual position in the advances and supplementary contributions contract contradicts the provision of article 213, no. 4 of the CSC "The restitution of supplementary contributions must respect equality among the partners who have made them".

However it comes to confirm that this is a policy of remuneration of shareholders, so that the remuneration of an equivalent new partner leads to the transfer of contractual position in said contract, as is explained in the following paragraphs.

In effect, the share capital of A SGPS was subscribed and realized by 50.000 shares at a unit value of €1,00, however when acquiring the shares of A SA at a unit value of €61,57, A SGPS becomes the sole shareholder of the total capital of A SA acquired at the global value of €60.000.000,00.

The advances and supplementary contributions relate to the financing provided by shareholders to A SGPS for this company to pay to the shareholders the shares of A SA acquired from the same shareholders at the unit value of €61,57, in the total of €60.000.000,00.

The new shareholder L did not participate in this financing provided to A SGPS, does not appear in said advances and supplementary contributions contract, so made no advance or supplementary contribution to A SGPS.

When the entry of a new shareholder [L] into A SGPS occurs, through the acquisition of 735 shares [of A SGPS] from seven shareholders [of A SGPS] at the nominal value of €1,00, and is given the possibility of transfer of contractual position in the advances and supplementary contributions contract, it means that in the future this new shareholder [L] will be reimbursed for advances in the part relating to the 735 shares that he acquired for €1,00, having as reference the value of sale of the shares of A SA to A SGPS at €61,57.

It is thus confirmed that the real motivation for the sale of shares of A SA to A SGPS at €60.000.000,00, in accordance with the proportion of share capital and voting rights of each shareholder, through the execution of a contract of advances and supplementary contributions, is to remunerate shareholders through indirect distribution of dividends excluded from any taxation under Personal Income Tax (IRS).

(...)

III- 6.1. Recent Jurisprudence of TCAS (Proc. 5105 of 31/01/2012)

According to recent jurisprudence of the Central Administrative Court of the South (proc. 5105/11 of 31-01-2012) "This legislation [art. 38 of the LGT and art. 63 of the CPPT) has applicability whenever companies practice a series of anomalous acts, inadequate given the economic purpose intended, but which in themselves are legal if they produce the same economic result (but not fiscal) of the usual and adequate acts that are defined in the rules of incidence of Corporate Income Tax (IRC). It should be noted that in the case at hand the rules of incidence refer to Personal Income Tax (IRS).

And it continues "The acts that the Tax Administration classifies as included in no. 2 of art. 38 of the LGT do not have as their purpose fiscal savings, but rather an action against the essential purposes of the tax legal order. What is intended in this case is to combat tax avoidance, realized in acts that are formally lawful.

By analogy to this decision, it can be specified for the case at hand that the reimbursements of advances and supplementary contributions constitute the practice of an act with the intention of obtaining revenues exempt from taxation, through a formally lawful legal act, which otherwise, more specifically in the form of dividends, would be subject to actual taxation.

In accordance with the described legislation, the reimbursements of advances and supplementary contributions constitute acts directed, through artificial means, through unnecessary use of the appreciation of the sale price of shares above nominal value, and with abuse of legal forms, with a view to elimination of tax that would be due if the dividends from those shares were paid directly to the shareholders who hold them (directly or indirectly), and which without the appreciation of the sale price of shares above nominal value, would be correctly taxed for Personal Income Tax (IRS) purposes.

In effect A SGPS by transforming the dividends it receives into reimbursement of advances and supplementary contributions produces an effect of escape from tax, as this would be required if the company had opted for direct distribution of dividends, with equivalent economic results.

The appreciation of the sale price of shares, above nominal value, does not constitute any capital gain incorporating into this concept any business advantage that its appreciation can bring to any of the intervening parties, in a clear allusion that the use of this appreciation had as sole and primary purpose an abusive exploitation of legal forms with the intent to obtain revenues which, without the use of such forms, would be subject to taxation.

The appreciation of the sale price of shares, above nominal value had one, clear and unequivocal objective: the elimination of the tax burden on the respective dividends.

Throughout this information it has been demonstrated that the sale of shares at a value above nominal value was totally dispensable for the realization of the objectives of shareholders in terms of expansion of activities of A SA.

To this end, in view of the provision of the mechanism of article 63 of the CPPT for application of the general anti-abuse clause, as well as in view of the understanding of recent jurisprudence of the Central Administrative Court of the South (proc. 04255/10, of 15-02-2011, www.dasl.pt), it is necessary to fulfill the requirements listed there, which are:

1. The element means used to realize the economic operation leading to the tax advantage, which relates to the forms used by the taxpayer, by means of the acts and lawful legal transactions concluded with which he proposes to obtain the reduction or elimination of tax;

ii. The element result obtained, regarding the advantage proper, the unlawfulness of the purpose, the fiscal consequence intended by the taxpayer, inseparable both from the lawful means to which he resorted, and from the fiscal motivation on which his conduct is based;

iii. The intellectual element, regarding the fiscal motivation that served as the basis for the conduct of the taxpayer for purposes of reduction or elimination of taxation, notwithstanding that its action may have an exclusively fiscal nature or not;

iv. The normative element, regarding the legal prohibition on tax evasion, expressed in the anti-abuse rules, which the Tax Administration employs to neutralize potential aggressive tax planning and which merit disapproval from the systematic regulatory viewpoint, given that to obtain fiscal advantages the taxpayer resorts to manifestly abusive legal forms, the fiscal effect of which must be disregarded.

III- 6.2. The Element Means

1. A SGPS was established on 27/07/2009 with as shareholders the taxpayers listed in Table 1, holding the same percentages of votes and percentages of share capital that they held in A SA, subject to sale to A SGPS;

2. On 31/07/2009, those shareholders proceeded to sell the available shares of company A SA to company A SGPS, shares that they had held for more than one year, at a total value of €60.000.000,00;

3. The value of the sale of shares was at a value higher than its nominal value (3.50€), reaching, at the time of the transaction, the amount of €61,57;

4. Simultaneously, on that date, by means of the contracting of advances and supplementary contributions, the shareholders made a transfer to the bank account of A SGPS, based in Bank X, in a total amount of €60.000.000,00, by way of advances (€12.500.000,00) and supplementary contributions (€47.500.000,00).

5. Said transfers complied with reasons of proportionality, respecting the participation of each partner in share capital;

6. The bank transfer from Bank X (Annex 10), recorded in the accounts as advances and supplementary contributions, was used to pay for the shares sold to A SGPS;

7. Simultaneously, on that same date, amounts are debited from said bank account, in which the description refers to the transfer in favor of shareholders, on account of the acquisition value of the shares sold, totaling the value of €60.000.000,00;

8. To be repaid, remain the amounts recorded by way of advances (€12.500.000,00) and supplementary contributions (€47.500.000,00), functioning as a credit in favor of shareholders, in the total of €60.000.000,00;

III- 6.3. The Element Result

1. On 04/08/2009, A SA decided in general assembly the distribution of free reserves in the value of €12.450.000,00, with these dividends being subject to withholding tax in the value of €2.490.000,00. From this distribution, A SGPS received the value of €9.960.000,00.

2. On 07/08/2009, the shareholders of A SGPS are reimbursed by the credit held by way of advances, in the amount of €9.960.000,00.

3. On 30/07/2010, A SGPS receives the value of €2.490.000,00, relating to the reimbursement of Corporate Income Tax (IRC), and this value is also used in its entirety to reimburse the partners by way of advances.

4. On 10/09/2010, A SA decided in general assembly the distribution of free reserves in the value of €5.396.000,00.

5. On this date, A SGPS proceeded to make another reimbursement to the partners on account of advances and supplementary contributions, in the value of €3.498.000,00.

6. In July 2011, the board of directors decides on another reimbursement, by way of supplementary contributions, in the amount of €6.500.000,00.

7. None of the amounts reimbursed by way of advances or supplementary contributions were subject to taxation for Personal Income Tax (IRS) purposes, in the sphere of the partners.

8. Given point 2 of Quantification of Tax Advantage Obtained, it is inferred that the exclusion of taxation for Personal Income Tax (IRS) purposes resulted in a tax advantage quantified in the value of €3.994.795,80.

9. However, there remains to be reimbursed, by way of supplementary contributions, the value of €37.552.000,00. Thus, assuming the maintenance of the current withholding tax rate of 25%, the tax advantage to be obtained in future reimbursements will be €9.388.000,00.

III- 6.4. The Intellectual Element

1. Given the financial operation carried out, A SA informed the … that the establishment of a company managing participations was due, on the one hand, (1) to the pressing need for expansion into new markets, such as Angola, and on the other, (2) to reasons related to the imposition of regulatory and financial supervision rules;

2. It is also recognized by the company that, despite the conclusion of the legal transaction of sale of shares, there is not at issue an effective sale of participations, but rather the maintenance of the voting rights that the shareholders will hold in A SGPS and indirectly in A SA;

3. However, there remains to be mentioned the issue explained in the description of the operation above, a motivation of fiscal scope, and which was present at the establishment of A SGPS. The impossibility of, from the year 2009 onwards, the shareholders selling more than 1% of their shares in favor of A SA.

4. See that, since 2007, A SA has been acquiring treasury shares, respecting and maintaining the proportion of share capital and voting rights of shareholders, totaling approximately 9% of its share capital.

5. In 2007, shares were sold at the value of €28,81€ and in 2008, at the value of €44,06. Always above its nominal value.

6. Note that in the years 2007 and 2008, as per point 1 of Quantification of Tax Advantage Obtained, a tax advantage resulted for the partners - which amounts to approximately €661.229,26€ - given the exclusion of taxation of the sale of shares held for more than one year (paragraph 2 of article 10 of the CIRS)

7. Having reached (almost) the maximum ceiling of acquisition of treasury shares at the rate of 10%, A SA became unable to continue to participate in its own capital. And shareholders, from continuing to alienate participations to a company whose majority capital belongs to them.

8. Given that limitation, they found themselves forced to obtain a solution that would allow them, at one and the same time, the alienation of their shares to a company over which they held total control, similarly to what happened with A SA.

9. They established A SGPS, and then proceeded to alienate their shareholdings in favor of this new company, at a unit value per share of €61,57. And, with this, they removed, temporarily, the limitation of acquisition of own capital of 10% of shares, which A SA suffered from.

10. There is total coincidence between the partners of A SA and A SGPS, both as regards voting rights and as regards percentages of share capital. The shareholders of A SGPS maintain, indirectly, exactly the same control they previously held, directly, of A SA.

11. The board of directors is the same as A SA and A SGPS, with its members remunerated only by A SA.

12. Furthermore, the purported monetary amounts realized in A SGPS, in the value of €60.000.000,00, on account of advances and supplementary contributions, were used to pay to the partners the shares they alienated to that company.

13. In net terms, to be repaid remain the amounts recorded by way of advances and supplementary contributions which, as they are payments of a credit or contractual obligation, are not subject to tax.

14. Advances and supplementary contributions whose values to be repaid truly equate to the payment of dividends to partners, excluded from taxation.

III- 6.5. The Normative Element

1. Given that we are dealing with dividends, they are subject to taxation, in accordance with the CIRS.

2. In accordance with the provision of article 1, no. 1 of the CIRS "Personal Income Tax (IRS) applies to the annual value of income from the following categories, even when arising from unlawful acts, after the corresponding deductions and reductions: ... Category E- Capital income;

3. In accordance with the provision of article 5, no. 2 of the CIRS "The fruits and economic advantages referred to in the preceding number comprise, notably: ...h) The profits of entities subject to Corporate Income Tax (IRC) placed at the disposal of their respective associates or holders, including advances on account of profits, with the exception of those referred to in article 20°;"

4. Because the citizen taxpayer, endowed with taxpaying capacity, has the duty to pay tax, arising from the quality of being a social being, the obligation arises from this to provide to the State the means to ascertain and determine the taxable amount for Personal Income Tax (IRS) purposes, pursuing some of the constitutional principles, such as those of equality and fair distribution of income and tax burdens. This duty is incompatible with schemes of tax planning that defraud the law.

5. Thus, operations carried out in order to avoid taxation, are prohibited by law, in accordance with article 38 of the LGT.

Having analyzed the financial operation in question, its factuality and the documentary elements, it is concluded that we are dealing with a situation of manifestly aggressive tax planning, given the tax advantages obtained by way of the value of alienation of shares of the shareholders to A SGPS - which to date amounts to €3.994.795,80, with expected future gains of €9.388.000,00 - company that, equally, they control, and with which they maintain special relations, in accordance with the provision of article 63, no. 4, subparagraph a) of the CIRC, holding the same percentages of votes and percentages of share capital that they previously held in A SA.

In accordance with the provision of article 38, no. 2 of the LGT "Ineffective in the tax sphere are acts or legal transactions essentially or mainly directed, through artificial or fraudulent means and with abuse of legal forms, ... to the obtaining of tax advantages that would not be obtained, wholly or partly, without use of those means ....

As has been stated, the Tax Administration does not call into question the alienation of the shares, the manner in which they were appreciated or the establishment of A SGPS. These are all lawful acts and transactions.

Rather at issue is the raison d'être, the necessity of said appreciation of shares - nominal value as opposed to actual sale value - given that, in view of the information of A SA with the BP, at the time of said alienation of shares to A SGPS, we were not dealing with an effective sale of qualified participations, but rather a mere alteration of the manner of attribution of voting rights.

From that appreciation, linking itself with the establishment of a new company, as well as with the sale of the shareholdings of shareholders, and furthermore with the fact that, in 2009, A SA was little more than 1% away from exceeding the legal maximum limit of acquisition of treasury shares, in accordance with the provision of article 317, no. 2 of the CSC, there results the tax advantage prohibited by law.

It is considered that the provisions of article 38, no. 2 of the LGT are fulfilled given that we are dealing with an artificial and fraudulent legal transaction, given that the act of appreciation of shares, within that transaction, which aimed only at the purpose already stated above, can be explained by reasons of a fiscal nature, and is due to reasons of the same nature: the manifest intention of elimination of tax burden, by way of the use and abusive exploitation of the legitimate corporate establishment of A SGPS and the legitimate transaction of sale of shares.

Given the factuality that involved the entire operation in question, it is to be transcribed the content of the Judgment of the TCA South (proc. 04255/10, of 15-02-2011, www.dgsi.pt), where it states that: "We are here faced with the so-called step by step transactions in which a complex factual situation is found, involving a succession of acts/transactions coordinated among themselves, although they may occur at different temporal moments and with the common objective of achieving a tax advantage. In view of this type of operations, the applicator of the law must operate an integrated treatment visualizing them as a single transaction, leaning towards a single and final result.

III- 7. Grounds for Application of the Anti-Abuse Rule

On these grounds, no other conclusion can be drawn than that, notwithstanding the contracting of advances and supplementary contributions by the partners in favor of A SGPS in the value of €60.000.000,00, the reimbursement deferred in time of said amount and by way of advances and supplementary contributions assumes, materially, the nature of true dividends which, in tranches, are being distributed by the shareholders and are entering their patrimonial sphere, without suffering any type of taxation.

It has been demonstrated, throughout this information, that the objective of the establishment of company A SGPS [establishment of "holding"/SGPS company with maintenance of corporate control] does not depend on the appreciation made to the shares of A SA, alienated by shareholders to A SGPS.

It is concluded, however, that the objective and consequence of the accomplishment of these successive legal transactions, with the appreciation of shares above nominal value, is the withdrawal of money excluded from taxation through A SGPS, to the shareholders.

These financial flows assume the true nature of distribution of dividends, which, as a consequence of these acts or legal transactions, provide the availability of money to the partners without suffering any taxation for Personal Income Tax (IRS) purposes.

Given the facts exposed and demonstrated in this information, the disregard for tax purposes of these operations is proposed, with the consequent taxation for Personal Income Tax (IRS) purposes of the amounts received by shareholders, by way of reimbursement of advances and supplementary contributions as dividends.

As stated in the fiscal framework of dividends, and in accordance with article 102, no. 1, subparagraph a) of the CIRS, the obligation to proceed with withholding tax is the responsibility of A SGPS, since it is this entity that places these revenues at the disposal of shareholders.

The withholding tax rate is provided for in subparagraph c) of article 71, no. 3 of the CIRS, and the rate in force at the date of the placing at disposal of the revenues is to be applied, in accordance with table 3 with the different rates and wordings.

The taxation of dividends distributed to tax resident subjects through withholding tax at the release rate provided for in article 71 of the CIRC has the nature of payment on account, given that the option for aggregation is provided for in accordance with article 71, no. 6, subparagraph c) of the CIRS, with the wording in force given by Law no. 3-B/2010 of 28/04 and article 71, no. 6, subparagraph b) with the previously in force wording given by DL 192/2005 of 7/11.

Article 103 of the CIRS typifies the responsibility in case of substitution, indicating the entity to whom the missing tax is exigible, as well as the compensatory interest, given the quality of resident, or not, in Portuguese territory of the beneficiaries of these revenues.

Taxation of Non-Resident Shareholders

Shareholder E, NIF … appears as not resident in Portuguese territory, so the withholding tax, provided for in article 71 of the CIRS is of a definitive nature, with no option for the aggregation referred to in the preceding paragraph.

In accordance with no. 1 of article 103 of the CIRS, the withholding tax is exigible to A SGPS, leaving these shareholders free from any responsibility.

Taxation of Resident Shareholders

With respect to shareholders resident in Portuguese territory, the obligation to make and deliver the due withholding tax to the State coffers is the responsibility of A SGPS, as well as the respective compensatory interest.

yy) It is concluded in the Tax Inspection Report the following:

From the analysis carried out, legal transactions were identified that are essentially or mainly directed through artificial means and with abuse of legal forms, to the reduction of taxes that would be due without the use of those means, which constitute grounds for proceeding with the application of the anti-abuse legal rule provided for in no. 2 of art. 38 of the General Tax Law (LGT).

From the authorization for application of the anti-abuse rule, referred to in no. 7 of article 63 of the CPPT, results the disregard, for tax purposes, of the reimbursements already made to shareholders, by way of advances and supplementary contributions, and consequent taxation as payment of dividends, which are subject to Personal Income Tax (IRS) withholding, as provided in article 71, no. 1, subparagraph c) of the CIRS. Personal Income Tax not withheld and not delivered to State coffers was ascertained of €1.309.875,80, €1.287.420,00 and €1.397.500,00 respectively for the years 2009, 2010 and 2011, corrections which are detailed and justified in chapter III of this report, and which briefly are identified:

zz) The Claimant paid to its shareholders the amounts referred to in the preceding subparagraph, by way of reimbursements of advances and supplementary contributions;

aaa) On 17-01-2013, the Chief of the Finance Team of the Lisbon Financial Directorate issued a decision, referring to the Tax Inspection Report, in the following terms:

I confirm.

In view of the decision of the Honorable Director General of AT of 2012/11/14, issued in information no. … of DSPCIT of 2012/10/16 and in accordance with the content of this report, the requirements for application of the general anti-abuse clause contained in no. 2 of art. 38 of the LGT are met.

Thus it will proceed to ascertain the Personal Income Tax (IRS) due in accordance with article 71, no. 1, subparagraph c) and article 98, both of the CIRS (current wording) and articles 81 and 84 of the LGT, so Personal Income Tax (IRS) not withheld and not delivered to State coffers was ascertained:

2009 - Tax due ..,€ 1.309.875,80

2010- " " €1.287.420,00

2011- " " €1.397.500,00

Respective single DC documents were prepared for purposes of the respective corrections.

bbb) On 18-01-2013, the Director of Finances of Lisbon issued a decision in the following terms, referring to the Tax Inspection Report and opinions issued regarding it:

I agree with the opinion of the Assistant Director and the Division Chief, as well as with the inspection action report, attached.

From the grounds contained in them it results that the legal and factual requirements are met for, maintaining direct assessment, to proceed with the technical corrections proposed, in accordance with articles 98 and 101 of the Personal Income Tax (IRS) code, taking into account articles 31 and 84 of the LGT in the proposed amounts.

In this context, it is determined:

• The preparation of correction documents for purposes of assessment;

• The notification of the taxpayer with sending a copy of the report

ccc) The Claimant did not proceed with withholding tax of any amount in relation to the payments it made to its shareholders in the years 2009, 2010, and 2011, by way of reimbursements;

ddd) As a consequence of the acts referred to in the preceding subparagraphs, the following statements of assessment and assessments were made:

– the statement of withholding tax assessment for Income Tax (IR) in which is included the assessment of Personal Income Tax (IRS) no. 2013 ...02, of 30-01-2013, in the amount of € 1.309.875,80, and corresponding statement of compensatory interest assessment in which is included the assessment no. 2013 ...34, in the amount of € 174.267,31, relating to the year 2009;

– the statement of withholding tax assessment for IR in which are included the assessment of Personal Income Tax (IRS) no. 2013 ...03, of 30-01-2013, in the amount of € 1.287.420,00, and corresponding compensatory interest assessments nos. 2013 ...35 and 2013 ...36, in the amounts of € 51.686,94 and € 67.583,27, respectively, relating to the year 2010, and

– the statement of withholding tax assessment for IR in which are included the assessment of Personal Income Tax (IRS) no. 2013 ...04, of 30-01-2013, in the amount of € 1.397.500,00, and corresponding compensatory interest assessment no. 2013 ...37, in the amount of € 78.719,45, relating to the year 2011.

eee) On 30-07-2103, the Claimant filed an administrative review of the assessments referred to;

fff) The administrative review was dismissed by decision of 24-04-2014, issued by the Assistant Director of Finances in substitution regime, who manifests agreement with the opinion contained in document no. 1 attached with the request for extension of the claim, the contents of which are reproduced;

ggg) On 27-02-2014, the Claimant filed the request for constitution of the arbitral tribunal that gave rise to this proceeding.

2.2. Facts Not Proven

It was not proven that the appreciation of shares had as its exclusive or main purpose obtaining tax advantages.

2.3. Grounds for Fixing the Matters of Fact

The matters of fact were fixed based on the elements contained in the Tax Inspection Report.

As for the fact referred to as not proven, the evidentiary assessment is based on the complete lack of evidentiary elements and it is entirely admissible that the determination of the values of shares had other motives, including compliance with the duty provided for in article 63, no. 1, of the CIRC.

1. Matters of Law

The Tax and Customs Authority understood it should apply to the Claimant the general anti-abuse clause provided for in article 38, no. 2, of the LGT

In the case at hand, at issue is the transmission to the Claimant of 974.453 shares representing the share capital of A, SA, made on 31-07-2009, at the price of € 60.000.000,00.

To pay for that price, the Claimant financed itself through supplementary contributions in the amount of € 47.500.000,00, and advances in the amount of € 12.500.000,00, made by the shareholders in the proportion of their respective participation.

The Tax and Customs Authority understood that, with the nominal value of each share being € 3,50, the appreciation of the shares transmitted above nominal value had the objective of enabling the deferred reimbursement in time of said amount paid by way of advances and supplementary contributions, as the distribution of dividends by A, SA occurred.

For this reason, the Tax and Customs Authority understood, based on the application of the general anti-abuse clause, that the amounts paid in the years 2009, 2010 and 2011 by the Claimant to its shareholders by way of reimbursement, in the part in which they exceeded the nominal value of the shares alienated, should be treated fiscally as if they were dividends which, in tranches, were paid to shareholders, without any type of taxation under Personal Income Tax (IRS).

Thus, the Tax and Customs Authority quantified at € 3.994.795,80 which it assessed for those three years, together with compensatory interest in the total amount of € 372.256,97, assigning the payment to the Claimant, by understanding that it should have made and did not make withholding taxes in relation to the amounts paid by way of reimbursements of advances and supplementary contributions, which the Tax and Customs Authority understands should be treated fiscally as if they were dividends.

The Claimant disagrees with the understanding of the Tax and Customs Authority and imputes to the assessment acts, as well as to the decision dismissing the administrative review, for various reasons, which it groups in this manner, in summary:

– non-existence of a tax obligation in the sphere of the Claimant;

– obligation to observe the market price rather than nominal value;

– even considering that it was the totality of the acts practiced that was subject to application of the general anti-abuse clause, its prerequisites are not met.

3.1. Legitimate and Illegitimate Tax Planning

In the definitions elaborated by SALDANHA SANCHES (…): legitimate tax planning "consists of a technique of reduction of the tax burden by which the tax subject renounces a certain behavior by this being linked to a tax obligation or chooses, among the various solutions provided to him by the legal order, that which, through intentional action or omission by the tax legislator, is accompanied by less tax burdens"; while illegitimate tax planning "consists of any behavior of undue reduction, by contravening principles or rules of the tax legal order, of the tax burdens of a given tax subject".

Within the framework of tax planning, we can thus distinguish situations in which the tax subject acts contra legem, extra legem and intra legem.

When it acts contra legem, its action is frontal and unequivocally unlawful, as it directly violates tax law, and configures tax fraud (…) liable, even, to be subject to administrative offense or criminal sanctions.

Acting extra legem occurs when the tax subject abusively exploits the law to achieve a more favorable fiscal result, despite the fact that this does not directly violate it. This adopts "a behavior that has as its exclusive or main purpose circumventing one or several tax legal norms, so as to achieve the reduction or suppression of the tax burden" (…). Being that from one or those tax legal norms one must detect an attempt to circumvent "a clear intention to tax affirmed by the structuring principles of the system" (…). This type of action is commonly designated as "fraud of tax law" but, as SALDANHA SANCHES alerts, intending to better illustrate and distinguish these situations from those of tax fraud, it is also designated as "abusive avoidance of tax burdens", "abusive tax avoidance" or still "tax avoidance" (…).

Only acting intra legem appears to be legitimate – and thus, legitimate or non-abusive tax planning – With effect, obtaining tax savings does not constitute behavior prohibited by law, provided that the action does not fall within the aforementioned acting extra legem (…).

Thus, the question posed to this tribunal, following the procedure of application of the general anti-abuse clause — one of the legal mechanisms to which the legislator resorts to respond to abusive tax planning behaviors — resides in knowing whether the action of the tax subjects is or is not situated extra legem, that is, whether there is illegitimate tax planning, whether it was abusive.

3.2. Elements of the General Anti-Abuse Clause

Under the heading "Ineffectiveness of Acts and Legal Transactions", article 38, no. 2 of the LGT provides in relation to the so-called general anti-abuse clause (CGAA) in tax law.

The wording given by Law no. 30-G/2000, of 29 December, became the following:

"Ineffective in the tax sphere are acts or legal transactions essentially or mainly directed, through artificial or fraudulent means and with abuse of legal forms, to 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 to the obtaining of tax advantages that would not be achieved, wholly or partly, without use of those means, the taxation then being made in accordance with the applicable rules in their absence and the aforementioned tax advantages not being produced".

This rule is complemented by the extensive article 63 of the CPPT, which contains a set of provisions that specify the parameters shaping the procedure for application of the anti-abuse provisions.

Doctrine and jurisprudence have come to deconstruct the wording of the rule by pointing to five elements present in it. Corresponding to one of the elements the statute of the rule, the remaining four appear to be cumulative requirements that allow for the assessment – as if it were a test – as to the verification of an activity characterizable as abusive tax planning (…).

These elements, around which both parties indeed construct their arguments, consist of:

– the element means, which concerns the path freely chosen – act or legal transaction, isolated or part of a structure of sequential, logical and planned acts or legal transactions, organized in a unitary manner – by the taxpayer to obtain the desired tax gain or advantage (…);

– the element result, which deals with the obtaining of a tax advantage, by virtue of the choice of that means, when compared with the tax burden that would result from the practice of "normal" acts or legal transactions with equivalent economic effect (…);

– the intellectual element, which requires that the choice of that means be "essentially or mainly directed[...] to the reduction, elimination or temporal deferment of taxes" (article 38, no. 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 it provides" (…);

– the normative element, which "has as its primary function distinguishing cases of tax avoidance from cases of legitimate tax savings, in consideration of the principles of Tax Law, being that only in cases in which an intent is demonstrated contrary to or not legitimizing the result obtained can one speak of that »(…);

– and, finally, the sanctionary element, which, presupposing the cumulative verification of the remaining elements, leads to the sanction of ineffectiveness, in the exclusive tax sphere, of the acts or legal transactions deemed abusive, "the taxation then being made in accordance with the applicable rules in their absence and the aforementioned tax advantages not being produced" (final part of article 38, no. 2, of the LGT).

Despite this deconstruction, the analysis of the elements cannot be airtight, as COURINHA emphasizes, "the determination of one element may, in practice, depend on another", so that these "will not infrequently [...] assist each other mutually" (…).

Let us appreciate, having this aspect in mind, the elements of the general anti-abuse clause in light of the grounds of the decision, the proven facts, and the legal arguments of the parties, namely the defects that the Claimant imputes.

In this analysis, one must start from the presupposition that the grounds of the act that decided the application of the general anti-abuse clause that is to be appreciated is only that contained in the act itself and elements to which it refers, as the tax arbitral proceeding, as an alternative means to the process of judicial challenge (no. 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 of article 29, no. 1, subparagraph a), thereof]. For this reason, the acts that are the subject of the proceeding must be appreciated as they were practiced, and the tribunal cannot, when faced with the verification of the invocation of an illegal ground as support for the administrative decision, appreciate whether its action could be based on other grounds.

3.3. Question of Non-Existence of Tax Obligation in the Sphere of the Claimant

3.3.1. Position of the Claimant

The first question raised by the Claimant is that of the non-existence of a tax obligation in the sphere of the Claimant which it places from various perspectives:

– as the application of the general anti-abuse clause should not be applied to the tax substitute;

– as the prerequisites of the general anti-abuse clause are not fulfilled in relation to the Claimant;

– as the obligation to make withholding tax depends on the verification of the respective typical prerequisites provided for in the rule establishing the duty of withholding, in the case of dividends being paid, which did not occur;

– as the obligation of withholding tax at the source is an autonomous, bound duty subject to the principle of legality, not susceptible to being fictionalized through the application of the general anti-abuse clause;

– the recipients of the general anti-abuse clause in relation to which, moreover, the corresponding elements should be verified, are the holders of the income that is supposedly attributed, it not being admissible to defer to third parties, by way of a responsibility that results to them from mere intervention in payment, the original responsibility of the tax due as a result of the subsequent disregard of the legal nature of the acts of payment in which it actually intervened;

– given that the beneficiaries of the alleged tax advantage are the shareholders of the Claimant, it is upon these, and not upon the Claimant, that the obligation of tax payment falls;

– to interpret the general anti-abuse clause in the sense of producing tax effects on third parties other than the taxpayer who acted motivated to obtain tax advantage, in addition to constituting violation of the principle of legal determination of withholding tax at the source obligation, goes against other principles of the Portuguese Republic Constitution.

3.3.2. Position of the Tax and Customs Authority

There is found neither in the long Response of the Tax and Customs Authority nor in the submissions any specific reference to this question, especially in the essential aspect of the connection between the application of the general anti-abuse clause and the non-production of tax advantages referred to in the final part of no. 2 of article 38 of the LGT: "the taxation then being made in accordance with the applicable rules in their absence and the aforementioned tax advantages not being produced".

It is even to be noted that in article 71 of the Response, the Tax and Customs Authority reproduces no. 2 of article 38, but omits this part of the text, and throughout the articles the word "produced" is not even included.

On the other hand, the only point in which the Tax and Customs Authority makes a generic reference in which some connection can be detected with this first question raised by the Claimant of non-existence of a tax obligation in the sphere of the Claimant is that contained in article 63 of the submissions, in which it states that "it is thus imperative to reconstitute the tax situation that would have existed had the abusive scheme not occurred, taxing by economic substance and in accordance with its real taxpaying capacity, in safeguarding the pursuit of fair distribution of tax burden and in pursuit of the financial needs of the State (see article 103 no. 1 of the CRP)" which corroborates the thesis of the Claimant, since the reality in terms of economic substance is unequivocally that the shareholders - and not the Claimant - received amounts without paying Personal Income Tax and the taxpaying capacity that this tax aims to tax is that of natural persons and not that of legal persons to whom legally are imposed collection obligations, obligations which do not depend on the taxpaying capacity of the collector but of the recipient of the amounts that must be collected.

3.3.3. Appreciation of the Question

As has been stated, article 38, no. 2, of the LGT provides that

Ineffective in the tax sphere are acts or legal transactions essentially or mainly directed, through artificial or fraudulent means and with abuse of legal forms, to 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 to the obtaining of tax advantages that would not be achieved, wholly or partly, without use of those means, the taxation then being made in accordance with the applicable rules in their absence and the aforementioned tax advantages not being produced.

The pertinence of the questions raised by the Claimant is manifest, although it is not habitually raised in proceedings that have as their object the application of the general anti-abuse clause and, for this reason, is not the subject of jurisdictional decisions, given the limitation of the cognition powers of tribunals by the defects (causes of action) imputed to the acts challenged.

In truth, the final part of article 38, no. 2, of the LGT (wording of Law no. by Law no. 30-G/2000, of 29 December), when establishing the consequences of the application of the general anti-abuse clause "the taxation then being made in accordance with the applicable rules in their absence and the aforementioned tax advantages not being produced" points decidedly in the direction that the application must be made in such a manner as to allow the disregard of the production of tax advantages.

With effect, although the first part of this article 38, no. 2, contains an apparent distinction between the objectives sought by the taxpayer between "reduction, elimination or temporal deferment of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose and "obtaining of tax advantages", it is manifest that what is at issue in the reduction, elimination or temporal deferment of taxes is always the obtaining of tax advantages, the express and generic reference to tax advantages having only the objective of extending the scope of the rule to any tax advantages, beyond those specifically indicated, which are clearly the most frequent cases of realization of tax advantages, which are the reduction, elimination or temporal deferment of taxes.

That is, with the wording given by Law no. 30-G/2000, of 29 December, the general anti-abuse clause came to be applicable to all situations of obtaining tax advantages and not only to situations of reduction or elimination of taxes, already provided for in the initial wording, and to that of temporal deferment, which was also expressly added in the new wording. (…)

In this light, the reference made in the final part of article 38, no. 2, to the non-production of the "aforementioned tax advantages" reports to all referred to, both the most common which are specifically referred to (reduction, elimination or temporal deferment of taxes) and those generically referred to, through the allusion to "tax advantages that would not be achieved".

In fact, no other interpretation would be constitutionally admissible, as, this being, in all cases, a question of obtaining abusive tax advantages, it would be arbitrary and in violation of the constitutional principle of equality (article 13 of the CRP) a hypothetical distinction of treatment between the specifically referred situations and those generically referred to.

Being this elimination of tax advantages the manifest objective of the general anti-abuse clause, the recipient of the application, in whose patrimony the effects of the application will be produced, cannot fail to be the one who enjoyed those tax advantages.

In the case at hand, the tax advantages detected by the Tax and Customs Authority that justified the application of the general anti-abuse clause were not verified in the patrimony of the Claimant, as all the amounts it paid without withholding tax were delivered to its shareholders.

If there are undue tax advantages in the situation at hand, specifically as part of the amounts received should be taxed as dividends, as the Tax and Customs Authority maintains, it is manifest that those who obtained them were the shareholders, who received the amounts without any tax deduction, and not the Claimant, which paid the amounts in full.

Being the shareholders the beneficiaries of the aforementioned advantages, the application of the general anti-abuse clause in the manner in which it was made does not allow for the disregard of those advantages, as, imposing on the Claimant the payment of amounts equivalent to those advantages, only the Claimant is imposed these burdens, with the shareholders remaining in untouched ownership of the amounts received.

It is true that it can be ventured that, sooner or later, the patrimonial prejudice with the taxation imposed on the company will repercuss on the shareholders, but it is also evident that this may not occur in relation to the shareholders who benefited from the undue advantages, as they may cease to be shareholders before the prejudice imposed on the company has an effective repercussion on the value of their shares. Although in the case at hand we are dealing with a company with a shareholder structure that has maintained considerable stability, there have been alterations, recounted in the matters of fact fixed, and there is no certainty that this cannot be repeated.

However, the interpretation of the final part of article 38, no. 2, of the LGT, as a tax legal rule from which results the imposition of taxation, cannot fail to take into account the characteristic of generality, indispensable in rules of taxation by virtue of the provision of article 5, no. 2, of the LGT, which is a corollary of the principle of equality in the distribution of public burdens. For this reason, the correct interpretation of article 38, no. 2, will have to be applicable generally, in relation to any type of company, including those quoted on the stock exchange in which the shareholder structure is constantly altered, in relation to which it is evident that the imposition of taxation on the company through which the shareholders have created for themselves undue tax advantages will have no effect on those who enjoyed those advantages and subsequently ceased to be a shareholder.

Now, in this light, it is evident that the scope of that article 38, no. 2, when establishing as a necessary effect of the application of the general anti-abuse clause the non-production of tax advantages, presupposes the legislative understanding that the "taxation in accordance with the applicable rules" should bear on those who obtained the advantages and not on those who merely had intervention in the acts from which they result without benefiting from those, as only thus is it possible to guarantee the intended effect of the aforementioned advantages not being produced, especially or generically referred to.

In truth, it is concluded from the final part of no. 2 of article 38 of the LGT, in the wording of Law no. 30-G/2000, that the general anti-abuse clause is not intended merely to attribute to the Tax Administration compensation for acts that have caused it loss of fiscal revenue, rather it aims, concomitantly, to eliminate the illegitimate tax advantages that someone obtained, which reveals that underlying it are concerns of equality and tax justice, which can only be satisfied with the imposition of the omitted taxation on those who obtained those advantages.

Furthermore, this is the only interpretation that is compatible with the constitutional principle of taxation according to taxpaying capacity (article 104, no. 2, of the CRP) and the principle of taxation respecting material justice (article 5, no. 2, of the LGT).

With effect, these principles impose that those who obtained the revenues be taxed in income taxes and not those who did not obtain them and the value of material justice is clearly violated when, in a situation in which there are undue tax advantages, the amount corresponding to those advantages will be required from those who did not benefit from those advantages, leaving untouched those who improperly benefited from them.

In truth, where there is a duty of withholding tax at a definitive rate in payments to be made by the tax substitute, there is no legal provision that assures it the possibility of recovering the amount it will have to pay, even if it has not made the withholding, as the responsibility of the substitute is merely subsidiary, by virtue of the provision of no. 3 of article 103 of the CIRS, and there is no legal provision that assures the right of recourse of the original responsible party in relation to the subsidiary. In these situations classifiable under no. 3 of article 103 of the CIRS, the rule of article 21 of the same Code fully applies, in which it is established that "when, through tax substitution, this Code requires payment of all or part of the Personal Income Tax to a person different from the one in relation to whom the respective prerequisites occur, considers the substitute, for all legal purposes, as principal debtor of the tax, excepting that provided for in article 103". (…)

On the other hand, it is not even possible to venture the possibility of, on the basis of civil law, the Claimant recovering what it paid to the extent of the enrichment of the shareholders, on the basis of enrichment without cause, as the application of the general anti-abuse clause only allows considering acts or transactions ineffective "in the sphere of tax law", as results from the text of no. 2 of article 38 of the LGT, so the transactions concluded maintain their full effectiveness for civil purposes and, in terms of civil law, the integral reception of the amounts received by the shareholders has legal cause, as it is the counterpart of the transmission of shares by these to the Claimant, within the scope of purchase and sale.

Being thus, it is certain that the wording of no. 2 of article 38 of the LGT introduced by Law no. 30-G/2000, when determining as an effect of the application of the general anti-abuse clause the non-production of the undue tax advantages, presupposes that the recipient of the application is those who enjoyed them, as the effects of the application are not transmissible from the substitute to the substituted. (…)

For this reason, in the case at hand, given that the Claimant did not

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