IRS Mutual Loan & Profit Advances: Subsidiary Liability in CAAD Case 267/2013-T

ENGLISH TRANSLATION

The arbitrators Judge Counselor Jorge Manuel Lopes de Sousa (arbitrator-president), Judge José Poças Falcão and Dr. João Maricoto Monteiro (arbitrators as members), appointed by the Deontological Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 29-01-2014, agree on the following:

1. Report

A, NIF no. … and B, NIF no. …, residing in … (hereinafter Claimants), filed a request for an arbitral pronouncement, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter "RJAT").

The Claimants presented the following claims:

a) a declaration of illegality and annulment of the additional PIT assessment no. 2013 ..., the compensatory interest assessment no. 2013 ... and the account settlement no. 2013 ..., relating to the year 2009.

b) ordering the Tax and Customs Authority to refund the amounts unduly paid;

c) ordering payment of compensatory interest.

The Claimants did not proceed with the appointment of an arbitrator, and therefore, in accordance with article 6, no. 2, letter a) of RJAT, the undersigned were appointed by the President of the Deontological Council of CAAD to form this collective Arbitral Tribunal, having accepted on the terms provided by law.

On 14-01-2014 the parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with article 11, no. 1, letters a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of letter c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 29-01-2014.

On 05-03-2014, the Tax and Customs Authority filed its response, contending that the request for arbitral pronouncement should be dismissed.

On 17-03-2014, the meeting provided for in article 18 of RJAT was held, at which it was decided that witness testimony and oral arguments would be produced.

The examination of witnesses took place on 02-04-2014 and a deadline for simultaneous written arguments was set thereat.

The parties presented arguments.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2, no. 1, letter a), and 30, no. 1, of RJAT.

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

The proceedings do not suffer from any nullities and no issues were raised that might prevent consideration of the merits of the case.

2. Factual Matters

2.1. Proven Facts

Based on the evidence contained in the file and the administrative proceedings attached to the record, the following facts are considered proven, with relevance to the issues raised:

• On 29-07-1977, the Claimants A and B executed a public deed whereby they established a limited liability commercial company with the designation "C", with NIF … and with total share capital of €59,855.75 represented by two shares with unit nominal value of €29,927.87, with management entrusted to both partners;

• On 20-07-2001 a capital increase of €200,000.00 subscribed in cash by both partners in proportion to their shares occurred, bringing total capital to €400,000.00, distributed equally between both partners;

• On 30-03-2005, partner B transferred part of her share, retaining a share of €160,000.00 and transferred the other part, valued at €40,000.00, to a new partner D. The share capital came to be distributed among three shares: €200,000.00 belonging to partner A, €160,000.00 to partner B and €40,000.00 belonging to the new partner D;

• On 07-12-2005, partner D transferred his entire share to partner A, with share capital distributed in 2 shares: one of €240,000.00 belonging to partner A and another of €160,000.00 belonging to partner B;

• On 15-04-2009, in accordance with minute no. 42 (Annex 2 to the Tax Inspection Report), the partners decided at a general assembly in accordance with article 54 of the Commercial Companies Code (hereinafter CSC) to resolve the division of shares and the entry of three new partners, it being agreed that the share belonging to partner A, with nominal value of €240,000.00, would be divided into 4 new shares: one with nominal value of €239,700.00, which remained in the ownership of the same partner, and three other shares with nominal value of €100.00 each, to be transferred at the price of €100.00 each in favor of:

  E, NIF no. …;

  F, NIF no. …;

  G, NIF no. …;

• The share transfer referred to in the preceding item was recorded on 23-06-2009;

• On 22-06-2009, in accordance with minute no. 43 (Annex 3 to the Tax Inspection Report), the partners held a general assembly, having unanimously approved the transformation of the company from a limited liability company to a corporation, effective from 23 June 2009 (date of mention in the Commercial Registry registration), with the same now adopting the designation "C";

• On 22-06-2009, the "Report justifying the Transformation of company "C" into a Corporation" was approved, a copy of which is included as Annex 4 to the Tax Inspection Report, the content of which is deemed reproduced and states, among other things, the following:

C has established itself in the market in which it operates as a reference player, by virtue of the quality and reputation of its products and also through its commercial policy focused on customer loyalty. This projection has allowed the company to consolidate its market position and maintain a level of turnover and, especially, a commercial margin appreciable for the sector average. On the other hand, the resources allocated to the company are adjusted to its current size and there are no relevant management inefficiencies that need to be corrected.

However, this endogenous situation contrasts sharply with the exogenous environment in which the company currently operates and which is characterized by a generalized recession at the global level and by the consequent stagnation of the sector in which the company operates. This stagnation in sales in an extremely competitive sector such as that of products … for …s will certainly result in an increase in concentration operations among companies in the sector or the establishment of partnerships with the objective of reducing operating costs and maintaining the commercial margins currently practiced. Such concentrations could occur at a horizontal level, integrating companies at the same phase of the product economic chain, or at a vertical level.

This concentration movement anticipated for the coming years requires that companies like C remain prepared for partnership or consolidation opportunities at all levels, particularly at management level. Therefore, it is urgent to alter the corporate model of C, modernizing it and adapting it to more professional and more independent management of the capital holders. It is fundamental, nowadays, that the boards of companies possess extensive capacity to act so that they are not dependent on matters that are not structural to the company, such as amendments to statutes, to the express will of shareholders. In this context, it is important to ensure that fundamental decisions for the future of the company do not fall victim to blocking minorities, paralyzing its activity, which can only be achieved with the corporate structure of a corporation.

Given the above and taking into account the current legal framework governing commercial companies, it is the opinion of management that the corporate type of corporation is what best responds to the circumstances presented and what enhances and sustains the growth of the company. (see annex 3 of the tax inspection report draft).

• On various occasions prior to the transformation of the company, C attempted, without success, to hire a Commercial Director, the witness …, examined in the present proceedings (testimony of this witness);

• On 23-07-2009, one month after the transformation of the corporate type, the three new shareholders, E, F and G alienated their 300 shares to shareholder A;

• On 13-10-2009 shareholder A proposed the acquisition of his own shares by the company itself, an operation with favorable opinion from the company's auditors issued on 01-10-2009 (Annex 4 to the Tax Inspection Report);

• By resolution of 13-10-2009 of the general assembly of C, the acquisition of 125,000 shares by the company was decided (Annex 5) and consequently, the reduction of share capital of equal value (€125,000.00);

• On 13-10-2009, in accordance with the share purchase and sale contract (Annex 6 to the Tax Inspection Report), shareholder A sold 125,000 shares, with nominal value of €1.00 each, to company "C" for the amount of €750,000.00;

• On 16-11-2009, the Claimants alienated 275,000 shares of "C", with nominal value of €275,000.00, of which 115,000 belonged to Claimant A and 160,000 to Claimant B, for the total amount of €3,900,000.00, to the following buyers (Annex 7 to the Tax Inspection Report):

  H, NIF no. … – 220,000 shares for the amount of €3,120,000.00;

  I, NIF no. … – 27,500 shares for the amount of €390,000.00;

  J, NIF no. … – 27,500 shares for the amount of €390,000.00.

• Regarding the alienation of 275,000 shares of "C", for the total amount of €3,900,000.00, the taxpayers declared, in the Income Tax Return Form 3 - PIT, for the fiscal year 2009, particularly, the following (page 5 of the Tax Inspection Report):

  i. in Annex G - Capital Gains and other Capital Increments (table 8), the alienation of 300 shares acquired in July 2009, for the amount of €300.00 and alienated for €4,254.56 in November 2009;

  ii. in Annex G1 - Untaxed Capital Gains (table 4), the alienation of 274,700 shares acquired in January 2002 and alienated in November 2011 for €3,895,745.40;

• Through Service Order no. OI…, the Finance Directorate of … initiated an inspection procedure, relating to the PIT exercise for the year 2009, "with special focus on the inspection control of operations involving alienation of share interests" (final tax inspection report, doc. 3 of the arbitration request);

• The Claimants were notified, through official letter no. …, of 18-10-2012, of the opening of a special procedure, pursuant to article 63 of CPPT, for purposes of application of the general anti-abuse rule, provided for in article 38, no. 2 of LGT;

• The Claimants were notified by registered letter (RD…PT), through official letter no. ..., of 29-04-2013, of the draft report and to exercise their right to be heard, which they did not exercise;

• The Claimants were notified through registered letter with confirmation of receipt (RD…PT) of the Tax Inspection Report, Official Letter no. ..., dated 12-06-2013.

• In the Tax Inspection Report it is concluded that, having been "authorized [application of the general anti-abuse clause provided for in no. 2 of article 38 of LGT], pursuant to article 63, no. 7 of CPPT, by order of the Director General of the Tax and Customs Authority, dated 13-03-2013, the requirements being [considered] demonstrated" and "in light of the provisions of article 72 of PIT Code, [the] increase in the positive balance between capital gains and losses in the amount of €4,096,405.45, is taxed at the special rate of 10% (no. 4), [proposes] the increase in tax owing in PIT of €409,640.54"; based on the following grounds, which are highlighted:

"51. [The] element [means] is concretized through the form used via the division of the share of shareholder A, the entry of three new partners and the transformation of the limited liability company into a corporation, without there being found any justification in the life of the company and its business, thus aiming at conduct with the sole objective of eliminating taxation in PIT on the gains obtained by the Taxpayers in the alienation of their shares to the detriment of the normal operation of alienation of share interests in a limited liability company

[...]

1. The result element is present when the means used in the acts practiced can be replaced by normal taxable acts, for the means that could and should have been used, achieving the same economic result, would be the alienation of a share, a fact generating tax (taxation of the capital gain obtained) and not the alienation of shares.

[...]

1. In the case at hand [, as concerns the intellectual element], throughout the description of the facts contained in the information it was more than evident that the Taxpayers had no other advantage than the tax advantage, with the fact that the acts or legal transactions practiced by them being essential and mainly directed at the result which is the tax advantage. A normal alienation of share interests in a limited liability company would result in their taxation at the rate of 10% in force at the time, in the sphere of the partners.

[...]

1. [Concerning the normative element], the legislator intended that the ratio legis of the exclusion from taxation of capital gains provided for in article 10, no. 2, letter a) of PIT Code, as worded in Decree-Law no. 228/2002, of 31/10, in force at the date of alienation of the shares, should be an incentive to the development of the capital market, the requirement of retention of shares for 12 months indicating the absence of a speculative intent in the alienation of shares.

2. It follows that the Taxpayers, in carrying out these transactions, sought to avoid the taxation of situations which tax law aims to tax, such as the alienation of shares, obtaining for themselves a tax advantage against the spirit of the law, that is, transforming a taxed capital gain into an untaxed capital gain, thus meriting disapproval whose fiscal effect must be disregarded.

3. Given the foregoing, there is no doubt whatsoever that we are dealing with the practice of legal acts - division of shares, increase in the number of partners, transformation of the company - which were predominantly directed at obtaining the complete elimination of the tax that would be owed by the Taxpayers.

[...]

1. [Concerning the sanctioning element,] it is therefore a matter of preventing the use of business manipulations when they have, as the sole or principal objective, circumventing rules that aim at an equitable and economically efficient distribution of tax burdens.

2. Thus, with the implementation of the CGAA in accordance with no. 2 of article 38 of LGT, all effects of the transformation of the limited liability company into a corporation and its subsequent sale of shares are disregarded, considering it as a sale of shares as would be the normal choice of taxpayers in the exercise of their activity, without preponderant reasons of a fiscal nature.

3. That is, the income obtained, qualified as a capital gain, is subject to taxation, and results from the positive difference between the realization value, determined in accordance with the rules established in article 44 of PIT Code, and the acquisition value, determined in accordance with articles 45 and 48 of the same code, plus the necessary and actually incurred expenses inherent to the alienation, as provided for in article 51 of PIT Code.

4. Thus the taxation of the capital gain subject to PIT, in accordance with no. 1, letter b) of article 10 of PIT Code, at the rate of 10% in accordance with article 72, no. 4 of PIT Code, in force at the time, resulting in a tax of €410,036.00 (calculation contained in the Finance Directorate information)

5. As a result of the transformation of the company the declared capital gains total only €3,954.55, as the remaining were considered excluded from taxation in accordance with no. 2 of article 10 of PIT Code, as shares held by their holders for more than 12 months, by referral of letter b) of no. 4 of article 43 of the same code.

6. It is thus understood that the requirements provided for in no. 2 of article 38 of LGT are fully verified and complying with the above reasoning the requirements established in no. 3 of article 63 of CPPT as worded in Law no. 64-B/2011, of 30/12, meeting the conditions for the application of the general anti-abuse clause to the factual framework set out in the Finance Directorate information of … for purposes of assessing the tax shown to be owed"" (see Annex 1 of the draft tax inspection report).

• It is further stated in the Tax Inspection Report regarding the application of the general anti-abuse clause:

III.3. Proposed Tax Values

1. From the authorization for application of the anti-abuse rule, to which article 63, no. 7 of CPPT refers, results the disregard, for tax purposes, of the transformation of the limited liability company into a corporation, and consequent taxation of the alienation of shares, as capital gains, which should have been declared in Annex G, of Model 3 PIT return, in accordance with letter b), no. 1 of article 10 of the Personal Income Tax Code (hereinafter PIT Code). Thus, the values declared by the Taxpayer in Annex G1 (relating to untaxed capital gains) should be annulled, and the taxable base should be increased, in the amount of €4,096,405.45, resulting from the capital gain of the operation in question, in Annex G (relating to capital gains and other capital increments), of the income tax return Form 3 - PIT for the fiscal year 2009.

2. With respect to capital gains obtained from the alienation of share interests occurring in 2009, we must consider the following situations. On 15-04-2009 - transfer of 3 shares of company" C" each with nominal value of €100.00, belonging to A, to E (NIF …), F (NIF …) and G (NIF …) for the amount of €100.00 each – Not subject to taxation, as, in accordance with letter d) of no. 4 of article 43 of PIT Code (2009 version) "Where securities of the same nature conferring identical rights are concerned, those alienated are those acquired the longest ago". Thus and given that this is the 1st transfer made by A since the establishment of the company on 01-08-1977, being his share on that date of €29,927.87, this alienation is not subject to PIT in accordance with no. 1 article 5 of Decree-Law no. 442-A/88, of 30/11 (decree-law approving the PIT Code), that is "Gains not subject to the capital gains tax created by the code approved by Decree-Law no. 46373, of 9 June 1965, as well as those derived from the onerous alienation of rustic property used for agricultural activity or allocating such property to a commercial or industrial activity exercised by the respective owner, only become subject to PIT if the acquisition of property or rights to which they relate was carried out after the entry into force of this Code".

In 13-10-2009 - alienation of 125,000 shares, belonging to A of "C." with nominal value of €125,000.00 to the company itself for €750,000.00, being that for the reasons set out in the previous point, 29,628 shares are not subject to taxation (difference between the capital initially subscribed and the three shares sold on 15-04-2009, with nominal value of €300.00, that is, 29,928 shares – 300 shares), The remaining 95,072 shares (125,000-29,928) which correspond to a nominal value of €95,072.00 and a realization value of €570,432.00, taxation is proposed in accordance with article 10 of PIT Code, as they were already acquired under the PIT Code, not benefiting from the exception regime provided for in article 5 of Decree-Law 442-A/88.

On 16-11-2009 alienation of 275,000 shares of "C" with nominal value of €275,000.00, of which 115,000 belonged to A and 160,000 to B. For this alienation taxation of all share interests alienated is proposed as the shares relating to the establishment of the company (prior to 1 January 1989) and which are excluded from taxation in accordance with article 5 of Decree-Law no. 442-A/88, of 30/11, have already been alienated: that of partner A as stated in points 7.1 and 7.2 and that of partner B with the transfer of the share on 30/03/2005 with nominal value of €40,000.00 to D, as, in accordance with letter d) of no. 4 of article 43 of PIT Code (2009 version) "Where securities of the same nature conferring identical rights are concerned, those alienated are those acquired the longest ago".

1. The following table summarizes the operations involving alienation of share interests, highlighting:

The operations not subject to taxation by force of article 5 of Decree-Law no. 442-A/88, of 30/11;

The operations that would result in capital gains subject to taxation in accordance with letter b) of no. 1 of article 10 of the Personal Income Tax Code if the corporate transformation had not taken place:

[Table referenced but not separately reproduced in original]

1. In light of the provisions of article 72 of PIT Code, this increase in the positive balance between capital gains and losses in the amount of €4,096,405.45 is taxed at the special rate of 10% (no. 4), whereby the increase in tax owing in PIT of €409,640.54 is proposed.

• The Claimants were notified of:

  the additional PIT assessment no. 2013 ..., relating to the year 2009, with amount payable of €460,995.53;

  the compensatory interest assessment no. 2013 ..., with amount payable of €49,114.44; and

  the account settlement no. 2013 ..., with amount payable of €459,150.45 and payment deadline until 28-08-2013 (see doc. 4 of the arbitration request).

• On 26-08-2013, the Claimants voluntarily paid the entire amount assessed, €459,150.45 (doc. no. 4 of the arbitration request);

• THE CLAIMANT, founder of the company, established more than 20 years before the sale of shares an emotional bond with the company;

• The company established itself as a reference operator in the market in which it operated, particularly in the design, manufacture and distribution of products … for …;

• Years before the transformation of C, the Claimants began to consider a different form of organization, having realized that the personal and family nature of the company could become an obstacle to its growth, necessary to face the intense competition of the sector in which the company operated;

• The Claimants initially considered that the change did not, in principle, involve the opening of the capital structure to any other investor, but only that a more professional and institutional management model be ensured, less personalized, of the company, having made several attempts with the witness … to assume the management of the company;

• Tax advantage was part of the reasons that motivated the transformation of the company (confession, articles 49-50 of the arbitration request).

2.2. Unproven Facts

It was not proven that the sole or principal reason for the transformation of the limited liability company into a corporation was the obtaining of tax advantages.

2.3. Reasoning for the Determination of Factual Matters

The proven facts are based on the confession of all facts alleged by the Tax and Customs Authority in points III.1 and III.2 of the Report (article 15 of the arbitration request), as well as on the documents indicated for each of the points, whose authenticity and correspondence to reality were not contested.

As concerns the facts referred to in letters x) to aa), they are alleged by the Claimants and confirmed, in their essence, by the testimony of the witness … who appeared to testify with impartiality and with direct knowledge of the same, derived from having been contacted more than once to assume the management of the company.

In fact, the Tax and Customs Authority itself, in point 4 of its arguments, emphasizes "the seriousness and integrity of the testimonial evidence brought to the record by the Claimant".

From this testimony it follows that the company had a family structure, was the "life's work" of the Claimant and that it cost him to sell it, only having opted for this solution because he found no other, particularly because he did not obtain the collaboration of the witness to manage the company or someone with experience in the field who would give him some peace of mind. According to this testimony, after many years of work in creating and maintaining the company, the Claimant wished to rest although not completely detach himself from the company, having presented several proposals, successively improved, to entice the witness to assume the management of the company, until the witness definitively refused for personal reasons.

3. Legal Matters

3.1. On the Existence or Absence of Legal Requirements and the Objective and Subjective Facts for Application of the General Anti-Abuse Clause

3.1.1. Legitimate and Illegitimate Tax Planning

In the definitions developed by Saldanha Sanches ([1]): legitimate tax planning "consists of a technique of reduction of the tax burden by which the taxpayer renounces a certain conduct because it is linked to a tax obligation or chooses, among the various solutions afforded by the legal order, the one that, by intentional action or omission of the tax legislator, is accompanied by fewer tax burdens"; whereas illegitimate tax planning "consists of any behavior of unjustified reduction, by contravening principles or rules of the tax legal order, of the tax burdens of a particular taxpayer".

Within the framework of tax planning we can thus distinguish situations in which the taxpayer acts contrary to law, outside the law and within the law.

When the taxpayer acts contrary to law, his conduct is direct and unequivocally unlawful, as it directly violates tax law, and constitutes tax fraud ([2]) liable, moreover, to be subject to administrative or criminal sanction.

Action outside the law occurs when the taxpayer abusively exploits the law to reach a more favorable tax result, despite not directly violating it. He adopts "conduct that has as its exclusive or principal purpose circumventing one or more tax legal norms, in order to achieve the reduction or suppression of the tax burden" ([3]). Being that from such legal tax norms should be detected an attempt to circumvent "a clear intention to tax affirmed by the structural principles of the system" ([4]). This type of conduct is commonly referred to as "tax law evasion" but, as Saldanha Sanches alerts, intending to better illustrate and distinguish these situations from tax fraud, also designated "abusive avoidance of tax burdens", "abusive tax avoidance" or "tax avoidance" ([5]).

Only conduct within the law appears legitimate – and thus, legitimate tax planning or non-abusive – to be such. Indeed, the achievement of a tax saving does not constitute conduct prohibited by law, provided that the conduct does not fall within the above-mentioned conduct outside the law ([6]).

Sub iudice, briefly, the Claimants contest that the transformation of a limited liability company into a corporation constitutes abusive tax planning, considering that this transformation falls within company restructuring and understanding that the capital structure and organization of corporations appears more adequate to foster the growth of the company; conduct which the Tax and Customs Authority understands to constitute abusive tax planning, insofar as, through that transformation into a corporation, which it considers unnecessary and fiscally motivated, more so considering that the other acts and legal transactions appear as "business manipulations [that have,] as the sole or principal objective, circumventing rules that aim at an equitable and economically efficient distribution of tax burdens" (point 61 of Annex 1 of the draft inspection report), and subsequent sale of shares (rather than of shares), the Claimants avoid the taxation of capital gains in PIT.

Thus, the question placed before this Tribunal, following the procedure for 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 knowing whether the conduct of the taxpayer is situated within or outside the law, that is, whether the tax planning adopted is legitimate or illegitimate, whether it is non-abusive or abusive.

3.1.2. Elements of the General Anti-Abuse Clause

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

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

"Acts or legal transactions are ineffective in the tax sphere when essential or principally directed, by artificious or fraudulent means and by abuse of legal forms, at the reduction, elimination or temporal deferral of taxes that would be owed as a result of facts, acts or legal transactions of identical economic purpose, or at obtaining tax advantages that would not be achieved, in whole or in part, without use of such means, taxation being then effected 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 CPPT, which contains a set of provisions that materialize the parameters shaping the procedure for application of the anti-abuse provisions.

Doctrine and case law have been deconstructing the letter of the rule by pointing to five elements inherent in it. Corresponding one of the elements to the enactment of the rule, the remaining four appear as cumulative requirements that allow assessment – 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 construct their arguments, consist of:

– the means element, which concerns the course 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 ([8]);

– the result element, 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 the "normal" acts or legal transactions and of equivalent economic effect ([9]);

– the intellectual element, which requires that the choice of that means be "essential or principally directed [...] at the reduction, elimination or temporal deferral of taxes" (article 38, no. 2 of LGT), that is, which requires not mere verification of a tax advantage, but rather that it be assessed, objectively, whether the taxpayer "intends an act, a transaction or a given structure, only or essentially, for the prevailing tax advantages it provides" ([10]);

– the normative element, which "has as its primary function the distinction between cases of tax avoidance and cases of legitimate tax savings, in consideration of the principles of Tax Law, being that only in cases in which an intention of law contrary or not legitimizing the result obtained is demonstrated can one speak of the former" ([11]);

– and finally, the sanctioning 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, "taxation then being effected 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 LGT).

Despite this deconstruction, the analysis of the elements cannot be hermetic, as Courinha emphasizes, "the determination of one element may, in practice, depend on another", whereby these "will often not fail […] to assist each other mutually" ([12]).

Let us assess, taking this aspect into consideration, the elements of the general anti-abuse clause taking into account the proven facts and the legal argumentation of the parties.

The Tax and Customs Authority bases its decision by alleging, in summary, that:

• the transformation of the limited liability company into a corporation by the taxpayers is part of a complex of pointless acts, "for the means that could and should have been used, achieving the same economic result, would be the alienation of a share, a fact generating tax (taxation of the capital gain obtained) and not the alienation of shares";

• "the taxpayers, in carrying out these transactions, sought to avoid the taxation of situations that tax law aims to tax, such as the alienation of shares, obtaining for themselves a tax advantage against the spirit of the law, that is, transforming a taxed capital gain into an untaxed capital gain, thus meriting disapproval and whose tax effect must be disregarded";

• the taxpayers had no other advantage than the tax advantage;

• the conduct of the taxpayers is contrary to the ratio legis of article 10, no. 2, letter a) of PIT Code.

3.1.2.1. Result Element

Comparing in an isolated and objective manner the legal transactions of the transformation of the company into a corporation and the subsequent sale of shares (acts or legal transactions performed) and of the hypothetical retention of the company as a limited liability company and the subsequent sale of shares (acts or legal transactions equivalent or of identical economic purpose), it is unequivocal that the first situation, in light of the legal regime in force in 2009, benefits from a more favorable legal taxation regime than the second, as, while the first is not subject to taxation, in accordance with article 10, no. 2 of PIT 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, no. 1, letter b) of PIT Code, income taxed at a rate of 10%, in accordance with article 72, no. 4 of PIT Code, in the wording of Decree-Law no. 192/2005, of 7 November.

3.1.2.2. Means and Intellectual Elements

Although such finding is sufficient to fulfill that requirement, its fulfillment 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 a tax advantage or benefit alone indicate any idea of legal abuse" ([13]).

The so-called "step transaction doctrine", a theory constructed in Anglo-Saxon legal systems and on which the Tax and Customs Authority bases its argument, consists of the consideration of the complex set of acts or legal transactions that arise in a global architecture, planned, composed of preparatory and complementary acts or legal transactions, in addition to the act or legal transaction that is objectively censured, insofar as only through its complete vision the evasive design is detected ([14]).

The argument advanced by the Claimants and repudiated by the Tax and Customs Authority, that there exist justifications of an economic and business nature for the transformation of the limited liability company into a corporation, is plausible and credible. The corporate organization as a corporation contains virtues suitable for the purposes advanced in the justification report for the transformation of the company, particularly: the greater opening of capital, allowing better preparation "for partnership opportunities or consolidation at all levels"; "more professional and more independent management of the capital holders".

Certainly the mere plausibility and credibility of that circumstance and aptitude is insufficient for the proof of the existence of justifications of an economic and business nature, the mere mention of such justifications in the justification report for the transformation of the company not being sufficient. Similarly, although some of the facts articulated by the Claimants may be considered credible, their proof is not satisfied by that credibility alone. The mere declaration, in pleading, of a history of facts tending to demonstrate the existence of a justification, without any evidentiary support, is insufficient.

In the teaching of Pires de Sousa, credibility corresponds to id quod plerumque accidit, that is, to a principle of normalcy, according to which "facts are not isolated, but related to one another, whether by cause-and-effect relations or by a logical and regular order" ([15]). As Isabel Fonseca emphasizes, credibility "places [itself] in the framework of id quod plerumque accidit and of maxims of experience", "appearing a priori and in abstract in the judge's conviction", whereby "we are not yet in the domain of proof, but only in the field of factual affirmation, whose existence appears credible if it corresponds to normalcy" ([16]).

But, if it is true that one cannot consider proven, with the degree of certainty relative to that demanded in a judicial decision, that the motivations of an economic and business nature correspond to reality, their plausibility and credibility also do not permit, obviously, the dismissal of the serious possibility of being real, rather corroborating a judgment in this sense.

On the other hand, the intention and economic justification invoked as the foundation for the transformation of the company are not limited to mere affirmation in an internal company document, as the insistent attempts to obtain an experienced commercial director were proven, with successively improved proposals in the face of his refusals to accept, facts which clearly point in the direction of there being a real concern of the Claimant with the future of the company, which strengthens the credibility of the motivations invoked for the transformation of the company into a corporation.

In any case, it must be concluded that all the evidence produced points in the direction of the reality of the motivations invoked for the transformation of the company and that no evidence was produced pointing in the direction that the tax reasons were the sole or principal ones. In fact, the Tax and Customs Authority presented no evidence in this regard, nor even by the negative by contesting the non-tax reasons invoked, whereby a conclusion in the sense urged by the Tax and Customs Authority could not be based on more than a mere guess, which is not an admissible means of proof in law.

Being so, one is left, at least, in a situation of doubt concerning the correspondence to reality of the aforementioned non-tax motivations, which is reconducible, in a context in which the burden of proof of the facts alleged for application of the general anti-abuse clause falls on the Tax and Customs Authority (article 74, no. 1 of LGT), to that doubt having to be valued in favor of the Claimants and not against them, which is equivalent, in practical procedural terms, to a situation in which such motivations had been proven.

Consequently, it must be concluded that it was not demonstrated that that transformation and sale of shares are acts and transactions "central" to a structure of acts and legal transactions "essential or principally directed" at obtaining a tax advantage.

3.1.2.3. Normative Element

Moreover, in the words of Saldanha Sanches, it is "necessary to find, in the tax legal order and as a sine qua non condition of application of the anti-abuse clause, the unequivocal signs of an intention to tax [...], first, because abusive tax avoidance cannot be confused with the permanent attempt of the taxpayer to reduce his taxation or to carefully consider – non-abusive tax planning – the consequences of tax law on his business or personal activity [...], second, because in that permanent effort to reduce the tax burden we can find the exploitation by the taxpayer of what we can characterize as deliberate omissions – whether fair or not, is another matter – of the tax legislator and, if that happens, cannot the task be assigned to the law applicator which falls primarily to the legislator" ([17]). Indeed, he emphasizes, an "unequivocal intention of taxation" ([18]) must be capable of being extracted.

This author even gives, as an example of a "conscious gap in taxation", the situation which is here the object of application of the general anti-abuse clause (the transformation of a limited liability company into a corporation and the subsequent sale of shares), emphasizing that "if the legislator, at the same time that it taxes capital gains from alienations of shares, leaves untaxed the capital gains from share alienations or taxed them at a reduced rate, one cannot fail to accept, fiscally, the transformation of a commercial company into a corporation even if the transformation is motivated by exclusively fiscal reasons" ([19]).

Effectively, "even if the transformation [were] motivated by exclusively fiscal reasons", it is the legislator who opts, expressly, to tax the sale of shares and not to tax the sale of shares in that context, as follows from the above-cited articles.

And it did so deliberately and insistently, as it is a rule reviewed and considered on various occasions.

In fact, in the initial wording of PIT Code, provision was already made for the taxation in PIT of capital gains obtained from the "onerous alienation of share interests" [article 10, no. 1, letter b), in the wording of Decree-Law no. 442-A/88, of 30 November], but capital gains from the alienation of "shares held by their holder for more than 24 months" were excluded [article 10, no. 2, letter c)], this time limit having as its evident objective to exclude the exclusion from taxation regarding capital gains which, in the then current concept, were considered speculative.

With Law no. 30-B/92, of 28 December, this letter c) of no. 2 of article 10 came to exclude from taxation "shares held by their holder for more than 12 months", thus increasing the scope of the non-taxation of the alienation of shares, or, from another perspective, the restriction of the concept of speculative capital gains.

Law no. 39-B/94, of 27 December, reaffirmed the validity of this regime, eliminating letter c) of no. 2 of article 10, but transposing its wording to the new letter b).

Law no. 30-G/2000, of 29 December, eliminated the exclusion from taxation of capital gains from the alienation of shares, but limited the exclusion to shares acquired after its entry into force, expressly maintaining the previous regime for shares acquired before that date (article 4, no. 5 of Decree-Law no. 442-A/88, of 30 November, as amended by Law no. 30-G/2000).

This new regime never came to be applied, as Law no. 109-B/2001, of 27 December, established, in no. 9 of its article 147, that in the years 2001 and 2002 the regime prior to Law no. 30-G/2000 would be applicable and, subsequently, Decree-Law no. 228/2002, of 31 October, reintroduced the regime of non-taxation of capital gains derived from the alienation of "shares held by their holder for more than 12 months", by giving new wording to letter a) of no. 2 of article 10 of PIT Code.

This wording was maintained until its repeal by Law no. 15/2010, of 26 July.

It is thus manifest that there was a deliberate legislative choice, maintained with variations since the initial wording of PIT Code, in the direction of the non-taxation of some of the capital gains from the alienation of shares, an option which, like that of the setting of a reduced liberatory rate, is justified by the existence of a "policy of development of the financial market", expressly recognized in the 5th paragraph of point 12 of the Report of PIT Code.

The "Preamble" of Draft Law no. 1/IX, which gave rise to Law no. 16-B/2002, of 31 May, which granted the Government the legislative authorization necessary to approve Decree-Law no. 228/2002 is illustrative in the sense that it was recognized that the non-taxation of non-speculative capital gains derived from the alienation of shares was preferable to its taxation, stating:

With the entry into force of Law no. 30-G/2000, which made necessary the revision of PIT Code effected by Decree-Law no. 198/2001, of 3 July, the scope of application was extended to all capital gains on securities and the liberatory rate of 10% was eliminated.

Following this amendment capital gains on securities are simultaneously aggregated and subject to the general progressive rates, which lie between 12% and 40%.

Furthermore, in accordance with article 3 of Law no. 30-G/2000, the aforementioned regime of taxation of capital gains only applies to securities acquired after 1 January 2001, maintaining the prior regime of taxation for capital gains on those acquired before that date.

That tax regime was however altered, transitionally, by Law no. 109-B/2001, of 27 December (State Budget for 2002), which came to establish an exemption from the taxation of capital gains relating to income below 2,500 Euros, being made, however, the aggregation, only, for purposes of determining the rate applicable to the remaining income.

Considering that the impact of this tax reform on the capital market was highly prejudicial for investors, configuring itself as a disincentive to investment, with all the inherent negative consequences for the development of a policy for economic recovery, it is urgent to repeal the regime of taxation of capital gains approved by Law no. 30-G/2000 and, subsequently, adopted by Decree-Law no. 198/2001 and, in consequence, to resume the regime of application of the liberatory rate of 10%, as well as the exclusion from taxation of capital gains on immovable property held by their holder for more than 12 months, taxing only speculative capital gains.

The Preamble of Decree-Law no. 228/2002, of 31 October, which reintroduced the exclusion from taxation of capital gains from the alienation of shares held by their holder for more than 12 months is also illustrative of the existence of this legislative intention by stating:

The regime of taxation of income from capital gains derived from the onerous alienation of securities, upon the entry into force of the Personal Income Tax Code, was significantly altered by Law no. 30-G/2000, of 29 December.

The most salient features of the framework then established consisted in the abolition of the tax exclusion benefiting capital gains from the alienation of bonds and other debt securities and from the alienation of shares held by their holder for more than 12 months, moving to apply a generalized taxation on these incomes, attenuated by a base exemption for positive balances below a certain amount and by the consideration of positive or negative balances in a percentage varying in function of the period of holding of the securities by the alienator.

By force of the establishment, by Law no. 109-B/2001, of 27 December, of a transitional regime of taxation applicable to these incomes in the years 2001 and 2002, the regime emerging from Law no. 30-G/2000, of 29 December, did not come to be applied.

The present decree-law comes to implement the authorization granted to the Government by Law no. 16-B/2002, of 31 May, in the direction of the reposition, in PIT Code, of the essential lines of the regime of taxation of these incomes

On the other hand, the tax-privileged situation of the alienation of shares in relation to the alienation of shares is justified by the preference manifested by the legislator for the adoption of the corporate organizational model proper to corporations, whose adoption since the initial wording of PIT Code had the intention to increase and came to be manifest in Decree-Law no. 76-A/2006, of 29 March, which reformed a vast set of laws relating to commercial companies, with special attention to the simplification and elimination of registration and notarial acts and procedures (article 1, no. 1) and for corporations (article 1, no. 2: "the present decree-law furthermore aims to update national corporate legislation, adopting in particular measures to update and make flexible the governance models of corporations").

Explaining the reasons of economic policy underlying the reform, the legislator states, in the preamble of that Decree-Law:

Thus, the fundamental lines of the reform effected by this decree-law are based on the following ideas. On one side, the concern to promote the competitiveness of Portuguese companies, allowing their alignment with advanced organizational models. The present revision of the Commercial Companies Code rests on the assumption that the refinement of corporate governance practices serves to directly promote the competitiveness of national companies. This is the primary underlying objective that this decree-law aims to pursue, in favor of greater transparency and efficiency of Portuguese corporations. By embarking on this path, Portugal will place itself at par with the most advanced European legal systems in corporate law, highlighting the United Kingdom, Germany and Italy as countries which have similarly oriented legislative reforms based on these assumptions. […] It is also important to point out the addressing of the specificities of small corporations as a concern that underlay the preparation of this decree-law".

In this context, there is a deliberate legislative option in the direction of affording non-taxation of non-speculative capital gains, as an incentive to the creation of corporations, forms of more advanced organization, which tends to provide more professionalized and efficient management, with benefits for the economy in general and, reflexively, for the interest in the taxation of business income itself.

Moreover, it is to be noted that the affirmation of the public interest in not taxing non-speculative capital gains derived from the holding of shares was, consciously, considered superior to that of the collection of revenues that taxation could generate and that this affirmation was made already after the General Tax Law provided for the general anti-abuse clause, in its article 38, no. 2.

Being so, the Tax and Customs Authority cannot, in a State governed by the rule of law, founded on popular sovereignty, on the principle of separation of powers and on the primacy of Law (articles 2 and 3, nos 1 and 2, of the Constitution of the Portuguese Republic), fail to abide by the value judgments legislatively formulated, being unable to overlay its own judgments on the management of public interests over the weighing of conflicting values effected legislatively, even if it considers them more adequate and balanced than those emanating from the organs of sovereignty with legislative competence.

That is, more concretely, having the legislator expressly considered the public interest of the creation of corporations superior to the interest in the taxation of non-speculative capital gains and materialized its preference in an incentive to the creation of corporations, creating for the holders of their capital a tax-privileged regime in relation to holders of capital in limited liability companies, it cannot, by way of the application of the general anti-abuse clause, be rendered impossible, through administrative channels, that legislative objective, applying to those who gave satisfaction to that public interest by the creation of corporations the regime that would be applicable to them if they had not given satisfaction to it.

Or, from another perspective, perhaps more clarifying, one cannot, as a general rule, in a situation of transformation of limited liability companies into corporations, understand that the act was essential or principally directed at the satisfaction of the fiscal interest of the participants (as required by no. 2 of article 38 of LGT for the activation of the general anti-abuse clause), as that act, objectively and necessarily, with the will of the taxpayer or without it, is always directed at the satisfaction of the public interest in the increase of the creation of corporations, an interest which, in the legislative perspective, is always the essential or principal one to be considered in that situation, for purposes of taxation.

For this reason, in situations of this type, of transformation of limited liability companies into corporations, the abuse of legal forms indispensable to enable the application of the general anti-abuse clause and the existence of an intention contrary to the legislative purpose are only ascertainable in situations in which one cannot consider that public interest of the creation of corporations to be satisfied, as, for example, could occur in situations in which the creation of the corporation is not followed by its maintenance as an economic reality for an appreciable period of time.

In the case at hand, it is unequivocal that no such situation is verified and, for this reason, the operation of transformation of the limited liability company into a corporation satisfied the interest which, in the legislative perspective, is the principal one to be considered, superior to that of taxation itself.

On the other hand, no use of any artificious or fraudulent means or abuse of legal forms is apparent in this conduct of the Claimants, in perfect consonance with the legislative purpose aimed at to be achieved with the creation of a more favorable taxation regime for the holders of shares, (as required for the application of the general anti-abuse clause) since the transformation of limited liability companies into corporations is expressly provided for in law as a normal means of creation of such companies (articles 1, no. 2, and 130 of the Commercial Companies Code), including in the sphere of taxation of income [article 43, no. 6, letter b), of PIT Code]. What would, certainly, constitute artifice or legislative fraud, incompatible with the constitutional principle of trust, implicit in the principle of democratic Rule of Law, would be to legislatively encourage taxpayers of PIT to create corporations, through the announcement of the grant of a tax advantage and, once the public interest aimed at with such incentive had been satisfied, not to recognize them the right to the advantage promised.

Consequently, no situation is verified that falls within no. 2 of article 38 of LGT, not least because there is not an act that can be considered directed essential or principally at the obtaining of tax advantages, as it was necessarily directed also at the creation of a corporation, but also because no artificious or fraudulent means was used to obtain tax advantages.

3.1.2.4. Sanctioning Element

Having not been demonstrated the cumulative verification of all the requirements demanded for application of the general anti-abuse clause, particularly the normative one, there is no place for application of the enactment of article 38, no. 2 of the General Tax Law, leading to the ineffectiveness of the legal transactions in the tax sphere, contrary to what the Tax and Customs Authority understood.

3.2. Conclusion

It is thus concluded that the factual and legal prerequisites on which the application of the general anti-abuse clause depends are not verified.

Consequently, the assessment act whose declaration of illegality is sought is illegal, which has as prerequisites the verification of the requirements for application of the general anti-abuse clause, by violation of the provisions of article 38, no. 2 of LGT.

For this reason, the claim for a declaration of illegality of the acts of additional PIT assessment no. 2013 ..., of the compensatory interest assessment no. 2013 ... and of the account settlement no. 2013 ..., relating to the year 2009, must be found to be well-founded, as they suffer from the vice of violation of law, due to error regarding the factual and legal prerequisites, which justifies their annulment (article 135 of the Code of Administrative Procedure).

Thus, the claim formulated by the Claimants must be found to be entirely well-founded.

4. Compensatory Interest

The Claimants request the refund of the tax unduly paid, in the amount of €459,150.45, plus compensatory interest, at the legal rate, in accordance with article 43 of LGT and 61 of CPPT.

The Claimants paid the amounts assessed, as referred to in letter w) of the factual matters determined.

In accordance with the provisions of letter b) of article 24 of RJAT, the arbitral decision on the merits of the claim for which no appeal or contestation is available binds the tax administration from the end of the deadline provided for appeal or contestation, and this, in the exact terms of the well-foundedness of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for the voluntary execution of judgments of judicial tax tribunals, must "restore the situation that would exist if the tax act object of the arbitral decision had not been performed, adopting the acts and operations necessary to the effect", which is in harmony with the provisions of article 100 of LGT [applicable by force of the provision in letter a) of no. 1 of article 29 of RJAT] which establishes that "the tax administration is obliged, in the case of full or partial well-foundedness of a claim, judicial contestation or appeal in favor of the taxpayer, to the immediate and complete restoration of the legality of the act or situation object of the dispute, including the payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2, no. 1, letters a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating in CAAD, not making reference to condemnatory decisions, it should be understood that the competencies include the powers that in judicial contestation proceedings are attributed to tax tribunals, this being the interpretation in consonance with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as the first guideline, that "the arbitral tax procedure must constitute an alternative procedural means to the judicial contestation procedure and to the action for recognition of a right or legitimate interest in tax matters".

The judicial contestation procedure, despite being essentially a procedure for the annulment of tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as is apparent from article 43, no. 1 of LGT, which establishes that "compensatory interest is due when it is determined, in administrative recourse or judicial contestation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally owed" and article 61, no. 4 of CPPT (as amended by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the initial wording), which "if the decision that recognized the right to compensatory interest is judicial, the deadline for payment is counted from the beginning of the deadline for its voluntary execution".

Thus, no. 5 of article 24 of RJAT in stating that "payment of interest, regardless of its nature, is due, in accordance with the terms provided in the general tax law and in the Code of Procedure and Tax Process" should be understood as permitting the recognition of the right to compensatory interest in the arbitral procedure.

In the case at hand, it is manifest that, as a consequence of the partial illegality of the assessment act, there is place to the refund of the tax, by force of the aforementioned articles 24, no. 1, letter b) of RJAT and 100 of LGT, as this is essential to "restore the situation that would exist if the tax act object of the arbitral decision had not been performed", in the part corresponding to the correction that was considered illegal.

As concerns compensatory interest, it is also clear that the illegality of the act is attributable to the Tax and Customs Authority, which, on its own initiative, performed it without legal basis.

We are dealing with a vice of violation of substantive law, embodied in error regarding the legal prerequisites, attributable to the Tax Administration.

Consequently, the Claimants have the right to compensatory interest, in accordance with article 43, no. 1 of LGT and article 61 of CPPT, calculated on the amount they unduly paid.

Thus, the Tax and Customs Authority must execute this decision, in accordance with article 24, no. 1 of RJAT, determining the amount to be refunded to the Claimants and calculating the respective compensatory interest, at the legal suppletive rate of civil debts, in accordance with articles 35, no. 10, and 43, nos 1 and 5, of LGT, 61 of CPPT, 559 of the Civil Code and Administrative Order no. 291/2003, of 8 April (or diploma or diplomas succeeding it).

Compensatory interest is due from the date of payment (26-08-2013), until that of the processing of the credit note, in which it is included (article 61, no. 5 of CPPT).

5. Process Value

In accordance with the provisions of article 315, no. 2 of CPC and 97-A, no. 1, letter a), of CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the process value is set at €459,150.45.

6. Costs

In accordance with article 22, no. 4 of RJAT, the amount of costs is set at €7,344.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings ([20]), charged to the respondent Tax and Customs Authority.

7. Decision

In accordance with the foregoing, the members of this Arbitral Tribunal agree in:

– finding well-founded the claims for a declaration of illegality of the additional PIT assessment no. 2013 ..., of the compensatory interest assessment no. 2013 ... and of the account settlement no. 2013 ..., relating to the year 2009;

– annulling the aforementioned assessments and account settlement;

– finding well-founded the claim for refund of the amount paid corresponding to the aforementioned assessments (€459,150.45) and ordering the Tax and Customs Authority to refund it;

– finding well-founded the claim for payment of compensatory interest and ordering the Tax and Customs Authority to pay it to the Claimants, calculated on the amount to be refunded, from the date of payment (26-08-2013), until that of the processing of the credit note, in which it must be included (article 61, no. 5 of CPPT), at the legal rates in force until payment, in accordance with article 559 of the Civil Code and Administrative Order no. 291/2003, of 8 April (or diploma or diplomas succeeding it).

– ordering the Tax and Customs Authority to bear the costs of the present proceedings.

Lisbon, 20-05-2014

The Arbitrators

(Jorge Lopes de Sousa)

(José Poças Falcão)

(João Maricoto Monteiro)

[1] See Saldanha Sanches, J.L., The Limits of Tax Planning, Coimbra, Coimbra Editor, 2006, p. 21.

[2] See Decision of TCAS of 12-02-2011, case no. 04255/10.

[3] See Jónatas Machado and Nogueira da Costa, Course on Tax Law, Coimbra, Coimbra Editor, 2009, pp. 340-341.

[4] See Saldanha Sanches, J.L., The Limits..., p. 181.

[5] See Saldanha Sanches, J.L., The Limits..., pp. 21-23; also Decision of the Central Administrative Court of the South of 12-02-2011, case no. 04255/10.

[6] See Saldanha Sanches, J.L., Business Restructuring and the Limits of Tax Planning, The Two Constitutions – in the Ten Years of the General Anti-Abuse Clause, Coimbra Editor, Coimbra, 2009, pp. 49-50, who 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, fiscal dexterity cease to be possible (the artificious and fraudulent operations that have as principal or exclusive purpose the obtaining of a tax saving by fraud of law) and the taxpayer comes to have his conduct judged in accordance with this criterion. [...] the evolution of law is clear in the direction of providing legal basis for tax planning, provided it is practiced without abuse of legal forms, without artificious and fraudulent legal transactions but limiting itself to choosing the available means that allow him to achieve tax savings". See also Marques, Paulo, In Praise of Tax, Coimbra Editor, Coimbra, 2009, pp. 360-364.

[7] That is, to "the planned conduct of the taxpayer that results in apparently lawful conduct, generating a tax advantage not admitted by the legal order" (see Courinha, Gustavo Lopes, Clause..., pp. 15-17 and 163-165; as well as Decision of the Central Administrative Court of the South of 15-02-2011, case no. 04255/10, conclusions XIII and XIV).

[8] As follows from the following part of article 38, no. 2 of LGT: "acts or legal transactions essential or principally directed, by artificious or fraudulent means and by abuse of legal forms, at the reduction, elimination or temporal deferral of taxes".

[9] This follows from the following segment of article 38, no. 2 of LGT: "reduction, elimination or temporal deferral of taxes that would be owed as a result of facts, acts or legal transactions of identical economic purpose, or to obtaining tax advantages that would not be achieved, in whole or in part, without use of such means". It also follows from article 63, no. 3, letters a) and b) of 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 celebrated or the legal act performed and of the transactions or acts of identical economic purpose, as well as the indication of the rules of application applicable to them" and "the demonstration that the celebration of the legal transaction or practice of the legal act was essential or principally directed at the reduction, elimination or temporal deferral of taxes that would be owed in the case of transaction or act with identical economic purpose, or to obtaining tax advantages".

[10] See Courinha, Gustavo Lopes, Clause..., p. 180.

[11] See Courinha, Gustavo Lopes, Clause..., p. 211.

[12] See Courinha, Gustavo Lopes, Clause..., p. 165. Similarly, Saldanha Sanches, J.L., The Limits..., p. 170, who points to a "relationship of connection and interdependence in relation to the requirements demanded by law".

[13] See Leite de Campos, Diogo, and Costa Andrade, João, Contractual Autonomy and Tax Law, The General Anti-Evasion Rule, Coimbra, Almedina, 2008, p. 82.

[14] "Whether legal acts or legal transactions, they can appear isolated (adapted to obtaining the economic utility and the tax advantage), or, in what is perhaps the most common hypothesis, form a set – set of acts or set of transactions. To do so, they should form a logical, sequential and indivisible unit directed to such – a structure […]. Doctrine and British case law […] ascertained the verification of that 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 necessarily follow it, in order to complete it, and thus obtaining the tax advantage aimed at and the economic purpose safeguarded" (see Courinha, Gustavo Lopes, General Anti-Abuse Clause in Tax Law: Contributions to its Understanding, Coimbra, Almedina, 2009, pp. 166-167).

[15] See Sousa, Luís Filipe Pires de, Proof by Presumption in Civil Law, Coimbra: Almedina, 2012, p. 45 and 131.

[16] See Fonseca, Isabel Celeste M., Temporally Fair Process and Urgency - Contribution to the Autonomization of the Category of Jurisdictional Protection of Urgency in Administrative Justice, Coimbra: Faculty of Law of the University of Coimbra, Doctoral Thesis, 2006, pp. 782-783

[17] See Saldanha Sanches, J.L., The Limits..., p. 180.

[18] See Saldanha Sanches, J.L., The Limits..., pp. 180-181.

[19] See Saldanha Sanches, J.L., The Limits..., p. 182.

[20] The amount was calculated based on €4,896.00, corresponding to the last scaled bracket (up to €275,000.00), plus €2,448.00, corresponding to the product of €306 for each 8 fractions of €25,000.00 above €275,000.00.