CAAD Case 311/2013-T: IRS Capital Gains, Anti-Abuse Clause, Burden of Proof & Lack of Reasoning

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 311/2013 – T

Subject: PIT – Lack of reasoning; burden of proof; general anti-abuse clause; capital gains.

The Arbitrators Counsellor Judge Jorge Manuel Lopes de Sousa (appointed by agreement of the other Arbitrators), Prof. Dr. Paula Rosado Pereira and Dr. Maria Manuela do Nascimento Roseiro, appointed respectively by the Claimants and the Respondent, to form the Arbitral Tribunal, constituted on 07-03-2014, agree as follows:

1. Report

"A", TAX ID No. … and "b", TAX ID No. …, resident at Street …, No. …, …-…, … (hereinafter Claimants), filed a request for arbitral decision, pursuant to Article 10 of Decree-Law No. 10/2011, of 20 January (hereinafter RJAT).

The Claimants presented the following requests:

– declaration of illegality and annulment of the additional PIT assessment No. 2013 …, of the compensatory interest assessment No. 2013 … and No. 2013 …, relating to the year 2009;

– suspension of the tax enforcement procedure No. 150….

The Claimants proceeded to appoint an arbitrator, Prof. Dr. Paula Rosado Pereira, pursuant to Article 6, No. 2, paragraph b) of the RJAT.

Pursuant to paragraph b) of No. 2 of Article 6 and No. 3 of Article 11 of the RJAT and within the deadline provided for in No. 1 of Article 13 of the same legislation, the top official of the Tax Administration Service appointed as Arbitrator Dr. Maria Manuela do Nascimento Roseiro.

The appointed arbitrators appointed the third arbitrator, Counsellor Jorge Manuel Lopes de Sousa, pursuant to Article 11, No. 4 of the RJAT.

The signatories designated to make up this collective Arbitral Tribunal accepted the appointments in accordance with legal provisions.

Pursuant to and for the purposes of No. 7 of Article 11 of the RJAT, the President of CAAD informed the Parties of this appointment on 20-02-2014.

Thus, in accordance with the provision of No. 7 of Article 11 of the RJAT, after the deadline provided for in No. 1 of Article 13 of the RJAT, the collective arbitral tribunal was constituted on 07-03-2014.

On 28-05-2014, the meeting provided for in Article 18 of the RJAT was held, at which witness evidence was produced, followed by oral arguments.

The arbitral tribunal was regularly constituted.

Without prejudice to the assessment of the dilatory exception relating to material competence to hear the request for suspension of the tax enforcement procedure, the arbitral tribunal is materially competent in all other respects, in accordance with Articles 2, No. 1, paragraph a), and 30, No. 1, of Decree-Law No. 10/2011, of 20 January.

The parties have legal capacity and standing (Articles 4 and 10, No. 2, of the same legislation and Article 1 of Order No. 112-A/2011, of 22 March).

The case contains no procedural defects and no further exceptions were raised.

2. Preliminary Issue: Exception of Lack of Tribunal Competence

The Claimants requested the declaration of illegality and annulment of a set of assessments and additionally requested that, "in accordance with the provision of No. 4 of Article 103 of the CPPT, applicable by virtue of Article 13, No. 5 of the RJAT, the suspension of the tax enforcement procedure No. 150…" be "officially notified to the Finance Service … of the submission of the [...] request for arbitral decision".

The Tax and Customs Authority argues that "the decision to suspend the tax enforcement procedure is competent, as defined in law, to the enforcement body" and that the competence of the arbitral tribunal is limited to the terms defined in Article 2 of the RJAT, which should result in such request not being considered.

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The determination of the material competence of courts is a matter of public order and its consideration precedes any other matter, as is evident from the combined reading of Articles 16 of the Code of Tax Procedure and Process (CPPT), 13 of the Code of Administrative Court Procedure (CPTA) and 96 of the New Code of Civil Procedure (CPC), subsidiarily applicable by reference from No. 1 of Article 29 of the RJAT.

In this framework, given that the success of the exception raised, if confirmed, prevents partial consideration of the request (understanding the request for suspension of tax enforcement as a request, as the Tax and Customs Authority does), it is important to define the scope of competence of tax arbitral jurisdiction and assess whether it encompasses or not the "suspension of tax enforcement".

No. 1 of Article 124 of Law No. 3-B/2010, of 28 April, authorized the Government "to legislate with a view to establishing arbitration as an alternative form of jurisdictional dispute resolution in tax matters", which, according to its No. 2, "should constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

Decree-Law No. 10/2011, of 20 January, implemented the aforementioned legislative authorization and "established tax arbitration limited to certain matters, listed in its Article 2" by making "the binding nature of tax administration depend on an order of the Government members responsible for the areas of finance and justice".

The scope of tax arbitral jurisdiction was thus delimited, in the first place, by the provision of Article 2 of the RJAT which sets out, in its No. 1, the criteria for material distribution (amended by Article 160 of Law No. 64-B/2011, of 30 December, in force from 1 January 2012):

Article 2

Competence of arbitral tribunals and applicable law

1 — The competence of arbitral tribunals comprises consideration of the following claims:

a) Declaration of illegality of tax assessment acts, self-assessment, withholding at source and payment on account;

b) Declaration of illegality of acts fixing the taxable base when giving rise to no tax assessment, acts determining collective taxable income and acts fixing patrimonial values; (Amended by Article 160 of Law No. 64-B/2011, of 30 December, in force from 1 January 2012)

In the second place, tax arbitral jurisdiction was delimited through the Binding Order (Order No. 112-A/2011, of 20 April), in which the Government, through the Ministers of State and Finance and Justice, bound the services of the Directorate-General of Taxes and the Directorate-General of Customs and Special Consumer Tax to the jurisdiction of the arbitral tribunals functioning at CAAD, these services now corresponding to the Tax and Customs Authority, pursuant to Decree-Law No. 118/2011, of 15 December, which approves the organizational structure of this Authority, resulting from the merger of various bodies. In this Order, additional conditions and limits of binding are established taking into account the specificity of the matters and the value involved.

The requests for declaration of illegality and annulment of assessments unequivocally fall within the scope of arbitral jurisdiction.

Since Article 2 of the RJAT and the Binding Order do not refer to "suspension of tax enforcement", this is because it is not, strictly speaking, a "request", but rather a mere "effect of the request" as follows from Article 13, No. 5, of the RJAT, which states that "the presentation of the request for constitution of an arbitral tribunal is attributed the effects of the presentation of a judicial challenge, namely with regard to the suspension of the tax enforcement procedure".

Pursuant to Article 103, No. 4, of the CPPT, the presentation of a judicial challenge has the effect of suspending tax enforcement, "when, at the request of the taxpayer, adequate security is provided within 10 days after notification for that purpose by the court, in respect of the criteria and terms referred to in Nos. 1 to 6 and 10 of Article 199".

The aforesaid request is directed to the Court competent to consider the judicial challenge process and with its presentation an unnamed incident is generated, which falls to the court competent to consider the judicial challenge process to decide, in accordance with the rule that "the court competent for the action is also competent to hear incidents arising from it" [Article 91, No. 1, of the CPC, subsidiarily applicable pursuant to Article 29, No. 1, paragraph e), of the RJAT].

Since the presentation of the request for arbitral decision is attributed the suspensive effect of tax enforcement, it will be for the court in which such presentation is made and not for the tax tribunal, to which no judicial challenge is presented, to assess whether the necessary requirements for such effect are met.

The exception raised by the Tax and Customs Authority therefore lacks merit.

As a consequence of the foregoing, there is no obstacle to consideration of the merits of the case.

3. Factual Matter

3.1. Proven Facts

Based on the elements contained in the case file and the administrative file attached to the record, the following facts are considered proven:

- On 28-05-2007 the single-member limited company "C" -, Unipessoal, Lda, hereinafter referred to as "C", TAX ID …, was established with share capital of € 100,000.00 owned by sole shareholder "A", through which to acquire Pharmacy "d" (see Annex VI of the Tax Inspection Report and Doc. No. 1 of the request for arbitral decision);

- On 30-05-2007, through a share assignment contract, "c" acquired a quota with nominal value of € 1,680,000.00, representing the entire share capital of company "e" -, Lda, hereinafter referred to as "e", TAX ID …, for the value of € 2,650,000.00 (see Annex I of the Tax Inspection Report and Doc. 3 of the request for arbitral decision);

- "e" was the owner of the commercial establishment pharmacy, named Pharmacy "d", which operated under license No. …, issued by Infarmed – National Institute of Pharmacy and Medicine;

- On 31-05-2007, two contracts were entered into, for a total amount of € 3,750,000.00, designated "Loan Contract with Guarantee and Pledge Undertaking", intended for financing the "female client with a view to providing supplementary payments to the third contracting company, which were intended for the acquisition of the commercial pharmacy establishment called Pharmacy "d"", between "T" and the following contractors:

— "a" and husband "b" (debtors or clients);

— "f" and wife "g" (guarantors);

— "c" —, Unipessoal, Lda (third contracting party);

(see Annex VI of the Tax Inspection Report and Docs. 4 and 5 of the request for arbitral decision).

- On 28-12-2007, at the requirement of Infarmed, Claimant "a" acquired the quota of company "e" from "c" for the value of € 2,650,000.00, as it was not permitted that the ownership of shareholdings be held by a legal entity (see Annex I of the Tax Inspection Report, in the administrative file and Article 10 of the request for arbitral decision);

- On 12-03-2008 company "h" — Health Activities, Lda, hereinafter "h", TAX ID …, was established with fully paid share capital of € 5,000.00, represented by two quotas (see Annex VIII of the Tax Inspection Report):

— One with nominal value of € 3,000.00, belonging to "f";

— Another with nominal value of € 2,000.00, belonging to "a";

- On 31-03-2008, "h" acquired company "i" -, Lda, TAX ID …, for the total price of € 1,848,000.00, underlying the commercial pharmacy establishment Pharmacy "j", with payment made as follows, through a payment agreement of 01-04-2008 (see Annex VIII of the Tax Inspection Report, Article 11 and Doc. No. 6 of the request for arbitral decision):

— € 400,000.00 paid by shareholder "F";

— € 1,350,000.00 paid by means of bank financing, assumed by "h", with "T", and "F", constituting a mortgage on the property his property at Avenue …, No. …— …;

— € 98,000.00 to be paid by shareholder "f";

- On 01-04-2008, a loan contract with mortgage, pledge of establishment and guarantee was concluded between "T" and the following grantors, both as shareholders and managers and in representation of "H" (see Annex IX of the Tax Inspection Report):

— "f" (mortgagor);

— "A" (guarantor);

— "f" as manager and in representation of "i", -, Lda;

— The loan is intended for the acquisition of the quota of company "i", -, Lda.

- On 30-04-2009 a "loan contract with pledge" was concluded between "T" and company "k", Lda, hereinafter "K", in which "f" and wife "g", as guarantors, assume a loan of € 4,000,000.00, for the purpose of paying operation No. 025… and for payment of operations No. 021…, in the name of Claimant "a", for provision of supplementary payments to "c", which was intended for the acquisition of Pharmacy "D" and No. 021…, in the name of Claimant "A", which was intended for improvement works to the commercial establishment (see Annex VII of the Tax Inspection Report);

- On 22-05-2009, Claimant "A" concluded a promise of sale contract with "F", for the price of € 5,250,000.00, of her participation in "E", which was formally executed on 01-09-2009 and resulted in the discharge of all her financial liabilities to "T" and to her associate "F" (see Annex X of the Tax Inspection Report and Articles 23-24 of the request for arbitral decision);

- With the proceeds of the sale Claimant "A" discharged all her financial liabilities to "T" and to her associate "F", ensuring an unencumbered and free participation in company "H" (see Annex X of the Tax Inspection Report and Articles 23-24 of the request for arbitral decision);

- On 02-11-2008 a justification report was drawn up for the transformation of "E" from a limited partnership into a joint-stock company (see Annex II of the Tax Inspection Report, in the administrative file), in which it was stated that:

— "[...] this company may have to face the possibility of substantially altering its shareholding composition, extending, in particular, its capital to third parties to strengthen its financial structure.

— [...] in light of the regimes to which limited partnerships and joint-stock companies are subject, the latter is best suited to the company's present and future needs.

— [...] the maintenance costs of a joint-stock company are substantially equivalent to those borne by a limited partnership, with the only additional charge being for the statutory auditor, which in turn will ensure greater certainty and credibility to its financial statements.

— [...] management proposes to the shareholders the transformation of this company into a joint-stock company, [...] preceded by a share assignment by the shareholder so that the company is endowed with the legally required number of shareholders to permit its transformation".

- On 18-11-2008, Claimant "A", as sole holder of the shareholdings of "E", with nominal value of € 1,680,000.00, divided her quota, representing the share capital, into five quotas, the first with nominal value of € 1,679,600.00 and the four remaining with nominal value of € 100.00 each, transforming the single-member limited partnership into a limited partnership, with the capital distributed as follows:

"A" - 99.976% of share capital, corresponding to 1,679,600 quotas;

"F" - 0.006% of share capital, corresponding to 100 quotas;

"G" - 0.006% of share capital, corresponding to 100 quotas;

"L" - 0.006% of share capital, corresponding to 100 quotas;

"M" - 0.006% of share capital, corresponding to 100 quotas;

(see Annex III of the Tax Inspection Report, referring to "Minutes No. 7 and Share Assignment Contract")

- On 18-11-2008, "E" was transformed into a joint-stock company, with the filing at the Commercial Registry Office of AP…./…., maintaining the share capital at the value of € 1,680,000.00, represented by 1,680,000 nominative shares with nominal value € 1.00 each, held by the following shareholders:

"A" - 99.976% of share capital, corresponding to 1,679,600 shares;

"F" - 0.006% of share capital, corresponding to 100 shares;

"G" - 0.006% of share capital, corresponding to 100 shares;

"L" - 0.006% of share capital, corresponding to 100 shares;

"M" - 0.006% of share capital, corresponding to 100 shares;

(see Annex III of the Tax Inspection Report)

- On 22-05-2009, by contract of promise to purchase and sell shares, Claimant "A" promised to sell to "K" the shareholdings she held, free of liens and charges for the price of € 5,250,000.00, having received "full and complete discharge" (see Annexes IV and X of the Tax Inspection Report and Articles 23-25 of the request for arbitral decision);

- On 01-09-2009 the final contract of the transaction was formalized through a share purchase and sale contract (see Annex V of the Tax Inspection Report and Article 24 of the request for arbitral decision);

- With the proceeds of the sale Claimant "A" discharged all her financial liabilities to "T" and to her associate "F", ensuring her participation, totally unencumbered and free, in company "H" (see Annex X of the Tax Inspection Report and Articles 23-25 of the request for arbitral decision);

- On 21-01-2010, the acquiring company "K" in extraordinary general meeting, with all shareholders present, resolved to change the company name and registered office, with the company name becoming "n", Lda and the registered office to Avenue … No. …, …-… …;

- The shareholders of "k", current "N" Lda are as follows:

"F" - 99.50% of share capital, corresponding to 49,750 quotas;

"L" - 0.25% of share capital, corresponding to 125 quotas;

"m" - 0.25% of share capital, corresponding to 125 quotas;

(see Tax Inspection Report)

- On 19-06-2012, a tax inspection procedure began in compliance with service order No. OI…, of 02-05-2012, with activity code … — capital gains control action —, concerning the 2009 PIT year of the Claimants;

- The tax inspection procedure was intended to "control the alienation of shareholdings and the application of the general anti-abuse rule, provided for in No. 2 of Article 38 of the LGT, in relation to the sale of quota (shares) by the Claimant, and the acquisition by company "K", Lda", TAX ID … (current "N", Lda)" (see point 2.2 of the Tax Inspection Report);

- On 28-05-2013 the tax inspection procedure was concluded, after successive extensions of the deadline by orders of the Deputy Director of Finance for …, notified by Office Notices No. 0…, of 12-12-2012, and No. 0…, of 12-03-2013, from the Finance Directorate of ….

- On 31-10-2012, the Claimants were notified of the draft application of the general anti-abuse clause for exercise of the prior hearing right, by Office Notice 0… (see Annex XII of the Tax Inspection Report, in the administrative file);

- The Claimants did not exercise the prior hearing right in the context of the application of the general anti-abuse clause (see points 3.6 and 8 of the Tax Inspection Report);

- On 23-05-2013, by order of the Director General of the Tax and Customs Authority, authorization was given for the application of the general anti-abuse clause (see point 3.7 of the Tax Inspection Report and Annex XIII of the Tax Inspection Report);

- On 27-05-2013, the Tax and Customs Authority notified the order authorizing application of the general anti-abuse clause, by Office Notice No. 0…, which was returned with the notation "item unclaimed";

- On 11-06-2013, the Tax and Customs Authority made a second notification of the order authorizing application of the general anti-abuse clause, by Office Notice No. 0…;

- On 29-05-2013, the Tax and Customs Authority notified the draft tax inspection report, inviting the taxpayer to exercise the prior hearing right, by Office Notice No. 0…, which was returned with the notation "item unclaimed";

- On 12-06-2013, the Tax and Customs Authority made a second notification of the draft tax inspection report by Office Notice No. 0…;

- On 24-06-2013, the notification of the draft tax inspection report was actually received/collected;

- The Tax and Customs Authority bases its decision, particularly, in the following terms:

Point 3.1.6 of the Tax Inspection Report: "Analyzing the company transformation contract that occurred on 18-11-2008, it is noted that:

— there was no alteration of share capital, the nominal value remained at € 1,680,000.00;

—there was a division of quota into five, with one of € 1,679,600.00 and the remaining four with nominal value of € 100.00;

— there was no increase in share capital, the existing quota was simply divided;

— shareholder "A" retained for herself the quota of € 1,679,600.00, representing 99.976% of the share capital;

—The remaining quotas having been assigned to the four new shareholders, each representing 0.006% of the share capital;

— it is also noted that the new shareholders have a family relationship, with "F" and "G" being spouses and "L" and "M" their descendants;

— on the same date the transformation of the company into a joint-stock company was resolved;

It is also noted that, when the quota was divided and assigned to the new shareholders, there was already an intention to transform it into a joint-stock company, given that on 02-11-2008, a "justification report for the transformation of "E — Pharmacy Unipersonal, Lda", from limited partnership to joint-stock company" was presented".

Point 3.1.7 of the Tax Inspection Report: "It is verified that the holders of the share capital of the acquiring company are the holders who acquired the quotas of the selling company".

Point 3.1.9 of the Tax Inspection Report: "The facts described allow us to admit that:

In accordance with the justification report for the transformation of "E" into a joint-stock company, the purpose thereof (sole and exclusive) was to permit the entity to achieve a strengthening of its financial structure. Such objective/basis appears, however, implausible, in light of the following facts:

1— With the transformation, the entry of 4 new shareholders, family members among themselves, all natural persons with negligible participations in the respective share capital, was effectuated;

— the entry of new shareholders (2008/11/18) did not bring any increase in capital - the sole quota was divided into 5 quotas;

— the entry of new shareholders with a quota of residual value (€ 100.00) was to comply with the requirements of the minimum number of shareholders (Article 273 of the Commercial Societies Code - "A joint-stock company may not be constituted by fewer shareholders than five,…";

— in the justification report the sole shareholder states: "In these terms, management proposes to the shareholders the transformation of this company into a joint-stock company, in accordance with the provisions of Articles 130 et seq. of the Commercial Societies Code, preceded by a share assignment by the sole shareholder so that the company is endowed with the legally required number of shareholders to permit its transformation".

2 — In fact, each of the quotas/shares acquired by these new shareholders are for the amount of € 100.00 (corresponding to a capital holding percentage of 0.006%);

3 — Thus remaining the previous shareholder in the holding of the overwhelming majority of the subscribed share capital i.e. 99.976%;

4 — However, the de facto management of the selling company was exercised by shareholders/shareholders "F" and "M" (minority shareholders/shareholders and simultaneously shareholders of the acquiring company), as is evident from the copy of checks issued by "E", - (Annex XI);

5 — No new shareholders are evidenced;

6 — For its part, the percentage of participations that each comes to hold, as a result of the transformation, does not enable the company to benefit from an effective improvement in its financial situation.

7 — In other words, and by way of example, if perchance the company sought to counter a loan from a financial institution it would certainly obtain the same loan conditions before or after the transformation process.

Thus, the taxpayer's argumentation falls away, to the effect that this company transformation operation generated benefits, of a financial nature, for the company. Whereby, and thus being, it is necessary to conclude by the inexistence of a grounded/basis or plausible economic rationale for this company transformation operation to be carried out.

Thus being evident that the transformation operation was carried out in order for the taxpayer to be able to benefit, in 2009, from the exemption of taxation of capital gains generated by the alienation of shareholdings in joint-stock companies".

With regard to the means element, the Tax and Customs Authority bases its arguments, at point 3.3.1 of the Tax Inspection Report, that "as noted in item 3, the sale of shareholdings is preceded by the transformation of company "E - Pharmacy Unipersonal, Lda" into a joint-stock company, which did not result, as the facts prove, from the need to adjust its legal nature to any alteration in its operational structure.

The entry of four new shareholders/shareholders with symbolic participations of € 100.00 had the objective of formally complying with the minimum requirements necessary to transform a limited partnership into a joint-stock company and to permit that, accordingly, the capital be denominated in shares and, thereby, substitute an operation subject to tax (alienation of social parts - quotas) for another economically equivalent but not subject to taxation (sale of shares).

It is also noted that the new shareholders are very close family members and are shareholders of the acquiring company "K"".

With regard to the result element, the Tax and Customs Authority bases its arguments, at point 3.3.2 of the Tax Inspection Report, as follows:

"[...] the result element consists of the tax advantage obtained through the taxpayer's activity, in the case under review, the taxpayer "A" obtained the benefit of the exclusion of taxation of the capital gain obtained, in the amount of € 2,600,000.00, as follows:

— Realization value (1) € 5,250,000.00

— Acquisition value (2) € 2,650,000.00

— Capital gain (1) - (2) = (3) € 2,600.00,00

[...] by application of the special rate (autonomous taxation) of No. 4 of Article 72 [of the PIT Code], to capital gains income from alienation of shareholdings, there is an increase in the net tax revenue of the taxpayer for the year 2009, in the amount of € 260,000.00 (€ 2,600.00,00 * 10% = € 260,000.00)

In this manner, the alienation of these shares would benefit from the exclusion of taxation under PIT, by force of the provision in paragraph a) of No. 2 of Article 10 of the PIT Code.

Contrary to what is stated in the promise to purchase and sell shares contract, the taxpayer "A" did not receive the value at the moment of the operation, with the acquiring entity and its representative "F" assuming payment of commitments assumed by "A".

Had the taxpayer chosen the "normal" business, the capital gain obtained through the alienation of the social part - quota, was subject to PIT pursuant to the provision in paragraph b) of No. 41 of Article 10 of the PIT Code, at the rate of 10%, as established by No. 4 of Article 72 of the same Code, whereby the tax due would be in the amount of € 260,000.00, i.e. (€ 2,600,000.00 * 0,10).

It is verified that the taxpayer achieved the following:

a) The acquiring company and its representative assumes bank financing for payment of commitments assumed by "A" holding the shareholdings of "E";

b) The transformation of the limited partnership into a joint-stock company permitted that, thereby, the capital be denominated in shares and, thereby, substitute an operation subject to tax (alienation of social parts - quotas) for another economically equivalent but not subject to taxation (sale of shares). In other words, there was a non-equivalent tax burden) the act or transaction concluded is subject to a different tax burden from the intended transaction).

Thus it was proven that the taxpayer, through her acts, achieved, on one hand, a certain tax advantage, and on the other, the equivalence of economic effects with those of "normal" acts or legal transactions, which are taxed".

With regard to the intellectual element, the Tax and Customs Authority bases its arguments, at point 3.3.3 of the Tax Inspection Report, as follows: "the alteration of the legal nature of company "E" did not cause any alteration in the business, neither in the structure of the social parts nor in the operational structure. However, taking into account that through the means of substituting an operation subject to tax (alienation of social parts — quotas) for another economically equivalent but not subject to taxation (sale of shares), one concludes that the choice to transmit shares instead of quotas, made by the taxpayer, was motivated by tax reasons, since only these can explain the option followed by the taxpayer".

With regard to the normative element the Tax and Customs Authority bases its arguments, at point 3.3.4 of the Tax Inspection Report, that "the alienation of the shareholding in question, after completion of the alteration of the legal nature of the company, permitted the achievement of a result which, notwithstanding its conformity with the letter of the law is, however, not in conformity with its spirit, with the ratio legis".

- The Claimants did not request binding information on the facts supporting the application of the general anti-abuse clause (see point 2.3.2 of the Tax Inspection Report).

- Claimant "A" was advised by consultants whose opinion and support she requested to adopt the form of a joint-stock company, as this was the type of company that best could adapt to opening to the entry of capital from a plurality of shareholders outside the company, namely entities that sought to apply risk capital and be accorded greater certainty and credibility to financial statements through the intervention of supervisory entities (testimony of witnesses "F" and "O");

- Claimant "A" made contact with potential investors (testimony of witnesses "F" and "O");

- "F", on his own behalf or in representation of the Claimant, established contacts and negotiations with investors, namely:

— "the group "T", Bank "U" and "V", as risk capital investors;

— National investors such as P/Q and a set of foreign investors through their Portuguese intermediaries Doctors R and S" (testimony of witnesses "F" and "S");

- The sale of Claimant "A"'s shareholding became necessary due to the fact that "several hypotheses of association with institutional and/or individual investors to "E" proved unsuccessful" and as a way to ensure satisfaction of the financial liabilities contracted with "T" and with her associate "F" (testimony of witness "F").

- In March 2008, Pharmacy "D" is transferred from … to Shopping Center …, in … (testimony of witness "F");

- In March 2008 agreements are established for the transfer of Pharmacy … to … (testimony of witness "F");

- The relocation of Pharmacy "J" to … was not realized (testimony of witness "F");

- Pharmacies "d" and "j" faced financial difficulties, as a consequence of "unfulfilled expectations of significant increases in funds released by" pharmacies, the "depressive economic climate and perspectives for worsening", the "reduction in operational margins" (testimony of witness "F").

3.2. Unproven Facts

The following facts were considered unproven:

a) Model 22 PIT return declarations demonstrate that Pharmacies "D" and "J" presented increasing results;

b) "H" was dissolved in 2010.

c) The Claimants exercised the prior hearing right on the Tax Inspection Report.

3.3. Basis for the Determination of Factual Matter

The proven facts are based on the documents indicated for each point, whose authenticity and correspondence to reality were not directly or indirectly questioned.

As regards witness evidence, the witnesses indicated appeared to testify with impartiality and with direct knowledge of the facts that, based on their testimony, were established as proven.

The unproven facts were considered as such because no evidence was produced to substantiate them.

4. Legal Matter

4.1. Lack of Reasoning

The Claimants invoke the defect of lack of reasoning, alleging that "the Tax Administration merely lists conclusory statements" (Article 43 of the request for arbitral decision), the reasoning is neither "congruent nor clear" (Article 44 of the request for arbitral decision) and that the Tax Administration merely "asserts without demonstrating or justifying its conclusions" (Article 46 of the request for arbitral decision).

The Tax and Customs Authority counter-argues that the reasoning is sufficient, "as it is considered that the purposes intended with such reasoning have been achieved, namely the comprehension of the content of the act by its recipients and the possibility of their reacting against it" (Article 75 of the Response) and that "its sufficiency [must] be assessed by whether it undermines the possibility of judicial or gracious reaction against it, only needing to be reserved the declaration of such insufficiency with the consequent nullification, when the seriousness is such that to a normal recipient of the act it is difficult or even impossible to assert against it the direct and immediate reasons of fact and/or law that in his view lead to its illegality" (Article 76 of the Response).

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Constituting a basic requirement, arising from the constitutional imperative concerning the guarantees of those administered (Article 268, No. 3 of the CRP), the duty to state reasons for decisions of the Tax Administration is set forth in Article 77 of the LGT and, generically for Public Administration, in Article 125 of the CPA.

It is simultaneously a duty incumbent on the Administration and a right of those administered to know the factual and legal grounds which, within a framework of legality, enable the Administration to negatively affect their legal sphere, with a view to understanding and judicial review of the decision.

In summary, the general duty to state reasons is established according to the following parameters:

- the decision must be subject to express and accessible reasoning, which should express the factual and legal reasons (Article 268, No. 3 of the CRP and 77, No. 1 of the LGT); it must "always contain the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the taxable base and the tax" (Article 77, No. 2 of the LGT);

- it may "be effectuated in summary form" (Article 77, No. 2 of the LGT) and may "consist in a mere declaration of agreement with the grounds of earlier opinions, information or proposals, including those that form part of the tax inspection report" (Article 77, No. 1 of the LGT);

- "the adoption of grounds which, through obscurity, contradiction or insufficiency, do not clearly explain the motivation for the act" amounts to "lack of reasoning" (Article 125, No. 2 of the CPA); that is, the reasoning for the administrative act should be sufficient, clear, congruent and contextual:

— "it is sufficient if, in the context in which the act was performed, it permits a normal recipient to apprehend the cognitive and evaluative path of the decision taken;

— it is clear if it permits understanding, without uncertainties and perplexities, the sense and motivation of that decision;

— it is congruent if it appears as a logical conclusion of the reasons presented.

— it is contextual when it is integrated in the text of the act itself, which includes it or refers to it, or is at least contemporaneous with it".

As jurisprudence has affirmed, "reasoning is a relative concept that varies depending on the legal type of act". Reasoning "aims to respond to the needs for clarification of those administered whereby it should, through it, inform them of the cognitive and evaluative path of the act, permitting them to know the factual and legal reasons that determined its performance and why the decision was made one way and not another".

In this framework, it should be considered that "an act is reasoned whenever the recipient, as a normal person, is duly clarified on the reasons that determined it and is, consequently, able to impugn it conveniently, the reasoning not needing to be exhaustive but accessible".

The relative character of the concept of reasoning becomes more evident in situations where the legislator expressed the necessity of more intense reasoning, as is the case of the procedure for application of the general anti-abuse clause, provided for in Articles 38, No. 2 of the LGT and 63 of the CPPT and which establishes special parameters for reasoning.

Without prejudice to the other formalities provided for in Article 63 of the CPPT, its No. 3 establishes the following:

Article 63 (CPPT)

Application of Anti-Abuse Provision

3 - The reasoning for the draft and the decision to apply the anti-abuse provision referred to in No. 1 necessarily contains:

a) The description of the legal transaction concluded or the legal act performed and the transactions or acts with the same economic purpose, as well as the indication of the tax rules that apply to them;

b) The demonstration that the conclusion of the legal transaction or performance of the legal act was essentially or primarily directed to the reduction, elimination or temporal deferral of taxes that would be due in the case of a transaction or act with the same economic purpose, or to obtaining tax advantages.

The special necessity for these elements is understood and is in keeping with the essential aspects of the general anti-abuse clause, provided for in Article 38, No. 2 of the LGT:

Article 38 (LGT)

Ineffectiveness of Legal Acts and Transactions

2 – Legal acts or transactions that are essentially or primarily directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or legal transactions with the same economic purpose, or to obtaining tax advantages that would not be achieved, wholly or partly, without using such means, are ineffective for tax purposes, with taxation then being effected in accordance with the rules that would apply in their absence and the aforementioned tax advantages not resulting.

*

Sub iudice, it is noted that the Tax Inspection Report contains an extensive list of facts (factual grounds) which the Tax and Customs Authority deemed relevant, as well as the legal grounds connected to them and required under Article 63, No. 3 of the CPPT. The exposition of the factual and legal grounds makes the cognitive and evaluative path of the decision taken perceptible.

The terms in which the Claimants presented the request for arbitral decision further demonstrate how the reasoning is sufficiently clear and enables understanding of the sense and motivation of the decision.

The reasoning particularly contains the description required by Article 63, No. 3, paragraph a) of the CPPT (see points 3.3.1 and 3.3.2 of the Tax Inspection Report) and the demonstration required by paragraph b) of the same article (see points 3.1.9, 3.3.1-3 of the Tax Inspection Report). Whether the reasoning contains the description and demonstration required by that article and whether these are substantive and sufficient to support the decision are separate questions.

Accordingly, without prejudice to the material and concrete analysis of the grounds, it is concluded that the decision does not suffer from the defect of lack of reasoning.

4.2. Burden of Proof

The Claimants allege that "the Tax Administration violated [...] the provision of Article 74, No. 1" of the LGT (Article 76 of the request for arbitral decision), that it did not comply with the provision of Article 63, No. 3 of the CPPT (Articles 69-70 of the request for arbitral decision) and that "it is incumbent upon the Administration to provide complete proof of the constituent elements of the right to apply the CGAA, not being [...] sufficient to merely invoke fulfillment of the requirements upon which its application depends, and it must always necessarily prove them" (Article 71 of the request for arbitral decision). The Claimants link the issue of burden of proof with that of lack of reasoning and non-compliance with Article 63, No. 3 of the CPPT.

*

Rules governing the distribution of burden of proof are rules that come into operation at a later moment, verified the insufficiency of proof of the facts and the non-conviction of the judge. These rules dictate, at that time, that the issue is to be decided against the party on whom the burden of proof lay. These translate into non liquet rules that are truly only invoked at the end, despite influencing the conduct of the parties from the beginning and throughout the process.

The tax legislator establishes, in Article 74, No. 1 of the LGT, a criterion for generic distribution of burden of proof (objective), which constitutes a transposition of the rule provided for in Article 342, No. 1 of the Civil Code, whereby the burden of proof of facts constituting one's rights rests on whoever invokes them.

Thus, the Tax Administration bears the burden of proof of facts constituting the right to tax and the taxpayer the burden of proof of modifying and preventing facts. However, as Marques emphasizes, it falls to both "not only to allege, but especially to produce evidence that creates conditions for conviction favorable to their claim".

To this rule is added, already in the procedural sphere, the provision of Article 100, No. 1 of the CPPT: "whenever the evidence produced results in well-founded doubt about the existence and quantification of the tax fact, the impugned act shall be annulled". This rule represents the consequence of non-compliance with the burden of proof in tax procedure, materializing the principle in dubio contra fiscum, and although provided for in the context of tax procedure, it "should be taken into account by the Tax Administration when assessing evidence in the tax procedure".

However, the traditional teachings related to the subject of burden of proof in civil law cannot be simply imported into tax law. These must be tempered by the duty to act and inquire impartially, which falls to the Tax Administration (principle of legality, inquisitorial and impartiality), and by the duty to cooperate reciprocally, which falls to both subjects of the tax legal relationship, oriented toward the discovery of material truth (principle of reciprocal cooperation, good faith and fair distribution of tax burdens).

The principles of legality, inquisitorial and impartiality require, in particular, that the Tax Administration not ignore and, moreover, carry into the procedure or process all relevant facts, whether these are constitutive, modifying or extinctive of the right it invokes. From these principles emerges, in the first place, the duty of proof incumbent on the Tax Administration. The rule provided for in Article 74 of the LGT is better understood, therefore, in the light of and in conjunction with Article 100 of the CPPT.

The principles of reciprocal cooperation and good faith, provided for in Article 48 of the CPPT, require that the taxpayer clarify "completely and truthfully the facts of which it has knowledge and offering the means of proof to which it has access". It will always fall to the taxpayer to cooperate with the Tax Administration and, in the contentious phase, with the Court, "presenting all means of proof that permit concluding that the tax fact does not exist, or that, if it does exist, the same was incorrectly quantified or qualified".

In the teaching of Gomes Canotilho, the specificity of tax law, in which a privatization of the tax legal relationship has been observed, thus fundamentally altering the type of activity of the Tax Administration, which taxes mainly based on facts declared to it, implies that we should consider, beyond duties of cooperation and collaboration, also duties (and not mere rights) of participation, independently of the duty to inquire incumbent on the Tax Administration. The right (or duty) of participation of those interested "presents itself as a fundamental element [of the Rule of Law] in complex procedures that deal with high degrees of uncertainty", as is the case of the procedure for application of the general anti-abuse clause.

All these particularities lead to the conclusion that the probative dynamics, in tax law, cannot be simply reduced to formulas such as: to one subject the burden of proof of constitutive facts and to another of modifying and extinctive facts. That formula assumes relevance as a non liquet rule.

*

In summary, the allegation of the Claimants, focusing on lack of reasoning and non-compliance with the legal requirements provided for in the paragraphs of Article 63, No. 3 of the CPPT, is not, strictly speaking, a matter related to burden of proof.

The possible non-compliance with those provisions results, not in the application of rules for distribution of burden of proof, but rather in violation of the principle of legality, provided for in Article 266, No. 2 of the CRP and 55 of the LGT. A principle which, strictly considered, ensures that "the organs and agents of the Administration may only act on the basis of law and within the limits imposed by it".

The rules for distribution of burden of proof provided for in Articles 74 of the LGT and 100 of the CPPT, as non liquet rules, shall be applied only at the end and as a result of well-founded doubt that does not result from the probative inertia of either party, "and should result only from the fact that the evidence produced results in an insuperable doubt that does not permit deciding the case in favor of either party".

Having addressed above the issue of lack of reasoning, concluding by the sufficiency of that reasoning, the exercise that becomes immediately pertinent is that of assessment of evidence, namely within the framework of the requirements provided for in Article 63, No. 3 of the CPPT.

4.3. Verification of the Prerequisites for Application of the General Anti-Abuse Clause

4.3.1. Legitimate and Illegitimate Tax Planning

In the definitions elaborated by Saldanha Sanches: legitimate tax planning "consists of a technique of reducing tax burden whereby the taxpayer renounces a certain conduct for this being linked to a tax obligation or chooses, among the various solutions provided by the legal system, the one that, through intentional action or omission of the tax legislator, is accompanied by lesser tax burdens"; while illegitimate tax planning "consists of any conduct for improper reduction, by contravening principles or rules of the tax legal system, of the tax burdens of a given taxpayer".

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

When acting contrary to law, his conduct is frontal and unequivocally unlawful, as it directly violates the tax law, and constitutes tax fraud susceptible, inclusive, to being subject to administrative offense or criminal censure.

Acting outside the law occurs when the taxpayer abusively exploits the law to achieve a more favorable tax result, albeit without directly violating it. It adopts "conduct which has as its exclusive or principal purpose contravening one or more tax legal rules, so as to achieve the reduction or suppression of the tax burden". From such rule or rules a clear intention to tax asserted by the structural principles of the system should be detected. This type of conduct is commonly designated as "tax fraud" but, as Saldanha Sanches cautions, seeking to better illustrate and distinguish these situations from those of tax fraud, also designated as "abusive avoidance of tax burdens", "abusive tax avoidance" or "tax evasion".

Only conduct within the law appears legitimate – and thus legitimate tax planning or non-abusive – to achieve a tax saving does not constitute conduct prohibited by law, as long as the conduct does not fall within the aforementioned conduct outside the law.

Sub iudice, briefly, the Claimants contest that the transformation of a limited partnership into a joint-stock company constitutes abusive tax planning, considering that the legal transaction is part of a structure of acts and transactions aimed at the expansion of their activity, understanding that the capital structure and organizational arrangement of joint-stock companies appears more suitable to promote the company's growth; conduct which the Tax and Customs Authority understands to constitute abusive tax planning, in that, through that transformation into a joint-stock company, which it considers unnecessary and fiscally motivated, and subsequent sale of shares (rather than quotas), the Claimants avoid taxation of capital gains under PIT.

Thus, the issue posed to this tribunal, following the procedure for application of the general anti-abuse clause — one of the legal mechanisms the legislator uses to respond to abusive tax planning conduct — is 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.

4.3.2. Elements of the General Anti-Abuse Clause

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

The wording set forth by Law No. 30-G/2000, of 29 December, became the following:

"Legal acts or transactions that are essentially or primarily directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or legal transactions with the same economic purpose, or to obtaining tax advantages that would not be achieved, wholly or partly, without using such means, are ineffective for tax purposes, with taxation then being effected in accordance with the rules that would apply in their absence and the aforementioned tax advantages not resulting."

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

Doctrine and jurisprudence have proceeded to deconstruct the wording of the rule by pointing to five elements present in it. Corresponding to one of the elements the statutory provision, the remaining four appear to be cumulative requirements that permit assessing – as if it were a test – the verification of an activity characterizable as abusive tax planning.

These elements, around which both parties actually structure their argument, consist of:

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

– the result element, which concerns the achievement 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 primarily directed [...] to the reduction, elimination or temporal deferral of taxes" (Article 38, No. 2 of the LGT), that is, which requires not merely the verification of a tax advantage, but rather assessment, objectively, whether the taxpayer "intends an act, a transaction or a given structure, only or essentially, because of the prevailing tax advantages they provide";

– the normative element, which "has as its primary function distinguishing cases of tax evasion from cases of legitimate tax savings, in consideration of the principles of Tax Law, being that only in cases where an intention contrary to law or not legitimizing the result obtained is demonstrated can one speak of the latter";

– 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 transactions deemed abusive, "with taxation then being effected in accordance with the rules applicable in their absence and the aforementioned tax advantages not resulting" (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", whereby these "will not infrequently [...] assist one another".

Let us assess, having this aspect in mind, the elements of the general anti-abuse clause in view of the basis of the decision, the proven facts, and the legal arguments of the parties.

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

- the sale of shareholdings is preceded by company transformation which did not result from the need to adjust its legal nature to any alteration "neither in the structure of the social parts nor operational";

- "the transformation of the limited partnership into a joint-stock company permitted the capital to be denominated in shares and, thereby, substitute an operation subject to tax (alienation of social parts - quotas) for another economically equivalent but not subject to taxation (sale of shares)".

- "the choice to transmit shares rather than quotas, made by the taxpayer, was motivated by tax reasons, since only these can explain the option followed by the taxpayer";

- "the alienation of the shareholding in question, after completion of the alteration of the legal nature of the company, permitted the achievement of a result which, notwithstanding its conformity with the letter of the law, is, however, not in conformity with its spirit, with the ratio legis";

The Claimants counter-argue, in summary, that:

- the Tax Administration "did not demonstrate the interdependence" of the acts or transactions and there is "no relationship of interdependence";

- at the time of the company transformation there was no intention exclusively or predominantly to carry out an alienation with tax advantage;

- there is an economic motivation for the acts and transactions described by the Tax Administration;

- the advantage obtained is not contrary to the ratio legis, on the contrary, is part of a legislative framework tending toward the adoption of the joint-stock company model;

4.3.2.1. Result Element

Comparing in an isolated and objective manner the legal transactions of the transformation of the company into a joint-stock company and the subsequent sale of shares (acts or legal transactions performed) and the possible maintenance of the company as a limited partnership and the subsequent sale of quotas (equivalent acts or transactions or with the same economic purpose), it is unequivocal that the first situation benefits from a more advantageous legal tax regime than the second, in that, while the first is not subject to taxation, pursuant to Article 10, No. 2 of the PIT Code, in the wording of Decree-Law No. 228/2002, of 31 October, the second is considered a capital gain, pursuant to Article 10, No. 1, paragraph b) of the PIT Code, taxed at a rate of 10%, pursuant to Article 72, No. 4 of the PIT Code, in the wording of Decree-Law No. 192/2005, of 7 November.

4.3.2.2. Means and Intellectual Elements

Although the aforementioned determination suffices to fulfill that requirement, its fulfillment is, in itself, irrelevant to the application of the general anti-abuse clause, in light of the structure of acts and legal transactions performed: "in no case will an advantage or tax benefit alone indicate any idea of legal abuse".

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 appear in a global architecture, planned, composed of preparatory and complementary acts or transactions, beyond the act or transaction that is objectively censured, insofar as only through complete vision can the evasive design be detected.

*

As prior aspects, the Claimants allege that "the special rigor to which the legislator subjects the proof of each and every requirement for applicability of the CGAA removes from the outset any value from a simple inference or presumption" (Article 86 of the request for arbitral decision).

The legislator requires that the reasoning be denser and contain certain elements. However, this does not mean an abnormal intensity of proof or the inadmissibility of evidence by presumption. Because the proof concerns facts related to the most intimate sphere of the taxpayer — their conviction — the non-admission of evidence by presumption would result in a diabolic proof for the Tax Administration.

As Courinha stresses, "the proof of tax motivation in these General Clauses is made, as we have seen, using facts or elements of evidence that permit the interpreter (e.g. judge) to extract, with reasonable certainty and according to criteria of reasonableness and normalcy, the conclusion that the taxpayer assigned a preponderantly fiscal purpose to the forms adopted. (...) The objective data collected and present to the interpreter must therefore permit him to withdraw, directly or if necessary through inferences or judicial presumptions, the conclusion on whether or not the motivational element is verified, despite the possibility, always safeguarded, of demonstration by the taxpayer of the existence of a decisive non-fiscal motivation within the framework of the act or transaction".

The Claimants further allege that the Tax and Customs Authority did not adequately comply with the provision of Article 63, No. 3, of the CPPT, understanding that it merely "indicated a set of individualizable acts, including some of imperceptible relevance to the discussion at hand, without any analysis of interconnection between them that justifies their consideration together" (Article 79 of the request for arbitral decision), "pointing to a sequence of acts [...] to thereby conclude, without more, that given the difference in the tax regime of capital gains one must accept their interdependence" (Article 85 of the request for arbitral decision).

In light of what is expressed in the Tax Inspection Report, particularly in points 3.1.6 to 3.1.9, there is no absence of analysis of interconnection between the acts or that their relevance be imperceptible.

*

With regard to fulfillment of the prerequisites for application of the general anti-abuse clause relating to the means and intellectual elements, the Claimants allege there are reasons that go beyond merely fiscal ones to justify the implementation of the operations in question.

The Tax and Customs Authority considers, in the basis of the Tax Inspection Report, that the objective of strengthening the financial structure expressed in the justification report for the transformation is "implausible" in light of the facts and considerations expressed in point 3.1.9 of the Tax Inspection Report.

However, the "entry of new shareholders with quota of residual value" to "comply with the requirements of the minimum number of shareholders", remaining "the previous shareholder in the holding of the overwhelming majority of subscribed share capital, i.e. 99.976%", does not alone render that objective implausible. It is a formal requirement and it is not uncommon for original constitution of joint-stock companies with shareholders with identically residual participation.

This is not, at least in the situation in litigation, a matter that can be assessed through a test of plausibility exclusively centered at that moment.

Plausibility is intimately related to the so-called maxims of experience and involves making a presumptive inference based on what can objectively be considered normal or frequent. This "appears a priori and in abstract in the judge's conviction", whereby "one is not yet in the domain of evidence, but only in the field of factual assertion, whose existence appears plausible if it corresponds to normalcy".

Because the desired financial strengthening may arise at a later moment, not requiring that this be contemporaneous with the company transformation, one cannot infer that such strengthening will not exist based solely on the finding that the (new) shareholders have merely residual participation. It cannot be considered normal or frequent, with the weight of a maxim of experience, that the existence of shareholders with merely residual participation does not result in financial strengthening, when that is the objective.

As results from the witness evidence produced, Claimant "A" had serious financial difficulties from 2008 and had financial liabilities to "T", which she sought to resolve through the entry of new investors in the company's capital, with the transformation of company "E" into a joint-stock company effected because this corporate form was more suitable for opening to the entry of capital from a plurality of shareholders outside the company, namely entities seeking to apply risk capital. This is, moreover, a perfectly plausible economic justification, as the regulatory regime of the activity of joint-stock companies, which includes examination of accounts by statutory auditor (Articles 278, Nos. 1, 2 and 3, and 446 of the Commercial Societies Code) will be more credible than that of limited partnerships. And, being greater the certainty and credibility accorded to the financial statements of joint-stock companies through the intervention of qualified supervisory entities, it is understandable that it is easier to convince strangers to invest in joint-stock companies than in limited partnerships.

On the other hand, as also results from the evidence produced, the subsequent sale of Claimant "A"'s shareholding became necessary due to the fact that "several hypotheses of association with institutional and/or individual investors to "E" proved unsuccessful" and as a way to obtain the funds necessary to ensure satisfaction of the financial liabilities she had contracted with "T" and with her associate "F".

Thus, the evidence produced clearly points to the fact that the transformation of the company into an anonymous company did not have as its objective the achievement of tax advantage, in particular with regard to taxation of capital gains, in the alienation of Claimant "A"'s shareholding. At the very least, the evidence produced permits concluding with certainty that, if that were an objective, it would not be the sole or principal objective of the said transformation, which sought instead to facilitate the achievement of investment by entities outside the company.

In any case, even if one did not consider it proven that the purpose of the transformation had been exclusively nor primarily of a fiscal nature, one would always have to remain in a situation of doubt about the objective sought by the transformation, doubt which, by force of the provision of No. 1 of Article 100 of the CPPT, would have to be procedurally valued in favor of the Claimants and not against them, which has the same practical effects as positive proof that the objective pursued was not of a fiscal nature.

Thus, it must be concluded that one of the prerequisites for application of the general anti-abuse clause is not met, which is that the act or transaction be essentially or primarily directed to the reduction, elimination or temporal deferral of taxes that would be due if it were not performed.

4.3.2.3. Normative Element

In this respect, the Tax and Customs Authority merely states (point 3.3.4 of the Tax Inspection Report) that "the alienation of the shareholding in question, after completion of the alteration of the legal nature of the company, permitted the achievement of a result which, notwithstanding its conformity with the letter of the law, is, however, not in conformity with its spirit, with the ratio legis", linking the matter, vaguely, to "taxation according to ability to pay".

The legislator is not particularly demanding as regards the basis for this aspect concerning normative-systemic disapproval of the advantage obtained; however, doctrine has considered this to be fundamental in the distinction between legitimate and illegitimate planning.

In the words of Saldanha Sanches, it is "necessary [to] find, in the tax legal system and as a condition sine qua non of application of the anti-abuse clause, unequivocal signs of an intention to tax [...], first, because abusive tax evasion cannot be confused with the taxpayer's permanent attempt to reduce their taxation or to carefully weigh – non-abusive tax planning – the consequences of tax law in their business or personal activity [...], second, because in that permanent effort to reduce the tax burden we may find the taxpayer's exploitation of what we may characterize as deliberate – just or not, is another matter – omissions of the tax legislator and, if that occurred, the task cannot be attributed to the law's applicator that falls primarily to the legislator". With effect, he emphasizes, an "unequivocal intention to tax" should be extractable, whereby, contrary to what is alleged by the Tax and Customs Authority, it is not enough "to have a gap or a less clear provision" (Article 136 of the Response).

This author even gives, as an example of "conscious gap in taxation", the situation that is here the subject of application of the general anti-abuse clause (the transformation of a limited partnership into a joint-stock company and the subsequent sale of shares), emphasizing that "if the legislator, while taxing capital gains on the alienation of quotas, leaves untaxed the capital gains on shares or taxed them at a reduced rate, one cannot fail to accept fiscally the transformation of a commercial company into a joint-stock company even if the transformation is motivated by exclusively fiscal reasons".

In fact, "even if the transformation [were] motivated by exclusively fiscal reasons", it is the legislator who opts, expressly, to tax the sale of quotas 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 provision several times reviewed and considered.

In truth, in the initial wording of the PIT Code, taxation in PIT was already provided for capital gains obtained from "the onerous alienation of social parts" [Article 10, No. 1, paragraph b), in the wording of Decree-Law No. 442-A/88, of 30 November], but capital gains from the alienation of "shares held by the holder for more than 24 months" were excluded [Article 10, No. 2, paragraph c)], a temporal limit which had the evident objective to remove the exclusion from taxation with respect to capital gains which, in the concept then prevailing, were considered speculative.

This regulation was complemented with that in the Special Tax Benefit Statute, in its initial wording, given by Decree-Law No. 215/89, of 1 July, which established the following

Article 35 (Special Tax Benefit Statute)

Transformation of Limited Partnerships into Joint-Stock Companies

For purposes of No. 1 of Article 5 of Decree-Law No. 442-A/88, of 30 November, paragraph c) of No. 2 of Article 10 of the PIT Code and Article 34 of this Statute, the acquisition date of shares resulting from the transformation of limited partnerships into joint-stock companies is considered to be the acquisition date of the quotas from which they originated.

This provision, which aimed at the transitional regime, was supplemented with an identical provision of permanent application, which was in Article 18, No. 5, paragraph a), of the Special Tax Benefit Statute.

These two provisions evidence the enormous