Anti-Abuse Clause (CGAA) Applied to SGPS Holding Company IRS Withholding Tax on Dividends vs Capital Contributions

ARBITRAL DECISION

Process No. 32/2015-T

The arbitrators Judge José Poças Falcão (arbitrator-president), Professor Doctor Manuel Pires and Professor Doctor António Martins (arbitrator-members), integrating this Arbitral Tribunal by designation of the parties [articles 6º-2/b), 10º-2/g) and 11º-2, of RJAT] and, as to the president, by agreement of the arbitrator-members communicated in due time to CAAD, agree as follows:

I – Report

A..., SGPS, SA, legal entity no. …, with registered office at Av. …, …, …-… …, submitted, under the provisions of RJAT, a request for arbitral pronouncement on the legality of the acts of assessment of withholding tax on personal income tax (IRS) nos. 2014 …, 2014 … and 2014 … (in the total amount of € 4,645,650.00) and assessment of compensatory interest nos. 2014 … to 2014 … and 2014 … to 2014 … (in the total amount of € 361,778.64), relating to the tax years 2011, 2012 and 2013, from which resulted a total amount payable of € 5,007,428.64 (Doc 1, attached to the application) and likewise on the legality of the dispatch of 30-12-2014, notified to the Applicant on 8-1-2015, which dismissed the administrative complaint duly submitted (Docs 3 and 4, attached to the initial application).

The Applicant alleges, in summary and in substance, that the Tax Authority (AT) based the taxation on the disregard (despite its legal validity) for tax purposes of acts or legal transactions embodied in (i) the incorporation of the Applicant, (ii) the performance of ancillary contributions for its benefit by the respective individual shareholders, (iii) the onerous transfer to the Applicant of the shares representing the share capital of B..., SGPS, SA of which the same shareholders were holders and (iv) the partial restitution of the mentioned ancillary contributions.

Thus, the AT treated the aforementioned ancillary contributions restituted by Applicant A... as dividends distributed by B..., SGPS to the respective original shareholders, so that the AT's procedure was the corresponding non-consideration of the transfer of B... shares to A... and considering, by contrast, that a distribution of dividends from B... SGPS had occurred following the alienation of the most significant asset of B... SGPS, Bank C....

Lack of Standing of A... in the Procedure

The Applicant A... considers that the general anti-abuse clause (CGAA) was wrongly applied to the facts that actually took place and that the AT unlawfully disregarded for tax purposes and, furthermore, there would remain illegality of the cited tax acts due to lack of standing of A... in the procedure, as this was never the beneficiary of the advantages that the AT considered illegitimate since, in the AT's view, it was the shareholders of A... who wished to receive dividends (subject to IRS) under the guise of restitutions of ancillary contributions (not subject to IRS). Maintaining the taxation of A... in these circumstances would be endorsing the violation of the principle of contributory capacity.

Defect in the Reasoning of the Decision Applying CGAA and Error as to the Factual Premises

The Applicant further alleges that the burden of reasoning [article 63º/3-a) and b), of CPPT] to which the AT was obligated was not fulfilled, particularly at the level of the description of the legal transaction concluded or of acts of identical economic purpose, as well as the indication of the rules of incidence that apply to them and the demonstration that the conclusion of the legal transaction or practice of the legal act was essential or principally directed to the reduction, elimination or temporal deferral of taxes that would be due in case of transaction or act with identical economic purpose, or to the obtaining of tax advantages.

Economic Rationale Underlying the Practice of Acts or Legal Transactions at Issue in the Case

The Applicant further alleges that, were it not for the impugned acts being illegal by reason of the aforementioned lack of standing of the Applicant and the defect in reasoning invoked, the illegality would nevertheless be verified since the situation constitutes a typical case located outside the perimeter of application of CGAA and not censurable through it. And this because, in conclusive summary, the underlying operations always pursued genuine legitimate business objectives and economic grounds normally achievable by comparable economic agents in comparable situations, as exhaustively explained (arts 287º et seq., of the application/request for arbitral pronouncement).

Absence of Acts or Legal Transactions Directed by Artificial or Fraudulent Means and with Abuse of Legal Forms

Beyond the grounds previously set out, the Applicant considers that the aforementioned operations, in addition to business and economic justification, do not allow one to discern fraudulent acts or acts carried out with abuse of forms (cf articles 342º et seq., of the application/pronouncement)

Unconstitutionality of the AT's Interpretation of CGAA in the Concrete Case

The Applicant A... further alleges that interpreted in the manner the AT did, the norm of article 38º-2, of LGT, violates the principle of fiscal legality, in particular in its dimension of the principle of typicality provided for in articles 103º-2, 104º and 165º-1/i), of the Constitution and would also violate the principles of economic freedom and legal certainty, in its expression of the principle of protection of legitimate expectations inherent in the idea of a democratic State of Law, provided for in articles 61º and 2º, of the Constitution.

Each of the parties proceeded to appoint arbitrators and these, by agreement, appointed the president of the Tribunal

In accordance with the provision of subsection c) of article 1 of article 11 of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 16-4-2015.

The Tax Authority and Customs Authority (AT) submitted its response in due time, defending the position previously taken in the inspection report that led to the act of assessment now being challenged and, consequently, the total lack of merit of the request for arbitral pronouncement.

On 12-08-2015 an opinion subscribed by the ROC and auditor, D…, SROC, SA was submitted by the Applicant and admitted by the Tribunal.

On 11-09-2015 the AT submitted to the case proceedings an opinion from the Tax Inspection Division II (DIT-2), which was equally admitted by tribunal resolution of 16-09-2015.

On 16-09-2015, the meeting provided for in article 18 of RJAT took place, followed by the production of testimonial evidence, after which, in accordance with the terms agreed by the parties and accepted by the Tribunal, a deadline was set for submission of final written arguments, all in accordance with the respective minutes.

Both Parties submitted arguments with conclusions essentially identical to those formulated in their respective pleadings.

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

The parties possess judicial personality and capacity and are legitimate (arts. 4 and 10, no. 2, of the same statute and art. 1 of Ordinance no. 112-A/2011, of 22 March).

The proceeding does not suffer from nullities and no questions have been raised that could prevent the examination of the merits of the case.

II – Reasoning

The Facts

a) Proven Facts

Having analyzed the pleadings, the administrative instruction process and the other documents attached in critical conjunction with the testimonial evidence produced, the following facts are considered proven:

1. Factuality relating to the corporate transactions carried out

• B..., SGPS, SA (hereinafter to be referred to briefly as "B...") was incorporated on 20.04.1988, with capital of € 57,500,000.00, divided into 11,500,000 shares of 5 euros each, with the object of management of equity interests in other companies as an indirect means of exercising economic activities;

• This company was integrated in the "E… Group", its principal asset being the direct and indirect holding of 74.12% in Bank C...;

• Until 2006, its shareholders were F…, with 74.37%, his wife and two of three children, G… and H…, with 3.15% each;

• In 2006, the E… Group underwent a restructuring, by virtue of the separation of the financial and real estate areas from the industrial and commercial areas. The equity interests of companies in the financial and real estate area were concentrated in B... and those of the industrial and commercial area in I…, SGPS, SA;

• Beyond this division by areas, four additional companies managing equity interests were introduced between B..., I… SGPS, SA and the shareholders;

• One of these companies managing equity interests assumed the designation of A..., SGPS, SA, the applicant herein;

• In December 2006, the onerous transfer to A… took place, effected by F… and his wife, of 8,914,420 shares of B... for the total amount of € 199,838,057.01;

• A… promoted, on 11 December 2006, an increase of its respective share capital, in cash, from € 10,000.00 to € 100,000,000.00, on the one hand, and the performance by the shareholders (F… and his wife) of ancillary contributions, in the regime of supplementary contributions, in the amount of € 99,847,975.27, on the other hand, also in cash.

• As to the ancillary contributions, Minutes no. 5 of the shareholders' meeting of A... contains the following:

"…it was verified that there was a need for the company to proceed with the strengthening of its own capital, taking into consideration the financial investments effected. Consequently, it was deliberated, by unanimity, to establish supplementary capital contributions in the total amount of ninety-nine million eight hundred forty-seven thousand nine hundred seventy-five euros and twenty-seven cents, to be made under the following conditions:

a) Delivery by shareholder Mr. F… of fifty-nine million nine hundred eight thousand seven hundred eighty-five euros and sixteen cents in cash, corresponding to the proportion of his participation in the company's capital;

b) Delivery by shareholder Mrs. D. J… of thirty-nine million nine hundred thirty-nine thousand one hundred ninety euros and eleven cents in cash, corresponding to the proportion of her participation in the company's capital;

c) The supplementary capital contributions shall be subject to the regime embodied in nos. 2 and 5 of article 210 and nos. 1 to 3 of article 213 both of the Commercial Companies Code;

d) Reimbursement of the supplementary capital contributions shall be subject to prior authorization from the Bank of Portugal.

The conditions provided for in subsections c) and d) of the present resolution were taken within the scope of and in compliance with the requirements indicated in the letter from the Bank of Portugal, reference …/…/DSBRE, Process number …/…, dated 2006/11/11, concerning the restructuring of the E… Group";

• As a result of this restructuring, B..., which was the Holding of the E… Group, held directly by F… and family, came to be held indirectly, by interposition of A..., SGPS, Ltd., which was the Company Managing Equity Interests constituted for that purpose;

• I…, SGPS, SA, sub-holding of the E… Group which held, essentially, equity interests in the commercial and industrial area, as a result of this restructuring came to be held by the companies K… SGPS, Ltd., L…, SGPS, Ltd. and M…, SGPS, Ltd., each of these companies coming to hold a quota of 33.3(3)% in I…, SGPS, SA.

• The structure that was in force until 2005 and the new structure of the E… Group following the restructuring are schematized as follows:

[diagram]

• A... reduced its participation in B... from 77.52% to 71.53%, by means of the alienation of shares of B... to K… SGPS, L… SGPS and M… SGPS;

• A capital increase of C... was promoted in the amount of € 75,000,000.00 (in June 2009), which resulted in a reduction of B...'s participation in that company from 67% to 58% and the increase of registered minority interests;

• Until 29 November 2010 the asset with the greatest expression in B...'s accounts was the 58% participation it held in C...;

• The following figure shows the structure of the top of the E… Group before the sale of C...:

[diagram]

• The purchase proposal resulting from the public acquisition offer launched by O…, coupled with the fact that F… died in November 2009 and was no longer in charge of the destinies of C…, led the family … to consider the sale of the bank;

• On 29 November 2010, as a consequence of the public acquisition offer launched by O…, I.P.S.S., B... alienated the totality of the capital it held in C…1 – Holding, SGPS, SA, for the amount of € 198,042,450.40. With the sale of this participation resulted in a capital gain in the amount of € 69,104,594.12.

• The Report and Accounts of A... for 2010 contains the following:

"In the year 2010, B... SGPS proceeded to alienate the totality of the participation it held in the capital of C…1 Holding SGPS, for the amount of € 198,042,450.40, thus obtaining a capital gain of € 69,104,594.12.

The evolution of the Portuguese economy in general and the financial problems arising therefrom led to a difficult operating situation in the generality of Portuguese banks, especially those which – like C…, SA, the principal asset of C…1 Holding – were in a phase of growth.

Thus, it was decided to accept the acquisition proposal directed by O… to all shareholders of C..1 Holding, at the unit price per share of €1.95, allowing all shareholders who had participated in the operations of dispersion or capital increase to obtain positive results, a remarkable situation in the face of the indisputable crisis of the financial sector in developed countries and particularly in Portugal, which caused abrupt devaluations in the quotations of companies in that sector".

• On 2 December 2010, as a result of the alienation of C…, € 198,042,450.40 entered into B...'s bank accounts;

• The restitution of ancillary contributions to the undivided estate of F… in the amount of € 10,000,000.00 was deliberated in 2010; it was also deliberated, in December 2011, a new restitution of ancillary contributions to the same estate, in the amount of € 10,000,000.00;

• Following this resolution, in 2011, 2012 and 2013, ancillary/supplementary contributions were returned by A... in the amount of € 20,000,000.00 to the Undivided Estate of Mr. F….

• These restitutions of ancillary contributions, which follow the regime of supplementary contributions, were authorized by the Shareholders' General Meeting, on the dates indicated below:

Minutes number nineteen of 4 November 2011, which authorizes the restitution of € 10,000,000.00;

Minutes number twenty of 9 December 2011, which authorizes the restitution of € 10,000,000.00;

• The following figure shows the structure of the top of the E… Group after the sale of C…

[diagram]

• On 6 April 2011, Q… acquired the totality of B...'s capital, from A... for the amount of € 159,850,000.00;

• The following figure shows the top of the E… Group structure following the purchase of B... by Q…:

[diagram]

• Q… was incorporated on 20 October 2009 and had until 28 February 2011 as its corporate purpose "the exercise of the civil construction industry, public and private works contracts, urban developments, conception, construction and exploitation of tourist and real estate ventures, the buying and selling of rural and urban real estate and the resale of those acquired for that purpose";

• On 28 February 2011 Q… transformed itself into a company managing equity interests;

• On 22 July 2011, the merger by incorporation of B..., SGPS, SA into Q…1, SGPS, Ltd. took place. The following figure shows the top of the E… Group structure after the merger of B..., SGPS, SA into Q…:

[diagrams]

1. Framework of the transactions in the Tax Inspection Report (RIT)

• The assessments challenged by the applicant result from the conclusions of the Inspection Report, whose summary is described below:

"The intrinsic logic in the set of acts practiced, with fiscal purposes, although the acts or transactions are chronologically non-coincident, culminated in the legal assembly of a scheme with the objective described below. Transformation of a financial flow which, without the alienation operation described, and the use of A…, would reach the shareholders in the form of a dividend and would be income subject to IRS. However, with the operations carried out, that financial flow reaches the shareholders in the form of reimbursement of credit, which is not considered income for IRS purposes, enabling the untaxed transfer of the proceeds of the sale of C…."(...) "We can thus say that we are in the presence of a structure, as a set of sequential, logical and planned acts or transactions, organized in a unitary manner (linked), with a view to achieving the intended fiscal objective, also ensuring the intended economic effect, the receipt by the shareholders of the proceeds of the sale of C…. Similarly, we verify that the structuring of the transaction, in addition to being directed to obtaining the mentioned fiscal advantage, was also and simultaneously endowed with an anomalous and artificial form, in consideration of the economic purposes sought by the taxpayer, notwithstanding that the acts and legal transactions that comprise this structure are, in themselves, valid and lawful, and that they corresponded to the actual will of the taxpayer".

"Thus, from the analysis of the acts inherent to the transaction practiced, it is evident that, moving away from the logic of normal business and market management, it appears that they were, essential or principally, directed to the result which is the fiscal advantage. For which it could be said that the means element is concretized in the acts/transactions carried out in the following chronological order:

1st Incorporation of A…

2nd Sale of shares of B... to A…

3rd The product/result of the sale was retained in the company by the establishment of a right to receive ancillary contributions from A…

4th Sale of the principal asset of B... and large positive results are generated;

5th Loan from B... to A…;

6th Restitution of supplementary contributions by A... to the shareholders;

7th Sale of B..., followed by its incorporation into the purchasing company, to eliminate the loan balance to A…";

"For which, no economic reasons are glimpsed for the introduction of A…, except the establishment of a credit in favor of the shareholders so that they can withdraw results from the group without any taxation. This happens in 2008, with the restitution to the shareholders of the results generated by the group's restructuring, and happens again in 2011, 2012 and 2013, with the restitution of the results generated by the sale of C….";

"In the case under analysis, the act with economic purpose identical to the sale of shares of B... by Mr. F… and spouse to A…, was that the shares of B... would have remained in the sphere of the couple and, when results were generated in B..., these would be distributed to the shareholders as dividends and taxed as income of category E."

"Having proven the presuppositions of application of CGAA provided for in no. 2 of art. 38 of LGT, it falls to the Tax Administration to consider ineffective within the tax scope, the transformation of distribution of results generated in B..., into restitution of ancillary contributions, through the sale of shares of B... to A…."

"That is, the amounts paid by company A…, in the amount of 20 million euros should be taxed at the moment they were placed at the disposal of the shareholders by way of distribution of results. For which they will be taxed as capital income – Category E."

"It falls to the Tax Administration to consider ineffective within the tax scope, the transformation of distribution of results generated in B..., into restitution of ancillary contributions with characteristics of supplementary contributions, through the sale of shares of B... to A…. That is, the amounts paid by company A…, in the amount of 20 million euros should be taxed at the moment they were actually placed at the disposal of the shareholders by way of distribution of results.";

"These incomes are classified as capital income – Category E, under the terms of subsection h), no. 2, article 5, of CIRS, as per the text of the law:

"1 - Capital income shall be considered the fruits and other economic advantages, whatever their nature or name, whether pecuniary or in kind, proceeding, directly or indirectly, from patrimonial elements, goods, rights or legal situations, of a movable nature, as well as their respective modification, transmission or cessation, with the exception of gains and other income taxed in other categories.

2 - The fruits and economic advantages referred to in the preceding number comprise, in particular:

(…)

h) The profits of entities subject to IRC placed at the disposal of their respective associates or holders, including advances on account of profits, with the exception of those referred to in article 20.";

"For which they are subject to withholding at source at the liberatory rate in accordance with subsection c) of no. 1 of art. 71 of CIRS, by referral of article 94, no. 4 of the Corporation Tax Code, from the moment they are placed at the disposal of their respective holder, as provided by subsection 2) of no 3 of article 7 of CIRS, by referral of article 94, no. 6 of the Corporation Tax Code, at the following rates:

Year 2011, at the liberatory rate of 21.5%, in compliance with the wording of Law no. 55-A/2010 - 31/12 and Law no. 12-A/2010 - 30/06

January to October 2012 the liberatory rate of 25% in accordance with the wording of Law no. 64-B/2011 - 30/12

After October 2012 the liberatory rate is 26.5% in accordance with Law no. 55-A/2012 - 29/10

For the tax year 2013 the liberatory rate is 28% in accordance with Law no. 66-B/2012, of 31/12"

"In this manner, having been the company A... which placed the income at the disposal, it will be on the amounts paid by this to the shareholders that withholding at source will be imposed at the moment of payment, and it would be incumbent upon this to remit it – no. 1 of article 98 of CIRS";

"The amounts of IRS in arrears determined per year are as follows:

Year 2011: 2,446,700.00 euro

Year 2012: 1,995,950.00 euro

Year 2013: 203,000.00".

1. Additional evidence elements and facts considered proven from them as a result of testimony given at hearing by witnesses

R…, economist, Deputy Director at the Bank of Portugal

S…, economist, Certified Public Accountant and

T…, economist, Financial Manager of the E… Group

• There was, since July 2000, regular exchange of correspondence between the E… Group and the Bank of Portugal, relating both to the nature of activities and to the restructuring of the Group conducted in 2006;

• This exchange of correspondence was inserted within the context of the reclassification of the Group as having a financial nature and the Bank of Portugal's concern with risk analysis and the adequacy of capital levels, both of C…, and of the Group that controlled it;

• There were contacts between officials of the Bank of Portugal and of the E… Group during the phase of elaboration of the restructuring of the Group;

• In a letter of 13 November 2006, the Bank of Portugal informed B... that it had no objections to the restructuring project, as presented in a letter of 28 July of that year, and which included the creation of A... as the top holding company to be supervised by the regulator;

• This reorganization entailed the separation of the financial and non-financial areas of the E… Group;

• The Bank of Portugal had a preference for supervision that would include the greatest number of companies, given that thus a broader number of potential sources of risk would be analyzed;

• The creation of A... increased the "minority interests" of the Group;

• "Minority interests" are components of own capital and increase the so-called "solvency ratio";

• The divergence between the value of minority interests in the opinion of "D…" on the impact of these interests on the Group's own funds and the value contained in the prospectus for the issuance of bonds by A…, derives from the fact that they are calculated using different accounting rules;

• In the case of the amount contained in the mentioned opinion, that calculation was made based on rules of bank accounting, emanating from the supervisor; in the case of the prospectus, they result from the application of international standards of business accounting;

• The AT questioned, in writing, in 2013, the Bank of Portugal on this restructuring process, having been communicated to it, by official letter, that the restructuring of the E… Group took place on the exclusive initiative of the Group and without prior guidance from the Bank of Portugal;

• In the restructuring effected, the Bank of Portugal did not analyze the fiscal impact of the operations;

• If the Bank of Portugal had raised objections to the restructuring project, the reorganization carried out would not have been realized and an alternative project would have had to be presented, as only the approval of the regulator allowed the restructuring to advance in the manner in which, on the economic-financial level, it was designed.

• The restructuring of the Group could have involved other alternatives, but which would imply, in any case, the strengthening of capital and of the solvency ratio. Thus, the restructuring operation realized, not being able to be understood as necessary in the precise manner in which it was designed, proved to be positive and convenient, from a prudential standpoint and of control of the soundness of the financial group (this was emphasized by the testimony of the witness, Dr R…, Deputy Director of the Bank of Portugal).

• In 2006, neither the Bank of Portugal nor the financial manager of A... had knowledge of any indications or rumors of a possible future sale of C…;

• From 2008 onwards, in the face of the unfolding of the financial crisis, the Bank of Portugal increased the degree of stringency of supervision, with greater concern regarding the level of own funds;

• In 2008 there was some weakness in the degree of solvency of the Group;

• The legal certification of accounts, carried out by the Group's auditors in 2008, was issued with an emphasis on the fragility of own capital and its negative impact on the Group's solvency;

• In 2009 a capital increase of C… was carried out, in order to strengthen its solvency, and other measures were taken that increased the level of minority interests in the Group and, also by this means, sought to improve own capital;

• After the sale of C…, and to make the liquidity resulting from it reach the shareholders of A…, there were alternative means available to the payment of dividends, which the group's administration could consider, constituting the redemption of share capital an example of one of them.

b) Unproven Facts

It was not proven that the sole or principal reason for the incorporation of Applicant A..., SGPS, was the obtaining of tax advantages, namely to serve as a vehicle for the distribution of dividends of B..., SGPS to its shareholders.

c) Reasoning for the Determination of the Matter of Fact

The Tribunal does not have the duty of pronouncement on all the matter alleged, having rather the duty of selecting only that which matters for the decision, taking into consideration the cause (or causes) of action that underlies the claim formulated by the plaintiff (cf arts 596, no. 1 and 607, nos. 2 to 4, of the Civil Code, in the wording of Law 41/2013, of 26/6) and record whether it considers it proven or not proven (cf art. 123, no. 2, of the Tax Procedure Code).

According to the principle of free assessment of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the case and in accordance with its life experience and knowledge of people (cf. art. 607, no. 5, of the Civil Code, in the wording of Law 41/2013, of 26/6). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents - cf. art. 371, of the Civil Code) does the principle of free assessment not dominate in the assessment of evidence produced.

In the case, the Tribunal's conviction was based on the critical analysis of all the documentation presented in the case, in conjunction with the testimony given at hearing and the rules of experience (cf. article 412º-1, of CPC), all reflecting that, in substance, nothing was demonstrated as to the aforementioned acts and facts having been effected with deliberately fraudulent intent toward the Public Treasury, particularly so as to raise a reaction at the level of the use of the general anti-abuse clause provided for in article 38, of LGT, as will be seen better below when the legal framework is addressed. In truth, all the acts described by the AT to support the application of CGAA had sustained and sustainable economic, financial and business basis, designated and especially the incorporation of the Applicant itself.

II – Reasoning (Continued)

The Law

Preliminary Notes

Courts do not have to examine all the arguments formulated by the parties – this has been repeatedly affirmed by jurisprudence (See inter alia, Decision of the Full Court of the 2nd Section of STA, of 7 Jun 95, rec 5239, in DR – Appendix of 31 March 97, pgs. 36-40 and Decision STA – 2nd Sec – of 23 Apr 97, DR/AP of 9 Oct 97, p. 1094, also published in www.dgsi.pt

Article 38, no. 2, of the General Tax Law establishes a general anti-abuse clause, under the terms of which "acts or legal transactions are ineffective within the tax scope when essentially or principally 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 of identical economic purpose, or to the obtaining of tax advantages that would not be achieved, totally or partially, without the use of such means, with taxation then taking place in accordance with the applicable norms in their absence and the mentioned tax advantages not being produced"

One should begin by emphasizing the nature of exceptional norm [absolutely exceptional] of CGAA.

The exceptional nature of this norm results both from the fact that it allows taxation to be effected by the application of rules other than the general norms that the law provides for the transaction(s) actually practiced, and, more importantly, because it constitutes a deviation from the principle of legal certainty, in its dimension of predictability of applicable fiscal law, which is a fundamental principle of fiscal law.

Security and predictability imply that taxpayers can rely on the typicality of the legal type of tax, that they can be assured that, once they practice the transactions that the rule of incidence provides for, they will be taxed in accordance with its prescription.

CGAA will, therefore, only be applicable in cases where it should be considered that the value of legal certainty is not put in question, the idea of confidence in the legal norm inherent in the idea of State-of-Law, because the taxpayer, objectively, should know that the act or transaction he carried out, in the circumstances in which it occurred, cannot be fitted within the legal provision as it is not coherent with the "spirit of the law", although formally, it may find "support" in the literal element of the norm.

However, differently from what happens with norms with identical intent, which we find in other branches of the legal system, such as the institute of abuse of rights or the principle of good faith, CGAA is not an open general clause that permits the interpreter to set aside the legal solution (the taxation) that results from the applicable norm (from the rule of incidence whose hypothesis the facts fulfill) by invoking considerations of material justice or substantive coherence of the fiscal legal system.

CGAA is, also, a typical norm – as it could not be otherwise, given that it is a norm that directly affects the rules of tax incidence - that can only be applied when, undoubtedly, all and each of the presuppositions provided for in it are verified.

This means that the interpreter must refrain from any judgments on, namely, whether the fiscal economy achieved is or is not "justified" or "acceptable", whether the concrete situation offends or not a supposed horizontal equality among taxpayers.

The interpreter, the judge, has only the duty of verifying whether, in the concrete case, all and each of the presuppositions of application of CGAA are or are not undoubtedly present.

And such analysis, such interpretation, must be done in a restrictive manner, as required by the rules of legal hermeneutics regarding exceptional norms.

It is absolutely forbidden to the interpreter to give to CGAA a broader scope of application [make an extensive interpretation] than that which results from the legal text itself, even if under the pretext of achieving material justice in the concrete case.

It will be said that, being so, the efficacy of CGAA in combating forms of fiscal elision that could, reasonably, be considered abusive becomes much reduced. It may be the reality, but such results, unquestionably, from the exceptional nature of the norm and what such nature imposes on the interpreter, on the judge.

The Elements of CGAA

It is settled, in doctrine and jurisprudence, that the applicability of CGAA presupposes the verification of four presuppositions (or elements): means element; result element; intellectual element; normative element.

a) Means Element

"This element corresponds to the route chosen by the taxpayer to obtain the desired gain or fiscal advantage, i.e., the act(s) or legal transactions whose structure is determined according to a given fiscal result (Gustavo Courinha, The General Anti-Abuse Clause in Tax Law, 2009, pag. 165): "It is, in conclusion, at the level of incoherence between the form or structure chosen and the factual fiscal purpose of the taxpayer, between the purpose for which that form is concretely adopted and the cause that is proper to it" (ibidem, pag. 166) that the verification of this element will be ascertained.

Being at issue a sequence of legal transactions pre-ordered (step by step doctrine) "it is important to preserve, however, that in a case of a structure of such nature it will be this that must possess the anomalous character required by the current wording of CGAA, although the acts or transactions that comprise it are, in themselves, typical or common" (ibidem, pag. 168).

In the concrete case, we verify that AT sustains that the legal transactions led to the restitution of ancillary contributions (untaxed), rather than payment of dividends (taxed). As will be noted below, this is the crux of the matter, that is, it was, according to AT, by reason of these transactions that the "tax advantage" in question was realized.

Thus, they would have been, according to AT, "(...) the acts/transactions now in question carried out in the following chronological order:

1st Incorporation of A…

2nd Sale of shares of B... to A…

3rd The product/result of the sale was retained in the company by the establishment of a right to receive ancillary contributions from A…

4th Sale of the principal asset of B... and large positive results are generated;

5th Loan from B... to A…;

6th Restitution of supplementary contributions by A... to the shareholders;

7th Sale of B..., followed by its incorporation into the purchasing company, to eliminate the loan balance to A…"(...)

[ "(...) for which, no economic reasons are glimpsed for the introduction of A…, except the establishment of a credit in favor of the shareholders so that they can withdraw results from the group without any taxation. This happens in 2008, with the restitution to the shareholders of the results generated by the group's restructuring, and happens again in 2011, 2012 and 2013, with the restitution of the results generated by the sale of C…. (...)"].

As results from the evidence produced, no "anomalous character" is revealed in each of these legal transactions: the purpose being pursued being the creation of a company with the object of holding shares or equity interests in other companies, the corporate form chosen, SGPS, is the proper one; the company intending to acquire the shares necessary for the realization of its corporate purpose, the form chosen (purchase and sale) is correct, because this is the proper typical legal form that the law provides for the acquisition onerous basis, inter-vivos, of goods and rights. The sequence of transactions is, also "normal": one would not understand the creation of the company without the subsequent acquisition of the shares in question.

However, the non-existence of "anomalous legal transactions", or of an "anomalous sequence of legal transactions", is not, in our view, sufficient to exclude the possible application of CGAA.

One must also ascertain whether the set of transactions practiced is not, in itself, artificial, was not merely a facade to a different reality susceptible of being the object of the taxation that facade excluded.

For now, it is still important to emphasize that, there being different typical legal avenues for the realization of a given economic result, the taxpayer is not obligated to choose the avenue that, for him, would result in greater burden, especially in fiscal terms[1].

Thus, the assertion that the same economic result could be obtained without the need for the constitution of A... is irrelevant in terms of CGAA applicability

b) Result Element

"In this result element it is important only to demonstrate that the subject obtained, by its acts, the verification of a certain tax advantage and the equivalence of the economic effects with those of the normal taxed act" (Gustavo Courinha, cit., pag. 176).

In the concrete case, it is clear that the partners/shareholders of the Applicant obtained a significant tax advantage, which they would not achieve had they abstained from practicing the aforementioned legal transactions and, therefore, if they subjected themselves to receive in the form of dividends what was paid to them by the Applicant in the form of restitution of supplementary contributions.

c) Intellectual Element

This is, undoubtedly, the most characteristic presupposition of CGAA.

"The manifestation of fraud on the law is revealed in the taxpayer's intention to obtain primarily a tax advantage, directing the transactions or acts he practices in this direction. The non-fiscal purpose which, in turn, should guide the action of any subject (…) is here substituted, in its normal preponderance, by a fiscal purpose, ending up secondarized" (ibidem, pag. 179)

In the concrete case we have, as proven facts, the tax advantage - which is, it should be recalled, very significant although not, as will be seen, for the Applicant but rather for its shareholders - and the legal-economic consequences of the transactions practiced.

It should be noted that the burden of proof of the facts alleged for application of the general anti-abuse clause falls on the Tax Authority and Customs Authority [article 74, no. 1, of LGT (cf articles 414º, of CPC, 346º, of Civil Code, 100º, of CPPT and 29º-1/c), of RJAT. Defending, in substance, this orientation, cf. also in Arbitral Jurisprudence, designedly, the Decisions of CAAD nos. 62/2014-T, of 1-9-2014 and 267/2013-T, pgs. 34 and 23, respectively.]

Hence, in this framework, there would result, in the case, the absence of proof as to the exclusivity or preponderance of the fiscal interest in the practice of the succession of acts that also led to an effective and significant fiscal saving, designedly the very incorporation of the Applicant.

At the limit, there would remain, at minimum, doubt as to that purpose or that interest, a situation which would result in an identical consequence in terms of proof (Cf arts 346º, of Civil Code and 414º, of Code of Civil Procedure).

In the concrete case, the weight that should be attributed to the intellectual element results necessarily very valued to the extent that the same is not fulfilled when it is proven that "(...) it was not proven that the sole or principal reason for the incorporation of Applicant A..., SGPS, was the obtaining of tax advantages, namely to serve as a vehicle for the distribution of dividends of B..., SGPS to its shareholders (...)".

The non-fulfillment, in this case, of the intellectual element would appear, by itself, relevant for the conclusion as to the illegality of the assessments and, consequently, as to the merit of the claim.

One could consider the reasoning of this decision in its essential part as terminated, as from it would result the prejudice to the examination of the other grounds invoked by AT to support the assessments now being challenged.

In any case, as an "exhaustive" reasoning (that is, which also encompasses the question of the alleged "lack of standing" of the Applicant in the tax procedure) will always contribute better to the broader reasoning of the arbitral decision, the following is added:

Continuing the examination of the elements of CGAA and subsumption in the concrete case:

d) Normative Element

"It can be said, in attention to the existence (and requirement) of this element, that CGAA is not, after all, a mere expedient for obtaining fiscal revenue at any cost, based on the fact that the taxpayer obtained a tax advantage [emphasis ours]. The fiscal disregard of such acts or transactions will only succeed when, cumulating all the above-mentioned requirements, it is demonstrated that the fiscal effect obtained (always in attention to effects identically obtained) deserves a judgment of disapproval by the Law " (ibidem, pag. 189).

We will begin by highlighting the following: one question, which has already been addressed, is that of the fiscal motivation of the transaction or transactions practiced; another, different, is that of, on the presumption that the transactions practiced are not anomalous or artificial, knowing "of the contrariety of the result to the Law". It is only of this latter question that we will now concern ourselves.

What is at issue, as has been seen, is the different or differentiated fiscal treatment of the obtaining of economically equivalent income.

It is known that companies of a business nature aim to obtain financial surpluses resulting from their activity. On a conceptual and applied level it is therefore relevant the following question: in what manner can a company make such surpluses reach its partners? Is there one manner, or a natural vehicle, that must necessarily be followed?

From the literature that addresses this subject - it is the well-known area of Corporate Finance or Business Finance – the answer to the question formulated results unequivocally in the following terms: alongside the payment of dividends, there are alternative forms, increasingly used by financial administrators, of making the surpluses obtained in corporate activity reach the partners.

Whether for fiscal reasons (depending on the possible divergence in the treatment of dividends and capital gains), whether for financial motives (the repurchase of own shares can increase, ceteris paribus, the profitability of own capital); whether for reasons of structural change in the activity of the company (the restitution of capital in the context of strong disinvestment in certain businesses), the financial policy of companies weighs the varied alternatives that corporate law affords regarding operations of distribution of monetary surpluses.

Indeed, corroborating this trend, in one of the most widely used manuals worldwide in courses of Business Finance[2], shows the growth of alternative forms to the payment of dividends in the distribution of liquidity to partners.

Also A. Damodaran[3], professor of Finance at the N. York Unit and recognized author, considers that the alternative forms to the payment of dividends present a remarkable growth after the decade of 80 of the last century.

In national literature it is also common to observe the position that defends the diversity of forms of distributing surpluses to partners[4].

In international research on the behavior of companies as to dividends, Recep Bildik and Ali Fatemi[5] show that the payment of dividends is far from constituting the "natural" or "obligatory" form of corporate remuneration. In the summary of an article published in the Journal of Banking and Finance, the authors state: "This study examines the patterns of payout policies worldwide. Utilizing data from a sample of more than 17,000 companies, from 33 different countries, we show that there is a significant worldwide decline in the propensity to pay dividends. Most of the decline is due to the payout policies of smaller and less profitable firms with comparatively more investment opportunities. We find that larger firms, firms with higher profitability, and firms with low growth opportunities have a greater propensity to pay dividends. The proportion of dividend payers varies substantially across industries as well. However, the proportion of firms paying dividends has declined over time, even after firms' characteristics are controlled for. Moreover, aggregate dividends are highly concentrated, in that they are paid only by a small group of firms. Our findings indicate that there has been a significant decline in the average dividend payout ratios over the years. The decline in the mean dividend payout ratios as well as the proportion of payers is much more pronounced in civil law countries."

Dividends are thus a customary form but certainly not the only form of making capital surpluses generated in a company reach its respective partners, it being necessary to distinguish whether we are in the presence of a profit of a regular nature distributable, coming thus from an activity that develops over time, or rather of surpluses deriving from a structural alteration of the activity and of the assets affected by it.

This is precisely the case in the proceedings, resulting from the sale of C… and a structural modification of the patrimony and the financing needs of A….

Indeed, the sale of C… generated an inflow of approximately 200 million euros, and the restitution of supplementary contributions amounts to one-tenth of that value (20 million euros).

Even admitting the thesis of AT – according to which it would be the increase of own capital of B... that should have strengthened the own funds of the group that controlled C… - two very important aspects are to be emphasized:

1- That hypothetical strengthening of own capital in B..., in 2006, could also have been done by way of supplementary contributions. In truth, if the Bank of Portugal accepted them in A…, there is no reason why it would not accept them in B.... Now if such hypothetical contributions in B... were restituted in 2010, upon the sale of C…, therefore without any income generated in the mere restitution, what difference would there be compared to the case in the proceedings? Also there would be no tax to withhold in B....

2- Even if one assumes that such capital strengthening in B... would be effected, in 2006, by new entry of share capital, the 20 million euros could, in 2010, reach the shareholders by way of a reduction of capital effected at par. Also there would be no economic surplus and there would be no IRS taxation.

That is, the withholding at source that AT sustains is an obligation of A... in the context of the application of the General anti-abuse Clause only exists if one accepts that the payment of dividends is the unique, natural or obligatory solution for a company which, having liquidity, wants to make it reach the shareholders.

In sum: in order to sustain that the operation must lead to the payment of a dividend by A... and the corresponding withholding of IRS, one must adhere to the thesis according to which the management of a company, in the face of the objective of making surpluses of liquidity reach the shareholders, and having at its disposal various alternatives that the Commercial Companies Code affords it, must opt for the one that proves to be fiscally more burdensome.

This is not, however, the correct position.

In the case sub judicio, A... would have had other forms, even more financially appropriate (e.g., capital reduction), not subject to taxation, of restituting 20 of the 200 million that were obtained in the sale of C…, the position of AT according to which A... would be obligated to withhold at source on the dividends that, supposedly, it should have distributed thus lacks economic-financial support.

That is: CGAA cannot prevent the options of taxpayers who, confronted with the choice between dividends (distributable or merely potential) opt, even if for fiscal reasons, for the obtaining of capital gains.

This understanding is settled in doctrine and in the arbitral jurisprudence of CAAD, being already numerous the decisions issued with an impact on this subject, which, with a single exception that we are aware of, go in the direction we advocate.

Decisions that concluded, in sum, that it is absolutely legitimate the choice[6] of the taxpayer to organize his legal transactions in a manner to realize untaxed capital gains even when, e.g., the sole motivation for the alteration of the corporate form was of a fiscal nature (cf., for example, Arbitral Decisions, CAAD nos. 123/2012, of 9/05/2013, 124/2012, of 06/06/2013, 138/2012, of 12/07/2013 and 139/2013, of 19/12/2013, the latter also subscribed by the president of this arbitral tribunal).

In sum:

• It constitutes legitimate tax planning, in the face of CGAA, for taxpayers to practice legal transactions that have as a result the realization of capital gains not subject [at the time] to taxation in IRS, even when the realization of such transactions has as motivation the exclusive or principal fiscal economy thus achieved.

• The legal transactions practiced by taxpayers with such intent will only be subject to censure, under CGAA, when they are a mere "facade", generate only a mere legal-formal alteration of the prior situation, which, in substance, remained unaltered.

• The means, normative and intellectual elements are therefore not verified in the concrete case, whose verification, cumulatively with the result element (which occurred), is a necessary condition for the fulfillment of the typicality of CGAA.

The Question of "Procedural Lack of Standing"[7]

At the heart of this question is to know how the disregard by AT, for tax purposes, of the aforementioned chain of operations and acts that would serve as a "facade" to conceal or hide the real substance thereof and which would be the distribution of dividends to the shareholders of B..., SGPS (simultaneously shareholders of the Applicant), operates or what are, in reality, the consequences.

If undue tax advantages existed in the situation in question, particularly because the sums received should be taxed as dividends, as the Tax Authority and Customs Authority advocates, it is manifest that those who obtained them were the shareholders, who received the sums without any tax deduction, and not the Applicant, which paid the sums in full.

Now being the shareholders the real beneficiaries of the mentioned advantages, the application of the general anti-abuse clause in the manner it was effected does not permit setting aside those advantages, because, imposing on the Applicant the payment of sums equivalent to those advantages, it is only to it that these burdens are imposed, with the shareholders remaining in intact ownership of the sums received.

It is true that it can be ventured that, sooner or later, the patrimonial prejudice from the taxation imposed to the company will be repercussed on the shareholders, but it is also evident that this may not occur in relation to the shareholders who benefited from the undue advantages, as they may cease to be shareholders before the prejudice imposed on the company has an effective repercussion on the value of their shares.

The interpretation of the final part of article 38, no. 2, of LGT, as a tax legal norm from which results the imposition of taxation, cannot fail to take into account the characteristic of generality, indispensable in taxation norms by virtue of the provision of article 5, no. 2, of LGT, which is a corollary of the principle of equality in the distribution of public burdens. For this reason, the correct interpretation of article 38,

no. 2, will have to apply generally, in relation to any type of corporations, including those listed on the stock exchange in which the shareholder structure is constantly altered, regarding which it is evident that the imposition of taxation on the company by the intermediation of which the shareholders created for themselves undue tax advantages will not have any effect on those who enjoyed such advantages and ceased, afterwards, to be shareholders.

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

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

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

Indeed, these principles impose that whoever obtained the income should be taxed in taxes on income and not whoever did not obtain them and the value of material justice is clearly violated when, in a situation where there are undue tax advantages, the corresponding amount will be demanded from whoever did not directly benefit from those advantages, leaving untouched those who unduly benefited from them.

In truth, if there is a duty of withholding at source on a definitive basis in the payments to be made by the tax substitute, there is no legal provision that assures him the possibility of recovering the amount he will have to pay, even if he has not effected the withholding, because the responsibility of the substitute is merely subsidiary, by virtue of the provision of no. 3 of article 103 of CIRS, and there is no legal provision that assures a right of recourse of the original responsible in relation to the subsidiary.

In such situations falling under no. 3 of article 103 of CIRS, the rule of article 21 of the same Code fully applies, in which it is established that "when, through tax substitution, this Code requires the payment of total or partial IRS to a person other than the one in relation to whom the respective presuppositions are verified, considers itself the substitute, for all legal purposes, as principal debtor of the tax, saving the provision of article 103." (…)

On the other hand, it is not even to be ventured the possibility of, on the basis of civil law, the Applicant recovering what it paid to the extent of the enrichment of the shareholders, on the basis of unjust enrichment, because the application of the general anti-abuse clause only permits considering ineffective the transactions or acts "within the scope of tax law", as results from the text of no. 2 of article 38 of LGT, by which the transactions concluded maintain their full efficacy for civil purposes and, in terms of civil law, the integral receipt of the sums received by the shareholders has legal cause, as it is the counterpart of the transmission of the shares of these to the Applicant, within the scope of the purchase and sale.

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

For this reason, in the case in question, the Applicant having not enjoyed any tax advantage, the possibility of being held responsible for the payment of amounts corresponding to the undue tax advantages that the Tax Authority and Customs Authority invokes is excluded.

The tax treatment, as if they were dividends, of the amounts paid by the Applicant as reimbursement of supplementary contributions could not be decided by the Applicant itself in the moments in which it made the payments, because, regardless of what the Applicant could understand about the verification of the requirements of the application of the general anti-abuse clause, this application and the consequent tax ineffectiveness of the transactions actually practiced had to be necessarily preceded by authorization from the head of the service (article 63, no. 7, of CPPT) which, obviously, could not exist at the moment in which the Applicant made the payments.

This means that, even if it understood that the requirements of the application of the general anti-abuse clause were verified, in the moments in which the Applicant made the payments it had no legal basis for effecting the withholding at source on payments that were and are reimbursements of credits in terms of civil law, which necessarily leads to the conclusion that there was no legal duty of withholding at source.

That is, the very legal regime of the application of the general anti-abuse clause, which depends on a mandatory prior authorization of the head of the service, is incompatible with its retroactive application to norms of conduct ("regula agendi") imposed on taxpayers, as is the case with norms that obligate withholding at source, because the very nature of these norms imposes that their application only takes place after the legal requirements of their application are gathered.

The norms of fiscal law that are directed to the will of those subject to fiscal legal relations, aiming at determining their behaviors, cannot have the unviable pretension of influencing conducts that are prior to the verification of the presuppositions of their application.

For this reason, as the fulfillment of duties of withholding at source of taxes must be contemporaneous with the acts of payment provided for in law, those duties can only be imposed by rules of conduct, norms effective at the moment in which those duties must be materialized, never being able to be determined afterwards, after the moment in which the acts of payment were concretized, by effect of a case-specific decision by the head of the service, made under a ruling norm, directed to the applier of law, such as that of article 38, no. 2, of LGT, which, by its nature, cannot influence conducts that occurred previously.

What reconduits to that, by the very nature of the duty of withholding at source, the application of the general anti-abuse clause, dependent on a posteriori verification of the requirements of its application, cannot give rise to duties of withholding at source that did not exist at the moment in which the acts or transactions considered abusive were practiced from which resulted an undue tax advantage, in the face of the circumstantial factual and legal situation existing at that moment.

In any case, this is the only constitutionally admissible interpretation because, if the norm of article 38, no. 2, of LGT were interpreted as admitting the opposability of the effects of the application of the general anti-abuse clause to the tax substitute, particularly the imposition of the effects of the non-fulfillment of a duty of withholding at source that did not exist in the face of the transaction actually concluded, in a context in which there is not legally assured the viability of recovering the amounts not withheld whose duty of withholding is determined afterwards, would be materially unconstitutional, in the face of the principles of proportionality and the right to property (articles 18, no. 2, and 62, no. 1, of CRP).

Indeed, as the existence of a duty of withholding at source is dependent on the legal nature of the payments effected and only being possible to consider ineffective for tax purposes the transaction concluded after a case-specific authorization by the head of the service or by the official in whom he has delegated that competence, the potential tax substitute would be legally prevented from preventing a patrimonial diminution caused by tax debts of another, because, at the moment in which he effected the payments, he had no legal basis for effecting withholding at source and that duty would only arise, with retroactive effect, following the application of the general anti-abuse clause that would allow considering the transaction fiscally ineffective, without possibility of recovering what he would have to pay, in the cases of withholding on a definitive basis where the substitute is the original debtor.

In these terms, one must conclude, also by this avenue, that the impugned acts are illegal by violation of article 38, no. 2, of LGT.

Defects of Prejudicial Knowledge

By what has been said, the impugned act is vitiated by error as to the presuppositions of law and fact, which justifies its annulment (article 135 of the Administrative Procedure Code), and the claim should be judged – as it will be – entirely meritorious.

This is an annulment based on a defect that attributes to the Applicant stable and effective protection of its interests, since it results from it, in relation to the Applicant, the impossibility of renewal of the acts whose declaration of illegality was requested.

Being thus, in accordance with the provision of article 124, no. 2, of CPPT, applicable to arbitral tax proceedings by virtue of the provision of article 29, no. 1, subsection c), of RJAT, knowledge of the other defects imputed to the acts which are the object of this proceeding is prejudiced, because the establishment of an order of knowledge of defects is only justified by the legislative understanding that, proceeding with the challenge on the basis of a defect that provides effective and stable protection of the interests of the challenger, the remaining ones are no longer examined.

III – Decision

In accordance with what has been set out above, this Arbitral Tribunal agrees to:

a) Judge the claim meritorious, in light of the above, as some of the legal presuppositions of application of the general anti-abuse clause provided for in article 38, no. 2, of LGT are not verified in relation to the Applicant;

b) Declare the illegality of the acts of assessment of withholding of IRS nos. 2014 …, 2014 … and 2014 … (in the total amount of € 4,645,650.00) and assessment of compensatory interest nos. 2014 … to 2014 … and 2014 … to 2014 … (in the total amount of € 361,778.64), relating to the tax years 2011, 2012 and 2013, in the total amount of € 5,007,428.64

c) Annul the aforementioned assessments;

d) Consider prejudiced and not take knowledge of the remaining defects imputed to the acts whose declaration of illegality was requested.

Value of the Case

In accordance with the provision of article 306, no. 2, of CPC of 2013, article 97-A, no. 1, subsection a), of CPPT and article 3, no. 2, of the Costs Regulation in Tax Arbitration Proceedings, the case is valued at € 5,007,428.64.

Costs

As the Tribunal was not constituted under the terms provided for in no. 1 and in subsection a) of no. 2, of article 6, of RJAT, there is no place for the fixing of the amount of costs and their apportionment among the parties (Cf article 22-4, of RJAT).

Lisbon, 28 October 2015

The Collective Arbitral Tribunal,

José Poças Falcão

(President)

António Martins

(Member)

Manuel Pires

(Member)

[Dissenting as per attached declaration]

DECLARATION OF DISSENTING VOTE

Having been decided the procedural lack of standing of the APPLICANT, it takes on, in the present proceedings, what now matters, the nature of futility the examination rendered on the substantive question, for whose proper decision, moreover, would have contributed particularly a broader factual reference - e.g., the incorporation of the type of companies in question, in the circumstances, not being a solution of general satisfaction of the respective interested parties and, according to my understanding, not having been proven that with the company B… the said intended objective with the incorporation of A… would not have been achieved -, a deepening of the analysis of constitutional principles and rules of legal hermeneutics, as well as, and this is not the least important, a composite or holistic vision of the case to be decided. It is, therefore, important to note negatively that judgment was made on the substance before the question of lack of standing was examined, deciding thus on the question of abuse when this was indifferent and without any utility in the face of the favorable decision as to the inexistence of fiscal obligation in the sphere of the APPLICANT, a decision that should have implied ceasing to examine the other defects that were imputed to the acts which are the object of the proceedings (article 124, no. 2 of CPPT), as, moreover, is mentioned in the present decision, but only after concluding that, in the case, elements of CGAA were not verified. In this manner, it is repeated, we limit ourselves to the reasons invoked for the lack of standing, without prejudice to what was already noted above.

As to the advantages, and because I continue not to find something that convinces me to the contrary, I repeat what I wrote within the scope of the decision in Process no. 200/2014-T - a decision, moreover, invoked in the present judgment - and in accordance with the correct application of the rules of legal interpretation: "The argument of the "tax advantages" contained in the decision is without merit, as it not only failed to attend, in its entirety, to the evolution of the cited article 38, no. 2 – the final part invoked arises concomitantly with the establishment of the second objective of the abusive transaction, not applicable here, added by the modification of the provision, which, moreover, is reinforced with the qualifying adjective "referred to" relating to the "advantages" added, as results from the wording, and not to something not mentioned – but also failed to consider the nature disjunctive and not copulative of the conjunction in the first inclusion of the "advantages" (the second inclusion preceded by "and" must be interpreted with subordination to the principal disjunctive and even more, it is repeated, by the inclusion of the word "referred to", that is, connected to the second objective included in the modification). And, moreover, before the enunciation of the second objective of the abuse, there is not used, as would have been the case if one intended to establish, as is written in the decision, the generalization of advantages, the determinative "other" advantages or still "any other" advantages. Therefore, the distinction between the objectives included in the provision under examination is not apparent, but effective, relating "referred advantages" to the second objective stated.

Moreover, contrary to the decision, the patrimonial diminution, resulting from the withholding, does not, in either of the cases aiming at the mentioned objectives, remain limited to the substitute (case of definitive withholding, referred to in the decision), given the substitute having right of recourse made available by the principles of our legal system applicable in accordance with the concrete circumstances, being that right an integral part of the regime of substitution and in the end the one who suffers the patrimonial diminution is the one who obtained the income".

Regarding possible prejudices to the entity that places the income at the disposal, there is a forgetting of the right of recourse existing in the regulation of the institute of substitution and already noted above, coupled with the principles existing in the Portuguese legal system duly interpreted and applied and without the setting aside of the autonomy of fiscal law. I repeat what I wrote in my prior vote: "To understand that such [possibility of exercising the right of recourse, I add] may not occur – by virtue of possibly ceasing to have the quality of partner on the part of the substitute – is to put in question the entire institute of substitution not only for the case of application of article 38, no. 2 LGT – an argumentum ad consequentiam or ad terrorem that by itself does not convince – but for any other, being important to emphasize that, if the substitute does not recover what he paid, the situation will result from an omission attributable to him, because if the withholding had been done in accordance with law, such would not happen, there not even being the need of the right of recourse. Moreover, the institute of substitution may legally imply, in the case of impossibility of exercising the right of recourse, the non-existence of contributory capacity on the part of whoever comes to support definitively the taxation. Hence that the invocation" of constitutional principles "is not without merit, given the situation, being pathological, was created by whoever suffers the consequences [proportional, I can add] of his conduct [still I can add, not proceeding thus is that constitutional principles would be violated]. Also the provision of article 21 of CIRS, coupled with the referral to article 103 of the same Code, does not prejudice what has been stated – they regulate solely the positions vis-à-vis the active subject and not the relations of the substitute before the substitute. To understand otherwise and considering all that has been written, it is repeated, would make inapplicable the institute of substitution not only in the cases of application of article 38, no. 2 but also in general".

Nor is the argument sustainable that it is impossible to effect withholding before administrative decision has been made applying the general anti-abuse clause. Once more the following is transcribed: "Finally, the invoked impossibility of the withholding, before there is declared the application of the general anti-abuse clause. Also here the decision does not merit agreement because the situation is being treated as if it were not susceptible of having applicable to it the regime of the anti-abuse clause. On the contrary, if the situation be to it subsumed, the conclusion will necessarily have to be contrary. The legal regime of article 38, no. 2 is clear: taxation is effected "in accordance with the applicable norms in [the absence of the means artificious or fraudulent]" and this means that, in that case, withholding should have existed at the moment of the placing of the income at the disposal and if it is only possible in a moment later to what is legally provided, such results from fact attributable to the substitute [which, thus, is neither presumed nor fictional, I add], applying the regime of non-performance or delay in fulfillment. To say that withholding would be impossible before knowing that the clause in question would be applicable is to forget what should have occurred if the abuse had not been practiced. It is not a matter of action in accordance with law, it is a matter of something that should not have been practiced, of an abuse. And the reasoning and the treatment cannot be identical for cases of abuse and non-abuse. There is not, therefore, retroactivity, it is as if the situation had not occurred and ab initio everything had been in accordance with what the law provides. A fundamental aspect in this type of case is that the persons involved have from the beginning full knowledge – not being merely reasonably cognizant – of the hidden character of the distribution of income, of the true nature of the income that was made available, there not being, a fortiori, invocable ignorance. It is clear - it is repeated - that what is written applies if to the action there has been applied the anti-abuse provision".

In this manner, with the position sustained in the present decision, there is no regard either to what is provided in the cited article 38, no. 2 nor to the institute of substitution, to its foundations and regime, with there occurring, therefore, an incorrect application of the mentioned legal provision and of the institute in question.

Manuel Pires