CAAD Case 324/2017-T: General Anti-Abuse Clause Applied to Dividend Distribution vs. Share Acquisition Price in IRS

ARBITRAL DECISION

I - REPORT[1]

A...- SGPS, S.A., collective entity no. ..., with registered office in ..., n.º ... -..., ...-Lisbon (hereinafter Claimant), under the provisions of articles 2º no. 1, paragraphs a), 3.º, no. 1, 6.º, no. 2 and 10.º, no. 1, al. a) of the Legal Framework for Tax Arbitration approved by Decree-Law nº 10/2011, of 20.01, as amended by article 228º of Law nº 66-B/2012, of 31.12 (hereinafter abbreviated as LFTA), and articles 1º and 2º of Ministerial Order nº 112-A/2011, of 22.03, submitted, on 02.05.2017, a request for constitution of an arbitral tribunal and for an arbitral decision. This request seeks the declaration of illegality of two additional assessments (hereinafter, AA), relating to 2012 and 2013, issued by the Tax and Customs Authority (hereinafter TA) following a tax inspection procedure and the report arising therefrom (Final Tax Inspection Report - hereinafter FTIR - cf. Doc. no. 3). [2]

The basis for the AA was the disregard of the legal qualification, for tax purposes, of various acts carried out within the group in which the Claimant is integrated, by virtue of the application of the general anti-abuse clause (hereinafter, "GAAC"), provided for in article 38.º, no. 2, of the General Tax Law ("GTL"), to the situation sub judice.

The Claimant appointed as arbitrator Prof. Dr. Rui Duarte Morais.

The request was accepted on 15.05.2017. On 19/05/2017, the TAX AND CUSTOMS AUTHORITY (hereinafter TA or Respondent), chose to appoint Prof. Dr. Manuel Pires to the arbitral tribunal.

By agreement of the arbitrators designated by the parties, Prof. Dr. António Carlos dos Santos was appointed as presiding arbitrator, who on 01.08.2017 accepted this assignment.

The arbitral tribunal was constituted on 18.08.2017, competent to decide this case which was assigned no. 324/2017-T.

Notified to respond, the Respondent submitted its response on 12.10.2017, attaching later (on 12.12.2017) the administrative file comprising one principal document and seven annexes.

The Claimant submitted arguments on 16.01.2018 and the Respondent on 06.02.2018.

The particular complexity of the case and two prolonged absences from the country of the presiding arbitrator (for professional reasons) resulted, pursuant to article 21º no. 2 of the LFTA, in successive orders postponing the decision of the case (on 17.02.2018, 17.04.2018 and 19.06.2018), each for two months.

The subject matter of the request for arbitral decision essentially concerns the discussion of the legality or otherwise of the application, by the Respondent, of the GAAC provided for in no. 2 of article 38.º of the GTL to a series of legal acts carried out within the economic group of companies (the E... Group) of which the Claimant is a member.

According to the FTIR, the succession of acts carried out within that group would constitute the existence of abusive tax planning (ATP) that would justify the application, to the specific situation, of the GAAC. This application led to the disregard of the legal qualification of some acts identified in that same report, with the values received by the shareholders of the Claimant, as reimbursement of debt, being requalified as advances on account of profits/dividends, with the consequent taxation through withholding at source (WS) required of the Claimant, which would be obliged to this procedure "when it places these income at the disposal of the shareholders, in accordance with the provision of paragraph a) of no. 2 of article 101.º of the CIRS"[3].

Not having done so, the Finance Service of Lisbon-... issued, in the sphere of the Claimant, the following AA:

Contrary is the position of the Claimant, for whom the application of the GAAC, and the consequent requalification of the legal acts carried out, was illegal, because the requirements for its application were not met.

Notwithstanding this, the Claimant proceeded, under protest, to the payment of the additionally assessed tax, in order to avoid the institution of tax enforcement proceedings which, according to it, could have negative impact on the normal development of its economic activity.

Consequently, the Claimant defends the validity of the legal acts carried out by it and the non-existence of any tax to be paid, namely on the basis of the AA for non-execution of withholding at source. Subsidiarily, the Claimant also contends that, as mere tax substitute, it did not enjoy any tax advantage, and therefore the AA (to be owed, which it only concedes for purely academic hypothesis) should never be directed at it, but rather at its shareholders, the true taxpayers of Personal Income Tax (PIT). Also, subsidiarily, it seeks the annulment of the assessment of compensatory interest. Finally, it contends that the condemnation of the TA to refund the tax paid should be added to indemnity interest, calculated between the moment it effected payment and the date on which actual and full restitution of the amount of tax paid occurs.

The said payments made by the Claimant as PIT WS were as follows:

• On 13.02.2017, the amount of € 794.506,04 was paid, relating to the WS additionally assessed by the TA for 2012 (payment document - Doc. no. 4);
• On 20.02.2017, the amount of € 1.789.864,24 was paid, relating to the PIT WS additionally assessed by the TA for 2013 (payment document - Doc. no. 5).

The value of the case was fixed at € 2.283.667,95.

II – PRELIMINARY EXAMINATION

The request is timely and the arbitral tribunal is competent to decide the present dispute, being regularly constituted.

The parties possess legal standing and capacity, have legitimacy and are regularly represented.

The case does not suffer from nullities that would invalidate it. The Respondent complied with the formalities required by article 63.º of the Code of Tax Procedure and Process (CTPP).

No exceptions have been raised that would prevent consideration of the merits. The Claimant presented two "subsidiary requests", the first of which relating to the non-existence of a tax advantage in the sphere of the Claimant from which would result the consequent illegality of the AA in question. [4]

III - FACTS

Regarding the facts, it should be recalled that the Court is not required to pronounce on all facts alleged by the parties, but rather has the duty to select those relevant to the judgment of the case and to distinguish proven from unproven facts.[5] Thus, the facts pertinent to the decision are chosen and determined according to their legal relevance, taking into account the various plausible solutions to the legal question(s) that arise.[6]

Established Facts

The following facts are considered proven:

• The Claimant was established on 07.06.1994, by B... (hereinafter B...) and his spouse C..., in the form of a limited liability company, with the aim of managing shareholdings. Its capital stock was 400.000$00, which was increased in subsequent years.

• Following various amendments, in March 2007, the Claimant, in addition to having a small capital increase, was transformed into a public limited company, with registration in CAE 64202 – Management of Non-financial Participations (SGPS) Activities, being, as such, regulated by the legal framework contained in Decree-Law no. 495/88, of 30.12.

• The capital stock of this holding increased from € 750.000,00 to € 800.000,00, divided into 160,000 shares, registered or bearer, with nominal value of 5 euros each. From 24.05.2007, all capital of the SGPS came to be held, in equal parts, by two partners, the aforesaid B... and D... (hereinafter D...).

• The Claimant is part of the national economic E... Group. This group operates in ... through F.... This company, on 27.08.2008, acquired full ownership rights over a property located at no. ... of ... (also known as ...), in the city of ... (copy of the deed - Doc. no. 6)

• It is at this address that a Maltese subsidiary of the group was established, G... with registration number ... (herein designated as G...).

• On 01.01.2012, between G... and F..., a lease contract for one of the rooms in the aforesaid building was formalized, the former paying the latter rent in the amount of € 500 (Docs 22 and 23-1 to 23-12).

• On 29.12.2009, another Maltese company was established by the two shareholders of the Claimant (B... and D...), with collective entity number ..., H... (hereinafter H...), with a capital stock of € 1.200,00, the same being divided into 1,200 shares with nominal value of € 1,00 each, held in equal parts by its two individual shareholders.

• H...'s registered office was indicated at no. ... of ... (where G... was registered) and its two shareholders (B... and D...) were designated as administrators. On 23.02.2010, a Maltese lawyer, I..., partner in a law firm with registered office in Malta, was appointed as director of H.... According to information from the Maltese Tax Authority, H... has its offices in ..., ..., ..., ..., Malta, an address corresponding to the registered office of the aforementioned law firm.

• The object of H... is as follows:

• To purchase under any title to retain, manage and dispose of, in any manner permitted by law, of movable and immovable property of any nature, including rights over such goods;

• To receive dividends, capital gains and other income derived from the possession of the goods mentioned in the previous paragraph;

• To participate in the management of any company;

• To carry out all acts that prove necessary for the pursuit of the above objectives" (Cf. Annex 14 of the FTIR).

• On 30.12.2009, H... acquired, by means of a purchase and sale contract (PSC), from the common partners of both H... and the Claimant (B... and D...), for the sum of € 20.000.000,00, all shares comprising the capital stock of the Claimant, with the global nominal value of € 800.000,00 (Cf. Annex 5 of the FTIR).

• By virtue of this PSC, and as consideration for the sale of shareholdings with nominal value of € 400.000,00, H... undertook to pay each of the said shareholders the sum of € 10.000.000,00.

• It is not apparent from the record that at the date of the share transfer there existed any external valuation of the value of these shares by an entity independent of the parties to the transaction.

• The payment of the price agreed between H... and its two shareholders (€ 10.000.000,00 payable to each shareholder) was not, however, effected at the time of execution of the PSC (30/12/2009), but was staggered over time, in accordance with an installment payment plan (for each of the shareholders), without interest, contained in the PSC, occurring over six years, in the following terms:

• Until 31.12.2010, the amount of € 1.500.000,00 would be paid;

• Until 31.12.2011, the amount of € 1.500.000,00 would be paid;

• Until 31.12.2012, the amount of € 1.500.000,00 would be paid;

• Until 31.12.2013, the amount of € 1.500.000,00 would be paid;

• Until 31.12.2014, the amount of € 1.750.000,00 would be paid;

• Until 31.12.2015, the remaining value due would be paid to each of the shareholders, all totaling the amount of € 2.250.000,00.

• The capital gains arising from the sale of the shareholdings of the Claimant to H... carried out by the two common partners (B... and D...) were declared in model 3 declarations of Personal Income Tax for each of the two said shareholders.

• These capital gains benefited from the exclusion from taxation then provided for in article 10.º, no. 2, of the CIRS, in the wording and numbering in force at the date to which the facts relate.

• As a result of H...'s acquisition from its two shareholders of the capital stock of the Claimant held by them, a total debt of € 20.000.000,00 was created in H...'s sphere.

• Thus, on 30.12.2009 (date of sale by the individual partners of the Claimant of the shareholdings of this company to H...), the Claimant came to be held by H... registered in Malta which, in turn, was held by the shareholders and administrators of the Claimant, the aforesaid B... and D....

• At that same time, the Claimant held shareholdings in four companies that indirectly transferred to H...:

• a controlling shareholding, representing 53.44% of the capital stock of J... SGPS, SA, the dominant company of the national economic Group E..., a leader in international transport management and logistics, with intervention in various markets such as, for example, the Angolan and Asian markets; [8]

• a 40% shareholding in the capital stock of K..., Lda, a company in the restaurant industry;

• a 75% shareholding in the company L..., Lda, a company engaged in direct operation and franchising of automated car washing services and others;

• a shareholding in M...-SGPS, S.A, a company with unique registration number and collective entity 507.979.265 (hereinafter, M...).

• On 26.04.2010, the Claimant (held by H... for almost four months) sold the capital of its subsidiary M... to the independent company N... SA (hereinafter, N...), for a total amount of € 29.572.400,00.[10]

• This sale resulted, for the Claimant, in a surplus of € 16.793.645,70 which, under the terms of article 32.º of the EBF then in force, was not subject to tax. [11]

• At the end of 2010, N... still owed the Claimant, regarding the acquisition of the capital stock of M..., the amount of € 12.000.000,00.

• Also during 2010, H... made partial payments of the debt contracted with its shareholders for the acquisition of the Claimant (which occurred, it will be recalled, on 30.12.2009), payments which were made with funds from an advance on account of profits of the Claimant.

• On 31.05.2011, the general meeting of the Claimant deliberated by resolution to attribute dividends to the parent company H... in the amount of € 15.000.000,00 (Annex 9 of the FTIR and IES, Annex 10 of the FTIR), with the transfers made from the Claimant to H... appearing in the SIT table referred to in article 25.º of the TA's Response.

• These dividends were not subject to taxation, as they were covered by the exemption provided for in article 14.º, no. 3, of the Corporate Income Tax Code, in the wording and numbering in force at the date to which the facts relate.

• The following table was prepared by SIT, summarizing the transfers made from the Portuguese company to the Maltese company and in which the amounts paid and the reduction of debt to can be seen:

• From 2011 to 2013, N... delivered to the Claimant the total amount of € 10.000.000,00 as payment of the price, with reference to the PSC of the capital stock of M.... This debt was paid during the financial years with the product of the payment of dividends attributed by resolution dated 31/05/2011 (annex 8).

• The following table reflects how the debt to shareholders was amortized:

• In 2012 and 2013, various payments were made by H... to its two individual shareholders in the total amount of € 5,957,353.31, as shown in the table below (see pp. 7/38 and 8/38 of the FTIR):

• From 2011 onwards, the following were transmitted to H... by F...:

• a 50% shareholding in the capital of company R... (Docs no. 11 to 14), with the remaining 50% belonging to the Lebanese company S...;

• indirectly, through the Maltese subsidiary G... (constituted with capital stock of €1200, controlled 98% by H... and 2% by the shareholders of A...), the shareholdings of F... in two Brazilian companies, T... and U... Lda and V... Lda.

• From 2012 onwards, H... acquired:

• on 21.12.2012, a shareholding of 5% of the capital stock of the Portuguese wine company W..., SA and made contributions in this same company, capable of being capitalized, totaling the investment made € 226.471,35;

• on 22.01.2013, a shareholding representing 10.7%, in the value of € 65.250, of the capital stock of X..., S.A., a consultancy company with registered office in Portugal.

• On 30.12.2012, the date to which the AA relate, the capital of the Claimant was entirely held, directly by H... and indirectly by the mentioned shareholders of the latter.

• Part of these payments (in addition to others) and the operations supporting them was requalified by the TA as having been effected as a result of an operation generating dividends, which is why this authority, contrary to the Claimant, understood and understands that the same should have been subject to WS to be effected by the Claimant.

• The amounts in question deriving from the application of the GAAC are, according to the FTIR, as follows:

The proof of the facts set out above results from what is contained in the RTI and the documentation appended to the record, no divergence having arisen between the parties regarding factual questions.

Unproven Facts

There are no material unproven facts relevant to the decision of the case.

IV - THE APPLICABLE LAW: THE GAAC

1. The Context

a) In the Portuguese legal order, various legal provisions containing special anti-abuse clauses were introduced during the 1990s of the twentieth century, with the objective of eliminating or mitigating phenomena of growing tax evasion and avoidance, especially in the context of corporate income tax.[12] The ad hoc creation of this type of clause soon proved inadequate or insufficient to achieve the said objective. This is the reason for the emergence and diffusion of clauses of a general nature, the so-called GAAC, encouraged at the time by the OECD, in order to try to counteract the creative imagination of legal forms conducive to an increase in tax avoidance. This also occurred among us, with the introduction of the GAAC, around 1999, accompanied at the time, for reasons of legislative opportunity, by the reform of the CTPP. Unlike special clauses, the GAAC is intended to apply to all transactions and all taxes, and can even serve as a complementary or subsidiary protective net for the application of special anti-abuse clauses.

The GAAC was not, however, applied immediately, and it was necessary to wait more than a decade for the first judicial decision on the subject to see the light of day on 15.02.2011, issued unanimously by the Central Administrative Court South (TCA South, case no. 04255/10). The causes of this delayed application are various, and it should be noted from the outset the controversy over the alleged unconstitutionality of the GAAC and the fact that the TA chose to give priority, whenever possible, to the application of specific clauses.[13]

b) Under the heading "Ineffectiveness of acts and legal transactions", it is in the current article 38.º, no. 2 of the GTL (in the version of the Budget Law for 2001) that the GAAC is provided for in the following terms:

"2 - The following shall be ineffective in the tax field: acts or legal transactions that are essentially or mainly aimed, by artificial or fraudulent means and through abuse of legal forms, at the reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or legal transactions with identical economic purpose, or at the obtaining of tax advantages that would not be achieved, in whole or in part, without the use of such means, taxation then being effected in accordance with the norms applicable in their absence and the mentioned tax advantages not being produced." [14]

From the wording of the law it follows, prima facie, that we are dealing with a normative provision that establishes the application of the sanction of ineffectiveness exclusively in the tax field to certain acts or legal transactions considered by law as abusive, while allowing such acts to continue to be valid and effective in relation to other branches of law, namely in the field of private law. The sanction for acts considered abusive is therefore expressed in the disregard of the tax purpose of such act or transaction, or rather, in its non-relevance for obtaining tax advantages that would otherwise, unlawfully, be achieved in whole or in part.

Once such act or transaction considered abusive is undone, it becomes apparent that it was concealing another act or legal transaction that would be taxable in accordance with the norms applicable to that same situation. Apparently everything would happen as if there were an exercise of a right to tax planning, legitimized in the name of private autonomy and management freedom. In reality, what would exist was an abusive use of legal forms or devices intended to circumvent the ratio legis (fraus legis) with the objective, essential or principal, of achieving a tax advantage, consisting of the elimination, reduction or deferral of tax burden, which, without these deviant practices, would not be achieved.

c) The creation of the GAAC concentrates in itself a set of criteria or principles of decision of essentially jurisprudential origin invoked to justify the disregard of legal acts, in the name of combating erosion of tax bases, combating tax avoidance and the principle of tax equality, in the form of the principle of contributory capacity. This is the case with the criterion of the prevalence of substance over form[15], the doctrine of step transaction (according to which the acts in question must be viewed as a whole and not individually, as only then do they gain full meaning), the non-existence of conscious gaps in taxation, the test of centrality of business purpose (business purpose test), the criterion of the sham transaction, or possibly other equally valid for this purpose, such as the test of the independent (private) investor, used in competition law (namely in the context of State aid) and underlying the institute of transfer pricing.

The GAAC, as well stated in the Arbitral Decision issued in case 162/2017, "are deliberately drafted using vague open concepts that require interpretation and active application by tax administrations and courts. They aim at creating a degree of indeterminacy, capable of discouraging aggressive tax planning and tax evasion. They represent a considerable departure from formal legal reasoning, based on linguistic analysis and the succession of laws over time and on the strict guarantee of typicality, certainty and predictability, which has characterized tax law. Certainty and legal security are fundamental for encouraging investment and structuring commercial transactions. Although these principles continue to characterize the daily practice of formulation, interpretation and application of tax norms, as results from the requirements of the rule of law, they do not present themselves as absolute categorical imperatives entirely removed from a process of balancing".[16]

Thus - continues the same judgment - these clauses "rest on the recognition that strict adherence to legal-fiscal formalism is absolutely unrealistic and quixotic in the face of the almost infinite possibilities for manipulation of legal forms and aggressive tax planning at national and international level. The recent intensification and globalization of tax evasion and fraud conduct requires, in some situations, the assumption of a more realistic, pragmatic and results-oriented attitude, on the part of the legislator, administration and tax courts. This approach requires that, in cases where the aim is to prevent abusive tax planning, the administration and courts go beyond the limits of linguistic analysis of legal texts and investigation of legislative history and advance to a normative inquiry as to the purposes pursued by tax legislation and the best means to achieve those purposes. The stance of the administration and courts should be practical and grounded in empirical results."[17]

d) The introduction of a GAAC thus adds to the legal tools assigned to the TA to more effectively combat evasion, avoidance and tax fraud, namely to special clauses and to the institute of transfer pricing. It is part of a new vision of taxation that moves away from both the principle of closed typicality and the predominance of literal interpretation (instead favoring a teleological interpretation) or of an exclusively private law analysis.[18] As A. GUERREIRO emphasizes, "If it were understood that the tax falls not on the real legal substance of the acts or contracts, but on the legal qualification given by the parties to the acts and contracts, the parties would be left with the availability of constituting the tax obligation that could be avoided by means of a qualification alien to the true legal substance characterized in the types of tax incidence".[19] This is to say that the parties would be left with complete freedom, through the free design of acts and contracts, to construct ways of circumventing the rules of tax incidence or to improperly access tax benefits or incentives. The principle of typicality, which is based on the principle of legal security, is not, however, absolute, suffering limitations, such as those arising from the GAAC, when it puts at risk constitutional principles of equality and just distribution of tax burdens, primary objectives of the tax legal order (cf. articles 13.º, 81.º, b) and 103.º and 104.º CRP), as well as fair competition between companies (article 81.º, paragraph b) CRP). One could even say that the creation of the GAAC represents a manifestation of "realism in Tax Law", as this branch of law is not indifferent to the analysis of the economic effects intended by the parties which, in reality, have come to be produced nor to the economic consideration of facts or acts with tax relevance.[20]

e) It is important to emphasize that the fight against tax evasion and avoidance is today strongly anchored in international law and European law, so much so that the context of the fight against avoidance and forms of ATP has changed substantially. [21]

In fact, especially from the Great Crisis of 2007/8 onwards and the public diffusion of denunciations against evasive or avoidance practices of multilocal companies, the international community, especially within the framework of the OECD and the G20, took on itself the grand task of strengthening the fight against the erosion of tax bases and the relocation of profits. As a result of this renewed political agenda and technical preparation over several years, the so-called Anti BEPS Plan (from the acronym Base Erosion and Profit Shifting) was approved in 2013, which gave rise to fifteen reports and, following these, to various actions or initiatives (still ongoing) aimed at combating ATP and avoiding double non-taxation. Among these initiatives, the following stand out, insofar as they are more directly relevant here: those requiring disclosure by taxpayers of their aggressive tax planning mechanisms, those aimed at ensuring that the results of transfer pricing are aligned with value creation, and those intended to guarantee the strengthening of the effectiveness of the fight against prejudicial tax competition practices, taking into account the transparency and substance of operations.

The main consequence of this movement was, for now, the emergence of a new principle of international tax law, commonly accepted by more than 130 States participating in the OECD Forum, according to which profits should be taxed in the place of production of value, a principle that should guide the application of domestic law.

This movement has been welcomed and deepened by the European Union, starting with the strengthening of administrative cooperation, operated by various directives, and the adoption of Directive (EU) 2016/1164 of the Council of 12.07.2016, known as the Anti-Tax Avoidance Directive (ATAD), approved with the objective of "restoring confidence in the fairness of tax systems and enabling governments to effectively exercise their tax sovereignty". Thus, as stated in its Preamble - Member States "may, simultaneously, meet the objectives of the Stability and Growth Pact and sustain their social state model, in accordance with the European model of a 'social market economy'". [22]

One of the measures enshrined in this directive is precisely the creation of a harmonized general anti-abuse rule, whose configuration was set out in the following terms:

"1. For the purposes of calculating the taxable base of companies, Member States shall ignore an arrangement or series of arrangements which, having been put into place for the principal purpose or one of the principal purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, is not genuine having regard to all relevant facts and circumstances. An arrangement may consist of more than one step or element.

1. For the purposes of paragraph 1, an arrangement or series of arrangements shall be regarded as not genuine to the extent that it is not carried out for valid commercial reasons reflecting economic reality.

2. Where an arrangement or series of arrangements are not taken into consideration in accordance with paragraph 1, taxation shall be calculated in accordance with national law."

f) There is strong consensus in the legal community as to the characterization of the GAAC as a device aimed at fighting tax avoidance or abusive tax planning or extra legem (ATP), and not against tax planning (TP) itself or intra legem (tax management). While the former is considered unlawful, an unlawful act of a non-penal or non-regulatory nature, the latter, when carried out in accordance with the law, is considered, both at the national and European level, not only a lawful act, but an expression of a freedom or even a right protected by the CRP (articles 61.º, no. 1 and 17.º) and, as well, a duty of good management.

Given the exceptional nature of the GAAC, its application is preceded, among us, by important safeguards of an instrumental nature aimed at ensuring the guarantees of taxpayers. Thus, the assessment of taxes based on the GAAC implies that the TA resorts to the specific gracious procedure provided for in art. 63.º of the CTPP.[23]

The application of the GAAC thus depends on prior consultation of the taxpayer, in accordance with law, this right being exercisable within the period of 30 days from notification of the draft application of the GAAC and the taxpayer being able, in the same period, to present the evidence it deems relevant. After prior consultation, the application of the GAAC must be authorized by the head of service or by the official to whom such authority is delegated (nos. 4 to 6 of art. 63.º CTPP).

Furthermore, in accordance with no. 3 of the said art. 63.º, the draft and the decision to apply the GAAC presuppose a special duty of reasoning, containing necessarily:

"a) The description of the legal transaction entered into or the legal act carried out and of the transactions or acts with identical economic purpose, as well as the indication of the rules of incidence applicable to them;

b) The demonstration that the entry into the legal transaction or practice of the legal act was essential or mainly aimed at the reduction, elimination or temporal deferral of taxes that would be due in the case of a transaction or act with identical economic purpose, or at obtaining tax advantages."

Finally, the GAAC shall not be applicable if the taxpayer has requested binding information from the TA regarding the facts that would have substantiated it and the TA does not respond within 150 days (article 63º, no. 8 CTPP). by parity of reason, the same should occur if it has been communicated to the TA, under Decree-Law no. 29/2008, of 25.02, in force since 15.05.2008, the scheme used.

g) In general terms, the notion of TP is defined and developed by article 3.º of the said DL no. 29/2008, of 25.02, in the following terms:[24]

"a) «Tax Planning», any scheme or action that determines, or is expected to determine, exclusively or predominantly, the obtaining of a tax advantage by a taxpayer;

b) «Scheme», any plan, project, proposal, advice, instruction or recommendation, externalized expressly or tacitly, the object or not of implementation in agreement or transaction;

c) «Action», any contract, transaction or set of transactions, promise, commitment, collective or corporate structure, binding or not in nature, unilateral or multilateral as well as any operation or legal or material act, simple or complex, carried out, to be carried out or in the course of execution;

d) «Tax Advantage», the reduction, elimination or temporal deferral of tax or the obtaining of tax benefit, which would not be achieved, in whole or in part, without the use of the scheme or action."

The basis of this diploma is the idea that TP, when abusive, generates very significant negative effects, as it corrodes the integrity and fairness of tax systems, discourages compliance by the generality of taxpayers and unjustifiably increases the administrative costs of inspection. They are, in essence, the same reasons that had justified the creation of the GAAC. Hence these notions, although defined within the framework of a provision aimed at combating the phenomenon of ATP promoted by tax intermediaries, are, with possible adaptations, transposable to the framework of application of the GAAC.

h) The right to TP is not, as stated, absolute. It may be, under the terms of article 18.º, nos. 2 and 3 of the CRP, the subject of restrictions legitimated by other constitutional principles, starting with those provided for in articles 13.º, 81.º, paragraphs b) and f), 103.º, no. 1 and 104.º of the CRP.

One of the main restrictions is that arising from the application of the GAAC, which can be activated not only against ATP schemes previously disclosed (or whose disclosure is mandatory), but also against others of which the TA has or should have become aware. These schemes or arrangements involve the cumulative existence of various elements which, from the analysis of article 38.º, no. 2 of the GTL, jurisprudence and doctrine have extracted as constitutive of the figure of ATP. If they are verified, the TP will be considered unlawful and subject to the penalties provided for in the aforementioned article: proof of the cumulative existence of the constitutive elements of the notion of ATP leads to the disregard of the legal forms used. Thus, the transaction carried out will be valid for purposes of Private Law, but not for purposes of Tax Law.

The following are usually considered as elements integrating the notion of ATP, for the purposes of applying the sanction of fiscal disregard of the forms used:[25]

• Means element: the resort to unusual, atypical or artificial legal forms or transactions (schemes or arrangements), with a view to obtaining, exclusively or predominantly, a tax advantage. These acts assume, as a rule, a unitary and pre-planned character, requiring their analysis the resort to the doctrine of step transaction which considers the sequence (in particular, temporal) of acts or transactions coordinated with each other and looked at globally and not independently;[26]

• Result element: the obtaining of an actual tax advantage that is expressed in the reduction, elimination or temporal deferral of tax. This advantage, arising from the schemes or arrangements used, results in obtaining a tax burden more favorable than that which the taxpayer would obtain if it had not resorted to such means;

• Intellectual element: this element seeks to analyze whether the taxpayer's motivation (regarding the obtaining of the actual tax advantage through the means used), ascertained objectively, on the basis of a judgment of reasonableness and normality, was or was not predominantly of a fiscal nature. That is, even if there is also some economic purpose in the whole of the acts and contracts carried out, this would be of a merely accessory nature and not of a principal nature, and cannot be considered a legitimate business reason for tax purposes;

• Normative element: aims to detect whether or not there exists a judgment of ethical-legal censure on the part of the legislator with respect to the conduct of taxpayers, whether the spirit and reason for being of the tax legal order (namely the application of the principle of contributory capacity) or competitive (especially the defense of the principle of fiscal neutrality) was to prevent the obtaining of tax advantages by means of schemes or arrangements that circumvent the law (abuse of legal forms, fraud against the law) or if such advantages are an outcome assumed by the legislator itself. The existence of this element is not verified, therefore, if the latter deliberately created a gap (conscious gap in taxation) or promoted a fiscal option of which the taxpayer legitimately merely took advantage. [27]

i) Three precautions should, however, be taken with respect to the application of the elements integrating the notion of ATP, underlying the application of the GAAC.

The first goes in the sense that, although the analysis of each of these elements must be done individually, this fact cannot make one forget that, in reality, they are strongly articulated or connected with each other, and it is, most often, difficult to isolate them, as, moreover, occurs in the present case, regarding the arguments of the parties. It is always necessary to observe such elements as a whole and in a dynamic manner (holistic vision).

The second is that - as sustained in the aforementioned CAAD judgment [28]- one cannot obscure the fact that the decisive vector in verifying the legitimacy of the application of the GAAC "is always the case-by-case appreciation, in function of the values and objectives of the tax legal order, of the circumstances present in the fiscally relevant situation under judgment". And, on this point, that judgment invokes the already-mentioned judgment of TCA South issued in proc. no. 04255/10, according to which "the question of determining whether any particular expedient is 'purely artificial' should be resolved in the domestic courts case by case", to then conclude that the functioning of the GAAC "always presupposes a task of concrete realization of Law in function of the factual circumstances and material contours of the situation sub judice, being not viable, on its subject, under pain of unprotecting the real needs that presided over its establishment, to reduce its application to strict and automatic subsumption of realities to abstract legal categories".[29]

The third implies that, facing a complex scheme, formed by acts and contracts that succeed each other over time, in which a holistic vision of the arrangement is required, it is only possible to proceed with the analysis of the situation, for purposes of applying the GAAC, from the moment in which the tax advantage that the taxpayers intend to obtain is materialized.

1. The Application of the GAAC to the Case Sub Judice from the Perspective of the Parties

Involving the distinction of legitimate TP (intra legem) from ATP (extra legem), the application of the GAAC to the facts will never be easy, as various judicial decisions in divergent directions attest to this.[30] In the absence of confession by taxpayers, the possibility of making such a distinction can only rest on judgments of reasonableness and rationality. The subsumption of the concrete case to the norm that provides for the GAAC can only be, in practice, carried out, taking into account judgments of common experience and social normality regarding the facts and the elements collected which, with reasonable certainty, allow concluding (or not) on the abusive nature of the taxpayer's tax planning.

It is further recalled that, as the court must pursue the discovery of material truth, it is not bound by the qualifications of the parties nor by the way in which they structure their arguments or proceed with the interpretation of facts.

The following seeks to synthesize the positions of the Claimant and the Respondent regarding the application of the GAAC, as resulting from the initial petition, the FTIR, the response and the arguments, procedural documents to which reference is made.

A) As to the Means Element

1. Position of the Respondent

The TA emphasizes that the administrators and owners of the Claimant decided to create, on 29/12/2009, a holding company (H...) in the Republic of Malta with capital stock of € 1.200,00, so that the day after its creation, they would use that same company to acquire entirely the capital stock of the Claimant for a value of twenty million euros, that is, for a value 16,666.67 times superior to the value of its capital stock, remaining, through H..., as owners of the company sold (the Claimant). They also remained as administrators of the Claimant, having even decided to attribute dividends to the new company after obtaining the capital gain from the sale of company M....

From this purchase it resulted that H... was left with an asset on its accounts of that amount and a liability of equal amount, this liability corresponding to the debt to its shareholders, this debt being paid over the years with the product of the payment of dividends attributed by resolution dated 31/05/2011 (annex 8). Subsequently, the debt to shareholders was amortized in the terms revealed by the following table:

In this way, the common shareholders of the Claimant and H..., through their acts, undertook a pre-ordered succession of acts that, together, transformed the attribution of dividends from the Claimant to themselves into payment of a debt created in a Maltese company controlled by the sellers (cf. paragraph h) of no. 2 of article 5.º of the CIRS). [31]

1. Position of the Claimant

The impact of the 2008 crisis was especially devastating for world trade and, in particular, for the shipping industry. Portugal did not present sufficient economic security for potential partners or clients of the E... Group companies (E...), a leader in shipping activities in Portugal, to engage in negotiations. To react and adapt the investment structure of shareholders to such an adverse world crisis context, the Group bet on diversification and internationalization of common investment projects, and this was the main reason for the creation of H... in Malta (one of the largest European centers of the shipping industry, a gateway to Europe for investments from third countries, such as Lebanon and a country with a stable tax system and consensus among the various political forces) which, based on the available data, appeared to be the best option. The Group's investment in Malta was substantive, material and effective, with emphasis on the acquisition, for strategic reasons, of a property located in ....

Thus, H... was established to follow up on negotiations that were in progress, but also and especially as an appropriate vehicle to accommodate this and other initiatives and opportunities that might arise, without its shareholders anticipating either the number or the dimension of the same, and naturally they could not be compelled to do so. That is: H... was created to provide individual shareholders with a legitimate and rational corporate vehicle, suitable for the development of international business they intended to undertake, as a form of diversification of their investments.

There is thus no type of tax planning in its creation.

According to the Claimant, in practice, H... fulfilled this strategy, dedicating itself effectively and unequivocally to the search, identification and pursuit of investment opportunities that far exceeded mere retention of participation in the Claimant. Thus is understood the realization of various investments which, although undertaken, for reasons of mere practical convenience, by companies of the E... Group, were unrelated to the shipping industry. The individual shareholders intended to assume and develop these investments together, as occurred with the "..." project (transmitted by F... to H... in 2011) and with the project to open two stores in Brazil and the establishment of two Brazilian companies, initially undertaken by the said F... and then transmitted to G..., that is, indirectly to H... which controls 98% of G.... Later, in 2012, this diversification continued with the acquisition of shareholdings in W... of Group Y... and, in 2013, in X..., a boutique consulting firm.

According to the Claimant, all this shows that there is economic substance in H..., substance which should, moreover, be analyzed at the group level, as what is relevant is "group substance". This conclusion is further supported by the fact that H... has, since the beginning, its registered office (together with G...) in the building of ..., property of F..., the office of the aforementioned law firm serving only for administrative and operational purposes, and that the meetings of the Board of Administrators and the General Meetings of shareholders have always taken place at the registered office of the company, with evidence of trips to Malta by the Portuguese shareholders and/or administrators to participate in them.

The fact that H... does not have a significant business structure is not relevant since it is normal for this to occur with holding companies. Nor is it strange that the value of the sale of shares in the Claimant to H... is far superior to the nominal value or the book value, since such value would result, as required by the transfer pricing regime, from the market value which is its real value at the date of transmission.

B) As to the Result Element

1. Position of the Respondent

With the set of acts and contracts described above, the common shareholders of the Claimant and H..., achieved indirectly the equivalent of the dividends attributed to an entity created by them, dividends arising from a capital gain obtained by the Claimant without paying any tax on those dividends, through the creation of an SGPS, H..., an entity "inflated" with debt from the acquisition of the Claimant.

The creation of this holding company is not justified in economic terms. In fact, from the start, it never had the means to develop any substantive activity: its capital is ridiculously small and the product of dividends is practically delivered to its shareholders as payment of the loan. In the company only remains what is sufficient for the (few) current expenses in Malta, the acquisition of a small shareholding not being of substantial relevance in 2012 in a Portuguese wine company (W... SA) and the acquisition of 10% of X..., another Portuguese venture capital company. From the consultation of the organizational charts in annex 1 (which show the evolution of the group), one can conclude that little or nothing was developed by H... that could not have been perfectly developed by the Claimant or by other Group companies. In fact, business has been developed in Portugal, with the common shareholders of H... as its participants. Via these businesses, the Claimant did not effect PIT WS in the amount of € 2.283.667,95 which, under the terms of paragraph c) of no. 1 article 71.º of the CIRS[32], it should have effected if the artificially created structure had not existed. The following table shows what would have happened if there had been direct distribution of the company's dividends to the shareholders:

From these facts, the TA draws the following conclusion: on the one hand, "the shareholders, through their acts, achieved a tax advantage in the amount identified above, and on the other hand, the equivalence of economic effects with those of 'normal' acts or legal transactions, which are taxed".

1. Position of the Claimant

There is no tax advantage obtained by the Claimant. The staged payment made by it to the individual shareholders is not taxed, nor would it be if effected immediately. Nor is there a tax advantage on the part of these shareholders deriving from any artificial arrangement or scheme. There is, rather, an exclusion from taxation of capital gains (in the case obtained by reason of the sale of M...) which the law established, under the terms of the legislation in force at the time, "in a clear and unequivocal manner".

In summary: The individual shareholders conceived and implemented an entirely legitimate corporate reorganization operation, strategically justified, in light of the crisis context existing in 2009, realizing in that process, with full legitimacy, a capital gain "which the TA could not, but wants at all costs to tax".

C) As to the Intellectual Element

1. Position of the Respondent

According to the TA, it can be concluded that the motivations for the creation of H... were essentially fiscal, since no one can create a company with ridiculously small capital of € 1.200,00 to acquire a holding of the dimension of the Claimant. Moreover, throughout the process, including the elements in the annexes, there is no underlying economic plan or model for this acquisition.

We have, rather, an ATP in which the shareholders of the Claimant constitute a company in Malta that will be managed by themselves with the purpose of acquiring their holding (the Claimant) for an amount well above its book value, thus inflating the newly created company with debt that will only be paid with future dividends (paid by the Claimant) to which it will be entitled. Such dividends revert to the personal sphere of the shareholders through a scheme aimed at repayment of the debt created by them in H.... All of this reveals and corroborates the intention, ab initio, of the contributing parties in this procedure to transform a dividend into debt payment, aimed at eliminating the tax burden, as this would be required if there were direct distribution of dividends, with equivalent results. It thus becomes clear that the act of creation of H... is completely unnecessary, because economically useless, having been essentially or mainly directed at the tax advantage it provided.

No other relevant motivation other than the fiscal one is discernible in the choice of creation of H... and the sale of the Claimant, made by its shareholders and administrators, and this is the only one capable of explaining the sequence of legal transactions that culminated in the transformation of a dividend into an amortization of a loan.

In this perspective, it is easy to discern that if they had opted for what is considered the normal way, they would have received the dividends, being these subject to tax, in accordance with the provision of paragraph h) of no. 2 of article 5.º of the CIRS. If they had opted for the normal transaction they would have obtained the same economic result that they obtained with the creation of H.... For this reason such transaction is only explicable by the avoidance of taxation that such artificial scheme permitted.

1. Position of the Claimant

There was no tax motivation in the realization of the acts, contracts or operations in which the Claimant, the shareholders or other companies of the E... Group intervened, beyond the legitimate choice of Malta as the operational center of the Group due to the well-known fiscal attractiveness of that territory. But that motivation is legitimate since, as is consensual, taxpayers are not obliged to choose the more onerous fiscal routes.

D) Normative Element

1. Position of the Respondent

Underlying this element is the non-conformity of the result obtained with the ratio legis, the spirit or purpose of the law (starting with the principles of the Tax Codes or of the Tax System as a whole). In other words: The fiscal effect achieved by the artificial means used (arrangements, schemes, etc.) merits a judgment of disapproval by the legal order.

Now, as a result of the arrangement of all the acts and transactions, which are lawful in themselves in relation to private law, carried out by the taxpayers, dividends were, in practice, "replaced" by debt reimbursement, which are not subject to taxation.

The normative aspect concerns the rules of taxation of advances on account of profits and dividends in the context of PIT, whose purpose and effectiveness were compromised by an abusive use of the mechanisms in question.

In truth, one can always affirm that tax avoidance translates into an exploitation of lawful transactions, whose sole motivation relates to the exemption of the taxpayer from the payment of the tax, to accrue to the benefit of the public treasury. Moreover, the substance of economic reality, a consequence of the celebration of said transactions, is not that which resides in the truth of their effects, but rather that whose animus lies in the elimination or reduction of tax. In other words, and briefly, avoidance finds its foundation in a set of lawful means, but relating, exclusively, to unlawful purposes.

Along the same line of thinking, the resort to strategies typical of ATP is not justified by reasons of corporate management. Rather, they are reasons within the tax domain, with harmful effects not only for the State's coffers, but also for life in society, both that of citizens and that of the business fabric itself, since such conduct leads to an unjust distribution of tax burdens which, in the final analysis, will result in a competitive distortion among the various agents operating in the markets.

1. Position of the Claimant

The Claimant and its shareholders merely exercised freedom of establishment and free movement of capital protected by European Union Law and the freedom of management, enshrined in the CRP. The TA did not prove that there was any ATP scheme nor any of the elements necessary for the application of the GAAC. There are no facts, acts or legal transactions with an identical economic purpose to what was intended to be achieved with the creation of H..., and therefore none of the acts carried out can be subject to normative censure. Censure, yes, should exist in relation to the conduct of the TA, as this, formulating "a judgment of subsequent prognosis", seeks to use the GAAC to tax a posteriori a capital gain that was excluded from taxation at the time it was obtained.

V. DECISION

A. Decision as to the Application of the GAAC and its Rationale

a) The starting point for the decision of the present dispute is the proven fact in the record that all decisions are made within the boundaries of the same economic group (E... Group, E...), by the same natural persons (B... and D...), either as shareholders of group companies or as administrators. By definition, within an economic group the relationships between group companies and entities are not based on competition, but on relationships of a hierarchical or cooperative nature. Companies with autonomous legal form enjoy the benefits arising from the legal fiction of the attribution of legal personality to them. But, in an economic system based on market and competition as a form of economic coordination, they are subject, in relationships established within the group, to important limitations, such as those arising from the institute of transfer pricing (which allows tax authorities to correct intra-group transfer prices, transforming them into prices of full competition) or the application of the GAAC which allows the disregard of legal operations carried out exclusively or predominantly for fiscal reasons (and not for genuinely economic or commercial reasons) similar to those that would be taken by independent private operators situated outside the boundaries of the economic group. Freedom of management thus excludes cases of abusive tax planning or, in other terminology, aggressive planning which are considered illegitimate for violating namely rules of protection of inter-company competition and fundamental principles of tax law, such as the principles of contributory capacity and protection of the structuring elements of the tax system or the international principle whereby taxation should occur where income was produced. Freedom of management only contemplates forms of legitimate tax planning, that is, the freedom to make less burdensome tax choices that are not against or extra legem.

b) As to the means element, we are, in the present case, faced with the use of a scheme long identified as ATP and which enjoys considerable diffusion.[33] The option of companies for these schemes (induced or not by third parties), without prior request for binding information or communication to the tax authorities, always implies the risk of application of the GAAC, as a rule assumed on the basis of a calculation of probabilities, a risk that cannot fail to run against those who use them.

There exists, in reality, within E..., a succession of acts, contracts or transactions valid in themselves (before private law, tax criminal law and European Union law) carried out by group companies or entities which, viewed globally (and not autonomously) are coordinated with each other, constituting schemes or pre-planned arrangements for obtaining, exclusively or predominantly, a tax advantage.

The acts, contracts or transactions that assume greater relevance in the arrangement of this scheme are, in particular, the following:

1. the establishment by the administrators and individual shareholders of the Claimant, on 29.12.2009, of the holding H... (hereinafter H...) in the Republic of Malta, with capital stock of € 1.200,00, with registered office in ..., ..., ..., a company that came to be superimposed in the hierarchical pyramid of the group upon the Portuguese holding (the Claimant).

2. the establishment, at the same time, of company G... (hereinafter G...), at the same registered office as H... which is the location of the registered office in Malta of the E... Group;

3. the purchase and sale contract between H... and the Claimant (represented by the same administrators), effected the day after the establishment of that Maltese holding, through which this new company acquired the entire capital of the Claimant for 20 million euros;

4. the decision by the Claimant to pay H... in installments (a transaction economically equivalent to an interest-free loan), over several years, the 20 million euros in debt arising from the transaction referred to in the previous paragraph;

5. the sale, on 26.04.2010, by the company Claimant (decided by the same administrators and individual shareholders) of the shareholding it held in company M..., SGPS, SA to Group Z... (an operation identified in the accounting of the Claimant as Q...) for the amount of 29.572.400,00, paid in a staggered manner in time, so that at the end of 2013, A... still had an outstanding balance in the "Other Debtors" account of 2 million euros.[34]

6. On 31.05.2011, the general meeting of the Claimant (i.e., decision by the same individual shareholders) attributed to H... dividends in the amount of 15 million euros. [35]

The "classic" route adopted thus involved the interposition of a holding (H...), created for that purpose, between the intended distribution of profits and its beneficiaries, in order to alter the character of this distribution, making it appear as amortization of a loan, with absence of interest, with everything always being decided by the same interested parties. This fact becomes even more apparent, given in particular the rhythm of the chronology (one day elapsed between the establishment of the interposed company and the purchase of the shareholdings, the scheme being complete not long afterwards), the exploitation of non-taxation (of income resulting from the sales of shareholdings and the placing at the disposal of profits to the interposed company), the insignificant capital of the interposed company (1.200,00€) compared to the purchase price that followed immediately (20.000.000,00€), the location of the registered office in a place gratuitously ceded by group entities and of the offices in the same space as the Maltese lawyer, the very appointment of this lawyer as director of the interposed company, as well as the qualitative and quantitative aspects of the activity of that company, beyond the acquisition of shareholdings which constituted the core of the activity developed by the holding.

Furthermore, from the analysis of the aforementioned facts, it is concluded that the purchase and sale contract in which H... acquires the shareholdings of the Claimant for 20 million euros would not be effected by an independent private operator, without external valuation of the company, since it would not be an act endowed with economic rationality. Such an acquisition is only possible because it was decided and effected by entities that are part of the same economic group, namely by shareholders and administrators in common who make the strategic decisions of the group, and which, in this way, could have knowledge