Summary
Full Decision
ARBITRAL DECISION
Agree in arbitral tribunal
I – Report
1. A..., Lda., with the collective person number..., with registered office in ... ..., ...-... ..., hereby requests the constitution of an arbitral tribunal, under the provisions of articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January, to examine the legality of the dismissal dispatch of the hierarchical appeal of the withholding tax assessment on personal income tax (IRS) relating to the year 2011, in the amount of € 140,610.00, further requesting the condemnation of the Tax Authority to payment of compensatory interest.
The petition is grounded on the following terms.
Following an inspection action, the Tax Authority, under the general anti-abuse clause, deemed ineffective the reduction of capital of the Claimant company and the attribution of the corresponding value to shareholder B..., on the grounds that the operation amounted, in practice, to a distribution of profits generated by the company that should have been taxed as capital income and were subject to withholding at source under the terms of article 98, no. 1, of the IRS Code.
Having imposed on the Claimant company the tax obligation of withholding at source of the amount of € 154,678.70, corresponding to the income of the shareholder deemed to be subject to taxation, the Claimant assumed the status of tax substitute, when it is certain that no abusive conduct is imputed to it that would be subsumed under article 38, no. 2, of the General Tax Law, nor does this provision have the scope to impose accessory tax obligations on third parties.
And in that sense the tax obligation should have been imposed directly on the shareholder to whom the practice of transactions is imputed that, by artificial means and with abuse of legal forms, led to the reduction or elimination of taxes that would be due, being unopposable to the Claimant the disregard of legal transactions that result from the application of the general anti-abuse clause.
Otherwise, it would be incumbent upon the tax substitute to bear the burden of ascertaining whether the tax debtor could have engaged in abusive acts that would justify withholding at source, when this is a disproportionate and inadmissible requirement, since it is incumbent upon the Tax Administration to initiate the proper procedure provided for in article 63 of the Tax Procedure and Process Code with a view to assessing taxes based on anti-abuse provisions.
Furthermore, it is not legally possible for the Claimant, as tax substitute, to recover the tax subject to withholding at source, and it must be understood that the provision of article 38, no. 2, of the General Tax Law, when interpreted to mean that the effects resulting from the application of the anti-abuse clause are opposable to the tax substitute, is unconstitutional as it violates the principle of proportionality and the right to property (articles 18, no. 2, and 62, no. 1, of the Constitution).
Furthermore, the prerequisites for the application of the general anti-abuse clause are not met, since the operation of capital increase and its subsequent reduction was deliberated in general assembly and is valid under corporate law, with the Tax Authority bearing the burden of proof that the reduction of share capital had purely financial reasons and without any appreciable economic reason.
The assessment act further suffers from violation of article 15 of the Supplementary Regime for Tax and Customs Inspection Procedure, having been altered the scope of the inspection procedure from partial to general by an unfounded dispatch notified to the Claimant at the moment of conclusion of the procedure and not during its execution, as that provision requires.
The Tax Authority, in its response, relying on the dissenting votes recorded in the decisions rendered in Cases nos. 283/2014-T, 200/2014-T and 32/2015-T, contends that, being at issue income of category E, taxable under the terms of no. 1 and paragraph h) no. 2 of article 5 of the IRS Code, the withholding at source of such income at the final tax rate is incumbent on the Claimant, in its capacity as tax substitute, as stipulated in paragraph c) of no. 1 of article 71 of the same Code.
In that sense it points to article 38, no. 2, of the General Tax Law which, when referring to the fact that taxation is carried out in accordance with the applicable rules in the absence of the artificial means used – with the tax advantages that would have been obtained not being produced – necessarily imposes withholding at source to the tax debtor upon whom this tax obligation has been imposed. As does article 20 of the General Tax Law, which permits the tax payment to be demanded from a person different from the taxpayer and effected through the mechanism of withholding at source of the tax due, which means that the institution of tax substitution does not imply the existence of tax capacity in the sphere of the substitute.
With regard to the procedural defect raised, the Tax Authority alleges that the inspection procedure is subject to extension under the terms of no. 3 of article 36 of the Supplementary Regime for Tax and Customs Inspection Procedure in situations of special tax complexity, and, in the case, the Claimant was notified of the extension through the official communication dated 25 March 2014 and the fact that the alteration of the scope of the inspection action occurred on the date of conclusion of the procedure does not diminish its right to defence.
It concludes to the groundlessness of the petition.
2. Following the proceedings, the meeting referred to in article 18 of the Rules of Procedure for Tax Arbitration was dispensed with and the proceedings were ordered to continue for successive pleadings.
In pleadings, the Claimant maintained its previous position. The Respondent did not file a counter-reply.
3. The petition for constitution of the arbitral tribunal was accepted by the President of the Centre for Tax Arbitration (CAAD) and notified to the Tax and Customs Authority in accordance with applicable regulations.
Under the terms of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the Rules of Procedure for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the position within the applicable timeframe.
The parties were duly and timely notified of such appointment and did not manifest the intention to refuse it, under the combined terms of article 11, no. 1, paragraphs a) and b), of the Rules of Procedure for Tax Arbitration and articles 6 and 7 of the Deontological Code.
Thus, in compliance with the provision of paragraph c) of no. 1 of article 11 of the Rules of Procedure for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 2 October 2018.
The arbitral tribunal was regularly constituted and is materially competent under the terms of articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same decree and 1 of Regulatory Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and no exceptions were raised.
It is incumbent upon us to examine and decide.
II – Legal Grounds
Matter of Fact
4. The facts relevant to the decision of the case that may be taken as established are as follows.
A) The Claimant was subject to an external inspection procedure initiated by Service Order no. OI2013..., issued by the Finance Directorate of ...;
B) The procedure began on 5 November 2013, with an expected end date of 1 April 2014, and was extended for a period of three months by a dispatch of the Finance Director of ... dated 25 March 2014, notified to the Claimant at its tax domicile and whose records were returned;
C) By means of a diligence note notified to the Claimant on 8 April 2014, the scope of the inspection procedure was altered to general on the grounds of the special complexity of the tax situation resulting from the application of the general anti-abuse clause;
D) The expected date for the conclusion of the procedure fell on 5 August 2014;
E) The Claimant was notified to exercise the right of hearing regarding the draft Tax Inspection Report by official communication dated 11 April 2014, and did not exercise this right;
F) The proposed corrections to the Tax Inspection Report were submitted for consideration by the Director-General of the Tax Authority, by dispatch of the Finance Director, in substitution, of 28 May 2014;
G) The Tax Inspection Report, in its final version, obtained the agreement of the Director-General of the Tax Authority, by dispatch of 15 July 2014;
H) On 14 August 2015, the Claimant filed a hierarchical appeal of the decision denying the administrative claim against the assessment act, which was dismissed by dispatch of the Finance Director of ..., issued with delegation of powers, notified to the Claimant by official communication dated 18 April 2018;
I) On 31 January 2011, the Claimant constituted free reserves (account 5524) in the amount of € 831,584.71, by transfer from legal reserves (account 551), in the amount of € 250,570.44 and from carried-forward results (account 56), in the total of € 581,014.27;
J) On 30 March of that year, the 2010 accounts were approved and a decision was taken to transfer profit to carried-forward results.
K) By resolution of the General Assembly of 2 August 2011, the Claimant approved the increase of the share capital of the company from € 5,000.00 to € 800,000.00, through the incorporation of free reserves, with the proportional increase of existing shares, which then became established as follows: B..., 91%, € 717,272.00; C..., 9%, € 72,728.99;
L) By resolution of the General Assembly of 30 November 2011, the Claimant approved the reduction of share capital from € 800,000.00 to € 146,000.00 and the release of excess capital, by reduction of the share belonging to B..., in the amount of € 654,000.00;
M) The share belonging to B... then presented a nominal value of € 73,272.00;
N) On 31 December 2011 the accounting entry of the amount of € 654,000.00 corresponding to the share reduction was made and the payment in cash to shareholder B... was effected;
O) In the Tax Inspection Report, which is contained in the Administrative File and is reproduced here, it was considered, based on the procedure for application of the general anti-abuse clause, that the operation of increase of share capital followed by reduction of capital and release of excess capital, through the reduction of the shareholder's share, had a purely financial purpose of distribution of profits, aimed at avoiding subjection to taxation under IRS;
P) In the same Report it was proposed to tax as IRS the amount of € 654,000.00 as capital income – Category E, under the terms of paragraph h) of no. 2 of article 5 of the IRS Code, with subjection to withholding at source at the final tax rate of 21.5%, under the terms of paragraph c) of no. 1 of article 71 of the IRS Code;
Q) The tax obligation of withholding at source was imposed on the Claimant as it was the entity that placed the income at the disposal of the shareholder and to which the obligation of withholding fell due at the moment of payment, under the terms of article 98, no. 1, of the IRS Code;
R) The Tax Authority issued the assessment act for IRS – withholding at source no. 2014..., relating to 2011, in the value of € 154,678.70.
The tribunal formed its conviction as to the proven factual matter based on the documents attached to the petition and on the administrative file attached by the Tax Authority with the response.
Matter of Law
General Anti-Abuse Clause
5. The question that arises, initially, is whether the ineffectiveness of legal transactions carried out by artificial or fraudulent means and with abuse of legal forms, in application of the general anti-abuse clause, becomes opposable to entities which, as a result of the tax substitution mechanism, are normally bound to proceed with the withholding at source of the tax that would be due.
The Tax Administration, starting from the provision of article 20 of the General Tax Law, which permits the tax payment to be demanded from a person different from the taxpayer through the mechanism of withholding at source, and article 38, no. 2, of the same Law, which mandates that taxation be carried out in accordance with the applicable rules if the artificial means had not been used, contends that the disregard of the legal transactions performed has as a necessary consequence the restoration of the legal regime that would be applicable in the face of common legal practice, implying the holding of the tax substitute responsible through withholding at source.
The Claimant contends that the ineffectiveness of acts performed as a result of the application of the anti-abuse clause cannot have repercussions on the relationship with the tax substitute, so that any tax due must be directly demanded from the taxpayer who is the recipient of the legal command contained in the anti-abuse rule.
In the case, at issue is the declaration of ineffectiveness for tax purposes of the operation of reduction of share capital and the release of excess capital in favour of one of the shareholders, which the Tax Administration understood corresponded to an effective distribution of profits that were subject to taxation as capital income under the terms of article 5, no. 2, paragraph h), of the IRS Code and which would be subject, under general terms, to withholding at source by the entity that placed the income at the disposal of the taxpayer.
6. To clarify the question that is under debate, it is justified to describe, albeit briefly, the regime of the general anti-abuse clause, tax substitution and withholding at source.
The said provision of article 38, no. 2, of the General Tax Law declares as "ineffective, in the tax sphere, acts or legal transactions essentially or mainly directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferment of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or to the obtaining of tax advantages that would not be achieved, wholly or partially, without the use of these means". And, in that case, it determines that taxation shall be carried out in accordance with the rules that would be applicable if such means had not been used, with the tax advantages sought not being achieved.
As SÉRGIO VASQUES notes, the general anti-abuse clause enshrined in the General Tax Law is composed of three essential elements. "First, it requires the practice of an artificial or fraudulent act or transaction and that it expresses an abuse of legal forms, in the sense that we are faced with business schemes that conceal their true purposes and to which a manifestly anomalous use is given compared to common legal practice. Second, it requires that the sole or main objective of these business schemes is to obtain a tax advantage, whatever its nature, with the evident marginalisation of real economic objectives. Third, it requires that the law clearly shows the intention to tax the assets in question, in the same terms in which they would be taxed if the taxpayer had resorted to the more common legal forms and business practices" (Manual of Tax Law, Coimbra, 2018, p. 369).
The general sense of the rule is, in these terms, to permit the disqualification for tax purposes of any act or legal transaction carried out by the taxpayer with the sole or main objective of obtaining a tax advantage, which may constitute a fraud on tax law. The legal effect resulting from the operation of the anti-abuse clause is to consider the acts as carried out in accordance with the normal standard of legal commerce to obtain the same economic result, with the tax obligation being determined in function of equivalent acts that could be carried out.
In turn, tax substitution, referred to in article 20 of the General Tax Law, presupposes the displacement of the tax obligation from the direct taxpayer – who is covered by the rules of incidence of the tax – to a third party who is the debtor of the income subject to taxation and to whom falls the obligation of deducting a portion of that income at the moment of its payment for remittance to the State. As results from no. 2 of article 20, "tax substitution is effected through the mechanism of withholding at source of the tax due" and the responsibility of the tax substitute – as specified in article 28 – is expressed in the obligation to deduct the amounts subject to withholding and their remittance to the State's treasury which, once satisfied, releases the substituted from payment of those amounts.
As SALDANHA SANCHES explains, tax substitution by means of withholding at source of income is explained by reasons of an essentially practical nature, aimed at ensuring through a reliable means the collection of the tax and, simultaneously, to bring closer temporally the moment of verification of the tax fact – which is expressed in the payment of income subject to tax – and the fulfilment of the tax debt. In this way, the withholding of income by the debtor will serve for the payment of part of the tax debt, if it is a payment on account of a future tax obligation (as occurs in withholdings made on work income) or of its entirety (as occurs in the case of withholdings made, on a final basis, through the application of final tax rates that burden capital income) (Manual of Tax Law, 3rd edition, Coimbra, p. 269).
For its part, the mechanism of withholding at source is regulated, in general terms, in article 98 of the IRS Code, establishing therein that, in cases where there is withholding of tax at the moment of payment of dependent work income, the entities owing the income subject to withholding are obliged, at the moment of payment of salary, to deduct the amounts corresponding to the application of the tax rates that are provided for that category of income (no. 1), with remittance taking place by 20 of the month following that in which the withheld amounts were deducted (no. 3).
In the case of capital income, the withholding is final, under the terms of article 71, no. 1, paragraph a), of the IRS Code, with the substituted being only subsidiarily responsible for non-withholding or non-remittance of the tax (article 28, no. 3, of the General Tax Law).
7. It results from all the preceding considerations that the general anti-abuse clause is intended to eliminate illegitimate tax advantages obtained in the legal sphere by the taxpayer through acts or transactions carried out with the intent to avoid payment of the tax that would be due if common legal forms had been used.
The application of the anti-abuse clause depends, on the other hand, on a case-by-case assessment, with consideration needing to be given to the concrete conduct imputable to the taxpayer in function of the factual circumstances that may be taken as established (cf. decision of the Administrative Court of the South of 15 February 2011, Case no. 04255/10, and arbitral decision rendered in Case no. 377/2014).
In the case at hand, the illegitimate tax advantage that justified the application of the anti-abuse provision was expressed in the avoidance of payment of tax relating to the distribution of profits to one of the shareholders, which would normally be subject to taxation as capital income, under the terms of paragraph h) of no. 2 of article 5 of the IRS Code, and which was achieved through a successive series of corporate transactions that are thus described.
On 31 January 2011, through an internal entry with no...., free reserves were constituted in the amount of € 831,584.71, by transfer from legal reserves in the amount of € 250,570.44 and from carried-forward results in the total of € 581,014.27.
On 30 March following, the 2010 accounts were approved and a decision was taken to transfer profit to carried-forward results.
On 2 August 2011, the company proceeded to increase capital from € 5,000 to € 800,000 through the incorporation of free reserves, with the proportional increase of existing shares in the following terms: B..., 91%, € 717,272.00; C..., 9%, € 72,728.99.
On 30 November 2011, A..., Lda. decided, in a general assembly of the two sole shareholders, to reduce share capital from € 800,000.00 to € 146,000.00 and to release the excess capital, in the amount of € 654,000.00, by reduction of the share belonging to B... which then presents a nominal value of € 73,272.00.
On 31 December 2011, following the reduction of share capital, payment in cash was made to shareholder B..., in the amount of € 654,000.00.
The reduction of share capital was allegedly effected to free the company of excess capital, implying the neutralisation, in substantial part, of the capital increase that had been carried out approximately four months before. On the other hand, the attribution to one of the shareholders of the amount resulting from the capital reduction had the practical consequence of avoiding taxation under IRS as capital income.
There was witnessed, in these terms, a series of transactions by steps ("step transaction") with an evasive consequential effect that can be evidenced by the following graphic representation:
[Graphic representation of step transaction]
8. The reference to acts or legal transactions that may be deemed ineffective by application of the anti-abuse clause must be understood in a broad sense, encompassing any business schemes that may be considered finalistically related and which, by absence of economic rationality, should be deemed as aimed at avoiding payment of the tax that would normally be due. Furthermore, the legal forms that have been used should be assessed in objective terms, based on the economic substance of the transactions according to a standard of economic and commercial reasonableness.
It cannot be lost from sight that the general sense of the Tax Anti-Avoidance Directive (EU) 2016/1164 of the Council, of 12 July 2016, suggests that an arrangement (or series of arrangements) will be considered as not genuine to the extent that it does not put into effect a valid commercial purpose based on reasons that reflect economic reality.
In the case, it is important to note that we are faced with a company comprised of two shareholders, who are spouses to one another, who compose the general assembly and are the sole managers, which, from the outset, presupposes a blurring between the general associative rights that form the legal position of the shareholders, such as the right to profits and the right to participate in the deliberations of the company, and the corporate interest that constitutes the substrate of the business organization as an independent entity.
Furthermore, the operations for modification of share capital carried out do not reveal a sufficiently defined objective and justified from the financial standpoint.
On one hand, the Claimant transformed legal reserves, constituted by funds that were intended to enable the company to satisfy possible future liabilities without need for recourse to capital – and which the law fixes at no less than one-twentieth of the profits of each fiscal year, until representing one-fifth of share capital – into free reserves, the constitution of which is only justifiable within a framework of prudential management. It is certain that legal reserve is mandatory constitution (article 218, no. 1, of the Commercial Companies Code) and should only be used to cover losses that cannot be satisfied by other reserves, to cover part of carried-forward losses from the preceding fiscal year that cannot be satisfied by the profit of the current fiscal year or by other reserves or for incorporation into capital (article 296 of the Commercial Companies Code). By this means, the Claimant allowed, in violation of that article 296, funds that should constitute the legal reserve to be allocated away by resolution of the general assembly.
On the other hand, the Claimant proceeded to an increase of the corporate patrimony through the incorporation of funds that came to form part of free reserves (previously allocated to legal reserve), generating the consequent proportional increase of each shareholder's shares. And, in a short period of time, it partially reversed this modification of the company agreement, by the reduction of the corporate participation of one of the shareholders and the release of that sum in its favour.
As is known, the reduction of share capital may be motivated by its value having become exuberant relative to the corporate purpose and there being an interest in such reduction to free a part of the capital for other useful applications or to compensate for losses in patrimony without need for recourse to new contributions (cf. PINTO FURTADO, Course in Corporate Law, 4th edition, Coimbra, p. 525). And, in the case, the justification given to the Tax Administration for the reduction was precisely that an excess of capital had been verified. What happens is that the alleged excess of capital is associated with the increase in capital that had been recently deliberated, and, on the other hand, the release of capital resulting therefrom had no other application than the attribution in cash to the shareholder whose share was reduced, without one being able to descry in that operation any other relevant effect that relates to the business activity.
The Claimant alleges that the modifications of share capital were deliberated by the general assembly and maintain validity in the corporate sphere. But it is certain that the deliberation of the company relating to the increase or reduction of capital is a necessary prerequisite of the contractual modification, which should mention the modality and the amount of the capital increase and the nominal amount of the new participations and, in the case of reduction, its purpose in order to indicate whether it is aimed at covering losses, at the release of excess capital or at another special purpose (articles 85, 86 and 94 of the Commercial Companies Code).
It is not sufficient, therefore, merely the precedence of a corporate deliberation to ensure that the modifications do not correspond to an artificial means aimed at avoiding payment of taxes, especially since – as has been stated – the general assembly is comprised of two shareholders, spouses to one another, and resulted in the favouring of one of the shareholders through the attribution of the sum corresponding to the reduction of share.
There subsist, in this entire context, sufficient indicatory facts to consider that the articulated set of operations, having had no objective that becomes justifiable in the plane of economic rationality and business activity, had the sole purpose of preventing taxation under IRS of capital income, with there being sufficient grounds for the declaration of ineffectiveness of the legal transactions in application of the general anti-abuse clause referred to in article 38, no. 2, of the General Tax Law.
9. That consequence is not impeded by the circumstance that the correction of the tax situation was effected by means of withholding at source by the entity owing the income subject to taxation. As again results from article 38, no. 2, of the General Tax Law the anti-abuse clause has as its aim to ensure that taxation is carried out in accordance with the rules that would be applicable in the absence of artificial or fraudulent means so as to eliminate the tax advantages sought to be achieved through the use of those means.
The ineffectiveness of legal transactions carried out – constituting the mechanism by which it is sought to prevent the obtaining of the undue advantage – determines the restoration of the tax legal situation, implying that payment of the tax due shall be effected by means of the tax substitute, in application of the provision of article 28 of the General Tax Law.
As has already been clarified, tax substitution constitutes a practical means of ensuring the collection of the tax, with the intention being that the entity owing the income deducts the amounts that are due at the moment when it places the income at the disposal of the taxpayer and subsequently remits them to the State's treasury on account of the tax that comes to be calculated. In the case of capital income to which final tax rates are applicable, the withholding is effected on a final basis, in so far as it aims at the payment of the entirety of the tax, and in that hypothesis the substituted is only subsidiarily responsible for non-withholding or non-remittance of the tax, with primary responsibility falling to the substitute (article 28, no. 3, of the General Tax Law).
There is not here any accessory obligation that is imposed on the tax substitute as a result of the application of the anti-abuse provision, nor is any burden of investigation imposed on the substitute regarding the possible existence of abusive acts or transactions on the part of taxpayers with respect to whom the obligation of withholding at source subsists. Withholding at source is inserted into the material tax legal relationship and occurs by imposition of law (article 20 of the General Tax Law), with the substitute being considered, for all tax purposes, as the principal debtor of the tax (article 21 of the IRS Code).
Where application of the anti-abuse clause occurs, the requirement of withholding at source arises as a necessary consequence of the declaration of ineffectiveness of legal transactions carried out with abuse of legal forms and as a result of the reconstitution of the situation that would exist if the taxpayer had acted under conditions of normality.
Constitutional Questions
10. In this framework, it also becomes clear that the invoked violation of the principle of proportionality and of the right to property does not occur.
As has been clarified, the ineffectiveness of legal transactions as a result of the application of the anti-abuse clause, implying the restoration of the tax obligation of withholding at source by the tax substitute, places the substitute back in the situation that would exist if these operations had not been carried out, everything occurring as if there were from the start a necessity to the payment of capital income subject to taxation under IRS and in relation to which withholding at source became required.
It is not the application of the anti-abuse clause that aggravates the legal position of the Claimant or imposes the disbursement of amounts for which it cannot be considered responsible. Entities owing income subject to taxation would always have been obliged to deduct the amounts corresponding to the application of the tax rates that are provided for that category of income, at the moment when they had placed such income at the disposal of the taxpayer. That tax obligation does not come to assume a different legal nature simply because the withholding at source operates following the inspection procedure that culminated in the declaration of ineffectiveness of the transactions deemed as artificial or fraudulent.
With respect to the adequacy of the means used for the pursuit of the ends that are targeted by law, it is emphasised that the principle of suitability or fitness means that legislative measures must be apt to achieve the pursued aim or contribute to its achievement. However, "control of the suitability or adequacy of the measure, as a facet of the principle of proportionality, refers exclusively to the objective and formal fitness of a means to achieve an aim and not to any substantive evaluation of the intrinsic goodness or the appropriateness of the measure. That is, a measure is suitable when it is useful for the achievement of an aim, when it permits the approach to the intended result, whatever the measure and the aim and independently of the corresponding merits. And, thus, a measure will only be susceptible to being invalidated for unsuitability or unfitness when its effects are or come to reveal themselves as irrelevant, ineffectual or even negative taking as reference the approach to the pursued aim" (in this sense, the decision of the Constitutional Court no. 188/2009).
And, furthermore, neither is it possible to discern, nor does the Claimant clarify, in what terms the opposability to the tax substitute of the disregard of tax effects by application of the anti-abuse provision affects the sub-principles of necessity and proportionality in the strict sense.
Procedural Defects
11. The Claimant further alleges that the assessment act suffers from violation of article 15 of the Supplementary Regime for Tax and Customs Inspection Procedure, having been altered the scope of the inspection procedure from partial to general by an unfounded dispatch notified to the Claimant at the moment of conclusion of the procedure and not during its execution.
The said provision is worded as follows:
"The purposes, scope and extent of the inspection procedure may be altered during its execution by a reasoned dispatch of the entity that ordered it, and must be notified to the inspected entity."
It results from the matter of fact taken as established that the inspection procedure began on 5 November 2013, with the respective deadline being extended for three months, by dispatch of the Finance Director of ..., of 25 March 2014. The Claimant was notified to exercise the right of hearing regarding the draft Tax Inspection Report by official communication dated 11 April 2014, and the final version of the Report was approved by dispatch of the Director-General of the Tax Authority, of 15 July 2014.
It is also verified, through the administrative file and document no. 2 attached to the petition, that the scope of the inspection procedure was altered to general on the grounds of the special complexity of the tax situation resulting from the application of the general anti-abuse clause and the alteration notified on 8 April 2014.
It is possible to recognise, in these terms, that not only is the decision to alter the scope of the procedure sufficiently reasoned and becomes perceptible to any normal recipient, but also its notification to the interested party, on 8 April 2014, occurred still during the course of the procedure and still before it was given the opportunity to exercise the right of hearing regarding the draft Tax Inspection Report.
The invoked procedural defects are therefore not verified.
Compensatory Interest
12. Being of the opinion that the principal petition for declaration of illegality of the tax act of withholding at source and of the decision denying the hierarchical appeal is groundless, the petition for payment of compensatory interest is necessarily prejudiced.
III – Decision
On these grounds, it is decided:
a) To find the arbitral petition groundless and maintain the decision denying the hierarchical appeal;
b) To find the petition for payment of compensatory interest prejudiced.
Value of the Case
The Claimant indicated as the value of the case the amount of € 154,678.70, which was not contested by the Respondent and corresponds to the value of the assessment that it sought to prevent, whereby the value of the case is fixed at that amount.
Costs
Under the terms of articles 12, no. 2, and 24, no. 4, of the Rules of Procedure for Tax Arbitration, and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 3,672.00, to be borne by the Claimant.
Notify.
Lisbon, 24 May 2019
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Member Arbitrator
Manuel Alberto Soares
The Member Arbitrator
Jónatas Machado
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