Anti-Abuse Clause Under Article 73(10) CIRC and Article 63 CPPT Procedure in IRC Arbitration 408/2015-T

ARBITRAL DECISION

I – REPORT

1. On 3 July 2015, A…, NIF … and his wife B…, NIF…, resident in Porto, hereinafter referred to as the Claimants, invoking the provisions of articles 2º no. 1 a) and 10º no. 1 a), both of Decree-Law no. 10/2011, of 20 January (RJAT), requested the constitution of an Arbitral Tribunal in tax matters to pronounce on the legality of the following acts of assessment of Personal Income Tax (IRS) and compensatory interest, from which resulted the overall amount to be paid of € 675,643.31:

a) Assessment no. 2011 …, in the amount of € 1,712.31;

b) Assessment no. 2015…, in the amount of € 586,237.69;

c) Assessment no. 2015…, in the amount of € 87,437.74; and

d) Assessment no. 2015…, in the amount of € 255.57.

The request was accepted on 7 of the same month, and the Arbitral Tribunal was constituted on 30 September 2015 by the Arbitrators who subscribe to the present decision.

The Tax Authority replied, defending itself by way of objection, and attached a copy of the administrative file.

A meeting as referred to in article 18º of the RJAT was held and, subsequently, a session took place in which the male Claimant made party statements, and four witnesses were also heard, three nominated by the Claimants and one by the Tax and Customs Authority (AT).

In view of the difficulties that occurred in the proceedings, which abnormally prolonged its course, the Tribunal extended the period for the decision, in accordance with the provisions of article 22º no. 2 of the RJAT, which it communicated to the parties at the said session, announcing that it would decide by 30 May 2016.

Both parties produced written submissions, in which they maintained their initial positions.

1. In their extensive petition, which occupies 181 pages containing 522 articles, the Claimants widely criticize the performance of the AT, however without making a summary of the defects they allege, the same occurring in the final submissions (these of reasonable length, it must be said…).

In any case, it can be seen that they attribute to the contested acts the following defects:

• Expiration of the anti-abuse procedure provided for in article 63º of the Code of Tax Procedure and Process (CPPT) as a necessary condition for the operationalization of the specific anti-abuse clause contained in article 73º no. 10 of the Code of Personal Income Tax for Legal Entities (CIRC), applicable by force of article 10º no. 8 of the Code of Personal Income Tax for Individuals (CIRS) and consequent right to tax assessment;

• Expiration of the right to tax assessment, since there was no suspension of the respective period with the notification of the service order for the commencement of the external inspection action, the assessment having been notified after four years had elapsed, in violation of article 45º nos. 1 and 2 of the General Tax Law (LGT);

• Error as to the factual premises, due to the non-existence of the requirements for the application of the anti-abuse clause of article 73º no. 10 of the CIRC, the interpretation of the rule made by the AT being unconstitutional;

• Lack of reasoning in the tax inspection report;

• Factual error as to the assessment of compensatory interest, as there was no delay on their part.

II - PRELIMINARY PROCEDURE

The Tribunal is competent and regularly constituted, the parties are legitimate and properly represented, the Claimants are timely, since the deadline for payment ended on 15 April 2015 and they requested the constitution of the Arbitral Tribunal on 3 July 2015, within the period of article 102º no. 1 letter a) of the CPPT, applicable ex vi article 10º no. 1 letter a) of the RJAT.

There are no nullities, exceptions or prior questions that should be addressed and that prevent the consideration of the merits.

III – FACTUALITY

1. The proven facts, relevant in view of the plausible legal solutions, are the following:

A)

The Claimants were subject to a tax inspection procedure carried out by the Finance Directorate of …, through Service Order no. OI2014…, notified on 2 September 2014, with the purpose of verifying compliance with the corresponding tax obligations in the financial year 2010;

B)

On 02 September 2014, the Claimants were notified, through their representative, to send to the Services certain clarifications/documents, namely the proven demonstration of the economic reasons underlying the contribution in kind for the realization of the capital of C…, SGPS, by means of the delivery of equity interests of C…, SA, and the documentary demonstration that, if applicable, they continued to value for tax purposes, the new equity interests by the value of the old ones, which was complied with on 12 September 2014;

C)

Within the scope of the tax inspection action, collection of elements was carried out at the Commercial Registry Office and at the facilities of C… SGPS;

D)

On 30 September 2014, once the Claimants verified an error in the indication of the value of equity interests held by them, they sent to the inspection services an addendum to the request previously sent, in order to correct the error committed;

E)

After being notified on 16 January 2015, to exercise, if they so wished, the right to be heard on the Draft Tax Inspection Report, the Claimants exercised their right on 3 February 2015, subsequently submitting written statements of witnesses whom they had indicated therein;

F)

The tax inspection action was concluded on 14 January 2015;

G)

Within the scope of the inspection action aforementioned, the Tax Inspection, in its report, which is hereby deemed to be fully reproduced herein, considered the failure to assess and pay Personal Income Tax, understanding that the Claimants opted for an operation of exchange of equity interests, in accordance with the mechanism of tax neutrality provided for in articles 73.º of the CIRC, and 10.º, no. 8 and 11 of the CIRS, when the regime of tax neutrality is not applicable to the operation in question, since it did not have as its main objective the restructuring or rationalization of the activities of the companies involved, but rather motivations of a fiscal nature that materialized and are demonstrated in the clear tax advantage obtained with the alienation of the quota in 2011, calculating a capital gain substantially inferior to that achieved with the exchange operation (2010), so that, in this case, what is at stake is not a mere deferment in the taxation of capital gains (2010 and 2011), but rather the effective and significant reduction of such taxation;

H)

In accordance with the understanding expressed in the preceding paragraph, the Tax Inspection proceeded to calculate Personal Income Tax, and, in this way, determining the tax owed and concluding that the Claimants failed to assess and did not pay to the State the amount of € 586,237.69 of Personal Income Tax, increased by € 87,693.31, by way of compensatory interest;

I)

The deadline for voluntary payment ended on 15 April 2015;

J)

On 26 June 2012, the Claimants submitted the Personal Income Tax return form 3 for the year 2011, with the respective Annex G, which included the following values with respect to the onerous alienation of equity interests and other securities: acquisition in August 2010 for € 3,000,000.00 and realization in September 2011 for € 1,000,000.00;

K)

During the course of the tax inspection procedure, the Claimants proceeded to replace the Personal Income Tax return form 3 for the year 2011, having in a first return indicated as the corrected acquisition value the amount of € 140,000.00 and, in a second return, indicated as the corrected acquisition value the amount of € 120,000.00;

L)

On 29 September 2000, the commercial company "C…, Lda." was constituted by E… and A… with a capital of 150,000 euros, each holding 50%, having as its corporate purpose the "manufacture, commercialization, importation and exportation, representation, placement of environmental equipment, preparation and management of environmental projects and waste management";

M)

In November 2007, C… was transformed into a public limited company, with a capital of 240,000 euros, wholly owned, in equal shares, by E… and A…;

N)

Claimant A… was, in 2010, the holder of 17% of the equity interests representing the capital of the Spanish law company D…, SL;

O)

D… was constituted by the aforementioned Claimant, by the aforementioned E…, and by two other Spanish partners, F… and G…, who held, respectively, 17%, 17%, 49% and 17% of the capital;

P)

D… held an equity interest representing 100% of the capital of another company, also subject to Spanish law, denominated H…, SL;

Q)

On 6 May 2008, E… and A… sold the equity interests they held in the capital of D… to C…, S.A., for € 250,000.00 each;

R)

On 18 August 2010, a partnership with limited liability was constituted between Claimant A… and E… under the name "C…, SGPS, LDA.", NIPC…, with a capital, wholly subscribed and paid-in, of € 6,000,000.00, represented by two equal shares of € 3,000,000.00 each, held by each of the partners A… and E…;

S)

The capital was paid-in through the delivery of all 240,000 shares held by the Claimant and by E…, representing the capital of the company "C…, S.A.", NIPC…;

T)

The aforementioned shares, with a nominal value of 240,000 euros, were valued at €12,000,000.00 (twelve million euros), to which corresponded a share premium of €6,000,000.00 (six million euros), as a result of an appraisal carried out by I…– SROC, performed on 16 June 2010;

U)

The appraisal criterion used was based on the "foreseeable future revenues of the company" estimated from the "results of the last two financial years", and it was assumed "that its revenues will continue (in 2010 and 2011, sales are estimated at 12.6M€ and 13.6M€ respectively, and service provision at 1.4M€ and 2.8M€, remaining constant in the following years and variable costs indexed to revenues". The value of such shares was estimated at € 12,123,809.00, an intermediate value between those resulting from an appraisal by cash-flows on the terminal value from the investor's perspective and from the company's perspective;

V)

The activity of C…, SA in Abu Dhabi had significant weight, as it was a rapidly expanding market;

W)

C… SGPS was constituted with a view to concentrating all the equity interests held by the Claimant and by the aforementioned E…, to which reference is made in A) to E) above, in a single company, with a view to the restructuring and rationalization of their respective activities;

X)

On 11 February 2011, C… SGPS acquired equity interests representing 50% of the capital of the company J…;

Y)

The majority of the invoicing of C…, SA, in 2010, was the result of its activity in Abu Dhabi;

Z)

At the beginning of 2011, the valuation of C…, SA suffered a significant reduction with the restrictions imposed on its national clients by the economic and financial assistance program and with the default of the Abu Dhabi client;

AA)

E… and A…, due to the divergences between them, decided to end their corporate relations;

BB)

Wherefore, on 30 September 2011, following a promise to sell contract of equity interests executed on 14 September, a contract of division and cessation of equity interests was executed, by which the equity interest of A…, representing 50% of the capital of C… SGPS, was divided into two equity interests – one with a nominal value of € 2,400,000.00 and another with a nominal value of € 600,000.00 – which, thereupon, were transferred to E…, for the overall value of 1,000,000 Euros, with reservation of ownership until full compliance with the terms of such contract, namely as regards full payment of the price;

CC)

Since the exchange operation, the shares of C…, SA have always remained in the ownership of C… SGPS;

1. The Tribunal's conviction, in giving the above facts as proven, was based on uncontested allegations, on the documentation attached, namely, the Tax Inspection Report, the party's statement, and the testimony of the witnesses, which all showed knowledge of the facts and testified with apparent impartiality.

2. No other facts relevant to the decision were proven.

IV – THE LAW

We begin by considering the alleged expirations (of the right to tax assessment and of the special procedure for application of the anti-abuse clause), since, if they are verified, the outcome of the case is necessarily determined.

1.1. The Claimants contend that there is expiration of the right to tax assessment, since there was no suspension of the expiration period with the notification of the service order for the commencement of the external inspection action, provided for in no. 1 of article 46º of the LGT. There is, in the tax act, a vice of illegality in that the contested assessment was notified to them after the four-year expiration period had elapsed, in violation of the provisions of article 45.º no. 1 and 2 of the LGT.

This is because the Claimants do not agree that the expiration period for the assessment of taxes was suspended on 02.09.2014 – the date on which the male Claimant was personally notified of the commencement of the external tax inspection procedure – since the choice of internal or external inspection procedure cannot be based on the need, or lack thereof, for the AT to benefit from the suspension of the expiration period for the assessment of taxes.

In the case at hand, the Claimants contend that no external inspection procedure was carried out by the AT, since the only external act performed by the AT was the visit to the office of the Claimants' representative to notify the service order and collect elements/clarifications, the AT never having consulted any documents at any time; there were only analyses of the documents and clarifications provided by the Claimants following the notification for that purpose and the analysis of documents available to them in the system.

Accordingly, the Claimants contend that there is no suspensive cause of the expiration period referred to in article 46.º of the LGT. Therefore, since we are dealing with a periodic tax (IRS), on 31 December 2014, the AT's right to assess Personal Income Tax for the financial year 2010 expired. And the assessment in question was carried out after that date.

Conversely, the Respondent submits that the expiration period had not yet expired at the time of the assessment act, since it was suspended during the period in which the external inspection procedure took place, in accordance with no. 1 of article 46.º of the LGT. The choice for the external nature of the inspection acts to be performed was made before the opening of the corresponding service order. A choice that proved adequate and proportionate to the situation to be inspected, which consisted of an omission of income obtained due to failure to comply with the ancillary obligation provided for in article 57.º, no. 1, letter b), of the CIRS, which requires the attachment to the respective tax return of the elements mentioned in that regard in the CIRC, whenever the provisions of no. 8 of article 10.º of the CIRC apply.

This same regime obliged the Respondent to an inspection exercise that was incompatible with a mere formal and consistency analysis of documents. The concrete situation required the obtaining of elements and clarifications on realities that were not communicated to the AT by the Claimants.

Moreover, the Claimants always demonstrated a lack of willingness to receive the AT's inspector, preferring emails, telephone calls and written statements, preventing the AT from establishing personal contact at their tax domicile.

It was the Claimants themselves, through their respective representatives, who requested that the inspection acts be carried out at a location other than their tax domicile, more specifically at the professional domicile of their representatives, which only makes sense when dealing with tax inspection procedures involving acts of verification and proof to be carried out outside the offices of the tax administration – obviously within the scope and context of an external inspection.

Thus, in the understanding of the Respondent, the alleged expiration of the right to assess Personal Income Tax for 2010 cannot proceed, since the respective period was suspended under no. 1 of article 46.º of the LGT.

1.2. In accordance with article 13.º of the Supplementary Rules for Tax and Customs Inspection Procedure (RCPITA), the inspection procedure may be classified as internal or external, depending on whether the acts that make it up are carried out, respectively, in the organizational offices and offices of the AT or in facilities or branches of the taxpayers or other entities covered.

It seems to us that, given that what is in question is the (non)applicability of the so-called regime of tax neutrality to the allocation of securities representing the capital of "C…, SGPS, Lda." in return for the contribution in kind for the realization of its capital through the delivery of equity interests of "C…, S.A.", the inspection acts could not be subject to a simple official notice notifying the Claimants to provide information, given the nature and amount of the operations in question.

During the inspection action, external acts were carried out, as they were properly reported by the Inspector presented by the Respondent in the respective examination hearing, and is hereby deemed proven, given the need for access to documents not found filed or archived in the AT's offices and the need for detailed clarifications to be provided by the Claimants.

Now, in view of the provisions of article 13.º of the RCPITA, the Claimants do not have a point, since the inspection procedure was not carried out exclusively in the AT's offices through mere formal analysis and consistency of documents, as proven by the testimonial and documentary evidence presented.

2.1. Regarding the expiration of the special procedure for application of the anti-abuse clause, the claimants allege, in summary:

The facts that gave rise to the contested assessment occurred on 18/08/2010, when the male Claimant and his partner E… constituted a company managing equity interests in the form of a partnership with limited liability – "C…, SGPS, Lda." with a capital, wholly subscribed and paid-in, of € 6,000,000.00, represented by two equal shares of € 3,000,000.00 each, held by each of the partners, paid-in through the delivery of all 240,000 shares held by both, representing the capital of the company "C…, S.A.

Article 63º of the CPPT, which entered into force on 1 January 2000, then established a procedure specific to the assessment of taxes based on any anti-abuse provisions, which could only be opened within the period of three years from the commencement of the civil year following the execution of the legal transaction subject to the anti-abuse provisions.

This provision foresaw a true special expiration period for taxes, shorter than the general period in article 45º of the LGT, which was justified by the fact that, through the application of these rules, the AT could, in opposition to the principle of trust and legal certainty, disregard the tax rules applicable to certain legal transactions and apply others that it understood should be applicable to these same transactions.

The wording of the aforementioned article 63º was amended as of 1 January 2012, with this procedure becoming only applicable when in question is the application of the general anti-abuse clause provided for in article 38º of the LGT, and ceasing to provide for any expiration period for the opening of this procedure.

Since it is not, in this case, the application of the general anti-abuse rule provided for in article 38º of the LGT, the AT understood that there was no place for the procedure established in article 63º of the CPPT.

But the regime currently provided for in article 63º of the CPPT was not the one in force at the date of the facts, which provided for an expiration period for the right to assess taxes through the application of anti-abuse rules of three years; and the regime currently in force, although it is a rule of a procedural nature, is not of immediate application, given the fact that it is a rule for the protection of the rights and legitimate interests of taxpayers – cf. article 12º of the LGT, which is why, to the facts in question in the present proceedings, the procedure provided for in article 63º of the CPPT shall be applicable, in the wording in force at the date of the facts.

Thus, referring the facts to which the AT intends to apply the anti-abuse rule to the year 2010, the right to initiate the specific procedure provided for in article 63º of the CPPT expired on 31 December 2013.

To this argument the AT counters, in summary:

The rule in no. 10 of art. 73º of the CIRC has no framework in art. 63º of the CPPT and, consequently, does not depend on the opening of a specific procedure for its application.

It is accepted that the application in time of the amendment to art. 63º of the CPPT, in accordance with which the aforementioned procedure is only required in relation to the anti-abuse provision of no. 2 of art. 38º of the LGT, although being as a rule immediate, should respect the guarantees, rights and legitimate interests previously constituted.

But no. 10 of art. 73º of the CIRC does not fit the definition of anti-abuse provisions of no. 2 of art. 63º of the CPPT, in the wording prior to Law no. 64-A/2011, of 30/12.

That normative had provided, in the wording prior to the aforementioned amendment, that "anti-abuse provisions are considered, for the purposes of this Code, any legal rules that establish the ineffectiveness before the tax administration of legal transactions or acts executed or performed with manifest abuse of the legal forms resulting from the elimination or reduction of taxes that would otherwise be due."

For its part, the provision in no. 10 of art. 73º of the CIRC determines the exclusion of the special regime of tax neutrality when it is concluded in the terms expressly provided there, that is, "that the operations covered by the same had as their main objective or as one of their main objectives tax evasion".

Consequently, while no. 2 of art. 63º of the CPPT consists in the disregard of the legal transactions performed, no. 10 of art. 73º of the CIRC only determines the exclusion of the application of the special tax neutrality regime applicable to certain operations when certain assumptions are met.

That is, because no. 10 of art. 73º of the CIRC does not determine the disregard of the effects of the operation in itself, but only the exclusion of the application of the advantages pursued by the aforementioned special tax regime, there is no place for the procedure of art. 63º of the CPPT, in view of the definition of anti-abuse provisions given by its no. 2 in the wording prior to Law no. 64º-B/2011, of 30/12.

On the other hand, given the special nature of the tax neutrality regime in which the provision in no. 10 of art. 73º of the CIRC is set, it is in this context that its interpretation and application operate, that is, entirely outside the scope of the provision in art. 63º of the CPPT, with no alleged need for the opening of a specific procedure referred to in this normative to implement the contested corrections, even with the wording in force at the date of the facts in question.

Thus, the application of no. 10 of art. 73º of the CIRC is not affected by any procedural irregularity, in particular arising from the provision of art. 63º of the CPPT, since this specific procedure was not applicable to it, and, by force of this latter rule, neither did the expiration of the right to the contested assessment operate.

2.2. Article 63º of the Code of Tax Procedure and Process, which entered into force on 1 January 2000, provided that:

"1 – The assessment of taxes based on any anti-abuse provisions in accordance with the codes and other tax laws depends on the opening for that purpose of a specific procedure".

No. 2 of the same article considered "anti-abuse provisions, for the purposes of this Code, any legal rules that establish the ineffectiveness before the tax administration of legal transactions or acts executed or performed with manifest abuse of the legal forms resulting from the elimination or reduction of taxes that would otherwise be due".

This wording was in force until 1 January 2012, the date on which it was amended by law no. 64-B/2011, of 30 December.

The amendment consisted in the elimination of no. 2 and in drafting no. 1 as follows:

"The assessment of taxes based on the anti-abuse provision contained in article 38º of the General Tax Law follows the terms provided in this article".

When the CPPT entered into force, the "anti-abuse provisions" referred to in the transcribed article 63º were contained in the Codes of the various taxes, among them the CIRC (article 73º) and in the LGT, in force since 1 January 1999, whose article 38º provided, initially, as follows:

"The ineffectiveness of legal transactions does not prevent taxation, at the moment when it should legally occur, if the economic effects intended by the parties have already been produced".

In 1999, a no. 2 was added, as follows:

"Acts or legal transactions are ineffective when it is demonstrated that they were carried out with the sole or main objective of elimination or reduction of taxes that would be due by virtue of acts or legal transactions of equivalent economic result, in which case taxation falls on the latter".

From 2001 onwards, the wording of this no. 2 became as follows:

"Acts or legal transactions are ineffective for tax purposes when they are 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 such means, the taxation being then carried out in accordance with the applicable rules in their absence and the mentioned tax advantages not being produced."

The specific anti-abuse rule contained in the aforementioned CIRC – article 73º no. 10 – establishes that "The special regime established in the present subsection does not apply, wholly or partially, when it is concluded that the operations covered by the same had as their main objective or as one of their main objectives tax evasion, which may be considered verified, in particular, in cases where the companies involved do not have all their income subject to the same taxation regime in Corporate Income Tax or when the operations have not been carried out for valid economic reasons, such as the restructuring or rationalization of the activities of the companies participating in them, proceeding then, if applicable, to the corresponding additional tax assessments".

The regime to which the subsection containing article 73º of the CIRC refers is the so-called regime of tax neutrality.

Law no. 64-B/2012, of 30 December, eliminated, by its article 152º, no. 2 of article 38º of the LGT, giving no. 1 the following wording: "the assessment of taxes based on the anti-abuse provision contained in no. 2 of article 38º of the general tax law follows the terms provided in this article."

And article 215º of law no. 64-B/2012 set the date of its entry into force as 1 January 2012.

Now, in the case at hand, as results from the matter of proven facts, all the AT's action took place between 2014, with the commencement of external inspection, and 2015, when the tax considered owed was determined.

Owed that, for the AT, results from the fact that the exchange operation carried out in August 2010, when a company managing equity interests was constituted in the form of a partnership with limited liability, "C…, SGPS, L.da, whose capital was constituted through the delivery of all shares representing the capital of the company "C…, S.A.", of which the founding partners of the SGPS were holders, followed, in September 2011, by the transfer of the equity interests held by the Claimant here in the SGPS to his other partner in the same company, "did not have as its main objective the restructuring or rationalization of the activities of the companies involved, but rather motivations of a fiscal nature, which materialized and are demonstrated in the clear tax advantage obtained with the alienation of the quota in 2011, calculating a capital gain substantially inferior to that achieved with the exchange operation (2010), so that, in this case, what is at stake is not a mere deferment of the taxation of capital gains (2010 and 2011), but rather the effective and significant reduction of such taxation".

That is, for the AT, the tax neutrality mechanism is not applicable.

Thus, the AT's action took place after the elimination of no. 2 of article 38º of the LGT; but the facts on which it impacted took place when it was still in force.

In the understanding of the Claimants, the AT was, in the circumstance, obliged to use the anti-abuse procedure of article 63º of the CPPT, since, at the time of the relevant facts, "the assessment of taxes based on any anti-abuse provisions in accordance with the codes and other tax laws depends on the opening for that purpose of a specific procedure".

However, in accordance with no. 3 of the same article 63º, such procedure could only "be opened within the period of three years after the carrying out of the act or the execution of the legal transaction subject to the application of the anti-abuse provisions".

Now, such period had expired in 2013.

The practice of certain procedural acts is imposed on the AT to guarantee the rights of the taxpayers concerned, so that the AT is more clearly informed of the relevant factuality and circumstances, and to better ensure the legal formation of its will.

Thus, when the law requires, in order to assess a tax based on an anti-abuse provision, a certain administrative procedure, imposing demanding and rigorous formal rules until reaching the final decision, it establishes a guarantee for taxpayers.

Now, "procedural and process rules are of immediate application, without prejudice to the guarantees, rights and legitimate interests previously constituted by taxpayers", as read in no. 3 of article 12º of the LGT.

The tax fact here in question occurred in the domain of the old law (prior to Law no. 64-B/2012), but its tax effects extend over time while the AT may derive effects from it, from which results that the applicable legal rule is the one in force when the tax fact occurred, and not the one that will be in force when it is applied. In summary, the AT, in acting in 2015, was obliged to apply the procedural regime that was in force in 2010, the date of the inception of the tax fact.

The AT contests this, arguing that, even in 2010, article 63º of the CPPT did not encompass anti-abuse provisions other than that of article 38º no. 2 of the LGT, from which results the non-imposition of the procedure provided for in that article of the CPPT.

This understanding cannot be accepted in view of the letter of no. 2 of article 63º of the CPPT, according to which "anti-abuse provisions are considered, for the purposes of this Code, any legal rules that establish the ineffectiveness before the tax administration of legal transactions or acts executed or performed with manifest abuse of the legal forms resulting from the elimination or reduction of taxes that would otherwise be due". And it is not only article 38º no. 2 of the LGT that establishes "the ineffectiveness before the tax administration of legal transactions or acts executed or performed with manifest abuse of the legal forms resulting from the elimination or reduction of taxes that would otherwise be due". This article 38º contains what has been called a general anti-abuse provision, while all others will be specific.

But such does not entail the difference of regime that the AT wishes to derive from it:

If the tax neutrality (Subsection IV of Section VI of Chapter III of the CIRC) were applied to our case, as is the rule, it would not cease to result in taxation, although deferred in time.

But the AT understood that there should be immediate taxation, and for that reason it did not consider the transaction in which the male Claimant had intervened as it had been carried out, disregarding the tax regime that was proper to it (that of tax neutrality). That is, the AT, in not admitting tax neutrality, proceeded as if it understood the transaction as ineffective before it such as it had taken place, a transaction that, if effective, would enjoy the tax neutrality regime. The transaction carried out embodied an exchange – the AT did not heed it (which amounts to saying that it did not consider it effective) and treated it as if it had another nature, thus removing the tax neutrality regime, and the time-deferred taxation.

All because it understood that such transaction, as it had been realized, had motivations of a fiscal nature, evasive purposes, with a view to reducing taxation.

No. 10 of article 73º of the CIRC is an anti-abuse rule precisely because it prevents the abusive use of the tax neutrality regime, abusive use that it considers to occur when "the operations covered by the same had as their main objective or as one of their main objectives tax evasion".

The AT's action was based on the fact that the exchange operation carried out in August 2010, when a company managing equity interests was constituted in the form of a partnership with limited liability, "C…, SGPS, L.da, whose capital was constituted through the delivery of all shares representing the capital of the company "C…, S.A.", of which the founding partners of the SGPS were holders, followed, in September 2011, by the transfer of the equity interests held by the Claimant here in the SGPS to his other partner in the same company, "did not have as its main objective the restructuring or rationalization of the activities of the companies involved, but rather motivations of a fiscal nature, which materialized and are demonstrated in the clear tax advantage obtained with the alienation of the quota in 2011, calculating a capital gain substantially inferior to that achieved with the exchange operation (2010), so that, in this case, what is at stake is not a mere deferment of the taxation of capital gains (2010 and 2011), but rather the effective and significant reduction of such taxation" (our emphasis).

Now, in accordance with the original wording of no. 1 of article 63º of the CPPT, "the assessment of taxes based on any anti-abuse provisions in accordance with the codes and other tax laws depends on the opening for that purpose of a specific procedure".

The Tax Authority itself already understood, in the binding ruling of process 771/2002, on 17 January 2004, that "[the anti-abuse measure] provided for in no. 10 of article 67º" – currently, 73º of the CIRC, is "subject to the procedure referred to in article 63º of the Code of Tax Procedure and Process".

That is, it considered not only that it was an anti-abuse rule, but that its application went through the procedure provided for in the CPPT.

In truth, the ratio of the law, in requiring a special procedure for application of anti-abuse rules, was to ensure legal certainty and security and taxpayer guarantees. The procedure, with necessary hearing of the taxpayer, with intervention of the highest official of the AT, with the possibility of contentious discussion, and with special requirements of reasoning, guarantees a more informed, conscious and considered decision, more capable of avoiding the violation of the taxpayer's rights.

Now, even if it is understood that, the case of article 73º of the CIRC is not one of ineffectiveness of the legal transaction performed, the reason for the rule of the CPPT imposes its application, since the taxpayer, having entered into a transaction of a certain type, subject to time-deferred taxation, and counting on it, sees this mode of taxation disapplied, and another adopted, which is less favorable and which he did not expect.

And, for this to happen, special care is required – those that the procedure of the aforementioned article 63º ensures.

In conclusion, we understand that, in the case at hand, it was incumbent on the AT, in order to act as it did, to initiate the procedure to which we have been referring.

2.3. But that does not mean the Claimants are right, in invoking the expiration of the special procedure for application of the anti-abuse clause (cf. article 35º et seq. of the request), because the tax fact occurred in 2010, the right to initiate such procedure expiring on 31 December 2013.

Because the truth is that the procedure was not initiated after 31 December 2013 – quite simply, it was not initiated.

As this is the case, the vice alleged by the Claimants is, rather, a procedural vice, by omission of a procedure imposed by law so that the act of assessment could have the content it assumed or, in other words, so that the taxation would be what it was.

This vice naturally taints the act of assessment, since its legal assumption is the initiation of the omitted procedure.

And, once this vice is established, the assessment act is fatally flawed, with the other vices that the Claimants attribute to it being rendered moot.

V – DECISION

For the reasons and on the grounds set forth above, the arbitrators of this Arbitral Tribunal agree, by majority, to uphold the request, annulling the assessments identified in I 1.

VI - VALUE OF THE PROCEEDINGS AND COSTS

The value of the proceedings is set at € 675,643.31, in accordance with articles 3º no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, with costs in the amount of € 36,000.00, in accordance with articles 6º no. 2 letter b), 12º no. 3 and 22º no. 4 of the RJATA, and 5º nos. 1 and 2 of the Regulation of Costs in Tax Arbitration Proceedings, and attached Table II.

José Baeta de Queiroz (arbitrator president)

José Alberto Pinheiro Pinto

Jorge Carita

(dissenting, as per the opinion that follows and is incorporated in the present decision)

DISSENTING OPINION

Indeed, we are of the opinion that in this regard the operationalization of the specific anti-abuse rule contained in no. 10 of article 73.º of the CIRC is not dependent on the opening of the specific procedure provided for in article 63.º of the CPPT.

Based on the principle of legal certainty, the Portuguese legislator determined that the application of anti-abuse clauses be made through the special procedure provided for in article 63.º of the CPPT, given the uncertainty that these clauses imply.

As José Maria Pires (coordination) states, "This procedure is explained by reasons of legal security and certainty, namely by the need to formulate an objective judgment about the verification of the legal assumptions on which the application of the aforementioned provision depends." (cf. Annotated and Commented General Tax Law, p. 326).

However, the tax procedure provided for in article 63.º of the CPPT only covers the cases contained in no. 2 of article 38.º of the LGT.

In view of the amendment that Law no. 64-B/2011, of 30 December, made to no. 1 of article 63.º of the CPPT, it is clear that it applies only to cases covered by no. 2 of article 38.º of the LGT.

When we analyze the previous wording, we also cannot hesitate in concluding in the same sense, since no. 2 of article 63.º of the CPPT defines "anti-abuse provisions" as being the general anti-abuse provision of article 38.º no. 2 of the LGT.

The difference that existed in the two wordings was only in "manifest abuse". With the amendment made by Law no. 64-B/2011, it became undeniable that, for purposes of opening the tax procedure there provided for, all cases contained in no. 2 of article 38.º of the LGT should be considered covered and not only the cases in which the abuse of legal forms was manifest, as was provided in no. 2 of article 63.º of the CPPT.

Now, it is safe to say that the procedure provided for in article 63.º of the CPPT is only applicable to the situations provided for in no. 2 of article 38.º of the LGT, given the similarity between the definition of "anti-abuse provisions" used in no. 2 of article 63.º of the CPPT and that contained in no. 2 of article 38.º of the LGT, confirmed by the legislative amendment occurring through Law no. 64-B/2011, this, as we have seen, which had the scope of clarifying that all cases contained in no. 2 of article 38.º of the LGT should be considered covered and not only the cases in which the abuse of legal forms was manifest.

In this sense, we can now state that the procedure of article 63.º of the CPPT is not applicable to special anti-abuse rules, that is, the anti-abuse provision contained in no. 10 of article 73.º of the CIRC does not need to go through such procedure, being applied in the terms provided therein.

Note that the provision in no. 10 of article 73.º of the CIRC determines the exclusion of the special regime of tax neutrality, with no concern for the disregard of the legal transactions performed (cf. wording prior to 2012 of no. 2 of article 63.º of the CPPT), but only the exclusion of the special regime of tax neutrality applicable to certain operations.

Furthermore, it was provided that this procedure could only "be opened within the period of three years after the carrying out of the act or the execution of the legal transaction subject to the anti-abuse provisions" (no. 3 of article 63.º of the CPPT).

Although it is believed that the reason for this shorter period of the right to assessment, when compared with that contained in article 45.º of the LGT, which is 4 years, has to do with the fact that any anti-abuse clause affects the legal certainty of citizens ("principle of trust and legal certainty", See article 41º of the Claimants' petition), we do not accept such understanding.

In this regard, Jorge Lopes de Sousa understands that the fixing of a period shorter than the normal period for assessment of taxes "constitutes a legislative option whose foundation is not clear, since, as the application of anti-abuse provisions has only tax effects, not affecting the validity of the acts or transactions performed, there will be no special reasons of security that justify that only the normal period of expiration of the right to assess taxes is not applied.".

The truth is that the application of such clauses has only fiscal impact, the validity of the acts or transactions performed is maintained. In the concrete case, only the exclusion of the special regime of tax neutrality applicable to certain operations, with no concern for the disregard of the legal transactions performed.

Because of this, we consider that the provision in no. 10 of article 73.º of the CIRC does not fit the definition of anti-abuse provisions provided for in no. 2 of article 63º of the CPPT, in the wording prior to Law no. 64-B/2011, of 30/12.

It is also important to bring to the fore what Lima Guerreiro already noted in 2001 in the General Tax Law, "the Portuguese tax legal system knew until here only specific anti-abuse clauses which obviously by force of article 1º, number 1, of the present law [LGT], were not derogated by the rule of the present number 2 [of article 38.º]: the anti-abuse clause originally provided for in article 62º-A, number 2, of the CIRC, which excludes from the regime of tax neutrality the mergers, divisions or asset contributions involving a company or companies from other Member States of the European Union which had as their main objective fraud or tax evasion or do not comply with valid economic reasons, which article 61º, number 9, introduced by article 2º of Decree-law number 366/98, of 23 November, would extend to mergers, divisions and asset contributions of companies with registered office or effective management in Portuguese territory (…).".

That is, having later emerged the general anti-abuse clause of no. 2 of article 38.º of the LGT, and this not having derogated the already existing specific anti-abuse clause of no. 10, of article 73.º of the CIRC (62.º-A, no. 2 at the time), reinforces the idea that its nature is specific, and that for this reason, it was never prejudiced by the general anti-abuse rule.

Wherefore, existing a specific procedure for the application of the general anti-abuse clause, since it affects legal certainty by reason of the disregard of the legal transactions performed, the same cannot be applied to a specific anti-abuse clause, which existed before the emergence in the Portuguese tax legal system of the general anti-abuse clause, by reason of its specific nature, given that the provision in no. 10 of article 73.º of the CIRC only determines the exclusion of the special regime of tax neutrality applicable to certain operations – consisting, in essence, in a deferment of taxation.

Now, the specific anti-abuse clause of no. 10 of article 73.º of the CIRC not being prejudiced by the rule of no. 2 of article 38.º of the LGT, given its aforementioned specific nature, leads to the fact that such clauses are absolutely autonomous. Being autonomous, we must conclude once more that the procedure of article 63.º of the CPPT is only applied to situations covered by no. 2 of article 38.º of the LGT.

With respect to the amendment of the letter of article 63.º of the CPPT given by the Budget Law for 2012, it is also worthwhile to mention the reason for the "flexibilization of the rules of use of the general anti-abuse clause by the tax administration to combat aggressive tax planning." (cf. State Budget Report for 2012, p. 44).

This flexibilization led the legislator to make clear that the procedure of article 63.º of the CPPT is only applied to situations of the general anti-abuse clause of article 38.º, no. 2 of the LGT, showing the coincidence between the definition of anti-abuse rule, contained in no. 2 of article 63.º of the CPPT, and that which results from the general anti-abuse provision, contained in no. 2 of article 38.º of the LGT.

On the other hand, the Strategic Plan for Fighting Fraud and Tax and Customs Evasion for 2012 – 2014, expressed the need to amend article 63.º of the CPPT in order to expressly provide that "this tax procedure applies exclusively to the application of the general anti-abuse clause, eliminating the specific period for its application and clarifying when it should be authorized by the highest official", in order to flexibilize the "use of anti-abuse rules, making them more effective in combating abusive tax planning schemes and of high complexity", making the rule clearer.

Now, the idea being to flexibilize in order to make combat against tax evasion more effective, we only see the obligation of the procedure of article 63.º with respect to the cases that possibly fall within no. 2 of article 38.º of the LGT, leaving out the specific anti-abuse clauses spread throughout the tax codes, and consequently, the one contained in no. 10 of article 73.º of the CIRC.

Finally, the much-discussed issue in case law regarding the indeterminate concept of "valid economic reasons", which was sufficient for the AT, based on proper detection of the absence of such reasons, to apply the specific anti-abuse clause contained in no. 10 of article 73.º of the CIRC, without the taxpayer having the opportunity to exercise the right of response in the absence of the procedure of article 63.º of the CPPT, is nowadays settled. The STA recently considered that the AT's free assessment or technical discretion is subject to judicial control, insofar as "the courts cannot refuse the interested party the possibility of obtaining effective control of the application, by the administration, of rules that contain indeterminate concepts" (cf. Decision of the STA, process no. 01159/09, of 27.11.2013).

For all these reasons, it is our understanding that the operationalization of the specific anti-abuse rule provided for in no. 10 of article 73.º of the CIRC is not dependent on the opening of the specific procedure provided for in article 63.º of the CPPT, which is why we cannot agree with the Tribunal's decision by majority.

(Text prepared by computer, in accordance with article 131º number 5 of the CPC, applicable by reference from article 29º, no. 1, letter e) of the RJAT, using pre-spelling-reform orthography, with the exception of the dissenting opinion)