ARBITRAL AWARD

I – REPORT

1. A... (hereinafter referred to as "A..." or "Claimant"), with headquarters at Avenue ..., ..., holder of tax identification number ..., hereby REQUESTS, pursuant to Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters) and Articles 1 and 2 of Regulatory Order no. 112-A/2011, of 22 March, the constitution of a Collective Arbitral Tribunal with a view to declaring the illegality of the assessment of income tax withholding at source no. 2012..., of 16 February 2012, relating to the fiscal year 2009.

2. The collective arbitral tribunal was duly constituted at the Administrative Arbitration Centre (CAAD), on 6 October 2014, to consider and decide the subject matter of the present proceedings, as appears from the respective minutes.

3. The Claimant, exercising the faculty conferred upon it by Article 6, paragraph 2, b) of Decree-Law no. 10/2011, of 20 January, appointed as its Arbitrator Mr Dr Joaquim Silvério Dias Mateus, who is included in the List of Arbitrators of CAAD.

4. In its Response, the Respondent entity raises a preliminary objection invoking partial untimeliness of the arbitral pronouncement request, which will be decided in Part II of the present arbitral award.

5. Background to the arbitral pronouncement request

5.1. The Claimant was the subject of an external general inspection action, undertaken pursuant to service order no. OI..., covering, among other tax situations, income tax withholding at source from individuals and legal entities for the year 2009, in the partial amounts set out below:

• Payment to B..., C... and N..., the tax value of which is €40,269.15 and compensatory interest of €2,956.11, for a total of €44,225.26;

• Payment to D... B.V. (Netherlands), the tax value of which is €22,500.00 and compensatory interest of €1,817.26, for a total of €24,317.26;

• Payments to E..., the tax value of which is €497,500.00 and compensatory interest of €40,181.64, for a total of €537,681.64;

• Economic rights paid to F... LTDA-EPP, the tax value of which is €87,500.00 and compensatory interest of €7,364.38, for a total of €94,864.38;

• Transfer of image rights of athlete G..., the tax value of which is €31,250.00 and compensatory interest of €2,421.23, for a total of €33,671.23;

• Transfer of image rights of athlete H..., the tax value of which is €80,140.00 and compensatory interest of €7,324.98, for a total of €87,464.98;

• Transfer of image rights of athlete I..., the tax value of which is €161,290.25 and compensatory interest of €13,026.92, for a total of €29,156.19;

• Revenue from exhibition match between A... and K..., the tax value of which is €100,000.00 and compensatory interest of €9,424.65, for a total of €109,424.65;

• Payment made to entity M..., LTD, the tax value of which is €342,351.90 and compensatory interest of €37,949.47, for a total of €380,301.37.

5.2. As a result of the inspection action, assessment no. 2012... was issued in the amount of €1,362,801.30, to which compensatory interest of €123,466.66 was added, for a total of €1,486,267.96;

5.3. The Claimant, disagreeing with the grounds invoked by the tax administration in the inspection report that formed the basis for the said assessment, filed an administrative appeal on 26 July 2012 against all corrections included in the assessment.

5.4. The administrative appeal was partially granted by decision of 17/12/2012, from the Director of the Large Taxpayers Unit, only in relation to payments made to entity C..., in the amount of €18,961.00, with the annulment of the tax amount of €2,844.15, the claimant being notified of this decision by office letter no. ..., received on 11/02/2013.

5.5. The Claimant reacted against the partial granting of the appeal, filing a hierarchical appeal on 13 March 2013 to which case number ...2011... was assigned.

5.6. In the hierarchical appeal petition, the appellant included and developed expressly only certain corrections which, as already mentioned and will be developed below, led the Respondent to raise the partial untimeliness of the arbitral pronouncement request.

5.7. The Hierarchical Appeal was completely dismissed by decision of 19/02/2014, communicated to the Claimant by registered letter with acknowledgement of receipt received on 22/04/2014.

5.8. Meanwhile, the Claimant informs that, as it was not possible for it to obtain form 21-RFI, it accepted the corrections arising from the payment made to "N...", in the amount of €139,500.00, to which corresponded tax of €20,925.00, which tax was paid on 21 July 2014 (See point A, no. 16, of the arbitral petition).

5.9. Thus, from the reductions referred to in 5.4 and 5.8, the challenged assessment was reduced to €1,339,032.15 (€1,362,801.30 – €23,769.15), plus compensatory interest of €121,155.41, making the total amount €1,460,187.56

5.10. The Claimant presented on 21 July 2014 its arbitral petition, in which it requests the declaration of illegality of the demonstration of assessment of income tax withholding at source for the year 2009, in the amount of €1,362,801.30, plus compensatory interest of €121,155.41, for a total of €1,483,956.71 (it being understood that the amount indicated by the Claimant at the end of the petition should be corrected, in terms of the value of the case, as indicated in 5.9.).

5.11. For its part, the Respondent presented its Response contesting the Claimant's argumentation and presenting the grounds which, in its view, support the challenged assessment.

1. Grounds invoked by the Claimant to argue the illegality of the corrections that formed the basis for the challenged assessment and the Response of the Respondent to sustain the same corrections

The report of the present arbitral award now presents a summary of the arguments that Claimant and Respondent have advanced in defence of their positions regarding the various corrections that make up the challenged assessment.

Since these are nine different tax situations, with specificities that differentiate them from one another, it is decided to present them following the order of proximity of themes with transcription of the positions that Claimant and Respondent offer in relation to each of them.

Thus,

6.1. Income paid to "B... LTDA"

6.1.1. Claimant's Position

The Claimant begins by referring to the grounds invoked by the Tax Administration to make the correction concerning the payment made to entity B..., Lda, which were based on the fact that form 21-RFI, provided for in Article 90-A of the Corporate Income Tax Code (current Article 98), was not properly authenticated by the Brazilian tax authorities.

Indeed, to disregard the form and proceed with the challenged assessment, the Tax Administration invoked that it received information from the Brazilian tax authorities, requested under the Agreement to Avoid Double Taxation concluded between Portugal and Brazil, to the effect that the form in question "was not received by a competent body and, as such, is not properly certified".

Moreover, the Tax Administration emphasized that, since Brazil is one of the States that reported to the Portuguese Tax Authorities the impossibility of certifying forms models 21-RFI and 24-RFI, the Ministerial Decision no. 22600/2009, of 7/10/2009, of the Minister of Finance should be applied.

The Claimant disagrees with the Tax Administration's argumentation, transcribing, for this purpose, the provision of Article 90-A of the Corporate Income Tax Code, in effect at the time of payment, according to which "the beneficiaries of income must provide evidence to the entity obliged to effect withholding at source, by the deadline established for the payment of the tax that should have been deducted in accordance with the applicable legal rules (...) through the presentation of a form of model to be approved by decision of the Minister of Finance certified by the competent authorities of their State of residence".

The Claimant further invokes that, knowing of the said legal requirement and in order to obtain exemption from the obligation to effect withholding at source, in accordance with the applicable legal regime, it undertook efforts to obtain from B... the form 21-RFI, duly completed, which occurred, having therefore understood "to have met the necessary requirement so as to be exempted from the obligation to effect withholding at source on the amount paid to B...".

However, the Tax Administration refused the validity of the cited form and informed the Claimant that, according to information from the Brazilian Tax Authorities, "such form would not have been received by the Brazilian Tax Authorities and, that, as such, was not properly certified".

The Claimant continues to disagree and emphasizes that receipt of a form stamped and signed by an official of the Brazilian tax authority created the conviction that it was properly certified (see Annex 90 to the Inspection Report).

And this, the Claimant continues, because it does not have at its disposal a mechanism for exchange of information, as the Tax Administration has, to confirm the legality (or lack thereof) of the signatures and stamps affixed to forms 21-RFI, thereby creating confidence that the form, which was stamped and signed, allowed it to operate the exemption from the obligation to effect withholding at source.

Indeed, the Claimant also argues, the very services of the Tax Administration had doubts about the form presented, having therefore activated the mechanism of exchange of information with the Brazilian authorities.

And the Claimant further emphasizes that, as the Portuguese Tax Administration has at its disposal the mechanism of exchange of information, it should make use of it with a view to discovering the material truth, as required by Article 58 of the General Tax Law.

The Claimant emphasizes that contradictory information is given, in that on the one hand it is said that the form was not received by a competent body and, on the other, that it was signed by an official of the Brazilian Tax Authority.

And the Claimant invokes as highly relevant the fact that the inspection report ignores "the questions relating to the residence and tax liability of B... which, in substance, are the element most relevant in this case for the purposes of ascertaining the material truth", without the Tax Administration having taken steps to clarify these facts.

The claimant further observes that its understanding of evidence gathering and the discovery of material truth "was, moreover, confirmed in light of the changes introduced by Law no. 2/2014, of 16 January (which approved the Reform of the Corporate Income Tax Code) to the regime of proof of the requirements for access to Treaty Benefits provided for in the Corporate Income Tax Code".

That is, that "in accordance with the changes introduced by the said diploma, the proof of compliance with the necessary requirements for the application of the provisions of Treaty Benefits may be made by presentation of form 21-RFI certified by the tax authorities of the country of residence of the beneficiary, or, alternatively, by presentation of form 21-RFI, completed but not authenticated, accompanied by a document issued by the tax authorities of the country of residence of the actual beneficiary of the income which certifies its residence for tax purposes in the period in question and its subjection to income tax in that State".

And that, therefore, the Tax Administration is not correct, by virtue of the fact that the proof of the requirements on which the exemption from withholding at source depends, pursuant to Decision no. 22600/2009, is a faculty and not a legal requirement and also by the demonstrated fact that the Claimant is in possession of form 21-RFI signed and stamped by an official of the Brazilian tax authority, an element which, in light of the normal duties of diligence to which it is bound as a tax substitute, is sufficient to operate the exemption from withholding at source.

For which reason the Claimant concludes that the correction, in the amount of €16,500.00, plus the respective compensatory interest, is not due.

6.1.2. Respondent's Response

The Respondent begins by alleging that, given the allegations of the parties and the documentary evidence produced, it should be considered proven that in 2009 the Claimant made payments in the amount of €110,000.00 to B..., a non-resident entity without permanent establishment, with headquarters in Brazil, as consideration for intermediation in the negotiation and conclusion of a sports employment contract for a player, and that, in the course of the inspection action, "the Claimant provided to the Tax Administration the RFI form, completed, with the affixing of a receipt stamp dated 05/02/2009 and a signature, without completion of section III of the form, concerning its certification, a fact which resulted in exchange of information with the Brazilian Tax Authorities, which confirmed that it is not properly certified", for which reason, due to the absence of proof provided for in section a) of paragraph 2 of Article 90-A of the Corporate Income Tax Code, it proceeded with the correction of €16,500.00 (See pages 159 and 160 of the inspection report).

As to the Claimant's objection, raised in the administrative appeal, that "it would be easier for the Tax Inspection Department, having doubts about the veracity of the information certified by form 21-RFI, to contact the Brazilian Tax Authority and clarify such doubts than to impose new procedures on taxpayers", the Tax Administration maintained the correction "on the understanding that this impossibility of certification (the Brazilian Tax Authority is prevented, by virtue of its internal legislation, from authenticating section III of the said form) required its supplementation in accordance with decision no. 22600/2009, of 07/10, of the Minister of State and Finance, published on 14/10/2009 in the 2nd series, no. 199, of the Official Gazette, which regulates the procedures to be adopted in such situations, by means of the presentation of a fiscal residence certificate to be issued by the State of the income beneficiary, provided that such certificate cumulatively met the three conditions referred to in sections a) to c) of that decision", which the Claimant did not meet.

The Respondent next refers to the hierarchical appeal filed by the Claimant in which the latter argued that "it exhibited form mod. 21-RFI, duly signed by the Brazilian tax authorities, for which reason there would be place for the application of the Convention between Portugal and Brazil, that is, for the exemption of withholding at source from tax, further noting that the certification of residence by other means (as permitted by Decision no. 22600/2009) has only a complementary or subsidiary nature and not a substantive character, with no obligation in that sense".

To this invocation the Respondent argues that the Claimant is not correct and reaffirms that in the form 21-RFI presented "there is no mention that the beneficiary was in 2009 tax resident in Brazil, that it was subject to income tax there, nor the identification of the entity certifying, the place, the date, the signature and the official seal".

The respondent maintains its reference to decision 22600/2009 which "came to accept the faculty, which did not previously exist, that in the impossibility of the tax authorities of the State of the beneficiary certifying form mod. 21-RFI, still it could be accepted a form in model issued by that State, by means of compliance with certain cumulative requirements" provided for in the cited Decision, and adds that it would be incumbent upon the taxpayer to bear the burden of alleging and proving the facts constitutive of the right invoked, as follows from the case law of the Higher Administrative Court (see Decisions of 28/10/2009, Proc. no. 3475/09 and of 10/07/2012, Proc. 05568/12).

The Respondent emphasizes that this does not concern the use of privileged information obtained under the exchange of information mechanism, since what is relevant and all too evident is that form 21-RFI was not properly certified for the intended exemption from withholding and that this does not concern any burden that falls upon it for the discovery of material truth or even the exchange of contradictory information with the Brazilian Tax Authority, but rather the regime of proof of the requirements for access to the tax relief contemplated in the Treaty with Brazil, the burden of which falls upon the Claimant.

And the Respondent further emphasizes that the thesis proposed by the Claimant is unacceptable, because if accepted, by absurdity, it would exempt any tax substitute from carrying out the proof of the requirements for access to Treaty Benefits, in the legally required terms, thereby placing upon the Tax Administration, in the inspection phase, the task of verifying the substance of the operation in question.

For the Respondent, form 21-RFI is an irreplaceable means of proof and the Claimant had five opportunities to present that same form, already in accordance with the cited Decision 22600/2009, namely, "at the time of the inspection action, in the right of hearing before the draft inspection report, in the administrative appeal petition, in the right of hearing before the draft decision to deny the administrative appeal, and in the hierarchical appeal petition".

Terms in which the Respondent understands that the correction in question should be maintained in the legal order, as it constitutes, in its view, a correct application of law to facts.

6.2. Income paid to D... B.V. for intermediation in the negotiation and hiring of athlete O...

6.2.1. Claimant's Position

The Claimant questions the correction set out in the Inspection Report, in the amount of €22,500.00, relating to the payment made to company D... B.V. ("D..."), an entity resident in the Netherlands for tax purposes, for intermediation in the negotiation and conclusion of a sports employment contract for a player.

This correction is based on the fact that the Tax Administration received information from the Dutch tax authorities, under the mechanism of exchange of information, to the effect that D... "is tax resident in the Netherlands but the income in question was not subject to taxation"[1].

Given that information, adds the Claimant, the Tax Administration concluded, without further ado, that D... is a "conduit company", connoted with "aggressive tax planning schemes aimed at the reduction and/or elimination of taxation on income through abusive use of Conventions concluded between the States"[2].

Moreover, it states that the Tax Administration requested information from the Claimant to prove that the services in question would have been effectively provided by D...

Now, the truth is that, continues the Claimant, it had in its possession form 21-RFI, duly completed and authenticated by the Dutch tax authorities which certified the residence of D... for tax purposes, as the actual beneficiary of the income.

If the Tax Administration had doubts, it could, as provided for in the Treaty, request from the Dutch Tax Authority such information as it saw fit to know the elements relating to the operation in question.

According to the Claimant, the Tax Administration questioned the information contained in form 21-RFI based on information which it did not attach to the file.

The Claimant alleges that in this way it feels triply harmed, in that the Tax Administration has access to information which the Claimant cannot obtain, has no knowledge of the information received by the Tax Administration and the latter did not take the necessary steps to ascertain the material truth of the situation.

Moreover, says also the Claimant, the Ministerial Decision already cited, no. 22600/2009, has a subsidiary or complementary character and not a substantive character, that is, it will only apply in cases where the tax authorities of the country of residence of the beneficiary communicate the impossibility of certification of the form.

And that, being thus, the entity beneficiary of the income providing to the tax substitute the form 21-RFI duly completed, it will be possible, without more, to apply the Treaty, without need for proof of any other additional elements.

The Claimant concludes that it met in a conscientious manner the formal requirements to which it was obliged and that it had no duty to know or even to suspect the (alleged) merely intermediary nature of D...

In relation to the invocation that the taxpayer has the burden of ascertaining whether the entity to which the income is paid equally constitutes the beneficial owner (a concept which, it should be noted, is not defined in Portuguese tax legislation), it is evident – understands the Claimant – that this obligation is imposed in situations in which special relationships exist (particularly of capital), permitting more easily the said control, which clearly does not occur in the situation in question.

And to illustrate what it has just concluded, it gives as an example the case of withholding at source on interest and royalties under Directive no. 2003/49/EC, of the Council, of 3/6, as well as the provision of paragraph 1 of Article 66 of the Corporate Income Tax Code regarding profits and other income obtained by non-resident entities subject to a clearly more favourable tax regime.

For which reason, the Claimant concludes that outside these cases it will be practically impossible for the Portuguese entity to know whether the entity with which it is contracting is, in fact, the beneficial owner of the income, since the mechanism of exchange of information is only available to the Tax Administrations.

Moreover, recalls the Claimant, the concept of beneficial owner appears in the OECD Model Convention, but only in the cases of Articles 10, 11 and 12, regarding the taxation of dividends, interest and royalties, and never regarding the application of Article 7, relating to business profits.

And the Claimant, in defence of its thesis, refers to the Comments to Article 1 of the OECD Model Convention, according to which "it should not be presumed, inconsiderately, that a taxpayer resorts to the type of abusive transaction referred to above…and that the advantages of a double taxation convention should not be granted when one of the principal purposes of certain transactions or arrangements is the obtaining of a more advantageous tax situation and the granting of that benefit, in those circumstances, is contrary to the object and purpose of the relevant provisions".

And the Claimant further emphasizes one of the aspects of the Model Convention, according to which "even though an entity is not considered as beneficial owner, it is suggested that it may benefit from the provisions of the Treaty if it is shown, after the careful analysis that should always be carried out, that the same entity has economic substance and that the purpose of its existence is not exclusively limited to the possibility of applying the Treaty.

Hence the Claimant's strangeness at the conduct of the Tax Administration, by the ease with which the services of the Tax Authority conclude that D... does not constitute the beneficial owner of the income paid by the Claimant.

Indeed, the Tax Administration will have concluded, without demonstrating, that D... "will have acted in the name and on account of another entity which is not resident in the Netherlands, but rather in the British Virgin Islands, and it is this entity which will have provided the service in the negotiation of the player to A...".

Moreover, the Claimant had a form duly certified by the Dutch tax authorities and, therefore, not having the power, with normal standards of diligence, to have knowledge of the full contours of the business concluded with D..., understood itself to be in a position to apply the exemption from withholding at source.

The Claimant refers, in this regard, to the arbitral decision of 3/2/2014, issued under Case no. 131/2013-T, see doc. no. 9, from which it can be concluded that "the Tax Administration has no legitimacy whatsoever to question the payment to a resident of the Netherlands, nor to question the subsequent payment by that same entity to a third entity, in this case resident in the British Virgin Islands, since we are in the field of the extraterritoriality of tax law".

And the Claimant concludes that, not questioning the tax residence of the Dutch entity, in accordance with the decision referred to, "only through a specific anti-abuse clause could such payment be questioned".

And regarding the alleged lack of information which the Tax Administration states was not provided to it by the Claimant, this refers to the Regulation on Players' Agents prepared by FIFA, in which the qualification of Agent is defined as one whose function is to present players to clubs or "bridge" between two clubs, always with the objective of intermediating the negotiations underlying the hiring of a player.

Accordingly, "sports companies are obliged to conduct negotiations for hiring players through licensed agents for this purpose, and the regulation governing the activities of these agents even provides for the possibility of organizing their activities through companies".

And it was what the Claimant did, when "it hired a company authorized to perform functions of representation of players, whose activity was developed, in a logic of proximity, through the respective agent".

Hence, according to the Claimant, there do not exist the elements sought by the Tax Administration and, therefore, there are also no grounds for the correction made, in the amount of €22,500.00 and respective compensatory interest.

6.2.2. Respondent's Response

On the matter of fact of interest to the case and given the allegations of the parties and the documentary evidence produced, particularly that contained in the administrative file attached, the Respondent considers the following to be proven:

That in 2009 the Claimant registered in account 4321163 the payment made, on 10/11/2009, in the amount of €150,000.00 to D..., a non-resident entity without permanent establishment, with headquarters in the Netherlands, as consideration for intermediation in hiring a player, more specifically for intermediation in the negotiation and conclusion of the sports employment contract of player O....

In the course of the inspection action, the Tax Administration verified that, however, the operation involved a set of entities with residence in Argentina, a country with which Portugal has not concluded a Treaty, and further verifying that D... was not registered as a company linked to the football sector and even less with know-how that would justify representing A... in the business under analysis.

Thus, states the Respondent, as it is unknown for what purpose D... intervened in this process, the Tax Inspection requested information from the Netherlands intended to ensure that this entity was tax resident there, that it was the effective beneficiary of the income in question and that it was subject to taxation in that country.

In response, the Dutch Tax Authority informed that the said income was not subject to taxation in the Netherlands, because D... will have acted in the name and on account of another entity resident in the British Virgin Islands, and it is this entity which will have provided the service in the negotiation of the player to A..., with D... acting only as a "conduit company", all supported by documents and monetary flows.

The Tax Inspection confronted the Claimant with that information and with the need for further clarification, and the Claimant reiterated that it was D... that provided the service, according to a contract of 5/5/2009, in which it undertakes to intermediate in the name and representation of A... in the said negotiation.

The Respondent emphasizes that the Claimant did not, however, provide any elements minimally evidencing the provision of that service, for example, exchange of correspondence in the course of the negotiations, as would be expected in light of the said contract, whose clause 3 provides that D... should keep A... permanently informed of the steps it takes in execution of the present contract, making known to it, in particular, all and any proposals.

And the Respondent refers to the Final Report of the tax inspection which transcribes and from which the following is emphasized, in summary:

• That the Claimant did not clarify for what reason a Dutch entity appears to be intermediating a business in which all other entities are of Portuguese and Argentine nationality/residence, despite the Claimant having previously stated that D... "demonstrates extensive experience and expertise in intermediation, commercialization and exploitation of all types of rights and businesses related to the world of professional sports", without having presented any evidence of such know-how.

The Respondent emphasizes that the Dutch and Portuguese tax administrations were unable to obtain information that would allow them to conclude that D... constituted an entity whose purpose or know-how justified the provision of the services that A... declares it contracted.

And that, on the contrary, what the Tax Inspection was able to obtain was information pointing to a not very specialized business of "Provision of consulting services in the broadest sense".

In the said Report it is also emphasized that, given the provision of Article 90-A of the Corporate Income Tax Code and regarding possible exemption from withholding at source, partial or total, and given the Treaty between Portugal and the Netherlands, it can be inferred that, in this case, the income obtained should be subject to taxation, tendentially, in only one of the countries but, at least in one of the countries.

And that, in accordance with Article 7 of the Convention referred to, income obtained by an enterprise in the exercise of its commercial activity would be covered by the convention, which includes provision of services.

It happens that, according to a procedure opened for exchange of information between both Tax Administrations, under Article 28 of the Treaty concluded between Portugal and the Netherlands, the Dutch Tax Authority was informed that the amounts invoiced by D... B.V. did not constitute income of this company, since it was merely acting as intermediary on account of another company, a company established in the British Virgin Islands.

Accordingly, the payments associated with invoices issued by D..., B.V., could only benefit from the Treaty, if they constituted income to be taxed in a company resident in the Netherlands, by virtue of it being the beneficiary of the income.

And in reinforcement of this thesis it refers to Alberto Xavier, when he states "its applicability (convention) depends on the person resident being the 'beneficial owner', that is, the holder of the right to the income. Conventions are not, therefore, applicable in terms of the domicile or residence of mere agents".

And in this case, D... B.V. was not the beneficial owner of the income, since these payments were indeed income of the other entity which is the beneficial owner of the income. Thus, the convention with the Kingdom of the Netherlands could not, in any case, have been activated.

Thus, the certified mod. 21-RFI form, only removes from taxation, as could not be otherwise, income earned by entity D... B.V. covered by the terms of the convention, and whose taxation is located in the Netherlands. And the Tax Inspection notes that one of the objectives of the convention concluded between Portugal and the Kingdom of the Netherlands is to avoid or eliminate double taxation and not that income not be subject to taxation in either of the States parties (note that annex 90 only certifies the residence of the entity, as it does not even identify that a service was provided to A...).

Otherwise, one would be "betraying" one of the other objectives set out in the convention, such as the prevention of tax evasion.

Moreover, the Tax Authority states that the Claimant lodged an administrative appeal against that correction alleging, in summary, that it was not required to ascertain and demonstrate that D... was the beneficial owner of the income and that there was no specific reference in the law to the concept of beneficial owner of income, particularly as the Treaty did not contain such definitions, further questioning the conclusions reached by the Tax Administration which it brands as unfounded and based on mere speculation.

The Respondent adds that in the course of the administrative appeal process, even in the face of the evidence that D... had its headquarters in the British Islands, the Claimant maintained its position that it met the burden of proof by exhibiting form 21-RFI attesting that D... is tax resident in the Netherlands.

Followed by the hierarchical appeal, the Tax Authority and now Respondent maintained the correction on the basis that the income in question did not constitute income of the company resident in the Netherlands, which is amply supported, on the one hand, by the fact that the form presented in the name of D... does not certify in section I the beneficiary of the income, and by the evidence gathered by the Tax Inspection, which the Claimant failed to destroy, that D... acted in the name and on account of another company domiciled in the British Islands.

And as regards the law, states the Tax Authority that it reiterated the tax framework already advocated, which, in summary, goes to the effect that it makes no sense whatsoever to claim, under a Treaty concluded between two States with a view to avoid double taxation of the same income, that the tax event should, after all, not be taxed in any of those States.

According to the Respondent, the identity of the beneficial owner of the income reveals itself, contrary to what the Claimant contends, to be of determining importance, as is transcribed, in summary, from the Information provided in administrative contention proceedings:

In accordance with Article 7 of the Convention to avoid double taxation concluded between Portugal and the Kingdom of the Netherlands, covered by the Convention are income obtained by an enterprise in the exercise of its commercial activity, which includes provision of services. Now, the payments associated with invoices issued by the Dutch company could only benefit from the Convention in the event that they constituted income to be taxed in that company, by virtue of it being the beneficial owner of the income. The applicability of the Convention would depend on the person resident being the beneficial owner, that is, the holder of the right to the income. Conventions are not, therefore, applicable in terms of the domicile or residence of mere intermediaries or agents.

In this case, the Dutch company was not the beneficial owner of the income, since these payments were income of the company located in the British Virgin Islands, and it is this entity which is, in fact, the beneficial owner of the income. Thus, the convention with the United Kingdom of the Netherlands could not, in any case, have been activated.

One thus has an abusive use of the convention and the tax relief provided for therein, because a resident sports entity intends to acquire rights to a player from a company resident in the British Virgin Islands (offshore), introducing a third intervening party, resident in that other State, to whom the resident entity made the payments relating to the acquisition of the rights to the player. The Tax Authority states that, in reality, the Dutch company acted only in the capacity of trustee of the offshore company, being remunerated as such, and not thus constituting the beneficial owner of the income paid by the Respondent.

Reference is also made to the fact that both treaty shopping, which implies the requalification of the beneficiary, and abusive use of the convention to avoid double taxation through the participation of an entity subject to a privileged tax regime, are tax planning schemes long identified and reputed by the Tax Authority, in risk analysis, as abusive. And they may be requalified, subject to correction, or determine the institution of a legally provided procedure for the application of anti-abuse provisions, as provided for in Decree-Law no. 29/2008, of 25 February.

And that with regard to the matters of burden of proof and its distribution between the parties and the power/duty of the Tax Authority in exchange of information with other States, we refer entirely to what was developed above at length.

Thus, states the same information, that in accordance with paragraph 7 of section c) of paragraph 3 of Article 4 of the Corporate Income Tax Code, the controversial income is considered obtained in Portuguese territory, subject to withholding at source on a final basis in Portuguese territory, at the rate of 15%, provided for in section c) of paragraph 2 of Article 80, current section e) of paragraph 4 of Article 87.

Finally, the Tax Authority emphasizes that the Claimant files the present request for arbitral pronouncement, reiterating all that it had said before, without presenting new elements.

The Tax Authority, in Response, maintains the position assumed previously in the inspection phase and in administrative contention, above summarized, referring to its content contained in the Administrative File attached to the case.

Underlining that "being the beneficial owner of the paid income is one of the prerequisites of the regime for access to the Treaty, without which the tax relief contained therein ceases to make any sense".

Moreover, it states that the Dutch Tax Authority informed the Tax Administration, with evidence including financial flows, that D... was not the beneficial owner of the income paid by the Claimant.

Finally, and notwithstanding the absence of special relationships between the Claimant and D..., it is all too well proven in the file that the Claimant did not ignore that D... was not the beneficial owner of the income.

As to the argument of confidentiality of the information exchanged between D... and the Claimant, the Respondent emphasizes that, even if such a fact is considered plausible, which does not seem to be the case, such fact does not invalidate the remaining evidence gathered by the tax inspection.

And this because the Tax Authority understands that the situation under analysis in the case, as results from all that has been stated, does not constitute a complex situation, nor does the correction made require resorting to the general anti-abuse clause of paragraph 2 of Article 38 of the General Tax Law.

For the simple reason, adds the Respondent, "that if payments exist made for services provided under the above-mentioned contract, such payments will not be those now controversial, since they did not have as beneficial owner D..., nor are there any indications that this entity provided services to the Claimant, under the said contract, whose ineffectiveness for tax purposes is likewise not disputed".

Terms in which, understands the Respondent that the correction in question should be maintained in the legal order, as it constitutes a correct application of law to facts.

6.3. Income paid to E... for the acquisition of 75% of the economic rights of football player P...

6.3.1. Claimant's Position

What is at issue is a tax correction in the amount of €497,500.00 corresponding to withholding at source on a payment made to agent E... ("E..."), resident for tax purposes in Brazil, for the acquisition of 75% of the economic rights of athlete P....

The Claimant begins by referring to the grounds used by the Tax Administration to sustain the challenged correction.

Thus, according to the Tax Administration[3], "the sports rights emerging from the conclusion of a sports employment contract are nothing more than the rights of registration of the player in a competition by the sports employing entity, duly recognized by the entity responsible for the organization and supervision of professional football (e.g. the Portuguese League of Professional Football in the case of A...)".

Moreover, referring to the Tax Administration[4] that "paragraph 3 of Article 7 of the Statutes of the Portuguese Football Federation (FPF), endowed with sports public utility, in accordance with Decree-Law no. 144/93, of 26 April, establishes that recognition as a club implies its registration in the Association of its geographical area and, within the scope of professional competition, in the Portuguese League of Professional Football".

And further that "it is after this procedure that the Club can declare itself holder of sports rights, since a sports employment contract is in effect, in its fullness, in obedience to legal and regulatory requirements, and can use the player in the competitions in which it participates[5]".

Thus, according to the Tax Administration, as the player in question had no professional bond to any club, the amount paid to a third party or agent in the context of the conclusion of a new contract "is nothing more than the consideration which the player can demand for the conclusion of a new contract – colloquially known as a signing bonus – assigned by the latter to a third party[6]".

And to conclude, states the Tax Administration that one is faced with "income that is paid so that the services of the player can be used in national territory"[7] and, as such, subject to Corporate Income Tax at the rate of 25%, in accordance with section d) of paragraph 3 of Article 4 and paragraph 4 of Article 87 (paragraph 4 of Article 80, at the date of the tax fact), both of the Corporate Income Tax Code.

The Claimant does not agree with the correction in question, in that, according to it, the characterization of the income made by the Tax Administration is based on an incorrect assumption, as it does not take into account the substance of the facts and lacks legal grounding.

The Claimant continues to present the Tax Administration's assumptions for proceeding with the corrections. Thus:

• "Since athlete P... was at the date 'free', the income paid by the Claimant has the nature of a 'signing bonus', which was assigned by the latter to a third party;

• We would thus be faced with income paid by the Claimant to a third party for the signing bonus that would be required of athlete P... for the purpose of signing the sports employment contract"

• The income in question would thus be derived from the exercise of the activity of sportsperson in Portuguese territory, being as such subject to withholding at source".

The Claimant refutes these premises, as they do not result from the facts that objectively occurred nor from the evidentiary elements that support them, furthermore, in accordance with section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code, income derived from the exercise in Portuguese territory of the activity of sportspeople is subject to taxation.

And the Claimant argues that it is a fiction, which results neither from the law nor from reality, when the Tax Administration argues that due to the fact that the player is "free", the income paid by the Claimant constitutes a signing bonus, classifiable under the above-cited provision and, as such, subject to withholding at source in Portugal.

Indeed, continues the Claimant, as evidence to support its conclusion that athlete P... was "free" at the date of the facts, the Tax Administration resorts to a search conducted on a specialist website (Gazeta Esportiva), from which it attaches, as Annex 96 to the Inspection Report, an excerpt from a news item published there, having concluded that the said excerpt has sufficient credibility to support the correction in question.

However, the Claimant counters with the facts, stating that athlete P... "was initially bound to Q…, with E... acquiring from that entity the rights of the said player and taking steps with the same for the procedure for liberation of the International Transfer Certificate (as is indeed mentioned in the cited news item)".

And the Claimant highlights what is stated in the said news item, according to which the acquisition of the athlete's rights was made by "a group of businessmen represented by a person from São Paulo (E...)".

Now, states the Claimant that "through the contract concluded between itself and E..., the acquisition was made of 75% of the sports and financial rights of player P..., for the amount of €1,990,000.00, paid in a single tranche".

Thus, the Claimant emphasizes that E..., as a result of its negotiating and financial capacity, achieved a gain as a result of the acquisition of the rights of athlete P... and partial sale of the same to the Claimant, retaining in its sphere part of those rights.

That is, "the income obtained by E... arises from the investment made by it and the steps taken in its own name, in defence of its interests, consisting, precisely, in the difference between the cost of acquisition of the athlete's rights and its sale value to the Claimant, for which reason we are not faced with income obtained by the athlete or in connection with the activity of the latter as a sportsperson".

The Claimant emphasizes that "the diverse nature of the income that may be at issue in an operation of this nature is evidenced in Law no. 103/97, of 13 September, as amended by Law no. 56/2013, of 14 August, which establishes the tax regime for sports companies".

Indeed, in accordance with paragraph 3 of Article 3 of that law, with the rights of contracting being registered as intangible assets, the depreciable value of the same may include:

• "the amounts paid by the sports company to the entities holding the economic and sports rights relating to the player as consideration for the transfer";

• "the amounts paid to the player him/herself for entering into or renewing a contract"; and

• "the amounts paid by the sports company to agents or mandatories, relating to transfers of players".

Thus being, adds the Claimant, only the possible income paid to the player him/herself or to a third party in his/her representation would assume the nature of "signing bonus", which, from the outset, in the operation under analysis "not only does not have any adherence to reality, but is not properly supported".

And the Claimant further states that there is no rule of tax incidence determining that, in the absence of economic and/or sports rights, the amount earned by third parties from a club seeking to conclude a sports employment contract with the athlete is presumed derived from the activity exercised by the athlete him/herself, or that constitutes taxable income in the sphere of that same athlete (although the latter earns no income).

The Claimant emphasizes that the Tax Administration was compelled to resort to the understanding set out in Circular no. 18/2011, of 19 May, under which "in the case the player is 'free', that is, without a sports employment contract in effect, when a non-sports entity non-resident comes to charge an amount to a club/SAD resident seeking to conclude a sports employment contract with the player, these economic rights do not have in their origin sports rights, since there is no sports employment contract. In these conditions, the conclusion of a future sports employment contract is subsumed in the right equivalent to the signing bonus that a player could demand for the conclusion of the new contract"[8]

Now, states the Claimant, what the Tax Administration does is impose a fiction that creates a rule of tax incidence, for as is acknowledged in the text of the Circular, with the player being free there do not, in fact, exist sports rights.

According to the Claimant, this rule of tax incidence thus created is based on an irrebuttable presumption.

The Claimant further states that the Tax Administration never proved that "E... earned income in the name and on account of the athlete as a result of the latter's hiring by the Claimant".

And the Claimant clarifies that "as the contract was concluded by E... who promoted the 'liberation' of the player from the previous club where the latter was and as this entity achieved a gain, the only way the athlete could have earned any income in the context of the operation in question would be through a possible prior agreement with E..., in which it was provided that this party would transfer the income earned to the athlete"…"which, even if it existed, would be prior to the signing of the sports employment contract with the Claimant (that is, at a time when the latter was still a player of Q…), for which reason it could never be considered as obtained in Portuguese territory due to the absence of a connecting element".

Hence, concludes the Claimant that "in light of the facts we are not faced with a signing bonus, but rather a gain achieved by E..., as a result of an investment made".

Thus being, the Claimant emphasizes that "either the services of the Tax Administration managed to demonstrate that an artificial structure was created with the specific objective of achieving a tax advantage, under the general anti-abuse rule, whose application, recall, depends on the institution of a specific procedure which was not adopted by the services of the Tax Authority (see paragraph 2 of Article 38 of the General Tax Law and Article 63 of the Code of Tax Procedure)"

"…or limiting themselves to the facts underlying the operation in question, recognized that no income derived from the activity of sportspeople was achieved and that, as such, the existence of a taxable event in Portuguese territory does not exist".

Now, states the Claimant, the services of the Tax Administration "do not demonstrate the existence of such artificial structure, nor applied the mechanisms provided for in the law for this purpose, being thus completely inconceivable that they sustain the correction in question in an interpretation assumed as 'settled point' and which does not carry 'force of law' by virtue of the fact that the Tax Authority understands that it is so".

And that, for this reason, although the Claimant has conducted itself in relation to the Tax Authority in a cooperative manner, it is certain that "the procedure adopted by the services of the Tax Administration is defective, therefore, in lawfulness, in that an irrebuttable fiction is imposed, without any basis in law, which creates a true rule of tax incidence, which, be it noted, was not even known in general at the date of the facts, given that the publication of Circular no. 18/2011 only occurred in May 2011".

And to conclude, understands the Claimant "to have demonstrated that the income in question does not constitute income arising from the exercise in Portuguese territory of the activity of sportspeople for the purposes of section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code".

And, consequently, "considers the Claimant that the income paid to agent E... is not classifiable under section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code in that it does not constitute income arising from the exercise in Portuguese territory of the activity of sportspeople, but rather a gain achieved in the sphere of an entity by virtue of acquisition, by the Claimant, of an intangible asset".

For which reason it requests that the correction in question, in the amount of €497,500.00 and respective compensatory interest, be annulled.

6.3.2. Respondent's Position

As regards the matter of fact with interest to the cause, given the allegations of the parties and the documentary evidence produced, in particular that contained in the administrative file attached, the Respondent Tax Administration considers proven that A... made a payment, in the value of €1,990,000.00, to agent E..., resident in Brazil, on 19/11/2009, for the purpose of "reference of the selling of 75% (seventy five percent) of the economic rights of the football player P..." (Pages 166 of the RI and Annex 95 of the RI) and that such payment was not subject to withholding at source at the rate of 25%, pursuant to sections f) of paragraph 1, b) of paragraph 3 and 5 of Article 88 and paragraph 4 of Article 80, all of the Corporate Income Tax Code.

The Respondent, in its Response, begins by referring to the inspection report and the notification made to the now Claimant for clarification of the transfer in question, that is, to prove whether the player was "free" or came transferred from another club to A....

The Claimant informed that "in order to effect the transfer of the athlete to A..., E... (…) acquired the rights of athlete P... from Q…, having subsequently sold 75% of those rights to A...", having added that "…In order to effect the transfer of the athlete to A..., E... was obliged to take steps with Q… for the liberation of the International Transfer Certificate of the athlete, for which reason the athlete had a sports employment contract with Q…".

In that sense the Claimant presented a document (See Annex 97 of the RI), where agent E... expresses that it is "sole and exclusive holder of the right to dispose of all sports and financial rights arising from the employment contract" of the player.

Moreover, reinforces the Respondent, when the Claimant was notified to present the transfer contract with a club/SAD (Q…) the taxpayer declared that "Currently, we have no additional elements or documents concerning the transfer of athlete P...…"

According to the Tax Administration and now Respondent, these facts were known in sports circles, so much so that it was possible for the Tax Inspection Services to identify a news item on the Gazeta Esportiva website – a specialist website, which reported that the athlete was "Free" before signing with A...,

Being that in the said business only the businessman E... intervened, who was listed as holder of these economic rights at the time of the negotiation carried out with A....

Thus, concludes the Respondent, in this situation in which the athlete is "free", there will be no transfer contract between clubs/SADs and the International Transfer Certificate of the player is requested through the Portuguese Football Federation which requests the other Federation involved or FIFA, as is provided for in Article 9 of the Regulation on Status and Transfer of Players.

And further states the Tax Administration that, with the player "free", that is, without economic rights pending sports rights in effect, it is incumbent upon it to analyze the origin of these rights, in order to assess the nature of the income earned, for purposes of its subjection to taxation.

Now, in accordance with Law no. 28/98, of 26/6, the sports rights arising from the conclusion of a sports employment contract are nothing more than the rights of registration of the player in a competition by the sports employing entity, duly recognized by the entity responsible for the organization and supervision of professional football (e.g. the Portuguese League of Professional Football in the case of A...).

In turn, recognition as a Club implies its registration in the Association of its geographical area and, within the scope of professional competition, in the Portuguese League of Professional Football (see paragraph 3 of Article 7 of the Statutes of the Portuguese Football Federation).

Thus, concludes the Tax Administration, only in this manner can a Club declare itself holder of sports rights, since a sports employment contract is in effect, in its fullness, in obedience to legal and regulatory requirements, and can use the player in the competitions in which it participates.

For which reason, in its view, the Tax Inspection Services correctly concluded that "the existence of sports rights only occurs in the terms described above, it not being possible for other entities (e.g. companies without the capacity to compete in sports competitions with their own team of players) to claim possession of sports rights over players. Hence, agent E... was not holder of sports rights[9]".

And that "where there are no sports rights, since the player did not have a valid sports employment contract in effect with a sports entity, nor can it be considered that they constitute economic/financial rights relating to sports rights, colloquially known as transfer rights, held by a third non-sports entity, since these presuppose the existence, as always, of a sports employment contract, logically, with a sports entity"[10].

In this manner, concludes the Respondent, with the player "free", without a sports employment contract, the consideration required at the time of the conclusion of the new contract is the colloquially designated signing bonus.

Continuing its argument, the Respondent adds that it should be considered that agent E... declared being "at the present date, sole and exclusive holder of the right to dispose of all sports and financial rights arising from the employment contract…" of the player, however its right is limited to remuneration for the conclusion of the new sports employment contract, which arises uniquely and indisputably from the conclusion of a new contract, by the player, from which derives its use in the service of the club resident in Portuguese territory.

Thus being, states the Tax Administration now Respondent that it argues in the same sense as that defended at the inspection report and Administrative Appeal stage, that is, that it concerns "income that is paid so that the services of the player can be used in national territory", and as such considered as income obtained in Portugal by a non-resident, subject to Corporate Income Tax, by virtue of the locating rule contained in section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code, since it concerns income derived from the exercise in Portuguese territory of the activity of sportspeople.

Adding that it is indisputable that the activity in question is that of a sportsperson, and that the connecting element is present, notably because the purchaser is a Portuguese club and the sports activity will be developed in national territory.

And concludes that thus being, taxation occurs through the mechanism of withholding at source, on a final basis, as provided for in section f) of paragraph 1 of Article 88 of the Corporate Income Tax Code, by virtue of income being earned by non-resident entities in Portuguese territory.

And, in support of this position, it further refers to paragraph 2 of Article 17 of the Treaty between Portugal and Brazil, which states that taxation occurs in the State party in which the activities are exercised (See page 170 of the RI).

And the Respondent also invokes Article 123 of the Corporate Income Tax Code according to which transfers abroad of income subject to Corporate Income Tax, obtained in national territory by non-resident entities, may not be made without showing paid or assured the tax that is due.

For which reason, understands the Tax Administration that the Claimant, upon payment of income derived from the exercise in Portuguese territory of the activity of sportspeople to a non-resident entity, in the value of €1,990,000.00, was obliged to effect withholding at source at the rate of 25%, which should have been delivered to the State treasury by the 20th day of the month following that in which such income was placed at their disposal (see paragraph 6 of Article 88 of the Corporate Income Tax Code).

And the Respondent concludes by stating that, given the above, the arguments advanced by the Claimant fall entirely, the correction being, unequivocally, legal and legitimate.

6.4. Payments to "F…" as consideration for the acquisition of economic rights and services rendered relating to football players R... and S...

6.4.1. Claimant's Position

The Tax Administration made a correction, in the amount of €87,500.00, corresponding to withholding at source on the payment made by the Claimant to "F…" ("F…"), an entity resident for tax purposes in Brazil, in the amount of €350,000.00, as consideration for the acquisition of economic rights and services provided relating to players R... and S... (see section III.1.2.2.2 of the report) (see contract attached to the Inspection Report as Annex no. 98).

The Claimant emphasizes that the Tax Administration showed the same conduct and invoked the same grounds set out in the situation described in the previous number, relating to agent E..., arguing that it was payment of a "signing bonus" and as such subject to Corporate Income Tax in national territory at the rate of 25%.

However, contrary to that understanding, states the Claimant, the amount paid involves, simultaneously, consideration for the cession of economic rights and for services provided by F..., without it being possible to effect the respective segregation, in that the agreement concluded covers the transaction as a whole.

Now, what the Tax Administration did was subject the entire amount to taxation, at the rate of 25%, on the basis that the amount paid was solely due for transferred economic rights, despite knowing that part of the amount paid concerns provision of services and that, even without considering the form 21-RFI (which the claimant had duly completed and authenticated), the rate to be applied would be 15% and never 25%.

And the Claimant counters, questioning the Tax Administration on the criteria and grounds that led it not to consider, for example, the entirety of the price paid as provision of services or even using an equitable distribution method, that is, considering half the value paid for each of the services?

The Claimant understands that, although the component qualified as provision of services is not determinable, there would be place for exemption from the obligation of withholding at source, under the provisions of the Treaty concluded between Portugal and Brazil.

And that with regard to the component relating to the acquisition of the economic rights of the players in question, the Claimant reproduces the argument concerning payment to agent E..., for the acquisition of part of the economic rights of player P....

For which reason it requests that the correction in question, in the amount of €87,500.00 and respective compensatory interest, be annulled.

6.4.2. Respondent's Position

According to the Response of the Respondent, as regards the matter of fact with interest to the cause, taking into account the allegations of the parties and the documentary evidence produced, in particular that contained in the administrative file now attached, it is considered proven that A... made, on 20/10/2009, a payment in the amount of €350,000.00 to entity F... LTDA-EPP, non-resident and without permanent establishment in Portugal, which was not subject to withholding at source, for the purpose of acquisition of "economic rights" and services provided relating to players R... and S....

In its Response, the now Respondent begins by reaffirming the position of the tax inspection services, stating that the said payment, concerning income derived from the exercise in Portuguese territory of the activity of sportspeople paid to non-resident entities, should have been subject to withholding at source at the rate of 25% and that the tax of €87,500.00 should have been delivered by the 20th of the following month, in accordance with sections f) of paragraph 1, b) of paragraph 3 and 5 of Article 88 and paragraph 4 of Article 80, all of the Corporate Income Tax Code.

Thus, continuing to develop its thesis, the Respondent informs that in the inspection action it notified the taxpayer and now Claimant to prove the amount of economic rights and the amount of services, since in the contracts both types of income were mentioned, and to inform whether the players were "free" or came transferred from another Club to A...[11].

The now Claimant, in response to the notification, declared that "F... was holder of all economic rights arising from the sports bond that athletes S... and R... were to enter into and the identified athletes are free of any commitment" (see agreements as Annex 98 of the RI) and that "the athletes did not sign a sports employment contract (…), but a sports training contract to run until 30 June 2011, with the promise of conclusion of a sports employment contract to run in the sports seasons 2011/2012, 2012/2013 and 2013/2014".

And it also clarified that, with regard to the agreements concluded with entity F... "as results from the second clauses of the Agreements, the price stipulated was the consideration for the cession of all economic rights (…) and for the provision of the services provided that enabled the conclusion of the contracts".

As to the discrimination of values, states the Respondent that the Claimant limited itself "to reinforcing the previously alleged, which, similarly to what is happening now in the request for arbitral pronouncement, did not identify the value of each part, and did not demonstrate in what such services consisted, nor did it manage to prove such quantification, despite the burden falling upon it".

In the face of the Claimant's position and as results from the RI, pages 173 "As A... did not value the possible services provided, and given the content of the agreements concluded and the economic substance underlying the same, the tax administration infers that the value of these operations emanates from the rights transmitted and not from any services possibly provided", as results from the whereas clause no. 4 of the agreements in which "THE SECOND CONTRACTING PARTY intends to acquire, and the FIRST CONTRACTING PARTY intends to cede, all economic rights arising from the sports bond concluded with the athlete".

Thus, states the Respondent that "in the face of the lack of proof (of the effective provision of services) and necessary quantification (which did not occur at the inspection phase, nor now in the judicial phase) and considering the reading of what was agreed between the parties, it clearly results that should services have been provided, at all, these would always be residual".

Thus, continues the Respondent, following the said clarification, from the elements brought to the (inspection) process by the now Claimant, it was possible to verify that the acquisition of the above rights occurred in a context in which the players were "free" without a valid sports employment contract with another sports entity, at the time of their hiring by A....

Moreover, states the Respondent, in support of the explained, consideration should be given to the whereas clause no. 5 contained in the agreements concluded – Annex 98 to the RI – where it reads that "THE SECOND CONTRACTING PARTY is interested in the said acquisition on condition that the (…) athlete is free of any contract or commitment, being able, thus, to bind itself sports wise immediately to A... without any financial consideration being able to be demanded of it by any Club"[12].

And the Respondent continues to emphasize that in the face of this status of the hired athletes, "free", it falls to it to analyze how the origin of these rights occurred, so as to assess the nature of the income earned, for purposes of its subjection to taxation.

Now, such as the Respondent explained above regarding the Sports Activity of athlete P..., in situations where an athlete is "free" there will be no transfer contract between clubs.

And that, thus being, with the player "free", that is, without economic rights pending sports rights in effect, and in the face of the absence of transfer contract between clubs, the International Transfer Certificate of the player is requested through the Portuguese Football Federation, which requests the other Federation involved or FIFA, as is provided for in Article 9 of the Regulation on Status and Transfers of Players.

On the other hand, adds the Respondent, for purposes of its subjection to taxation, it must be considered that in accordance with Law no. 28/98, of 26 June, the sports rights arising from the conclusion of a sports employment contract concluded, are nothing more than the rights of registration of the player in a competition by the sports employing entity, duly recognized by the entity responsible for the organization and supervision of professional football (e.g. the Portuguese League of Professional Football in the case of A...).

And moreover states that recognition as a Club implies its registration in the Association of its geographical area and, within the scope of professional competition, in the Portuguese League of Professional Football (see paragraph 3 of Article 7 of the Statutes of the Portuguese Football Federation).

And continues to argue the Respondent that only thus can a Club declare itself holder of sports rights, since a sports employment contract is in effect, in its fullness, in obedience to legal and regulatory requirements, and can use the player in the competitions in which it participates.

And concludes that, by the above stated, it is evident that a Club, legally recognized as such and after the procedure of its process described above, can use the player in the competitions in which it participates.

For which reason, emphasizes the Respondent, the existence of sports rights only occurs in the terms described above (and similarly to the reasoning set out in the RI), it not being possible for other entities (e.g. companies without the capacity to compete in sports competitions with their own team of players) to claim possession of sports rights over players.

Hence concludes the Respondent that the Tax Inspection Services were right to consider that entity F... was not holder of sports rights, since the players did not have in effect a valid sports employment contract with a sports entity.

And, likewise, also cannot be considered, also states the Respondent, that they constitute economic rights relating to sports rights, colloquially known as transfer rights, held by a third non-sports entity.

Reason for which, concludes the Respondent, the consideration collected by the third non-sports entity or even FIFA agent will be the colloquially designated signing bonus, upon the conclusion of the new sports employment contract.

Having stated the above and in light of the before-mentioned, for the Respondent "it is evident that the connecting element with national territory is present, derived from its use in the service of the club resident in Portuguese territory".

Thus being, such as is affirmed in the RI, "these are income that are paid so that the services of the players can be used in national territory, and as such, considered as income obtained in Portugal by a non-resident subject to Corporate Income Tax, by virtue of the locating rule contained in section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code, since these are income derived from the exercise in Portuguese territory of the activity of sportspeople".

Taxation must thus occur by means of the mechanism of withholding at source, on a final basis, as provided for in section f) of paragraph 1 of Article 88 of the Corporate Income Tax Code, by virtue of income being earned by non-resident entities in Portuguese territory, being that the applicable rate is 25%, as it concerns income from the activity of sportspeople (see section b) of paragraphs 3 and 5 of Article 88 and paragraph 4 of Article 80, both of the Corporate Income Tax Code).

And in support of this position, the Respondent invokes the Treaty concluded between Portugal and Brazil, which provides for in paragraph 2 of Article 17 that "…income from the activity exercised personally by (…) sportspeople, in that capacity, assigned to another person, may be taxed in the State party in which such activities are exercised".

And emphasizes that in the same sense go the Comments to the said paragraph 2 of Article 17 of the OECD Model Convention on Income and Property Taxes[13], concluding that the State where sportspeople activities are exercised is authorized to tax the income obtained from such activities and assigned to another person, independently of the other provisions of the Convention.

And moreover states that in consonance with the previously mentioned, the Comments to the Convention Model advocate that income derived from the activity of artist or sportsperson exercised in a State, independently of such income reverting to the artist or sportsperson or to another person, can be taxed, without any limitation, by that State of origin of the income.

In light of all the mentioned, the Respondent concludes that the State of origin of the income is enabled to exercise its rights of taxation over the amounts attributed to interposed entities between the sports entity and the Club/SAD, payer of the income.

Thus, emphasizes the Respondent, that being provided for its taxation in Portuguese territory, in accordance with section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code, even with the presentation of form model RFI, duly completed and certified by the Brazilian tax authorities, the income in question does not remain exempt from taxation in the Corporate Income Tax seat and, consequently, from withholding at source on a final basis.

Moreover, reinforces the Respondent, in accordance with Article 123 of the Corporate Income Tax Code, transfers abroad of income subject to Corporate Income Tax, obtained in national territory by non-resident entities, may not be effected without showing paid or assured the tax that is due.

And concludes the Respondent that, given the above stated, the Tax Inspection Services were right to conclude that the now Claimant should "upon payment or placement at the disposal of income derived from the exercise in Portuguese territory of the activity of sportspeople, to non-resident entities, in a total of €350,000.00, have effected withholding at source at the rate of 25%, which should have been delivered to the State treasury by the 20th day of the following month in which such income were placed at their disposal (see paragraph 6 of Article 88 of the Corporate Income Tax Code)"[14]

For which reason, "the arguments advanced by the now Claimant thus falling, the correction made being legal, legitimate and exigible in the value of €87,500.00 (€350,000.00 X 25%)".

6.5. Payment of income to non-resident entities as consideration for the acquisition of image rights of football players

6.5.1. Image rights of athlete G...

6.5.1.1. Claimant's Position

The Tax Administration made a correction, in the amount of €31,250.00, corresponding to withholding at source on the payment made to T...B.V. ("T…"), an entity resident for tax purposes in the Netherlands, in the amount of €125,000.00, for the cession of image rights of player G... ("G…") (see section III.1.2.2.3 of the inspection report).

States the Claimant that the Tax Administration bases the correction "on the understanding that the image rights of the players constitute a direct and inseparable reality of their activity as sportspeople"...concluding that "…the income earned by the cession of the image rights of these players, configure, after all, income derived from the exercise in Portuguese territory of its activity as sportspeople, which, are subject to Corporate Income Tax, given the provision provided for in section d) of paragraph 3 of Article 4 of the Corporate Income Tax Code".[15]

The Claimant disagrees with the Tax Administration, once more because the correction is based on a fiction that has no legal basis.

Indeed, adds, the Tax Administration's position is based on the alleged inseparability between the image right of an athlete and the exercise of sports activity, an understanding based on the fact that the agreement concluded between the Claimant and T... has the same duration as the sports employment contract – which lacks grounding.

Indeed, states the Claimant that "the image right constitutes a right of personality, which, besides being a fundamental right with protection at the level of the Constitution of the Portuguese Republic, is also found in Article 79 of the Civil Code, with its abusive use being protected in Article 483 of the same law".

And that, as a right of personality, "the image right assumes the characteristics generally pointed to rights of this nature, namely its inalienability and non-transferability".

And further states the Claimant that "as regards inalienability, this means that recognition is not given to the active subject of a right of personality the faculty of renunciation or disposition in favour of another of the capacity to enjoy such rights" and as regards "rights of personality cannot be assigned, alienated or encumbered in favour of another, given the inseparability of the subject holding them, for which reason any legal transaction so providing would be contrary to public policy (in this sense, see Article 280 of the Civil Code)".

However, also clarifies the Claimant, there are some situations in which it is possible to establish limitations to the principles above referred, as is the case of paragraph 2 of Article 79, in which the consent of the portrayed person is not necessary when so justified by its notoriety, the position it holds, or when the reproduction of the image comes framed in public places or in facts of public interest or which have occurred publicly.

In this context, adds, Article 10, paragraph 1 of Law no. 28/98, of 26 June (which establishes the legal regime for the contract of employment of a sports practitioner and the contract of sports training), provides that "every professional sports practitioner has the right to use his/her public image linked to sports practice and to oppose any other person using it illicitly for commercial exploitation or for other economic purposes".

And that also in paragraph 2 of the same provision is reserved "the image right of the collective of practitioners, which may be subject to regulation in the seat of collective contracting".

Moreover states the Claimant that the said normative provisions are set out in the Collective Work Contract established between the Union of Professional Football Players and the League of Professional Football, whose paragraph 2 of Article 38 provides that "the right to use and exploitation of the image of the player pertains to the player himself on the purely individual level, being able for this player to assign this right to the club in the service of which it finds itself during the validity of the respective contract".

Also according to the Claimant "the management of the image right may pass through its commercial exploitation, being one of the most commonly used means the sponsorship contract, provision of advertising services, as a way of advertising products and services, taking advantage of the notoriety of persons to promote goods, activities or services, so as to reach with greater scope and more quickly the universe of potential consumers".

And, thus being, "treating itself of a right of personality, the right to image may only be assigned (with limitations) by the own holder, it also falling to it the right to manage, nothing impeding that the player consents that a third entity proceed to the commercial exploitation of its image right, this agreement not implying the alienation or cession of the rights due to the impossibility of the subject matter of the transaction".

The Claimant continues to clarify the characterization of these rights, adding that "moreover, in light of the norms cited, the cession of the exploitation of the image right appears as a possibility and not as an inevitability as a result of the conclusion of a sports employment contract".

Adding that "player G..., in the full use of its image right, assigned the exploitation thereof to T...".

Thus, states the Claimant that "from a point of view of commercial uses, has a legitimate interest in the management of the image right of an athlete with which it concludes a sports employment contract and for the period of duration of the same".

But that, in this way, "there is no existence of an immediate and inevitable nexus of causality between the conclusion of a sports employment contract and the management of the image right of the athlete in question, being able this, optionally, to assign the commercial exploitation of its image rights to third parties".

And that, continues the Claimant, "optionally also, the entity with which the sports employment contract is concluded can acquire such right (as the Claimant did)".

And that "the exploitation of the image right of an athlete is not, therefore, inseparable from the sports employment contract"(…) "being the sports activity of professional football players exercised by their intervention in professional football competitions in which participates the employing entity, with which they concluded a sports employment contract, being remunerated for this purpose in accordance with the clauses of the employment contracts and in which the image rights were not assigned"

And the Claimant refers to the Comments to Article 17 of the Model Convention, according to which "apart from the rights obtained in the capacity of performances in which they participate directly, artists and sportspeople often earn income in the form of […]