CAAD 605/2015-T: IRS Capital Gains Tax on Share Alienation – Arbitral Decision

ARBITRAL DECISION

The Arbitrators Counselor Fernanda Maçãs (presiding arbitrator), Dr. José Rodrigo de Castro and Dr. Maria Manuela do Nascimento Roseiro (co-arbitrators), hereby agree as follows:

I – REPORT

1. A…, taxpayer no. …, with tax domicile at Rua …, no. … –…, in …, filed a request for establishment of a collective tribunal on 17/09/2015, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter abbreviated as "RJAT"), in which the Tax and Customs Authority (hereinafter referred to as "AT") is required.

2. The claim that is the object of the request for arbitral pronouncement consists of the declaration of illegality of assessment no. 2015… of IRS for the year 2010, in the amount of € 5,459,714.96, and condemnation of the AT to pay the Claimant compensation for the costs incurred with the guarantee provided to suspend the tax execution process no. …2015….

3. The request for establishment of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 01/10/2015.

3.1. In the request for arbitral pronouncement, in accordance with article 10, no. 2, paragraph g) of the RJAT, the Claimant expressed the intention to designate an arbitrator pursuant to paragraph b) of no. 2 of article 6 of the aforementioned RJAT.

3.2. Consequently, the establishment of the arbitral tribunal proceeded in accordance with paragraph b) of no. 2 and no. 3 of article 6 and nos. 2, 4, 5 and 6 of article 11 of the RJAT, with the parties proceeding to the designation of their respective arbitrator, Dr. José Rodrigo de Castro, appointed by the Claimant, and Dr. Maria Manuela do Nascimento Roseiro, appointed by the Respondent, who, in turn, in observance of what is provided in article 3, no. 2, paragraph b), of Ordinance no. 112-A/2011, of 22 March, designated the Presiding Arbitrator, Counselor Fernanda Maçãs.

3.3. Pursuant to the provisions of no. 7 of article 11 of the RJAT, the Excellent President of CAAD informed the Parties of this designation on 26/11/2015.

3.4. In accordance with what is provided in no. 7 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, after the time period provided in no. 1 of article 13 of the RJAT had elapsed, it was communicated that the collective Arbitral Tribunal was established on 14/12/2015.

3.5. In these terms, the Arbitral Tribunal is regularly established to appreciate and decide the object of the proceedings.

1. In the request for arbitral pronouncement offered by itself, the Claimant invokes, in summary, that:

a) She was subject to a tax inspection action on her IRS income for 2010, initiated on 2014.10.08 as internal but altered to external on 2014.11.18, which led to a Final Report notified by the Finance Directorate of …, on 2015.04.02.

b) It concluded with the determination of a capital gain of € 23,688,788.62, resulting in a corrective IRS assessment of € 4,754,485.46, which, with compensatory interest, reached the amount of € 5,476,701.45.

c) According to the Statement of Account Reconciliation, to this amount was deducted the sum of € 16,986.49, relating to the 1st IRS assessment for 2010, from which resulted the Notification for payment of the amount of € 5,459,714.96.

d) The corrections made were based on the fact that the shareholding interests in the capital of companies B…, C… and D…, sold by the Claimant on 2010.11.30, for the total price of € 28,991,386.96, to company E…, SGPS, of which she is a shareholder and director, had been acquired at values corresponding to the average prices indicated in position maps/bank statements provided by the Claimant, which include cost price values of "0.00" in the case of 6,082,340 shares received from C…, as a result of a spin-off process of B… and 1,670,472 shares of D…, due to an identical process of C… (Q.V of R.I.).

e) By suspending the 4-year period provided in article 45 of the LGT for exercise of the right to assessment, only with the notification to the taxpayer of the order of service or ruling at the beginning of the external inspection action, in the present case, it is verified that the qualification of the inspection procedure as external constituted a manifest "expedient" because the inspection acts were performed exclusively in the services of the tax administration through the formal and consistency analysis of the documents mentioned in the Inspection Report and which served as the basis for the conclusions formulated therein.

f) With the period of expiration having not been suspended, due to the non-existence of an external inspection procedure, the period of expiration of the right to assessment of IRS for the year 2010 ended on 31 December 2014 and the additional assessment notified on 2015.04.28 is invalid due to expiration, pursuant to article 45, no. 1 of the LGT, which constitutes a defect of violation of law and a peremptory exception.

g) Even if it were understood that the period had been suspended on 18 November 2014 with the notification to the claimant of the Order of Service, there remained 43 days until the end of the expiration period (counting the period between 19 November and 31 December 2014), so, with the counting of the expiration period having restarted on 12 February 2015, the day following the signing of the diligence note - the date on which the external inspection procedure was concluded - it ended on 26 March 2015, the date on which the contested assessment had not even been made yet, and all the more reason, notified.

h) Furthermore, taking into account the presumption of veracity of taxpayers' statements (articles 74 and 75 of the LGT), the tax administration failed to prove the existence of the taxable fact generating a capital gain, subject to IRS pursuant to paragraph b) of no. 1 of article 10 of the IRS Code, because, according to the elements carried forward to the Inspection Report, it did not substantiate, in particular, the quantitative aspect of the objective element of the tax base, that is "whether it substantively proved on what title, onerous or gratuitous, the shares were acquired by the claimant" nor, "admitting their acquisition on an onerous title, whether the documentally proven cost of the shares was used to determine the capital gain or, if it is not possible to determine this, whether the supplementary criterion legally provided for the determination of the acquisition value was used".

i) In the Inspection Report, no proof is made "of the method of acquisition (on an onerous or gratuitous title) of the shares by A… and, much less is demonstrated what was the value and date of acquisition", proceeding from scattered facts, from which the ownership of the shares is presumed, such as communications to the CMVM in accordance with no. 1 of article 17 of the CVM, information relating to the shareholder structure of the aforementioned companies contained in their respective Management Reports, as well as information provided by the depositary entity of the shares (Bank F…) to the tax administration, through Model 13 and Model 33 - Registration or deposit of securities (for example in 2009).

j) Now, even if the claimant held the alleged ownership of the shares, the tax administration did not characterize the objective element of the taxable fact and, in particular, its quantitative aspect for the determination of which the free or onerous nature of the acquisition of the securities is decisive.

k) In November 2003, the date that the IT says is that of the acquisition of the B… shares, she was 23 years old and had limited income that did not allow her to have acquired on an onerous title 3,041,170 shares, quoted on 31.12.2003 at € 2.55, in an amount that would be around 7.7 million euros.

l) The Claimant's father was, in addition to being a shareholder in the aforementioned companies (B…, C… and D…), a director of each of these companies but, in order to circumvent the obligation incumbent on members of the management bodies of a joint-stock company to communicate to the company and to the market the number of shares they hold, and all their acquisitions, encumbrances or losses of ownership (article 447 of the Commercial Companies Code and Securities Code and CMVM Regulations) gave instructions to the Bank to have his daughter, now the Claimant, appear as holder of the shares deposited in the securities accounts at F… and only for this reason was an "appearance of ownership" created, in such a way that the securities account no. … had both (father and daughter) as holders and account …, came to have the Claimant as sole holder and the claimant's father as proxy, having, nevertheless, full powers of movement of the account.

m) The economic beneficiary of the demand deposit account associated with the securities account was always the Claimant's father, who made the dividends his own and allocated them to personal purposes, through the movements he made of that account.

n) Registration in an individual account only presumes that the right exists and that it belongs to the account holder under no. 1 of article 74 of the Securities Code (applicable to securities registered in a centralized system, by force of article 105 of the aforementioned Code), in the precise terms of the respective records, but the registration presupposes an underlying transaction with transmissive content, such as purchase and sale or transactions in the securities market, so the transmission of shares is not limited to mere registration in an individual account.

o) The AT is satisfied with the fact that the claimant appears as co-holder of the securities account no. … and holder of account …, but does not reference any underlying transaction with transmissive content that conferred ownership of the shares upon her, nor on what title, onerous or gratuitous, definitive or temporary.

p) Thus, being proven that it was the claimant's father who mobilized capital to establish B…, who moved the respective bank accounts and that the shares of B…, C… and D… always belonged to him, never having transmitted them onerosly to the Claimant, it is concluded that the assessment "is illegal due to a formal defect resulting from a manifest lack of substantiation regarding the legal method by which the claimant acquired ownership of the shares", an aspect "absolutely indispensable for the determination of an essential element – the acquisition value - without which it is not possible to determine the net income", "capital gains" subject to tax, which constitutes non-existence of a taxable fact.

q) But, even admitting, for argument's sake, that the Claimant would have acquired the shares on an onerous title, it would be erroneously quantified taxable matter, as a consequence of the erroneous and illegal determination of the acquisition value of the shares because the tax inspection did not determine the capital gain according to the provisions of paragraph a) of article 48 of the CIRS regarding the acquisition value of the securities (documentally proven cost or, in its absence, that of the lowest price verified in the two years prior to the date of sale) alleging, without proving it, that the values it indicates correspond to those declared by F… in Models 13 and 33 (when the first does not have acquisition values and the second does not have average acquisition values).

r) It is false that the average acquisition value was obtained from Model 13 declarations (this only became possible after the amendment by Law no. 109-B/2001, of 27 December) and the average acquisition cost indicated in the bank statement by the depositary Bank constitutes mere statistical information for the client, and when the shares were initially registered with the Bank, they were placed already under the claimant's ownership, which would make it impossible for the bank to determine its acquisition value, all the more so as errors are not rare.

s) If one were to intend, as emerges from the Inspection Report, that the claimant acquired the shares, on an onerous title, and to consider the indicated average cost, as acquisition value, then it could only have been found that the shares had been acquired for € 481,386,799.30 (3,041,170 x €158.29), as emerges from the aforementioned bank statement and which had a huge capital loss, since she sold the shares of the three companies for a total value of € 28,991,386.96, a value much lower than the acquisition value (€ 481,386,799.30) of that batch of B… shares, which emerges from the consideration of the average cost contained in that statement, so, if one were to consider the validity of such average cost, the value contained in the aforementioned statement should always be considered, then determining, in the relevant sale for IRS purposes, a capital loss.

t) In the absence of documentally proven cost with credible support, the tax inspection, when considering the acquisition of the shares as onerous, should have used as acquisition value the corresponding to the lowest price verified in the two years prior to the date of sale, pursuant to the law, which it did not do, so the quantification of the capital gain and the consequent assessment of IRS are affected by incurable illegality, due to violation of law and erroneous quantification of taxable matter.

u) Therefore, the illegality arises from there having been no onerous acquisition of shares by the Claimant, and, even if it had occurred - a hypothesis that, without conceding, is posed for purely argumentative purposes - the determination of the acquisition value would be manifestly outside the legal criteria.

v) And there was also no gratuitous transmission because the claimant's father continued to move the accounts, to manage the portfolio and to dispose of the economic benefits resulting from it - the dividends distributed were deposited in the accounts where the shares were deposited, at F…, with the Claimant's father moving them for his own benefit.

w) At most, there could be a donation of bare ownership to the Claimant with reservation of usufruct for the father, and any gratuitous transmission of the shares could only have occurred from the date on which the father ceased to have any power of disposition over the shares, that is, when he gives express orders to F… to transfer the shares to E… SGPS (having on that company on 4 November 2010 been accounted for as supplementary capital contributions of the claimant), but, in that case, the illegality of the assessment that is the object of these proceedings would subsist, due to erroneous quantification of taxable matter, since, according to the law, the acquisition value would, in that case, be what should serve as the basis for the assessment of stamp duty on gratuitous transmission, if it were due.

x) Furthermore, the end of the non-taxation of capital gains on shares provided for in no. 2 of article 10 of the CIRS and maintained for more than 20 years, occurred with the entry into force of Law no. 15/2010, of 26/7, with the retroactive application of this rule being unconstitutional.

y) It does not seem reasonable to think that, in 2010, there would be reasons (financial) of public interest which, regarding exclusively capital gains, would justify the non-continuity of the non-taxation of capital gains on shares "consolidated" as of the date the taxation law entered into force or, for reasons of practicability, of capital gains on shares acquired up to the date the law entered into force, because the legislator did not fix otherwise.

z) The reversibility of the taxation regime without a transitional rule violated legal expectations without safeguard of rights, with unconstitutionality occurring due to retroactivity in concreto or by violation of the principle of legal certainty in the material aspect of confidence (no. 3 of article 103 and articles 2 of the CRP).

aa) The ATA must be condemned to pay the Claimant compensation for the costs incurred (namely the commission to be paid to the Bank and stamp duty), with the provision of a bank guarantee in the amount of € 6,913,623.98, to suspend the tax execution process no. …2015….

1. The Tax and Customs Authority submitted a Response and attached the administrative file, invoking, in defense, by impugnation, in summary:

a) The inspection action carried out on the now Claimant was triggered by the inspection action carried out on company E… SGPS, in which it was verified that the now Claimant sold to this company shareholding interests representing the companies B… SGPS, S.A. (B…), C… SGPS, S.A. (C…) and D…, SGPS, S.A. (D…) for the total price of € 28,991,386.96, and did not proceed to deliver Annex G of Model 3 of IRS for 2010 to declare the gains resulting therefrom (paragraph b) of no. 1 of article 10 of the CIRS);

b) The inspection now in question, initiated on 2014/10/08 as an action of internal nature, was altered to an external action because neither the Claimant presented timely clarification of her tax situation regarding capital gains resulting from the transmission of shareholding interests, with the indication of aspects regarding their acquisition and transmission (e.g. "Date of acquisition thereof, price and quantity, as well as copy of the supporting documentation of the respective ownership transfer operations, by deed or bank documentation"), nor did F… provide the clarifications requested by the AT through official communication and various insistences via fax.

c) The inspection action began on 18/11/2014, with the signature by the Claimant, at her tax domicile, of the order of service to present elements previously requested, having then promised to do so on 26/11, at the headquarters of G…, a company that provides accounting services to E…, but that did not happen, with the representative she designated to accompany the inspection not appearing, so a new visit was made, in the first week of December 2014, where information was given on launch notice statements, for the years 2004 to 2010, informing that "...the bank was not able to collect all the information of acquisitions reported to the period prior to 2004…" and it was then concluded that only the acquisition of 132,010 shares of B… SGPS and 224,938 shares of C… SGPS between the years 2004 and 2008 were proven.

d) On 2015/02/11, at a meeting held by the IT with the Claimant and lawyers, delivery of missing elements was postponed to Wednesday, 18 February 2015, which did not come to pass.

e) Thus, based on elements collected from E… and from the Claimant through external diligences practiced (information of the Taxpayer-Annex L, to the final report) launch notice statements in the period 2004 to 2006 provided by the Claimant's representative and position maps/bank statements-Annex 6), it was concluded that the transmission of shares was effected at the price of € 23,688,788.62, with the transmission of B… shares being effected at the unit price of € 0.69, the transmission of C… shares was effected at the unit price of € 3.40 and the transmission of D… shares was effected at the unit price of € 0.73.

f) As to the acquisition value of the shareholding interests, it was determined in the map below based on position maps/bank statements provided by the Claimant, taking into account that the values presented correspond to the values declared by F… in Model 13 (transactions with financial instruments - article 124° of the CIRS) and 33 (registration or deposit of securities - article 125° of the CIRS), with respect to transactions carried out and registration of securities relating to A…, that companies C… and D… resulted from simple spin-off (partial spin-off) provided for in paragraph a) of no. 1 of article 118° of the Commercial Companies Code, being in the spin-off beneficiary companies and being the spun-off companies B… SGPS (for C…) and C…SGPS (for D…) which maintained its existence.

Q.II. Acquisition value of the transmitted shares

g) In accordance with the tax neutrality regime enshrined in the norms of the IRS and IRC Codes, in mergers and spin-offs of companies resident in Portuguese territory, provided that as regards shareholders the shareholdings are received at the value of the former, when the shareholdings acquired are sold, the value shall be the one existing in the company that gave rise to them.

h) The acquisition values presented, for the beneficiary companies of the spin-off in the maps presented by the SP, integrate the acquisition values of C… and D… as zero (corresponding to the shares received as a result of the spin-off processes of B… SGPS and C… SGPS and the acquisition values of shares acquired after the spin-offs, resulting therefrom the average acquisition price different from zero, and, regarding D…, there were no acquisitions after the spin-off of C… SGPS.

i) Taking into account the number of shares of the spun-off companies held by the Claimant at the time of the spin-off and the number of shares received by her, it is concluded that of the 6,423,721 shares of C… SGPS acquired at an average price of 0.14 € (in the total acquisition value of € 899,320.94) (i) 6,082,340 were acquired at price 0 (zero) (received in the spin-off of B…) and (ii) 341,381 shares were acquired after at the average price of € 2.6344.

j) With respect to the shareholding interests acquired as a result of the spin-off of companies B… SGPS and C… SGPS - the companies C… SGPS and D… Investments SGPS - the date of their acquisition is considered to be the date of acquisition of the spun-off companies (paragraphs e) and f) of no. 6 of article 43 of the CIRS).

k) From the communications made by the investees pursuant to no. 1 of article 17° of the CMVM, as well as from the Financial Statements/Board of Directors Reports, the following evolution of the shareholding portfolio of A… results:……………

Q.IV. Evolution of the shareholding portfolio of A…

• Spin-off of B…** Spin-off of C…*** Stock-split

l) It is concluded from the documentation attached to the proceedings that A… was the effective holder of the shares in question, namely by the control of ownership of the securities (shares) permitted by their respective registration, in accordance with legal and regulatory provisions, having (for example, according to models 10 delivered in 2002) received the respective dividends which she declared for taxation purposes in IRS in Annex E of model 3 of that tax.

m) It results unequivocally that the inspection action carried out under OI2014… has the nature of external inspection action, with framing in paragraph b) of article 13 of the RCPITA, given both the materiality of the acts practiced (investigative diligences practiced outside the services of the AT), and their necessity, suitability and proportionality in view of the objective of verification of the Claimant's situation (given the lack of cooperation with the AT, regarding capital gains obtained in 2010), and that the displacement to her tax domicile, to the headquarters of E…'s accounting service company to the law office indicated by the Claimant came to result in the effective collection of elements and clarifications indispensable to the correction now contested.

n) The Final Report was notified personally on 17 April 2015 and the assessment note no. 2015 …, of 20/04/2015, was notified on 28 April 2015, before the respective period of expiration had elapsed, in view of the suspension effected by force of no. 1 of article 46 of the LGT, so it will be judged unfounded the defect of violation of law due to expiration of the right to assessment, maintaining the tax act.

o) As to the invoked formal defect due to lack of substantiation, the reasons that were at the genesis of the corrections made by the AT were widely understood and subsequently referenced and attacked by the Claimant in her request for arbitral pronouncement; moreover, if there were a situation of lack or insufficiency of substantiation, it was incumbent on the Claimant to request the issuance of the certificate provided for in article 37 of the CPPT, so, not having used that faculty conferred by law, the act sub judice contained, and contains, all elements necessary for its full understanding, with the defect in question not existing.

p) The Claimant cannot withdraw the probative value of the legal communications made to the CMVM, of the Management Reports of the companies and of the depositary Bank, and which served as the basis for the determination by the AT of the values of the shares.

q) Also, the content of the RIT is reiterated which proves unequivocally that the shares were acquired by the Claimant and that she exercised, at least since 2002, all rights inherent to their possession, and it cannot be admitted that she could ignore the normal functioning of the centralized system that comprises all securities admitted to trading on the stock exchange, such as the securities in question, the value at which shares are registered in individual registration account being that which results from the communication, made by the authorized institution, of the qualitative and quantitative information of transactions involving the respective securities, communication that identifies price, holder, corresponding to any transmissive title that serves as its support.

r) The invocation of erroneous quantification of taxable matter by incorrect application of the law does not hold - the acquisition value of the shares now contested is abundantly detailed in point 2 of the Final Report, under the heading "Of the acquisition value".

s) As to the retroactive application of no. 2 of Law no. 15/2010, of 26 July, the value of income subject to capital gains is the corresponding to the balance determined between capital gains and capital losses realized in the same year, as provided in article 43 of the IRS Code, and the taxable fact subject to tax is only complete on the last day of the taxation period; if it were not so, in the limit, there would be situations where whoever had obtained a capital loss until 27 July could also not balance it with a possible capital gain obtained later and within the same year.

t) But in the case of the proceedings, when the transmission is effected, on 30 November 2010, Law no. 15/2010, of 26 July, was already fully in force, not frustrating the principle of protection of confidence or, much less, the principle of non-retroactivity of tax law.

u) If there were retroactivity, it would be a situation of retroactivity of 3rd degree, weak, inauthentic or improper, or also, retrospectivity.

v) As to compensation for bank guarantee provision, the requirements provided for in article 53 of the LGT are not met because: the requirement of maintenance of guarantee for a period exceeding three years, provided for in no. 1, is not verified; the AT cannot be attributed an error caused by an "appearance" artificially created by the Claimant and her father with a view to protecting their own interests; in the course of the inspection action that served as the basis for the correction now contested, the Claimant did not develop any effort minimally susceptible to clarifying the "appearance" created by her, since it was only in the prior hearing stage that she first referred to the "appearance" of ownership of the shareholding interests, limiting herself, moreover, to providing only vague and generic clarifications, without any supporting documentation that would allow corroboration thereof and effect the corresponding framing for tax-legal purposes, nor was such situation referred to in the meetings and gatherings, or emails exchanged with the AT, in the scope of the investigative diligences carried out.

1. By Arbitral Ruling of 10 February 2016, the Tribunal designated, pursuant to article 18 of the RJAT, 4 March 2016 as the date for the hearing of judgment, requesting from the parties the indication of preference for oral or written final arguments.

2. On 4 March 2016 the hearing of judgment took place, where the witnesses listed by the Claimant and the witnesses listed by the Respondent were heard. The Tribunal set 14 June 2016 as the deadline for rendering the Arbitral Decision. By ruling of the Tribunal, of 8 June 2016, this period was extended for another two months, with 14 August 2016 being set as the deadline for delivery of the decision. Subsequently, the period was extended for another two months, with 14 October 2016 being set as the deadline for rendering the award.

3. At the end of the hearing the Claimant and the Respondent were notified to present written arguments in successive periods.

4. The parties presented arguments, in which they argued, in essence, for the position sustained in the initial pleadings.

II – SCREENING

a) The parties have legal personality and capacity and benefit from procedural legitimacy, pursuant to articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

b) The AT proceeded to designate its representatives in the proceedings and the Claimant attached a power of attorney, with the Parties thus being duly represented.

c) The proceedings are not affected by nullities.

d) No prior or subsequent questions, prejudicial or exception matters were raised which would preclude the appreciation of the merits of the case, with the conditions being met for a final decision to be rendered.

III. MERITS

III.1. FACTUAL MATTERS

§1. PROVEN FACTS

10.1. With respect to the facts relevant for the decision of the case, the following facts are considered proven:

a) In conducting an inspection action, external (Order of Service no. OI2014…), on E… SGPS, SA, the AT verified, at a time not identified in the proceedings, that this company had acquired from its shareholder and director, A… (Claimant in the proceedings), shareholding interests in the companies C…, SGPS, S.A., B…, SGPS, S.A., and D…, SGPS, SA. (RIT, PA, fls. 15)

b) In view of the verification of the fact referred to in the previous number, an inspection action procedure was opened (Order of Service no. OI2014…) on A…, action initiated on 8 October 2014, with an internal nature, with notification having been sent, on 15 October 2014, through Official Communication no. …, for the claimant, within a period of 10 days, to proceed to the replacement of her IRS model 3 declaration for the year 2010, including income from capital gains resulting from the sale of shares effected in that year, with a warning that the AT would proceed "to alter the elements declared...pursuant to no. 4 of article 65 of the CIRS and no. 7 of article 59 of the Code of Tax Procedure and Process", and recalling the duty of cooperation provided for in article 59 of the General Tax Law (LGT) and in article 9 of the RCPIT (RIT, PA, fls. 15 to 17).

c) The Claimant was ordered to, within a period of 10 days, send to the Finance Directorate of …, to the attention of the Tax Inspection Area, the following clarifications and/or documents regarding the shares transmitted by her to company E…, SGPS. S.A. in the year 2010, for the value of € 28,991,386.96: confirmation of the unit prices of the shares transmitted (…); explanation of the non-correspondence between the number of shares of C… that she claims to have transmitted, of 6,731,891, and that contained in the accounting of E…, of 6,873,893; copy of the documents that evidence the transmission of all the shares listed below; date of acquisition thereof, price and quantity, as well as a copy of the supporting documents of the respective ownership transfer operations (e.g. deed, bank documentation) (RIT, PA, fls. 17).

d) The Claimant responded to this notification, requesting the extension of the period by a period of no less than 15 days (PA, fls. 18).

e) On 15 October 2014, through Official Communication no. …, the AT notified F… to, with respect to the Claimant, indicate all registrations effected in the accounts of F… relating to acquisitions and transfers of shareholding interests in the companies C…, SGPS, S.A., B…, SGPS, S.A., and D…, SGPS, S.A., identifying date, unit price and quantity of shares per transaction (RIT, PA, fls. 18).

f) F… responded to the notification referred to in the previous number, informing that, in the fiscal year 2010, the Claimant "carried out transfers of shares of C…, B… and D… to another credit institution, on 4 November 2010" without change of ownership, so they were not reported in Model 13 of F… in 2010 (PA, fls.18).

g) Considering that the response referred to in the previous number did not "take into account what was requested", the AT sent insistence faxes (no. 24, of 10/11/2014 and no. 26, of 11/10/2014) to which F… responded on 05/12/2014, clarifying that it could not send the requested information because it was covered by banking secrecy. (PA, fls.18).

h) In a new fax (no. 27, of 11/12/2014), the AT recalling that the requested information reproduces the information contained in Models 13 and/or 33 and, thus, could have been provided from the 1st notification, to which F… responded on 26/12/2014 "not having been able to convert the information sent to the AT via model 13 and 33, suggesting the consultation by the AT of the declarations sent by it for the years 2003, 2004 and 2005". (RIT, p. 9).

i) On 18 November 2014, at 9:30 a.m., a tax inspection official went to the Claimant's tax domicile, at Rua…, no. …, …, …-… …, where in her absence left the contact of the service. (PA, fls. 19).

j) After telephone contact on the same day at 11:00 a.m., the official returned to the Claimant's tax domicile where he notified her of the transition of the inspection action to external on 18/11 and personally notified her to deliver the elements already requested on 15 October and still outstanding (PA, fls. 19).

k) On that same day, 18/11/2014, the Claimant informed via email addressed to the IT services that the requested elements would be, on 26 November 2014, at Rua…, no. …, …-… …, headquarters of G…, Lda, a company that provides accounting services to E…, SGPS, and indicating as her representative in the action H…, managing partner of the aforementioned company. (PA, fls. 19).

l) On 26 November 2014, at 15:00, the AT went to the headquarters of G…, but the Claimant's representative said he was unaware of the date of the visit and stated that the requested elements "were not provided by the taxpayer" (PA, fls. 19).

m) The AT made another visit in the first week of December 2014, with the Claimant's representative being informed that he had in his possession launch notice statements relating to the years 2004 to 2010 and that "the bank was not able to collect all the information of acquisitions reported to the period prior to 2004". (PA, fls. 19).

n) In possession of the elements that were delivered on that date, the AT verified that "they proved only the acquisition of 132,010 shares of B…, SGPS and 224,938 shares of C…, SGPS, between the years 2004 and 2008" (PA, fls. 20).

o) The AT also came to register: "on 11/02/2015 in a meeting held at the headquarters of company I…, Law Firm, R.L., at Rua de…, no. … -…, …-… …, in which were present A… and J…, partner of the aforementioned law firm and member of the board of directors of E… SGPS, we were informed that they did not have the elements requested in the course of the inspection action and that they would provide them by Wednesday, 18 February 2015, which did not come to pass" (RIT, p. 11).

p) The Claimant's representative, H…, provided launch notice statements in the period 2004 to 2010 through position maps/bank statements in Annex 6. (RIT, p. 11).

q) Based on the elements collected, the Tax Inspection prepared, on 18 February 2015, a draft Tax Inspection Report, proposing corrections to the taxable matter relating to 2010, which was ruled upon at a higher level on 3 March 2015, (PA, fls 75 to 95).

r) Through official communication no. …, of 04/03/2015, the Claimant was notified of the draft RIT and exercised the right of prior hearing on 23/03/2015 (PA, fls. 71 to 73).

s) The Final Inspection Report, dated 25 March 2015 and ruled upon on 31 March 2015, confirmed the proposed corrections, coming to be the object of attempts at personal notification of the Claimant on 1 April 2015, at 15:30 and with time marking, at the domicile, on 2 April 2015, with notice being left on this latter attempt for pickup at the Tax Inspection offices, at the Finance Directorate of …, which was eventually done on 17 April 2015 (PA, fls. 1 to 32).

t) The additional assessment, in accordance with the proposed corrections, was made on 20 April 2015 and notified on 28 April 2015 (Doc. no. 1 attached with the Request and article 9°, a) of the Request).

u) A…, Claimant in the proceedings, is sole daughter and universal heir of K…, deceased on 15 March 2015 (article 93° of the Request).

v) The Claimant's father was a shareholder of company L…, whose shares he sold to American group M… in 1990, investing the proceeds from the sale in the creation of the company that would have been the basis of the current B… group[1].

w) Account no. …at F… was opened on 13 October 1997, with the Claimant as 1st Holder and her father K… as 2nd Holder, with shares held by K… being registered therein. (Doc. no. 7 attached with the Request and article 98° of the Request).

x) From the Board of Directors Report of B…, SGPS, SA, of 31 December 2002, "In accordance with the provisions of article 447 of the Commercial Companies Code, it is hereby informed that during the fiscal year 2002 the directors of the Company did not acquire nor sell shares representing the capital of B…, S.G.P.S., S.A.", being, on that date of 31 December 2002, K… holder of 426,250 shares, not corresponding to a qualified participation[2].

y) On 31 October 2003, there were registered in account no. … of F…, 3,041,170 shares of B… SGPS, SA, with the indicated average acquisition value of € 1.044 (doc. no. 10 attached with the Request).

z) On 6 November 2003, the 3,041,170 shares of B… SGPS registered in account no. … of F… were transferred to account no. … of the same Bank, which had as sole holder the Claimant A…, with her father as proxy with full powers for its movement (articles 99° and 114° of the Request).

aa) On 9 January 2004, the account referred to in the previous number registered the 3,041,170 shares of B… and average acquisition value of € 2.55 (doc. no. 11 attached with the Request).

bb) In the Board of Directors Report of B…, relating to fiscal year 2003, the Claimant appears as holder of 3,041,170 shares, shareholder with participation exceeding 5%, specifically 5.93%, and K… as holder of 426,250 shares (annexes 7 and 9 of RIT, fls. 46 and 60 of PA).

cc) On 14 February 2005, the public deed of simple spin-off of B…, SGPS, S.A. was executed, whereby there was set apart, for the establishment of a new commercial company, C…, SGPS, S.A., the participation held by B… SGPS in P…, SGPS, S.A., with provision for admission of the listing of shares of C…, SGPS, on the stock exchange for 1 March 2005 (Annex 3 to RIT, fls. 41 and 42 of PA).

dd) In the restructuring process referred to in the previous number, it was decided that the relevant date for production of accounting effects of the aforementioned spin-off would be 1 March 2005, with shares representing C…, SGPS, SA being attributed to shareholders of B… SGPS, who were such at zero hours of that day, in the proportion of one share representing the capital of C…, SGPS, SA, for each share held in B…, SGPS, SA (Annex 3 to RIT, fls. 43 and 44 of PA). In an announcement of the operation, in February 2005, in information regarding gains realized in the onerous transmission of shares (capital gains), with the heading "tax neutrality of simple spin-off", it was stated that the regime of article 68 of the CIRC was applicable to the simple spin-off of B… whereby C… was established (cf. prospectus for admission to trading on the official quotations market of Euronex-Lisbon, p. 23, internet, http://www.... /... /pdf/…/… _...pdf).

ee) In the Board of Directors Report relating to fiscal year 2005, presented by the Board of C… SGPS, the director K… appears as holder of 426,250 shares and the Claimant, first secretary of the Board of Directors, was holder of 3,184,670 shares (Annex 9 to RIT, fls. 62 of PA).

ff) In 2008, as part of the restructuring process of C…, SGPS, S.A., D…, SGPS, SA was established through the spin-off of the social participation held in N…, S.A., with the objective of autonomizing the exercise of the activity of management of social participations in the steel and storage systems sector" maintaining the management of the pulp and paper business unit in C… (Annex 4 to RIT, fls. 45/46 of PA), with provision that the spin-off rights would be highlighted in the overnight processing of Interbolsa on 18 June 2008 and registered in the accounts of the respective holders with their financial intermediary, on 19 June 2008 (PA, fls. 47).

gg) In the restructuring process referred to in the previous number, the Board of Directors of C… SGPS had decided, on 16 April 2008, that "within the scope of the projected operation, which respects the tax neutrality regime as provided for in the legislation in force, provision is made for the attribution to the shareholders of C… of 0.25 of a share of the new company for each share held in C… . The new company will have a capital of 25,641,459 euros represented by 25,641,459 shares with a unit value of one euro" (Annex 4 to RIT, PA, fls. 45 to 48), which allows concluding that "one share of D… was attributed for each 4 shares of C…", with these shares forthwith being listed on the Stock Exchange (RIT and fls. 22 v and 23 of PA).

hh) According to the Board of Directors Report of D…, relating to fiscal year 2008 (year of the spin-off of C…) presented to shareholders, the Claimant's father was holder of 213,125 shares of the company and the Claimant holder of 1,670,472 (6.51% of votes) being also attributable to her the shares held through E…-SGPS and U…, all representing a total of 3,710,972 shares, corresponding to 14.7% of the capital and voting rights of D…, SGPS (Q.V of the Inspection Report, Annex 9, PA, fls. 64 to 66).

ii) In compliance with what is provided in article 17, no. 1 of the CVM, B… communicated, on 11 December 2008, having received on the previous day a notification, subscribed by A… as director of E… SGPS, SA, that this company had acquired outside the stock exchange, on 5 December 2008, seven million shares of B…, SGPS, SA, corresponding to 6.82% of the respective capital (of total amount of € 25,641,459.00), at the price of 0.43 per share, of the ownership of A…. It further informed that she was holder of 59.6% of the capital of the participating company, being also holder of the following shares of B…: 6,377,840 held directly and 1,222,000 held through U…, SA, a company in which she holds 68% of the capital and voting rights and of which she is also a director (Annex 8 to RIT, PA, fls 57).

jj) Between 1997 and 2006, the Claimant entered in her IRS declarations 29 distributions of income of category E, paid by various entities (tax numbers… , …, …, …, …, …, … and … (Annex 10 to RIT, PA, fls. 67 to 69).

kk) The Final Report of Tax Inspection came to identify a positive balance between capital gains and capital losses, calculated according to the following table and applying paragraph b) of no. 1 of article 10 of the CIRS and applying the special rate provided for in no. 4 of article 72 of the CIRS, contained in the table reproduced below (point I-A- corrections in IRS - year 2010, tax owed).

Capital gain determined 23,688,788.62
IRS special rate (20% x MV) - 4,737,757.72

ll) The corrections referred to in the previous number were based on conclusions, contained in Point 2 of the Report (p. 14) regarding "2. Of the acquisition of the shareholding interests sold:

"Of the acquisition value

From the position maps/bank statements provided by A… (Annex 6) it is verified that the shares object of transmission on 2010/11/30, which had as depositary bank F… (accounts nos. … and…) were acquired at the following average prices:

Q. II. Acquisition value of shares transmitted

Note - On the date of transmission of the shares above, there were simultaneously transmitted 142,001 shares of C… SGPS, credited in the account of shareholder A… in Company E…, SGPS, as consideration for the account of shareholder K….

The values presented correspond to the values declared by F… (as a Credit Institution depositary of the securities) in Model 13 (transactions with financial instruments - article 124° of the CIRS) and 33 (registration or deposit of securities - article 125° of the CIRS), with respect to transactions carried out and registration of securities relating to A…".

And in Q. III. Shares received after spin-offs, the following is contained:

"* Quantity corresponding to the result of the respective stock-splits".

"From this it results that of the 6,423,721 shares of C…, SGPS (See Q. II) acquired at an average price of 0.14 € (in the total acquisition value of 899,320.94 €), (i) 6,082,340 were acquired at price 0 (zero) (received in the spin-off of B…) and (ii) 341,381 shares were acquired after at the average price of 2.6344 €".

mm) The Tax Inspection Report considered that the evolution of the Claimant's portfolio was the following (p. 17 of RIT):

Q.IV. Evolution of shareholding portfolio of A…

• Spin-off of B…** Spin-off of C…*** Stock-split **** Communication made for having exceeded 5% of the capital of B… (Annex 7)."

"The quantities communicated to the CMVM relate to communications provided for in article 16 of the CVM, relating to the surpassing of percentages of qualified participations - 5%, 10%, 15% and 25%. In the remaining cases, the information was extracted from the financial statements/board of directors reports of the investees. The values obtained coincide with the information contained in Models 13 and 33 delivered by F…".

nn) In a document sent to the Tax Inspection on 25 September 2014, the Claimant informed that she had transmitted to company E…, SGPS, SA, on 25 March 2009, 30,000 shares that she held in T…, and, on 30 November 2010, 6,731,891 shares that she held in the companies C…, SGPS, S.A., these latter converted into 13,463,782, due to stock split in 2011 (Doc. no. 2 attached with the Request).

oo) In the communication referred to in the previous number it was further informed that the transmission of the shares 6,731,891 of C… had not been declared for IRS purposes because it had not given rise to any receipt of price but only to the establishment of supplementary contributions decided on 20 December 2010, an operation that covered the conversion of a credit of supplementary capital contributions derived from the transmission, on 25/03/2009, for 15 million euros of 30 thousand shares of five euros each, that she held in T…, SGPS, SA (doc. no. 2 and attached contract, with Request, and RIT, Annex 1, fls. 33 to 35 of PA).

pp) On 20 December 2010, the General Meeting of E…, SGPS, SA decided to accept the proposal for allocation of supplementary capital contributions in the total amount of € 46,991,386.96 to be made by shareholders, A… and K…, by conversion of credits (minutes no. 8 attached as doc. no. 2 with the Request and Annex 2 to RIT, fls. 39/40 of PA).

qq) In the accounting of E…, SGPS, SA, in a record (no. 69), dated 31 December 2010, a purchase of shares was identified, entering the following values: on the debit side, the amounts of € 23,371,232.89 (6,873,892 x € 3.40); € 4,400,709.60 (6,377,840 x € 0.69) and € 1,219,444.56 (1,670,472x € 0.73) and, on the credit side, (account 532) of € 28,991,386.96. It contains reference to "bank quotation on 31.12.2010" (Annex 5 to RIT, fls. 49 of PA).

rr) With date of 12 April 2013, the three companies – B… SGPS, C… SGPS and D…, SGPS - issued communiqués informing, pursuant to articles 17, no. 1 and 248-B of the Securities Code, as well as norms of the CMVM Regulation, that A… transmitted on 31 December 2010, through transactions outside the stock exchange, the direct ownership of 6,377,840 shares issued by the publicly traded company B…, SGPS, 13,463,782[3] shares issued by C… and 1,670,472 shares of D…, ceasing to be a shareholder of any of those companies (Annex 1 to RIT, fls. 36 to 38 of PA).

ss) In the communiqués referred to in the previous number it was also informed, pursuant to article 20 of the CVM that, through the transmissions operated, E… SGPS, SA came to hold a total of: 15,385,276 shares (15.0004% of the capital and corresponding voting rights) of B… SGPS, 29,787,782 shares of C… SGPS (14.52% of the capital and corresponding voting rights) and 3,710,972 shares of D… (14.47% of the capital and corresponding voting rights), with the Claimant holding 59.6% of the capital of the participating company and being its director (Annex 1 to RIT, fls. 36 to 38 of PA).

tt) The additional assessment, in accordance with the proposed corrections was made in April 2015 (Doc. no.1, attached with the request);

uu) The Claimant provided a bank guarantee in the amount of € 6,913,623.98 as part of the tax execution process no. …2015….

§2. Facts Considered Not Proven

There are no facts relevant to the appreciation of the merits of the case that have not been proven.

10.2. Substantiation of Factual Matters

The judgment of the factual matters was based on critical analysis of the position assumed by the parties, as well as of the documentary evidence (which includes the administrative file) attached to the proceedings.

III.2 – Matters of Law

The object of the Claim, taking into account the defects imputed to the tax act, implies the appreciation of the following legal questions:

• Expiration of the right to assessment in view of the provisions of articles 45 and 46 of the LGT, taking into account the nature of the tax inspection procedure and, if the inspection is external, the manner of counting the period of suspension of expiration;

• Lack of substantiation of the assessment, regarding the nature of the title of acquisition of the shares by the claimant and regarding the cost thereof;

• Inapplicability to the case of the wording of no. 2 of article 10 of the CIRS, introduced by Law no. 15/2010, of 26 July, due to unconstitutionality given the violation of the principle of confidence.

• If the assessment is illegal, whether compensation is due for provision of a bank guarantee.

It is necessary, first of all, to decide the question of expiration of the assessment that is the object of the proceedings, since its judgment precludes the analysis of the others.

III.2.1. Regarding the Expiration of the Right to Assessment

2.1.1. Positions of the Parties

The Claimant argues that the right to assess IRS for the year 2010 expired on 31 December 2014 given that the 4-year period provided for in article 45 of the LGT has elapsed, since the suspension of the expiration period provided for in no. 1 of article 46 of the same law only occurs in the case of external inspection, a situation that did not exist in the case of the proceedings.

In the present situation, the procedure qualified as external action, was limited to inspection acts carried out exclusively in the services of the AT through the formal and consistency analysis of the documents mentioned in the Inspection Report, with the transformation of the internal inspection into an external inspection consisting of an "expedient" with the exclusive purpose of suspending the expiration period of the right to assessment.

The Respondent argues that the internal inspection initiated on 8 October 2014 was altered to an external action initiated on 18 November 2014 because clarifications requested were not provided in a timely manner, neither by the Taxpayer (regarding the clarification of his tax situation concerning capital gains resulting from the transmission of shareholding interests, with the indication of aspects regarding the transmission - for example, date of acquisition thereof, price and quantity, copy of supporting documents of the respective ownership transfer operations, such as deed and bank documentation) nor by F…, despite notification and insistences having occurred.

The Respondent argues that the inspection action initiated on 18 November 2014, with the signature by the Claimant of the order of service at her tax domicile, to present elements previously requested, and various displacements to the company providing accounting services and meetings, as well as insistences with F…, allowed for the obtaining of elements previously not provided.

2.1.2. Procedures Verified

From the factual circumstances ascertained it is concluded that the new Order of Service was personally notified to the Claimant on 18 November 2014, having been followed by the following procedures, with displacement of the AT on the dates and at the locations indicated:

• On the date of notification of the new Order of Service for the beginning thereof, with so-called external character, on 18/11/2014, at the headquarters of the Claimant, at Rua…, no. … -…, …-… in …, at 09:30 a.m. and, subsequently, at 11:00 a.m., making a new notification for delivery of the elements previously requested, within the scope of the internal inspection action;

• Displacement on 26/11/2014, at 15:00, to the headquarters of G…, Lda., at Rua…, no. …-… in …, headquarters of the company that provides accounting services to the Claimant, location indicated by the Claimant for delivery of the elements previously requested by Official Communication no. …, of 15/10/2014 (still in the internal inspection action) and by the notification effected on 18/11/2014;

• Displacement on 26/11/2014, at 15:00, to the headquarters of the aforementioned G…, for collection of the requested elements, by indication of the Claimant, with her representative, H…, alleging he was unaware of the visit, nor of the purpose thereof, so no elements were collected;

• Another visit appears to have been made (it is understood to the headquarters of G…) in the "first week of December 2014," with launch notice statements relating to the years 2004 to 2010 being delivered by the Claimant's representative, informing that "...the bank was not able to collect all the information of acquisitions reported to the period prior to 2004...". The Respondent states that "from the analysis of the elements provided it was verified that these proved only the acquisition of 132,010 shares of B… SGPS and 224,938 shares of C… SGPS, between the years 2004 and 2008".

• On 11/02/2015 the AT went to the headquarters of Company I…, Law Firm, R.L., located at Rua …, no. … -…, …-… …, in which were present Claimant A… and J…, partner of the aforementioned law firm and member of the board of directors of E… SGPS, having been informed that "they did not have the elements requested in the course of the inspection action and that they would provide them by Wednesday, 18 February 2015, which did not come to pass".

2.1.3. Legal Framework of the Inspection Procedure

The procedure of tax and customs inspection, briefly designated as tax inspection procedure or inspection procedure, is regulated by the Supplementary Regime of Tax and Customs Inspection Procedure[4], which defines, "without prejudice to special legislation, the principles and rules applicable to inspection acts" (cf. article 1 of the RCPITA).

According to the RCPITA "The tax inspection procedure aims at the observation of tax realities, the verification of the fulfillment of tax obligations and the prevention of tax infractions" (no. 1 of article 2), for which it comprises, in particular "The confirmation of the elements declared by taxpayers and other tax obligated parties" and "The inquiry into tax facts not declared by taxpayers and other tax obligated parties" (paragraphs a) and b) of no. 2 of article 2).

"The inspection procedure may encompass, simultaneously with the taxpayers and other tax obligated parties whose tax situation is intended to be verified, the substitutes and jointly and severally liable or subsidiarily liable parties, the dominated companies and integrated into the special taxation regime of groups of companies, the partners of transparent companies or any other persons who have collaborated in the tax infractions to be investigated" (no. 3 of article 2).

Do not constitute tax inspection procedure "mere confirmation of data contained in a declaration filed: a) Which only presents formal errors, of an arithmetic nature or requires mere clarification or justification of elements declared; b) Whose data do not coincide with those contained in other declarations of the taxpayer or of a third party in the possession of the tax administration, not related to the exercise of an economic activity" (no. 6 of article 2). The tax procedure must comply with the principles of material truth, proportionality, adversarial proceeding and cooperation (articles 5 to 10).

The classification of the procedure varies according to its purposes, place, scope and extent (Chapter III of Title I), and the purposes, scope and extent of the inspection procedure may be altered during its execution by reasoned order of the entity that ordered it, and must be notified to the inspected entity (no. 1 of article 15).

As to the purposes, the procedure is classified into: "a) Verification and checking procedure, aiming at the confirmation of the fulfillment of the obligations of taxpayers and other tax obligated parties; b) Information procedure, aiming at the fulfillment of the legal duties of information or opinion of which the tax inspection is legally tasked" (no. 1 of article 12), with provision also being made for ongoing accompaniment "whenever the purposes of tax prevention or assistance in the fulfillment of the accessory or payment obligations of taxpayers and other tax obligated parties justify it" (no. 2 of article 12).

As to the place of execution, "the procedure may be classified into: "a) Internal, when inspection acts are carried out exclusively in the services of the tax administration through formal and consistency analysis of documents; b) External, when inspection acts are carried out, totally or partially, in the facilities or dependencies of taxpayers or other tax obligated parties, third parties with whom they maintain economic relations or in any other location to which the administration has access" (article 13 of the RCPITA).

"As to scope, the inspection procedure may be: a) General or comprehensive, when it has as its object the overall tax situation or set of tax obligations of the taxpayers or other tax obligated parties; b) Partial or univocal, when it encompasses only some or some taxes or some or some obligations of the taxpayers or other tax obligated parties." (no. 2 of article 14) and "As to extent, the procedure may encompass one or more taxation periods". (no. 3 of article 14).

In inspection acts, tax inspection officials, have the right[5], in particular: "free access to the facilities and dependencies of the inspected entity for the period of time necessary to the exercise of his functions"[6] and "to the examination, requisition and reproduction of documents, even when in electronic support, in the possession of taxpayers or other tax obligated parties, for consultation, support or attachment to reports, files or records"; "to exchange of correspondence, in service, with any public or private entities on matters related to the development of his action"; "to clarification, by official accounting technicians and official accounting auditors, of the tax situation of the entities to whom they provide or have provided service" (cf. paragraphs a), c), e) and f) of article 28 of the RCPITA).

Tax inspection officials have various faculties, listed in article 29, in particular, "examine any elements of the taxpayers that may reveal his tax situation, namely those related to his activity, or of third parties with whom they maintain or have maintained relations and request or effect, in particular in magnetic support, the copies or extracts considered indispensable or useful" and "take statements from taxpayers, members of corporate bodies, official accounting technicians, official accounting auditors or any other persons, whenever their testimony is of interest to the determination of tax facts" (paragraphs a) and g) of no. 1 of article 29 of the RCPITA)[7].

As to the place of inspection, inspection acts may be carried out in the facilities or dependencies where the inspected elements are or must be legally located or in another place of the activity of the inspected entity or in the tax administration service of the area of residence or headquarters when the aforementioned entity does not have facilities or dependencies for the exercise of the activity (article 34, nos. 1 to 4).

As to the period of the procedure, "The inspection procedure is continuous and must be concluded within a maximum period of six months from the notification of its beginning" (no. 2 of article 36 of the RCPITA), and may be extended for two further periods of three months, in circumstances set out in no. 3 of the same article. The lapse of the period of the inspection procedure determines the end of external inspection acts, not affecting, however, the right to assessment of taxes (no. 7 of article 36).

Taxpayers are notified by the administration with a view to their cooperation in the procedure (article 37), which may be personal or postal (article 38)[8], under the terms of the CPPT although with adaptations (article 39).

The beginning of the external procedure depends on the credentialing of officials and the carrying of a professional card or other identification issued by the services to which they belong, and must be equipped with an order of service issued by the competent service for the procedure or for the practice of the inspection act or, in the case where an order of service is not necessary, a copy of the ruling of the hierarchical superior that determined the realization of the procedure or the practice of the act (article 46, nos 1 and 2)[9].

Inspection actions aimed at mere consultation, collection and crossing of elements with a taxpayer, of any territorial area, with whom the inspected taxpayer maintains economic relations are carried out by means of delivery, by the official, of the note of diligence indicating the task executed (no. 7 of article 46).

The external inspection procedure must be notified to the taxpayer or tax obligated party, with a minimum advance notice of five days with respect to its beginning, through a letter-notice containing Identification of the taxpayer or tax obligated party subject to inspection and scope and extent of the inspection to be carried out (article 49, nos 1 and 2).

With the exception of cases of inspection directed against taxpayers not previously identified, at the beginning of the inspection procedure, a copy is delivered to the taxpayer or tax obligated party of the order of service or the ruling that determined the aforementioned procedure, which must be signed by the taxpayer, tax obligated party or his representative, indicating the date of notification, which, for all purposes, determines the beginning of the external inspection procedure (article 51).

The practice of inspection acts is continuous, being able to suspend only in case of exceptional and urgent priorities of the tax administration recognized in a reasoned ruling of the service director (article 53), and the collection of elements must comply with objective criteria and contain: a) The mention and identification of the documents and respective accounting record, with indication, when possible, of the number and date of the entry, accounting classification, value and issuer"; b) The complete transcription of statements, with identification of the persons who made them and their respective functions, with the aforementioned statements, when orally given, being reduced to writing (article 55).

The inspection acts are considered concluded on the date of notification of the note of diligence issued by the official entrusted with the procedure (article 61, no. 1)[10].

Once the practice of inspection acts is concluded and if they may give rise to tax acts or matters unfavorable to the inspected entity, the draft of the report conclusions with the identification of the respective substantiation must be, within 10 days, notified for prior hearing, to be held between 15 to 25 days, and a final report must be prepared, in ten days (article 60), which, in turn, will be, within the 10 days following, notified to the taxpayer by registered mail, being the procedure considered concluded on the date of notification (article 62)

2.1.4. Effects of External Inspections on the Expiration Period – Interpretive Doubts in Doctrine and Case Law

Given the suspension of the expiration period of the right to assess tax provided for in article 46 of the LGT - [11] "with the notification to the taxpayer, under legal terms, of the order of service or ruling at the beginning of the external inspection action, ceasing, however, this effect, with the period being counted from its beginning, if the duration of the external inspection has exceeded the period of six months after notification" - it becomes fundamental to ascertain the initial and final terms of the suspension period.

The initial term of this suspension period coincides with the beginning of the external inspection action and the final term with the end of the external inspection, but the concepts used raise doubts, in the relationship with each other and with other norms relating to inspection procedure, it being important to clarify:

• distinction between internal and external inspection (article 13 RCPITA)

• meaning and articulation of different concepts or expressions used in the LGT (article 46) and in the RCPITA (in particular in articles 51, 53, 61 to 63) regarding external inspection activity.

2.1.4.1. Internal and External Inspection

Doctrine has raised the question of whether, in certain circumstances, there is an external inspection action or whether it is merely a situation presented in that form, but intended only to extend the expiration period.

It would be the case of displacement of tax inspection services to the taxpayer's establishment only to obtain a signature through prior notification but without the practice of material inspection acts, such as the examination of elements of the inspected party with capacity to reveal his tax situation (see article 29 of the RCPIT) or collections of documents in terms of articles 55 and 56, both of the RCPIT.

Analyzing the subject, Nuno de Oliveira Garcia and Rita Carvalho Nunes[12], pronounced themselves in the sense of not admitting that a mere opening of the external inspection procedure and with merely formal effects produces the suspension of the expiration period of the right to assessment, because this effect would have to result from the practice of material inspection acts by the AT services.

As recalled in the previous point, the RCPITA regulates the "prerogatives of tax inspection" and the "faculties" of the AT officials, and the "diligences" that the inspection bodies may develop in order to ascertain the tax situation of the taxpayer.

Some of these provisions are susceptible to raising doubts, such as those relating to consultation of documents and collection of information.

Indeed, in the analysis of tax situations, the Tax Administration may proceed to corrective assessment of previous assessment or effect a first assessment relating to omitted tax situation, only with elements at its disposal, declared by the taxpayers, or to which it has access through its own means (crossing of information, data provided by public entities, etc.).

But cases arise where, given doubts about the correction of the situation, the Administration does not have the elements necessary for a decision, having to resort to external action to obtain them. In this case of complementary action, the administration's control capacity regarding the time for exercise of the right to assessment is probably diminished, so the law will have added a period of six months (no. 1 of article 46 of the LGT).

As to the classification of article 13 of the RCPIT, with effects on the suspension of the expiration period, in the "Report of the Group for the Study of Fiscal Policy, Competitiveness, Efficiency and Justice of the Tax System", of 3 October 2009, it was commented: "The observation of reality regarding the concrete action of the Tax Administration, in the inspection sphere, claims that the concept of external inspection action be redefined, so as to encompass all situations where the inspection action, despite being exclusively developed in the services of Public Administration, goes beyond the scope of mere formal and consistency analysis of documents, in particular through the sending of documents that they are not normally obligated to deliver to the Tax Administration" (Report, pp. 797 and 798)[13].

In the sense that external action includes all situations where the Administration did not have by itself the elements necessary to the appreciation and decision of a tax situation, see for example:

The Ruling delivered by TCAS on 1 October 2014, in proc. 04817/11[14], concluded as follows: «I - As to the place of execution, the procedure may be classified into: a) Internal, when inspection acts are carried out exclusively in the services of the tax administration through formal and consistency analysis of documents; b) External, when inspection acts are carried out, totally or partially, in the facilities or dependencies of taxpayers or other tax obligated parties, third parties with whom they maintain economic relations or in any other location to which the administration has access. II - The classification given by the Administration to a procedure is not binding. III - The internal procedure is a kind of tax registry inspection, carried out within the tax inspection services themselves, using the elements declared by taxpayers, and encompasses mere finding activity in which the Administration limits itself to verifying the compliance by taxpayers of their declarative duties. In these cases the Administration limits itself particularly to compare, through crossing of information available in its databases, whether the taxpayer complied or not with his duties and whether the elements declared coincide with the elements provided by the declarations filed by other tax obligated parties with whom the taxpayer maintains or maintained relations. It is not, therefore, properly fiscal activity, in the strict sense, it is activity of formal verification for verification of the accuracy of what was formally declared by the taxpayer. IV – In the case under analysis, there was a whole activity of the initiative of the Administration, with third parties, aimed at the obtaining of elements that were obviously not at the availability of the AT, carried out with a clear investigatory character. All this investigative activity occurred and