IRS General Anti-Abuse Clause: CAAD Arbitration on €3.8M Tax Assessment (666/2014-T)

ENGLISH TRANSLATION

Case No. 666/2014-T

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Alexandra Coelho Martins and Prof. Doctor Jorge Júlio Landeiro de Vaz, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-11-2014, agree as follows:

1. Report

A…, NIF …, and B…, NIF …, presented a request for constitution of a collective arbitral tribunal, pursuant to the provisions of articles 2, no. 1, letter a), and 10 of the Legal Regime of Tax Arbitration (RJAT), in which the TAX AUTHORITY AND CUSTOMS AUTHORITY is respondent.

The Applicants formulated a request to annul the Personal Income Tax (IRS) assessment act no. 2014 …, relating to income from the year 2011, as well as the subsequent "compensation" operations no. 2014 … and "settlement" with no. 2014 … from which resulted an obligation to pay € 3,883,233.05.

The request to constitute the arbitral tribunal was accepted by the President of CAAD on 09-09-2014 and notified to the Tax Authority and Customs Authority on the same date.

Pursuant to the provisions in letter a) of no. 2 of article 6 and letter b) of no. 1 of article 11 of the RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable deadline.

On 22-10-2014 the parties were duly notified of this appointment, having manifested no intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, no. 1, letters a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

In conformity with the provision in letter c) of no. 1 of article 11 of the RJAT, the collective arbitral tribunal was constituted on 06-11-2014.

The Tax Authority and Customs Authority responded, arguing against the admissibility of the present arbitral action.

Following the death of Applicant A… and a request for recognition of succession, B…, C…, D… and E… were adjudged qualified as his heirs.

On 19-05-2015 and 04-06-2015, meetings were held for the production of witness evidence, with oral arguments being presented at the latter.

The parties possess legal standing and capacity, are properly interested, and are duly represented (arts. 4 and 10, no. 2, of the same statute and art. 1 of Ordinance no. 112-A/2011, of 22 March).

The Tribunal is competent, the proceedings are free from defects, and no obstacle to the consideration of the merits of the case arises.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

a) The Tax Authority and Customs Authority conducted an internal inspection action of partial scope – concerning IRS – relating to the period of 2011, directed at the present Applicants, and authorized by Service Order No. OI…;

b) Within the scope of that inspection action, the Tax Authority and Customs Authority prepared the report, with the content contained in document no. 3 attached to the request for arbitral pronouncement, the content of which is hereby reproduced;

c) The aforementioned Report was notified to the Applicants on 16-10-2013, for exercise of the right to a hearing;

d) On 28-11-2013, the "Project of Corrections to the Inspection Report - article 60 of the General Tax Law (LGT) and article 60 of the Supplementary Regime of Tax Inspection Procedure (RCIPT)" was sent to the Applicants for exercise of the right to a hearing, which is contained in document no. 4 attached to the request for arbitral pronouncement, the content of which is hereby reproduced;

e) On 28-03-2014 was sent to the Applicants the official letter with no. …/… in whose subject is referred "Corrections resulting from internal analysis - article 62 of the Supplementary Regime of Tax Inspection Procedure (RCPJT)" (document no. 5 attached to the request for arbitral pronouncement, the content of which is hereby reproduced), of which contains, among other things, the following:

III - DESCRIPTION OF THE FACTS AND GROUNDS OF THE PURELY ARITHMETIC CORRECTIONS TO THE TAXABLE MATTER

Note: All values are expressed in euros (€) for simpler reading.

1. History of the verified facts

1.1. The taxpayers, A… (hereinafter A…) and B…, held shares representing the capital F..., since the date of the company's constitution on 1995-04-07, as detailed in the following table:

1.2. After successive capital increases, realized in cash, in kind and by incorporation of reserves, the taxpayers, on 2010-12-23, came to hold the following shares in the capital of F...

1.3. Subsequently, on 2010-12-24, A... transferred 900,000 shares to F... all of category B, at the value of € 4.8476/share, coming to hold the following category B shares

1.4. On 2011-09-09, the taxpayers donated, through a deed of donation, to their son C… (hereinafter C...), 3,450,000 shares of category B of the share capital of F...

1.5. On the same date, 2011-09-09, C... transferred all the shares received to the company "G… SGPS, S.A" (hereinafter G...), at the nominal value of € 4.50, resulting in a sale value of € 15,525,000.00.

It is to be noted that the taxpayers, B… and A…, hold shares representing the capital of G....

1.6. At an earlier date, 2011-06-21, the taxpayers had donated to C..., through a declaration of donation, with signatures notarially acknowledged, the sum of € 7,140,000.00, in cash, and € 2,792,420.06, for the assumption of the son's debts to banks, totaling a donation of € 9,932,420.06.

1.7. In the contract concluded between C... and G..., on 2011-09-09, point IV of the recitals, mentions that "The First Party (C...) acknowledges that, in particular, is indebted to his Parents, here Third Parties, in the amount of capital of € 9,932,420.41 (nine million nine hundred thirty-two thousand four hundred twenty euros and forty-one cents), as declared in the statement issued on 21/06/2011, and which is contained herein in Annex B.", whereby, with such clause, it was intended to annul the donation previously executed, stipulating, then, that C... became indebted in the amount that had previously been donated to him.

1.8. With regard to the recipients and manner of payment of the price, the said contract stipulates in its fourth clause, manner of payment of the Price (€ 15,525,000.00), that:

"1. The Second Party (G...) proceeds to pay to the First Party (C...) Installment One of the Price, in the following manner:

a) the sum of € 3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) by check delivered directly to the Third Parties (A... and B...);

b) the sum of € 1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) by check delivered to the First Party.

...

1. The Second Party shall proceed to pay to the First Party Installment Two of the Price, once the conditions of Clause Five [1] are fully satisfied, in the following manner:

a) the sum of € 3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) by check delivered directly to the Third Parties;

b) the sum of € 1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) by check delivered to the First Party.

...

1. The Second Party shall proceed to pay to the First Party Installment Three of the Price, once the conditions of Clause Five are fully satisfied, in the following manner:

a) the sum of € 3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) by check delivered directly to the Third Parties);

b) the sum of € 1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) by check delivered to the First Party.

1.9. Payment of the first tranche to the taxpayers occurred on 2011-12-21, through a check issued in the name of A…, in the amount of € 3,310,806.80.

1.10. The second installment was to have been made by 2013-03-09, as stipulated in the third clause of the contract. However, since clause five was not fulfilled, to date it has not been paid.

1.11. C... did not declare the transfer of shares in the Personal Income Tax Declaration Model 3 delivered relating to the fiscal year 2011, contrary to the provision in no. 11 of art. 10 of the IRS Code: "11 – Taxpayers must declare the onerous transfer of shares, as well as the dates of their respective acquisitions. (Amended by article 1 by Law 15/2010, of 26/07)."

1.12. However, since the value of the sale of shares, € 4.50 per share, is lower than the acquisition value, € 65.10, as calculated in point 2.6.1 of the present report, from this operation no determination of any income of category G of IRS results, as income from capital gains.

1. Analysis within the scope of no. 2 of article 38 of the General Tax Law (LGT)

No. 2 of art 38 of the LGT establishes a general anti-abuse clause, in the following terms: "Acts or legal transactions essentially or mainly directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or to the obtaining of tax advantages that would not be achieved, in whole or in part, without use of such means, are ineffective within the tax sphere, and taxation shall be carried out in accordance with the applicable norms in their absence and the aforementioned tax advantages shall not be produced."

Thus, as can be inferred from the law, the general anti-abuse clause has as a requirement the practice by the taxpayer of an artificial legal transaction or one with abuse of legal form that has as its sole or determining purpose to avoid the taxation that would be due if a legal transaction or act of equivalent economic substance had been used.

Such provision establishes five conditions or requirements of application, denominated elements, which must be proven, corresponding four of them to the requirements of application and one to the respective establishment of the norm:

• Element of means: Corresponds to the route chosen by the taxpayer to obtain the desired gain or tax advantage, namely the act(s) or legal transaction(s) whose structure is determined based on a given tax result. The means used by the taxpayer should configure an abuse of legal forms.

• Element of result: In this element, it is important to demonstrate that the taxpayer achieved, through its acts, the verification of a certain tax advantage and the equivalence of economic effects with those of the normal taxed act.

• Element of intent: A preponderant tax motivation is verified that manifests itself in the forms adopted and that causes the tax purpose of the transaction to prevail over the non-tax purpose.

• Element of normativity: Which has to do with the normative-systematic reproduction of the structure assembled, namely, the taxpayer acts with manifest abuse of legal forms.

• Element of sanction: Consists in the ineffectiveness, within the tax sphere, of the acts or legal transactions in question, thus depending on the cumulative verification of the other elements.

Thus, we proceed to demonstrate the verification of the aforementioned elements in the case at hand:

2.1. Element of means

Considering that the transaction intended by the taxpayers consisted of the transfer of shares, it is found that, to avoid the taxation that would result therefrom, they adopted the following succession of acts:

• to annul the donation previously made to constitute, over their son, the right to receive € 9,932,420.00;

• to make a new donation, in this case of the shares that, allegedly, they wanted to sell;

• such donation being accompanied, simultaneously, by the transfer of the shares by the son;

• on the condition that the purchaser would pay directly to the taxpayers the € 9,932,420.00, a debt that arises from the annulment of the previous donation.

In summary, by defining the initial donation as a loan to C..., the taxpayers obtained the means to receive the money relating to the sale of the shares of F..., avoiding the taxation inherent in this operation.

2.2. Element of result

It becomes clear that the economic effect intended by the taxpayers resided in the financial inflow that the transfer of the shares could provide.

Since such effect could be obtained by the direct sale to G... or, as arranged by the taxpayers and other parties, by the establishment of a credit over the son and subsequent receipt of the same.

Such hypotheses, as will be seen below, imply distinct tax classifications, providing, basically, absence of tax burden in the situation adopted by the taxpayers and taxation in IRS, as income from capital gain (Category G), in equivalent transaction.

2.3. Element of intent

The analysis of the contours of the operations carried out by the taxpayers does not allow discerning the existence of any economic motivation or other that justifies their adoption.

In fact, for the realization of the sale of the shares, namely from the perspective of the purchaser, it would always be a matter of indifference whether the position of seller was assumed by the taxpayers or by their son.

And, in the absence of any type of economic motivation or advantage of another kind, with the tax benefits being evident, there can be no doubt that, in the form of transaction adopted, the tax purpose prevails.

In this regard, one cannot fail to consider that the annulment of the donation already previously made to their son by the taxpayers (2011-06-21), in the amount of € 9,932,420.06, and its reconversion, immediately thereafter, into a new donation, this time of shares, constitutes, necessarily, a fact that demonstrates the abuse in the legal forms chosen.

However, it cannot be ignored that the donation of shares, which replaces the previous one, is of a value superior to it, so it should be admitted that, on 2011-09-09, with the donation of shares, the taxpayers intended to benefit their son even more, attributing to him a reinforcement of the previous donation.

Hence, as regards the determination of the motivation of the taxpayers, it is understood that the application of the general anti-abuse clause should be restricted to the disregard of the donation operations and subsequent sale of shares that corresponds to the sale value of € 9,932,420.00.

2.4. Element of normativity

Through the scheme of donation of shares to the son, and consequent assumption by the latter of the debt before the parents of € 9,932,420.00, which had been initially donated, the taxpayers managed to transfer to their personal sphere income from capital gains obtained with the sale of shares, which they excluded from taxation through the provision stipulated in no. 6 of art 12 of the IRS Code, combined with letter e) of art. 16 of the Corporate Income Tax Code (CIS).

Thus, no. 6 of art. 12 of the IRS Code provides that: "IRS does not apply to patrimonial increments deriving from gratuitous transfers subject to stamp duty, nor to those expressly provided for in a negative incidence delimitation rule of this tax."

On the other hand, letter e) of art 6 of the CIS stipulates that descendants are exempt from stamp duty on gratuitous transfers subject to item 1.2 of the general table (gratuitous acquisition of goods) of which they are beneficiaries.

2.5. Elements of sanction

Thus, the disregard of the donation of shares by the taxpayers to the son, in the part corresponding to € 9,932,420.00 and subsequent sale by the latter to G..., is justified, proceeding with the taxation of the transaction intended by the taxpayers, that is, the direct transfer to G... of those same shares.

2.6. Taxation that occurred due to the operations carried out

In the personal sphere of the son, C..., the operations of donation and subsequent sale of shares were excluded from taxation, both under Stamp Duty, as stipulated in letter e) of no. 1 of art. 5 of the CIS which provides that descendants are exempt from Stamp Tax on gratuitous transfers of goods, and under IRS, because from the operation of transfer no taxable income results.

2.6.1. IRS / Sale of shares

In reality, had the son declared, in the corresponding Annex G of the Personal Income Tax Declaration Model 3 of the IRS, the sale of the shares donated by the taxpayers, from the operation in question would result a tax loss, as is calculated below:

(...)

The income of category G, as regards the shares transferred by C..., thus translates into the following loss:

2.6.2. Donation to C...

As referred to before, notwithstanding the value that, pursuant to the CIS, would be susceptible of being fixed at € 224,595,000.00 as corresponding to the gratuitous transfer, this benefits from exemption under letter e) of art 6 of that code.

2.6.3. Conclusion

In summary, it is to be concluded that the operations carried out, consisting of the donation of 3,450,000 shares to C... and subsequent transfer by the latter of those same shares, did not give rise to any tax burden.

2.7. Taxation due if the legal transactions with equivalent economic substance were carried out

2.7.1. Acquisition value of shares

1. As regards the 3,450,000 shares donated, 50,000 belonged to B…, with the remaining 3,400,000 belonging to A…, as appears from the deed of donation

Before the donation, on 2011-09-09, the taxpayers, A... and B…, were holders of 8,848,931 shares and 2,657,603 shares, respectively, as demonstrated in the following tables

– A…

– B…

1. Taking into account the fact that what is intended is the disregard of the donation of shares by the taxpayers to the son, in the amount of € 9,932,420.00, this operation will be taxed as a sale, carried out by the taxpayers to G..., of 2,207,204 shares (€ 9,932,420.00 / € 4.50),

2. Since there is no identification of the shares transferred, the criterion of considering that the first shares transferred correspond to those that had been acquired longest ago shall be followed, as stipulated in letter d), of no. 4 of art. 43 of the IRS Code, which leads us to the 50,000 shares transferred by B…, acquired on 2005-01-27, having been the first shares transferred.

3. Having this in mind, it is important to determine the cost that, pursuant to art. 48 of the IRS Code corresponds to the 50,000 shares of B... and to the 2,157,204 of A…

4. As stipulated in letter b) of art 48 of the IRS Code, the acquisition value for onerous title of corporate interests, and of other securities not listed on the stock exchange, is that which results from the cost documentarily proven.

5. The capital increase by incorporation of reserves carried out in F... on 2010-12-23, gave rise to the issuance of new shares, with the shareholders having disbursed no value in obtaining ownership of these same shares.

6. Thus, the acquisition cost to be considered, relating to shares obtained through capital increase by incorporation of reserves, will be equal to zero.

On the other hand, the shares held by B... which result from the capital increase of F... carried out on 2005-01-27, an increase that was carried out in kind, having been delivered by the shareholder shares of other entities in which she held capital, will be attributed the acquisition cost of € 5.00/share, representative of its nominal value.

1. In summary, the acquisition value of the 2,207,204 shares transferred, itemized by capital holder, was € 250,000.00, as is demonstrated below:

2.7.2. Sale value of shares

With regard to the sale value of the shares, account must be taken of the provision in art. 52 IRS Code

"1 - When the Directorate-General of Taxes considers it reasonably possible that there may be a divergence between the declared value and the actual value of the transfer, it has the power to make the determination thereof.

2 - If the divergence referred to in the preceding number relates to the value of transfer of shares or other securities, the following rules apply:

a) If listed on the stock exchange, the transfer value is that of the respective quotation on the date of transfer or, in case of unknown, that of the highest quotation in the year to which it refers;

b) If not listed on the stock exchange, the transfer value is that which corresponds to it, determined on the basis of the last balance sheet.

3 - In the same situation referred to in the preceding numbers, and when it comes to corporate interests, the transfer value corresponding to them is considered, determined on the basis of the last balance sheet"

1. Thus, and by force of letter b) of no. 2 of art. 52 of the IRS Code, the transfer value will be calculated on the basis of the last balance sheet, resulting in a sale value of each share of € 7.6156, as is demonstrated below:

2. It is to be noted that taxpayer A…, on 2011-06-09, concluded with G..., a share sale contract for 35,137 shares of category A, and a dation in payment contract for 28,863 shares also of category A, to settle a debt in the amount 540,000.00 contracted with G..., with the shares, in both contracts, being valued by an Official Revisor, an independent external entity, at € 18.709 /share.

3. Furthermore, although the donation to the son is constituted, in its entirety, of category B shares, the only difference between one category and the other being that category A shares carry voting rights, the truth is that A... concluded, on 2011-05-25, a promise of sale contract for 187,685 category B shares to F..., with the sale price stipulated at € 18.709 per share, which demonstrates that, independently of their category, the shares were valued in the different circumstances at the unit value of € 18.709.

4. However, and given the rule established in letter b) of no. 2 of art 52 of the IRS Code, the sale price to be considered in this transfer shall be € 7.6156 per share.

2.7.3. Determination of capital gain

Under normal conditions, that is, without the motivation to avoid taxation, the taxpayers transferred 2,207,204 shares of F... to G..., and the capital gains obtained from the sale of these shares would be taxed as income of category G, with the following capital gain being determined:

1. Conclusion

In light of the foregoing, a correction is proposed, in the amount of € 16,559,182.78, to the net income of the taxpayers of 2011, relating to capital gains obtained from the sale of 2,207,204 shares of F... by the taxpayers to Company G..., income classified in category G as provided in art. 10 of the IRS Code.

f) Following the correction carried out, the Tax Authority and Customs Authority prepared the IRS assessment no. 2014 …, relating to the income of the Applicants for the year 2011, and carried out the subsequent compensation operations no. 2014 … and settlement with no. 2014 … from which resulted an obligation to pay € 3,883,233.05 (documents nos. 1 and 2, attached to the request for arbitral pronouncement, the contents of which are hereby reproduced);

g) Between November 2010 and May 2011, the Applicants donated to their son C... sums totaling € 7,140,000.00;

h) On 21-06-2011, the Applicants and their aforesaid son, concluded the agreement that appears in document no. 12 attached to the request for arbitral pronouncement and from pages 43 et seq. of the document of the Administrative Process with the designation "PA2.pdf", the content of which is hereby reproduced, of which contains, among other things, the following:

First declarant:

C..., Engineer, taxpayer no. …, holder of ID no. …, married under the community of acquests regime with the second declarant, and resident with her at … no. …, parish of ….

Second declarant:

H… Lawyer, taxpayer no. …, holder of ID no. …, married and resident with the first declarant.

Third declarant:

I…, Lawyer, taxpayer no. …, holder of ID …, holder of professional certificate no. …-P with office at … … Porto.

Fourth declarants:

B…, taxpayer no. …9, holder of ID no. … and husband A…, taxpayer no. …, holder of ID no. …, both resident at Rua do …, no. …, 1º Dto., …, ….

Declares the first declarant:

1. That he received from his Parents (A... and B...), specifically, the following sums, free of charge as a donation from his Parents in his favor;

-4,000,000.00 (four million euros), dated November/2010;

-350,000.00 (three hundred fifty thousand euros), dated November/2010;

-1,500,000.00 (one million five hundred thousand euros), dated November/2010;

-280,000.00 (two hundred eighty thousand euros), dated April/2010;

-180,000.00 (one hundred eighty thousand euros), dated May/2010;

-80,000.00 (eighty thousand euros), dated May/2010;

-75,000.00 (seventy-five thousand euros), dated March/2011;

-675,000.00 (six hundred seventy-five thousand euros), dated May 2011;

in the total of €7,140,000.00 (seven million one hundred forty thousand euros).

1. That his Parents are holders of a bank account, current account deposit, no. …, at J…, opened by them and provisioned by them.

2. That the sums transferred in the same bank account were always for the benefit and advantage of the first declarant.

3. That the same account expresses, as of this date, a value in overdraft of €3,038,195.85 (three million thirty-eight thousand one hundred ninety-five euros and eighty-five cents).

4. The declarant, acknowledging that the overdraft at values used by him, will deduct, as of this date, from the said overdraft the sum of 2,900,000.00 (two million nine hundred thousand euros), through a transfer carried out by the company K…, …, Lda., of which the declarant is managing partner.

5. Thus, the said J… account will maintain a negative balance of €138,195.85 (one hundred thirty-eight thousand one hundred ninety-five euros and eighty-five cents).

6. That additionally the Father is the drawer of a promissory note, endorsed by the Mother and by himself (first declarant), in the amount of principal of (2,575,000.00 (two million five hundred seventy-five thousand euros) plus expenses of €79,225.06 (seventy-nine thousand two hundred twenty-five euros and six cents), in the total of 2,654,225.06 (two million six hundred fifty-four thousand two hundred twenty-five euros and six cents) dated 11/5/2011, due 30/5/2011, payable until 1/6/2011, with the number at J…. That, however, that promissory note represents no debt of the Parents, but was only issued, at the request of the declarant, with a view to obtaining financing in his favor (the declarant) in that amount.

7. That, therefore, he declares and acknowledges that the total amount referred to in 7 (seven), of €2,654,225.06 (two million six hundred fifty-four thousand two hundred twenty-five euros and six cents), corresponds to a debt of the declarant himself, only guaranteed by the Parents as a personal favor.

8. That the Parents personally assume the debt and the respective payment of the amount indicated in 6 (six), of €138,195.85 (one hundred thirty-eight thousand one hundred ninety-five euros and eighty-five cents) and of the amount indicated in 9 (nine), of €2,654,225.06 (two million six hundred fifty-four thousand two hundred twenty-five euros and six cents), in the total of €2,792,420.06 (two million seven hundred ninety-two thousand four hundred twenty euros and six cents).

9. That the assumption by the Parents of the debt and the payment thereof of the amount of €2,792,420.06 (two million seven hundred ninety-two thousand four hundred twenty euros and six cents) corresponds to the payment of personal debt of the declarant, who is relieved thereof, being considered as receipt by the declarant of the same amount free of charge, as a true donation from the Parents, should it come to be effectively executed.

10. That the assumption of that debt of €2,792,420.06 (two million seven hundred ninety-two thousand four hundred twenty euros and six cents) by the Parents and its payment is made at the request of the declarant.

11. That the sum referred to in number 1 (one) of €7,140,000.00 (seven million one hundred forty thousand euros) and the sum referred to in number 10 (ten) of €2,192,420.06 (two million seven hundred ninety-two thousand four hundred twenty euros and six cents) total the overall amount of €9,932,420.06 (nine million nine hundred thirty-two thousand four hundred twenty euros and six cents) which represents, as of this date, the sum of those donations that the Parents made in favor of the declarant.

12. That the total amount of these donations, made on account of the legitime, should be, for purposes of division, subject to adjustment under the law.

13. That, from now on, he will receive no other sum from his Parents, for whatever reason.

14. That he has full awareness of all the legal effects of this declaration having been advised and clarified for this purpose by his Lawyer, Mr. Dr. I…, here third declarant and that, therefore, he subscribes to this declaration.

15. That this declaration is issued by him of free will and good faith, representing the truthfulness of the facts.

Declares the second declarant:

1. That she acknowledges the complete truthfulness of the declaration above given by her husband and first declarant.

2. That, beyond what appears above, she has full awareness of all the effects of this declaration also by reason of her academic training and the profession of Lawyer that she exercises.

3. That this declaration is issued by her of free will and good faith, representing the truthfulness of the facts.

Declares the third declarant:

1. That in the capacity of Lawyer of the first declarant he accompanied the process intended for the issuance of this declaration, having advised and explained to the first declarant the legal consequences resulting from it.

2. That the first declarant affirmed to him the intention of, by being informed and advised, to issue of free will and good faith this declaration.

3. The fourth grantors declare that they confirm the content of this donation, in the exact terms above stated.

Declare all the declarants:

1. That they proceed to the notarial acknowledgment of their signatures, thus manifesting the freedom and awareness of the content of the declarations and of the issuance of this declaration.

2. That they consider this written form with notarial acknowledgment as the legally valid and effective one for the immediate production of all legal effects associated with this declaration.

Porto, 2011-06-21

i) The donation of the said sums was motivated by the fact that the son of the Applicants C... became involved in commercial activities that generated a very high set of losses with substantial debts before banks, which the parents were addressing;

j) This aid was not sufficient and the losses of C...'s business were worsening, with the Applicants understanding that the situation was unsustainable due to the volume it assumed, in excess of € 30,000,000.00, as well as due to the imbalance and inequality it caused when compared with the treatment given to the other two children of the Applicants E... and D... (documents nos. 20 to 22 attached to the request for arbitral pronouncement, the contents of which are hereby reproduced);

k) On 09-09-2011, the son C... concluded with G... – ..., SGPS, S.A. the contract of which a copy appears in document no. 23 attached to the request for arbitral pronouncement and pages 28 et seq. of the document of the Administrative Process with the designation "PA3.pdf", the content of which is hereby reproduced, in which, among other things, the following:

First Party:

C..., holder of Identity Card no. …. taxpayer no. …, married under the community of acquests regime with the Fourth Party, resident with her at … no. 7, …, …..

Second Party:

G... - ..., SGPS, SA, corporation with registered office at Rua …, Building …, Parish and Municipality of …, with share capital of €975,000.00 (nine hundred seventy-five thousand euros), with realized capital of €575,000.00 (five hundred seventy-five thousand euros), legal entity no. …, here represented by the administrator A…, with powers for the act.

Third Parties:

A…, holder of Identity Card no. …. taxpayer no. … and wife B..., holder of Identity Card no. …, taxpayer no. … resident at Rua …, … -12 Dtº, …;

Fourth Party:

H…, holder of Identity Card no. … taxpayer no. …, married to the First Party and resident with him.

Between the identified parties is hereby executed in good faith and freely the present contract:

RECITALS:

I. The First Party, after the donation to be made in his favor by his Parents, here Third Parties, as of this date, will be the owner, of 3,450,000 (three million four hundred fifty thousand) shares of category B, with the nominal value of €5.00 each, in the share capital of F... Participações Sociais, SGPS, SA, with registered office at Rua do … . Building …, …, with share capital of €64,442,910.00 (sixty-four million four hundred forty-two thousand nine hundred ten euros), legal entity no. …, hereinafter only Shares, represented by the securities identified in Annex A-

II. The First Party has interest and intends to sell the Shares, having obtained no other interested party in their acquisition.

III. The price agreed for the purchase and sale of the Shares and the conditions of payment were expressly negotiated between the parties.

IV. The First Party acknowledges that, in particular, he is indebted to his Parents, here Third Parties, in the sum of capital of € 9,932,420.41 (nine million nine hundred thirty-two thousand four hundred twenty euros and forty-one cents), as declared in the statement issued on 21/06/2011, and which is contained herein in Annex B.

V. The First Party further acknowledges that the Parents, here Third Parties, have assumed responsibilities and guarantees, direct or indirect, namely as guarantors or sureties, for various titles, in relation to debts contracted by the First Party, debts that are his own (First Party).

VI. The complete listing of the responsibilities and guarantees referred to in the preceding Recital appears in Annexes C and D, with the First Party declaring that there are no others which are not indicated in Annexes C and D, knowing that the truthfulness of this declaration constitutes an essential element to the intention to execute this contract by the Second Party and the Third Parties.

VII. The debts referred to in the preceding Recitals include all those that are the responsibility of (i) the First Party, or (ii) the Fourth Party, or (iii) both, or (iv) any company in which the First and/or Fourth Parties hold corporate interests, or hold any corporate position or exercise functions of administration, management or direction, regardless of the legal relationship established between any of them and those companies.

VIII. The First Party intends to settle the debt he maintains with his Parents, here Third Parties, by returning the sum referred to in Recital IV, as well as intends to relieve them of all the responsibilities and guarantees referred to in Recitals V to VII.

IX. All the parties were advised and counseled by their respective Lawyers, both in the phase of negotiations and in the preparation of the contractual documents, who explained to them the content and legal meaning thereof, whereby they have full awareness of the legal consequences that the execution of this contract entails, declaring one and all that the same are fully within their knowledge and reflect their true intention, freely formed in good faith.

In light of the content of the aforesaid Recitals, the parties establish between themselves the terms of the present contract as follows:

CLAUSES

FIRST

(Purchase and sale)

1. The First Party hereby and by this means proceeds to the sale of the Shares to the Second Party, which are immediately transferred entirely free, unencumbered and with all rights inherent thereto.

2. The sale is subject to the condition of the donation in his favor of the same Shares by his Parents, here Third Parties, to be carried out on the present date, whereby the purchase and sale is subject to the regime of sale of future goods.

3. The verification of the condition referred to in the preceding number shall operate automatically with the execution of the deed of donation, whereby no other act, formality or communication between the parties should be performed or executed for the condition to be considered fulfilled.

4. The First Party declares not to have any rights to receive, for whatever reason, from the company referred to in Recital A, related to the Shares.

5. The First Party declares to have no knowledge of any impediment of a legal, contractual or other nature to the present sale of the Shares.

6. The Second Party acknowledges and declares that the First Party makes no representation or warranty in relation to the Shares and the company F... -Participações Sociais, SGPS, SA, better identified above, other than those expressly contained in this contract.

SECOND

(Price)

The total and sole price of the purchase and sale of the Shares is €15,525,000.00 (fifteen million five hundred twenty-five thousand euros), hereinafter only Price.

THIRD

(Installments of Price)

1. The Price shall be paid, subject to the manner and conditions established in this contract, by the Second Party to the First Party in the following installments:

a) Installment One: The sum of €5,175,000.00 (five million one hundred seventy-five thousand euros), with €1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) being paid as of this date (09/09/2011), and €3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) being paid by 31/12/2011;

b) Installment Two: By 09/03/2013 the sum of €5,175,000.00 (five million one hundred seventy-five thousand euros);

c) Installment Three: By 09/03/2014 the sum of €5,175,000.00 (five million one hundred seventy-five thousand euros).

1. The date of payment is considered the date on which the checks are delivered by the Second Party to the respective recipients.

FOURTH

(Manner of payment of Price)

1. The Second Party proceeds to pay to the First Party Installment One of the Price, in the following manner:

a) the sum of €3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) by check delivered directly to the Third Parties:

b) the sum of €1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) by check delivered to the First Party.

1. The First Party hereby grants full and final discharge to the Second Party for the payment of Installment One of the Price, once the sums referred to in number 1 a) of the preceding clause are fully paid.

2. The Second Party shall proceed to pay to the First Party Installment Two of the Price, once the conditions of Clause Five are fully satisfied, in the following manner:

a) the sum of €3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) by check delivered directly to the Third Parties;

b) the sum of €1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) by check delivered to the First Party.

1. The First Party shall grant full and final discharge to the Second Party for the payment of Installment Two of the Price, against the delivery of the checks indicated in the preceding number.

2. The Second Party shall proceed to pay to the First Party Installment Three of the Price, once the conditions of Clause Five are fully satisfied, in the following manner:

a) the sum of €3,310,806.80 (three million three hundred ten thousand eight hundred six euros and eighty cents) by check delivered directly to the Third Parties;

b) the sum of €1,864,193.20 (one million eight hundred sixty-four thousand one hundred ninety-three euros and twenty cents) by check delivered to the First Party.

1. The First Party shall grant full and final discharge to the Second Party for the payment of Installment Three of the Price, against the delivery of the checks indicated in the preceding number.

2. It is the obligation of the First Party and the Third Parties to proceed with the reception of the checks at the registered office of the Second Party, on the dates of their maturity, with this location being taken as that of the place of performance of the obligation to pay the Price.

3. Alternatively to the manner of payment referred to above, the Second Party may proceed as indicated in Clause Fifth, numbers 6 to 8.

FIFTH

(Conditions of payment of Price)

1. The payment of Installment Two of the Price depends on the documentary proof, to be delivered by the First Party to the Second Party and the Third Parties, with a minimum advance of 15 (fifteen) days in relation to the date indicated in Clause Third number 1 b):

a) of the complete and final release of responsibilities and guarantees assumed by the Third Parties contained in Annex C, in the minimum amount of €6,724,022.00 (six million seven hundred twenty-four thousand twenty-two euros), plus the respective interest (default and remunerative), charges or penalties of any nature;

b) of the non-existence of any other responsibilities or guarantees assumed or imputed to the Third Parties, prior to this contract, other than those contained in Annexes C and D;

c) of the documentary confirmation by the First Party that no other responsibility or guarantee was assumed or imputed, or in any way attributed, to the Third Parties in substitution, as an alternative or in place of the responsibilities or guarantees contained in Annexes C and D; and that the Third Parties also did not assume, nor were imputed, nor assigned in any way other new responsibilities or guarantees for debts of their own, direct or indirect, including through intermediary persons, of the First Party;

d) of the non-existence of any payment, total or partial, by the Third Parties of any of the responsibilities or guarantees contained in Annex D.

1. The payment of Installment Three of the Price depends on the documentary proof, to be delivered by the First Party to the Second Party and the Third Parties, with a minimum advance of 15 (fifteen) days in relation to the date indicated in Clause Third number 1 c):

a) of the complete and final integral release of all responsibilities and guarantees assumed by the Third Parties contained in Annex C, plus the respective interest (default and remunerative), charges or penalties of any nature;

b) of the non-existence of any other responsibilities or guarantees assumed or imputed to the Third Parties, prior to this contract, other than those contained in Annexes C and D;

c) of the documentary confirmation by the First Party that no other responsibility or guarantee was assumed or imputed, or in any way attributed, to the Third Parties in substitution, as an alternative or in place of the responsibilities or guarantees contained in Annexes C and D; and that the Third Parties also did not assume, nor were imputed, nor assigned in any way other new responsibilities or guarantees for debts of their own, direct or indirect, including through intermediary persons, of the First Party.

d) of the non-existence of any payment, total or partial, by the Third Parties of any of the responsibilities or guarantees contained in Annex D.

1. The documentary proof referred to in the preceding numbers should demonstrate the payment of the debts, their discharge, the cancellation or the relief of the Third Parties from their responsibilities or guarantees contained in Annex C.

2. The Third Parties shall perform the acts that prove necessary, appropriate and convenient for the First Party to fulfill the conditions established in the preceding numbers.

3. For this purpose, the First Party shall previously deliver to the Third Parties, written request which contains, at least, the following:

(i) the guarantees or responsibilities that it intends to relieve;

(ii) the manner in which it intends to do so; (iii) the acts that it intends be performed by the Third Parties for this purpose.

1. The Third Parties shall perform the acts requested by the First Party within a maximum period of 8 (eight) days from the request by the latter, unless they consider, reasonably, that the same should not be performed because (a) they are not necessary, appropriate or convenient for the intended purpose or (b) would constitute new responsibilities and/or guarantees on their part.

2. Should any one of the conditions referred to in numbers 1 and 2 of this clause not be fully satisfied, the Second Party shall retain the payment of the installment, or installments, in question, without the First Party being able, for any reason, to require such payment, or exercise any other right against any of the other parties. However, the retention shall correspond to the values in question in the event of non-satisfaction of the conditions provided in items 1 b), 1 d), 2 b) and 2 d), as the case may be.

3. Should the documentary proof referred to in numbers 1 to 3 of this Clause be delivered by the First Party to the Second Party and the Third Parties belatedly, the days of delay result in the postponement in a period equal to the days of payment of the Installments referred to in the third clause.

4. The First Party is granted the right of, with a minimum advance of 8 (eight) days in relation to the maturity of any one of the two installments, as an alternative to payment by means of the checks referred to in Clause Fourth numbers 3 b) and 5 b), to request from the Second Party that it proceed to payment in whole or in part, of the respective Price installments by payment to the creditors or those guaranteed, of the responsibilities or guarantees contained in Annexes C and D.

5. Without prejudice to the provision in the preceding numbers, should the conditions contained in numbers 1 a), 1 b), 1 d], 2 a), 2 b) and 2 d) of this clause not be verified, as the case may be, the Second Party is granted the right of, as an alternative to payment by means of the checks referred to in Clause Fourth numbers 3 b) and 5 b), to proceed with payment, in whole or in part, of the respective Price installments by payment to the creditors or those guaranteed, of the responsibilities or guarantees contained in Annex C, according to its free judgment.

6. Payment, partial or integral, under the two preceding numbers is equivalent, for all legal effects, to payment, in part or in full, (as the case may be) of the Price installment to the First Party by the Second Party.

SIXTH

(Delivery of securities)

1. At the present time the securities of the Shares are considered delivered by the First Party to the Second Party, with this contract serving, for all legal effects, as effective delivery and transfer of the Shares.

2. With the present act the parties assume that it shall be for the Second Party to perform all subsequent acts it deems appropriate in relation to the Shares and their respective securities.

SEVENTH

(Payment of debt)

1. The First Party and the Third Parties agree that by the delivery of the checks referred to in numbers 1 a), 3 a) and 5 a) of Clause Fourth, provided the conditions contained in Clause Fifth are fully satisfied, the debt of the former to the latter referred to in Recital IV is fully paid, with the Third Parties waiving any other manner of payment.

2. Once that debt is fully paid, the First Party and the Third Parties shall proceed with the cancellation of the statement contained in Annex B.

EIGHTH

(RELIEF OF GUARANTEES AND RESPONSIBILITIES)

1. The First Party is obliged to relieve the Third Parties of all responsibilities and guarantees assumed by them or imputed to them in relation to debts contracted by the First Party, direct or indirect, contained in Annexes C and D, as well as any other eventual responsibilities and guarantees present or future even if not contained in such Annexes (provided that they also relate to debts contracted by the First Party as described in Recital VII).

2. Without prejudice to the other consequences that prove to be established in this contract, should the Third Parties be called upon to pay any debt(s) of the First Party (as described in Recitals V to VII), in whole or in part, and regardless of its value, or to assume the debt(s) as their own, the First Party acknowledges that the respective amount(s) corresponds to a personal debt of his to the Third Parties.

3. In the event provided for in the preceding number the Third Parties shall proceed with the delivery, by donation, to the remaining children (D... and E…) of any goods of which they are owners and legitimate possessors in value equivalent to that of the debt paid or assumed as their own.

4. The goods to be donated shall be calculated as follows:

a) securities (including shares or corporate interests in any company) at their respective nominal values;

b) movable and immovable property at the value attributed to them by two appraisers chosen by the Third Parties, or at the average value of the two appraisals should the values of the two not coincide.

1. The First Party hereby expresses his acceptance of those eventual donations, renouncing any right to challenge them, to oppose them, or to reduce them, for whatever reason or ground.

2. The provision in numbers 2 and 4 of this clause applies, with the necessary changes, should any payment or responsibility be imputed to any eventual open succession of any of the Third Parties, in which case the First Party acknowledges that the respective amount(s) corresponds to a personal debt of his to the succession.

NINTH

(Default and rescission)

1. The failure to pay the Price on the dates and in the manners established, when the conditions for payment of the Price are fully fulfilled, by a fact attributable to the Second Party, places it in default with respect to the First Party in relation to the missing value of the installment in question.

2. Default places the Second Party in the duty to indemnify the First Party, with indemnification calculated at the legal interest rate in effect on the relevant date.

3. If default is maintained for a period exceeding 90 (ninety) days, the First Party is granted the right to rescind this contract.

4. Without prejudice to the provision in number 4 of clause fifth, (i) should the First Party fail to fully fulfill the conditions for payment of Price established in that clause, for a period exceeding 90 (ninety) days, (ii) or should it be verified that the complete content of Recital VI is untrue by the existence of any other responsibility and guarantee not contained in Annexes C and D, the Second Party is granted the right to rescind this contract.

5. Should the contract be rescinded, by the First or by the Second Party, the First Party is obliged to return to the Second Party everything that the latter has already paid directly to the former or to the Third Parties, and the Second Party is obliged to return the securities of the Shares.

6. Rescission also places the defaulting Party in the obligation to pay a penalty clause, corresponding to double the amount of everything that has been rendered under this contract.

7. To avoid doubts in the application of the preceding numbers, two examples when only Installment One is shown as paid:

a) Rescission by the First Party; will return to the Second Party the sum of €5,175,000.00 (Installment One) against receipt of the securities of the Shares; and will receive as penalty clause from the Second Party the sum of €10,350,000.00;

b) Rescission by the Second Party: will receive from the First Party the return of the sum of €5,175,000.00 (Installment One), delivering the securities of the Shares to it; and will receive as penalty clause the sum of €10,350,000.00.

(...)

l) The execution of the contract referred to in the preceding item occurred at 14:24 hours on 09-09-2011 (2nd page of document no. 23 attached to the request for arbitral pronouncement, the content of which is hereby reproduced);

m) C... received the sum of € 1,864,193.20 on 09-09-2011, pursuant to the Fourth Clause no. 1, letter b), of the contract (document no. 25 attached to the request for arbitral pronouncement, the content of which is hereby reproduced);

n) Still on 09-09-2011, at 17:30 hours, the deed was executed a copy of which appears in document no. 24 attached to the request for arbitral pronouncement, the content of which is hereby reproduced, through which the Applicants donated to their son C... 3,450,000 shares of category B of F... – Participações Sociais, SGPS, S.A., with the nominal value of € 5.00 each (the time of the deed is certified by document no. 55 attached to the request for arbitral pronouncement, the content of which is hereby reproduced);

o) Through the same deed, the Applicants donated to their son D... 31,980 category A shares and 3,418,020 category B shares and donated to their son E... 3,450,000 category B shares, all of the same company, all with the same nominal value of € 5.00 (document no. 24 attached to the request for arbitral pronouncement, the content of which is hereby reproduced);

p) The reasons why the purchase and sale contract was executed first under the regime of future goods and, then, the donation of shares to C... and the children of the Applicants D... and E... was carried out was to guarantee the relief of the parents with respect to the pending (and future) responsibilities assumed (or to be assumed) in favor of C..., and simultaneously, to seek to equalize all three children, based on what each had received (or not) from the Parents;

q) On 21-12-2011, G... - ..., SGPS, S.A. paid to Applicant A… the sum of € 3,310,806.80, by check, in performance of Clause Fourth no. 1, letter a), of the first contract executed on 09-09-2011 (document no. 26 attached to the request for arbitral pronouncement, the content of which is hereby reproduced);

r) C... did not fulfill the conditions provided in the contract of purchase and sale of shares and neither he nor the Applicants received the amount of the second and third installments provided therein (documents nos. 27 to 33 attached to the request for arbitral pronouncement, the contents of which are hereby reproduced);

s) On 24-09-2014, the Applicant presented the request to constitute the arbitral tribunal which gave rise to the present proceedings.

2.2. Unproven Facts

It was not proven that, underlying the contracts referred to, there was solely an intention of the Applicants to sell the shares to G... - ..., SGPS, S.A., nor that such intention was that which determined the execution of the contracts, it being proven instead that the objectives of the operations were to guarantee the relief of the Applicants with respect to the responsibilities of C..., and simultaneously, to seek to equalize the three children.

2.3. Grounds for the Determination of the Factual Matters

The determination of the factual matters is based on the administrative proceedings and on the documents attached to the initial petition and, in the points as to which no document is indicated, on the witness evidence.

The witnesses L… and M… testified with impartiality and demonstrated direct and thorough knowledge of the operations in question and their motivation.

The primary intention of the Applicants to seek to relieve themselves of the responsibilities and guarantees assumed related to C...'s business ventures, besides being unequivocal in light of the aforementioned testimonies, is confirmed by Recital VII and by Clauses Fifth and Eighth of the contract a copy of which appears in document no. 23 attached to the request for arbitral pronouncement, specifically the facts that the entirety of the payment of the second and third installments by G... is dependent on prior proof of the complete relief of the responsibilities of the Applicants and that G... may pay directly to the creditors or those guaranteed by C... the amounts to which it would be entitled, pursuant to the referred Clause Fifth, nos. 2, 10 and 11).

The intention of the Applicants to seek to equalize the three children, besides being affirmed by the aforementioned testimonies, results from the terms of the donation of shares made to them and from the fact that the donation of 21-06-2011 was made on account of the legitime of C....

3. Legal Matters

The issue which is the subject of the present proceedings is that of the legality of the application of the general anti-abuse clause to the factual situation described.

In the definitions elaborated by Saldanha Sanches ( [2] ): legitimate tax planning "consists of a technique of reduction of the tax burden whereby the taxpayer renounces a certain behavior because this is linked to a tax obligation or chooses, among the various solutions provided by the legal order, that which, by intentional act or omission of the tax legislator, is accompanied by fewer tax charges"; while illegitimate tax planning "consists of any behavior of undue reduction, because it contravenes principles or rules of the tax legal order, of the tax burdens of a given taxpayer".

Within the framework of tax planning we can thus distinguish the situations in which the taxpayer acts contra legem, extra legem and intra legem.

When it acts contra legem, its action is frontal and unequivocally illicit, since it directly violates tax law, and constitutes tax fraud ( [3] ) susceptible, even, of being subject to administrative or criminal censure.

The action extra legem occurs when the taxpayer abusively takes advantage of the law to reach a more favorable tax result, despite not directly violating it. This taxpayer adopts "a behavior that has as its sole or main purpose to circumvent one or more tax legal norms, so as to achieve the reduction or elimination of the tax burden" ( [4] ). Since from that or those tax legal norms should be detected an attempt to circumvent "a clear intention to tax asserted by the structuring principles of the system" ( [5] ). This type of action is commonly designated "fraud against the tax law" but, as Saldanha Sanches alerts, seeking to better illustrate and distinguish these situations from those of tax fraud, also designated "abusive avoidance of tax charges", "abusive tax avoidance" or also "tax evasion"( [6] ).

Only the action intra legem appears legitimate – and, thus, legitimate tax planning or non-abusive – is valid. Indeed, the obtaining of a tax saving does not constitute a behavior prohibited by law, provided that the action does not fit in the aforementioned extra legem action ( [7] ).

In the case at hand, the Applicants contest that abusive tax planning is configured because the intention that presided over the operations carried out is not that of obtaining any tax advantage, but rather those of relieving the Applicants of the responsibilities assumed with respect to debts of their son C..., which reached an unusual dimension, it also being the intention of the Applicants to seek to equalize their three children in the matter of pecuniary benefits provided by the parents.

3.1. Elements of the General Anti-Abuse Clause

Under the heading "Ineffectiveness of Acts and Legal Transactions", article 38, no. 2 of the LGT provides regarding the so-called general anti-abuse clause (CGAA) in tax law.

The wording established by Law no. 30-G/2000, of 29 December, became as follows:

"Acts or legal transactions essentially or mainly directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or to the obtaining of tax advantages that would not be achieved, in whole or in part, without use of such means, are ineffective within the tax sphere, and taxation shall be carried out in accordance with the applicable norms in their absence and the aforementioned tax advantages shall not be produced."

This norm is complemented by the extensive article 63 of the CPPT, which contains a set of provisions that specify the parameters shaping the application procedure of the anti-abuse provisions.

The doctrine and jurisprudence have been deconstructing the wording of the norm pointing out five elements within it. Corresponding one of the elements to the establishment of the norm, the remaining four appear as cumulative requirements that allow assessing – as if it were a test – whether the verification of an activity characterizable as abusive tax planning ( [8] ).

These elements, around which both parties in fact construct their argumentation, consist:

– of the element of means, which concerns the route freely chosen – act or legal transaction, isolated or part of a structure of sequential, logical and planned acts or legal transactions, organized in a unitary manner – by the taxpayer to obtain the desired gain or tax advantage ( [9] );

– of the element of result, which deals with the obtaining of a tax advantage, by virtue of the choice of that means, when compared with the tax burden that would result from the practice of the acts or legal transactions "normal" and of equivalent economic effect ( [10] );

– of the element of intent, which requires that the choice of that means be "essentially or mainly directed [...] to the reduction, elimination or temporal deferral of taxes" (article 38, no. 2 of the LGT), that is, which requires not merely the verification of a tax advantage, but rather that it be assessed, objectively, whether the taxpayer "intends an act, a transaction or a given structure, solely or essentially, because of the prevailing tax advantages that they provide" ( [11] );

– of the element of normativity, which "has as its primary function to distinguish cases of tax evasion from cases of legitimate tax savings, in consideration of principles of Tax Law, being that only in cases in which the intention of the law contrary or not legitimating the result obtained is demonstrated can one speak of that "( [12] );

– and, finally, of the element of sanction, which, assuming the cumulative verification of the remaining elements, leads to the sanction of ineffectiveness, in the exclusive tax sphere, of the acts or legal transactions deemed abusive, "and taxation shall be carried out in accordance with the applicable norms in their absence and the aforementioned tax advantages shall not be produced" (final part of article 38, no. 2, of the LGT).

Despite this deconstruction, the analysis of the elements cannot be hermetic, since, as Courinha emphasizes, "the determination of one element may, in practice, depend on another", whereby these "shall frequently [...] assist each other" ( [13] ).

Let us examine, having this aspect in mind, the elements of the general anti-abuse clause taking into account the reasoning of the decision, the proven facts, and the legal argumentation of the parties.

In this analysis, one must proceed from the assumption that the reasoning of the act that decided on the application of the general anti-abuse clause that is to be examined is only that which appears in the act itself and the elements to which it refers, since the tax arbitral proceedings, as an alternative means to the judicial challenge process (no. 2 of article 124 of Law no. 3-B/2010, of 28 April), is, like that, a procedural means of mere legality, in which the aim is to eliminate the effects produced by illegal acts, annulling them or declaring their nullity or non-existence [articles 2 of the RJAT and 99 and 124 of the CPPT, applicable by virtue of the provision in article 29, no. 1, letter a), of the latter]. Therefore, the acts that are the subject of the proceedings must be examined as they were performed, and the court cannot, faced with the finding of the invocation of an illegal ground as the basis for the administrative decision, examine whether its action could be based on other grounds.

3.2. Absence of the Element of Intent

In the case at hand, it is clear, in light of the evidence produced, that the element of intent is not verified.

Indeed, as referred to when addressing the determination of the factual matters, all evidence produced was to the effect that the primary motivation of the Applicants was to achieve the relief of the Applicants from the responsibilities assumed with debts of their son C..., which reached an unusual dimension, it also being the intention of the Applicants to seek to equalize their three children, in the matter of pecuniary advantages provided by the parents.

The clauses of the contracts referred to when grounding the determination of the factual matters confirm that this was the primary objective sought by the Applicants and it is manifest that it could not be achieved if the Applicants sold the shares directly to G..., as the Tax Authority and Customs Authority argues is a legal transaction of identical economic purpose.

It is concluded, thus, that one of the factual prerequisites on which the application of the general anti-abuse clause depends is not verified, which is that the act or transaction have been essentially or mainly directed to the reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or transactions of identical economic purpose.

And, in light of article 38, no. 2, in stating that, for application of the general anti-abuse clause, the transactions must be directed to the reduction, elimination or temporal deferral of taxes that would be due, it is not sufficient that tax advantages be obtained, but rather it is indispensable that the obtaining of these have been an essential or principal objective sought by the taxpayers.

Since the requirements provided in article 38, no. 2, of the LGT are cumulative, it must be concluded, without more, that the application of the general anti-abuse clause and the subsequent correction of the IRS taxable matter of the Applicants carried out on the basis of such application is tainted with illegality.

Therefore, the claim for annulment of the Personal Income Tax assessment act relating to the year 2011 must be judged well-founded, as well as the subsequent acts of compensation and settlement.

4. Decision

In accordance with the foregoing, the members of this Arbitral Tribunal agree to:

a) Judge the claim for arbitral pronouncement seeking declaration of illegality of the Personal Income Tax assessment no. 2014 …, relating to the income of the year 2011, as well as the subsequent compensation operations no. 2014 … and settlement with no. 2014 … from which resulted an obligation to pay € 3,883,233.05, to be well-founded;

b) Annul the assessment, compensation and settlement demonstration referred to;

5. Value of the Proceedings

In accordance with the provision in article 306, no. 2, of the CPC and 97-A, no. 1, letter a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 3,883,233.05.

6. Costs

Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at € 49,266.00, pursuant to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Authority.

Lisbon, 26-06-2015

The Arbitrators

(Jorge Lopes de Sousa)

(Alexandra Coelho Martins)

(Jorge Júlio Landeiro de Vaz)

[1] Clause five provides that Installments Two and Three of the Price depend on the relief of responsibilities and guarantees assumed by the taxpayers in the amount of € 6,724,022.00, plus the respective interest and charges, and documentary confirmation by C... that no other responsibility was assumed or imputed to the taxpayers.

[2] See Saldanha Sanches, J.L., Os Limites do Planeamento Fiscal, Coimbra Editora, Coimbra, 2006, p. 21.

[3] See Judgment of TCAS of 12-02-2011, case no. 04255/10.

[4] See Jónatas Machado and Nogueira da Costa, Curso de Direito Tributário, Coimbra Editora, Coimbra, 2009, pp. 340-341.

[5] See Saldanha Sanches, J.L., Os Limites..., p. 181.

[6] See Saldanha Sanches, J.L., Os Limites..., pp. 21-23; also Judgment of the Central Administrative Court of the South of 12-02-2011, case no. 04255/10.

[7] See Saldanha Sanches, J.L., Reestruturação de empresas e limites do planeamento fiscal, As duas constituições – nos dez anos da cláusula geral antiabuso, Coimbra Editora, Coimbra, 2009, pp. 49-50, which states, in this regard: "the establishment of the general anti-abuse clause implies [...] that from its introduction it is clearly delimited what the taxpayer can and cannot do. Tax skills, fiscal cleverness are no longer possible (artificial and fraudulent transactions that have as their main or sole purpose the obtaining of a tax saving through fraud against the law) and the taxpayer comes to have his behavior judged according to this criterion. [...] the evolution of the law is clear in the direction of providing legal ground for tax planning, provided that it is undertaken without the abuse of legal forms, without artificial and fraudulent legal transactions but limiting itself to choosing the route that is open and that allows him to achieve tax savings". See, also, Marques, Paulo, Elogio do Imposto, Coimbra Editora, Coimbra, 2009, pp. 360-364.

[8] That is, to an "intentional action by the taxpayer which results in apparently licit behavior, generating a tax advantage not admitted by the tax order" (see Courinha, Gustavo Lopes, Cláusula Geral Antiabuso no Direito Tributário: Contributos para a sua compreensão, Almedina, Coimbra, 2009, pp.15-17 and 163-165; as well as Judgment of the Central Administrative Court of the South of 15-02-2011, case no. 04255/10, conclusions XIII and XIV).

[9] As follows from the following part of article 38, no. 2, of the LGT: "acts or legal transactions essentially or mainly directed, by artificial or fraudulent means and with abuse of legal forms, to the reduction, elimination or temporal deferral of taxes".

[10] Such follows from the following segment of article 38, no. 2, of the LGT: "reduction, elimination or temporal deferral of taxes that would be due as a result of facts, acts or legal transactions of identical economic purpose, or to the obtaining of tax advantages that would not be achieved, in whole or in part, without use of such means". It also follows from article 63, no. 3, letters a) and b) of the CPPT, in the wording given by Law no. 64-B/2011, of 30 December, which require that the Tax Administration include in its reasoning, respectively, "the description of the legal transaction concluded or of the legal act performed and of the transactions or acts of identical economic purpose, as well as the indication of the rules of incidence that apply to them" and "the demonstration that the conclusion of the legal transaction or performance of the legal act was essentially or mainly directed to the reduction, elimination or temporal deferral of taxes that would be due in case of transaction or act with identical economic purpose, or to the obtaining of tax advantages".

[11] See Courinha, Gustavo Lopes, Cláusula..., p. 180.

[12] See Courinha, Gustavo Lopes, Cláusula..., p. 211.

[13] See Courinha, Gustavo Lopes, Cláusula..., p. 165. Identically, Saldanha Sanches, J.L., Os Limites..., p. 170, which points to a "relationship of connection and interdependence in relation to the requirements required by the law".