IMT Exemption Under Article 270 CIRE in Insolvency Property Sales – Constitutionality Ruling

ARBITRATION DECISION

The arbitrators José Poças Falcão (arbitrator-president), Paulo Nogueira da Costa (appointed by the Claimant) and Silvério Mateus (appointed by the Respondent), who compose the Arbitral Tribunal constituted on 02/06/2016, agree as follows:

I. Report

1. A…, S.A., legal entity number…, with registered office at…, number…, …-… Lisbon, in the jurisdiction of the Lisbon Tax Office –… (the "Claimant"), came, pursuant to the provisions of Article 2, number 1, paragraph a); Article 6, number 2, paragraph b) and Article 10, number 1, paragraph a) of Decree-Law number 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters ("RJAMT") and of Articles 1 and 2 of Order number 112-A/2011, of 22 March, to request the constitution of an arbitral tribunal and to present a request for arbitral pronouncement;

2. The Tax and Customs Authority (hereinafter referred to as AT) is the Respondent;

3. The Claimant seeks the annulment of the additional IMT assessment act issued in Office number…, issued by the Tax Office of…, dated 5 November 2015, to which corresponds tax to be paid in the amount of €243,293.71, plus €14,211.02 in interest charges, and the condemnation of the Respondent to payment of compensation for costs incurred by the Claimant with the provision of undue guarantees, pursuant to the provisions of Articles 53 of the LGT and 171 of the CPPT;

4. In the Arbitration Request, presented by itself, the Claimant invoked, in summary, the following:

a) The present request for arbitral pronouncement concerns the IMT assessment conducted by AT with reference to the acquisition of Properties in the context of the insolvency proceedings of company B…, in particular the question of whether or not it has legal basis;

b) AT considers that the acquisition of the Properties did not meet the essential requirements for the application of the IMT exemption provided for in Article 270, number 2, CIRE, since, assuming that the understanding expressed in Circular number 10/2015 constitutes the fundamental reason sustaining its position, this exemption is only applicable when the real property sold, exchanged or ceded in the context of insolvency proceedings constitutes a universality, whether it is the company itself or one of its establishments;

c) However, the Claimant completely disagrees with the grounds presented by AT;

d) Article 270, number 2, of the CIRE, when correctly interpreted, does not allow for any understanding other than that not only transfers integrated in a universality are exempt from IMT taxation, but also acts of sale, acts of exchange and acts of cession of real property performed in isolation, separately from the remaining assets of a company or one of its establishments, in the context of insolvency proceedings;

e) This understanding is what best articulates not only with the literal element of the rule, but also with the historical element of the interpretation of the provision in question;

f) The CPEREF itself, in its Article 121, number 2, already provided for an exemption from the then municipal tax SISA for transfers of real property that were integrated into any of the company recovery measures and that resulted, among others, from the sale, exchange or cession of elements of the active assets of that same company;

g) For which reason the teleological element of interpretation also does not permit the understanding advocated by AT and which underlies the Additional Assessment;

h) Whereas it was the expressed intent of the legislator of the CIRE itself to maintain this orientation also within the scope of the CIRE, as can be read in paragraph number 49 of the preamble of the Decree-Law that approved the CIRE that "[t]he essential regimes existing in the CPEREF regarding exemption from fees and tax benefits are maintained, (...)";

i) Furthermore, the legislative authorization itself granted by Law number 39/2003, of 22 August, authorized the Government to exempt from taxation in SISA (currently, IMT), among others, transfers of real property that were integrated in any insolvency or payment plan or carried out in the context of liquidation of the insolvent estate resulting from the sale, exchange or cession of the company, establishments or elements of its assets;

j) The rationale for the exemption provided for in Article 270, number 2 of the CIRE is the creation of economic incentives that make goods/assets sold in insolvency proceedings more attractive without, however, compromising their market value, thus protecting not only the interests of creditors but also the public interest;

k) In this measure, no grounds are seen for exempting IMT from the transfer of a real property in the context of insolvency proceedings when the same is integrated in a universality and not when it is transferred in isolation;

l) Finally, it is worth noting that, even if it were considered that the letter of the law allows for a different interpretation from that which the Claimant has been defending, such interpretation would always be unconstitutional;

m) To interpret the rule contained in Article 270, number 2, of the CIRE in the sense that only transfers of real property occurring in the context of insolvency proceedings when the same constitute a universality are exempt is to assume that the legislator of the CIRE deliberately wished to restrict the scope of application of the exemption provided for in Article 9, number 3, of Law number 39/2003, 22 August;

n) Now, if Article 165, number 1, paragraph i) and Article 103, number 2, of the CRP reserve to the Assembly of the Republic the legislative competence in tax matters – which naturally also includes the creation and delimitation of tax benefits – such understanding would result in the organic unconstitutionality of the rule now in question;

o) Even if it were admitted that the legal text is susceptible to both interpretations, priority should always be given to the one that best reconciles the legal text with the text of the CRP, for which reason the Additional Assessment should be annulled, in the terms requested;

p) In these terms, the arbitration request should be granted, and consequently the additional IMT assessment issued in Office number…, issued by the Tax Office of…, dated 5 November 2015, to which corresponds tax to be paid in the amount of €243,293.71, plus €14,211.02 in interest charges, should be annulled, and the Respondent should be ordered to pay compensation for the costs incurred by the Claimant with the provision of undue guarantees, pursuant to the provisions of Articles 53 of the LGT and 171 of the CPPT.

1. In the exercise of the option for arbitrator designation provided for in paragraph b) of number 2 of Article 6 of the RJAT and in compliance with the provisions of paragraph g) of number 2 of Article 10 and in number 2 of Article 11, also of the RJAT, the Claimant appointed as Arbitrator Mr. Prof. Dr. Paulo Jorge Nogueira da Costa.

2. The request for constitution of the arbitral tribunal was accepted by the Honorable President of the CAAD and automatically notified to the Tax and Customs Authority on 18/03/2016.

3. Pursuant to the provisions of paragraph b) of number 2 of Article 6 and of number 3 of Article 11 of the RJAT, as amended by Article 228 of Law number 66-B/2012, of 31 December, and within the period provided for in number 1 of Article 13 of the RJAT, the highest-ranking official of the Tax Administration service appointed as Arbitrator Mr. Dr. Joaquim Silvério Dias Mateus.

4. In accordance with the provisions of numbers 5 and 6 of Article 11 of the RJAT, the President of the CAAD notified the Claimant of the appointment of the Arbitrator by the highest-ranking official of the Tax Administration service on 02/05/2016, and notified the arbitrators designated by the Parties to appoint the third arbitrator who assumes the position of Arbitrator President.

5. On 16/05/2016 the Arbitrators appointed by the Parties informed the CAAD of the appointment of Mr. Judge José Poças Falcão as Arbitrator President.

6. Pursuant to and for the purposes of the provisions of number 7 of Article 11 of the RJAT, the President of the CAAD informed the Parties of this appointment on 17/05/2016.

7. Through email dated 27/05/2016, the Claimant submitted a request for compensation for provision of undue guarantee and attached documentary evidence subsequent to the request for constitution of the arbitral tribunal, and alleged, in summary, that: in order to suspend the fiscal execution proceedings that had been filed against it, it constituted a mortgage on three real properties of which it is the owner, in favor of AT, the provision of such guarantee involving costs which, at the time of submission of this request, amounted to €2,612.85, to which other costs may be added in the future, for which reason, pursuant to the provisions of Article 53 of the LGT, it is entitled to be reimbursed for the damages caused by the provision of undue guarantee (as per documentation attached to the request).

8. In compliance with the provisions of number 7 of Article 11 of the RJAT, as amended by Article 228 of Law number 66-B/2012, of 31 December, after the period provided for in number 1 of Article 13 of the RJAT has elapsed, the collective arbitral tribunal was constituted on 02/06/2016.

9. AT submitted a reply in which it raised the exceptions of impropriety of the procedural means employed and incompetence of the Collective Arbitral Tribunal in respect of the matter and, cautiously and without conceding, challenged the grounds of the request for arbitral pronouncement.

10. AT alleges, in essence, the following:

A – Exception of impropriety of the procedural means employed

a) The subject matter to be decided concerns the granting of a tax benefit provided for in Article 270/2 of the CIRE;

b) In essence, the Claimant wishes the Collective Arbitral Tribunal to pronounce a decision recognizing the IMT exemption;

c) In light of this claim, it is the Administrative Action that constitutes the appropriate procedural means for reviewing the matter (since that constitutes the means of reaction intended to review acts in tax matters – Article 97/2 of the CPPT), and not the request for arbitral pronouncement (since that constitutes one of the means of reaction intended to review tax acts – Article 2/1 of the RJAT);

d) This means, therefore, that the Claimant seeks to graft an Administrative Action onto the present request for arbitral pronouncement;

e) However, such is not legally possible, for which reason the Collective Arbitral Tribunal should refrain from hearing the request, since the procedural means employed by the Claimant does not permit the review of that matter.

f) The impropriety of the procedural means constitutes a dilatory exception that obstructs the continuation of the proceedings, leading to dismissal of the action regarding the claim in question, in accordance with the provisions of Articles 577 and 278/1, both of the Code of Civil Procedure ("CPC"), applicable ex vi of Article 29/1-e) of the RJAT;

B- Exception of incompetence of the Collective Arbitral Tribunal in respect of the matter

g) In light of Article 2/1 of the RJAT, it clearly follows that review of any questions concerning the recognition of tax exemptions falls outside the jurisdiction of tax arbitration, under penalty of violation of the law;

h) The question of recognition of tax exemptions is a matter reserved for the jurisdiction of the administrative and fiscal courts;

i) The material incompetence of the Collective Arbitral Tribunal for the review of the question of tax exemption constitutes a dilatory exception that obstructs the continuation of the proceedings, leading to dismissal of the action regarding the claim in question, in accordance with the provisions of Article 576/1 and 2 and Article 577-a) of the CPC, applicable ex vi of Article 29/1-e) of the RJAT;

j) The Collective Arbitral Tribunal is equally incompetent for the review of recognition of a tax exemption related to the transfer of real property integrated in insolvency proceedings;

k) The verification of the legal requirements provided for in Article 270/2 of the CIRE falls exclusively within the jurisdiction of the judicial body where the insolvency proceedings took place;

l) Only the judge handling the insolvency proceedings is in a position to verify the legal requirements exacted in Article 270/2 of the CIRE;

m) Indeed, in complete harmony with the operation of the similar exemption provided for in Article 8 of the IMT Code and, consequently, with the verification of the legal requirements inherent in that rule, verification which is exclusively carried out by the judge handling the judicial proceedings (execution, bankruptcy or insolvency);

n) Since only the insolvency proceedings records (which the judicial magistrate directs and reviews) contain the elements necessary to assess that verification;

o) Such verification is carried out through judicial deed or judgment approving the settlement, and it will be one of these two documents that will serve as the basis for recognition of the exemption at issue here when the Model Declaration 1 is submitted by the taxpayer to the competent tax office of the Respondent;

p) The present Collective Arbitral Tribunal was not the judicial body where the insolvency proceedings took place;

q) Furthermore, the present Collective Arbitral Tribunal does not even have the minimum elements to assess the verification of the legal requirements exacted in Article 270/2 of the CIRE;

r) This means that, both in light of Article 270/2 of the CIRE and due to the elements (not) introduced in the request for arbitral pronouncement, it clearly follows that review of any questions concerning the recognition of a tax exemption related to the transfer of real property integrated in insolvency proceedings falls outside the sphere of the Collective Arbitral Tribunal;

s) The material incompetence of the Collective Arbitral Tribunal for the review of the question of tax exemption constitutes a dilatory exception that obstructs the continuation of the proceedings, leading to dismissal of the action regarding the claim in question, in accordance with the provisions of Article 576/1 and 2 and Article 577-a) of the CPC, applicable ex vi of Article 29/1-e) of the RJAT.

C- Defense by challenge on the merits

t) The Claimant alleges that the tax act under challenge suffers from the defect of lack of substantiation, but does not concretize this minimally;

u) Substantiation is a relative concept, which varies depending on the legal type of administrative act in question, and the legal requirement must be understood in suitable terms, given the functionality of the institute and the essential objectives to be pursued;

v) If there were a situation of lack or insufficiency of substantiation – a hypothesis which only in theory and without conceding is admitted – it was incumbent upon the Claimant to request the issuance of the certificate provided for in Article 37 of the CPPT;

w) Not having the Claimant used the faculty granted by law, it is necessary to conclude that the act sub judice contained, and contains, all the elements necessary for its complete understanding and that the alleged defect of which it suffered was remedied;

x) It is not possible to assert that a certain act is without substantiation when, in the specific case, the contextual motivation allowed its recipient to understand the factual and legal reasons that led the Respondent to make the decision in question, with that meaning and content;

y) In the case at hand, the substantiation is sufficiently clear and unequivocal, particularly since the Claimant through the present request for arbitral pronouncement and in view of the arguments explained throughout its pleading demonstrates having completely understood the factual and legal framework in which the Respondent's decision was based, since it attempts to refute, point by point, all of its actions;

z) Thus, even if the act sub judice suffered from deficiencies at the level of substantiation – which is admitted only by mere academic hypothesis – such deficiencies would degrade into mere non-essential irregularities;

aa) Since, in any event, such deficiencies permit the complete clarification of its recipient, enabling it to challenge them, as the Claimant did through the present request for arbitral pronouncement, the application of the principle of administrative act validation to the case at hand will always seem justified.

bb) Regarding the problematic matter of the alleged illegality of Circular 10/2015, it does not constitute any issue, but, at most, mere argument, and, on the other hand, the review of its alleged illegality is not only outside the jurisdiction of the CAAD, since it concerns generic guidelines directed to the services of the Respondent;

cc) In any case, the said circular does not alter or distort the statutory provision contained in Article 270/2 of the CIRE, limiting itself to promoting the uniformization of the interpretation and application of the tax rule in question (Article 68-A of the LGT);

dd) The interpretive jurisprudence constant of Circular 10/2015 is in accordance with the letter of the law, in that it does nothing more than undertake the discovery of its most precise meaning, in respect, moreover, of the general theory of interpretation of the law and the normative framework that shapes it;

ee) Although Circular 10/2015 is an official interpretation of legal norms, binding upon the services and officers of the Respondent, the latter never intended to alter, adulterate or violate the legal rules from which it derived;

ff) The Claimant makes an interpretation and application of the legal norms subsumable to the case sub judice notoriously wrong;

gg) Prior to the emergence of the CIRE, the tax benefit at issue in bankruptcy matters was contained in Article 121 of the Code of Special Procedures for Company Recovery and Bankruptcy ("CPEREF", approved by Decree-Law 132/93, of 23 April);

hh) In accordance with number 1 of that article of the CPEREF, transfers of real property, integrated in the constitution of the company and intended for the realization of its capital or for the realization of the increase in capital of the company, were exempt from the then Municipal Tax on Transfers SISA;

ii) Already number 2 of that same article of the CPEREF granted exemption to transfers of real property, integrated in any of the company recovery measures, which resulted from:

"a) The cession to third parties or the alienation of shareholdings of the company, provided for in paragraphs b) and c) of number 2 of Article 88 and in Article 91, as well as in numbers 1 and 2 of Article 100;

b) Dation in performance of company assets and cession of assets to creditors, provided for in paragraphs d) and e) of number 1 of Article 88 and in Article 93, as well as in number 1 of Article 100;

c) Legal autonomization of commercial or industrial establishments, sale, exchange or cession of elements of the company's assets, as well as long-term leases, provided for, respectively, in paragraphs e), f) and g) of number 1 of Article 101.";

jj) With the Reform of Patrimony Taxation that occurred in 2003, that CPEREF exemption came to relate to IMT (cf. Article 28/2 of Decree-Law 287/2003, of 12 November);

kk) Subsequently, with the replacement in 2004 of the CPEREF by the ensuing CIRE (approved by Decree-Law 53/2004, of 18 March), Article 270 of the latter legal body provided the following:

"1- The following transfers of real property, integrated in any insolvency or payment plan, are exempt from municipal tax on onerous transfers of real property:

a) Those intended for the constitution of a new company or companies and the realization of its capital;

b) Those intended for the realization of increase in capital of the debtor company;

c) Those resulting from dation in performance of company assets and cession of assets to creditors.

2 - Acts of sale, exchange or cession of the company or of establishments thereof integrated within an insolvency or payment plan or carried out in the context of liquidation of the insolvent estate are also exempt from municipal tax on onerous transfers of real property.";

ll) More recently, Law number 66-B/2012, of 31 December, introduced, among others, a slight amendment to Article 270/2-c) of the CIRE, which came to provide that:

"Acts of sale, exchange or cession of the company or of establishments thereof integrated within insolvency plans, payment or recovery plans or carried out in the context of liquidation of the insolvent estate are also exempt from municipal tax on onerous transfers of real property.";

mm) In the case sub judice, the confrontation between the letter of Article 121 of the CPEREF and that established in the letter of Article 270/2 of the CIRE is relevant;

nn) Confronting the tenor of those two rules, two conclusions are drawn: i) the exemption from IMT resulting from dation in performance and cession of assets to creditors that was contained in Article 121-b) of the CPREF passed in the same form to Article 270/1-c) of the CIRE; ii) the same did not occur with regard to acts of sale, exchange or cession, since the legislator did not merely carry out a task of reorganization [as it did regarding Article 270/1-c) of the CIRE], but rather a substantive alteration;

oo) The exemption from IMT resulting from acts of sale, exchange or cession of the company ceased to make reference to "elements of the company's assets" and to "long-term leases" [Article 121/2-c) of the CPEREF], but only and exclusively to the "company" or "establishments thereof" [Article 270/2) of the CIRE];

pp) In summary, the exemption from IMT contained in Article 270/2 of the CIRE covers acts of sale, exchange or cession integrated within insolvency plans, payment plans, recovery plans or carried out in the context of liquidation of the insolvent estate, however (now) with a reservation against what (then) Article 121/2-c) of the CPEREF provided: that the object of the transfer be the company or establishment(s) thereof, and not merely elements of the company's assets;

qq) In view of the scarce elements introduced in the proceedings, which point to the fact that the Claimant only acquired elements of the assets of the insolvent company, and not the insolvent company itself or even establishments thereof, it is necessary to conclude that it is not in a position to enjoy the tax exemption established in Article 270/2 of the CIMT, there being nothing therefore to point out regarding the assessment under challenge;

rr) Neither is the understanding conveyed by the Claimant correct, according to which Article 270/2 of the CIRE suffers from the defect of unconstitutionality due to violation of the rule of law;

ss) It is true that authorized decrees-law (as is the case of the CIRE) that do not respect the authorization law are unconstitutional, since, dealing with a matter of competence reserved for the Assembly of the Republic, it is only lawful for the Government to legislate on it in the precise terms of the authorization;

tt) However, such unconstitutionality results from only two avenues: i) when the authorized decree-law exceeds the limits of the authorization, which occurs when the Government legislates on a matter different from or beyond the authorized matter; ii) when the authorized decree-law legislates in disrespect of the meaning and extent of the authorization, which occurs when the Government legislates in a sense divergent from the authorized sense;

uu) Through Article 9/3 of Law 39/2003, the "Government was authorized to exempt from municipal SISA tax the following transfers of real property, integrated in any insolvency or payment plan or carried out in the context of liquidation of the insolvent estate: (...) Those resulting from cession to third parties or the alienation of shareholdings of the company, from dation in performance of company assets and cession of assets to creditors, from sale, exchange or cession of the company, establishments or elements of its assets, as well as from long-term leases";

vv) By providing in Article 270/2 of the CIRE that "Acts of sale, exchange or cession of the company or of establishments thereof integrated within insolvency plans, payment or recovery plans or carried out in the context of liquidation of the insolvent estate are also exempt from municipal tax on onerous transfers of real property," the Government did not legislate in a sense divergent from the authorized sense;

ww) The Government respected the meaning that was conferred upon it (i.e., the granting of tax benefits in the context of insolvency proceedings), but to an extent less than that which was assigned to it by the ordinary legislator, in other words, the Government fell short of what it was legally authorized to do;

xx) When such is the case, no unconstitutionality ensues, since no limit was exceeded, for which reason the invoked unconstitutionality must necessarily prove to be groundless;

yy) As a result of the alleged error attributable to the services, the Claimant formulates a request for compensation for undue guarantee provision (in the form of constitution of a mortgage on three properties of which it is the owner), calculating, for now, damages of €2,612.85 for notarial fees and corresponding Stamp Tax;

zz) However, the mortgage does not fall under the concept of "bank guarantee or equivalent," for which the payment of the compensation requested by the Claimant must fail.

aaa) Thus, should the exceptions raised not be judged to be well-founded, the present request for arbitral pronouncement should be judged to be unfounded, the tax assessment act under challenge remaining in the legal order and the Respondent being discharged accordingly from the claim.

1. On 11/07/2016 an order was issued by the President of the Tribunal, dispensing with the holding of the meeting provided for in Article 18 of the RJAT and fixing a simultaneous period of 20 days for submission of final arguments, written, concerning facts and law, with the respective conclusions, on the basis of the provisions of Articles 91-5 and 91-A of the New CPTA, applicable ex vi by virtue of Article 29-1/c) of the RJAT.

2. On 13/07/2016, the Respondent submitted a request for issuance of an order for submission of final arguments in successive form, invoking the principles of contradiction and equality of the Parties and the practice adopted by the generality of arbitral tribunals.

3. According to the Respondent, "by granting the Claimant the right to Reply in the final arguments itself and, at the same time, fixing for both parties the submission of their arguments simultaneously, the final arguments on the part of the Respondent is naturally rendered empty of content, since the Respondent is not previously made aware of the content of the Claimant's Reply."

4. On 19/07/2016 an Interlocutory Award was issued, which dismissed the request, submitted by the Respondent, for issuance of an order for submission of final arguments in successive form, on the grounds that there was no valid basis for altering the simultaneity of the period fixed for arguments, in that such results from the provisions of the cited normative rules of the NCPTA and, in particular, from the provisions of Article 91-A of the NCPTA.

5. The Tribunal decided further, on the basis of the principle of autonomy of conduct of proceedings [Article 16-c) of the RJAT], that, in the event that exceptions are raised by the Claimant in the final arguments, the Respondent would have a period of 10 days, counted from the date of notification of the submission of the Claimant's arguments, to exercise the right of reply, limited to the matter of the exceptions.

6. The Claimant submitted written arguments, containing the following conclusions:

a) None of the exceptions presented by the Respondent in its Reply can be well-founded;

b) The Respondent begins by invoking the existence of error in the form of the proceedings, considering that the appropriate procedural means would be Administrative Action, since in its view what was at issue was the review of the granting of a tax benefit;

c) Since what is at issue is not the reaction to refusal of the granting of a benefit, but the claim for review of the legality of an assessment act that is based on the unlawful disregard of the same, Administrative Action would never be appropriate;

d) The Respondent also invokes that, in its view, since review of the granting of a tax benefit is at issue, the Arbitral Tribunal would lack competence in this matter;

e) The argument invoked does not merit acceptance: it is an exemption of automatic recognition, for which reason the legality of the granting of the benefit or its refusal is not at issue, but the legality of the Additional Assessment, and the assessment of the legality of the rejection of the said tax benefit is a preliminary logical and indispensable step to the review of the cause of action and not the claim itself;

f) Finally, the Respondent also invokes the incompetence of the Arbitral Tribunal in respect of the matter by considering that this Tribunal is incompetent to review "the recognition of a tax exemption related to the transfer of real property integrated in insolvency proceedings";

g) However, it clearly follows that there is no exclusive competence of the courts handling the insolvency proceedings to assess the applicability of a tax benefit of automatic recognition, and it is furthermore evident that the Competence of the Arbitral Tribunal to review the legality of tax assessment acts is clear;

h) Nor does the defense on the merits presented by the Respondent merit acceptance, the arguments invoked by the Claimant remaining unshakeable to the effect that the IMT exemption is applicable to the acquisitions of real property carried out;

i) It being confirmed that the substantiation is insufficient since mere reference to the incorrect application of the benefit – without even explaining why… – is insufficient, "(…) not permitting a normal recipient to fully understand the factual and legal reasons for the non-applicability of the regime of that statute, thus compromising its right of defense";

j) Also unequivocal is the illegitimacy of the interpretation contained in Circular number 10/2015, unduly restricting the scope of application of the exemption provided for in Article 270, number 2, of the CIRE;

k) Nor does the argument invoked by the Respondent merit acceptance, according to which the transition from the CPEREF to the CIRE represents a change in the paradigm contained in Article 121, number 2, of the CPEREF as against Article 270, number 2, of the CIRE, which supposedly would justify a restrictive reading of the latter;

l) On the contrary, both the legislative authorization from which it derives and the preamble of the CIRE confirm the stability of the benefit in question;

m) The jurisprudence of the judicial and arbitral courts is unequivocal in considering that the exemption also encompasses the sales of isolated elements of the assets of the insolvent company, provided they are integrated within an insolvency plan, payment or recovery plan;

n) It will suffice to attend to the intentionality of the rule contained in Article 270, number 2, of the CIRE to conclude that the best interpretation of the provision is that which considers also exempt from IMT the isolated transfers of company assets integrated in an insolvency proceeding;

o) There will be no reason to exempt the isolated transfer of real property to creditors, as provided for in Article 270, number 1, paragraph c) of the CIRE, and not to exempt the same isolated transfer of real property to third parties or even to creditors, on a different basis than dation in performance;

p) Or to exempt the global transfer of assets but not the isolated one, since there is no difference between "situations in which the company is being sold globally with all of its assets and its liabilities, and situations in which one or more of the commercial establishments that made it up are being sold, or in which real property that made up its assets is being sold." (Award of the STA, of 11 November 2015, case number 0968/13);

q) On the other hand, even if admitting that Article 270, number 2, of the CIRE may give rise to ambiguous interpretations, it should be interpreted in the sense that best reconciles it with the regime that results from the CRP, or, in accordance with the legislative authorization law;

r) Thus, it is imperative that the exemption in question also apply to the sales and exchanges of elements of the assets of companies framed within an insolvency plan or payment plan, or carried out in the context of liquidation of the insolvent estate, in accordance with paragraph c) of number 3 of Article 9 of Law number 39/2003;

s) Finally, the Respondent argues that the mortgage, guarantee provided by the Claimant, does not fall under the concept of "bank guarantee or equivalent" referred to in Article 53 of the LGT;

t) Once again, the Claimant cannot agree with the argument of the Respondent, considering that, when seeking the meaning of "equivalent" within the scope of Article 53 of the LGT, one should attend, not to the formal characteristics of the bank guarantee, but to the functions of the bank guarantee in the tax proceedings and to the purpose of the normative provision in question;

u) Note that something is equivalent when it can substitute for another, producing the same effects or having equal virtues, for which reason all guarantees that suspend the execution proceedings should be equivalent to a bank guarantee, which includes the mortgage;

v) Article 53 of the LGT aims, simply, at reimbursement of the taxpayer who, in order to have the fiscal execution filed against it suspended, had to provide a guarantee and in doing so incurred expenses, it being incomprehensible that some expenses "are worth more than others" and that only some should be compensated;

w) In these terms, and having regard to all the facts and arguments presented throughout the proceedings, the Claimant reiterates the request for full acceptance of the Arbitration Request.

1. The respondent submitted Arguments, in which it reiterates, in essence, what it had already asserted in the Reply, to the effect that the exceptions raised by it are well-founded and consequent dismissal of the action, or, if that is not the Tribunal's view, judgment of the unfoundedness of the request for arbitral pronouncement.

II. Saneating Decision

Decision on the exceptions of error in the form of proceedings and of incompetence of the arbitral tribunal

1. The arguments of the respondent on the exceptions of error in the form of proceedings and incompetence of the arbitral tribunal have already been the subject of review and decision in various other arbitral proceedings.

2. This tribunal agrees with the reasoning used in the said proceedings as, for example, in case 649/2015-T, in which it was established that "The competence of the arbitral tribunals functioning in the CAAD is defined, in the first instance, by Article 2, number 1, of the RJAT, which establishes the following: 1 - The competence of the arbitral tribunals comprises the review of the following claims: a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account; b) The declaration of illegality of acts of determination of the taxable matter when not giving rise to the assessment of any tax, of acts of determination of the taxable income and of acts of determination of patrimonial values; Secondly, the competence of the arbitral tribunals functioning in the CAAD is limited by the binding of the Tax and Customs Authority which, pursuant to Article 4, number 1, of the RJAT, was defined by Order number 112-A/2011, of 12 March, which establishes the following, insofar as it is relevant here: The services and bodies referred to in the previous article bind themselves to the jurisdiction of the arbitral tribunals functioning in the CAAD that have as their object the review of claims relating to taxes whose administration is entrusted to them referred to in number 1 of Article 2 of Decree-Law number 10/2011, of 20 January, with the exception of the following: a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative channel in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process; b) Claims relating to acts of determination of the taxable income and acts of determination of the taxable matter, both by indirect methods, including the decision of the revision procedure; c) Claims relating to customs duties on importation and other indirect taxes that apply to goods subject to import duties; and d) Claims relating to the tariff classification, origin and customs value of goods and to tariff quotas, or whose resolution depends on laboratory analysis or on measures to be carried out by another Member State in the context of administrative cooperation in customs matters.

As can be seen, only in relation to customs matters is the definition of competencies made having regard to the type of taxes to which the claims relate. And as for these, the Tax and Customs Authority bound itself only as to the taxes administered by it. As for the rest, competence is defined only having regard to the type of acts that are the subject of the challenge, there being, in particular, no prohibition on the review of matters relating to tax exemptions or any other questions of legality relating to acts of the types referred to in Article 2 of the RJAT. An assessment of a tax that proceeds from the disregard of an exemption ceases not to be a tax act. And the review of the legality or illegality of such disregard therefore ceases not to be the review of a claim relating to the declaration of illegality of assessment acts.

In the case at hand, a tax assessment act for IMT is challenged, which falls within paragraph a) of number 1 of Article 2 of the RJAT, and whose review is not excluded by any of the rules of the aforementioned Order.

Thus, in the arbitration proceedings, any illegality can, as a rule, be imputed to assessment acts, as follows from Article 99 of the CPPT, subsidiarily applicable.

This will only not be the case in situations where the law provides for autonomous challengeability of administrative acts that are prerequisites of assessment acts, as can occur with acts recognizing tax exemptions, which, in the cases of non-automatic exemptions, assume the nature of severable acts, for purposes of contentious challenge. But, for there to be this limitation on the challengeability of the assessment act challenged, there would have to be an administrative act practiced previously that would be a prerequisite of the assessment act, which did not occur in the case at hand.

On the other hand, in this case, we are dealing with an exemption of automatic recognition, as follows from paragraph d) of number 8 of Article 10 of the CIMT, for which reason there did not have to be any autonomous act of recognition of the exemption, the Tax and Customs Authority being at the appropriate time to practice an assessment act having to review whether the interested party enjoys a tax benefit.

For this reason, the assessment act being prejudicial to the interests of the Claimant and being the sole act practiced by the tax administration regarding the situation, its challengeability in proceedings must be assured on the grounds of any illegality, as follows from the principle of effective judicial protection, enshrined in Articles 20, number 1, and 268, number 4, of the CRP.

On the other hand, the question of whether the assessment act is legal, when there is no severable act, is the question of whether there must be recognition of the exemption (by the Judicial Court or by the Tax and Customs Authority) – these are questions that have to do with the legality of the assessment, which should be reviewed in tax courts in proceedings for judicial challenge, as follows from paragraph a) of number 1 of Article 97 of the CPPT.

As regards the thesis defended by the Tax and Customs Authority that the Judicial Court where the insolvency proceedings took place would be exclusively competent, it is manifest that it has no legal basis whatsoever.

In truth, there is no special rule of insolvency proceedings that assigns competence to the judicial courts to recognize tax exemptions and the general regime of tax benefits contradicts that hypothesis unequivocally.

Indeed, the Statute of Tax Benefits (EBF) applies to all tax benefits (its Article 1). From Article 5 of the EBF it follows that tax benefits, when they are automatic, are not the subject of any autonomous act of recognition, for which reason it is at the appropriate time itself to decide whether an assessment act should be practiced that the Tax and Customs Authority places the question of verification of the occurrence or not of the prerequisites of the tax benefit. As regards tax benefits dependent on recognition, this is done through an administrative act, as follows from numbers 2 and 3 of the same Article 5, in harmony with Articles 54, number 1, paragraph d), of the LGT and 65 of the CPPT.

In the specific case of the exemption provided for in Article 270 of the CIRE, it is a tax benefit for which only the necessity of prior recognition by the Tax and Customs Authority is foreseen, when applied within the scope of a company restructuring and revitalization process, provided for in Decree-Law number 178/2012, of 3 August (...). In the other cases falling under Article 270 of the CIRE, not expressly providing for the necessity of prior recognition (neither in the CIRE, nor in the EBF, nor in Article 10 of the CIMT), it is a case of automatic recognition exemption, and its verification and declaration falls to the tax office where the declaration provided for in Article 19, number 1, of the CIMT is presented, as follows from the provisions of paragraph d) of number 8 of that Article 10.

On the other hand, since the right to tax benefits is a right in tax matters, the possibility of its direct recognition by the Courts is reserved to Tax Courts, through the action for recognition of a right or legitimate interest in tax matters, pursuant to Articles 212, number 3, of the CRP, 144, number 1, of the Law on Organization of the Judicial System (Law number 62/2013, of 26 August), 49, number 1, paragraph c), of the ETAF, 101, paragraph b) of the LGT and 97, number 1, paragraph h) and 145 of the CPPT, for which reason there is no legal support for asserting the exclusive competence of the Judicial Courts for recognition of the exemption at issue."

1. In these terms, the exceptions of error in the form of proceedings and of material incompetence raised by the Respondent Authority are unfounded.

2. The Parties have judicial personality and capacity, are legitimate as to the request for arbitral pronouncement and are properly represented, pursuant to the provisions of Articles 4 and 10 of the RJAT and Article 1 of Order number 112-A/2011, of 22 March.

3. No nullities are verified, for which reason it is imperative to review the merits.

III. Concerning the Facts

III.1. Proven Facts

1. B… was declared insolvent in the context of insolvency proceedings number …/12….T…, which took place before the Judicial Court of …, in a judgment dated 27 April 2012 (Doc. 2);

2. On 21 March 2014, in the context of liquidation of the insolvent estate, the Claimant acquired from the insolvent estate of B… the following real properties:

1- Urban real property located in … and …, …, designated by lot number … (land lot intended for construction), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of the said parish, inscribed in the respective register under article …, with the Patrimonial Tax Value ("VPT") of €111,440.00 (as per property schedule - Doc. 3);

2- Urban real property located in … and…, …, designated by lot number … (land lot intended for construction), parish of…, municipality of ..., described in the Property Registry Office of … under number … of the said parish, inscribed in the respective register under article …, with the VPT of €145,950.00 (as per property schedule - Doc. 4);

3- Urban real property located in … and …, …, designated by lot number … (land lot intended for construction), parish of…, municipality of ..., described in the Property Registry Office of … under number … of the said parish, inscribed in the respective register under article …, with the patrimonial value of €102,250.00 (as per property schedule - Doc. 5);

4- Urban real property located in … and …, …, designated by lot number … (land lot intended for construction), parish of…, municipality of ..., described in the Property Registry Office of … under number … of the said parish, inscribed in the respective register under article …, with the VPT of €95,050.00 (as per property schedule - Doc. 6); and

5- Urban real property located in … and …, …, designated by lot number … (land lot intended for construction), parish of…, municipality of ..., described in the Property Registry Office of … under number … of the said parish, inscribed in the respective register under article …, with the VPT of €113,900.00 (as per property schedule - Doc. 7);

1. The said acquisition was documented by public deed executed on … March 2014 (Doc. 8) and registered in the Property Registry Office of … in favor of the Claimant on 12 August 2015;

2. No IMT was assessed to the Claimant, due to the application of the tax benefit provided for in Article 270, number 2, of the CIRE, as results from the IMT Model Declaration 1 with registration number 2014/…, issued by the Tax Office of … (Doc. 9), and respective payment slip with number …, issued by the same Tax Office (Doc. 10);

3. The Respondent practiced the act of additional IMT assessment issued in Office number …, issued by the Tax Office of…, dated 5 November 2015, corresponding to €243,293.71, plus compensatory interest in the amount of €14,211.02, totaling €257,504.73 (Doc. 1);

4. The Claimant was cited, on 18 January 2016, of the institution of fiscal execution proceedings number ... 2016 …, intended for the compulsory collection of the amount corresponding to €257,504.73, resulting from the Additional Assessment, plus costs in the amount of €928.35 (doc. 11);

5. In order to suspend the fiscal execution proceedings referred to above, the Claimant directed a request for guarantee provision to the Tax Office of Lisbon –…, by means of a request dated 26 January 2016, by which it offered to constitute a mortgage on three real properties of which it is the owner, in favor of the Tax and Customs Authority (doc. 12).

6. On 28 April 2016, the Claimant constituted a unilateral mortgage on the real properties presented as guarantee in the context of the said fiscal execution proceedings;

7. In the context of such fiscal execution proceedings, the Claimant was notified of Office number…, of 3 May 2016, from the Tax Office of Lisbon –…, by which AT requested the constitution of a voluntary mortgage "in order to assess its suitability and sufficiency" (as per documentation attached to the request);

8. On 9 May 2016, the Claimant attached to the fiscal execution proceedings a copy of the deed of constitution of unilateral mortgage (as per documentation attached to the request).

III.2 Unproven Facts

1. With relevance for the decision, there are no essential unproven facts.

IV. Concerning the Law

IV.1. Subject Matter to be Decided

1. In the present proceeding, it is important to review the legality of the assessment act that did not apply the exemption provided for in Article 270 of the CIRE (Insolvency and Company Recovery Code, approved by Dec. Law no. 53/2004 and successive amendments) to the acquisition of real property by the Claimant in insolvency proceedings.

2. Another question to be decided by the Tribunal, in case of acceptance of the arbitration request, is the one which concerns whether the Claimant is entitled to compensation for provision of undue guarantee – the constitution of a mortgage on real properties of which it is the owner to suspend the fiscal execution.

IV.2. Reasoning

1. Article 270 of the Insolvency and Company Recovery Code, under the heading "Benefit relating to municipal tax on onerous real property transfers," provides the following:

"1 - The following transfers of real property, integrated in any insolvency, payment or recovery plan, are exempt from municipal tax on onerous transfers of real property:

a) Those intended for the constitution of a new company or companies and the realization of its capital;

b) Those intended for the realization of increase in capital of the debtor company;

c) Those resulting from dation in performance of company assets and cession of assets to creditors.

2 - Acts of sale, exchange or cession of the company or of establishments thereof integrated within an insolvency or payment plan or carried out in the context of liquidation of the insolvent estate are also exempt from municipal tax on onerous transfers of real property."

1. The literal element of Article 270, number 2 of the CIRE determines that the exemption from IMT is applicable whether to the sale, whether to the exchange, whether to the cession, with it being required only as to the latter that the transfer be of company or universality.

2. According to the preamble of Decree-Law number 53/04, of 18 March, which approved the CIRE, "the essential regimes existing in the CPEREF regarding exemption from fees and tax benefits, as well as incitement to criminal infraction, are maintained" (§49).

3. Pursuant to the statute that approved the CPEREF (DL no. 123/93, of 23 April), "in addition to quite favorable treatment of the two processes covered by the statute in the field of court costs, a set of incentives of a fiscal nature is also adopted in this decree-law, through which it is sought particularly to avoid undue penalties or serious inconveniences to the legal, economic or financial operations in which the recovery process can unfold."

4. Still according to this statute, "[s]ome charges of a fiscal or parafiscal character related to legal dealings that might constitute the means of recovery approved by creditors were thereby eliminated, having in particular in mind stamp tax, municipal contribution, municipal SISA tax and the fees themselves due for such acts."

5. Thus, it proves contrary to the end intended by the legislator – maintenance in essence of the regimes existing in the CPEREF regarding exemption from fees and tax benefits – the understanding that sales of elements of company assets would be excluded from IMT exemption, even if integrated within the scope of the insolvency plan or payment plan or carried out in the context of liquidation of the insolvent estate.

6. In the words of the Supreme Administrative Court, in an Award issued on 30 May 2012 (Case number 0949/11):

"This interpretation [followed by the Tax Authority in the present case] clashes, however - as well observed in the appealed judgment -, with what the legislator consigned in number 49 of the preamble of the CIRE as regards tax benefits, where it is stated that: 'the essential regimes existing in the CPEREF regarding exemption from fees and tax benefits are maintained,' it being certain that paragraph c) of number 2 of Article 121 of the CPEREF exempted from municipal SISA tax transfers of real property."

1. One also subscribes to the understanding expressed by the Supreme Administrative Court, in the Award of 17 December 2014 (Case number 01085/14), according to which:

"Taking into account the end that the legislator intends to achieve with the granting of such exemption – to foster and support the rapid sale of the goods that make up the insolvent estate for obvious reasons of interest of the creditors, but also of the public interest in the resumption of the normal functioning of the business world in which each insolvency process appears as a disturbing element, giving a 'bonus' to whoever acquires the real property that makes up the insolvent estate – they buy these goods at a lower price because they don't have to pay the IMT that would be due in the acquisition of similar real property outside the insolvency process – and that will be sold in the liquidation phase, the ambiguous text of number 2 of Article 270 can be the subject of a clearer and more unequivocal reading without resorting to any extensive interpretation. It suffices for us to ask ourselves whether to achieve the end defined above it makes any difference that the company is being sold globally with all of its assets and its liabilities, that one or more of the commercial establishments that made it up are being sold, that assets that made up its patrimony but were not used in its business operations are being sold – for example a real property received in payment of a debt of which the insolvent company was a creditor – for us to be dealing with a sale that is practiced in the context of liquidation of the insolvent estate? And, if in the same situations it is not sales but exchanges or cessions – it being understood that this word must have been used in an improper sense in that associated with the business world it usually refers to the cession of operation, cession of the commercial establishment, close to leasing and not alienation, and in the Insolvency and Company Recovery Code it is also shown to be used regarding the acquisition of assets by creditors? We believe that the answer cannot but be negative."

1. An interpretation of the provisions of Article 270, number 2 of the CIRE in accordance with the Constitution of the Portuguese Republic points in the same direction.

2. Indeed, as is affirmed in the Award of the Supreme Administrative Court, of 30 May 2012 (Case number 0949/11):

"Number 2 of Article 270 of the CIRE, whose wording is not clear as regards the scope of the IMT exemption contained therein, should be interpreted in accordance with paragraph c) of number 3 of Article 9 of Law number 39/2003, of 22 August, since between two senses of the law, both with at least minimal support in its letter, the interpreter must opt for the one that reconciles it with the constitutional text (interpretation in accordance with the constitution) [thus] it should be understood that not only sales of the company or establishments thereof, as universalities of assets, are exempt from IMT, but also sales of elements of its assets, provided they are integrated within the scope of the insolvency plan or of payments carried out in the context of liquidation of the insolvent estate."

1. In the same sense, the Supreme Administrative Court further pronounced itself in the Award of 3 July 2013 (Case number 0765/13) in which it was decided that:

"Number 2 of Article 270 of the CIRE, whose wording is not clear as regards the scope of the IMT exemption contained therein, may, at most, be interpreted as covering not only sales of the company or establishments thereof, as a universality of assets, but also sales of elements of its assets, provided they are integrated within an insolvency plan or of payments or carried out in the context of liquidation of the insolvent estate."

1. It is thus concluded by the well-foundedness of the request for annulment of the tax assessment act challenged, with all legal consequences.

2. As for the request for compensation for provision of undue guarantee, the Claimant is also right.

3. Article 53/1 of the General Tax Law (LGT) provides that "the debtor who, in order to suspend execution, offers a bank guarantee or equivalent shall be compensated in whole or in part for the damages resulting from its provision, if it has maintained it for a period exceeding three years in proportion to the amount due in administrative review, challenge or opposition to execution that have as their subject the debt guaranteed."

4. The rule contained in Article 53/1 of the LGT is a concretization of the general principle of responsibility of the State and other public entities provided for in Article 22 of the Constitution of the Portuguese Republic, which provides the following:

"The State and other public entities are civilly liable, jointly and severally with the holders of their organs, officials or agents, for actions or omissions practiced in the exercise of their functions and because of that exercise, of which results violation of rights, freedoms and guarantees or damage to others."

1. Thus, the rule of Article 53/1 of the LGT should be interpreted in accordance with the constitutional principle of responsibility of the State and other public entities.

2. In this sense, the expression "bank guarantee or equivalent" contained in Article 53/1 of the LGT should be interpreted as a bank guarantee or other guarantee that involves costs for the debtor.

3. It is, moreover, this sense that is extracted from the award of the STA of 21 January 2015, case number 0632/14, when it is stated therein that "[t]he objective of the rule provided for in art. 53 of the LGT is to compensate the taxpayer for damages that it had with the provision of a guarantee that it would not have had to provide if the Administration had not acted illegally."

4. The sense of the rule is that the debtor be compensated for the costs incurred with the provision of undue guarantee for suspension of execution.

5. In the case sub judice, the Claimant constituted a mortgage on three real properties of which it is the owner, in order to suspend the fiscal execution, which constitutes a guarantee equivalent to a bank guarantee, which resulted from an illegal assessment act practiced by the Respondent, for which the request for compensation for undue guarantee provision is well-founded, in the amount of €2,612.85, plus any other costs that may have been incurred with the guarantee provided, to be determined in the execution of the present award.

V. Decision

Therefore, this Arbitral Tribunal decides:

a) To judge the arbitration request for annulment of the tax assessment act challenged to be well-founded, with all legal consequences;

b) To judge the request for compensation for undue guarantee provision to be well-founded, in the amount of €2,612.85, plus any other costs that may have been incurred with the guarantee provided, to be determined in the execution of the present award.

VI. Value of the Proceeding

In accordance with the provisions of Article 306, number 2, of the CPC, 97-A, number 1, paragraph a) of the CPPT and 3, number 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €257,504.73.

Notify.

Lisbon, 28 October 2016

The Arbitrators

(José Poças Falcão)

(Paulo Nogueira da Costa)

(Joaquim Silvério Mateus)
(voted against as to the decision to judge the request for annulment of the assessment acts well-founded, in accordance with the statement below)

Dissenting Opinion

In the present proceedings, the interpretation of Article 270, number 2, of the Insolvency and Company Recovery Code (CIRE) is at issue, according to which there are exempt from IMT "acts of sale, exchange or cession of the company or of establishments thereof integrated within insolvency plans, payment or recovery plans or carried out in the context of liquidation of the insolvent estate."

According to the Claimant, the rule in question should not be read as it is written, that is, that the IMT exemption covers only "acts of sale, exchange or cession of the company or establishment thereof (...) in the context of insolvency proceedings," but, more than that, it should be read to the effect of also covering "acts of sale, acts of exchange and acts of cession of real property performed in isolation, separately from the remaining assets of a company or one of its establishments, in the context of insolvency proceedings."

As is evident from the simple comparison of wordings, it is necessary to rewrite and broaden the content of the rule in question for there to fit therein "acts of sale, acts of exchange and acts of cession of real property performed in isolation, separately from the remaining assets of a company or one of its establishments (...)."

Some learned arbitral and jurisprudential decisions find another formula to support the broadening of the content of the rule at issue to the isolated sale of real property, namely that of considering that the expressions "sale" and "exchange" refer to all types of sales and all types of exchanges and that only in the case of "cession" would there be the limitation of covering only the company or an establishment thereof.

Save with all due respect and as will be developed below, one is once again faced with an interpretation that rewrites the rule in question without the slightest attention to grammatical rules – citing a learned award of the STA, the terms to sell, to exchange and to cede are all transitive verbs, and, being so, the reference to the company or establishments thereof appears as the direct object of said verbs – and without any connection with the terminology used in the rules of objective incidence of the CIMT.

Thus, save with all due respect for the opinion of the Claimant and of my illustrious colleagues on this tribunal, I consider that the request for arbitral pronouncement should have been judged to be unfounded, since it seeks to extract from the letter and sense of the rule a result that the same does not entail and, as has been peacefully understood throughout the decades, in the matter of the essential elements of the tax, constitutional principles and the tax law itself prevent the integration of gaps by analogy.

It is not disregarded that this proceeding was preceded by some arbitral decisions and by awards of the STA which, in similar situations, decided in a different sense from that which is here advocated by the undersigned.

Nevertheless, and once again with all respect for all such learned decisions, the undersigned disagrees and maintains the position that had occasion to express in arbitration proceedings number 200/2015-T, from which are transcribed some passages. Thus,

Article 10 of the Statute of Tax Benefits provides that "rules establishing tax benefits are not susceptible to analogical integration, but admit extensive interpretation."

This legal provision, in line with Article 11 of the General Tax Law, confirms the position that is today peaceful in the law itself, in doctrine and in jurisprudence that in the interpretation of tax rules the general rules and principles of interpretation must be observed, with legal basis in Article 9 of the Civil Code, without prejudice to the prohibition of analogy when rules attaining the essential elements of the tax are at issue.

One of the first general rules of interpretation concerns the literality of the rule being interpreted, according to which the interpreter cannot consider a legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

Subsequently, in the reasoning used in the said arbitration proceedings, the literal expressions of the rules of objective incidence of the CIMT are invoked, in light of which the said number 2 of Article 270 should be interpreted, observing that "one of the general rules of incidence of the CIMT is that, where there is effective, material transfer of a real property, in the sense that the same is transferred between two legally autonomous patrimonies, by means of the payment of a price, it ceases to be as relevant the denomination that may be attributed to the operation or to the translative title used, it being possible for it to occur within the scope of a purchase and sale contract formalized in accordance with civil law, through a promise contract with delivery of the goods, through an irrevocable power of attorney, through a cession of contractual position, through an exchange, through dation in performance, through a corporate division or merger operation, through the acquisition of shareholdings or quotas of certain companies holding real property when some shareholder comes to have 75% of the capital stock, through the cession of shareholdings or quotas of civil companies insofar as there are partners acquiring joint ownership of real property, among other transfers provided for in the rules of incidence of that Code (see Articles 1 to 3 of the CIMT).

Often, both doctrinal language and jurisprudence and even individual rules, particularly those that typify tax benefits, reflect this variety of real or fictitious transfers, using indistinctly, and sometimes even with some redundancy and lack of rigor, various denominations such as, for example, sale, alienation, purchase and sale, exchange, cession, all expressions which aim to capture the various types of fiscal transfer subject to IMT. This is what happens in the rule being analyzed, which uses the expressions 'sale,' 'exchange' and 'cession' without making any distinction between each of them, without framing them or referencing the situations of incidence of the CIMT and also without exhausting the various translative forms provided for in the Code that can operate transfers subject to this tax, reasons which, among others, may have led the above-cited awards to make references to the lack of clarity, the lack of rigor and the ambiguity with which the rule in question is drafted.

One might even say that the legislator of the CIRE, uncertain as to the best expression it should use to typify the realities it intended to cover by the exemption of the said number 2 of Article 270, instead of using one used three expressions hoping that in this way it would run no risk of missing the intended effect.

To conclude the analysis of this literal component of the rule at issue, we cannot fail to follow one of the findings of the award of 30-05-2012 (ACD STA rendered in case 00949/11), which admits as grammatically more correct the position sustained by the tax administration, since the terms to sell, to exchange and to cede are all transitive verbs, and, being so, the reference to the company or establishments thereof appears as the direct object of said verbs.

But, to attain the true sense and scope of a rule, other interpretive elements must be considered, such as the rational or logical element, the systematic element and the historical element (see Manuel de Andrade, in Essay on the Theory of Interpretation of Laws, 8th Edition, Arménio Amado-Editor, Coimbra 1978).

In terms of the rational element, it must be considered that every rule whatsoever was created with a certain purpose and that, consequently, it must be understood in the sense that best responds to the result that was intended to be achieved.

According to the award of 17-12-2014, number 2 of Article 270 of the CIRE should be seen as a freeing up and support for the rapid sale of the goods that make up the insolvent estate "for obvious reasons of interest of the creditors but also of the public interest in the resumption of the normal functioning of the business world in which each insolvency process appears as a disturbing element."

One does not disagree that such purpose may be attributed to the rule at issue, the truth being that this purpose ceases not to be present if it is considered that the same covers only the transfer of the company as a whole or the transfer of a certain establishment thereof.

One can say, it is true, that the more encompassing the benefit were, that is, if instead of covering only the transfer of the company or an establishment thereof it also applied to the transfer of isolated real property assets of the insolvent company, the incentive would be greater.

That is true. However, the interpretation concerning what is or is not covered cannot be made as a function of maximums or minimums, as a function of the degree of support or incentive that it can confer on the protection of creditors or of the business world.

That degree only the law itself could determine, not the interpreter, and in the case at hand nothing permits to conclude that the tax benefit should apply to every transfer of assets of the insolvent company or even that the legislator or the law itself wanted that result.

As for the systematic element, the confrontation of number 2 of Article 270 with other provisions of the CIRE concerning tax benefits can also help to perceive the sense and scope of this rule.

In this respect, what we see is that in Articles 268, 269 and number 1 of Article 270, tax benefits are provided for in the fields of taxation of income, stamp tax and tax on onerous transfers of real property, and it can be verified that, as regards the transfer of real property, there are two operations common to all these rules and which are "dation in performance of assets" and "cession of assets to creditors" (see number 1 of Article 268, paragraph d) of Article 269, and paragraph e) of number 1 of Article 270).

Still in the field of operations that can involve real property, paragraph e) of Article 269 provides for the exemption of stamp tax for "the sale, exchange or cession of elements of the company's assets" and paragraphs a) and b) of number 1 of Article 270 provide for the exemption of IMT for transfers related to the constitution of new companies and the realization of its capital stock and also transfers aimed at the increase in capital stock of the debtor company.

It is thus verified that these situations covered by tax benefits are clearly formulated and properly delimited for certain types of operations and that, in the case of paragraph e) of Article 269, in the field of stamp tax, the rule is well clear and express in covering "the sale, exchange or cession of elements of the company's assets," without any doubt, on the grammatical plane, that the verbs to sell, to exchange and to cede have as direct object only and exclusively the elements of the company's assets.

That is, faced with the clarity of the wording of this provision, it would make no sense whatsoever, whatever interpretive element that might be invoked, that the expressions "sale" and "exchange," as well as "cession," did not refer to "elements of the company's assets."

Thus, standing before the same grammatical construction as to the verbs used, it is verified that there is no coincidence between the object used in the rule concerning stamp tax, which are elements of the company's assets, and the object contained in number 2 of Article 270 concerning IMT, in which only acts of "sale," "exchange" and "cession" are provided for, not of any assets of a company, but rather of the company itself or of any of its establishments.

What permits the conclusion that, differently from other rules in which the end pursued with tax benefits was different, the legislator privileged here the alienation of the set of assets of the insolvent company or of any of its establishments with a view to protecting its continuation and its operation under other ownership.

The historical element can also be present with the analysis of the evolution of the rules that preceded the current version of the rule in question.

And, in this respect, what is verified is that the CIRE was approved pursuant to the Law of legislative authorization number 39/2003, of 22 August, which authorized the Government to "exempt from municipal SISA tax (antecedent of IMT) the sale, exchange or cession of the company, establishment or elements of its assets," the same having used partially such authorization upon exempting only the sale, exchange or cession of the company and its establishments, excluding the sale, exchange or cession of its assets as such.

Now, upon using only partially the said legislative authorization, the Government could be accused, as was consigned in the award of 30/05/2012 and as the requesters invoked in their reasoning, of not having "respected the sense and extent of the legislative authorization that was granted to it, having legislated on a matter reserved for the Assembly of the Republic in disrespect of the parliamentary credential that was granted to it."

We will not enter into the review of this argument, which could make some sense only when the award of 30/05/2012 was rendered, but which, after the publication of Article 234 of Law number 66-B/2012, of 31/12, ceased to have any relevance whatsoever since the Assembly of the Republic itself, upon maintaining, in this part, the wording of number 2 of Article 270 that the Government had previously given it, cured, at least for the future, any defect and any objection that could be imputed to the initial publication of the rule in question.

Being so, if there is any conclusion to be drawn from the historical evolution of the wording of number 2 of Article 270 of the CIRE, it is that, at least after Law 66-B/2012, the act of isolated alienation of real property assets of an insolvent company does not benefit from the IMT exemption provided for in the said legal provision, it being obvious that this type of acts was not embraced in the version in force at the time when the transfer which gave rise to the assessments challenged occurred."

More recently, arbitration proceeding number 649/2015-T decided in the same sense as the proceeding just cited, emphasizing, as regards the objectives of the CIRE, that "although the concern with the recovery of companies is maintained, emphasis is now placed on the need to satisfy the credits of those involved in the activity, stressing that the public interest in the viability of insolvent companies should be the subject of decision by the same creditors, and that despite the CIRE having emphasized the interest of creditors in seeing their credits satisfied, nothing seems to indicate that it was intended to broaden the scope of the exemption, in 'other situations' provided for in number 2 of art. 270 (and different from those provided for in number 1 of art. 270, relating to transfer to the creditors themselves), in which company assets will be sold to third parties, giving them the possibility of obtaining additional advantages by finding situations of company collapse, taking advantage of remains, and without this meaning the maintenance of business activity (neither of the debtor nor of the creditor)."

These, then, are the reasons which, in my understanding, would justify a different decision.

The arbitrator,

(Joaquim Silvério Mateus)