Process: 132/2016-T

Date: October 28, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 132/2016-T examines whether IMT exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) applies exclusively to property transfers within a business universality or extends to isolated real estate sales during insolvency proceedings. The Tax Authority issued additional IMT assessments totaling €673,313.03 against A…, S.A. for properties acquired in insolvency proceedings, based on Circular 10/2015 interpreting that exemption requires property to form part of a universality (company or establishment). The Claimant challenges this restrictive interpretation through multiple legal arguments: literal interpretation of Article 270(2) CIRE supports exemption for isolated transfers; historical continuity with CPEREF Article 121(2) which exempted individual asset transfers; legislative authorization under Law 39/2003 contemplated broad exemption scope; teleological interpretation favoring economic incentives for insolvency asset sales to protect creditor and public interests. Critically, the Claimant raises constitutional concerns, arguing that restricting exemption scope beyond the legislative authorization would violate organic constitutionality under Articles 165(1)(i) and 103(2) of the Portuguese Constitution, which reserve tax benefit creation exclusively to the Assembly of the Republic. The arbitral tribunal must reconcile statutory interpretation with constitutional principles, determining whether administrative circulars can validly narrow legislatively-authorized tax exemptions in insolvency contexts, with significant implications for insolvency proceedings, creditor recovery, and market liquidity of distressed assets throughout Portugal.

Full Decision

ENGLISH TRANSLATION

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

I. Report

  1. A…, S.A., legal entity no.…, with registered office at Avenida…, no.…, …-… Lisbon, within the jurisdiction of the Tax Service of Lisbon –… (the "Claimant"), came, pursuant to the provisions of Article 2, no. 1, subsection a); Article 6, no. 2, subsection b) and Article 10, no. 1, subsection a) of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration ("RJAMT") and of Articles 1 and 2 of Ministerial Order no. 112-A/2011, of 22 March, to request the constitution of an arbitral tribunal and to present a request for arbitral decision;

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

  3. The Claimant seeks the annulment of the acts of additional assessment of IMT issued in Official Letter no.…, of 5 November 2015, and in Official Letter no.…, of 5 November 2015, both from the Tax Service of…, to which correspond, respectively, the amount of tax of € 576,466.98, plus € 33,671.99 in compensatory interest, and the amount of tax of € 59,687.64, plus € 3,486.42 in compensatory interest, totaling the global amount of € 673,313.03.

  4. In the Arbitration Request submitted by it, the Claimant invoked, in summary, the following:

a) The present request for arbitral decision concerns the Additional Assessments of IMT carried out by AT with reference to the acquisition of certain properties in the context of the insolvency proceedings of B… and C…, namely the question of whether or not they have legal merit;

b) AT considers that the acquisition of Properties B… and Properties C… did not meet the essential requirements for the application of the IMT exemption provided for in Article 270, no. 2, CIRE since, assuming that the understanding expressed in Circular no. 10/2015 constitutes the substantive reason sustaining its position, this exemption is only applicable when the real property sold, exchanged or transferred in the context of insolvency proceedings comprises a universality, whether it be the company itself or an establishment thereof;

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

d) Article 270, no. 2, of CIRE, when correctly interpreted, does not permit any understanding other than that exempted from taxation under IMT are not only transfers integrated into a universality but also acts of sale, acts of exchange and acts of transfer of real properties carried out in isolation, separately from the remaining assets of a company or an establishment thereof, in the context of insolvency proceedings;

e) This understanding is the one that best harmonizes not only with the literal element of the norm, but also with the historical element of the interpretation of the provision in question;

f) The CPEREF itself, in its Article 121, no. 2, already provided for an exemption from the then municipal tax SISA for transfers of real property integrated into any of the company recovery measures and arising, among others, from the sale, exchange or transfer of elements of the assets of that same company;

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

h) It being the confessed intention of the very legislator of CIRE to maintain this orientation also within the scope of CIRE, as can be read in paragraph no. 49 of the preamble of the Decree-Law that approved CIRE which states "[t]he existing regimes in CPEREF regarding the exemption of fees and tax benefits are maintained in essence, (…)";

i) Furthermore, the very legislative authorization granted by Law no. 39/2003, of 22 August, authorized the Government to exempt from taxation under SISA (currently, IMT), among others, transfers of real property that were integrated into any insolvency or payment plan or carried out within the framework of the liquidation of the insolvent estate arising from the sale, exchange or transfer of the company, establishments or elements of its assets;

j) The rationale of the exemption provided for in Article 270, no. 2 of CIRE is to create economic incentives that make goods/assets sold in insolvency proceedings more attractive without, however, compromising their market value, thereby protecting not only the interests of creditors but also the public interest;

k) In this respect, no grounds are envisaged for exempting from IMT the transfer of a real property in the context of insolvency proceedings when it is integrated into 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 permits a different interpretation from that which the Claimant has been defending, any such interpretation would still be unconstitutional;

m) To interpret the provision contained in Article 270, no. 2, of CIRE to mean that only exempted are transfers of real property that occur in the context of insolvency proceedings when they are integrated into a universality is to assume that the legislator of CIRE deliberately wished to restrict the scope of application of the exemption provided for in Article 9, no. 3, of Law no. 39/2003, 22 August;

n) Now, if Article 165, no. 1, subsection i) and Article 103, no. 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 an understanding would result in the organic unconstitutionality of the provision in question;

o) Even if it were admitted that the legal text permits both interpretations, the one that best harmonizes the legal text with the text of the CRP should always be given priority, for which reason the Additional Assessment should be annulled, as petitioned;

p) Accordingly, the arbitral request should be granted, and consequently:

i) The additional assessment of IMT issued in Official Letter no.…, issued by the Tax Service of…, dated 5 November 2015, corresponding to the tax payable in the amount of € 576,466.98, plus € 33,671.99 as compensatory interest, should be annulled; and

ii) The additional assessment of IMT issued in Official Letter no.…, issued by the Tax Service of…, dated 5 November 2015, corresponding to the tax payable in the amount of € 59,687.64, plus € 3,486.42 as compensatory interest, should be annulled.

  1. In the exercise of the option of appointing an arbitrator provided for in subsection b) of no. 2 of Article 6 of RJAT and in compliance with the provisions of subsection g) of no. 2 of Article 10 and in no. 2 of Article 11, also of 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 His Excellency the President of CAAD and automatically notified to the Tax and Customs Authority on 18/03/2016.

  3. Pursuant to the provisions of subsection b) of no. 2 of Article 6 and of no. 3 of Article 11 of RJAT, as worded by Article 228 of Law no. 66-B/2012, of 31 December, and within the period provided for in no. 1 of Article 13 of 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 nos. 5 and 6 of Article 11 of RJAT, the President of 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 appointed by the Parties to appoint the third arbitrator who assumes the position of Presiding Arbitrator.

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

  6. Pursuant to and for the purposes of the provisions of no. 7 of Article 11 of RJAT, the President of CAAD informed the Parties of this appointment on 17/05/2016.

  7. By email dated 27/05/2016, the Claimant submitted a request for compensation for provision of inappropriate guarantee and attached supervenient documentation with respect to the request for constitution of the arbitral tribunal, and alleged, in summary, that: in order to suspend the tax enforcement process instituted against it, it constituted a mortgage on three real properties of which it is the owner, in favor of AT, the provision of which guarantee involved costs which at the time of submission of this request amounted to € 6,333.36, to which other costs may be added in the future, for which reason, pursuant to the provisions of Article 53 of LGT, it is entitled to be reimbursed for the damages caused by the provision of inappropriate guarantee (as per documentation attached to the request).

  8. In compliance with the provisions of no. 7 of Article 11 of RJAT, as worded by Article 228 of Law no. 66-B/2012, of 31 December, after the period provided for in no. 1 of Article 13 of RJAT, the collective arbitral tribunal was constituted on 02/06/2016.

  9. AT submitted a response, in which it raised the exceptions of partial expiration of the right of action as to the request for compensation for improper provision of guarantee, of impropriety of the procedural means employed and of incompetence of the Collective Arbitral Tribunal ratione materiae, and, guardedly and without conceding, challenged the grounds of the request for arbitral decision.

  10. AT alleges, in essence, the following:

A – Exception of partial expiration of the right of action as to the request for compensation for improper provision of guarantee

a) Just as the Claimant itself recognizes in Article 7 of its petition, the request for arbitral decision would have to be presented, at the very least, by 2016-03-07;

b) The Claimant presented the request for arbitral decision before the expiration of the legal period for such purpose, sustaining for that purpose 4 (four) questions: i) the lack of substantiation of the tax acts; ii) the invalidity of Circular 10/2015 of the Respondent; iii) the illegality of the identified assessment of IMT for violation of Article 270/2 of CIRE; iv) the unconstitutionality of Article 270/2 of CIRE;

c) Subsequently, by email sent on 2016-05-27, the Claimant came to request the condemnation of the Respondent to pay compensation for improper provision of guarantee, calculating it, meanwhile, in the amount of € 6,333.36;

d) This latter request was made well beyond the legal period for such purpose, that is, 2016-03-07;

e) It is true that the Claimant alleges in Article 9 of its request sent on 2016-05-27 that the attachment of documents is due to their supervening nature;

f) However, the Claimant confuses the attachment of supervenient documents with the timely filing of a request;

g) The request for condemnation of the Respondent to payment of compensation for improper provision of guarantee necessarily had to be made within the legal period for submission of the request for arbitral decision, under penalty of expiration of the right of action as to the former;

h) A different, and secondary, question is the attachment of supervenient documents pertaining to that request for condemnation of the Respondent to payment of compensation;

i) Necessarily it must be considered untimely the request for condemnation of the Respondent to payment of compensation, under penalty of fraud of the law, since 'tempus regit actum', and it being forbidden for the Claimant the possibility of now having that question reviewed, it follows that the partial acquittal of the request made by it in its request sent on 2016-05-27 is imposed;

j) The expiration of the right of action relative to the request for condemnation of the Respondent to payment of compensation constitutes a peremptory exception, pursuant to Article 577, no. 2 of the Code of Civil Procedure ("CPC"), applicable ex vi of Article 29, no. 1-e) of RJAT, which gives rise to the acquittal of the Respondent of the request, pursuant to Article 576, no. 3 of CPC;

B - Exception of impropriety of the procedural means employed

k) The thema decidendum concerns the granting of a tax benefit provided for in Article 270/2 of CIRE;

l) Fundamentally the Claimant intends for the Collective Arbitral Tribunal to render a decision in the sense of recognition of the IMT exemption;

m) In light of this intention it is the Administrative Action that constitutes the appropriate procedural means to carry out the review of the matter (because that constitutes the means of redress intended to review tax acts – Article 97/2 of CPPT), and not the request for arbitral decision (because that constitutes one of the means of redress intended to review tax acts – Article 2/1 of RJAT);

n) This means, therefore, that the Claimant intends to graft an Administrative Action onto the present request for arbitral decision;

o) However, such is not legally possible, so the Collective Arbitral Tribunal should refrain from knowing of the request, since the procedural means used by the Claimant does not permit the review of that matter.

p) The impropriety of the procedural means constitutes a dilatory exception that prevents the continuation of the proceedings, leading to the acquittal from the instance as to 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, no. 1-e) of RJAT;

C - Exception of incompetence of the Collective Arbitral Tribunal ratione materiae

q) In light of Article 2/1 of RJAT, it results clearly that outside the jurisdiction of tax arbitration is the review of any questions pertaining to the recognition of tax exemptions, under penalty of violation of the law;

r) The question of recognition of tax exemptions is a matter reserved to the jurisdiction of administrative and tax courts;

s) The material incompetence of the Collective Arbitral Tribunal for the review of the tax exemption question constitutes a dilatory exception that prevents the continuation of the proceedings, leading to the acquittal from the instance as to the claim in question, in accordance with the provisions of Article 576, nos. 1 and 2 and Article 577-a) of CPC, applicable ex vi of Article 29, no. 1-e) of RJAT;

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

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

v) Only the judge holding the insolvency proceedings is in conditions to verify the legal requirements demanded in Article 270/2 of CIRE;

w) Indeed, in full 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 provision, verification which is exclusively done by the judge holding the judicial proceedings (executive, bankruptcy or insolvency);

x) Because only the insolvency case files (which the judicial magistrate directs and knows) contain the elements necessary to assess that verification;

y) Such verification is done by means of a judicial order or of a sentence homologating the transaction, and it will be one of these two documents that will constitute the document that will serve as the basis for recognition of the exemption here in question when the taxpayer files the Model 1 Declaration, with the competent tax service of the Respondent;

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

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

bb) This means that, whether in light of Article 270/2 of CIRE or by force of the elements (not) brought forward in the request for arbitral decision, it results clearly that outside the sphere of the Collective Arbitral Tribunal is the review of any questions pertaining to the recognition of a tax exemption related to the transfer of real property integrated into insolvency proceedings;

cc) The material incompetence of the Collective Arbitral Tribunal for the review of the tax exemption question constitutes a dilatory exception that prevents the continuation of the proceedings, leading to the acquittal from the instance as to the claim in question, in accordance with the provisions of Article 576, nos. 1 and 2 and Article 577-a) of CPC, applicable ex vi of Article 29, no. 1-e) of RJAT.

D - Defense by challenge on the merits

dd) The Claimant alleges that the tax acts placed in issue suffer from the defect of lack of substantiation, but without concretizing it minimally;

ee) Substantiation is a relative concept, which varies according to the legal type of administrative act in question, with it being necessary to understand the legal requirement in capable terms, given the functionality of the institute and the essential objectives to be pursued;

ff) If a situation of lack or insufficiency of substantiation were to occur – 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 CPPT;

gg) Not having the Claimant used that faculty conferred by the law, it necessarily follows that the act sub judice contained, and contains, all the elements necessary for its full understanding and that the alleged defect from which it suffered has been remedied;

hh) It is not possible to affirm that a certain act is unsubstantiated 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;

ii) In the present case, the substantiation is sufficiently clear and unequivocal, especially since the Claimant through the present request for arbitral decision and in light of the arguments explained throughout its pleading demonstrates having fully understood the factual and legal framework upon which the Respondent's decision was based, as it attempts to rebut, point by point, all of its action;

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

kk) Since, even so, such deficiencies permit the full clarification of its recipient, making it possible for it to challenge them, as, indeed, the Claimant did through the present request for arbitral decision, it will always appear justified the application to the present case of the principle of beneficial treatment of administrative acts;

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

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

nn) The iuris constans interpretation of Circular 10/2015 is in conformity with the letter of the law, in that it does no more than undertake the discovery of its more precise meaning, in respect, moreover, of the general theory of interpretation of the law and the normative framework that conforms it;

oo) Although Circular 10/2015 is an official interpretation of legal norms, binding on the services and officials of the Respondent, the latter never intended for it to alter, adulterate or violate the legal rules from which it originated;

pp) The Claimant makes an interpretation and application of the legal norms subsumible to the sub judice case notoriously erroneous;

qq) Prior to the emergence of CIRE, the tax benefit here in question in bankruptcy matters appeared in Article 121 of the Code of Special Proceedings for Company Recovery and Bankruptcy ("CPEREF", approved by Decree-Law 132/93, of 23 April);

rr) In accordance with Article 1 of that CPEREF article, exempted from the then Municipal Sisa Tax were transfers of real property integrated into the constitution of the company, and intended for the realization of its capital or for the realization of the increase in the company's capital;

ss) Whereas Article 2 of that same CPEREF article granted the exemption to transfers of real property integrated into any of the company recovery measures, which arose:

"a) From the transfer to third parties or the sale of share participations representing the capital of the company, provided for in subsections b) and c) of no. 2 of Article 88 and in Article 91, as well as in nos. 1 and 2 of Article 100;

b) From the payment in kind of company assets and transfer of assets to creditors, provided for in subsections d) and e) of no. 1 of Article 88 and in Article 93, as well as in no. 1 of Article 100;

c) From the legal autonomization of commercial or industrial establishments, the sale, exchange or transfer of elements of the company's assets, as well as long-term leases, provided for, respectively, in subsections e), f) and g) of no. 1 of Article 101";

tt) With the Reform of Taxation of Property that occurred in 2003, that CPEREF exemption came to refer to the IMT (see Article 28/2 of Decree-Law 287/2003, of 12 November);

uu) Subsequently, with the replacement in 2004 of CPEREF by the resulting CIRE (approved by Decree-Law 53/2004, of 18 March), Article 270 of the latter legal body came to provide the following:

"1 - The following transfers of real property integrated into any insolvency or payment plan are exempted from the 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 the increase in the capital of the debtor company;

c) Those arising from the payment in kind of company assets and transfer of assets to creditors.

2 - Acts of sale, exchange or transfer of the company or of establishments thereof integrated within an insolvency or payment plan or carried out within the framework of the liquidation of the insolvent estate are equally exempted from the municipal tax on onerous transfers of real property.";

vv) More recently, Law no. 66-B/2012, of 31 December, introduced, among others, a slight modification to Article 270/2-c) of CIRE, which came to provide that:

"Acts of sale, exchange or transfer of the company or of establishments thereof integrated within insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate are equally exempted from the municipal tax on onerous transfers of real property.";

ww) In the sub judice case, the confrontation assumes relevance between the letter of Article 121 of CPEREF and what is established in the letter of Article 270/2 of CIRE;

xx) Confronting the tenor of those two norms, two conclusions are drawn: i) the IMT exemption resulting from payment in kind and transfer of assets to creditors that appeared in Article 121-b) of CPEREF passed in the same manner to Article 270/1-c) of CIRE; ii) the same did not happen with respect to acts of sale, exchange or transfer, because the legislator did not merely limit itself to a task of reordering [as it did with respect to Article 270/1-c) of CIRE], but rather to a substantive change;

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

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

aaa) In light of the few elements brought forward to 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 necessarily follows that it is not in conditions to benefit from the tax exemption established in Article 270/2 of CIMT, there being nothing therefore to point out to the assessment placed in issue;

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

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

ddd) However, that unconstitutionality only results from two routes: i) when the authorized decree-law exceeds the limits of the legislative authorization, which happens when the Government legislates on a matter different from or beyond what was authorized; ii) when the authorized decree-law legislates in disrespect of the meaning and extent of the authorization, which happens when the Government legislates in a sense divergent from what was authorized;

eee) By way of Article 9/3 of Law 39/2003, the Government was "authorized to exempt from the municipal tax on sisa the following transfers of real property integrated into any insolvency or payment plan or carried out within the framework of the liquidation of the insolvent estate: (…) Those arising from the transfer to third parties or the sale of share participations representing the capital of the company, payment in kind of company assets and transfer of assets to creditors, sale, exchange or transfer of the company, establishments or elements of its assets, as well as long-term leases";

fff) In providing in Article 270/2 of CIRE that "Acts of sale, exchange or transfer of the company or of establishments thereof integrated within insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate are equally exempted from the municipal tax on onerous transfers of real property" the Government did not legislate in a sense divergent from what was authorized;

ggg) The Government respected the meaning conferred on it (i.e., the grant of tax benefits within the scope of the insolvency process), but in an extent inferior to that which was assigned to it by the ordinary legislator, that is, the Government fell short of what it was legally authorized to do;

hhh) When that is the case, no unconstitutionality ensues, because no limit was exceeded, so the invoked unconstitutionality must necessarily fail;

iii) As a consequence of the alleged error attributable to the services, the Claimant formulates a request for compensation for guarantee improperly provided (in the form of the constitution of a mortgage on three properties of which it is the owner), calculating, for now, a loss of € 2,612.875 as notarial fees and corresponding Stamp Tax;

jjj) However, the mortgage does not subsume into the concept of "bank guarantee or equivalent", so the payment of the compensation requested by the Claimant must fail.

kkk) Thus, if the exceptions invoked are not judged to be well-founded, the present request for arbitral decision should be judged to be without merit, with the tax act of assessment placed in issue remaining in the legal order and the Respondent being acquitted accordingly of the request.

  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 RJAT and fixing the simultaneous period of 20 days for submission of final arguments, written, on 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 force of Article 29-1/c) of RJAT.

  2. The Respondent submitted, on 13/07/2016, a request asking for an order to be issued for the submission of final arguments in successive manner, invoking the principles of the right to be heard 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 very pleading of final arguments and, at the same time, fixing to both parties the submission of their arguments in successive manner, it naturally becomes empty of content the pleading of final arguments on the part of the Respondent, since the Respondent is not previously given to know the contents of the Claimant's Reply".

  4. On 19/07/2016 an Interlocutory Award was issued, which dismissed the request presented by the Respondent for an order to be issued for the submission of final arguments in successive manner, by understanding that there was no valid grounds for altering the simultaneity of the period fixed for arguments, in that such results from the provisions of the cited NCPTA norms and, especially, from the provisions of Article 91-A of NCPTA.

  5. The Tribunal further decided, on the basis of the principle of autonomy of the conduct of proceedings [Article 16-c) of RJAT], that, in the event exceptions were raised by the Claimant in the final arguments, the Respondent would have the 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 Response can succeed;

b) The Respondent begins by invoking the untimeliness of the Claimant's Request for Compensation for improper provision of guarantee, because this request was not presented until the expiration of the period for submission of the Arbitration Request;

c) In reality, as the grounds for the Request for Compensation, i.e., the provision of the guarantee, only took place on a date subsequent to the expiration of the period for submission of the Arbitration Request, the Claimant had 30 days from that fact to make the request, pursuant to Article 171, no. 2, final part, of CPPT, and such period was strictly observed;

d) The Respondent also invokes the existence of error in the form of the proceedings, by considering that the appropriate procedural means would be an Administrative Action, because in its view it would be a matter of reviewing the grant of a tax benefit;

e) Since what is in question is not a reaction to the refusal of the grant of a benefit, but the pretension of review of the legality of an assessment act which is based on the illegal failure to consider the same, an Administrative Action would never be appropriate;

f) The Respondent further invokes that, in its view since it is a matter of review of the grant of a tax benefit, the Arbitral Tribunal would not have competence in this matter;

g) The argument invoked does not merit acceptance: it is an exemption of automatic recognition, so what is in question is not the legality of the grant of the benefit or its refusal, but the legality of the Additional Assessment, and the assessment of the legality of the rejection of that tax benefit is a preliminary logical and indispensable step to the review of the cause of action and not the request itself;

h) Finally, the Respondent further invokes the incompetence of the Arbitral Tribunal ratione materiae by considering that this Tribunal is incompetent to review "the recognition of a tax exemption related to the transfer of real property integrated into insolvency proceedings";

i) However, it results clear the non-existence of any exclusive competence of the tribunals holding the insolvency proceedings to assess the applicability of a tax benefit of automatic recognition, and further evident the competence of the Arbitral Tribunal to review the legality of the tax assessment acts;

j) Neither does the challenge on the merits presented by the Respondent merit acceptance, the arguments invoked by the Claimant remaining unshaken to the effect of the applicability of the IMT exemption to the acquisitions of real property carried out;

k) Confirming that the substantiation is insufficient since mere reference to the incorrect application of the benefit – without even explaining why… is insufficient, "(…) not allowing a normal recipient to fully realize the factual and legal reasons for the non-applicability of the regime of that act, thereby compromising its right of defense";

l) Also inequivocal is the illegitimacy of the interpretation contained in Circular no. 10/2015, improperly restricting the scope of application of the exemption provided for in Article 270, no. 2, of CIRE;

m) The argument invoked by the Respondent does not merit acceptance either, according to which the transition from CPEREF to CIRE represents a change of the paradigm contained in Article 121, no. 2, of CPEREF vis-à-vis Article 270, no. 2, of CIRE, which would supposedly justify a restrictive reading of the latter;

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

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

p) It will suffice to attend to the intentionality of the norm included in Article 270, no. 2, of CIRE to conclude that the best interpretation of the provision is that which also considers exempted from IMT the isolated transfers of company assets integrated in an insolvency process;

q) There will be no grounds to exempt the isolated transfer of real property to creditors, advocated in Article 270, no. 1, subsection c) of CIRE, and not to exempt the same isolated transfer of real property to third parties or even to creditors, under a different title than payment in kind;

r) Or to exempt the global transfer of assets but not the isolated, because there is no difference between "situations in which one is selling globally the company with all its assets and its liabilities, and situations in which one is selling one or more of the commercial establishments that comprised it, or in which one is selling real properties that comprised its assets." (Award of the STA, of 11 November 2015, case no. 0968/13);

s) On the other hand, even if admitting that Article 270, no. 2, of CIRE may give rise to ambiguous interpretations, it should be interpreted in the sense that best harmonizes with the regime resulting from the CRP, that is, in conformity with the law of legislative authorization;

t) Thus, it is imperative that the exemption in question also apply to sales and exchanges of elements of the assets of companies framed within the scope of an insolvency or payment plan, or carried out within the framework of the liquidation of the insolvent estate, in conformity with subsection c) of no. 3 of Article 9 of Law no. 39/2003;

u) Finally, the Respondent argues that the mortgage, guarantee provided by the Claimant, does not subsume into the concept of "bank guarantee or equivalent" to which Article 53 of LGT refers;

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

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

x) Article 53 of LGT aims, simply, at the reimbursement of the taxpayer who, in order to see the tax enforcement suspended that was instituted against him, had to provide a guarantee and in doing so incurred costs, and it is not understood how some costs "are worth more than others" and that only some should be compensated;

y) Accordingly, and having in mind all the facts and arguments exposed throughout the proceedings, the Claimant reiterates its request for the full granting of the Arbitration Request.

  1. The Respondent submitted Arguments, in which it reiterates, in essence, what it had already stated in its Response, to the effect of the success of the exceptions raised by it and consequent acquittal from the instance, or, if that is not the Tribunal's understanding, of the judgment of the lack of merit of the request for arbitral decision.

II. Ruling on Exceptions

Decision on the exception of partial expiration of the right of action as to the request for compensation for improper provision of guarantee

  1. In its Response, the Respondent begins by invoking the partial expiration of the right of action as to the Request for Compensation, alleging, for such purpose, the untimeliness thereof, by considering that this had to necessarily be made within the period for submission of the Arbitration Request;

  2. Now, as both the Respondent in its Response and the Claimant in the Arbitration Request refer, the period for submission of the latter ended on 7 March 2016, the Request for Compensation having been submitted by the Claimant only on 27 May 2016;

  3. On this matter, Article 171 of the Tax Code of Procedure and Proceedings (CPPT) provides the following:

"1 – Compensation in case of a bank guarantee or equivalent improperly provided will be requested in the proceedings in which the legality of the debt being enforced is contested.

2 – Compensation must be requested in the complaint, challenge or appeal, or in case its grounds are supervenient within 30 days after its occurrence."

  1. It results from no. 1 of Article 171 of CPPT that, in case of improperly provided guarantee, the request for compensation must be presented in the same proceedings in which the legality of the debt being enforced is reviewed;

  2. That is, the Request for Compensation would have to be, as it was, requested within the scope of the proceedings in which the legality of the Additional Assessments is analyzed;

  3. Further determines no. 2 of that same provision that compensation must in principle be requested in the complaint, challenge or appeal of the debt being enforced, reserving, however, that, when the grounds for the compensation are posterior to such complaint, challenge or appeal, compensation must be requested within 30 days following the occurrence of the fact that grounds it;

  4. Now, the fact that grounds the Request for Compensation is the provision of improper guarantee;

  5. It is verified in the sub judice case that at the time of submission of the Arbitration Request, the facts justifying the Request for Compensation had not yet occurred, since the mortgage (the guarantee concretely provided in this case) would only be constituted more than a month and a half later, more specifically on 28 April 2016, thus providing the Claimant with 30 days from that date to submit the Request for Compensation;

  6. It is this, moreover, the sense of the jurisprudence of the STA, affirmed, particularly, in its Award of 8 October 2014 (case no. 01016/14):

"In this context, it is concluded that from the regime resulting from Articles 53 of LGT and 171 of CPPT it emerges that, in principle, the request for compensation for improper provision of guarantee must be presented in the proceedings in which the legality of the guaranteed debt is challenged and at the time of submission of the petition (challenge, appeal or objection). But if at that time (of submission of the petition) the guarantee has not yet been provided, the request must be formulated within 30 days after such provision";

  1. It thus results unequivocal that, under the provisions in the final part of no. 2 of Article 171 of CPPT, when the Claimant requested, on 27 May 2016, the condemnation of the Respondent to payment of € 6,333.36, as compensation for improper provision of guarantee, it was still fully within the time limit;

  2. Thus, the Respondent is not correct with respect to invoking the partial expiration of the right of action as to the Request for Compensation, so this exception is judged to be entirely without merit.

Decision on the exceptions of error in the form of proceedings and 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 those referred proceedings, such as, for example, in case 649/2015-T, in which it was held that "The competence of the arbitral tribunals functioning in CAAD is defined, in the first place, by Article 2, no. 1, of 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 taxable matter when it does not give rise to the assessment of any tax, of acts of determination of the assessable base and of acts of fixing of patrimonial values; In the second place, the competence of the arbitral tribunals functioning in CAAD is limited by the commitment of the Tax and Customs Authority which, pursuant to Article 4, no. 1, of RJAT, came to be defined by Ministerial Order no. 112-A/2011, of 12 March, which establishes the following, insofar as it is of interest here: The services and organisms referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals functioning in CAAD having as subject the review of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of Article 2 of Decree-Law no. 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 remedy pursuant to Articles 131 to 133 of the Code of Tax Procedure and Proceedings; b) Claims relating to acts of determination of the assessable base and acts of determination of taxable matter, both by indirect methods, including the decision of the revision procedure; c) Claims relating to customs duties on import and other indirect taxes which fall on goods subject to import duties; and d) Claims relating to tariff classification, origin and customs value of goods and tariff contingents, or whose resolution depends on laboratory analysis or activities 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 done taking into account the type of taxes to which the claims are directed. And as to these the Tax and Customs Authority only committed itself as to the taxes it administers. As to the rest, competence is defined only taking into account the type of acts which are the subject of the challenge, there being, particularly, no prohibition on the review of matters relating to tax exemptions or any other questions of legality relating to the acts of the types referred to in Article 2 of RJAT. An assessment of tax that starts from the disregard of an exemption ceases not to be a tax act of assessment. And the review of the legality or illegality of that disregard ceases not, therefore, 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 of IMT is being challenged, which falls within subsection a) of no. 1 of Article 2 of RJAT, and whose review is not excluded by any of the provisions of the aforementioned Ministerial Order.

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

It will only not be thus, in cases in which the law provides for the autonomous impugnability of administrative acts which are presuppositions of the assessment acts, as may occur with acts of recognition of tax exemptions, which, in cases of non-automatic exemptions, assume the nature of separable acts, for purposes of contentious challenge. But, for this limitation to the impugnability of the challenged assessment act to exist, there would have to be practiced, previously, some administrative act which was a presupposition of the assessment act, which did not occur in the case at hand.

On the other hand, in this case, it is a matter of an exemption of automatic recognition, as results from subsection d) of no. 8 of Article 10 of CIMT, so there did not have to be any autonomous act of recognition of the exemption, being at the appropriate moment for the practice of an assessment act the Tax and Customs Authority will have to assess whether the interested party enjoys a tax benefit.

For this reason, since the assessment act is injurious to the interests of the Claimant and being the sole act practiced by the tax authority on the situation, its contentious impugnability must be ensured on the grounds of any illegality, as follows from the principle of effective judicial protection, established in Articles 20, no. 1, and 268, no. 4, of CRP.

On the other hand, the question of whether the assessment act is legal, when there is no separable act – does it concern the question of whether there must be a recognition of the exemption (by the Judicial Tribunal or by the Tax and Customs Authority) – are questions which concern the legality of the assessment, which should be reviewed in tax tribunals in proceedings of judicial challenge, as follows from subsection a) of no. 1 of Article 97 of CPPT.

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

In truth, there is no special norm of insolvency proceedings which attributes competence to judicial tribunals to recognize tax exemptions and the general regime of tax benefits contradicts inequivocally that hypothesis.

In fact, the Tax Benefits Statute (EBF) applies to all tax benefits (its Article 1). From Article 5 of EBF it results that tax benefits, when they are automatic, are not the subject of any autonomous act of recognition, so it is at the proper moment to decide whether an assessment act should be practiced that the question of verification by the Tax and Customs Authority of the occurrence or not of the presuppositions of the tax benefit is posed. As concerns tax benefits dependent on recognition, this is done through administrative act, as results from nos. 2 and 3 of the same Article 5, in harmony with Articles 54, no. 1, subsection d), of LGT and 65 of CPPT.

In the specific case of the exemption provided for in Article 270 of CIRE, it is a matter of a tax benefit for which only Article 16, no. 2, of CIRE provides for the necessity of prior recognition by the Tax and Customs Authority when applied within the scope of company restructuring and revitalization proceedings, provided for in Decree-Law no. 178/2012, of 3 August (…). In other cases subsumible to Article 270 of CIRE, there being no express provision for the necessity of prior recognition (neither in CIRE, nor in EBF, nor in Article 10 of CIMT), it is a matter of an exemption of automatic recognition, with its verification and declaration being incumbent upon the tax service where the declaration provided for in Article 19, no. 1, of CIMT is filed, as results from the provisions of subsection d) of no. 8 of that Article 10."

On the other hand, it being the right to tax benefits a right in tax matters, the possibility of its direct recognition by the Tribunals is reserved to Tax Tribunals, through an action for recognition of a right or legitimate interest in tax matters, pursuant to Articles 212, no. 3, of CRP, 144, no. 1, of the Law on Organization of the Judicial System (Law no. 62/2013, of 26 August), 49, no. 1, subsection c) of ETAF, 101, subsection b) of LGT and 97, no. 1, subsection h) and 145 of CPPT, so there is no legal support to affirm the exclusive competence of Judicial Tribunals for recognition of the exemption in question".

  1. Accordingly, the exceptions of error in the form of proceedings and of material incompetence raised by the Respondent Authority fail.

  2. The Parties possess legal personality and capacity, are legitimate as to the request for arbitral decision and are properly represented, pursuant to the provisions of Articles 4 and 10 of RJAT and of Article 1 of Ministerial Order no. 112-A/2011, of 22 March.

  3. No nullities are verified, so it is imperative to review the merits.

III. On the Facts

II.1. Facts Proven

  1. B… was declared insolvent in the context of insolvency proceedings no.…, which took place before the Judicial Court of..., in a sentence dated 18 May 2012 (Doc. 3);

  2. C… was declared insolvent in the context of insolvency proceedings no. …, which also took place before the Judicial Court of..., in a sentence dated 27 April 2012 (Doc. 4);

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

1- Urban property located at …, designated as lot number…, parish of…, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the Patrimonial Tax Value ("VPT") of € 203,925.17 (as per property record book - Doc. 5);

2- Urban property located at …, designated as lot number…, parish of…, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the VPT of € 208,994.00 (as per property record book - Doc. 6);

3- Urban property located at…, lot number…, parish of…, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the VPT of € 197,467.38 (as per property record book - Doc. 7);

4- Urban property located at…, lot number…, parish of…, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the VPT of € 221,931.63 (as per property record book - Doc. 8);

5- Urban property located at…, designated as lot number…, parish of…, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the VPT of € 221,060.13 (as per property record book - Doc. 9);

6- Urban property located at…, designated by number …, parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the VPT of € 87,859.00 (as per property record book - Doc. 10);

7- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 49,245.59 (as per property record book - Doc. 11);

8- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 45,973.32 (as per property record book - Doc. 12);

9- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 45,973.32 (as per property record book - Doc. 13);

10- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,049.72 (as per property record book - Doc. 14);

11- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,232.71 (as per property record book - Doc. 15);

12- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,092.78 (as per property record book - Doc. 16);

13- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 50,085.19 (as per property record book - Doc. 17);

14- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,587.93 (as per property record book - Doc. 18);

15- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,340.35 (as per property record book - Doc. 19);

16- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,706.33 (as per property record book - Doc. 20);

17- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, inscribed in the respective tax roll under article …, with the VPT of € 47,587.93 (as per property record book - Doc. 21);

18- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,437.23 (as per property record book - Doc. 22);

19- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 33,325.54 (as per property record book - Doc. 23);

20- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,781.68 (as per property record book - Doc. 24);

21- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 34,423.47 (as per property record book - Doc. 25);

22- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,889.32 (as per property record book - Doc. 26);

23- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 48,352.17 (as per property record book - Doc. 27);

24- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 45,897.96 (as per property record book - Doc. 28);

25- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 41,646.16 (as per property record book - Doc. 29);

26- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 41,753.80 (as per property record book - Doc. 30);

27- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 41,452.41 (as per property record book - Doc. 31);

28- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,663.27 (as per property record book - Doc. 32);

29- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 46,425.41 (as per property record book - Doc. 33);

30- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 41,301.71 (as per property record book - Doc. 34);

31- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 47,189.65 (as per property record book - Doc. 35);

32- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 34,358.89, as per property record book attached as Doc. 36;

33- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 46,037.90 (as per property record book - Doc. 37);

34- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 45,435.11 (as per property record book - Doc. 38);

35- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 32,496.71 (as per property record book - Doc. 39);

36- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 33,282.48 (as per property record book - Doc. 40);

37- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 33,045.67 (as per property record book - Doc. 41); and

38- Urban property located at …, designated by number … (construction land lot), parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 40,236.07 (as per property record book - Doc. 42);

  1. On the same date, on 21 March 2014, in the context of the liquidation of the insolvent estate, the Claimant acquired from the insolvent estate of C… the following real properties:

1- Urban property located at …, designated as lot number …, parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 179,114.45 (as per property record book - Doc. 43);

2- Urban property located at …, designated as lot number …, parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the patrimonial value of € 172,980.00 (as per property record book - Doc. 44);

3- Urban property located at …, designated as lot number …, parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article…, with the VPT of € 196,637.89 (as per property record book - Doc. 45); and

4- Urban property located at …, designated as lot number …, parish of …, municipality of ..., described in the Property Registry Office of … under number …, of said parish, inscribed in the respective tax roll under article …, with the VPT of € 181,277.58 (as per property record book - Doc. 46).

  1. Both acquisitions referred to above were evidenced by public deeds, both dated 21 March 2014 (Doc. 47 and Doc. 48) and registered in the name of the Claimant, as appears from the property registry certificates referred to above;

  2. No IMT was assessed to the Claimant, due to the application of the tax benefit provided for in Article 270, no. 2, of CIRE, as results from the IMT Model 1 Declarations with registration number … and with registration number …, both of 13 March 2014 and issued by the Tax Service of … (Doc. 49 and Doc. 50), and respective payment guides, with number … and with number …, issued by the same Tax Service (Doc. 51 and Doc. 52);

  3. The Respondent practiced the acts of additional assessment of IMT issued in Official Letter no.…, of 5 November 2015, from the Tax Service of … and in Official Letter no. …, of 5 November 2015, also from the Tax Service of …;

  4. In the case of Official Letter no.…, the IMT refers to the acquisition of 38 (thirty-eight) real properties in the context of the insolvency proceedings of company B…, S.A. – In Liquidation, legal entity no. … ("B"), in a total amount of € 576,466.98 (five hundred and seventy-six thousand, four hundred and sixty-six Euros and ninety-eight cents), plus € 33,671.99 (thirty-three thousand, six hundred and seventy-one Euros and ninety-nine cents) as compensatory interest;

  5. In the case of Official Letter no.…, the IMT refers to the acquisition of 4 (four) real properties in the context of the insolvency proceedings of company C…, S.A. – Company In Liquidation, legal entity no. …. ("C"), in a total amount of € 59,687.64 (fifty-nine thousand, six hundred and eighty-seven Euros and sixty-four cents), plus € 3,486.42 (three thousand four hundred and eighty-six Euros and forty-two cents) as compensatory interest;

  6. By failure to make voluntary payment of the additionally assessed tax, tax enforcement proceedings no. … 2016… and no. … 2016… were instituted against the Claimant (as per documentation attached to the request);

  7. In requests dated 31 March 2016, the Claimant requested the suspension of said tax enforcement proceedings through the constitution of voluntary mortgages on various real properties of which it is the owner, in favor of AT (as per documentation attached to the request);

  8. Due to the reappraisal of some of the real properties presented as guarantee for purposes of constitution of voluntary mortgages, the Claimant submitted on 22 April 2016, in the scope of proceedings no. … 2016…, a request for alteration of the real properties indicated (as per documentation attached to the request);

  9. On 28 April 2016, the Claimant constituted unilateral mortgage on the real properties presented as guarantee in the scope of said tax enforcement proceedings;

  10. In the scope of tax enforcement proceedings no. … 2016…, the Claimant was notified of Official Letter no.…, of 3 May 2016, from the Tax Service of Lisbon –…, pursuant to which AT requested the constitution of voluntary mortgage "in order to assess its suitability and sufficiency" (as per documentation attached to the request);

  11. On 11 May 2016, the Claimant attached to the tax enforcement proceedings a copy of the deed of constitution of unilateral mortgage (as per documentation attached to the request);

  12. Already after the attachment of the copy of the deed of constitution of the mortgage, the Claimant was notified, in the scope of enforcement proceedings no. … 2016…, of Official Letter no.…, of 10 May 2016, from the Tax Service of Lisbon-…, pursuant to which AT requested the constitution of voluntary mortgage "in order to assess its suitability and sufficiency" (as per documentation attached to the request).

II.2 Facts Not Proven

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

IV. On the Law

III.1. Thema Decidendum

  1. In the present proceedings, it is necessary to review the legality of the assessment act which did not apply the exemption provided for in Article 270 of CIRE (Code of Insolvency and Recovery of Companies, approved by Decree-Law no. 53/2004 and successive amendments) to the Claimant's acquisition of real property in insolvency proceedings.

III.2. Reasoning and Direction of the Decision

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

"1 - The following transfers of real property integrated into any insolvency, payment or recovery plan are exempted from the 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 the increase in the capital of the debtor company;

c) Those arising from payment in kind of company assets and transfer of assets to creditors.

2 - Acts of sale, exchange or transfer of the company or of establishments thereof integrated within insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate are equally exempted from the municipal tax on onerous transfers of real property".

  1. The literal element of Article 270, no. 2 of CIRE determines that the IMT exemption is applicable to both the sale and the exchange, and only as to the latter is the transfer of a company or universality required.

  2. In accordance with the preamble of Decree-Law no. 53/04, of 18 March, which approved CIRE, "the existing regimes in CPEREF are maintained in essence as regards the exemption of fees and tax benefits, as well as the indication of criminal violation" (§49).

  3. Under the terms of the statute which approved CPEREF (DL no. 123/93, of 23 April), "besides quite favorable treatment of the two processes covered by the statute in the field of court fees, a set of incentives of a fiscal nature is also adopted in this decree-law, through which it seeks to specially avoid undue penalties or serious inconveniences for the legal, economic or financial operations into which the recovery process may unfold".

  4. Still according to this statute, "[s]ome fiscal or parafiscal charges related to the legal transactions susceptible to constituting the means of recovery approved by creditors were removed with that intention, in particular with a view to the stamp tax, the municipal contribution, the municipal sisa tax and the very fees due by the acts".

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

  6. In the words of the Supreme Administrative Court, in an Award issued on 30 May 2012 (Case no. 0949/11):

"This interpretation [followed by the Tax Authority in the case] clashes, however – as well observed in the judgment appealed from – with what the legislator stated in no. 49 of the preamble of CIRE with respect to tax benefits, where it is stated that: "the existing regimes in CPEREF are maintained in essence as regards the exemption of fees and tax benefits" being certain that subsection c) of no. 2 of Article 121 of CPEREF exempted from municipal sisa tax transfers of real property".

  1. The understanding expressed by the Supreme Administrative Court is also subscribed, in the Award of 17 December 2014 (Case no. 01085/14), according to which:

"Taking into account the objective which the legislator intends to achieve with the grant of such exemption, - to foster and support the rapid sale of assets that comprise the insolvent estate for obvious reasons of interest of creditors, but, also of the public interest in the resumption of the normal functioning of the business world in which each insolvency process presents itself as a disruptive element, giving a 'bonus' to whoever acquires the real properties that comprise the insolvent estate – buy these assets cheaper because they do not have to pay the IMT that would be due in the acquisition of a similar real property outside the insolvency process – and which will be sold in the liquidation phase, the ambiguous text of no. 2 of Article 270 may be the subject of a clearer and more unequivocal reading without recourse to any extensive interpretation. It suffices for us to ask whether to achieve the purpose previously defined makes any difference that one is selling globally the company with all its assets and its liabilities, that one is selling one or more of the commercial establishments that comprised it, that one is selling assets that comprised its patrimony but were not used in its commercial trade – for example a real property received in payment of a debt of which the insolvent company was a creditor – in order to be faced with a sale that is practiced within the framework of the liquidation of the insolvent estate? And, if in the same situations it is not sales but exchanges or transfers – it being that this word must have been used in an improper sense in that as associated with the business world it is usually refers to the transfer of operation, transfer of the commercial establishment, similar to leasing and not to the transfer, and in the Code of Insolvency and Recovery of Companies it is also shown used as to the acquisition of assets by creditors? We believe that the answer cannot but be negative".

  1. An interpretation of the provisions of Article 270, no. 2 of CIRE in conformity with the Constitution of the Portuguese Republic points in the same direction.

  2. In effect, just as is stated in the Award of the Supreme Administrative Court, of 30 May 2012 (Case no. 0949/11):

"Article 270, no. 2 of CIRE, whose wording is not clear as to the scope of the IMT exemption there stated, should be interpreted in conformity with subsection c) of no. 3 of Article 9 of Law no. 39/2003, of 22 August, because between two meanings of the law, both supported – at least minimally – by its letter, the interpreter must choose that which harmonizes it with the constitutional text (interpretation conforming to the constitution) [thus] should be understood to be exempted from IMT not only the sales of the company or establishments thereof, as universalities of assets, but also the sales of elements of its assets, provided they are integrated within the scope of insolvency or payment plan carried out within the framework of the liquidation of the insolvent estate".

  1. In the same sense pronounced itself, furthermore, the Supreme Administrative Court in the Award of 3 July 2013 (Case no. 0765/13) in which it was decided that:

"Article 270, no. 2 of CIRE, whose wording is not clear as to the scope of the IMT exemption there stated, may, at most, be interpreted as encompassing 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 the scope of insolvency or payment plan or carried out within the framework of the liquidation of the insolvent estate".

  1. It is concluded, thus, by the success of the request for annulment of the contested IMT assessment acts, with all legal consequences.

  2. As to the request for compensation for improper provision of guarantee, the Claimant is also correct.

  3. Article 53, no. 1 of the General Tax Law (LGT) provides that "the debtor who, in order to suspend enforcement, offers a bank guarantee or equivalent will 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 of the outcome in administrative remedy, challenge or objection to enforcement which have as their subject the guaranteed debt".

  4. The provision contained in Article 53, no. 1 of LGT is a concretization of the general principle of State liability 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 jointly and severally liable, together 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, which result in violation of rights, freedoms and guarantees or damage to others".

  1. Thus, the provision of Article 53, no. 1 of LGT must be interpreted in conformity with the constitutional principle of State liability and other public entities.

  2. In this sense, the expression "bank guarantee or equivalent" contained in Article 53, no. 1 of LGT should be interpreted as bank guarantee or other guarantee that entails costs for the debtor.

  3. It is, in fact, this sense which is extracted from the award of the STA of 21 January 2015, case no. 0632/14, when therein it is stated that "[t]he objective of the provision in Article 53 of LGT is to compensate the taxpayer for the damages which it suffered with the provision of a guarantee which it would not have had to provide if the Administration had not acted illegally".

  4. The sense of the provision is that the debtor be compensated for the costs which it supported with the provision of improper guarantee to suspend enforcement.

  5. In the sub judice case, the Claimant constituted a mortgage on real property of which it is the owner, in order to suspend the tax enforcement, which constitutes a guarantee comparable to a bank guarantee, which resulted from an illegal assessment act practiced by the Respondent, so the request for compensation for improperly provided guarantee succeeds, in the amount of € 6,333.36, plus other costs that may meanwhile have been supported with the guarantee provided, to be determined in the course of execution of the present award.

V. Decision

Accordingly, this Arbitral Tribunal decides:

a) Judge the arbitral request for annulment of the contested IMT assessment acts as successful, with all legal consequences;

b) Judge the request for compensation for improperly provided guarantee as successful, in the amount of € 6,333.36, plus other costs that may meanwhile have been supported with the guarantee provided, to be determined in the course of execution of the present award.

VI. Process Value

In harmony with the provisions of Article 306, no. 2, of CPC, Article 97-A, no. 1, subsection a) of CPPT and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the process is assigned a value of € 673,313.03.

Notify parties.

Lisbon, 28 October 2016

The Arbitrators

(José Poças Falcão)

(Paulo Nogueira da Costa)

(Joaquim Silvério Mateus)
(voted in dissent as to the decision to judge as successful the request for annulment of the assessment acts, pursuant to the dissenting opinion below)

Dissenting Opinion

In the present proceedings the question concerns the interpretation of Article 270, no. 2, of the Code of Insolvency and Recovery of Companies (CIRE), according to which there are exempted from IMT "acts of sale, exchange or transfer of the company or of establishments thereof integrated within the scope of insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate" [...]

Frequently Asked Questions

Automatically Created

Is IMT tax exemption under Article 270(2) of CIRE limited to property transfers as part of a business universality in insolvency proceedings?
The central dispute in Process 132/2016-T concerns whether Article 270(2) CIRE limits IMT exemption to transfers of property as part of a business universality (conjunto). The Tax Authority's position, reflected in Circular 10/2015, restricts exemption to universalities. However, the Claimant argues that literal, historical, and teleological interpretation support exemption for isolated property transfers in insolvency proceedings, consistent with prior CPEREF regime and legislative authorization under Law 39/2003, which contemplated exemption for transfers of companies, establishments, or individual asset elements.
Can the Portuguese Tax Authority issue additional IMT assessments for properties acquired during insolvency based on Circular 10/2015?
Yes, the Portuguese Tax Authority issued additional IMT assessments based on Circular 10/2015's interpretation that Article 270(2) CIRE exemption applies only when property forms part of a universality. In this case, AT issued two additional assessments totaling €636,154.62 in tax plus €37,158.41 in compensatory interest (€673,313.03 total) for properties acquired during insolvency proceedings of B… and C…, which AT considered isolated transfers not qualifying for exemption. The Claimant challenges both the legal interpretation and the constitutional validity of this restrictive approach.
How does CAAD arbitration process 132/2016-T address the constitutionality of Article 270 of the Portuguese Insolvency Code?
Process 132/2016-T directly addresses constitutionality by arguing that restrictive interpretation of Article 270 CIRE constitutes organic unconstitutionality. The Claimant contends that if Article 270(2) is interpreted to limit exemption beyond the scope authorized by Law 39/2003, it violates Articles 165(1)(i) and 103(2) of the Portuguese Constitution, which reserve exclusive legislative competence over tax matters, including tax benefits, to the Assembly of the Republic. The argument asserts that CIRE, as government decree-law, cannot validly restrict tax exemption scope beyond parliamentary authorization, requiring the arbitral tribunal to apply constitutional interpretation principles favoring the reading that harmonizes statutory text with constitutional requirements.
What are the legal grounds for challenging additional IMT liquidation and compensatory interest in Portuguese tax arbitration?
Legal grounds for challenging additional IMT liquidation and compensatory interest in Portuguese tax arbitration include: (1) incorrect interpretation of statutory exemption provisions; (2) violation of legislative authorization limits; (3) organic unconstitutionality when administrative acts or subordinate legislation exceed parliamentary tax competence; (4) misapplication of exemption criteria established in CIRE Article 270(2); (5) reliance on invalid administrative guidance (circulars) that contradict statutory interpretation; (6) violation of equality principles when similar transactions receive different tax treatment; and (7) protection of legitimate expectations based on prior administrative practice and legislative history, particularly continuity from CPEREF regime that broadly exempted insolvency-related transfers.
Does the isolated sale of real estate in insolvency proceedings qualify for IMT exemption under Portuguese tax law?
The legal question centers on whether isolated real estate sales in insolvency qualify for IMT exemption under Article 270(2) CIRE. The Claimant argues affirmatively based on: literal text not requiring universality; historical precedent under CPEREF Article 121(2) exempting transfers of 'elements of assets'; legislative authorization (Law 39/2003) explicitly contemplating exemption for 'elements of assets'; and teleological rationale of encouraging insolvency asset sales to maximize creditor recovery and protect public interest, which applies equally to isolated and bundled transfers. The Tax Authority's contrary position requires property to form part of a universality (company or establishment), not isolated assets, but this interpretation faces constitutional challenges and conflicts with legislative intent and insolvency policy objectives.