Summary
Full Decision
ARBITRAL DECISION
I – REPORT
1. A…, Lda., NIPC…, with registered office at Rua …, n.º…, …-… Lisbon (hereinafter referred to only as the Claimant), filed, on 07-03-2016, a request for constitution of the arbitral tribunal, in accordance with Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in conjunction with Article 102 of the Tax Procedure and Process Code, in which the Tax and Customs Authority (hereinafter referred to only as the Respondent) is the Respondent.
2. The Claimant seeks, through its request, a declaration of illegality of the acts of assessment of the Municipal Tax on Onerous Real Estate Transfers (IMT) for the year 2016, with n.º…, …, …, …, …, …, …, …, …, …, …, …, …, with the consequent reimbursement of the tax unduly paid, as well as recognition of the right to compensatory interest.
3. On 08-03-2016 the request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority.
3.1. The Claimant did not proceed with the appointment of an arbitrator, so, in accordance with the provisions of paragraph (a) of Article 6(2) and paragraph (b) of Article 11(1) of the LRAT, the President of the Deontological Council appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of their appointment within the prescribed period.
3.2. On 04-05-2016, the parties were notified of the appointment of the arbitrators and no objection was raised.
3.3. In compliance with the provisions of paragraph (c) of Article 11 of the LRAT, the collective arbitral tribunal was constituted on 23-05-2016.
3.4. In these terms, the Arbitral Tribunal is duly constituted to examine and decide the subject matter of the proceedings.
4. To support the request for an arbitral ruling, the Claimant alleges, in summary, the following:
a) In the exercise of its commercial activity, it acquired, in the context of insolvency proceedings of various taxpayers, acting in the capacity of creditor of the same, various real estate properties, and did not assess tax in relation to those operations, as it was automatically recognized the IMT exemption provided for in Article 270 of the Insolvency and Company Recovery Code (CIRE).
b) It was subsequently notified of the understanding of the TA regarding the alleged incorrect application of said exemption in IMT, in the context of those operations, considering that the Claimant had "unduly" benefited from the exemption in reference, because in the acquisitions of the real estate in question, the necessary prerequisites for the application of Article 270(2) of the CIRE would not have been met.
c) In this sense, the TA alleged that the IMT exemption could not have been applied in view of the non-observance of the transmission of a "universality of real estate of the insolvent company" and, therefore, imposed on the Claimant the assessment of IMT in relation to the operations for acquisition of the real estate assets under analysis.
d) The Claimant contends that, in accordance with Article 270(1) of the CIRE, the legislator determined the application of the IMT exemption to operations involving transmission of real estate carried out in the context of any insolvency plan, payment plan or recovery plan, provided that:
i. they are intended for the establishment of a new company or companies, and for the realization of its capital;
ii. they are intended for the realization of the increase of the capital of the debtor company; or
iii. they result from acts of payment in kind of assets of the company, as well as from the cession of assets to creditors.
e) Although the legislator was clear as to the scope intended in the aforementioned rule, the amendment added in its paragraph 2 came to include within the scope of the exemption rule other factual realities, now providing that "Equally exempt from municipal tax on onerous real estate transfers are the acts of sale, exchange or cession of the company or of establishments thereof integrated within the context of insolvency plans, payment plans or recovery plans or carried out in the context of the liquidation of the insolvent estate."
f) From the analysis of the wording of the normative provision transcribed, it is concluded that, parallel to the situations contained in paragraph 1, equally exempt from IMT are the onerous acquisitions of real estate assets that consist of any one of the following acts:
1. Sale;
2. Exchange;
3. Cession
of the company or of establishments thereof, provided that the act in question:
a. is integrated within an insolvency plan, payment plan or recovery plan; or
b. is carried out in the context of the liquidation of the insolvent estate.
g) Thus, the IMT exemption sub judice is granted, on the one hand, in the context of operations involving full or partial acquisition of the company that is the subject of the insolvency proceedings, and, on the other hand, to mere acts of acquisition of real estate assets considered in isolation carried out in the phase of liquidation of the assets of the same.
h) Such interpretation appears to be the only one consistent with the words recorded by the legislator in the Preamble that precedes the CIRE, as well as with the legal framework provided by its predecessor CPEREF, regarding this matter of tax law.
i) It is evident that the real estate operations under analysis in the present Request, carried out by the Claimant, are covered by the scope of application of Article 270(2) of the CIRE and that, as such, they legitimately benefited from the IMT exemption provided therein, and the understanding of the TA and the consequent assessments of tax sub judice cannot be upheld.
j) With respect to national case law, the Supreme Administrative Court ("SAC") has already ruled on the matter under analysis, adopting an understanding convergent with that here advocated by the Claimant and, as such, contrary to the understanding of the TA which was at the genesis of the IMT assessments sub judice, namely in proceedings No. 01085/13, of 17 December, 0949/11, of 30 May, 0765/13, of 3 July, 0866/13, of 25 September and 01067/15, of 18 November.
k) In the same sense, it invokes the arbitral decisions No. 764/2014-T, 95/2015-T and 123/2015-T.
l) The Claimant accordingly concludes that the assessments that are the subject of the arbitral request are illegal.
5. The Tax and Customs Authority submitted a response, invoking in summary the following:
a) The allegation of the Claimant that, having the acquisition of the properties been carried out within the context of the liquidation of a certain insolvent estate, it is covered by the IMT exemption provided for in Article 270(2) of the CIRE, has no legal support whatsoever.
b) The exemption provided for in Article 270(2) of the CIRE, which was already previously provided for, covers all acts integrated within the context of insolvency plans, or payment plans, or liquidation of the insolvent estate, with the reservation, however, that if the object of the exempt transmission is the company or the establishment and not one or two assets from its portfolio.
c) The previous wording of Article 270(2) of the Insolvency and Company Recovery Code (CIRE) provided as follows:
"2 - Equally exempt from municipal tax on onerous real estate transfers are the acts of sale, exchange or cession of the company or of establishments thereof integrated within the context of an insolvency plan or payment plan or carried out in the context of the liquidation of the insolvent estate."
d) From the comparison, one can perfectly accept that, in the interpretation of the spirit of the legislator, despite the legislative authorization having been more permissive, the legislator as to the situation in question only intended to maintain the exemption in the case of transmission of the universality of assets associated with the exercise of the economic activity of the company.
e) If the legislator had intended to alter the meaning of the law, it could have expressly done so in Article 234 of Law No. 66-B/2012, of 31/12 which amended the aforementioned rule; if it did not do so, this means that the legislator did not intend to grant more exemptions than what was included in the current wording.
f) From the analysis of the two versions of paragraph 2 of the aforementioned article, it appears that the legislator only added the exemption relating to transmissions of the company or of establishments thereof, integrated within the context of company recovery plans.
g) The majority of the tax benefits of the CPEREF were, in fact, maintained by the CIRE, but, to that extent, it cannot be inferred that the use, in the Preamble of the statute, of the expression "essentially", even if it were understood, which is not conceded, that it has direct normative force, superseding the literal tenor of the various articles of the code, as if it had a dispositive character, the idea that the CIRE would have intended to maintain all of the tax benefits of the CPEREF.
h) What the legislator meant to say was that the majority of the tax benefits enshrined in the CPEREF, or if you will, its fundamental core, was maintained by the CIRE and not that all tax benefits of the CPEREF were maintained by the CIRE.
i) Moreover, the legislator of the CIRE would be bound to use the entirety of the legislative authorization granted by Article 9 of Law No. 39/2003 and it would be incompatible with the tenor of that legislative authorization for the Government to use part of that legislative authorization, in that the Government could only use the legislative authorization granted as a whole and not merely a portion thereof.
j) The acquirer and now Claimant "A… S.A." conducts its activity with CAE … - Purchase and sale of real estate assets, whereas B…, S.A. has CAE … and conducts the activity of Construction of buildings (residential and non-residential), so it is evident that the acquisition was not intended to continue the same activity, nor did the acquisition involve the purchase of the universality of all assets allocated to the activity of the insolvent company, that is, the sale of real estate.
k) The sale of real estate of the company, in isolation, is not covered by the exemption provided in Article 270(2) of the CIRE, and is accordingly subject to IMT under the general terms.
l) The Respondent accordingly concludes that the acts of assessment of IMT contested by the Claimant are legal and should therefore be upheld.
6. By order of 27-06-2016, the meeting provided for in Article 18 of the LRAT was dispensed with and 23 November was set as the deadline for delivery of the arbitral decision.
7. The Respondent was notified, by order of 26-10-2016, to attach the administrative file to the proceedings, which it did.
8. The parties made no further submissions.
II. CASE MANAGEMENT
8.1. The parties have legal capacity and standing, show themselves to be legitimate and are duly represented (Articles 4 and 10(2) of the LRAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).
8.2. The tribunal is competent and is duly constituted.
8.3. The proceedings do not suffer from any defects.
8.4. The joinder of claims is legal.
8.5. No exceptions have been raised that would prevent examination of the merits of the case.
III. DECISION
III.1. Matter of Fact
9.1. With respect to the matter of fact, it is important, first of all, to emphasize that the tribunal does not have to rule on everything that was alleged by the parties, but rather its duty is to select the facts that are important for the decision and to distinguish established facts from those that are not. All in accordance with Article 123(2) of the Tax Procedure and Process Code and Article 607(2), (3) and (4) of the Code of Civil Procedure, applicable by virtue of Article 29(1), subparagraphs (a) and (e), of the LRAT. In this way, the facts relevant to the judgment of the case are selected and outlined according to their legal relevance, which is established in light of the various plausible solutions to the questions of Law (see Article 596 Code of Civil Procedure applicable by virtue of Article 29(1), subparagraph (e), of the LRAT).
Considering the positions assumed by the parties and the documentary evidence attached to the file, the following facts with relevance to the decision are considered proven:
a) In the exercise of its activity, the Claimant acquired, in the context of insolvency proceedings of various taxpayers, acting in the capacity of creditor of the same, the real estate assets to which the assessments that are the subject of the arbitral request relate;
b) The Claimant benefited, at the time of implementation of those acquisitions, from the IMT exemption, and did not at that time assess such tax;
c) The TA proceeded to official assessment of IMT in relation to those operations, invoking, in short, non-observance of the requirement of "transmission of the universality of real estate of the insolvent company";
d) The Claimant proceeded to pay the taxes assessed;
e) The request for arbitral ruling was presented on 07-03-2016.
9.2. Substantiation of the matter of fact:
The matter of fact given as proven rests on the documentary evidence presented and not contested, as well as on the administrative file submitted by the Respondent.
9.3. There are no other facts with relevance to examination of the merits of the case that have not been proven.
III.2. Matter of Law
In light of the positions of the parties assumed in the pleadings presented, the central issue to be resolved by the present arbitral tribunal consists of examining the legality of the acts of official assessment of IMT identified above. In connection with the main issue, the following issues also arise which relate to whether the Claimant has the right to be reimbursed for the amount of tax paid in relation to the assessments challenged, and whether the Claimant has the right to compensatory interest, calculated on that amount, at the legal rate, until the final decision of the present arbitral action.
The issue at hand consists of determining whether there has been a defect involving violation of law, due to error regarding the legal prerequisites upon which the assessment depends, by the failure to apply the provisions of Article 270(2) of the CIRE to the acquisition of the real estate described above.
Now, Article 270 of the CIRE provides the following:
1. The following transmissions of real estate assets are exempt from municipal tax on onerous real estate transfers, integrated in any insolvency plan, payment plan or recovery plan:
a) Those intended for the establishment of a new company or companies and for the realization of its capital;
b) Those intended for the realization of the increase of the capital of the debtor company;
c) Those resulting from payment in kind of assets of the company and from the cession of assets to creditors.
2. Equally exempt from municipal tax on onerous real estate transfers are the acts of sale, exchange or cession of the company or of establishments thereof integrated within the context of insolvency plans, payment plans or recovery plans or carried out in the context of the liquidation of the insolvent estate.
The above transcribed wording is that which is currently in force, having been introduced by Article 234 of Law No. 66-B/2012, of 31 December (State Budget Law for 2013).
The issue underlying here arises, therefore, from an interpretative doubt related to the text of Article 270(2) of the CIRE. Specifically, the underlying issue is whether the reference to "acts of sale" should be understood as referring to any "act of sale", provided it is inserted within the scope of an insolvency plan, recovery plan or liquidation of the insolvent estate, or whether, on the contrary, it should refer only to the "sale of the company" or to the "sale of the establishments" integrated therein.
This issue has been the subject of various judicial decisions, with the Supreme Administrative Court already having ruled on it on various occasions, namely in the Judgment of 30/05/2012, proceedings No. 0949/11, in the Judgment of 17/12/2014, proceedings No. 01085/13 and in the Judgment of 18/11/2015, proceedings No. 01067/15, where it was decided that "are exempt from IMT not only the sales of the company or establishments thereof, as universalities of assets, but also the sales of elements of its portfolio, provided they are integrated within an insolvency plan or payment plan or carried out in the context of the liquidation of the insolvent estate."
And the SAC further decided, in the identified proceedings:
"The assets that make up the insolvent estate are the assets of the patrimony of the company declared insolvent and no others belonging to another individual or legal person. By definition, the assets that are sold in insolvency proceedings are assets of the insolvent party or that, at least, were considered as such. There is no sale whatsoever of assets other than those that integrated the patrimony of the insolvent.
The legislator to ensure that this is so even provides for a procedure for claiming the restitution and separation of assets intended to separate from the estate the assets of third parties wrongfully seized, or those of which the insolvent is not the full and exclusive owner, or which are alien to the estate or not susceptible to seizure for the estate – Article 141 of the Insolvency and Company Recovery Code. Furthermore, in the chapter on liquidation of the Insolvency and Company Recovery Code there are found clear and precise indications of the assets that may be sold in that liquidation and those that should be temporarily or definitively excluded from sale, with only the right that the insolvent may have over assets of which he is a co-owner being liquidated in the insolvency proceedings – Article 159 – and with no sale being undertaken of assets of controversial ownership until the final judgment of the sentence that defines the ownership of the right of property with respect to those assets – Article 160.
The insolvency process is – Article 1 of the Insolvency and Company Recovery Code – a universal execution process whose purpose is the satisfaction of creditors in the manner provided in an insolvency plan intended to promote the recovery of the company comprehended in the insolvent estate, or, when that is not possible, to liquidate the patrimony of the insolvent debtor with the subsequent distribution of the product obtained among the creditors. The insolvent estate encompasses all of the patrimony of the debtor as of the date of declaration of insolvency, as well as the assets and rights that he acquires during the proceedings and also those whose absolute non-seizability is not and are voluntarily presented by the debtor – Article 46 of the Insolvency and Company Recovery Code – so that it cannot be conceived that there are assets that, integrating the insolvent estate of a company declared insolvent, could be integrated into a category of assets without any relationship with that company or establishment."
In effect, the literal element of Article 270(2) of the CIRE determines that the IMT exemption is applicable to both sale and exchange and cession, with only as to the latter is the transmission of company or universality required.
In accordance with the preamble of Decree-Law No. 53/04, of 18 March, which approved the CIRE, "maintained are, in essence, the existing regimes in the CPEREF as to the exemption from fees and tax benefits, as well as to the indication of criminal infraction" (§49).
Under the statute that approved the CPEREF (DL No. 123/93, of 23 April), "in addition to a 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 in particular to avoid undue penalties or serious inconveniences for the legal, economic or financial operations into which the recovery process may be broken down."
Still according to this statute, "[t]here were eliminated with that intention certain charges of a fiscal or parafiscal character related to the legal transactions susceptible of constituting the means of recovery approved by the creditors, having in particular in view the transfer tax, the municipal contribution, the municipal transfer tax and the very fees owed for acts."
Accordingly, it is contrary to the purpose intended by the legislator – maintenance in essence of the existing regimes in the CPEREF as to the exemption from fees and tax benefits – the understanding that the sales of elements of the company's portfolio would be excluded from IMT exemption, even though they are integrated within the insolvency plan or payment plan or carried out in the context of the liquidation of the insolvent estate.
In the words of the Supreme Administrative Court, in its Judgment of 30/5/2012 (Proceedings No. 0949/11):
"This interpretation [followed by the Tax Authority in the present case] clashes, however - as well observed in the overruled judgment - with what the legislator recorded in paragraph 49 of the preamble of the CIRE as regards tax benefits, where it is stated that: 'maintained are, in essence, the existing regimes in the CPEREF as to the exemption from fees and tax benefits' it being certain that subparagraph (c) of Article 121(2) of the CPEREF exempted from municipal transfer tax the transmissions of real estate assets."
Also subscribed is the understanding expressed by the Supreme Administrative Court, in the Judgment of 17/12/2014 (Proceedings No. 01085/14), according to which:
"Taking into account the purpose that the legislator intends to achieve with the granting of such exemption, - to foster and support the rapid sale of assets that make up the insolvent estate for obvious reasons of interest to creditors, but also of the public interest in the resumption of normal operation of the business world in which each insolvency process presents itself as a disruptive element, giving 'a bonus' to whoever acquires the real estate assets that make up the insolvent estate – let them buy these assets cheaper because they do not have to pay the IMT that would be due in the acquisition of a similar real estate outside the insolvency process – and which will be sold in the liquidation phase, the ambiguous text of Article 270(2) may be the subject of a clearer and unambiguous reading without resort to any extensive interpretation. It suffices that we ask ourselves whether to achieve the purpose previously defined makes any difference whether one is selling the company globally with all its assets and its liabilities, whether one is selling one or more of the commercial establishments that comprised it, whether one is selling assets that integrated its patrimony but were not used in its business operations – for example a real estate received in payment of a debt of which the insolvent company was a creditor – for one to be faced with a sale that is carried out within the context of the liquidation of the insolvent estate? And, if in the same situations it is a matter not of sales but of exchanges or cessions – it being understood that this word must have been used in an improper sense insofar as associated with the business world it is usually referred to cession of operation, cession of the commercial establishment, close to leasing and not to alienation, and in the Insolvency and Company Recovery Code it is shown to be used also as to the acquisition of assets by creditors? We believe that the answer cannot but be negative."
An interpretation of the provisions of Article 270(2) of the CIRE in conformity with the Constitution of the Portuguese Republic points in the same direction.
Indeed, as is affirmed in the Judgment of the Supreme Administrative Court, of 30/5/2012 (Proceedings No. 0949/11):
"Article 270(2) of the CIRE, whose wording is not clear as to the scope of the IMT exemption provided therein, should be interpreted in conformity with subparagraph (c) of Article 9(3) of Law No. 39/2003, of 22 August, for as between two meanings of the law, both with support - at least minimal - in its respective letter, the interpreter must opt for that which makes it compatible with the constitutional text (interpretation in conformity with the constitution) [thus] should one understand are exempt from IMT not only the sales of the company or establishments thereof, as universalities of assets, but also the sales of elements of its portfolio, provided they are integrated within an insolvency plan or payment plan or carried out in the context of the liquidation of the insolvent estate."
In the same sense pronounced itself, further, the Supreme Administrative Court in the Judgment of 3/7/2013 (Proceedings No. 0765/13) in which it was decided that:
"Article 270(2) of the CIRE, whose wording is not clear as to the scope of the IMT exemption provided therein, may, at most, be interpreted as encompassing not only the sales of the company or establishments thereof, as a universality of assets, but also the sales of elements of its portfolio, provided they are integrated within an insolvency plan or payment plan or carried out in the context of the liquidation of the insolvent estate."
The understanding of this tribunal is, thus, fully consonant with consistent case law of the Supreme Administrative Court, and is also that which has been endorsed by the most recent tax arbitration case law, namely that resulting from proceedings Nos. 95/2015-T, 99/2015-T and 123/2015-T.
Thus, it is reiterated here the understanding according to which acts of sale of real estate carried out within the context of insolvency plans or payment plans or recovery plans or carried out in the context of the liquidation of the insolvent estate are not subject to IMT, even if they are "mere" elements of the company's portfolio and not real estate assets integrated into the whole of the company or in the global and complete transmission of one of its establishments.
By the foregoing, it is concluded, therefore, that the tax acts of official assessment of IMT contested in the present proceedings are illegal, due to a defect involving violation of law, by error regarding the legal prerequisites, embodied in violation of Article 270(2) of the CIRE, which justifies their annulment in accordance with Article 135 of the Administrative Procedure Code, applicable in accordance with Article 29(1), subparagraph (d), of the LRAT and Article 2, subparagraph (c) of the General Tax Law.
The request for arbitral ruling thus proceeds.
The Claimant further requests reimbursement of the tax unduly paid, plus compensatory interest.
In accordance with the provisions of Article 24(1), subparagraph (b) of the LRAT "[t]he arbitral decision on the merits of the claim for which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, and the latter, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of judgments of tax judicial courts, alternatively or cumulatively, as the case may be:
[…]
b) Restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been
[…]."
In the same sense, Article 100 of the General Tax Law provides that "[t]he tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided by law."
Thus, by virtue of Articles 24(1), subparagraph (b), of the LRAT and 100 of the General Tax Law, there is entitlement to reimbursement of the tax paid following the illegal assessment acts that are the subject of the present proceedings.
As regards compensatory interest, Article 43(1) of the General Tax Law provides that "compensatory interest is owed when it is determined, in gracious complaint or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount greater than legally due."
In the case sub judice, the assessments suffer from error regarding the legal prerequisites attributable to the Respondent – incorrect interpretation and application of Article 270(2) of the CIRE.
In these terms, the Tribunal rules that the request for reimbursement of the tax unduly paid, plus compensatory interest, at the legal rate, counted from the date of payment of the tax, until full reimbursement, is granted.
IV. DECISION
For these reasons, it is decided in this Arbitral Tribunal:
a) To rule that the request for arbitral ruling is granted;
b) To declare illegal the tax acts of official assessment of IMT that are the subject of the present proceedings;
c) To annul the official assessments of IMT contested;
d) To rule that the request for reimbursement of the tax unduly paid, plus compensatory interest, at the legal rate, counted from the date of payment of the tax, until full reimbursement, is granted, all in the terms that shall be determined in execution of judgment.
V. CASE VALUE
The case value is set at €460.091,97, in accordance with Article 97-A(1), (a), of the Tax Procedure and Process Code, applicable by virtue of subparagraphs (a) and (b) of Article 29(1) of the Legal Regime for Tax Arbitration and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.
VI. COSTS
The amount of the arbitration fee is set at €7.344,00 in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was entirely granted, in accordance with Articles 12(2) and 22(4), both of the Legal Regime for Tax Arbitration, and Article 4(4) of the said Regulation.
Notify the parties.
Lisbon, 07 November 2016.
The Arbitrator President
(Fernanda Maçãs)
The Arbitrator Member
(António Alberto Franco)
The Arbitrator Member
(Paulo Nogueira da Costa)
Text prepared by computer, in accordance with Article 138(5) of the Code of Civil Procedure (CPC), applicable by reference from Article 29(1), subparagraph (e) of the Legal Regime for Tax Arbitration
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