Process: 166/2016-T

Date: February 10, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Process 166/2016-T, a Luxembourg company challenged an IMT assessment of €417,150.91 before the CAAD Tax Arbitration Tribunal. The case arose from a demerger operation where the claimant acquired 100% of shares in a Portuguese company (F..., Lda.) that owned real estate in Portugal. The Tax Authority applied Article 2(2)(d) of the IMT Code, which treats acquisitions of 75% or more of share capital in companies owning Portuguese real property as taxable transfers. The claimant argued this provision should not apply to sole shareholder demergers, as no economic transfer of property occurred. The company contended that both before and after the demerger, the ultimate sole shareholder (E...) maintained identical participation and control, meaning no change in economic ownership took place. The defense distinguished between Article 2(2)(d), which addresses share acquisitions, and Article 2(5)(g), which specifically governs property transfers through mergers or demergers. The claimant emphasized that IMT fundamentally taxes onerous transfers of property rights, and legal fictions extending the tax scope must be interpreted accordingly. Where a demerger involves a sole shareholder maintaining unchanged control, the operation lacks the onerous economic transfer element that justifies IMT liability. This arbitration highlights the tension between formal corporate restructurings and substantive economic changes in Portuguese tax law, particularly regarding when share capital acquisitions trigger real estate transfer taxation.

Full Decision

The arbitrators Councillor Maria Fernanda dos Santos Maçãs (Chairperson), Dr. João Espanha (Member) and Dr. Américo Brás Carlos (Member), hereby agree as follows:

ARBITRAL DECISION

I. REPORT

  1. A..., a company constituted under Luxembourg law, registered in the Commercial and Companies Registry of Luxembourg under the number ..., with registered office in ..., ..., ..., in Luxembourg, Portuguese taxpayer number n.º..., (hereinafter referred to as "Claimant"), filed a request for arbitral pronouncement and constitution of a Collective Arbitral Tribunal, pursuant to Article 4.º and paragraph 2 of Article 10.º of Decree-Law n.º 10/2011, of 20 January [Legal Regime of Tax Arbitration (RJAT)], in which the Tax and Customs Authority is the respondent (hereinafter referred to as "Respondent"), with a view to declaring unlawful the act of assessment of IMT in the amount of € 417,150.91 (cf. doc. n.º1).

  2. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 01-04-2016.

2.1. In exercise of the option of appointment of arbitrator provided for in paragraph b) of paragraph 2 of Article 6.º of the RJAT and in compliance with the provisions of paragraph g) of paragraph 2 of Article 10.º and paragraph 2 of Article 11.º of the same statute, the Claimant appointed Dr. João Espanha as Arbitrator.

2.2. Pursuant to the provisions of paragraph b) of paragraph 2 of Article 6.º and paragraph 3 of Article 11.º of the RJAT, and within the period provided for in paragraph 1 of Article 13.º of the RJAT, the highest ranking official of the Tax and Customs Authority ("AT") appointed Prof. Doctor João Ricardo Catarino as Arbitrator, who, having resigned, was subsequently replaced by Prof. Doctor Américo Brás Carlos.

2.3. In accordance with the provisions of paragraphs 5 and 6 of Article 11.º of the RJAT, the President of CAAD notified the Claimant of the appointment of the Arbitrator by the highest ranking official of the Tax Administration on 16-05-2016 and notified the arbitrators appointed by the parties to appoint the third arbitrator who shall assume the position of Chairperson Arbitrator, with the Honorable Arbitrators appointed by the parties agreeing, on 01-06-2016, on the appointment of Councillor Maria Fernanda dos Santos Maçãs as Chairperson Arbitrator.

2.4. On 15-06-2016, the President of CAAD informed the Parties of such appointment, in accordance with and for the purposes of the provisions of paragraph 7 of Article 11.º of the RJAT.

2.5. In accordance with the provisions of paragraph 7 of Article 11.º of the RJAT, the Collective Arbitral Tribunal was constituted on 30-06-2016.

2.6. In these terms, the Arbitral Tribunal is properly constituted to examine and decide the subject matter of the proceedings.

  1. The Claimant bases its request arguing, among other matters, that:

a) "(...) is a company under Luxembourg law, whose constitution resulted from a demerger process that took place on 14 November 2014";

b) In the context of that process, the transfer of a set of assets and liabilities that were integral parts of "compartments" of the company, likewise under Luxembourg law B..., was effected, and with them three new companies were constituted, namely: C..., D..., and A..., now Claimant;

c) Both B... and the 3 companies resulting from the transfer of assets and liabilities thereof had, on that date, as sole shareholder, the company E...;

d) Among the assets transferred from the assets of B... to the company now claiming, previously included in "Compartment 4" of the aforementioned B..., was the entirety of the quota shares representing the capital of the company F..., Lda.;

e) On the date of the demerger process – 14 November 2014 -, the company F..., Lda. possessed in its assets the real property identified in the discriminative table that constitutes Annex VI to the inspection report;

f) The Tax Inspection Services consider that, as the company F..., Lda. possessed real property in Portuguese territory, the Claimant, upon acquiring the entirety of the quotas therein within the scope of the above-described demerger process carried out in Luxembourg, should have proceeded to the payment of the IMT due by the transfer of real property included in the assets thereof pursuant to the provisions of paragraph 2, paragraph d) of Article 2.º of the IMT Code;

g) As set forth in paragraph 1 of Article 2.º of the respective Code, IMT is charged primarily on onerous transfers of the right of ownership or of partial figures of that right;

h) In addition to the transfers provided for in that general rule, the same provision extends the charge of the tax to situations beyond mere civil transfer (resulting from a contract of sale and purchase), creating legal fictions of transfer, in which are inserted the realities provided for in paragraphs 2 and 3 of the same provision;

i) This is what occurs with respect to the rule provided for in the aforementioned paragraph d) of paragraph 2 of Article 2.º of the IMT Code: what is at issue are situations where, by any fact, a previous or new shareholder comes to hold a new participation that confers upon him a dominant position in the company and, consequently, economic control over the real property that constitutes the assets thereof;

j) As easily follows from the analysis of the various realities equated to the transfer of ownership, we find that underlying them all is the concept of economic transfer of real property in such terms as to justify its taxation;

k) However, this is manifestly not the case in situations where the transfer of quota ownership results from a mere simple demerger, with the constitution of a new company;

l) "(...) as follows from the very nature of the simple demerger process, its realization does not operate any transformation at the level of economic ownership of the property, insofar as the shareholders, even with the constitution of a new company, maintain exactly the same participations and, in this manner, the same predominance of the capital stock. All the more so when the shareholder of the split company is, as in the present case, a sole shareholder";

m) It should be noted that this condition of charge is not to be confused with the situations provided for in paragraph g) of paragraph 5 of the same Article 2.º of the CIMT, which subjects to taxation the transfers of real property by merger or demerger of the companies referred to in paragraph e), or by merger of such companies among themselves or with a civil company, as well as by merger of closed real estate investment funds of private subscription;

n) For in the latter, and contrary to what occurs in the case at hand, it is the split or merged company/entity itself that directly owns the real property, whence it follows that any of those operations effectively operates the legal transfer of ownership of the real property, leading to the registration of a new owner for registration and tax purposes;

o) Which does not occur in the situations covered by paragraph d) of paragraph 2 of Article 2.º of the CIMT;

p) "(...) IMT is charged on onerous transfers of the right of ownership or of partial figures of that right";

q) All other legal fictions of transfer created by the legislator must be analyzed in light of that fundamental permission of subjection: for charge to exist, there must underlie an onerous operation resulting in the transfer, albeit economic, of the property, manifested by any of the legal or factual situations assimilated to civil transfer;

r) The Claimant argues, in summary, that as the demerger process from which resulted the constitution of the company now claiming does not constitute a fact/onerous transfer resulting in the acquisition of more than 75% of the quotas of the company F..., Lda., the tax assessment act of IMT issued on that basis is vitiated by the illegality resulting from a manifest error in the factual and legal assumptions of the rule of charge provided for in paragraph d) of paragraph 2 of Article 2.º of the CIMT;

s) Even if for any reason it were understood that the demerger process from which resulted the constitution of the company now claiming could constitute a constitutive fact of the assumptions of the charge of IMT resulting from the wording of paragraph d) of paragraph 2 of Article 2.º of the CIMT (...), such normative provision, interpreted with that breadth, would always be manifestly unconstitutional for violation of the fundamental principle of contributive capacity, inherent in the principles of equality and tax justice, and of the command set forth in Article 103.º, paragraph 1 of the Constitution of the Portuguese Republic;

t) The Claimant concludes by petitioning for the annulment of the tax assessment act of IMT which is the subject matter of the arbitral request.

  1. The AT presented a response and attached the administrative file, alleging, to the effect of the non-acceptance of the request, in summary, that:

a) The Claimant is a company not resident in Portuguese territory with registered office in Luxembourg, in ..., ..., ..., which has been registered as a non-resident entity without a representative in the national territory since 2014-12-24.

b) Within the scope of the inspection procedure to the entity G... SA, with the NIPC..., it was detected that the Claimant acquired the entirety of the capital of the Portuguese company F... Lda, with the NIPC..., by acquiring its quota from the entity B..., the deposit of which in the Commercial Registry Office was made on 2015-02-05 (cf. copy of "Demerger Process – Assignment of Quota" - Process of Demerger-Cession of quota. Cf. Annex V to the Inspection Report, page 15 of PA).

c) Based on the cross-referencing of information, the registration in the Commercial Registry Office was detected, in favor of the taxpayer A..., that it became the holder of the quota representing the capital of the company under Portuguese law F... Lda (hereinafter referred to as F...), with the NIPC..., on 2015-02-05.

d) According to this document, on 2014-11-14 that quota initially held by the entity B... was transferred, by means of demerger, to the entity A..., which came to hold the entirety of the capital of the entity F... Lda., owner of various real property located in the national territory (cf. Annex VI of the RIT at page 70 of PA).

e) Now, by virtue of the combined application of Articles 2º, paragraph 1 and 2º paragraph 2, paragraph d) of the CIMT, the services considered that the violation of the non-payment of IMT was verified, as a consequence of the acquisition, by the claimant, of the social participations of the Portuguese company by quotas F..., which, in turn, was the owner of the real property to which Article 14º of this document refers.

f) The acquisition of social shares or quotas as securities would always escape the charge of the tax, were it not that its subjection to IMT results from the provisions of paragraph d) of paragraph 2 of the Code, as it previously resulted from paragraph 1 of paragraph 6 of Art. 2º of the CIMSISD, whose assumptions are verified in the case at hand.

g) Furthermore, such acquisition may result from amortization or from any other facts, the point being that the acquirer is placed in a position of predominance or dominion of the company such that it can be said that it becomes, in fact and in law, its owner and, thereby, also of the real property that such company possesses.

h) It is an established fact that on 14/11/14, the claimant came to hold the entirety of the capital stock of the Portuguese company F..., coming to hold, at least, more than 75% of the capital stock thereof, which confers upon it a position of dominion over the Portuguese company and implies the possession of powers to dispose of the real property that it possesses.

i) Thus, having the claimant acquired, regardless of the form used, the quota representing the entirety of the capital of F..., it can be said that the principal assumption of charge of the rule of paragraph d) of paragraph 2 of Article 2.º of the CIMT is verified, in the wording applicable to the facts at the time,

j) and that which justifies the taxation, grounded in a position of predominance which, by way of that fact, assures the acquirer of the quota the economic power over the property that the same company possesses.

k) According to the AT, for the purpose of displacing the application of paragraph d) of paragraph 2 of Article 2.º of the CIMT, it is irrelevant the fact alleged by the Claimant of having acquired the social participation in F... by way of a demerger process which, according to it alleges, took place in Luxembourg, the acquisition of the social share or quota being able to result from "any other facts".

l) Neither is the provision of Article 2.º of the CIMT applicable in its paragraph 5 paragraph g), in as much as, in this condition of charge of the tax, what is subject to taxation, differently from what occurs in paragraph d) of paragraph 2, in which the acquisition of the position of predominance over the capital stock is taxed, is the transfer of ownership of the property, transferred from the split company to the ownership of the new company, resulting from a process of merger or demerger.

m) In the case at hand, the real property continues to be owned (as it is so registered) by the Portuguese company.

n) On the other hand, the alleged demerger process, were it to have existed, would always escape the rules of Portuguese law that govern demerger processes and, as such, we cannot conclude "tout court" that in the present case a demerger existed.

o) The real property belongs to the Portuguese company that already existed on the date of the invoked "demerger" process carried out in Luxembourg and it was this company whose quota was acquired by the claimant.

p) Wherefore, we are surely not dealing with an initial acquisition of the capital stock of F..., but rather with a cession of its quota, registered inclusive, as such, in the Portuguese commercial registry.

q) For the AT, it is irrelevant, for national law, the form through which the claimant was constituted, what matters is that, in fact, there was a cession of the quota of the Portuguese company, between the company that previously held it and another and new company.

r) Even though the claimant invokes, without proving it, that in this case the shareholders maintain exactly the same participations and, in this manner, the same predominance of the capital stock, it must be stated that Article 2.º paragraph 2, paragraph d) does not distinguish between shareholders and company and, as the latter is a distinct person from the shareholders, the AT is, in the present case, taxing a shareholder that previously did not hold any social participation in the Portuguese company.

s) Wherefore, having been the claimant company that acquired more than 75% of the capital stock of F... and, being that one another and new company, the sole shareholder is no longer the same, B... or, indirectly, the fund that held it (E..., cf. Article 7.º of the p.p.a).

t) Should it be understood, without conceding, that the present situation would not fall within paragraph d) of paragraph 2 of Article 2.º of the CIMT in light of this evidence of the existence of a new company that holds wealth that it did not hold before, even though the shareholder is indirectly the same, such situation would always be subject to taxation in light of the similarity of what occurs in the mergers and demergers of companies contemplated in paragraph g) of paragraph 5 of Article 2.º of the CIMT.

u) For, just as in those, in the concrete case, the claimant having its own legal personality, that is, if one wishes to give relevance to the demerger carried out in Luxembourg, being this independent of the split company, there was a transfer of the assets of the split company to the new company, having transferred, directly, the economic power over the real property from one company to another.

v) Finally, for the AT, the alleged violation of the constitutional principle of contributive capacity does not hold, contrary to what the Claimant invokes, as not taxing such situation is what would constitute an illegitimate evasion from the taxation of IMT.

  1. By order of 20 December 2016, it was decided: i) To reject the request for production of evidence, given the fact that the Claimant did not indicate, within the granted period, the matter of fact regarding which it intended the indicated witness to be examined, on the one hand, and, verifying, on the other hand, that the relevant matter of fact did not appear to be disputed, as the question to be decided was essentially one of law; ii) To dispense with the holding of the meeting provided for in Article 18.º of the RJAT, pursuant to the principles of the tribunal's autonomy in conducting the proceedings in order to promote celerity, simplification and informality thereof; and iii) To extend the period of arbitration by two months and designate 27 February 2017 as the final deadline for rendering the arbitral decision.

  2. The parties offered briefs arguing, in essence, for what was sustained in their pleadings.

II. CASE MANAGEMENT

  1. The request for arbitral pronouncement is timely because it was presented within the period provided for in paragraph a) of paragraph 1 of Article 10.º of the RJAT.

  2. The parties have legal personality and capacity, are properly interested in the request for arbitral pronouncement and are duly represented, in accordance with the provisions of Articles 4.º and 10.º of the RJAT and Article 1.º of Ordinance n.º 112-A/2011, of 22 March.

  3. The Tribunal is competent to examine the request for arbitral pronouncement filed by the Claimant.

  4. No exceptions have been raised that require attention.

  5. There are no nullities that prevent examination of the merits.

III. MERITS

III.1. Matter of Fact

§1. Proven Facts

The following facts are deemed proven:

a) The Claimant is a company under Luxembourg law, not resident in Portuguese territory with registered office in Luxembourg, in..., ..., ..., which has been registered as a non-resident entity without a representative in the national territory since 2014-12-24 (cf. Annex V to the Inspection Report);

b) and whose constitution resulted from a demerger process of B..., which took place on 14 November 2014 (cf. Annex V to the Inspection Report);

c) By way of the aforementioned demerger process, the transfer of a set of assets and liabilities that were integral parts of "compartments" of the company, likewise under Luxembourg law B..., was effected, and with them 3 new companies were constituted, namely: C..., D..., and A..., now Claimant (cf. documents n.ºs 2 and 3, attached hereto);

d) In compliance with the Service Order n.º OI2015..., issued on 2015-06-15, and with an order dated 2015-06-16, in accordance with the provisions of Articles 2.º, paragraph 1 and paragraph 2, paragraph a), 12.º, paragraph 1 and 14.º paragraph 1 paragraph b), both of the RCPIT, an inspection procedure was ordered, relating to the fiscal year 2014, to the now Claimant A... (cf. PA);

e) Within the scope of the inspection procedure to the entity G... SA, with the NIPC..., the AT declared having detected that the Claimant acquired the entirety of the capital of the Portuguese company F... Lda, with the NIPC..., by acquiring its quota from the entity B..., the deposit of which in the Commercial Registry Office was made on 2015-02-05 (cf. PA);

f) Upon request for a copy of the documents that served as the basis for that registration, obtained from the aforementioned Commercial Registry Office, a copy of "Demerger Process – Assignment of Quota" - Process of Demerger-Cession of quota was sent (cf. Annex V to the Inspection Report, page 15 of PA);

g) From the registration in the Commercial Registry Office, in favor of the taxpayer A..., it is stated that this party, by demerger of the entity B..., came to be the holder of the quota representing the capital of the company under Portuguese law F... Lda, with the NIPC..., on 2014-11-14;

h) Both B... and the 3 companies resulting from the transfer of assets and liabilities thereof had, on that date, as sole shareholder, the company E... (cf. documents n.ºs 2, 4, 5 and 6, attached hereto);

i) Among the assets transferred from the assets of B... to the company now claiming, previously included in "Compartment 4" of the aforementioned B..., was the entirety of the quota shares representing the capital of the company F... Unipessoal, Lda. (cf. document n.º 3, attached hereto);

j) On the date of the demerger process – 14 November 2014 -, the assets of the company F..., Lda. included the real property identified in the discriminative table that constitutes Annex VI to the inspection report attached hereto as document n.º 3);

k) By way of a contract of sale and purchase executed on 14 April 2015, the Claimant sold the quotas of which it was the holder in the company F..., Lda. to the company H... (cf Annexes II, III and IV to the inspection report attached hereto as Document n.º 3);

l) By means of a consultation of the information systems of the Tax Authority relating to assets, it identified the real property that the company F... Lda held (cf. Annex VI of the RIT at page 70 of PA);

m) The services considered that by virtue of the combined application of Articles 2º, paragraph 1 and 2º paragraph 2, paragraph d) of the CIMT, the violation of the non-payment of IMT was verified, as a consequence of the acquisition, by the claimant, of the social participations of the Portuguese company by quotas F...;

n) The aforementioned Tax Inspection Services considered that, as the company F..., Lda. possessed real property in Portuguese territory, the Claimant, upon acquiring the entirety of the quotas therein within the scope of the above-described demerger process carried out in Luxembourg, should have proceeded to the payment of the IMT due by the transfer of real property included in the assets thereof pursuant to the provisions of paragraph 2, paragraph d) of Article 2.º of the IMT Code (cf. document n.º 3, attached hereto);

o) On 2015-09-23, the Claimant was notified at its registered office located in Luxembourg, through the letter n.º..., of the Draft Inspection Report, for the purposes of exercising the right to a hearing, in accordance with Article 60.º of the LGT and 60.º of the RCPITA;

p) The claimant made its statement at the prior hearing, with reasoning identical to that set forth in the present request for arbitral pronouncement;

q) The Inspection Services maintained the conclusions already reflected in the Draft Report, invoking that: "In any event, it is verified that the capital stock of the Portuguese entity passes from the ownership of B... to A..., which is a new entity with its own legal personality, and that by the fact of coming to hold the capital stock of the aforementioned Portuguese entity, which possesses real property located in Portuguese territory, such operation is subject to IMT." (PA);

r) Following this, the respective IMT assessment was carried out, which resulted, with reference to the date of the demerger - 14 November 2014, in a tax to be paid in the amount of €417,150.91 in accordance with the letter n.º..., of 2016-01-26 (cf. document n.º 1, attached hereto);

s) The claimant was notified of the aforementioned assessment on 1 February 2016, which states, as the payment deadline, the period of 30 days from the date of signature of the receipt confirmation of the corresponding Letter.

§2. Unproven Facts

There are no other facts, with relevance for the arbitral decision, to be deemed as unproven.

§3. Reasoning Regarding the Matter of Fact

With respect to the judgment of the matter of fact, the conviction of the Tribunal was based on the free appreciation of the positions assumed by the parties regarding the facts, the content of the documents attached to the proceedings by the Claimant and the administrative file.

III.2. Matter of Law

The central legal question to be considered in this arbitral proceeding revolves around whether the facts described constitute a transfer subject to IMT, by virtue of the application of the rule set forth in paragraph d) of paragraph 2 of Article 2.º of the IMT Code.

For the Claimant, underlying the aforementioned rule of charge is an acquisition derived from control over the company by a given shareholder who previously did not hold it, and, thus, a subsequently acquired economic dominion over the real property.

In the case at hand, insofar as its realization did not operate any transformation at the level of economic ownership of the real property located in Portuguese territory, the demerger process from which resulted the constitution of the company Claimant does not constitute an onerous transfer for the purposes of the aforementioned rule of charge.

In summary, for the Claimant, what is being discussed here, therefore, is whether, as the Respondent contends, when a company with a sole shareholder is the subject of a demerger and a company resulting from such demerger is left with 100% of the capital of a company with real property located in Portugal, it falls under the establishment of paragraph d) of paragraph 2 of Article 2.º of the IMT Code cited, or in other words, whether such operation translates into an acquisition of real property for purposes of subjection thereof to IMT.

For the Respondent, according to the reasoning contained in the inspection report, as the company F..., Lda. possessed real property in Portuguese territory, the Claimant, upon acquiring the entirety of the quotas therein within the scope of the aforementioned demerger process carried out in Luxembourg, should have proceeded to the payment of the IMT due by the transfer of real property included in the assets thereof pursuant to the provisions of paragraph 2, paragraph d) of Article 2.º of the IMT Code (cf. pages 5 to 9 of the Inspection Report).

In the Defense, the Respondent Entity innovatively invoked that "Should it be understood, without conceding, that the present situation would not fall within that provision, in light of this evidence of the existence of a new company that holds wealth that it did not hold before, even though the shareholder is indirectly the same, such situation would always be subject to taxation in light of the similarity of what occurs in the mergers and demergers of companies contemplated in paragraph g) of paragraph 5 of Article 2.º of the CIMT".

With respect to the argument invoked by the AT, we shall limit ourselves to attending to the reasoning contained in the Inspection Report, which, by having presided over the practice of the assessment act, is the only one to be considered in the verification of the legality of the contested assessment.

Let us examine this.

A) Meaning and Scope of Article 2.º, Paragraph d), of the IMT Code

The aforementioned provision, under the heading "objective and territorial scope", on the date of the facts, prescribed the following:

"1 – IMT is charged on onerous transfers of the right of ownership or of partial figures of that right, over real property situated in the national territory.

2 – For the purposes of paragraph 1, the concept of transfer of real property also includes:

(...)

d) The acquisition of social shares or quotas in general partnerships, limited partnerships or partnerships by quotas, when such companies possess real property, and when by such acquisition, by amortization or any other facts, some of the shareholders comes to hold, at least, 75% of the capital stock, or the number of shareholders is reduced to two, being husband and wife, married under the system of general community of property or of acquisitions.»

e) (...).

f) (...).

g) (....)".

The Municipal Tax on Onerous Transfers of Real Property aims to tax onerous transfers of the right of ownership or of partial figures of that right, over real property situated in the national territory. This is what is established in paragraph 1 of Article 2.º of the Tax Code, being this the fundamental rule of the material scope of charge of the tax.

However, as is known, and as moreover already occurred within the scope of the old sisa tax, the legislator always felt the need, in order to avoid tax evasion phenomena, to "(...) create as fiction, as transfers subject to tax, certain operations that directly or indirectly imply the transfer of real property and that display economic characteristics that justify their inclusion within the scope of charge. This is the case, for example, of promises of purchase and sale accompanied by delivery of the property, of the lease contract in which the subsequent sale of the real property is already stipulated, of long-term leases and the acquisition of social shares that confer upon the holder a dominant participation in certain commercial companies if its assets consist of real property."[1]

This extension of the concept of transfer, operated by the rules of material charge of the tax, is widely recognized by legal doctrine and jurisprudence.

JOSÉ MARIA FERNANDES PIRES systematizes such extension of charge beyond the legal transactions from which results the onerous transfer of real property, organizing the more than three dozen of taxable facts which, in accordance with the rules of charge of IMT, give rise to subjection to tax, into three major categories:

  1. transfers resulting from the execution of acts or contracts which have as their object and purpose that very transfer;

  2. transfers resulting from the execution of acts or contracts which do not have as their object and purpose that very transfer, but produce it as a necessary collateral effect;

  3. legal fictions of onerous transfers for purposes of IMT.

With respect to this latter category, the aforementioned author clarifies the following:

"(...) These are facts that do not constitute transfers of real property for other legal purposes, but which the IMT Code typifies as transfers subject to tax. (...) In these cases no transfer of real property occurs for other purposes, but the IMT Code considers that, for purposes of application of the tax, a true transfer subject to payment of tax is verified. These are true legal fictions of transfer, determined only by the will of the legislator to subject to tax the acts or contracts provided therein. These are autonomous concepts of transfer, proper to IMT, which have no correspondence with the same concept in other branches of law. The elevation of these facts to the category of transfers for purposes of IMT is justified by the need to avoid tax evasion and fraud. Through this technique the legislator intends to prevent economic agents from engaging in acts or legal transactions that are substitute for others subject to tax, that produce the same results, but with the sole difference of not being subject to tax. It is intended to prevent the distortion in the markets that the Tax Law would cause if economic agents engaged in these substitute acts only to avoid payment of the tax. In fact, it is the fear of tax evasion and tax fraud that leads the IMT legislator in an intensive work of inventorying all types of these substitute acts and typifying them also as subject to tax"[2].

This concern with the possibility of avoidance, evasion or tax fraud in the creation and construction of the legal fictions contained in the rules of charge of IMT is unanimously noted by the generality of legal doctrine. In this sense, Saldanha Sanches[3], Casalta Nabais[4], Silvério Mateus and Corvelo de Freitas[5], Jónatas Machado and Paulo Nogueira da Costa[6], inter alia, note this reality.

The jurisprudence of the superior courts, although sparse, similarly follows the same orientation. For example, in the Ruling of 4 December 2008, Case 00328/01, of the Central Administrative Court North, it is stated at one point that:"However, if in the drafting of the provision it was intended, by taxing such cessions of quotas or social shares, to prevent real property of such companies from being practically acquired by any of the shareholders without the payment of sisa, whereby only in cases where the acquirer of the quota or social share became as it were owner of the company is that taxation can be justified in light of the principles and is that it is shown to be necessary to prevent the great majority of frauds, as emanates from paragraph 6 of the preamble report of the respective Code, it becomes evident that, in the reason for being of the provision, the case is also covered, such as in the present case, where one of the shareholders, already a holder of 75% or more of the capital stock, comes to acquire new portions or shares of that capital, becoming thus almost the sole holder of the corporate property and, by that means, also of the real property of the company."

Although the decision cited refers to the Sisa Tax, given the identity of the rules of charge, the ratio is fully applicable.

We can, thus, conclude, without any doubt, that the provision which the Tax Administration applied constitutes a rule of charge with the nature of a legal fiction, whose mens legis is that of an anti-abuse clause, that is, one that aims to prevent fraud, evasion or tax avoidance.

However, from this conclusion, nothing results other than the scope of the rule. The fact that it is an anti-abuse rule does not require any specialty from the hermeneutical point of view, the rules of Article 9.º of the Civil Code being applicable to it, applicable ex vi, and with the necessary adaptations, of Article 11.º of the General Tax Law.

Whence it follows that, in the application of this rule, beyond the literal content, it is important to take into consideration the legislative intention, since "(...) letter and spirit may not coincide. As we shall see below, the spirit then prevails over the letter"[7].

Now, having regard to the manifest intention of the legislator and the letter of the rule, it is necessary that in its interpretation and application due consideration be given to its purpose, which is to say its teleological element: what is aimed at with this rule of charge is to prevent fraud, evasion or tax avoidance, mandating the taxation of situations in which a shareholder of a limited partnership or partnership by quotas acquires, by way of the acquisition of social shares, the "quasi-ownership" of the real property of such company. If this is the mens legis of the provision, if this is the aim that the rule pursues, it makes no sense to apply it to cases in which there is no material or factual acquisition of real property assets (albeit by way of corporate structure). Indeed, if the shareholder of the split company and of the company resulting from the split are one and the same entity, no acquisition of social shares was verified of which some of the shareholders comes to hold, at least, 75% of the capital stock.

Thus, in the case at hand, the situation sub judice is not covered, either by the letter or by the spirit of the rule of charge. Indeed, (i) there is no subsequent acquisition of more than 75% of the capital stock of F..., Lda., (ii) nor is there an acquisition by a new legal person. Wherefore, as to the operation in question, from which resulted the registration, in favor of the Claimant, of 100% of the capital of F..., Lda., there is no charge of IMT pursuant to Article 2.º, paragraph 2, paragraph d) of the CIMT.

In deciding to the contrary, the AT committed an error in the factual and legal assumptions, which implies the illegality of the assessment sub judice.

In these terms, the Claimant's request is justified, and the tax assessment act of IMT in the amount of € 417,150.91, subject to the present arbitral request, is hereby annulled.

C) Matters of Prejudicial Knowledge

Given that the contested assessment is to be annulled, based on the grounds set forth above, the examination of the remaining vices alleged is rendered moot, as unnecessary (Article 130.º of the CPC).

IV. DECISION

In these terms, the present Arbitral Tribunal agrees to adjudge the arbitral request as well-founded and, in this sequence, annul the tax assessment act of IMT carried out by the Finance Service of ... in the amount of € 417,150.91, notified by Letter n.º..., of 26 January 2016.

V. Value of the Proceedings

In accordance with the provisions of Articles 306.º, paragraph 2, and 297.º, paragraph 2 of the CPC, Article 97.º-A, paragraph 1, paragraph a) of the CPPT and Article 3.º, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 417,150.91.

Notify.

Lisbon, 10 February 2017

The arbitrators,

Fernanda Maçãs,

João Espanha

Américo Brás Carlos

Frequently Asked Questions

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Is IMT (Municipal Property Transfer Tax) due when real estate is transferred through a company demerger (cisão) in Portugal?
IMT is generally not due when real estate is transferred through a company demerger if the demerger involves a sole shareholder who maintains unchanged economic control. While Article 2(5)(g) of the IMT Code specifically addresses property transfers by merger or demerger where the company directly owns real estate, Article 2(2)(d) applies to acquisitions of share capital. In sole shareholder demergers where no change in economic ownership occurs, the fundamental requirement of an onerous transfer for IMT liability may not be satisfied.
How does Article 2(2)(d) of the IMT Code apply to the acquisition of 75% or more of a company's share capital?
Article 2(2)(d) of the IMT Code creates a legal fiction treating the acquisition of 75% or more of a company's share capital as a taxable transfer when that company owns Portuguese real estate. This provision targets situations where a shareholder obtains dominant position and economic control over property through share acquisitions. However, the article must be interpreted considering IMT's fundamental nature as a tax on onerous property transfers, meaning it should apply only where an economic transfer of property actually occurs, not in mere formal restructurings without change in control.
Can a sole shareholder (sócio único) challenge an IMT assessment through CAAD tax arbitration?
Yes, a sole shareholder can challenge an IMT assessment through CAAD tax arbitration under the Legal Regime of Tax Arbitration (RJAT - Decree-Law 10/2011). The claimant has the right to request formation of a Collective Arbitral Tribunal to declare an IMT assessment unlawful. In sole shareholder demerger situations, valid grounds for challenge include arguing that no onerous transfer occurred, that economic ownership remained unchanged, and that Article 2(2)(d) of the IMT Code should not apply where the same shareholder maintains identical control before and after the corporate restructuring.
What are the legal grounds for contesting an IMT liquidation of €417,150.91 before the Portuguese Tax Arbitration Tribunal?
Legal grounds for contesting an IMT liquidation include: (1) absence of an onerous transfer as required by Article 2(1) of the IMT Code; (2) improper application of Article 2(2)(d) to situations lacking economic transfer of property; (3) demonstrating that in sole shareholder demergers, no change in economic control or ownership occurs; (4) distinguishing the case from Article 2(5)(g) scenarios involving direct property ownership by merged/demerged entities; and (5) arguing that legal fictions extending IMT scope must be interpreted restrictively, applying only where substantive economic transfer justifies taxation, not to formal corporate restructurings preserving existing ownership structures.
How does Portuguese tax law treat the transfer of assets and liabilities from a Luxembourg company in the context of IMT liability?
Portuguese tax law treats transfers from Luxembourg companies by examining substance over form. When a Luxembourg demerger results in acquisition of shares in a Portuguese company owning real estate, Article 2(2)(d) of the IMT Code may apply if the acquisition represents 75% or more of capital. However, where the Luxembourg structure involves a sole shareholder maintaining unchanged control throughout the demerger, Portuguese authorities should recognize that no economic transfer occurred. The key consideration is whether the operation resulted in substantive change of economic ownership or merely constituted a formal corporate restructuring without altering the underlying property control dynamics.