Summary
Full Decision
ARBITRAL DECISION
1. REPORT
A..., with TIN ... and wife, B..., with TIN ..., married under the community property regime, residents at Street ... no. ... Apt ..., ..., ...-..., ..., of the ... Service area (hereinafter referred to as the Applicants), hereby, pursuant to the combined provisions of Articles 2, No. 1, letter a) and 10, No. 1, letter a), of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (RJAT), request the constitution of an Arbitral Tribunal with the intervention of a single arbitrator, in which the Tax and Customs Authority (AT) is the Respondent, with a view to the declaration of illegality and consequent annulment of the assessment of Municipal Tax on Onerous Real Estate Transfers (IMT) No. ..., in the amount of € 10,162.81, relating to the acquisition of the autonomous fraction designated by the letter "A" of the urban property registered in the property register of the parish of ..., municipality of ..., under article ....
The Applicants further request that the Respondent be ordered to refund the amount unduly paid, plus default interest in accordance with legal terms, from the date of payment of the tax, until the date of its effective refund.
The Applicants base their requests on the grounds which, in summary, are as follows:
a. In October 2009, the Applicants, as prospective purchasers, entered into a promise of sale agreement with the company C..., Ltd., with NIPC ..., as the prospective seller, for the purchase of the autonomous fraction already identified, intended for housing, to be constructed on land parcels of the prospective seller's property, in accordance with building permit No. .../09, issued by the Municipal Council of ..., and to which they delivered various amounts as earnest money and part payment;
b. Prior to the conclusion of the final contract, to be designated by the prospective seller, the latter would be declared insolvent in the proceedings under No. ... J2 of the 2nd Section of ..., previously distributed to the 1st Civil Court of ..., without the deed of sale and purchase having been executed;
c. The Applicants claimed their credit, which was recognized by the Insolvency Administrator of the prospective seller company, also recognized by a judgment that has become final;
d. Within the framework of the liquidation of the insolvent estate, the Applicants acquired the identified autonomous fraction, and, prior to the deed of sale and purchase, requested the assessment of IMT from the Tax Administration;
e. The AT issued an IMT assessment in the amount of € 10,162.81, which the Applicants paid on 28 April 2016, although they did not agree with it, on the grounds that the assessment now being challenged violates the provisions of No. 2 of Article 270 of the CIRE;
f. The Applicants conclude with requests for annulment of the IMT assessment and for the Respondent to be ordered to refund the tax paid, plus default interest, in accordance with Article 43, No. 1, of the General Tax Law, attributing to the proceedings the economic value corresponding to that of the assessment being challenged.
Notified in accordance with the terms and for the purposes provided for in Article 17 of the RJAT, the AT submitted its response, defending itself by way of exception and by opposition, with the following grounds:
By way of exception:
a. The Applicants' claim consists of the recognition that they met the requirements to enjoy the exemption provided for in No. 2 of Article 270 of the Code of Insolvency and Company Recovery (CIRE);
b. However, this is a matter not covered within the material jurisdiction of the Arbitral Tribunal, as results from the provisions of Article 2 of the RJAT, and is not listed in the Binding Order;
c. The fact is that acts relating to the recognition of tax exemptions constitute severable acts from the tax procedure, and the tax assessment resulting from them cannot be challenged through judicial review or, in the case at issue, through a request for arbitral ruling, as decided in the judgment of the Superior Administrative Court (STA) No. 0188/09, of 09/09/2009;
d. "The incompetence of the tribunal constitutes a dilatory exception which may be raised of its own motion and leads to dismissal of the case in accordance with Article 576 and letter a) of Article 577 of the Code of Civil Procedure (CPC) applicable ex vi Article 29, No. 1, letter e) of the RJAT, which is hereby requested".
By way of opposition:
e. The Applicants' claim is unfounded, in view of the current wording of No. 2 of Article 270 of the CIRE, since the exemption provided therein covers all acts included within the scope of insolvency plans, or payment plans, or liquidation of the insolvent estate, with the reservation, however, that should the object of the exempted transfer be the company or the establishment and not one or two assets of its property.
By arbitral award of 3 October 2016, the Applicants were notified to, within 10 days, respond in writing to the exception raised by the AT in its response, fixing the date of 28 October 2016 for the issuance of the arbitral decision, with a warning that, up to that date, they should proceed to pay the subsequent arbitral fee.
The Applicants responded, arguing that the exception of incompetence of the Arbitral Tribunal to rule on their claim does not apply, which, in summary, comes down to the declaration of illegality of the assessment being challenged, notwithstanding the fact that it is based on the non-recognition of the exemption provided for in No. 2 of Article 270 of the CIRE.
2. CASE MANAGEMENT:
The request for the constitution of the Arbitral Tribunal was filed with CAAD on 23 May 2016 and was accepted by the Honorable President of CAAD and automatically notified to the AT.
The Respondent informed that it did not intend to use the faculty of appointing an arbitrator, and therefore, pursuant to the provisions of No. 1 of Article 6 of the RJAT, the undersigned was appointed as arbitrator by the Honorable President of the Deontological Council of CAAD, a position which I accepted within the legally provided timeframe, without opposition from the parties.
The Single Arbitral Tribunal was regularly constituted on 10 May 2016, to examine and decide the dispute that is the subject of the present proceedings.
The parties have legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10, No. 2, of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March).
The proceedings do not suffer from any nullities that would entirely invalidate them.
3. REASONING
3.1. FACTUAL MATTERS
3.1.1. Facts found to be proved:
a. On 30 October 2009, the Applicants, as prospective purchasers, entered into a promise of sale agreement with the company C..., Ltd., with NIPC ..., as the prospective seller, for the purchase of the autonomous fraction with provisional designation ..., intended for housing, to be constructed on land parcels of the prospective seller's property, in accordance with building permit No. .../09, issued by the Municipal Council of ..., in ... of April ..., subsequently designated as fraction "A" of the urban property registered in the property register of the parish of ..., municipality of ..., under article ...;
b. When the referred promise of sale agreement was concluded, the Applicants delivered the amount of € 10,000.00, as earnest money and part payment, earnest money which was subsequently reinforced, in accordance with successive amendments to the initial promise agreement;
c. The prospective seller company was declared insolvent in the proceedings before the 2nd Commercial Section, of ... (previously before the 1st Court of the Judicial Court of ...), without the final contract having been concluded;
d. The Applicants, holders of the right of retention over the autonomous fraction promised for sale, claimed their credit in the insolvency proceedings of the prospective seller, and it was recognized by the Insolvency Administrator and ranked in first place (credit ranking judgment of 25 September 2015);
e. Having the creditors determined the liquidation of the property of the insolvent company, the Applicants made a proposal for the acquisition of the identified autonomous fraction (item 21), which was awarded to them and whose award document states that the Applicants requested "exemption from IMT payment and stamp duty, in accordance with Articles 269 and 270 CIRE";
f. On 27 April 2016, despite the Applicants having requested exemption, the AT issued the IMT assessment No. ..., in the amount of € 10,162.81, relating to the acquisition of the autonomous fraction "U-...-A" of the parish of ..., ..., the document of which states in "Observations": "Proceedings ... ... J2 2nd Commercial Section/..., District of Aveiro", with identification of the seller C..., LDA, with TIN ...;
g. On 28 April, the date of conclusion of the deed of sale and purchase of the identified autonomous fraction, the Applicants proceeded to pay the IMT assessed.
3.1.2. Reasoning of the factual matters found to be proved:
The Tribunal's conviction as to the factual matters found to be proved resulted from the critical analysis of the documentary evidence attached to the request for arbitral ruling, expressly accepted by the Respondent.
3.1.3. Facts not proved
There are no facts relevant to the decision of the case that should be considered as not proved.
3.2. MATTERS OF LAW
3.2.1. On the (lack of) jurisdiction of the Arbitral Tribunal
The controversial issue in these proceedings concerns the interpretation of the provisions of No. 2 of Article 270 of the Code of Insolvency and Company Recovery (CIRE), in particular with respect to determining whether all acquisitions of real estate within the scope of insolvency and company recovery proceedings are exempt from IMT or only those that occur within the scope of the acquisition of companies or commercial establishments.
The AT invokes, in light of the provisions of Article 2, letter a), of the RJAT and of Order No. 112-A/2011, of 22 March (Binding Order), the exception of lack of jurisdiction of the Arbitral Tribunals operating with CAAD to examine claims relating to the recognition of exemptions, since such acts are severable acts from the tax procedure, not subject to judicial review or, in the specific case, to a request for arbitral ruling.
Since the lack of jurisdiction of the tribunal is a dilatory exception that prevents the examination of the merits of the case and leads to dismissal of the case, it must be examined as a priority, as required by No. 1 of Article 608 of the Code of Civil Procedure (CPC), applicable supplementarily to tax arbitral proceedings, ex vi the provisions of Article 29, No. 1, letter e), of the RJAT.
Let us proceed:
Article 5, No. 1, of the Statute of Tax Benefits, applicable to all tax benefits, even those inserted in individual legislation, provides that tax benefits are automatic, when "they result directly and immediately from the law", and dependent on recognition, when "they require one or more subsequent acts of recognition".
It results, on the other hand, from Article 10, No. 8, letter d), of the Code of Municipal Tax on Onerous Real Estate Transfers (CIMT), that the tax benefit dealt with in these proceedings is automatic, not dependent on recognition.
Therefore, there is no severable act from the assessment procedure, and it is at the time of the performance of the tax act of assessment that the AT must determine whether the taxpayer enjoys the tax benefit.
Not existing a severable act prior to assessment, an act which would be subject to review through a special administrative action, prior to court proceedings (see Article 97, No. 1, letter p) and No. 2, of the Code of Tax Procedure and Process (CPPT)), and given that the assessment constitutes an act directly harmful to the taxpayer's legal sphere, it is subject to judicial review, on any of the grounds provided for in Article 99 of the CPPT.
Thus, the taxpayer's claim will not be the examination of the legality of any severable act from the assessment procedure, but rather the examination of the legality of the assessment act, for which the arbitral tribunals have material jurisdiction, in accordance with Article 2, No. 1, letter a), of the RJAT.
For the reasons stated, the exception raised by the Respondent fails, as it is not established, and nothing prevents the examination of the merits of the case.
3.2.2. On the merits of the assessment being challenged
The current No. 2 of Article 270 of the CIRE, as amended by Article 234 of Law No. 66-B/2012, of 31 December, provides that "2 – Equally exempt from municipal tax on onerous transfers of real estate are acts of sale, exchange or assignment of the company or of its establishments, included within the scope of insolvency plans, payment plans or company recovery or carried out within the scope of the liquidation of the insolvent estate".
The Applicants consider that this provision should be interpreted to mean that the IMT exemption should be granted, on the one hand, within the scope of operations for the full or partial acquisition of the company subject to the insolvency proceedings, and, on the other, to mere acts of acquisition of immovable assets considered in isolation, occurring in the asset liquidation phase thereof.
And so it should be, in their view, because the legislator, when establishing that tax benefit in the context of IMT in insolvency proceedings, intended to enable the rapid and attractive sale of immovable assets that form part of the debtor's assets, in order to satisfy the interests of creditors or promote the company's recovery, which is why it would make no sense to exclude from the scope of the exemption acts of transfer of immovable assets comprised in the insolvent estate of the company when it is an isolated sale.
They further argue that the approval of the CIRE, through Decree-Law No. 53/2004, of 18 March, intended to carry out a structural reform of the company recovery and bankruptcy process – provided for in the Code of Special Procedures for Company Recovery and Bankruptcy (CPEREF) – which would promote the streamlining and restructuring of asset liquidation and creditor payment procedures. In parallel with the creation of measures standardizing the different existing procedures, the new legislation adopted a model based essentially on the primacy of the creditors' will in the conduct of the proceedings, as is evident from the outset from the wording of Article 1 of the CIRE, which determines as the purpose of insolvency proceedings "the satisfaction of creditors".
To achieve that objective, the legislator made clear that, should it not be possible to achieve the same through the recovery of the company comprised in the insolvent estate, such objective should be obtained through "the liquidation of the insolvent debtor's assets and the distribution of the proceeds obtained to the creditors" – see No. 1 of Article 1 of the CIRE.
Thus, and given that the assets of debtors (insolvents) constitute the guarantee for the satisfaction of existing debts, it falls to the creditors to decide on the realization of that guarantee, which may be made possible either through the complete liquidation of the debtors' assets, or through the maintenance of the activity and consequent restructuring of the insolvent company, "and it is through this means that, surely, the public interest in the preservation of the proper functioning of the market is better served" – see point 3 of the Preamble preceding the CIRE.
With regard to the regulation of tax matters within the insolvency proceedings, the basic principle of the prevalence of the creditors' will is evident in the regulatory provisions relating to the granting of "Fee and Tax Benefits", inserted in Title XIII of the CIRE.
Already in the understanding of the AT, the provision in question only establishes the exemption from IMT for cases in which the immovable assets are acquired as part of a company or commercial establishment, and that the sale of the company's immovable assets, in isolation, is not covered by the exemption, and is therefore subject to IMT on general terms.
It is therefore necessary to decide.
The provision contained in No. 2 of Article 270 of the CIRE establishes a tax benefit, as results from No. 2 of Article 2 of the Statute of Tax Benefits (EBF), which establishes that tax benefits are "exceptional measures instituted to protect relevant extra-fiscal public interests that are superior to those of taxation itself that prevent" (No. 1) and that "are tax benefits exemptions, rate reductions, deductions from the taxable base and from tax, accelerated depreciation and reinvestment and other tax measures that comply with the characteristics set out in the preceding number" (No. 2).
To the interpretation of tax provisions are applicable, in accordance with No. 1 of Article 11 of the General Tax Law (LGT), the general rules and principles of interpretation of laws, namely Article 9 of the Civil Code (CC), with special emphasis, when "doubt persists about the meaning of the applicable rules of incidence", on the "economic substance of the tax facts" (see No. 3 of Article 11 of the LGT). On the other hand, Article 10 of the EBF provides that "provisions establishing tax benefits are not susceptible to analogical interpretation, but do admit extensive interpretation."
For the interpreter, the letter of the law is the minimum limit of the interpretative task (in the sense that it is from the legislative text that one must start to determine the meaning of the provision), but it is also its maximum limit (in the sense that it is not possible to attribute to the provision a meaning that is not minimally provided for in its letter).
However, in the case at hand, starting from the literal element, the result of the interpretation is not unequivocal.
In fact, if on the one hand the provision in question refers to acts of sale of "company" and "establishment", it is also true that it further includes operations of "exchange" or "assignment", which seem to open the door to transfers of things other than a company or establishment – insofar as exchanges of companies or establishments are not known – and that assignment, being onerous because only then could the application of IMT arise, has no conceptual autonomy with respect to sale.
Therefore, the literal element does not allow us to reach firm conclusions about what operations the legislator intended to include in the exemption provision. And, being so, Article 9, No. 2, of the CC provides that the teleological, systematic and historical elements of the provision in question must be taken into account as interpretative aids.
With regard to the historical element, the CPEREF, which preceded the CIRE, provided, in No. 2 of Article 121, an exemption from sisa for "transfers of immovable assets, integrated into any of the company recovery measures, resulting from (...) the sale, exchange or assignment of elements of the company's assets (...)". There was, therefore, no doubt that the exemption applied to the isolated sale of immovable assets, within the scope of company recovery proceedings.
Subsequently, Law No. 39/2003, of 22 August, authorized the Government to legislate on the insolvency of individuals and legal entities, repealing the CPEREF. The new legal regime should place emphasis on the satisfaction of creditors, either through the liquidation of assets or through an insolvency plan (see Article 1, No. 2, of Law No. 39/2003).
With regard to tax benefits, No. 3 of Article 9 of Law No. 39/2003 authorized the Government "to exempt from municipal sisa tax the following transfers of immovable assets, integrated into any insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate: (...) those resulting from (...) the sale, exchange or assignment of the company, establishments or elements of its assets (...)".
Thus, Law No. 39/2003 was even more favorable to the transfer of immovable assets included in the insolvent estate than the CPEREF, since it did not limit the exemption to transfers of immovable assets that might take place within the scope of company recovery, extending it also to transfers that occurred within the scope of the liquidation of the insolvent company or of its establishments.
As for the teleological element, it is necessary to determine the purpose of the IMT exemption provided for in No. 2 of Article 270 of the CIRE, and in particular, whether that purpose justifies the exemption of operations for the isolated transfer of immovable assets or only those that take place in the broader context of the transfer of the company or establishment.
In this regard, the STA has had the opportunity, on several occasions, to clarify what should be understood as the ratio legis of the legal provision under analysis, citing here, by way of example, the Judgment of 17 December 2014, appeal 01085/13, in which that Court states that "account must be taken of the objective that the legislator intends to achieve with the granting of such exemption, - 'to foster and support the rapid sale of goods that form part of the insolvent estate for obvious reasons of interest to creditors, but also of the public interest in the resumption of the normal functioning of the business world in which each insolvency proceedings presents itself as a disturbing element', by giving tax incentives to whoever acquires the immovable assets that form part of the insolvent estate and which will be sold in the liquidation phase. There being no need to differentiate, for this purpose, between situations where the company is being sold as a whole with all its assets and liabilities, and situations where one or more of the commercial establishments that comprised it are being sold, or where immovable assets that formed part of its assets are being sold. The objective that presides over the teleology of the provision will be equally pursued when the acquisition is of elements of the company's assets, and it is not necessary that the object be the company or establishments comprised in the insolvency plan."[1]
Finally, it is also necessary to consider the systematic element to determine the meaning of the provision in question, not least because the IMT exemption provided for in No. 2 of Article 270 of the CIRE is not the only one provided for operations for onerous transfers of immovable assets that take place within the scope of insolvency proceedings, being accompanied by the exemption also from IMT provided for in No. 1 of the same article and by the exemption from stamp duty provided for in letters d) and e) of Article 269 of the CIRE.
The fact is that both one and the other clearly apply, both to the transfer of immovable assets made jointly with the company or establishment of which they form a part, and to the isolated transfer of immovable assets.
From this perspective too it seems, therefore, that the interpretation according to which the IMT exemption provided for in No. 2 of Article 270 of the CIRE covers the transfer of immovable assets both when made jointly with the company or establishment of which they form a part, and when made in isolation, is the most consistent with the overall spirit of the legal system.
Thus, faced with the doubts raised by the lack of clarity in the verbal expression of the provision in question, the recourse to the historical, teleological and systematic elements allow us to conclude, with certainty, that the IMT exemption provided for by No. 2 of Article 270 of the CIRE applies not only to sales or exchanges of companies or establishments, as a universality of goods, but also to sales and exchanges of immovable assets (as elements of its property), provided that they are framed within the scope of an insolvency plan or payment plan, or carried out within the scope of the liquidation of the insolvent estate.
This has also been the sense of the prevailing jurisprudence of the arbitral tribunals constituted at CAAD, an example of which is the judgment issued on 1 September 2015, in case No. 123/2015-T, in which it can be read, on the interpretation defended here, that "Beyond this interpretation, permitted by the literal tenor of No. 2 of Article 270 of the CIRE, being manifestly that which is in tune with the teleology of the exemption modality identified, which is to encourage acquisitions of assets of the insolvent company, in the case at hand the sale was made to creditors of the insolvent company, so that we are faced with a situation whose economic substance is essentially identical to that of situations of payment in kind of company assets or assignment of assets to creditors, which are expressly provided for in letter c) of No. 1 of the same Article 270, as cases of exemption from IMT. For this reason, in cases where the sale is made to creditors of the insolvent company, the economic substance, to which Article 11, No. 3, of the LGT directs us to pay attention in interpreting the rules of tax incidence, would always require that we understand these to be situations covered by the exemption, so that, if the situation does not fall within No. 2 of Article 270 of the CIRE, it would always fall, by extensive interpretation, within No. 1 of the same article.".
It is concluded, thus, in the same sense as the prevailing jurisprudence of the STA and the arbitral tribunals constituted with CAAD, that the provision contained in No. 2 of Article 270 of the CIRE covers operations for the transfer of immovable assets of the insolvent estate that take place in an isolated manner, that is, not integrated into the transfer of the company or a commercial establishment, as well as those that take place in the context of these more comprehensive transfers.
Based on the foregoing, it is concluded that the assessment being challenged is affected by a defect of error as to the legal prerequisites, consisting of a violation of Article 270, No. 2, of the CIRE, which justifies its annulment.
3.2.3. On the claim for default interest
With respect to the claim for payment of default interest, it is clear that the tax arbitral process was conceived as an alternative means to judicial review proceedings (see the legislative authorization granted to the Government by Article 124, No. 2 (first part) of Law No. 3-B/2010, of 28 April – State Budget Law for 2010).
Thus, although Article 2, No. 1, letter a), of the RJAT uses the expression "declaration of illegality" as delimiting the jurisdiction of arbitral tribunals operating at CAAD, it should be understood that this jurisdiction includes the powers that are conferred on tax courts in judicial review proceedings, such as that of examining error attributable to the services.
On the other hand, letter b) of No. 1 of Article 24 of the RJAT provides that the arbitral decision on the merits of the claim for which no appeal or review is available binds the tax administration as from the end of the period provided for for appeal or review, and the latter must, in the precise terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for for the voluntary execution of the judgments of tax courts, "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, by adopting the acts and operations necessary for that purpose", which included "the payment of interest, regardless of its nature, in the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process.".
Under No. 1 of Article 43 of the General Tax Law, "Default interest is due when it is determined, in a claim for reconsideration or judicial review, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due.".
Having demonstrated the error of the AT regarding the legal prerequisites, by "erroneous interpretation or application of legal norms, such as rules of objective and subjective incidence (...)"[2], justifying the declaration of illegality and annulment of the assessment being challenged, the Applicants' right to default interest on the amount unduly paid must be recognized, from the date of the respective payment, as provided for in No. 5 of Article 61 of the CPPT, since such illegality is solely attributable to the Tax Administration.
4. DECISION
On the basis of the facts and legal grounds stated above and in accordance with Article 2 of the RJAT, it is decided, judging entirely favorable the present request for arbitral ruling:
4.1. To declare the illegality of the IMT assessment No. ..., for error as to the legal prerequisites, determining its annulment;
4.2. To condemn the AT to refund the amount of € 10,162.81, unduly paid by the Applicants, plus default interest from the date of payment until the issuance of the respective credit note.
VALUE OF THE PROCEEDINGS: In accordance with the provisions of Article 306, Nos. 1 and 2, of the CPC, Article 97-A, No. 1, letter a), of the CPPT and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are valued at € 10,162.81 (ten thousand, one hundred and sixty-two euros and eighty-one cents).
COSTS: Calculated in accordance with Article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I thereto, in the amount of € 918.00 (nine hundred and eighteen euros), chargeable to the Tax and Customs Authority.
Let it be notified.
Lisbon, 17 October 2016.
The Arbitrator,
/Mariana Vargas/
Document produced by computer, in accordance with No. 5 of Article 131 of the CPC, applicable by cross-reference of letter e) of No. 1 of Article 29 of Decree-Law 10/2011, of 20 January.
The drafting of this decision is governed by the 1990 Orthographic Agreement.
[1] See, in addition to this, the judgments of 03.07.2013, appeal 0765/13, of 11.11.2015, appeal 968/13, of 18.11.2015, appeals 01067/15 and 0575/15, respectively, of 16.12.2015, appeal 1345/15 and of 20.01.2016, appeal 1350/15, all available at www.dgsi.pt.
[2] SOUSA, Jorge Lopes de "Code of Tax Procedure and Process – annotated and commented", II Volume, Áreas Editora, 6th Edition, 2011, p. 115.
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