IMT Exemption on Property Acquisition in Insolvency Proceedings – CAAD Case 368/2016-T

ARBITRAL DECISION

Applicant: A…, SA

Respondent: AT - TAX AND CUSTOMS AUTHORITY

I – REPORT

Application

A…, SA, taxpayer no. …, with registered office at Rua…, no. …, …-… Lisbon, hereinafter referred to as the Applicant, filed, on 05-07-2016, pursuant to article 2(1)(a) and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime for Arbitration in Tax Matters (RJAMT), an application for arbitral decision, against the AT - TAX AND CUSTOMS AUTHORITY, hereinafter referred to as the Respondent, with a view to:

• The declaration of illegality of the act of dismissal of the administrative complaint filed by the Applicant against the assessment of Municipal Tax on Onerous Property Transfers no. …

• The annulment of the same assessment act;

• The condemnation of the Respondent to reimburse to the Applicant the amounts of tax improperly paid, plus the corresponding indemnity interest;

The Applicant alleges, in essence and with relevance for the decision of the case, the following:

• The Applicant acquired, within the scope of a personal insolvency proceeding, the real property registered in the property record under article … of the union of parishes of … and …;

• The Tax Administration considered that this acquisition could not benefit from the exemption provided for in article 270(2) of the Insolvency and Company Recovery Code (CIRE), on the grounds that it was not a transfer of the universality of properties of an insolvent company;

• Given that the insolvency proceeding has, as its principal purpose, the satisfaction of creditors, such purpose may be achieved either through the complete liquidation of the debtors' assets or through the maintenance of activities and consequent restructuring of the insolvent company;

• Pursuant to article 270(1) of the CIRE, the following property transfer operations benefit from IMT exemption, carried out within the scope of any insolvency plan, payment plan or recovery plan, provided that:

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

ii) They are intended for the realization of the increase in capital of the debtor company;

iii) They result from acts of dation in payment of company assets, as well as from the cession of assets to creditors.

• In accordance with article 270(2) of the same provision, the following acts are also exempt from municipal tax on onerous property transfers: sale, exchange or cession of the company or its establishments within the scope of insolvency plans, payment plans or recovery plans, or carried out within the scope of the liquidation of the insolvent estate;

• Thus, it is concluded that the following acts of acquisition of real property are also exempt from IMT:

i) Sale

ii) Exchange

iii) Cession of the company or its establishment, provided that:

• the act is integrated in an insolvency plan, payment plan or recovery plan;

• it is carried out within the scope of the liquidation of the insolvent estate

• In this manner, the IMT exemption is granted, on one hand, within the scope of operations of full or partial acquisition of the company subject to the insolvency proceeding, and on the other hand to acts of acquisition of real property considered individually, carried out during the phase of liquidation of its assets;

• Given the express intention of the legislator, in the preamble of the diploma approving the CIRE, to maintain the regimes existing in the previous Code of Special Proceedings for Company Recovery and Bankruptcy regarding the exemption of fees and tax benefits, it is required that the operations of alienation of elements of the company's assets within the scope of the liquidation of its insolvent estate be understood as remaining within the scope of IMT exemption;

• And thus it is evident that the operation of acquisition of the real property in question benefits from the exemption established in article 270(2) of the CIRE;

• The Supreme Administrative Court has already ruled on the issue in question, pronouncing itself in the sense of the understanding proposed by the Applicant, namely in case 1085/13, concluding that the exemption established in article 270(2) of the CIRE extends to those who acquire real property considered individually or integrated in the full or partial acquisition of the company;

• In case 949/11, the Supreme Administrative Court cited the legislative authorization law on which the approval of the CIRE was based, concluding that, as that law authorized the government to exempt IMT from property transfers integrated in any insolvency or payment plan, or carried out within the scope of the liquidation of the insolvent estate: (…) c) from the sale, exchange or cession of the company, establishment or element of its assets, the government could not, in using the legislative authorization, restrict the scope of the exemption.

• The jurisprudence of tax arbitration tribunals also concurs in the sense of the understanding of the law proposed by the Applicant, namely the decision in case 99/2015-T, in which it is concluded that it would not be understood that the legislator intended to exempt stamp duty on the transfer of a property that is an asset and, however, consider that this same transfer is subject to IMT;

Regarding the concept of company (which is used in the CIRE provision in question):

• Pursuant to article 5 of the CIRE, a company is considered to be any organization of capital and labor intended for the exercise of any economic activity;

• The notion of company is not equivalent to the concept of legal person; and if the individual is an entrepreneur, there is no distinction between his private assets and the company's assets, since all the debtor's assets, including private ones, respond to company debts, and are consequently encompassed by insolvency;

• Case law considers that the legislator in article 5 of the CIRE opted for a broad concept of company, not requiring professional character; what is essential is that there be an organization of capital and labor, and determinative for this purpose is the exercise of an activity of economic interest;

• It follows from this that the aforementioned provision applies to companies comprised within a legal person as well as to individual companies, where the entrepreneur is the merchant operating in his individual name, who conducts an economic activity in corporate form;

• As such, the IMT exemption provided for in article 270(2) of the CIRE appears to be equally applicable to acquisitions of real property carried out within the scope of the liquidation of the insolvent estate of individuals who act as individual entrepreneurs.

• Therefore, the contested IMT assessment should be considered illegal.

Respondent's Reply

In its Reply, the Respondent alleges, in summary, the following:

• The current article 270(2) of the Insolvency and Company Recovery Code (CIRE) provides that "The following acts are also exempt from municipal tax on onerous property transfers: sale, exchange or cession of the company or its establishments, integrated within the scope of insolvency plans, payment plans or recovery plans, or carried out within the scope of the liquidation of the insolvent estate";

• This exemption, previously provided for, covers all acts integrated within the scope of insolvency plans, or payment plans, or liquidation of the insolvent estate, with the reservation, however, that the object of the exempt transfer be the company or the establishment and not one or two assets of its estate;

• The previous wording of article 270(2) of the Insolvency and Company Recovery Code (CIRE) thus provided, as follows: "2 - The following acts are also exempt from municipal tax on onerous property transfers: sale, exchange or cession of the company or its establishments integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate.";

• Within the scope of the interpretation of the previous wording of article 270(2) of the CIRE, we find what is provided by Case Law, namely in the judgment rendered in Appeal 765/13 by the Supreme Administrative Court on 03/07/2013, which states: "It can, certainly, be argued that, from the perspective of the CIRE legislator, the differences as to the scope of the IMT exemption compared to what existed in the CPEREF for SISA did not appear to be essential, hence he made no particular reference to them. That is, particularly in tax matters, the preamble of the diplomas does not always accurately reflect their content, and it is not even unprecedented that they include references that the text of the law contradicts (see, with regard to SISA/IMT, the Judgment of this Supreme Court of 3 November 2010, appeal no. 499/10). And it can also be argued that in implementing the legislative authorization for approval of the CIRE, in the matter at hand, the Executive decided to be more restrictive than the National Assembly as to the granting of IMT exemption, deciding to exclude this exemption in cases of sale, exchange or cession of elements of its assets, granting it only in cases of sale, exchange or cession of the company or its establishment."

• From which it can perfectly well be accepted that in the interpretation of the spirit of the legislator, despite the legislative authorization being more permissive, the legislator as to the situation in question only intended to maintain the exemption in the case of transfer of the universality of assets associated with the exercise of the economic activity of the company;

• From the analysis of the two wordings of article 270(2) of the said provision, it is verified that the legislator only added the exemption relating to transfers of the company or its establishments, integrated within the scope of company recovery plans;

• It further follows that the fact that the preamble of the CIRE provides that as to fiscal benefits, those previously provided for in the CPEREF are maintained regarding the exemption of fees and fiscal benefits has no interpretive relevance to article 270(2), since "essentially" is not to be confused, in fact, with "exclusively";

• In that measure, the pointed phrase of the preamble cannot be inferred to support the idea that the CIRE would have intended to maintain the totality of fiscal benefits of the CPEREF;

• According to the doctrine expressed in the application for arbitral decision, the CIRE legislator would be bound to use the totality of the legislative authorization granted by article 9 of the authorization law;

• Thus, article 9(3) of that Law would authorize the Government to exempt from IMT a specified set of onerous transfers of real property, among which the sale, exchange or cession of the company or establishment and the sale, exchange or cession of the assets of the company or establishment.

• Therefore, by limiting the exemption only to transfers of real property carried out within the scope of the sale, exchange or cession of the company or establishment, the legislator would have exceeded the limits, understood as the meaning and scope, of the legislative authorization granted;

• The truth is that, if the meaning of the legislative authorization were what is sustained by the aforementioned judgment of the Supreme Administrative Court, that is, that the legislative authorization could only be used in block and never partially, such intention should be expressed in Law no. 39/2003, which was not the case;

• By authorizing the Government only to approve a set of fiscal benefits within the scope of insolvency and company recovery proceedings, the National Assembly granted it the possibility of approving in block all these fiscal benefits, approving only part of them, or then simply not using the legislative authorization;

• The legislative authorization is not an absolute imposition to legislate, contrary to what the aforementioned Judgment of the Supreme Administrative Court erroneously sustains. The binding of the ordinary legislator to the legislative authorization granted by the National Assembly is not absolute, covering only its temporal limit of duration. The Government cannot use the legislative authorization after its expiration, nor can it distort or exceed the meaning and scope of the authorizing legal norm.

• If the legislative authorization grants the Government the ability to approve a set of fiscal benefits, the Government may opt for the approval of only part of them and not all of them, without thereby violating the meaning and scope of the legislative authorization.

• Regarding the principle of interpretation "in conformity with the Constitution" to which the aforementioned Judgment of the Supreme Administrative Court resorts, the same does not justify the conclusion of the invalidity of the contested assessments.

• If article 270(2) of the CIRE were indeed unconstitutional, the only logical consequence, by virtue of being the only one compatible with the constitutional text, would be the legality of the assessment by virtue of the inapplicability of a provision on fiscal benefits approved without any legislative authorization granted by Parliament.

• In that case, the norm granting the fiscal benefit would be, in fact, affected by organic unconstitutionality.

• It should be noted, in this regard, that the purported organic unconstitutionality is completely superseded by the wording of articles 16(1) and 270(2) of the CIRE as given by article 234 of Law no. 66-B/2012, of 31 December, which approved the State Budget for 2013.

• In particular, that article 234 gave new wording to article 270(2) of the CIRE, which would now provide that the acts of sale, exchange or cession of the establishment or company integrated within the scope of insolvency, payment or recovery plans of the insolvent estate are exempt.

• The issue of the pseudo-organic unconstitutionality of the previous wording would thus be superseded by the fact that the new wording was introduced by the National Assembly;

• Pursuant to the Judgment of the Supreme Administrative Court, of 12 February 1997, appeal no. 20733, a valid interpretation of the law cannot be considered one that, even if in conformity with the Constitution, violates the rules that are imperatively applicable to it, exceeding the literal tenor of the norm to be applied.

• The conformity with the Constitution of the solution reached does not thus guarantee the validity of the interpretation of the tax norms – it is indispensable that the general principles of interpretation and application of tax laws be equally observed in the interpretive activity.

• Provided that the chosen interpretation obtains in the law a minimum literal support even if imperfectly expressed (article 9(2) of the Civil Code), the doctrine of "interpretation in conformity with the Constitution" is not incompatible with article 9(1) of this provision.

• In the case in question, we are dealing with the acquisition of a property, albeit in an insolvency proceeding, but which does not belong to a company nor was intended for the exercise of any business activity, but which was the property of an individual, apparently intended for housing, therefore the legal requirements for IMT exemption due to its transfer having been carried out in an insolvency proceeding are not met.

• This is the interpretation that results from the reading of the norm in question and which corresponds to the spirit of the legislator, and according to article 9(3) of the Civil Code: "In determining the meaning and scope of the law, the interpreter shall presume that the legislator consecrated the most correct solutions and knew how to express his thought in adequate terms."

• For all the foregoing, the Applicant's arguments fail, as regards the interpretation to be made of the legal provision in question here;

• The alienator, from whom the Applicant acquired the property, is a singular taxpayer who ceased the activity of commission agent since 2010, therefore, it is necessary to conclude that he is not a merchant and we are dealing with a singular taxpayer.

• It happens that it is not apparent that it was the legislator's intention to encompass acquisitions of assets within insolvency proceedings of individuals in the stamp duty exemption.

• For which reason, making an interpretation different from that proposed here, and granting to acquisitions by individuals the same benefits in terms of IMT exemption that are granted in acquisitions within insolvency proceedings of companies, that would indeed be an interpretation contrary to the principle of equality, established in article 13 of the Constitution of the Portuguese Republic.

• It must further be noted that the AT is bound both by the principle of legality and by internal guidelines emanated by the AT.

• And on this issue, there is a binding ruling in Case … – IVE no. …, with concordant order, of 24/03/2009, from the Deputy General Director of Taxes of the Patrimony Area, which confirms the opinion of the Legal Consultancy and Litigation Service, in which it is concluded as follows: "The application of the fiscal benefits of article 270(2) of the C.I.R.E. depends on the real property transferred being integrated in the universality of the company or establishment sold, exchanged or ceded within the scope of the insolvency plan or payment plan or the liquidation of the insolvent company."

• It thus clearly results that the acquisition was not aimed at continuing the same activity, which could not happen because the acquisition involved the purchase of a property from a singular taxpayer who does not conduct commercial activity.

• That is, the sale of real property to the company, individually, is not thus encompassed by the exemption provided for in article 270(2) of the CIRE, nor is the sale of real property belonging to an insolvent singular taxpayer, being consequently subject to IMT under the general rules.

Subsequent Proceedings

By order of 21 February 2017, after obtaining the consent of the Parties, the Tribunal determined the dispensation with the holding of the meeting provided for in article 18 of the RJAMT and with arguments.

II – CASE MANAGEMENT

The singular Arbitral Tribunal was regularly constituted on 21-09-2016, with the arbitrator designated by the Deontological Board of CAAD, having fulfilled the respective legal and regulatory formalities (articles 11(1)(a) and (b) of the RJAMT and articles 6 and 7 of the CAAD Deontological Code).

The Parties have judicial personality and capacity, are legitimate and are regularly represented, pursuant to articles 4 and 10 of the RJAMT and article 1 of Decree no. 112-A/2011, of 22 March.

No procedural irregularities were identified.

III – ISSUES TO BE DECIDED

The issue to be decided is whether the IMT exemption provided for in article 270 of the CIRE applies to the acquisition of a unit of urban property through adjudication in an insolvency proceeding when the insolvent alienator is an individual.

IV – PROVEN FACTS

The following proven facts deemed relevant to the decision are:

• On 1-12-2013 the Applicant acquired, through adjudication in an insolvency proceeding, the B…, unit … of the urban property registered in the property record of the union of parishes of … and … under article …;

• The alienator was, at the time, insolvent;

• The alienator was registered for tax purposes as "commission agent" between 2-10-2009 and 6-10-2010, having been classified by the Tax Authority, for IRS purposes, in category B – professional income;

• After that period and until the date of acquisition subject to IMT taxation the alienator was not registered as holder of business or professional income;

• On 27-12-2013, the Applicant filed the IMT form 1, having then been granted IMT exemption and Stamp Duty exemption on the operation, under articles 270(2) and 269(e) of the CIRE;

• On 20-10-2015, the Tax Authority assessed, on the acquisition operation, IMT in the amount of 620 euros and Stamp Duty in the amount of 496 euros, on the grounds that the acquisition was made by a private individual and not a "company";

• On 18-02-2016, the Applicant filed an administrative complaint against the IMT assessment;

• On 7-4-2015 the Tax Authority dismissed the administrative complaint;

• A fiscal enforcement proceeding was instituted, in February 2016, for coercive collection of the debt, having the Applicant paid the debt, in the amount of 620 euros, and an accrual in the amount of 29.27 euros.

• The unit of property acquired is described as "intended for housing".

V - REASONING

Legal Framework

Article 121 of the Code of Special Proceedings for Company Recovery and Bankruptcy, approved by Decree-law no. 132/93, of 23 April, provided, as regards fiscal exemptions:

(...)

2 - The following are also exempt from municipal sisa tax: property transfers, integrated in any of the company recovery measures, that result from:

(...)

c) The legal separation of commercial or industrial establishments, the sale, exchange or cession of elements of the company's assets, as well as long-term leases, provided for, respectively, in subparagraphs e), f) and g) of article 101(1)

In 2004 the said code was replaced by the current Insolvency and Company Recovery Code, approved by Decree-law no. 53/2004, of 18 March.

In the preamble of this diploma, it reads:

49 - The regimes existing in the CPEREF are maintained, in essence, regarding the exemption of fees and fiscal benefits, as well as regarding the indication of criminal offense.

This diploma was approved pursuant to a legislative authorization law (Law no. 39/2003, of 22 August) which provided:

Article 9

(...)

3 — Finally, the Government is authorized to exempt from municipal sisa tax the following onerous transfers of real property, integrated in any insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate:

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

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

c) Those resulting from the cession to third parties or alienation of shareholdings representing the company's capital, dation in payment of company assets and cession of assets to creditors, sale, exchange or cession of the company, establishments or elements of its assets, as well as long-term leases.

In the original version of the diploma article 270 provided as follows:

Article 270

Benefit relating to municipal tax on onerous property transfers

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

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

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

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

2 - The following acts are also exempt from municipal tax on onerous property transfers: sale, exchange or cession of the company or its establishments integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate.

Currently, after amendment introduced by Law no. 66-B/2012, of 31/12, article 270 of the CIRE provides as follows:

Article 270

Benefit relating to municipal tax on onerous property transfers

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

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

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

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

2 - The following acts are also exempt from municipal tax on onerous property transfers: sale, exchange or cession of the company or its establishments integrated within the scope of insolvency plans, payment plans or recovery plans, or carried out within the scope of the liquidation of the insolvent estate.

The Issue of Applicability of the Exemption Provided for in Article 270(2) to the Acquisition of Isolated Real Properties

It has been debated whether the exemption in article 270(2) of the CIRE applies when the acquisition concerns, not a company or establishment in its entirety but one or more isolated real properties, integrated in the assets of the insolvent company and within the scope of the insolvency proceeding.

On this question the following points must be highlighted:

• The law (article 270(2)) speaks, indeed, only of sale of a company or of its establishments;

• The legislative authorization law, pursuant to which the CIRE was approved, on the other hand, in its article 9(3), authorized the Government to establish sisa exemption on the sale of the company, establishments or elements of its assets, being therefore, in its letter, clearly different from the current article 270(2) of the CIRE.

Case law, in its majority, has considered that the exemption provided for in article 270(2) should apply in acquisitions of real property integrated in the patrimony of companies subject to the insolvency proceeding.

One of the first judgments of the Supreme Administrative Court to affirm this doctrine was the judgment of 17-12-2014, rendered in case no. 1085/13, in which the Court founded its interpretation as follows:

"Having in mind the purpose which the legislator intends to achieve with the granting of such exemption – to foster and support the rapid sale of assets that integrate the insolvent estate for obvious reasons of interest to creditors, but also of public interest in the resumption of normal operation of the business world in which each insolvency proceeding presents itself as a disturbing element, by giving a 'bonus' to anyone who acquires the real properties that integrate the insolvent estate – buy these assets more cheaply because he does not have to pay the IMT that would be due on acquisition of a similar property outside the insolvency proceeding – and which will be sold in the liquidation phase, the ambiguous text of article 270(2) can be the object of a clearer and unambiguous reading without recourse to any extensive interpretation. It suffices that we ask ourselves whether, to achieve the purpose previously defined, it makes any difference whether one is selling the company globally with all its assets and liabilities, or one is selling one or more of the commercial establishments that comprised it, or whether one is selling assets that comprised its patrimony but were not used in its business operations – for example a property received in payment of a debt for which the insolvent company was creditor – in order to be faced with a sale that is carried out within the scope of the liquidation of the insolvent estate? And if in the same situations it is not sales but exchanges or cessions – bearing in mind that this word must have been used in an improper sense in that, associated with the business world it is customary to refer to cession of operations, cession of the commercial establishment, similar to lease and not alienation, and in the Insolvency and Company Recovery Code it is shown to be used also regarding the acquisition of assets by creditors –? We believe that the answer cannot but be negative.

Article 270(1) of the Insolvency and Company Recovery Code grants IMT exemption to transfers of real property effected in fulfillment of:

1. Insolvency plan
2. Payment plan
3. Recovery plan

provided that such transfers have the purpose of one of the following situations:

a. Constitution of a new company or companies
b. Realization of the capital share of a new company or company
c. Realization of the increase in capital share of the debtor company

or result from:

i. Dation in payment of company assets
ii. Cession of assets to creditors.

Article 270(2) does not repeat the exemption which it established in article 270(1), it extends it to persons who, external to the insolvency proceeding because they are not the creditors who acquired the assets, the insolvent company which saw its capital increased, or the company which was formed from this proceeding, these already contemplated in article 270(1), but to those who acquire real property considered individually or integrated in the full or partial acquisition of the company.

We believe that article 270(2) of the Insolvency and Company Recovery Code should be interpreted, taking into account what has just been stated, without the need for any extensive interpretation, respecting its text, the purpose it aims to achieve, the various variants of the insolvency proceeding contained in the Insolvency and Company Recovery Code and the systematic logic of this diploma, as conferring IMT exemption to the following acts:

1. Sale
2. Exchange
3. Cession

• Of the company
• Or of establishments of that company,

provided that any one of these acts is either integrated within

1. Insolvency plan
2. Payment plan
3. Recovery plan,

or is carried out within the scope of the liquidation of the insolvent estate."

Subsequently, the Court reiterated its position in the judgments:

• Supreme Administrative Court, 2nd Section, judgment of 18-11-2015, case no. 1067/15, which reads:

"The IMT exemption provided for by article 270(2) of the CIRE applies not only to sales or exchanges of companies or establishments as a universality of assets, but also to sales and exchanges of real property (as elements of its assets), provided they are framed within an insolvency plan or payment plan, or carried out within the scope of the liquidation of the insolvent estate."

• Supreme Administrative Court, 2nd Section, judgment of 16-12-2015, case no. 1345/15, which reads:

The IMT exemption provided for by article 270(2) of the CIRE applies not only to sales or exchanges of companies or establishments as a universality of assets, but also to sales and exchanges of real property (as elements of its assets), provided they are framed within an insolvency plan or payment plan, or carried out within the scope of the liquidation of the insolvent estate.

• Supreme Administrative Court, 2nd Section, judgment of 20-01-2016, case no. 1350/15

"The IMT exemption provided for by article 270(2) of the CIRE applies not only to sales or exchanges of companies or establishments as a universality of assets, but also to sales and exchanges of real property (as elements of its assets), provided they are framed within an insolvency plan or payment plan, or carried out within the scope of the liquidation of the insolvent estate."

• Supreme Administrative Court, 2nd Section, judgment of 1-03-2016, case no. 788/14

Thus, it is already settled case law of this section that, the wording of article 270(2) of the CIRE not being clear, it should be understood that there are exempt from IMT "not only sales of the company or its establishments, as universalities of assets, but also sales of elements of its assets, provided they are integrated within an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate" (see, among others, in addition to the already cited Judgment 949/11, the Judgments of 03-07-2013, appeal 0765/13, of 17.12.2014, appeal 01085/13, of 11.11.2015, appeal 968/13, of 18.11.2015, appeals 01067/15 and 0575/15, respectively, of 16 December 2015, appeal 1345/15, and of 20 January 2016, appeal 1350/15, all at www.dgsi.pt).

More recently, the Court reiterated its doctrine in the judgments: Supreme Administrative Court, 2nd Section, judgment of 15-02-17, case no. 793/16; Supreme Administrative Court, 2nd Section, judgment of 01-02-17, case no. 724/16; Supreme Administrative Court, 2nd Section, judgment of 25-01-17, case no. 1159/16;

Relevance of the Cited Case Law to the Case Sub Judice

As already mentioned, article 270(2) of the CIRE, literally exempts from IMT the acquisition – whether by sale, exchange or cession – of a company or of its establishments, integrated (the company or the establishment) within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate.

It does not speak, indeed, of the acquisition of isolated assets, whether they be real property or personal property.

However, the Supreme Administrative Court has held that the exemption is also applicable when the acquisition concerns, not a company, not an establishment of a company, but one or more assets belonging to the assets of a company.

In all the cases decided by the Supreme Court based on this doctrine, what is at issue is the sale of real property integrated in the patrimony of a commercial company, within the scope of an insolvency proceeding. As is known, a commercial company is a legal form of a company. That is, although companies can be legally held through various legal forms, regarding commercial companies there is no question that it is always a company. Therefore, in all the cases in which, to date, the Court has applied its doctrine, what was at issue was the acquisition of real property integrated in the patrimony of companies.

And not only is this what results from the factual matter but the very terms in which the Court formulates its doctrine indicate that it is applicable to the situation of acquisition of assets comprising the patrimony of a company, when that Court says that "the IMT exemption provided for by article 270(2) of the CIRE applies not only to sales or exchanges of companies or establishments as a universality of assets, but also to sales and exchanges of real property (as elements of its assets), provided they are framed within an insolvency plan or payment plan, or carried out within the scope of the liquidation of the insolvent estate." The Court emphasizes, makes clear, that it applies this doctrine when it concerns the acquisition of assets that are elements of the assets of companies.

It is not disputed that companies can be legally held by merchants operating in their individual name.

Nor is it contrary to the opinion of Menezes Leitão, of which the Applicant makes use, that "if the individual is an entrepreneur, there is no distinction between his private assets and the company's assets, since all the debtor's assets, including private ones, respond to company debts, being consequently encompassed by insolvency."

The doctrine of Menezes Leitão is nothing more than a consequence of the general principle that the debtor's assets constitute the general guarantee of creditors, a principle which only suffers the restrictions expressly established by law or legal transaction, as is the case of the limited liability of certain forms of company.

But we believe that Menezes Leitão says more than what he really means when he states that there is no distinction between the personal assets and the business assets of the individual entrepreneur, and the proof of this is that the Author himself speaks of "personal assets" and the "company's assets." The individual entrepreneur has a company and possesses assets that are dedicated to that company. Those assets constitute the "company's assets" of the individual entrepreneur, by contrast with his personal assets. What does not exist is isolation of personal assets in relation to debts generated in business activity.

Now, in the present case, to apply the doctrine of the Supreme Administrative Court, we would have to inquire whether the real property in question was integrated in the "company's assets" of the individual entrepreneur.

The Applicant itself equates the question in exactly these terms when it states:
Article 37:

"(…) given the express intention of the legislator regarding the maintenance of the regimes existing in the CPEREF as regards the exemption of fees and fiscal benefits, it is therefore required to sustain the understanding that are comprised within the scope of the IMT exemption, provided for in article 270(2) of the CIRE, the operations of alienation of elements of the company's assets within the scope of the liquidation of its insolvent estate."

Article 38:

"From what has been stated it clearly results that the operation of acquisition of the real property in question in the present application, carried out by the Applicant, is encompassed within the scope of application of article 270(2) of the CIRE and that, as such, it legitimately benefits from the IMT exemption established there (…)."

In summary, the Applicant alleges that, because article 270(2) of the CIRE is applicable to the acquisition of an asset of a company within the scope of the liquidation of its insolvent estate, the same is applicable to the acquisition made by it.

The Applicant's contention has, therefore, as its premise, that its acquisition concerned an asset that is an "element of the assets" of a company.

The Applicant, in order to have its claim upheld, had the burden of alleging and proving these factual requirements: that the alienator had, at the date of the opening of the insolvency proceeding, a company; that the alienated asset was an element of the assets of that company.

Now, the Applicant does not prove these facts and, more than that, does not even allege them.

From what is possible to extract from the evidence, the real property in question was an autonomous unit with residential intended use, as is specified in the proven facts. The alienator, on the other hand, was registered for tax purposes as holder of category B income, yes, but with professional and not business income.

Article 3 of the Personal Income Tax Code provides:

1 - The following are considered business and professional income:

a) Those resulting from the exercise of any commercial, industrial, agricultural, forestry or cattle-raising activity;

b) Those earned in the exercise, on one's own account, of any activity of provision of services, including those of a scientific, artistic or technical character, whatever their nature, even if connected with activities mentioned in subparagraph a); (Wording given by Law no. 32-B/2002, of 30 December)

c) Those arising from intellectual or industrial property or from the provision of information regarding experience acquired in the industrial, commercial or scientific sector, when earned by its original holder.

From this distinction between types of category B income it already appears with some clarity that this category includes business income (those in subparagraph a) and professional income (those in subparagraph b).

Article 28, however, consecrates this distinction taxatively, in stating:

1 - The determination of business and professional income, except in the case of imputation provided for in article 20, is made as follows:"

There is no doubt, therefore, that tax law distinguishes, within category B, business income and professional income.

It can be said, and with complete reason, that this distinction in tax law is not relevant to the interpretation of the CIRE, it being important to consider other elements.

Article 5 of the CIRE has a definition of company for purposes of application of its regime, very vague, but which also appears to point to the non-inclusion in the concept of a purely professional activity, in stating that "a company is considered to be any organization of capital and labor intended for the exercise of any economic activity."

And finally, in the realm of common language, the exercise of a business activity is also not confused with the exercise of a professional activity.

The alienator of the property was a "commission agent" and was classified as earning professional income. Nothing permits the conclusion that the alienator had a company.

Thus, we do not consider proven either that the alienator was an entrepreneur at the date of opening of the insolvency proceeding nor that the autonomous unit alienated, with residential intended use, was part of the assets of any company. Facts which, moreover, the Applicant does not allege, as it was obliged to do to support its position.

In summary, in the absence of allegation and proof, by the Applicant, that the acquired real property was integrated in the patrimony of a company, it is necessary to conclude that the issue to be decided in the present proceedings is the question of whether the exemption of article 270(2) applies to the acquisition, within the scope of an insolvency proceeding, of a real property that does not form part of the assets of a company.

In light, on one hand, of the literal tenor of article 270(2) and, on the other, of the doctrine of the Supreme Administrative Court on the scope of this exemption, it is necessary to answer negatively to this question, with the consequent conclusion that the exemption of article 270(2) of the CIRE does not apply to the acquisition on which the contested tax assessment was based.

V – DECISION

We are of the opinion that the Tribunal decides not to declare the contested Municipal Tax on Onerous Property Transfers assessment illegal, refusing the claim of the Applicant.

Value of the economic utility of the proceedings: The value of the economic utility of the proceedings is fixed at 649.27 euros.

Costs: Pursuant to article 22(4) of the RJAMT, the amount of costs is fixed at 306.00 euros, in accordance with Table I annexed to the Regulations for Costs in Tax Arbitration Proceedings, to be borne by the Applicant.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Center for Administrative Arbitration, 15 March 2017

The Arbitrator

(Nina Aguiar)