CAAD Rules on IRC Corrections to Real Estate Transfer Values Acquired in Insolvency Under Article 64 CIRC

ARBITRAL TAX JURISPRUDENCE

Case No. 43/2019-T

Date of Decision:
2019-09-05

Tax: IRC

Value of Claim:
€ 207,981.39

Subject:
IRC – Corrections to the value of transfer of real rights over immovable property acquired in insolvency proceedings (article 64 of the CIRC)

ARBITRAL DECISION

The arbitrators Dr. José Poças Falcão (arbitrator-president), Professor Dr. Francisco José Nicolau Domingos and Dr. Rui Ferreira Rodrigues (arbitrators-members), appointed by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Court, constituted on 02 April 2019, hereby agree as follows:

1 - Report

1.1 – "A..., S.A.", taxpayer no. ..., with registered office at Rua ..., no. ..., in the city of ..., hereinafter referred to as the "Claimant", hereby requests, pursuant to articles 2, no. 1, paragraph a) and 10, nos. 1 and 2, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters), hereinafter referred to only as "RJAT" and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, the constitution of a collective arbitral tribunal, in which the Tax and Customs Authority is the "Respondent" (hereinafter "Respondent" or "AT").

1.2 - The request for arbitral pronouncement, submitted on 21 January 2019, to which two documents were attached, a power of attorney and proof of payment of the initial arbitration fee, has as its object the declaration of illegality of the order dismissing the gracious complaint relating to case no. ...2018..., issued by the Head of the Tax Justice Division of the Finance Directorate of the ..., on 17 October 2018, under delegated authority, and the consequent annulment of the corporate income tax (IRC) assessment no. 2017..., issued by the "AT" on 06 December 2018, referring to the year 2016, and of the assessments of the respective compensatory and default interest contained in the statement of account adjustment no. 2017..., in the total amount of 207,981.39 € (two hundred and seven thousand, nine hundred and eighty-one euros and thirty-nine cents), with final payment date of 25 January 2018.

1.3 - It further requests the condemnation of the "AT" to compensation for any expenses incurred with the provision of security, in accordance with articles 53 of the General Tax Code (LGT) and 171 of the Code of Tax Procedure and Process (CPPT), as well as in arbitration costs and other expenses relating to the case.

1.4 - The Claimant chose not to appoint an arbitrator.

1.5 - The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the AT on 29 January 2019.

1.6 - Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated their acceptance of the appointment within the applicable period.

1.7 - On 13 March 2019, the Parties were notified of this appointment and did not object to it, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the CAAD Ethics Code.

1.8 - Thus, in accordance with the provisions of article 11, no. 1, paragraph c) of the RJAT, the collective arbitral tribunal was constituted on 02 April 2019.

1.9 - The Respondent was notified by arbitral order of 08 April 2019, pursuant to article 17, no. 1 of the RJAT, to submit, within 30 days, a Response, if it so wished, and to request the production of additional evidence.

1.10 - It was further notified to submit, within the same period, the administrative file (PA) referred to in article 111 of the CPPT.

1.11 - On 16 May 2019 the Respondent submitted its Response, defending itself through contestation, arguing for the dismissal of the request for arbitral pronouncement and the maintenance in the legal order of the contested tax assessment acts, with the consequent absolution of the Respondent from the claim.

1.12 - On the same date it submitted the respective PA.

1.13 - Considering that the Parties did not request the production of any evidence beyond the documentary evidence attached to the file, the Arbitral Court, in light of the principles of autonomy in case management, expedition, simplification and procedural informality, inherent in articles 16 and 29, no. 2, of the RJAT, by order of 17 May 2019, dispensed with the holding of the meeting provided for in article 18 of the same statute, and further decided that the case would proceed with optional written submissions, within a period of 20 days, successively for the Respondent.

1.14 - By the same order it was determined that the arbitral decision would be issued by 6 May 2019.

1.15 – The Parties did not submit submissions.

Position of the Parties

Of the Claimant –

It supports its request for arbitral pronouncement, summarized as follows:

That it is a joint-stock company, subject to the general IRC regime, which carries out as its main activity the construction of immovable property, as well as its purchase and sale.

In the exercise of its activity, in the year 2016, it acquired, for the price of 1,950,000.00 €, various properties in the context of the insolvency of companies operating under the names "B..., SA" and "C..., Ld.ª", with tax equity values of 9,797,440.00 €.

In the same year it sold the aforementioned properties, so, in accordance with nos. 2 and 3 paragraph b) of the CIRC, it calculated the positive difference between the TEV and the purchase price of the aforementioned immovable property, entering this differential of 7,695,766.66 €, in the "Model 22" declaration of 2016, more precisely in its respective field 772 – "Correction by the acquirer of immovable property when adopting the tax equity value for the determination of the taxable result in the respective transfer [art. 64, no. 3, al. b)]".

However, following the external partial inspection procedure, in IRC and Value Added Tax (VAT), referring to the years 2014, 2015 and 2016, conducted on the basis of Service Order no. OI2017.../.../..., it was notified of the corrections deemed necessary by the AT, regarding the completion of the aforementioned field 772, with the AT stating that "as for the two immovable properties sold in 2016, which were acquired in the context of insolvency proceedings, the taxpayer should have adopted, for the purposes of determining taxable profit, in the capacity of acquirer, the values contained in the purchase contracts, so the negative correction made to the taxable profit of 2016, in the amount of 7,695,766.66€, is not due. Thus, we propose a correction to the fiscal result declared for 2016, in the amount of 7,695,766.66€." (cf. pg. 14 RIT).

In this manner the Claimant proceeded to amend the aforementioned declaration, canceling the deduction initially made to taxable profit in the aforementioned amount of 7,695,766.66 €.

That no. 1 of article 64 of the CIRC establishes that the value to be adopted, for the purposes of determining taxable profit in IRC, in the context of the purchase and sale of immovable property, is the tax equity value that served "as the basis for the assessment of the municipal tax on onerous transfers of immovable property (IMT), or that" would serve "in case there was no grounds for the assessment of this tax" and that, in accordance with no. 2 of the same article "Whenever, in the onerous transfers provided for in the preceding number, the value in the contract is less than the tax equity value of the immovable property, this is the value to be considered by the transferor and acquirer, for determination of taxable profit".

It states in no. 3 of the same article that for the application of the provisions in no. 2, the taxpayer acquirer adopts the TEV for the determination of any taxable result in IRC relating to the immovable property.

Thus, the Claimant finds no basis for the AT to resort to the rules of the IMT code to determine taxable profit in IRC, questioning where, in the aforementioned article (which is the relevant one for IRC purposes), the AT sees that, when the TEV is not used for IMT purposes, it should also not be used for the purposes of determining taxable profit in IRC, even when higher than the value of the deed or contract.

For the Claimant it is not because the TEV is not used for IMT purposes that it loses its legal meaning, which, moreover, is attributed to it by the IMI Code and not by the IMT Code, notwithstanding the AT, to maintain the tax act, invoking the provision in rule 16 of no. 4 of article 12 of the IMT Code, namely, that the value of assets acquired through judicial sale is the price in the deed or contract, since the immovable properties in question were acquired in the context of the liquidation of insolvent estates.

Moreover, in accordance with the administrative instructions of the AT, namely Circular no. 22/2009, of 14 September, which is neither law nor has force of law, the acquisitions of the urban properties in question, because they were carried out in the context of the liquidation of the insolvent estate, constitute a sale by private negotiation, carried out within a judicial procedure, integrating the concept of judicial sale, for the purposes of applying rule 16 of no. 4 of article 12 of the CIMT.

It is the conviction of the Claimant that this rule is not intended to regulate, neither in its letter nor in its spirit, the determination of taxable profit for IRC purposes, for which the law considers the TEV whenever the value of the deed is less than this value.

It concludes by arguing for the allowance of the request for arbitral pronouncement and through this for the annulment of the contested assessments with all the consequences provided for in law, as well as for the payment of the compensation shown to be due with expenses incurred with the provision of security in the respective tax enforcement proceedings, in accordance with articles 53 of the General Tax Code (LGT) and 171 of the Code of Tax Procedure and Process (CPPT), as well as arbitration costs and other expenses relating to the case.

Of the Respondent –

Defending itself through contestation, it invokes the following arguments:

That the contested assessments do not suffer from any error in the factual and legal presuppositions, so they should be maintained in the legal order.

The question raised comes down to determining which value should be considered in determining the Claimant's taxable profit, relating to the year 2016, for the purposes of making the correction to the taxable result of the value of alienation/acquisition of immovable property, when normal market values are not practiced and when those immovable properties have been acquired in the context of insolvency proceedings: whether the TEV or the contract value.

By force of the provision in no. 1 of the cited article 64 of the CIRC, for the purposes of determining taxable profit, normal market values must be adopted, which cannot be less than the tax equity values that served as the basis for the assessment of IMT or that would serve in case there was no grounds for the assessment of this tax.

Thus it is necessary to determine which value was considered for IMT purposes or that would be in case there was no grounds for the assessment of that tax.

The rule, in accordance with the provision in no. 1 of article 12 of the CIMT, is that IMT will be assessed on the value in the deed or contract, or on the tax equity value of immovable property, whichever is greater. However, such rule is applicable without prejudice to the rules provided for in no. 4 of the same article and statute, which having a special nature, are applicable preferentially in their specific domains.

In fact the immovable properties in question were acquired by private negotiation in the context of insolvency proceedings, so the taxable value for IMT purposes would be determined in accordance with rule 16, no. 4, of article 12 of the CIMT, which integrates judicial sale.

That this has been the understanding of the AT, at least since the publication of circular no. 22/2009, of 14 September, corroborated in paragraph g), no. 3 of circular no. 10/2015, of 9 September. Similar understanding is contained in the judgment of the STA of 05-11-2014 (Case no. 01508/12), summarized as follows: "(…) III - The sale of immovable property effected by the administrator in judicial bankruptcy proceedings and under judicial supervision (articles 158 and 161 of the CIRE) integrates the concept of judicial sale for the purposes of rule 16, no. 4 of article 12 of the CIMT".

So, in accordance with such provision of the CIMT, the value that serves or would serve as the basis for the assessment of IMT is the price in the deed or contract, constituting a derogation from the general rule contained in no. 1 of the cited article, which orders the comparison of the TEV with the declared price or deed or contract, with the greater value prevailing.

On the other hand, it has no relevance to establish the comparison between the contract price and the respective TEV, since this comparison would only occur if the TEV served as the taxable basis for the assessment of IMT.

Thus, in light of no. 1 of article 64 of the CIRC, correction of IRC taxable profit based on TEV higher than the price only takes place if, for IMT purposes, such rule is equally applicable.

Thus, the Claimant should consider as acquisition values the market values corresponding to the final tax equity values which, in accordance with the CIMT, would serve for the assessment of IMT that would take place, were it not for the exemption that these sales in insolvency proceedings benefited from.

Thus, for the purposes of the provision in no. 1 of article 64 of the CIRC, the values that should be adopted for determining taxable profit are those contained in the deeds of sale carried out in the context of insolvency proceedings, as these are the ones that would be considered for the purposes of assessment in IRC.

Such is the understanding of the Arbitral Tribunal, as set out in judgments delivered in cases no. 180/2015-T and 570/2017-T, respectively of 17-11-2015 and 15-03-2018.

It concludes by arguing for the total dismissal of the request for arbitral pronouncement and absolution of the Respondent, maintaining in the legal order the contested tax assessment acts, since the assessments in dispute constitute a correct interpretation and application of law to the facts, not suffering from any defect of violation of law due to error in the factual and legal presuppositions.

2 - Clarification

2.1 - The Parties have legal standing and capacity, are shown to be legitimate and are properly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

2.2 - The case does not suffer from any nullities, the claim was timely presented and no exceptions were invoked.

2.3 - The Arbitral Court is regularly constituted and is materially competent to hear and decide the claim, cf. article 2, no. 1, paragraph a) and article 10, no. 1, of the RJAT.

2.4 - There are no other circumstances that prevent the merits of the case from being heard.

3. Factual Matter

3.1 Proven Facts

With relevance to the appraisal and decision of the issues raised, the following facts are given as established and proven:

a) The Claimant is a joint-stock company, subject to the general IRC regime, taxed for the exercise of the main activity of "Construction of buildings (residential and non-residential), CAE 41200 and secondary activities of "Real estate mediation activities", CAE 68311 and "Purchase and sale of real estate goods", CAE 68100 (cf. article 1 of the request for arbitral pronouncement (ppa) and II-3, page 5, of the Tax Inspection Report (RIT) and which are hereby fully reproduced herein).

b) On 28-01-2016, in the context of the insolvency proceedings no. .../07...T... of the company "B..., S.A.", it acquired the following properties registered in the urban and rural property matrices of the parish and council of ... (cf. article 2 of the ppa and point 2.3.1, page 11, of the Tax Inspection Report (RIT) and which are hereby fully reproduced herein).

c) On 16-06-2016, in the context of insolvency proceedings no. .../12...T... of the company "C..., Ld.ª", it acquired the following properties registered in the urban and rural property matrices of the union of parishes of ..., ... (... and ...) and ..., council of ...: (cf. article 2 of the ppa and point 2.3.1, pages 11/12, of the Tax Inspection Report (RIT) and which are hereby fully reproduced herein).

d) The aforementioned acquisitions benefited from exemption from the municipal tax on onerous transfers of immovable property (IMT), in accordance with no. 2 of article 270 of the Insolvency and Company Recovery Code (CIRE).

e) The difference between the TEVs and the purchase values of urban properties was 8,137,149.04 € (4,003,749.04 € + 4,133,400.00 €), (cf. point 2.3.1, page 12, of the Tax Inspection Report (RIT) and which is hereby fully reproduced).

f) However, the Claimant calculated the positive difference between the TEV and the purchase price of the properties, in the amount of 7,695,766.66 €, which it entered in field 772 (Correction by the acquirer of immovable property when adopting the tax equity value for the determination of the taxable result in the respective transfer [art. 64, no. 3, al. b)]), of Table 07 of model 22 declaration relating to the year 2016, to be deducted from the determination of taxable profit (cf. article 5 of the ppa and point 2.3.1, page 12, of the Tax Inspection Report (RIT) and which are hereby fully reproduced herein).

g) The properties referred to in paragraph b) above, of the parish and council of ... were subject to updating, with the submission of the corresponding IMI model 1 declaration, giving rise to a plot of land for construction, registered in the urban property matrix of the said parish under the article..., with the TEV of 1,554,080.00 €, being sold on 19-02-2016 to the company "D..., S.A., for the price of 1,550,000.00 € (cf. point 2.3.1, page 11/12, of the Tax Inspection Report (RIT) and which is hereby fully reproduced).

h) On 08-07-2016, the properties registered in the matrices of the union of parishes of ..., ... (... and ...) and ..., council of ..., under the articles ... (urban) and ... (rural), with the TEVs referred to in paragraph c) above, were sold to the company "E..., S.A." for the prices of 1,800,000.00 € and 50,000.00 €, respectively (cf. point 2.3.1, page 12, of the Tax Inspection Report (RIT) and which is hereby fully reproduced).

i) In field 745 (Positive difference between the tax equity value of immovable property and the value in the contract [article 64, no. 3, al. a)] ), of Table 7 of model 22 declaration relating to the year 2016, the Claimant entered the amount of 3,547,430.00, to be added to the determination of taxable profit (cf. point 2.3.1, page 12, of the Tax Inspection Report (RIT) and which is hereby fully reproduced).

j) In accordance with no. 3 of article 139 of the CIRC, a request was submitted by the Claimant intended to prove that the property registered under the article ... of the union of parishes of ..., ... (... and ...) and ..., council of ..., was effectively sold for the price of 1,800,000.00 €, which was granted (cf. point 2.3.1, III, page 12, of the Tax Inspection Report (RIT) and which is hereby fully reproduced).

k) On 02-11-2017 the Claimant was notified to exercise the right to a hearing, in accordance with articles 60 of the LGT and 60 of the Supplementary Regime of Tax Inspection Procedure (RCPIT) regarding the draft conclusions of the report of the external inspection to which it had been subjected based on Service Order no. OI2017.../... /... (cf. article 6 of the ppa and part IX, page 21, of the Tax Inspection Report (RIT) and which are hereby fully reproduced).

l) On 06-12-2017 the Claimant submitted an amended model 22 declaration relating to the year 2016, canceling the deduction of 7,695,766.66 € contained in field 772 of Table 7, as well as the addition of 3,547,430.00 € contained in field 745 of the same table and declaration (cf. article 9 of the ppa and part IX, page 21, of the Tax Inspection Report (RIT) and which are hereby fully reproduced).

m) On 06-12-2017 the AT proceeded to assess IRC for the year 2016, with no. 2017..., as well as the respective compensatory and default interest, in the total amount of 207,981.39 €, with final payment date on 25-01-2018, the Claimant being notified (cf. document no. 2 attached by the Claimant to the ppa, and which is hereby fully reproduced).

n) On 06-02-2018 the Claimant submitted a gracious complaint against the aforementioned assessments, having resulted in case no. ...2018... (cf. documents incorporated in the PA and which are hereby fully reproduced).

o) On 18-09-2018 the Claimant was notified of the draft order dismissing the gracious complaint, issued by the Head of the Tax Justice Division of the Finance Directorate of the ..., under delegated authority, on 12-09-2018, to exercise, if it so wished, the right to a hearing, within 15 days, in accordance with article 60 of the LGT (cf. documents incorporated in the PA and which are hereby fully reproduced).

p) On 24-10-2018 the Claimant was notified of the order dismissing the gracious complaint, issued by the same entity, on 17-10-2018, to react, if it so wished, against the same, through the legally provided means (cf. document no. 1 attached by the Claimant to the ppa and documents incorporated in the PA and which are hereby fully reproduced).

q) On 21 January 2019 the request for constitution of an arbitral tribunal was submitted by the Claimant, which gave rise to the present case.

3.2 Unproven Facts

There are no facts relevant to the decision of the case that should be considered unproven.

3.3 Motivation

Regarding the factual matter, the Court does not have the duty to pronounce on all the alleged matters, but rather has the duty to select those which are relevant for the decision, taking into account the cause (or causes) of action which grounds the claim formulated by the plaintiff [(cf. articles 596, no. 1 and 607, nos. 2 to 4 of the CPC, applicable under article 29, no. 1, paragraphs a) and e) of the RJAT)] and to state whether it considers it proven or unproven (cf. article 123, no. 2 of the CPPT).

According to the principle of free assessment of evidence, the Court bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the evidence brought to the case and in accordance with its life experience and knowledge of persons (cf. article 607, no. 5 of the CPC). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents, cf. article 371 of the Civil Code) does the principle of free assessment of evidence not dominate in the appraisal of evidence produced.

Thus, the Court's conviction was based on the documentary evidence attached to the case as well as on the positions assumed by the parties.

4 - Legal Matter (Grounds)

Object of the Dispute

The question which constitutes the thema decidendum comes down to whether, in cases where tax equity values do not serve as the basis for the assessment of IMT in the transfer of real rights over immovable property, the acquirer may, for the purposes of determining taxable profit, make the correction provided for in paragraph b) of no. 3 of article 64 of the CIRC, through a deduction to be entered in field 772, Table 7, of model 22 declaration of IRC?

Issues to Decide:

• The (il)legality of the contested assessments; and
• The claim for compensation in accordance with articles 53 of the LGT and 171 of the CPPT.

4.1 - The (il)legality of the Contested Assessments

The Claimant, on 28-01-2016, acquired an urban property registered in the matrix of the parish and council of ... under the article ..., with the final tax equity value of 4,403,749.04 €, for the price of 400,000.00 €; and, on the same date, a rural property registered in the matrix of the parish and council of ... under the article ..., with the final tax equity value of 4,403,749.04 €, for the price of 250,000.00 €.

On 16-06-2016, it acquired an urban property registered in the matrix of the union of parishes of ..., ...(... and ...) and ..., council of ..., under the article ..., with the final tax equity value of 5,393,400.00 €, for the price of 1,260,000.00 €; and, on the same date, a rural property registered in the matrix of the union of parishes of ..., (... and...) and ..., council of ... under the article..., with the final tax equity value of 224.23 €, for the price of 40,000.00 €.

The acquisition of the properties located in the council of ... were carried out in the context of insolvency proceedings no. .../07...T... of the company "B..., S.A", while those of the properties located in the council of ... were carried out in the context of insolvency proceedings no. .../12...T... of the company "C..., Ld.ª". All transfers benefited from exemption from the municipal tax on onerous transfers of immovable property (IMT), in accordance with no. 2 of article 270 of the Insolvency and Company Recovery Code (CIRE), cf. paragraph d) of the evidence.

It should be noted that the acquired properties were sold as follows: The property registered in the urban matrix of the parish and council of ..., under the article ..., resulting from the merger of articles ... urban and ... rural, was sold on 19-02-2016, for the price of 1,550,000.00 €, to the company "D..., S.A.". And the properties located in the council of ... were sold on 08-07-2016 to the company "E..., S.A.", the urban one for the price of 1,800,000.00 € and the rural one for 50,000.00 €.

The Claimant entered in field 772 - Correction by the acquirer of immovable property when adopting the tax equity value for the determination of the taxable result in the respective transfer [article 64, no. 3, al. b)], table 7, of model 22 declaration for the year 2016, the amount of 7,695,766.66 €, resulting from the difference between the final TEVs and the purchase values.

However on 06-12-2017, it submitted an amended model 22 declaration, relating to the year 2016, canceling the aforementioned deduction, cf. paragraph l) of the evidence.

For the AT such deduction, provided for in paragraph b), no. 3, of article 64 of the CIRC, is illegal because the presuppositions provided for in no. 1 of the aforementioned article do not occur, since the final tax equity values of the transferred immovable properties would not serve as the basis for the assessment of the municipal tax on onerous transfers (IMT), if these had not benefited from exemption, as they did, which is why the AT proceeded to the IRC assessment challenged in the present proceedings.

For its part, the Claimant understands differently, namely, that the deduction is legal because the facts have perfect fit within nos. 1 and 2 of the aforementioned article 64 of the CIRC.

In effect:

Article 58-A of the CIRC, subsequently renumbered to 64, by force of no. 1 of article 7 of Decree-Law no. 159/2009, of 13 July, with the title "Corrections to the value of transfer of real rights over immovable property", was added by article 6 of Decree-Law no. 287/2003, of 12 November, and in the systematic organization of the aforementioned code is contained in Subsection I, Section VI, Chapter III, relating to corrections for the purposes of determining the taxable subject matter, where there are numerous anti-abuse norms, such as transfer pricing; attribution of income from non-resident entities subject to a privileged tax regime; limitation on the deductibility of financing expenses; and corrections in cases of tax credit and withholding tax.

As stated in the preamble to the aforementioned Decree-Law no. 287/2003, "(…) The amendments to the IRS and IRC Codes are based on two types of measures among the most emblematic of this reform. On one hand, the elimination of the tax on successions and gifts with taxation in IRC of patrimonial increments gratuitously obtained by taxpayers of this tax. On the other hand, as the tax equity values that serve as the basis for the assessment of IMT now become the minimum value for determining taxable profit, whether in IRS, business income, or IRC, it became necessary to proceed with various adaptations in the respective Codes, for the implementation of these measures, which are also the subject of the present decree-law". (emphasis added)

In effect, article 64 of the CIRC, in the wording introduced by article 2 of the aforementioned Decree-Law no. 159/2009 (whose objective was to eliminate the constraints on accounting arising from tax legislation, given the approval of the Accounting Normalization System (SNC) by Decree-Law no. 158/2009, of 13 July, in case there are corrections to the value of transfer of real rights over immovable property, it is no longer required of the acquirer of these rights to record them at the final tax equity value for such value to be considered for determining any taxable result in IRC), states:

"1 — The transferors and acquirers of real rights over immovable property must adopt, for the purposes of determining taxable profit in accordance with this Code, normal market values which cannot be less than the final tax equity values that served as the basis for the assessment of the municipal tax on onerous transfers of immovable property (IMT) or that would serve in case there is no grounds for the assessment of this tax.

2 — Whenever, in the onerous transfers provided for in the preceding number, the value in the contract is less than the final tax equity value of the immovable property, this is the value to be considered by the transferor and acquirer, for determination of taxable profit.

3 — For the application of the provisions in the preceding number:

a) The taxpayer transferor must make a correction, in the income declaration for the tax period to which the income obtained from the transfer operation is attributable, corresponding to the positive difference between the final tax equity value of the immovable property and the value in the contract;

b) The taxpayer acquirer adopts the final tax equity value for the determination of any taxable result in IRC relating to the immovable property".

4 — If the final tax equity value of the immovable property has not been determined by the end of the period established for the submission of the declaration for the tax period to which the transfer relates, the taxpayers must submit the amended declaration during the month of January of the year following the one in which the tax equity values became final.

5 — In the event of a positive difference between the final tax equity value and the acquisition or construction cost, the taxpayer acquirer must prove in the tax documentation process provided for in article 130, for the purposes of the provision in paragraph b) of no. 3, the accounting and tax treatment given to the immovable property.

6 — The provisions of this article do not exclude the possibility of the Directorate-General of Taxes proceeding, in accordance with the provisions of law, to corrections to taxable profit whenever it has elements proving that the price effectively practiced in the transfer was greater than the value considered".

By force of the provision in no. 1 of this article, for determining taxable profit, normal market values must be adopted which cannot be less than the final tax equity values that served as the basis for the assessment of the municipal tax on onerous transfers of immovable property (IMT) or that would serve in case there is no grounds for the assessment of this tax. (emphasis added)

It states in no. 2 of the same article that, whenever in the onerous transfers provided for in the preceding number the value in the contract is less than the final tax equity value of the immovable property, it is this value to be considered by the transferor and acquirer, for determining taxable profit, thus constituting a presumption of income.

However, as irrebuttable presumptions are not admitted in tax incidence rules, cf. article 73 of the LGT, the legislator established in article 139 of the CIRC a procedure to prove that the price effectively practiced in the transfers of real rights over immovable property was less than the TEV, thus allowing such presumption to be rebutted, with the consequent non-application of no. 2 of article 64 (correction to the value of transfer of such real rights), cf. judgments of the STA of 06-02-2013 and 09-03-2016, taken from cases nos. 0989/12 and 0820/15, respectively.

In light of the literal wording and the ratio legis of the aforementioned rule (no. 1 of article 64 of the CIRC), in seeking to prevent normal market values from being less than the final tax equity values that served as the basis for the assessment of IMT or that would serve in case there is no grounds for the assessment of this tax, it becomes absolutely necessary to ascertain whether IMT was assessed or, if not, what value would serve as the basis for its assessment, had it existed.

In fact, the acquisition of the properties in question was carried out in the context of insolvency proceedings, in one of the modalities provided for in article 164 of the Insolvency and Company Recovery Code (CIRE).

Thus, the properties registered in the urban and rural matrices of the parish and council of ..., under articles ... and ..., respectively, were acquired in Insolvency Proceedings no. .../07...T... of the company "B..., S.A", in the context of the liquidation of the insolvent estate. While the properties registered in the urban and rural matrices of the union of parishes of ..., ... (... and ...) and ..., council of ..., under articles ... and ..., respectively, were acquired in Insolvency Proceedings no. .../12...T... of the company "C..., Ld.ª", also in the context of the liquidation of the insolvent estate.

These alienations benefited from exemption from IMT, in accordance with no. 2 of article 270 of this code, which states: "The following are also exempt from the municipal tax on onerous transfers of immovable property: acts of sale, exchange or assignment of the company or of establishments thereof integrated within the scope of insolvency plans, payment plans or recovery plans or carried out in the context of the liquidation of the insolvent estate".

Thus, there being no assessment of IMT, it becomes necessary to determine what the taxable value would be on which this tax would be assessed if the alienation did not benefit from exemption.

In accordance with no. 1 of article 12 of the IMT Code, this tax is assessed on the value in the deed or contract or on the tax equity value of immovable property, whichever is greater.

This rule, which is of general scope, is, however, derogated by no. 4, rule 16 of that article 12, which states: "4. The provisions in the preceding numbers are understood, however, without prejudice to the following rules: (…) 16. The value of assets acquired from the State, from Autonomous Regions or local authorities, as well as those acquired through judicial or administrative sale, is the price in the deed or contract". (emphasis added)

As stated in the arbitral judgment of CAAD of 15-03-2018 (Case no. 570/2017-T) "It appears that the reference to 'judicial sale' included in that rule 16 should be interpreted in a current manner, as referring to the modalities of judicial sale, for, when the CIMT was approved, by Decree-Law no. 287/2003, of 12 November, judicial sale had already been excluded from the modalities of sale provided for in the CPC, as seen from its article 886, in the wording given by Decree-Law no. 329-A/95, of 12 November, amended by Decree-Law no. 38/2003, of 8 March.

Also in the CPPT, judicial sale had already been excluded from the modalities of sale, with the repeal of its article 254, operated by Law no. 15/2001, of 5 June.

Thus, interpreting that rule 16 of no. 4 of article 12 CIMT, taking into account 'the specific conditions of the time in which it is applied', which no. 1 of article 9 of the Civil Code requires to be taken into account in the interpretation of law, is to interpret that reference to judicial sale as referring to any modality of judicial sale.

The reason explaining this rule is the control that exists over the real value of the sale when it is made judicially or administratively, for there is an act of an entity invested with public powers which assures what was the real value of the sale. That is, in these situations it is considered that proof has been made that the price of the transfer is the real one.

It is precisely in this sense that the understanding of the Directorate-General of Taxes conveyed by the aforementioned Circular no. 22/2009, in which it concludes that 'judicial sale is one of the most common forms that sale can take, consisting in the acquisition of a good in public auction or through sale in the modalities described in article 886 of the CPC and following' and that 'specifically, the sale by private negotiation, carried out in the context of a judicial procedure, has the control of the competent judge and is examined by him, so that, for the purposes of rule 16 of no. 4 of article 12 of the CIMT, it integrates the concept of judicial sale'.

Also in the Judgment of the STA of 05-11-2014 (Case no. 01508/12), it was written:

"II - The ratio legis of the rule contained in rule 16, no. 4, of article 12 of the CIMT is related to the greater certainty of the correspondence and conformity of the declared value to the real value of the transaction in situations where the act of sale is carried out through the intervention of judicial and administrative authorities, it being admitted that there will always be control by such authorities over the value of the alienation, despite the sale being effected after negotiation between a negotiator appointed by that body and the purchaser.

III - The sale of immovable property effected by the administrator in judicial bankruptcy proceedings and under judicial supervision (articles 158 and 161 of the CIRE) integrates the concept of judicial sale for the purposes of rule 16, no. 4 of article 12 of the CIMT".

Thus, if the transfers had not benefited from exemption from IMT, the taxable value would be the price in the deeds or contracts by means of which the Claimant acquired the immovable properties in question, so that will be the tax equity value for reference purposes of no. 1 of article 64 of the CIRC (in this sense, see the arbitral judgment of CAAD of 17-11-2015 (Case no. 180/2015-T)).

Thus, this provision is inapplicable to the case, since the final tax equity values of the acquired immovable properties neither served nor would serve as the basis for the assessment of IMT, even if it were to be carried out.

The unnecessary need for correction to the value of transfer of the immovable properties results from the certainty and greater security of the correspondence and conformity of the declared values with the real values of the transactions, given the intervention of judicial and administrative authorities.

Thus, the transfers of real rights over the immovable properties in question do not fall within the forecast contained in the aforementioned provision. It is as if the presumption of income had been rebutted.

And consequently, no. 2 of the same article, because it refers to "the onerous transfers provided for in the preceding number", is also inapplicable.

It is thus concluded that for the purposes of no. 1 of article 64 of the CIRC, the minimum values that should be adopted for determining taxable profit were those contained in the deeds or contracts of acquisition carried out in the insolvency proceedings, as these are the ones that should be considered for the purposes of assessment of IMT, if the exemptions did not exist.

Thus, the contested assessments do not deserve any criticism and should be maintained in the legal order, as should the order dismissing the claim, of 17-10-2018, issued in the process of gracious complaint no. ...2018..., since the aforementioned assessments constitute a correct interpretation and application of law to the facts, not suffering from any defect of violation of law due to error in the factual and legal presuppositions.

4.2 - The Claim for Compensation in Accordance with Articles 53 of the LGT and 171 of the CPPT

The Claimant further requests that it be compensated for expenses incurred with the undue provision of security, in accordance with the provisions of articles 53 of the LGT and 171 of the CPPT.

However, given the legal solution of the case, such claim is rendered moot (article 608, no. 2, of the CPC).

**

5 – Decision

Accordingly, this Arbitral Tribunal agrees in:

a) Ruling that the claim for annulment of the order dismissing the Head of the Tax Justice Division of the Finance Directorate of the ..., of 17 October 2018, issued in the process of gracious complaint no. ...2018..., under delegated authority, is dismissed.

b) Ruling that the claim for annulment of the assessment of corporate income tax (IRC) no. 2017..., issued by the "AT" on 06 December 2018, relating to the year 2016, and of the assessments of the respective compensatory and default interest contained in the statement of account adjustment no. 2017..., in the total amount of 207,981.39 €, is dismissed, maintaining such acts in the legal order, with the consequent absolution of the Tax and Customs Authority from the claim; and

c) Condemning the Claimant to pay the arbitration costs of the case.

Process Value

In accordance with the provisions of articles 306, no. 2, of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the process value is fixed at 207,981.39 €.

In accordance with article 22, no. 4 of the RJAT, the amount of costs is fixed at 4,284.00 €, in accordance with Table I, attached to the RCPAT, to be borne by the Claimant.

Notify.

Lisbon, 5 September 2019

The Collective Arbitral Tribunal

The Arbitrator President,

(José Poças Falcão)

The Arbitrator Member,

(Francisco Nicolau Domingos)

The Arbitrator Member,

(Rui Rodrigues)

Text prepared by computer, in accordance with the provisions of article 131, no. 5, of the CPC, applicable by reference from article 29, no. 1, paragraph e) of the RJAT.