Stamp Tax Exemption Under Article 269(e) CIRE: Property Acquisition from Individual in Insolvency (CAAD 523/2016-T)

ARBITRAL DECISION

The sole arbitrator, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the present Arbitral Tribunal, decides as follows:

I. REPORT

1. On 26 August 2016, the company A…, S.A., NIPC…– the Claimant – filed an application for the constitution of a sole arbitral tribunal, an application which was accepted with reference to 16 September 2016.

2. The Claimant did not proceed with the appointment of an arbitrator, whereby the undersigned was appointed by His Excellency the President of the Deontological Council of the CAAD.

3. On 18 November 2016, the parties were duly notified of that appointment, and did not express any intention to challenge the appointment of the arbitrator.

4. Thus, in accordance with the provisions of subparagraph c) of Article 11, paragraph 1 of the Regulation of Tax Arbitration (RJAT), in the wording introduced by Article 228 of Law no. 66-B/2012 of 31 December, the Collective Arbitral Tribunal was constituted on 18 November 2016.

5. At issue is the assessment of Stamp Duty (IS) in the amount of € 931.74 (doc. no. 1 to the Initial Petition) as a result of the acquisition of the autonomous fraction designated by the letters AA, intended for residential purposes, of the urban property registered under the article … in the property register of the Parish of …, municipality of Sintra (see administrative file attached by the Tax Authority).

6. Thus, it is important to note from the outset that the Claimant sustained, in summary, its claim in the following manner:

6.1 The Tax Authority issued certificates in which it certifies that the transfer in question was exempt from Real Estate Transfer Tax (IMT), pursuant to the provisions of subparagraph e) of Article 269 of the Insolvency and Corporate Recovery Code (CIRE), whereby the assessment constitutes the revocation of an exemption;

6.2 The aforementioned provision of the CIRE exempts the acquisition by natural persons of assets belonging to the insolvent estate, constituting a vitiating error regarding the legal prerequisites;

6.3 Should this not be understood to be the case, such interpretation must be considered restrictive and, to that extent, unconstitutional by violation of paragraph 2 of Article 165 of the Constitution; and,

6.4 The tax act suffers from a manifest lack of factual and legal reasoning.

1. The Tax Authority, disagreeing with these understandings, presented its defence, alleging, in summary, that the legal prerequisites required to benefit from the Stamp Duty exemption are not met by reason of its transfer having been effected in an insolvency proceeding of a natural person.

2. Indeed, the controversy at issue throughout the present proceedings, although not always in a clear manner – in particular arising from the provisions in the Initial Petition – resides in the factual circumstance that the Claimant acquired an asset – in casu, real property for residential purposes – from a natural person (and, therefore, not from a legal entity) within the framework of an insolvency proceeding.

3. This means that, in the present arbitral proceedings, we are not in the same factual situation, nor facing the same reasoning by the Tax Authority, as in the cases (several, moreover, both in the Supreme Administrative Court (STA) and in the CAAD) in which the tax exemption is discussed with regard to the acquisition of an asset element of the insolvent company as opposed to the acquisition of the entire assets.

4. In such terms, the issues to be decided are as follows: is the acquisition in question exempt from Stamp Duty under the provisions of Article 269, subparagraph e), of the CIRE, approved by Decree-Law no. 53/2004 of 18 March and amended by Law no. 66-B/2012 of 31 December? Or, does the exemption provided for in the aforementioned legal provision operate solely in relation to the acquisitions of real property effected from companies (i.e., not natural persons) within the framework of the insolvency proceeding?

II. PRELIMINARY MATTERS

1. The Arbitral Tribunal is competent and is regularly constituted, in accordance with Article 2, paragraph 1, subparagraph a) of the Regulation of Tax Arbitration (RJAT).

2. The Parties have legal personality and capacity, are legitimate and are represented, in accordance with Articles 4 (with regard to the Tax Authority) and 10 of the RJAT (with regard to the Claimant).

3. There are no nullities and preliminary questions that affect the entire proceeding, whereby it is now necessary to rule on the merits of the claim.

III. FACTUAL MATTER

1. To prove the alleged facts, the Claimant presented the following documentary evidence:

14.1 Documents of Stamp Duty assessment (Doc. no. 1 annexed to the Initial Petition);

14.2 Proof document of real property acquisition (Doc. no. 2 annexed to the Initial Petition)

14.3 Document of initial Stamp Duty assessment with value to be liquidated at zero (Doc. no. 3 annexed to the Initial Petition)

14.4 Payment of the Stamp Duty assessment (Doc. no. 4 annexed to the Initial Petition)

14.5 Administrative complaint, official communication with draft decision and decision of dismissal (docs. nos. 5, 6 and 7 annexed to the Initial Petition)

1. The Respondent Authority attached the administrative file.

2. The following facts with relevance to the Arbitral Decision to be rendered are considered proven, on the basis of the documentary evidence attached to the proceedings:

16.1 The Claimant was notified of the Stamp Duty assessment document under dispute, against which it lodged a complaint, the administrative complaint thereof having been dismissed by the Tax Authority (Docs. nos. 1, 5, 6 and 7 annexed to the Initial Petition);

16.2 The Claimant made voluntary payment of the amount of the assessment under dispute (Doc. no. 4).

1. With relevance to the Arbitral Decision to be rendered, it was not proven – as it does not follow from any document, quite the contrary – that the Tax Authority issued certificates in which it certifies that the transfer in question was exempt from Real Estate Transfer Tax, having instead proceeded to an assessment of zero.

IV. APPLICABLE LAW

Regarding the alleged lack of reasoning:

1. The mere analysis of Doc. no. 1 annexed to the Petition is sufficient to conclude contrary to the position of the Claimant.

2. Indeed, such assessment provides reasoning – and with considerable exhaustiveness, it must be said – for the assessment in question, identifying the relevant factuality and, in particular, the applicable law, directly referring to the provisions of subparagraph e) of Article 269 of the CIRE.

3. In such terms, without need for further development, the argumentation of the Claimant in this respect fails entirely.

Regarding the alleged error as to the legal prerequisites and the alleged unconstitutionality:

1. Article 269 of the CIRE provides: «The following acts are exempt from stamp duty, when they are subject to it, provided they are provided for in insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate: […]

e) The carrying out of financing operations, the transfer or assignment of the operation of the company's establishments, the constitution of companies and the transfer of commercial establishments, the sale, exchange or assignment of elements of the company's assets, as well as the leasing of assets» (cited, emphasis ours).

It was in the face of this wording that the Tax Authority refused to apply the benefit provided for in subparagraph e) of this provision to the acquisition effected by the Claimant, on the grounds that it was an acquisition from a natural person, and proceeded to assess the tax in general terms.

However, and as we have seen above, the Claimant contests this reasoning, considering that having acquired the fraction within the framework of the liquidation of the insolvent estate, the conditions were met to benefit from the exemption in question.

It suffices to look at the wording of the legal provision (and it could not be otherwise, in view of Article 2, paragraph 2 of the RJAT) to conclude that the factual hypothesis in the present proceedings is not subsumed under the provision of the aforementioned subparagraph e) of Article 269 of the CIRE, which refers exclusively to the sale of «elements of the company's assets» (cited, emphasis ours). In the same manner, we do not envisage any unconstitutionality in the interpretation of the Tax Authority, at least in the way it is raised in the Initial Petition (cf. § 33 and § 34 of the Initial Petition).

And it should not be said that in adhering to this thesis, we are following the position of the Tax Authority which only permits the same exemption (or that relating to Real Estate Transfer Tax) when the asset element alienated constitutes the entire assets or establishment, and not when it is a single asset element.[1] Indeed, the literal character of the provision is quite different in both situations, in that in the case of the present proceedings, the provision expressly refers to the word «company», leaving no room for doubt that by «company» it was not intended to also consider 'natural person'.

It might be said that this position, based on the Law, conflicts, however – as indeed the Claimant argues – with what the legislator set forth in paragraph 49 of the preamble of the CIRE with regard to tax benefits, where it states that: «the existing regimes under the previous code with regard to stamp duty exemption and tax benefits are maintained in essence».

But, on this point, we follow the provisions of the Decision of the Supreme Administrative Court (2nd Section) of 25 August 2013, in case 0866/2013 (Rapporteur Francico Rothes) according to which, and in turn citing another superior decision:

«It can, certainly, be argued that, in the perspective of the legislator of the CIRE, the differences as to the scope of the Real Estate Transfer Tax exemption in relation to that which existed in the previous code for the stamp duty on real estate transfer did not appear as essential, hence why they made no particular reference to them. For, in particular in tax matters, the preamble of legislative acts does not always accurately reflect their respective content, and it is not even unprecedented that they include references which the provisions of the law contradict (cf. with regard to the stamp duty on real estate transfer/Real Estate Transfer Tax the Decision of this Supreme Court of 3 November 2010, case no. 499/10)» (cited).

As is known, between two meanings of the law, both with at least minimum support in the respective wording, the interpreter must opt for the one that renders it compatible with the constitutional text (interpretation in conformity with the Constitution), rather than the interpretation containing the constitutional defect. (…)» (cited).

To this understanding which has just been transcribed, and which is subscribed to in casu, add the explanation provided by Judge Fernanda Maças in the Decision of the STA in case 0765/2013 of 03 July 2013; namely:[2]

«The aforementioned exemption [paragraph 2 of Article 270 of the CIRE] does not cover the sale of urban real property intended for residential purposes, which belongs to a natural person, it not being sufficient to benefit from that exemption the fact that it concerns acts of sale carried out within the framework of the liquidation of the insolvent estate, regardless of whether the latter belongs to a natural person or legal entity (business entity)» (cited).

In view of the foregoing, it is concluded, following the superior jurisprudence just cited, that there is no error in the legal prerequisites, as well as the lack of merit of the constitutional defect, from which follows the non-annulment of the assessment act subject to the present arbitral action.

V. DECISION

a) In such terms, the Arbitral Tribunal decides to rule entirely against the arbitral claim filed; and,

b) To condemn the Claimant in the costs of the proceedings.

Value of the Case

The value of the case is fixed at € 931.34, in accordance with Article 97-A, paragraph 1, subparagraph a), of the Tax Procedure Code (CPPT), applicable by virtue of subparagraphs a) and b) of Article 29, paragraph 1 of the Regulation of Tax Arbitration (RJAT) and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

The arbitration fee is fixed at € 306, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, given that the claim was entirely unmeritorious, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the aforementioned Regulation.

Notify the parties.

Lisbon 6 April 2017

The Arbitrator

(Nuno de Oliveira Garcia)

[1] As occurs in Case 200/2015 T (CAAD) in which the solution of both cases was equated, and according to which: «In other words, if it is accepted that the provision in question can be interpreted in the sense that the expressions 'sale' and 'exchange' do not refer only to the alienation of the company or its establishments, but can encompass any sale and any exchange carried out within the framework of the procedural acts and in the processes indicated by the provision, as was understood in the decisions of 30-05-2012 and 17.12.2014, then it would also make no sense to exclude its application to the insolvency of natural persons, as was decided in the decision of 03-07-2013» (cited).

[2] In a case which, although relating to Real Estate Transfer Tax, establishes jurisprudence applicable to Stamp Duty, as they concern analogous provisions (i.e., Articles 269 and 270 of the CIRE).