CAAD 616/2017-T: IMT Liquidation on Contract Resolution - Tax Assessment Grounds and Ineffectiveness

ARBITRAL DECISION

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president, appointed by the other Arbitrators), Professor Doctor Francisco José Nicolau Domingos and Dr. Jesuíno Alcântara Martins, appointed respectively by the Claimant and the Respondent, to form the Arbitral Tribunal, constituted on 15-02-2018, agree as follows:

1. REPORT

A…, Lda, NIPC …, with registered office at Rua…, no. … -…, …-… in ..., came, in accordance with article 2, no. 1, paragraph a), article 10, no. 1, paragraph a) and no. 2, of Decree-Law no. 10/2011, of 20 January, and articles 96 and following of the Code of Tax Procedure and Process (CPPT), to file a request for constitution of an arbitral tribunal and for arbitral pronouncement against the IMT assessments relating to the act of transmission that occurred in the year 2007, the total amount of which was € 3,049,016.28 (three million forty-nine thousand and sixteen Euros and twenty-eight cents).

This amount was assessed by the Tax and Customs Authority through Documents nos. … (in the amount of € 343,844.52), … (in the amount of € 255,066.21), … (in the amount of € 323,049.11), … (in the amount of € 306,926.91), … (in the amount of € 311,329.86), … (in the amount of €29,528.87), … (in the amount of € 285,274.42), … (in the amount of € 292,989.17), … (in the amount of € 309,869.46) ([1]), … (in the amount of € 294,289.03), and … (in the amount of € 296,848.72) (document no. 1 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced).

The Claimant requests the return of the amount paid, with indemnificatory interest.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 27-11-2017.

Following the withdrawal of the Arbitrator initially appointed, the Claimant appointed Professor Doctor Francisco José Nicolau Domingos as Arbitrator, pursuant to article 6, no. 2, paragraph b), of the RJAT.

Pursuant to the provisions of paragraph b) of no. 2 of article 6 and no. 3 of the RJAT, and within the deadline provided for in no. 1 of article 13 of the RJAT, the top official of the Tax Administration service appointed Dr. Jesuíno Alcântara Martins as Arbitrator.

The Arbitrators appointed by the Parties appointed Counselor Jorge Lopes de Sousa as President Arbitrator, who accepted the appointment.

Pursuant to and for purposes of the provisions of no. 7 of article 11 of the RJAT, the President of CAAD informed the Parties of this appointment on 25-01-2018.

Thus, in accordance with the provisions of no. 7 of article 11 of the RJAT, with the deadline provided for in no. 1 of article 13 of the RJAT having elapsed without the Parties saying anything, the Collective Arbitral Tribunal was constituted on 15-02-2018.

The Tax and Customs Authority filed a Response in which, in addition to indicating deficiencies in the request for arbitral pronouncement, it raised exceptions of unimpugnability of tax acts (with untimeliness of the request for constitution of an arbitral tribunal), lapse of the request for annulment due to supervening fact, partial incompetence of the Arbitral Tribunal, and lis pendens.

Furthermore, the Tax and Customs Administration defended the lack of merit of the request for arbitral pronouncement.

On 26-03-2018, the Claimant attached a certificate referring to the date of res judicata of the decision in case no. .../11...TVLSB, which was heard in the court of the Comarca of Lisbon.

By order of 12-04-2018, the request for production of testimonial evidence was rejected, the holding of a hearing was dispensed with, and it was decided that the proceedings would continue with written submissions.

The Parties filed submissions, with the Claimant attaching documents.

The Tax and Customs Authority, after the submissions, attached documents and requested that the Arbitral Tribunal conduct an inquiry, which was rejected.

The Arbitral Tribunal was duly constituted and is competent.

The parties are duly represented, enjoy legal personality and capacity, and are legitimate (articles 4 and 10, no. 2, of the same decree and article 1 of Ordinance no. 112-A/2011, of 22 March).

There are no nullities nor obstacles to considering the merits of the case.

2. MATERIAL FACTS

2.1. Proven Facts

The following facts are considered proven:

• The Claimant A… Lda, NIPC … acquired by merger-division with B…, SA, NIPC…, through a notarial deed executed on 03-07-2007 at the Notarial Office of Lisbon of Notary C…, 101 properties corresponding to the plots authorized in the Subdivision Authorization Permit no. …/… with its amendments issued by the Municipal Chamber of…, designated for phases 5th and 6th that would be built in the Urbanization of…;

• The plots referenced were provided for in the said Permit …/… corresponding to a subdivision authorization without issuance of legal building permits for the properties provided for in the 5th and 6th phases;

• Based on that Permit …/…, property descriptions were opened at the Property Registry Office of …, each plot therein having been assigned a registration number with the description provided for in the Permit;

• The Tax and Customs Authority issued IMT assessments relating to the transmission of the 101 properties, which are contained in Documents nos. … (in the amount of € 343,844.52), … (in the amount of € 255,066.21), … (in the amount of € 323,049.11), … (in the amount of € 306,926.91), … (in the amount of € 311,329.86), … (in the amount of €29,528.87), … (in the amount of € 285,274.42), … (in the amount of € 292,989.17), … (in the amount of € 309,869.46), … (in the amount of € 294,289.03), and … (in the amount of € 296,848.72) (document no. 1 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced and administrative file);

• On 03-07-2007, the Claimant proceeded to pay the IMT relating to the transmission of the 101 properties (document no. 1 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced);

• By judgment of the … Court of the 1st Section of Commerce of the Court of the Comarca of Lisbon, Central District, dated 09-02-2015, rectified by order of 29-06-2015, the following decision was handed down:

(i) I judge this action to be well-founded and declare resolved, with all legal effects, the merger-division of the companies "A…, Lda", legal entity no. … and "B…, SA", legal entity no.…, executed by public deed drawn up on 3 July 2007 at the Notarial Office of Lisbon of Notary C…, recorded from pages 89 to 92 of notarial book number 66 of that Office.

ii) I order that, after res judicata, a copy of this judgment be sent to the Commercial Registry Office of Lisbon and to the Property Registry Office of …, as well as a copy of the public deed drawn up on 3 July 2007 at the Notarial Office of Lisbon of Notary C…, which is at pages 89 to 161 of the file, so that all registries resulting from the merger-division can be identified, namely:

a) The registrations of acquisition, in favor of the Claimant, by "Transmission by Transfer of Assets", with the "Cause: Merger-Division", of the 101 (one hundred and one) properties duly identified in the Deed at pages 89 to 161 of the file, which are hereby considered fully reproduced—registration "Ap. ... of 2007/07/04";

b) The registration of "Merger/Division, Capital Increase and Amendment of Articles of Association", to which corresponds the "Registration 2 Ap. …/…" referring to "A…, Lda", legal entity no.…;

c) The registration of "Division", to which corresponds the "Registration 4 Ap. …/…" referring to "A…, S.A.", legal entity no….

• On 14-11-2007, the Municipal Chamber of… (CM…) approved the projects for urbanization works relating to the 5th and 6th phases and the "calculation of the amount to be assessed upon issuance of the subdivision permit" (in accordance with the "2007 Table"), fixing the respective amount at € 18,218,699.78 (point 39 of the judgment attached by the Claimant as document no. 2 with the request for arbitral pronouncement, the contents of which are hereby reproduced);

• With the issuance of Amendment no. 4, which authorized the performance of urbanization works for the 5th and 6th phases, the respective fees were assessed by the Municipal Chamber of … (judgment cited, point 41);

• On 16-4-2008, the Municipal Chamber of … issued Amendment no. 4 to the subdivision permit no.…/…, which authorizes the approval of the project for urbanization works for the properties located in the 5th and 6th phases of…;

• The partial transfer of assets from B… to the Claimant was intended, in accordance with the terms of the contract, to "ensure better conditions for promotion and bank financing of the constructions to be carried out on the plots of land for construction", which constituted the determining motive of the contract (clause 7 of the preliminary contract) (judgment cited, point IV.2. The Law), as B… did not possess such conditions (article 33 of the petition of the judicial challenge case no. …/12…BELRS, attached with the response as document no. 3, the contents of which are hereby reproduced);

• The preliminary contract stated that the "plots of land for construction are duly authorized by the Municipal Chamber of …, with no obstacles or conditions to the issuance of building permits for the properties foreseen in the subdivision authorization" (clause 33) (judgment cited, point IV.2. The Law);

• By decision of 05-05-2009, the CM…, "on the basis of failure to pay the fees due in accordance with the regulation considered applicable", suspended the subdivision permit relating to the 5th and 6th phases of…, corresponding to the properties transferred to the now Claimant, keeping the latter "prevented from obtaining the conditions for promotion and bank financing of the constructions it intended to carry out on those plots of land" (judgment cited point IV.2. The Law);

• The lands transmitted to the Claimant saw their commercial value substantially reduced (although they had the non-suspended subdivision permit), by approximately 50 to 60% of their original value (judgment cited point IV.2. The Law);

• At the request of the Claimant, a Court Officer of the … Court of the 1st Section of Commerce of the Court of the Comarca of Lisbon issued, on 15-10-2017, the certificate that forms part of the document attached by the Claimant on 26-03-2018, the contents of which are hereby reproduced, in which, among other things, it is certified narratively that "the judgment was handed down on 09-02-2015, with rectification on 29-06-2015, with res judicata on 01-10-2015";

• On 14-12-2015, the Claimant filed a gracious objection to the IMT assessments referred to in the file, requesting the return of the amounts paid, pursuant to article 43, no. 2 of the CIMT, giving rise to gracious objection proceedings nos. … 2016…, …2016… and …2016… (administrative file);

• In its objection, which is contained in the administrative file, the contents of which are hereby reproduced, the Claimant refers, among other things, to the following:

"(...) COMES HEREBY PURSUANT TO ARTICLE 43, no. 2, OF THE CIMT to file a GRACIOUS OBJECTION based on a SUPERVENING FACT (...)"

1. THE TRANSMISSIVE LEGAL FACT THAT GAVE RISE TO THE IMT DISAPPEARED RETROACTIVELY BY JUDICIAL DECISION HAVING RES JUDICATA.

2. The relevant legal fact generating the obligation to pay IMT (transmission of real property) was eradicated from the Legal Order by judgment having res judicata, with all references and registrations—Commercial and Property—relating to it being eliminated.

3. THE TAX IS NOT DUE BECAUSE THERE IS NO VALID REAL PROPERTY TRANSMISSION.

4. What theoretically sustains the taxation of IMT is the enrichment of the acquirer, which—it is understood—should legitimize the payment of Municipal Tax as this is the entity that provides amenities and externalities to the owners of properties located in the Municipality.

5. IN THE CASE UNDER ANALYSIS THERE IS NO VALID REAL PROPERTY TRANSMISSION.

6. PURSUANT TO LAW THE TAX PAID SHOULD BE RETURNED TO THE CLAIMANT PLUS LEGAL INTEREST DUE.

• The Tax and Customs Authority considered the gracious objection as if it were several objections, which it rejected on the grounds set forth in the Information, a copy of which forms part of document no. 3 attached with the request for arbitral pronouncement, the contents of which are hereby reproduced, in which it refers, among other things, to the following:

"By means of letter no.…, of 2016.0728, the Administrative Law Division of the DF of Lisbon requests the pronouncement of this Management Office regarding the framework and procedures to adopt, with reference to the facts presented, with a view to assessing gracious objection procedures presented by company A…, SA.

FACTS:

1. By public deed of merger-division executed on 2007.07.03, there transited from the assets of the divided company B…, SA, with NIPC…, to the incorporating company B…, SA, eleven properties registered in the urban property matrix of the parish and municipality of …

2. For the said transmissions, IMT assessment and payment took place in the total amount of 3,049,016.28€, by the incorporating company.

3. By reducing that transmission to the 1st transmission in the validity of the IMI, there was place for valuation to determine the respective tax patrimonial values in accordance with the norms of CIMI.

4. As a result of the new TPVs additional assessments of IMT and IS (item 1.1 and 28) and IMI were issued.

5. The new TPVs were subject to judicial challenge, resulting in case no. …/11 …BELRS (SICJUT …2011…).

6. The additional assessments of IMI/2007, in the amount of 4,713,001.62€, were subject to judicial challenge, resulting in case no.…/12…. BELRS (SICJUT/…).

7. Pursuant to the provisions of no. 4, of article 70 of the CPPT, and invoking as a supervening fact, the res judicata, in October 2015, of the judgment that declared resolved the merger-division of the said companies, the incorporating company reacted against the IMT assessments, filing a gracious objection.

8. With identical grounds, in March 2016, it filed a gracious objection to the additional IMT assessments, which were appended to the judicial challenge n.º…/12…BELRS

SUMMARY OF THE CLAIMANT'S ARGUMENTS:

The claimant invoked as cause for the request for resolution of the merger-division operation the substantial alteration of the circumstances in which the parties had founded the decision at the genesis of that operation, achieving the (judicial) resolution of the transaction with retroactive effects.

As a consequence of the resolution the legal transaction was declared resolved and eradicated from the legal order with retroactive effect"

It concludes therefore that "the tax is not due because there is no valid real property transmission, for which reason it requests the return of the tax paid, plus legal interest due.

ASSESSMENT:

In accordance with the provisions of article 437 of the Civil Code, the anomalous modification of the surrounding circumstances motivating the transaction, when harmful and foreign to the will of the parties, can support the right to resolution of the transaction by the injured party.

In the facts at issue, the merger-division operation had as its scope to ensure better conditions for promotion and bank financing of the constructions to be carried out on the plots of land for construction".

The occurrence at a later moment of various constraints between the Objector and the municipal government, related to the non-payment of municipal fees and differences that had arisen in the meantime, determined the resort to judicial means, motivating that the object of the transaction became impossible, making impossible the exercise of real estate promotion activity and obtaining the necessary bank financing.

Considering the circumstances described, resolution of the transaction was requested, and the Commerce Court declared the transaction resolved, with the effect provided for in the first part of no. 1, of article 434 of the Civil Code, namely with retroactive effect, motivating for the parties the emergence of the obligation to return everything that has been received in function of the execution of the validly executed transaction, subsequently resolved.

It follows from the provisions of no. 1, of article 38 of the LGT, that the ineffectiveness of legal transactions (even if endowed with retroactive effect) does not in itself determine, in the tax sphere, the restitution of amounts expended as tax, the taxation being considered justified as long as, as a consequence of the transaction executed, the economic effects intended by the parties have been produced.

That legal provision reflects the prevalence that in certain situations is accorded by tax law to the economic aspect of transactions. As in the facts at issue, one is in the presence of a transaction with real effect, transmissive of property (even if indirectly), since the merger operated the transfer of ownership of the properties to the incorporating company, an economic effect intended by the parties, it appears from that fact that the taxation is owed.

Regarding the request for return of the IMT paid, alleging that the tax is not due because there is no valid real property transmission, we believe there is no merit to such argument, since the transaction now resolved existed validly and maintained its efficacy from the execution of the respective contract until it was resolved by the court.

For the possibility of tax refund to be placed, in the manner invoked by the Claimant, namely by considering that there is no valid real property transmission, it would be essential to ascertain the existence of a defect generating invalidity (absolute or relative) attributable to the transaction, since not forgetting that the transaction was executed, only the transaction deemed null or annulled can be considered as not having been executed, for purposes of subsuming to the provisions of article 44 of the CIMT.

The transaction at issue received no judgment of disfavor or non-conformity with the legal order.

In the underlying facts, following the filing of an action for that purpose, the court, finding verified the requirement provided for in article 437 of the CC (which in no way relates to the validity of the contract), declared the transaction resolved (extinguished).

The destruction of the transaction operated by the resolution was motivated by circumstances external to the transaction and not defects arising therefrom that would taint it, rendering it null or annullable.

The resolution did not occur as a consequence of any defect generating invalidity (absolute or relative), rather arising from the verification of objective circumstances, the said supervening alterations of the circumstances that founded the decision to contract, foreign to the will of the parties and which the law, in article 432 of the CC, addresses for purposes of extinction of the valid transaction.

Article 434 of the CC equates, in terms of the repercussions between the contracting parties, the effects of resolution of the transaction with those of nullity or annullability, thereby meaning that those constitute the obligation to mutually return everything they have received from the other, in function of the transaction, reconstituting as much as possible the situation that would exist if the transaction had not been executed. Article 45 of the CIMT specifically addresses the figure of resolution of the transaction, as a cause capable of founding the proportional annulment of the tax paid, operating through the mechanisms of the gracious objection and judicial challenge.

"This article presupposes the performance of the transmissive act or fact and its subsequent nullification".

In accordance with the provisions of no. 2 of that same article, the deadline for objecting is counted from the occurrence of the resolutive fact, in the present situation, considering the provisions of no. 2, of article 43 of the CIMT, from the date of res judicata of the judgment that declared the Merger-Division resolved.

The proportional annulment is carried out in accordance with what is established in no. 3 of that legal provision, namely by multiplying its eighth by the number of complete years that still remain until eight. Considering what is stated, it is important to ascertain, in light of the concrete elements, the possibility of carrying out the annulment provided for in article 45.

• Assessment – 2007-07-03

• Pronouncement of judgment – 2015-02-09

• Res judicata – 2015-10-01

Given that the assessments dated 2007-07-03, the deadline of eight years established therein undoubtedly ended in 2015.

Considering the date of res judicata as the initial point for calculating the number of complete years that, with reference to the date of transmission, might still remain until eight, it is confirmed that in 2015 it would no longer be possible to carry out the proportional annulment of IMT, since one would be in the eighth and final year of that deadline, and as such no complete year would remain that would legitimize, in accordance with the provisions of no. 3 of article 45 of the CIMT, that annulment.

• In the decisions of the gracious objections the Tax and Customs Authority pronounced itself on the procedural requirements, considering, among other things, that the request was presented timely;

• In March 2016, the Claimant filed a gracious objection to additional IMT assessments relating to the transmission of the properties referred to in the file, which were appended to the judicial challenge n.º .../12...BELRS;

• The Claimant and B…, S.A. filed a judicial challenge in the Tax Court of Lisbon, which has the number …/11…BELRS (document no. 1 attached with the response, the contents of which are hereby reproduced);

• The judicial challenge referred to in the preceding subparagraph has as its object the determination of the tax patrimonial values of the properties referred to in the file, resulting from second valuations;

• The judicial challenge referred to was decided by the judgment contained in document no. 1 attached with the response and an appeal was filed therefrom by the Tax and Customs Authority, in accordance with document no. 2 attached with the response, the contents of which are hereby reproduced;

• On 10-01-2012, the Claimant filed a judicial challenge in the Tax Court of Lisbon, which has the number …/12…BELRS, in which she challenges the decision rejecting the gracious objection to additional IMT assessments relating to the properties referred to in the file (document no. 3 attached with the response, the contents of which are hereby reproduced);

• On 28-11-2011 and 20-06-2014, attachments were registered at the … Property Registry Office of … on six plots of land transmitted to the Claimant, a situation that persisted on 09-01-2018, with the Claimant being indicated as the owner of the plots (document no. 4 attached with the response, the contents of which are hereby reproduced);

• On 07-03-2013, a voluntary mortgage was registered on three properties transmitted to the Claimant (document no. 5 attached with the response, the contents of which are hereby reproduced);

• On 09-12-2010, a voluntary mortgage was registered on nine properties transmitted to the Claimant (document no. 6 attached with the response, the contents of which are hereby reproduced);

• The rejection of the gracious objections was notified to the Claimant by letter sent on 14-09-2017 (administrative file);

• On 25-11-2017, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present proceedings.

2.2. Unproven Facts and Rationale for the Decision on Material Facts

There are no facts relevant to the decision of the case that have not been proven.

The proven facts are based on the administrative file and on the documents attached with the request for arbitral pronouncement, with no controversy regarding them.

3. QUESTION OF PARTIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL ON GROUNDS OF SUBJECT MATTER

The Tax and Customs Authority raises the exception of incompetence of the Arbitral Tribunal to consider the "defect of form (on the assumption that this relates to the decision rejecting the Gracious Objection), since the consideration of such matter exceeds the competencies reserved to it by law".

Examining the request for arbitral pronouncement, no imputation of defect of form to the decision on the gracious objection is detected, specifically due to lack of reasoning.

The only reference to defect of lack of reasoning is that contained in the final part where the Claimant argues that "the above-mentioned assessments should be declared null by violation of law (non-existence of a legally valid tax fact) and absolute lack of reasoning".

However, the Claimant, in the submissions, alludes to the lack of reasoning in the decision on the gracious objection, despite stating that the request is for a declaration of illegality of the assessments.

When a second-degree act assesses the legality of other acts and maintains them in the legal order, altering their rationale, there occurs revocation of these by substitution, new acts then existing in the legal order with the sense of the first ones, but with the new reasoning.

"Within the sphere of the type of administrative acts that reiterate or reproduce the legal definition and the provisions of an earlier act, not merely confirmatory are those that represent a novation of the resolutive will of the Administration. A novation that can be revealed by there having occurred an alteration of the factual situation or of the legal regime or by the addition of new grounds that express the administrative will of representation of the earlier decision". ([2])

In the case at issue, in which the invalidity of assessments was invoked on the basis of a supervening fact in a gracious objection, it is manifest that the decision rejecting the objection is not merely confirmatory of the assessments, since it necessarily reconducts to the maintenance of these in the legal order under the new circumstances of fact and law, which imply an alteration of the reasoning, since the initial one is no longer sufficient to ensure their legality.

That is, the situation created by the decision on the gracious objection that maintained the assessments with the new grounds is equivalent to the issuance of new assessments with these new grounds, and therefore they can be subject to any defect, including lack of reasoning, indispensable in all lesive acts (article 268, no. 3, of the CRP).

This is, therefore, a situation that is not to be confused with decisions on gracious objections of a merely confirmatory nature, which limit themselves to maintaining the challenged assessments without altering the grounds on which they were based. When the decision on the gracious objection has a merely confirmatory nature, the insufficiency of its reasoning does not have an invalidating effect on the assessments, since the initial reasoning is maintained. But in cases where there is an alteration of the assumptions on which the initial assessments rested or the reasoning is altered to maintain them in the legal order, the renewed assessments are subject to all requirements, including that of reasoning. And, with its reasoning being contained in the gracious objection, it is obvious that its lack will constitute illegality of the renewed assessments.

Thus, since this Arbitral Tribunal has competence to assess the legality of assessments [article 2, no. 1, paragraph a), of the RJAT] and these can be challenged on the basis of any illegality, including "absence or defect of legally required reasoning" [article 99 of the CPPT, applicable to tax arbitral proceedings by force of the provisions of article 29, no. 1, paragraph c), of the RJAT] it is manifest that the assessment of the defect of lack of reasoning falls within the competencies of this Arbitral Tribunal.

The exception of incompetence raised by the Tax and Customs Authority is therefore without merit.

4. QUESTION OF LIS PENDENS

The Tax and Customs Authority raises the question of lis pendens on the ground that there is pending in the Tax Court of Lisbon a judicial challenge, which has the number .../12...BELRS, in which the Claimant challenges the decision rejecting the gracious objection to additional IMT assessments relating to the properties referred to in the file.

Lis pendens occurs when a cause is repeated, occurring repetition "when an action identical to another is proposed as to the subjects, the claim and the cause of action" [articles 580 and 581, no. 1, of the CPC, subsidiarily applicable, by force of the provisions of article 29, no. 1, paragraph c), of the RJAT].

Pursuant to no. 3 of that same article 581, "there is identity of claim when in one and the other case the same legal effect is intended to be obtained".

Intending the Claimant in that judicial challenge process to annul the additional assessments and in the present arbitral process the initial assessments, it is manifest that the legal effects which the Claimant intends to obtain in the two proceedings are distinct.

For this reason, there being no identity of claims, the exception of lis pendens is without merit.

5. QUESTION OF UNIMPUGNABILITY OF TAX ACTS AND UNTIMELINESS OF THE REQUEST FOR CONSTITUTION OF AN ARBITRAL TRIBUNAL

The Tax and Customs Authority argues that, "although the request for arbitral pronouncement was presented timely in light of notification of the decisions rejecting the Gracious Objections (given that no more than 90 days elapsed between those two events), it is certain that the IMT assessments sub judice are not impugnable, since they were consolidated in the legal order at the time of the filing of those objections and, therefore, the Claimant's right to react against them had already lapsed".

The Tax and Customs Authority draws this conclusion from considerations it makes regarding the hypothetical res judicata of the judgment handed down in case no. …/11…TVLSB, which it believes occurs upon the expiration of the deadline for filing an appeal. With the passage of this deadline, in the argument of the Tax and Customs Authority, "the judgment became definitively consolidated in the legal order on 2015-03-26".

However, the Court Officer of the … Court of the 1st Section of Commerce of the Court of the Comarca of Lisbon, Central District, certified that the res judicata of the judgment occurred on 01-10-2015.

In accordance with the provisions of article 628 of the CPC, "a decision is considered to have res judicata as soon as it is not subject to an ordinary appeal or motion for reconsideration".

Both appeal and motion for reconsideration are forms of challenging judicial decisions and, therefore, both prevent res judicata—both appeal and motion for reconsideration.

Consequently, one can only conclude that a judgment has achieved res judicata if the deadlines for appeal and motion for reconsideration have elapsed and neither of these means of challenge was used.

For this reason, from the fact that an appeal was not filed and the respective deadline elapsed, one cannot draw the conclusion that the judgment achieved res judicata.

The raising of allegations of nullity of the judgment, when directed to the judge who handed down the decision, constitutes a "motion for reconsideration" for this purpose, as has long been understood, in accordance with the traditional maxim "appeals are made of nullities, appeals are made of orders" ([3]). The same will hold true of a request for rectification invoking a material error filed within the deadline for motion for reconsideration, when it is concluded that the alteration introduced should not be considered a mere rectification of a material error, as it alters or is an addition to what was decided. An alteration of the operative part whose material incorrectness was not detectable from reading the respective text cannot be qualified as a rectification. ([4])

If a motion for reconsideration was filed timely, res judicata only forms when the decision ruling on it has achieved res judicata. The fact that allegations of nullity of the judgment should be raised in appeal, when it is admissible, does not prevent that, if, improperly, the allegations of nullity are raised before the judge who handed down the decision, res judicata does not form before the motion for reconsideration is ruled on by a decision with res judicata, since the alteration introduced in the judgment can be challenged, pursuant to articles 617, nos. 4 and 6, of the CPC. One cannot consider the merits of the motion for reconsideration, namely on the formal issue of it not having been raised in appeal, to, retroactively, consider res judicata independently of it, which is confirmed by art. 670, no. 2, of the CPC ([5]). Only the "decision challenged by means of an obviously unfounded incidental motion is considered, for all purposes, to have res judicata" (art. 670, no. 5, of the CPC). ([6])

In its submissions the Tax and Customs Authority argues that the request for rectification does not constitute a motion for reconsideration, but even if it is understood that the "correction" made in the order of 29-06-2015 falls within the concept of "rectification", it is clear from that order that the Claimant did not present merely a request for rectification of "clerical error", as it also formulated a "request for clarification", as explicitly results from the order of 29-06-2015:

"The A indeed has reason with regard to the clerical error noted in the judgment, which, pursuant to art. 614 of the CPC, is hereby corrected.

As to the request for clarification of the decision due to the (in this case, also its) recipients, the Commercial and Property Registry Offices, the A will also have reason". (emphasis ours).

It is therefore unequivocal that the Claimant formulated two requests for alteration of the judgment, directed to the Judge who handed down the decision: one for rectification of clerical error and another for clarification.

In that order, the two requests are assessed separately, recognizing that in both cases the Claimant was right.

The request for clarification procedurally constitutes an allegation of nullity of judgment for "obscurity", in light of the provisions of paragraph c) of no. 1 of article 615 of the CPC. ([7])

Once a motion for reconsideration is filed that is found to be well-founded, res judicata of the decision subject to the motion occurs only after the decision ruling on it has achieved res judicata, namely when the order of 29-06-2015 became unimpugnable.

Thus, since the Claimant filed the gracious objections on 14-12-2015, before the expiration of the 120-day period provided for in no. 1 of article 70 of the CPPT, one must conclude as to the timeliness of the objections, as correctly understood in the administrative decisions that assessed them, contained in the administrative file.

For the reasons stated, the exception of unimpugnability of the assessment acts raised by the Tax and Customs Authority is without merit.

On the other hand, this question of unimpugnability of the acts that are the object of the request for arbitral pronouncement due to alleged expiration of the deadline for administrative challenge has nothing to do with the timeliness of the filing of the request for arbitral pronouncement.

In fact, the deadline for filing a request for constitution of an arbitral tribunal is counted from notification of the decision on the gracious objection, as follows from paragraph a) of no. 1 of article 10 of the RJAT.

For this reason, even if the acts challenged were unimpugnable because the gracious objections were untimely, the request for arbitral pronouncement was filed within the 90-day period from notification of the decision on the gracious objections (notification was made by letter sent on 14-09-2017 and the request for constitution of an arbitral tribunal was filed on 25-11-2017), so one must conclude that its filing was timely.

The exceptions of unimpugnability of the assessments and untimeliness of the request for constitution of an arbitral tribunal are therefore without merit.

6. QUESTION OF LAPSE OF THE REQUEST FOR ANNULMENT DUE TO SUPERVENING FACT

The Tax and Customs Authority argues, as an exception, that if res judicata of the judicial decision resolving the merger-division contract occurred on 01-10-2015, the deadline for lapse provided for in article 45, no. 1, of the CIMT will have expired, since the assessments are dated 02-07-2007 and the transmission occurred on 03-07-2007 (date of the merger-division deed).

This is not a preliminary issue that prevents consideration of the merits of the request for arbitral pronouncement, but rather the consideration of a possible ground for merit or lack of merit.

Article 45 of the CIMT establishes the following:

Article 45

Proportional Annulment

1 - If, before eight years have elapsed from the transmission, a resolutive condition comes to be verified or the contract is resolved, proportional annulment of the IMT can be obtained by means of a gracious objection or judicial challenge.

2 - The deadlines for filing the objection or challenge on such grounds are counted from the occurrence of the fact.

3 - The tax is annulled in an amount equivalent to the product of its eighth part by the number of complete years that remain until eight.

The resolution of contracts is specifically provided for in no. 1 of this article 45 as a ground for proportional annulment.

The Claimant argues that this article 45 is only applicable in the case of resolution by agreement of the parties to the contract.

There is no reason to restrict the application of this regime to cases of resolution by agreement of the parties, since, although resolution can be made by agreement ([8]), it can be made at the initiative of one of the parties or by a Court (article 436 of the Civil Code). ([9])

In any event, this provision only covers situations in which resolution of the contract occurs "before eight years have elapsed from the transmission".

In the case at issue, between the date of transmission (03-07-2007) and the date of resolution (01-10-2015, the date on which the judgment deciding it achieved res judicata) more than 8 years elapsed, so the situation provided for in this article is not verified.

This is not a situation of lapse of the exercise of a right to partial annulment, but rather of non-existence of that right, due to non-verification of one of the requirements for its formation. ([10])

It is concluded, therefore, that the Claimant's claim cannot be upheld on the basis of this article 45 of the CIMT.

7. QUESTION OF LACK OF REASONING IN THE DECISION ON THE GRACIOUS OBJECTION

As referred, the Tax and Customs Authority interpreted the request for arbitral pronouncement as imputing the defect of lack of reasoning to the decision on the gracious objection, which is confirmed by the Claimant's submissions.

The Claimant does not indicate in the request for arbitral pronouncement what the reasons are for such an understanding, but indicates them in its submissions, saying the following:

"How is it possible to reason the non-existence of a tax fact? Being a negative fact, it is difficult if not impossible to prove or reason about it.

The arguments presented by AT go in the direction of the existence of the fact and its subsistence in the legal order, giving it an effect of mere ineffectiveness.

THAT IS NOT WHAT RESULTS FROM THE JUDICIAL DECISION.

If AT - in denial before reality - alleges a series of facts and formulates a series of reasoning that do not apply to the case under analysis in which there is ABSOLUTE LACK OF REASONING.

AT, in seeking to maintain in the legal order and to attribute legal and tax effects in the sphere of the Objector to the putative plots that ceased—by judgment—to be part of its assets, is violating the judgment having res judicata.

(...)

In the case under analysis AT disregarded the material content of the judgment having res judicata and the commands it contained, seeking to attribute an effect of annullability to what is represented as a nullity.

AT FAILED IN ITS BASIC DUTY OF REASONING BECAUSE IT IGNORES THE VALUE OF THE JUDGMENT AND ITS MATERIAL CONTENT".

The requirement for reasoning of lesive administrative acts is contained in no. 3 of article 268 of the CRP, which establishes that "administrative acts are subject to notification to the interested parties, in the form provided by law, and require express and accessible reasoning when they affect rights or legally protected interests".

Especially for the reasoning of tax acts, article 77, nos. 1 and 2, of the LGT establishes that "the decision of a procedure is always reasoned by means of a brief exposition of the reasons of fact and law that motivated it, the reasoning being able to consist of a mere declaration of agreement with the grounds of earlier opinions, information or proposals, including those forming part of the tax inspection report" and that "the reasoning of tax acts can be effected in summary form, and must always contain the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the taxable matter and the tax".

The Supreme Administrative Court has consistently understood that the reasoning of an administrative or tax act is a relative concept that varies according to the type of act and the circumstances of the specific case, but that the reasoning is sufficient when it allows a normal recipient to perceive the cognitive and evaluative process followed by the author of the act to hand down the decision, that is, when that person can know the reasons why the author of the act decided as it did and not otherwise, so as to be able to set in motion the administrative or contentious mechanisms for challenging it. ([11])

In the reasoning for the decision on the gracious objection reference is made, among other things, to the following:

It follows from the provisions of no. 1 of article 38 of the LGT that the ineffectiveness of legal transactions (even if endowed with retroactive effect) does not in itself determine, in the tax sphere, the restitution of amounts expended as tax, the taxation being considered justified as long as, as a consequence of the transaction executed, the economic effects intended by the parties have been produced.

That legal provision reflects the prevalence that in certain situations is accorded by tax law to the economic aspect of transactions. As in the facts at issue, one is in the presence of a transaction with real effect, transmissive of property (even if indirectly), since the merger operated the transfer of ownership of the properties to the incorporating company, an economic effect intended by the parties, it appears from that fact that the taxation is owed.

Regarding the request for return of the IMT paid, alleging that the tax is not due because there is no valid real property transmission, we believe there is no merit to such argument, since the transaction now resolved existed validly and maintained its efficacy from the execution of the respective contract until it was resolved by the court.

For the possibility of tax refund to be placed, in the manner invoked by the Claimant, namely by considering that there is no valid real property transmission, it would be essential to ascertain the existence of a defect generating invalidity (absolute or relative) attributable to the transaction, since not forgetting that the transaction was executed, only the transaction deemed null or annulled can be considered as not having been executed, for purposes of subsuming to the provisions of article 44 of the CIMT.

The transaction at issue received no judgment of disfavor or non-conformity with the legal order.

As can be seen from this excerpt, the Tax and Customs Authority expounded the reasons why it understood there was not a situation of non-existence of a tax fact: one is "in the presence of a transaction with real effect, transmissive of property (even if indirectly), since the merger operated the transfer of ownership of the properties to the incorporating company, an economic effect intended by the parties", this "existed validly and maintained its efficacy from the execution of the respective contract until it was resolved by the court".

And the Tax and Customs Authority clarified the reasons why it understood there could be no return of the tax, as if the transmission did not exist: "for the possibility of tax refund to be placed, in the manner invoked by the Claimant, namely by considering that there is no valid real property transmission, it would be essential to ascertain the existence of a defect generating invalidity (absolute or relative) attributable to the transaction, since not forgetting that the transaction was executed, only the transaction deemed null or annulled can be considered as not having been executed, for purposes of subsuming to the provisions of article 44 of the CIMT".

For the reasons stated, whether or not correct the considerations made by the Tax and Customs Authority, it is to be concluded that the reasons why the Tax and Customs Authority decided as it did are perfectly clear.

With regard to the reference in the decision on the gracious objection to the ineffectiveness of the transaction, which can be framed within article 38, no. 1, of the LGT, it is also clear the understanding of the Tax and Customs Authority.

For this reason, the decision on the gracious objections does not suffer from the defect of lack of reasoning.

8. QUESTION OF NON-EXISTENCE OF THE TAX FACT

The Claimant argues the following, in summary, in the gracious objections and in the present proceedings:

– the judgment that decided the resolution of the contract through which the transmission of the properties was operated, with the effect of nullity, has the scope of an eradication from the Legal Order of the transmissive act with retroactive effect (ex-tunc), including elimination of subsequent registrations resulting from it;

– the transmissive legal fact that gave rise to the IMT disappeared retroactively by judicial decision having res judicata in the legal order;

– the tax is not due because there is no valid real property transmission;

– the fact that some of the putative properties were attached by AT as security for suspension of tax enforcement actions launched against them for additional taxes assessed and challenged does not imply that these putative properties have materiality, enjoyment or use of the putative property by the Objector;

– the properties referred to—which are no longer legally hers by virtue of the judgment having res judicata—have attachments made by AT to suspend enforcement of illegal additional assessments made against those same properties.

The Tax and Customs Authority in the decision on the gracious objections and in the present proceedings argues, in summary, the following:

– article 38, no. 1, of the LGT only allows the return of the tax paid, in situations of resolution of transactions, when the effects produced by the parties have not been produced;

– the transaction at issue received no judgment of disfavor or non-conformity with the legal order;

– the resolution did not occur as a consequence of any defect generating invalidity (absolute or relative), rather arising from supervening alterations of the circumstances that founded the decision to contract;

– the transmissive fact indeed came to be realized, so there is no place for application of article 44 of the CIMT, since this provision only operates when the act or fact was not realized at all;

– it is no longer possible to apply the regime of article 45, no. 1, of the CIMT, because when the resolution of the contract was decided, no complete year remained of the eight provided therein as allowing proportional annulment;

– res judicata is formed only regarding the operative part of the judgment, which is a decision resolving the merger-division contract;

– the alleged resolution of the merger-division contract did not produce any change in the ownership of the properties in the factual plane;

– the properties in question continue to be held in the legal sphere of the Claimant and were offered by the Claimant, continuing to be offered, as security for suspension of various tax enforcement proceedings.

Tax law contains its own regime, different from the regime of civil law, regarding the effects of ineffectiveness of legal transactions, specifically set forth in no. 1 of article 38 of the LGT, which establishes that "the ineffectiveness of legal transactions does not prevent taxation at the moment when it must legally occur, if the economic effects intended by the parties have already been produced".

However, since it does not provide its own concept of "ineffectiveness", the conception that this concept has in civil law will be applicable, by force of the provisions in no. 2 of article 11 of the LGT, which establishes that "whenever terms particular to other branches of law are used in tax provisions, the same must be interpreted in the same sense as they have there, unless otherwise directly results from the law".

This concept of ineffectiveness, in the broad sense, covers all situations in which "a transaction does not produce, due to an impediment arising from the legal order, in whole or in part, the effects which it would tend to produce according to the tenor of the respective declarations", encompassing not only situations of invalidity, but also of ineffectiveness in the strict sense, which depends "not on a lack or irregularity of the internal elements of the transaction, but on some extrinsic circumstance which, together with the transaction, makes up the situation of fact (fattispecie) productive of legal effects". ([12])

"Invalidity is a species of the genus ineffectiveness: while ineffectiveness 'in the broad sense' encompasses all hypotheses in which, due to causes intrinsic or extrinsic, the transaction should not produce the effects to which it tended, invalidity is only the ineffectiveness that arises from a lack or irregularity of the internal (essential, formative) elements of the transaction". ([13]) The concept of invalidity includes not only nullity or annullability, but also the non-existence of the legal transaction. ([14])

In the case at issue, the resolution of the contract due to alteration of circumstances, provided for in articles 437 to 439 of the Civil Code, one is in the presence of a situation of ineffectiveness in the strict sense, which can be framed within the provision of no. 1 of article 38 of the LGT, as understood in the decision on the gracious objections.

Article 439 of the Civil Code determines the application, within the scope of civil law, of the regime of resolution of the contract, provided for in articles 432 to 436 of the same Code, among which is included, as a rule, the application of the regime of nullity, with retroactive effects, if this does not contravene the will of the parties or the purpose of the resolution (articles 433 and 434, no. 1, of the Civil Code), without prejudice to rights of third parties, limited by the rules of registry, in the case of immovable property (article 435 of the same Code).

However, for tax purposes the effects of ineffectiveness are defined by article 38, no. 1, of the LGT, which is a special provision and, therefore, prevails over the rules of civil law in its domain of application. Thus, within the scope of tax law, it is the regime of this article 38, no. 1, that is applicable, absent a special provision, regardless of whether the civil effects are those of nullity (as the Claimant argues), or even those of legal non-existence of the transaction.

Pursuant to this article 38, no. 1, ineffectiveness does not prevent taxation at the moment when it must legally occur, if the economic effects intended by the parties with the legal transaction have already been produced.

For this reason, the position assumed by the Tax and Customs Authority is correct in understanding that "the ineffectiveness of legal transactions (even if endowed with retroactive effect) does not in itself determine, in the tax sphere, the restitution of amounts expended as tax, the taxation being considered justified as long as, as a consequence of the transaction executed, the economic effects intended by the parties have been produced".

Thus, the question of taxation, in light of article 38, no. 1, of the LGT, reduces to ascertaining whether the economic effects intended by the parties were produced.

The effects intended by the parties in the merger-division contract were the transmission of ownership of the properties, which was indeed realized, since the Claimant became the owner of the plots of land for construction and made use of some of them for the purpose of establishing mortgages and being subject to attachments that allowed her to obtain suspension of tax enforcement proceedings.

One is not in the presence of virtual plots, since the lands existed, the subdivision authorization juridically transformed them into plots of land for construction with the inherent alteration of their economic value (and even part of the urbanization infrastructure already existed, as can be seen from the judgment of the Tax Court of Lisbon handed down in case no. …/12…BELRS), they were inscribed and defined in the property registry and even voluntary mortgages were established and attachments made on various of them.

For this reason, the statements of the Claimant do not demonstrate themselves to correspond to reality, indeed quite the opposite, that the plots "did not have material existence because they were nothing more than a drawing of a municipal plan with no correspondence with something that was visible, that it was possible to grasp and enjoy" and that she did not take actual possession of those plots, with nothing.

Under these circumstances, it is to be concluded that the economic effects of the merger-division contract were produced, which are relevant for IMT taxation, which are those inherent to the transmission of ownership of the mentioned properties, with all the corresponding rights, which the Claimant was able to exercise in full until the resolution. In truth, there is no legal or factual ground that permits concluding as to the correspondence with reality of the Claimant's statement that "it could never develop and build and commercialize the plots", since no obstacle is apparent to the exercise in relation to them of all rights inherent to the right of property, like any other owner, and like B… was able to exercise upon executing the transaction that transmitted them. Indeed, it was only "on the basis of failure to pay the fees due in accordance with the regulation considered applicable" that the Municipal Chamber of …, on 05-05-2009, suspended the subdivision permit relating to the 5th and 6th phases of… [subparagraph l) of the material facts established].

Thus, there was an effective transmission of the right of property, the plots existed in the ownership of the Claimant, and this party could exercise all rights inherent to the right of property in relation to them (including selling the plots or building by paying municipal fees whose non-payment was the only ground for suspension of the permit), the Claimant also having benefited from that right for purposes of suspension of tax enforcement proceedings (through the establishment of mortgages and attachments, which persist, by force of the aforesaid article 435, no. 1, of the Civil Code).

Moreover, as the Tax and Customs Authority emphasizes, even in early 2018 the Claimant benefited from the economic effects of the contract, deriving from the transmission of the plots, at the level of their use to suspend tax enforcement proceedings.

For this reason, there is not a situation in which taxation is excluded by article 38, no. 1, of the LGT.

9. REQUESTS FOR RETURN OF AMOUNTS PAID WITH INDEMNIFICATORY INTEREST

For the reasons stated, the request for arbitral pronouncement is without merit.

Given that the requests for reimbursement and indemnificatory interest have as a prerequisite the existence of an unduly paid amount (article 43, no. 1, of the LGT), it not being demonstrated that this has occurred, these requests necessarily lack merit.

10. DECISION

In these terms, the Arbitrators in this Arbitral Tribunal agree to:

• Find the exceptions of partial incompetence of the Arbitral Tribunal, unimpugnability of tax acts, and lis pendens to be without merit;

• Find the requests for declaration of nullity of the assessments and the requests for return of amounts and indemnificatory interest to be without merit;

• Acquit the Tax and Customs Authority of these requests.

11. VALUE OF THE CASE

In accordance with the provisions of article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 3,049,016.28.

Lisbon, 18-06-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Francisco José Nicolau Domingos)
(dissenting as per attached statement)

(Jesuíno Alcântara Martins)

DISSENTING OPINION

I dissent on the question of non-existence of the tax fact, for which reason it is necessary to describe the grounds that, in my view, would justify a different decision.

Material Facts Relevant to the Question of Non-existence of the Tax Fact

From the established facts it results that a public deed of merger-division was executed in the modality of partial transfer of assets to the incorporating company (A…, Lda.). However, by judgment of the Judicial Court of the Comarca of Lisbon, the merger-division of companies A…, Lda. and B…, S.A. was declared resolved with all legal effects, as well as the sending of a copy of the judgment to the Property Registry Office of …, so that all registries of the merger-division could be identified and canceled.

In the operative part of that judicial decision it is further stated that: "Once the resolution is operated, the situation that would exist if the merger-division had not been executed must consequently be restored, in accordance with the Law, with the consequent return of ownership of all the assets transferred…". As also that the subdivision permit no. …/… of the Municipal Chamber of … was suspended on 05/05/2009.

Concept of Transmission for Purposes of Municipal Tax on Onerous Transfers of Immovable Property (IMT)

The central question in these proceedings is whether with the transmission of assets via merger-division, a transaction later resolved, the patrimonial transmission was operated for purposes of IMT.

It is therefore important to ascertain what concept of transmission is relevant for purposes of IMT?

The first note is that the concept of tax transmission is not identical to that of civil transmission, although when a property is civilly transmitted, the constitution or transfer of the right of property occurs by mere effect of the contract, as a rule, by the execution of a purchase and sale contract, formality that produces effects in the tax sphere. The public deed or equivalent are the documents that evidence the transmission of immovable property and which, therefore, are relevant to the concept of tax transmission for purposes of IMT, constituting the formal aspect of transmission for the incidence of the tax that is the object of these proceedings.

It happens that in the incidence of IMT there are hypotheses in which the existence of the transmissive title is irrelevant, as is the case, for example, of the execution of a preliminary contract in which the promissory buyer behaves as a true owner, through conduct that manifests the corpus and animus possessory.

The fight against fraud and tax evasion had the effect of altering the concept of transmission for purposes of IMT, with the incidence incorporating onerous transmissions of immovable property, regardless of the title by which they operate. Or, put differently, when the "acquirer" by that means is holder of rights of use and enjoyment of the thing economically equivalent to the content of the right of property, the transfer is economic. In that transfer the economic aspect of transmission matters, the real enrichment of the beneficiary, expressed through the enjoyment of the goods or by the economic benefit obtained with their alienation emerging from the exercise of the right of disposal. Economic substance takes precedence over the legal form used, that is, the principle of realism of Tax Law applies. ([15])

Articles 1 and 2 of the Code of Municipal Tax on Onerous Transfers of Immovable Property (CIMT) correspond, in essence, to articles 1 and 2 of the Code of Municipal Tax on SISA and the Tax on Inheritances and Gifts (CIMSISD). ([16])

For this reason it is important, in our view, to cite directly some doctrinal positions regarding objective incidence in the context of IMT with origin in the concept of economic transmission of immovable property.

For ALBERTO XAVIER, ([17]) the concept of tax transmission transpires the idea that: "…more important than the legal circulation between assets is the result of the circulation of effective powers over goods that are revelatory of tax capacity". Already F. PINTO FERNANDES/NUNO PINTO FERNANDES ([18]) understand that the concept of transmission: "…for purposes of sisa is broader than what results from civil law. In general theory, and in light of the non-existence of a concept of transmission among the provisions relating to sisa, unlike what occurs regarding the tax on inheritances and gifts in § 1.° of art. 3.°, we would have to characterize it in harmony with the principles that emerge from articles 1.°, 2.°, 8.° and 152.°, in light of which transmission comprises not only civil transmission but also economic or de facto transmission, even if stripped of legal formalities or tainted by nullities or annullabilities not recognized judicially, emphasizing the material situation resulting from the simple change of the possessors of the goods".

In summary, it is legitimate to extract the conclusion that the economic transmission that is included in the incidence of IMT grants to the acquirer rights of enjoyment with equivalence in relation to those produced with legal transmission. As also, transmission can even be stripped of legal form or be tainted by nullities or annullabilities.

Question of Non-existence of the Tax Fact

Resolution consists in the destruction of the contractual relationship, through which it is declared that the contract is deemed not executed. Resolution can be judicial, when it requires the concourse of the court to produce its effects, it being certain that it enjoys, as a rule, retroactive efficacy. ([19])

Resolution is equated as to its effects to nullity or annullability of the legal transaction. ([20])

In the specific case, it is unequivocal that it became impossible to issue building permits.

Thus it is admissible to formulate two questions: i) Does the right to build form part of the content of the right of property when we are in the presence of a plot of land for construction? and ii) What are the consequences of art. 38.º, no. 1 of the General Tax Law (LGT) for the case sub judice?

In the teaching of SALDANHA SANCHES we find regarding possession without ownership (a concept essential in the economy of IMT) the following reference: "…when situations are at stake in which someone holds a good with the rights and faculties that approach legal property (emphasis ours) and is treated as if they had the property of that good without legally having it". ([21])

Thus, it is important to understand whether the right to build constitutes a faculty of the right of property. For FREITAS DO AMARAL the ius aedificandi constitutes a private faculty pertaining to the particular owner, by virtue of the provisions of articles 1524 et seq. of the Civil Code (CC), regarding the right of surface, affirming the following: "…if the owner of the land can cede [pursuant to the Civil Code] to another the right to build on the property itself, it is because, as owner, that person has that right". ([22])

If that is so, that faculty of the right of property ceased to exist, so there must be an answer to the second question formulated.

Doctrine notes regarding the tax effects of civil ineffectiveness ([23]): "In no. 1 there is provision as to taxation of the economic effects intended by the parties that have been produced despite the ineffectiveness of the transaction. Such taxation will only occur if, and insofar as, such effects exist and fall within the provision of a tax type norm. (…) The economic effects that have been produced and subsist, for taxation purposes, must fall within the provision of a tax norm (emphasis ours)". For another author: "This article establishes, in its number 1, the efficacy before the Tax Authority of ineffective legal transactions within common law, in cases in which the economic effects intended by the parties have already been produced, from which results the right in such circumstances to the taxation of the ineffective legal transaction. The article has parallelism with paragraph 41, number 1, of the "Abgabeordnung", which establishes the irrelevance of ineffectiveness of a legal transaction for tax purposes if and as long as the parties allow its economic result to persist". ([24])

That is, it is necessary to verify whether the economic effects that were produced in the present hypothesis subsist and fall within the legal provision of a tax type norm.

Now, using doctrine, we think it is safe to affirm that with the suspension of the subdivision permit that economic faculty permitting the full enjoyment of the right of property was eliminated.

However, one cannot ignore that after the resolution of the merger-division there is no notice of eventual loss of interest of the creditor in relation to the various voluntary mortgages established on the plots of land for construction (acts prior to the resolution of the merger-division) that form part of the said permit no. …/… of the Municipal Chamber of….

For this reason, in reliance on the principle of investigation applicable in tax litigation and because we are in the presence of a fact alleged by one of the parties, there should be a request for clarification as to whether the mortgages subsist, especially because it is a notorious fact that frequently debtors proceed to payment of debts but do not carry out cancellation of mortgages. Furthermore, the judgment handed down by the Judicial Court of the Comarca of Lisbon, Central District, 1st Section of Commerce in the scope of case no. .../11...TVLSB states that: "There are also no third parties whose acquired rights could be prejudiced by the resolution".

Only in the affirmative case would the subsistence of the encumbrance of the plots attest to an element of economic property that would legitimize the maintenance of the assessments in the legal order.

On the other hand, we believe that the failure to update the registrations may not emerge from the direct will of the Claimant, since immediately in the judgment of resolution of the merger-division it was ordered that a copy of the judicial decision be sent to the Property Registry Office of … for the purposes deemed appropriate.

In summary, in our view, only in the hypothesis of maintenance of voluntary mortgages at a date posterior to the resolution of the merger-division would an economic effect manifest itself that would legitimize taxation.

Lisbon, 18 June 2018

Francisco Nicolau Domingos