IMT Exemption on Property Acquisition in Insolvency Proceedings Under Article 270(2) CIRE

ARBITRAL DECISION

I. REPORT

FIRST: A..., taxpayer no. ..., resident at Street ... ..., ..., ... – Cascais,

and

SECOND: B..., taxpayer no. ..., resident at Street ..., ..., ..., ..., ... – Cascais,

and

THIRD: C..., taxpayer no. ..., resident at Street ..., ..., ..., ..., ... – Cascais,

hereinafter jointly designated as Claimants or Applicants, hereby, pursuant to Article 2, paragraph 1 of Decree-Law no. 10/2011, of January 20, which established arbitration as an alternative means of resolving disputes in tax matters, and of Order no. 112-A/2011, of March 22, request the Constitution of an Arbitral Tribunal, without intending to appoint an arbitrator, for the assessment of the legality of the following additional assessments of Municipal Tax on Onerous Transfers of Real Estate (IMT):

1. Additional IMT assessment in the amount of €22,802.01, notified to the 1st CLAIMANT on 14/08/2015 by official letter number ... from the Financial Services of Cascais ... (see Doc. 1);

2. Additional IMT assessment in the amount of €23,240.68, notified to the 2nd CLAIMANT by official letter number ..., dated 14/08/2015, from the Financial Services of Cascais ... (see Doc. 2); and

3. Additional IMT assessment in the amount of €21,958.94, notified to the 3rd CLAIMANT by official letter number ... dated 07/08/2015, from the Financial Services of Cascais ... (see Doc. 3);

1. Accordingly, the tax acts whose ruling is requested concern additional IMT assessments relating to public deeds executed in 2011.

2. The Claimants request that the illegality of the aforementioned additional IMT assessments be declared and briefly substantiate their claim, alleging essentially the following:

• The Claimants each acquired, by notarial deed, an autonomous unit of urban real estate from the company "D..., Ltd., in Liquidation", represented in that act by its Judicial Administrator of Insolvency, since the aforementioned company had been declared insolvent by judgment rendered on 05.11.2008 by the Commercial Court of Lisbon – 1st Division, in the context of Case no. .../07... TYLSB.

• In each of the three deeds, the acquisition of the autonomous unit was preceded by the issuance of a declaration of IMT exemption, on the basis of which the Notary verified the IMT exemption;

• Indeed, it is stated in each of the respective public deeds that "the creditors' committee gave its consent to the sale to be carried out, in accordance with and for the purposes of Article 161 of the CIRE, as per the declaration referred to above";

• There is no doubt whatsoever that the 3 sales of the real estate in question were "carried out in the context of the liquidation of the insolvent estate" of the company D..., Ltd., as moreover the Tax Authority acknowledges

• The Tax Authority then considered (and correctly so), that such acquisitions were exempt from IMT under Article 270, paragraph 2 of the CIRE, and issued the respective declarations;

• The Claimants were notified to exercise their right to be heard, with the Tax Authority basing its "proposal" for "additional assessment" in the following terms: "the application of the tax benefits of Article 270, paragraph 2 of the CIRE, depends on the real estate assets being integrated in the universality of the company or establishment sold, exchanged or transferred in the context of an insolvency plan, payments plan or liquidation of the insolvent company",

• In the response to the right to be heard that it sent to the 1st CLAIMANT, the Tax Authority states the following:

"that the additional assessment is made 'in compliance with Instruction IMT/IS 2015/...' of DSIMT, relating to 'CIRE – Transfers in the context of insolvency plans, payments plans or recovery plans or carried out in the context of the liquidation of the insolvent estate / Procedures for control of exemptions'; an instruction that considers the benefit provided for in Article 270/2 of the CIRE 'depends on the real estate assets being integrated in the universality of the company or establishment sold (…)'";

• that "this is, moreover, the understanding conveyed by Instruction IMT 2014/... of DSIMT"; and that

• With regard to the doctrinal position [sic] taken in the judgment of 30/05/2012 of the STA (Case 941/11), DSIMT requested and obtained an opinion from the Legal Advisory and Litigation Services Department, from which the following conclusion stands out": "The literal wording of Article 270, paragraph 2 of the CIRE is unambiguous in the sense that the IMT exemption referred to therein does not raise any type of doubt, since it was the legislator's intention to limit the IMT exemption to onerous transfers of real estate assets integrated in the universality of the establishment or company, with exclusion of the separate alienation of its assets, regardless of whether the transfer is carried out in the context of an insolvency plan or payments plan or liquidation of the company"

• The Claimants invoke the interpretative principles established by Article 11, paragraph 1 of the LGT, Article 10 of the EBF and Article 9 of the Civil Code;

• Considering that the wording of paragraph 2 of Article 270 of the CIRE both authorizes the AT's interpretation – "Only applicable to transfers of real estate assets integrated in the alienation of the establishment of the insolvent company or in the alienation of the insolvent company itself",

• As well as the Claimants' interpretation – "applies to any transfers of real estate assets of the insolvent company in the context of the liquidation of the insolvent estate, being irrelevant whether made individually or integrated in the alienation of the establishment or of the insolvent company itself";

• Whereby in applying the exemption one should seek the meaning of the law by reconstructing the legislator's intent;

• First, the question that arises is this: what is the meaning of this tax benefit? What is the purpose it pursues?;

• The answer found by the Claimants is that this meaning is to promote the liquidation of insolvent estates, for the benefit of their creditors;

• If the company has become insolvent, being unable to fully satisfy the generality of its creditors, it seems elementary justice that the State should not come to share the spoils with the impoverished creditors and therefore should not burden the liquidation acts of the insolvent estate with taxes;

• Second, the Claimants note that Article 270 of the CIRE is integrated in Title XIII, with the heading "Emolument and Tax Benefits", which comprises Articles 267 to 270;

• By examining these provisions, it is clear that they are linked by a common denominator – that of granting tax exemptions to liquidation acts of insolvent estates or recovery of insolvent companies;

• Whereby, in intending to benefit the creditors of the liquidation of insolvent estates or the recovery processes of companies, there is no logic in distinguishing between the acquisition of real estate assets per se, from those integrated in acquisitions of establishments or companies;

• Third, this same article of the Civil Code also mandates that "account be taken of" "the circumstances in which the law was elaborated";

• Regarding the tax benefits of recovery and insolvency proceedings, the legislator clearly states what those circumstances were, by writing, in point 49 of the Preamble to the CIRE, that "essentially the existing regimes in CPEREF regarding exemption from fees and tax benefits are maintained".

• Article 121, paragraph 2 of CPEREF, provided as follows:

2 – Real estate transfers, integrated in any of the company recovery procedures, which result from:

a) The transfer to third parties or the alienation of shareholdings in the company, as provided for in paragraphs b) and c) of Article 88, paragraph 2, and in Article 91, as well as in paragraphs 1 and 2 of Article 100;

b) The transfer in performance of assets of the company and the transfer of assets to creditors, as provided for in paragraphs d) and e) of Article 88, paragraph 1, and in Article 93, as well as in paragraph 1 of Article 100;

c) The legal autonomization of commercial or industrial establishments, the sale, exchange or transfer of elements of the company's assets, as well as long-term leases, provided for, respectively, in paragraphs e), f) and g) of Article 101, paragraph 1.

• Fourth, the Claimants recall that, as this is a matter of the exclusive competence of the Assembly of the Republic, the norm in question was approved by the Government pursuant to the legislative authorization granted by Law no. 39/2003, of August 22, whose paragraph 3 of Article 9 has the following wording:

"Finally, the Government is authorized to exempt from municipal transfer tax the following transfers of real estate assets, integrated in any insolvency plan or payments plan or carried out in the context of the liquidation of the insolvent estate:

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

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

c) Those resulting from the transfer to third parties or the alienation of shareholdings in the company, the transfer in performance of company assets and the transfer of assets to creditors, the sale, exchange or transfer of the company, establishments or elements of its assets, as well as long-term leases.;

• Legislative authorization laws must define the object, direction, scope and duration of the authorization, which may be extended, whereby the Assembly of the Republic determined that the Government would be authorized to legislate with the object and direction provided for in the aforementioned Law;

• The Government could not legislate in the sense of exempting from IMT transfers of real estate assets integrated in establishments and not exempt transfers of real estate assets not integrated in the transfer of establishments or companies, because manifestly the Assembly of the Republic did not make this abstruse distinction;

• The Claimants cite diverse and recent jurisprudence of the Supreme Administrative Court in support of the thesis they defend;

• They conclude by alleging that the IMT assessments above identified by documents issued by the Tax and Customs Authority suffer from defects of law and should, consequently, be declared illegal.

3. Response of the Tax Authority

The Tax Authority came to defend in its response the maintenance of the tax acts under review, requesting the dismissal of the claim with reaffirmation, essentially, of the arguments that grounded the decision to maintain these acts.

In summary, it alleged the following:

• By way of exception, it alleged that the request for arbitral ruling has no legal basis within the competence attributed to arbitral tax tribunals, as follows:

• Paragraph a) of Article 2, paragraph 1 of the RJAT determines that the competence of arbitral tribunals comprises the assessment of the declaration of illegality of acts of taxation, self-assessment, withholding at source and payment on account;

• And Article 4 of the RJAT states that "The binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of this law depends on an order of the government members responsible for the area of finance and justice, which establishes, in particular, the type and maximum value of disputes covered."

• Thus it results from the legal provisions cited above, in particular the provisions of Article 2 of the RJAT, that the arbitral tribunal is incompetent ratione materiae to assess and decide the claim of the Claimants or to know of the matter relating thereto;

• Since the tax acts relating to the recognition of tax exemptions constitute separable acts of the tax procedure, susceptible to challenge by the subjects of the tax obligation through an appropriate means, the tax assessment resulting therefrom cannot be called into question through judicial challenge or, in the case now at issue, through a request for arbitral ruling, as, for example, is stated in the jurisprudence embodied in the judgment of the STA no. 0188/09, of 09/09/2009;

• Considering that the Claimants' claim, in addition to aiming at the tax assessment relating to payment of IMT in the amount of € 11,375.00, invokes the recognition of the request for IMT exemption.

• By way of challenge, the Respondent maintains that the exemption of paragraph 2 of Article 270 of the CIRE, previously provided, covers all acts integrated within the scope of insolvency plans, or payments plans, or liquidation of the insolvent estate, with the reservation that the exempt transfer be the company or establishment and not one or two assets of its portfolio;

• It relies for its position on the decision of the STA in the Judgment rendered in Appeal 765/13, of 13/07/2013, which states as follows: "It can, it is true, be argued that, from the perspective of the legislator of the CIRE, the differences as to the scope of IMT exemption compared to that which existed in CPEREF for SISA do not appear to be essential, and therefore the legislator made no particular reference to them. Namely, in tax matters, the preamble to statutes does not always accurately reflect their content, and it is not even unprecedented for them to include statements that the statutory provisions themselves refute (cf. With regard to SISA/IMT, the Judgment of this Supreme Court of November 3, 2010, case no. 499/10).

And it can also be argued that in implementing the legislative authorization for approval of the CIRE, in the matter at issue, the Executive decided to be more parsimonious than the Assembly of the Republic as regards the granting of IMT exemption, deciding to exclude this exemption in cases of sale, exchange or transfer of elements of its assets, granting it only in cases of sale, exchange or transfer of the company or its establishment.

• The interpretation and binding force that the Claimants attribute to the preamble of the CIRE in writing, in point 49 of the same preamble, that "essentially the existing regimes in CPEREF are maintained as to exemption from fees and tax benefits" has no foundation whatsoever;

• Firstly, "essentially" does not equate with "exclusively";

• Moreover, the preamble does not equate with and does not supersede the literal wording of the various articles of the Code, as if it had a dispositive character;

• As regards the legislative authorization granted by paragraph 3 of Article 9 of Law no. 39/2003, it must be interpreted and applied in a manner different from that defended by the Claimants;

• If the meaning of the legislative authorization were that it could only be used in toto and never partially, that same intention would have to be expressly stated in Law no. 39/2003, which was not the case;

• By authorizing the Government only to approve a set of tax benefits within the process of insolvency and recovery of companies, the Assembly of the Republic granted it the possibility of approving all these tax benefits in toto, approving only a part, or then purely and simply not using the legislative authorization;

• The legislative authorization is not an absolute imposition to legislate, contrary to what the aforementioned Supreme Court Judgment erroneously maintains;

• It must also be noted that the Tax Authority is bound both by the principle of legality and by internal guidelines emanating from the Tax Authority;

• And, on this issue, there is a binding information in Case 2009... – IVE no. 431, with a concordant order of 24/03/2009, from the Deputy Director-General of Taxes of the Heritage Area, which confirms the opinion of the Legal Advisory and Litigation Services Department, in which the following conclusion is reached:

The application of the tax benefits of Article 270, paragraph 2 of the CIRE depends on the transmitted real estate assets being integrated in the universality of the company or establishment sold, exchanged or transferred in the context of the insolvency plan or payments plan or liquidation of the insolvent company.»;

• That is, the sale of assets of the company, in isolation, is not, thus, covered by the exemption provided for in paragraph 2 of Article 270 of the CIRE, and is therefore subject to IMT under general terms;

• Whereby the exception of incompetence should be considered well-founded or the claim of the Claimants considered without merit and the Respondent absolved of the claim.

4. Response of the Claimants to the Exception Raised by the Tax Authority

• The Claimants, called upon to rule, came to respond to the Respondent's request that the exception of incompetence of the tribunal be considered well-founded, on 18/03/2016, alleging, in summary, the following:

• They cite jurisprudence of the arbitral tax tribunal that decides in favor of the full competence of the arbitral tribunals of CAAD in situations of additional assessments subsequent to the recognition of a tax benefit, since this "is defined solely taking into account the type of acts that are the subject of challenge, with no prohibition whatsoever regarding the assessment of matters relating to tax exemptions or any other issues of legality relating to the acts of the types referred to in Article 2 of the RJAT. It is understood in this connection that a tax assessment that departs from the disregard of an exemption remains a tax act. And the assessment of the legality or illegality of that disregard therefore remains, the assessment of a claim relating to the declaration of illegality of acts of taxation". (Case CAAD no. 809/2014-5, of 12/7/2015);

• In a situation identical to that of the present case – that is, an IMT assessment relating to the acquisition of real estate in the context of a liquidation process of the insolvent estate of the transferor – the Tax Authority also came to argue that the "matter to be decided" relates to the granting of a tax benefit provided for in Article 270, paragraph 2 of the CIRE (CAAD, Case no. 99/2015-T), and in such case it was decided that "the subject matter of the proceedings was not a question of recognition of an exemption (…) but rather an act of assessment resulting from the disregard of an exemption by the Tax Authority, and therefore the assessment of its legality falls within Article 2, paragraph 1, subsection a) of the RJAT";

• They add to the foregoing the consideration that, in arbitral jurisprudence, and with regard to IMT assessments where the tax benefit provided for in Article 270, paragraph 2 of the CIRE is disregarded, "one is before an exemption of automatic recognition, as results from subsection d) of paragraph 8 of Article 10 of the CIMT, whereby there did not even have to be any autonomous act of recognition of the exemption, being at the appropriate moment for the performance of an act of assessment that the Tax and Customs Authority will have to assess whether the interested party enjoys a tax benefit" (Case no. 123/2015-T, of 1/9/2015);

• In the present case, it is evident that, contrary to what affirmed by the Tax Authority, a "previously granted exemption was not annulled" – the exemptions at issue here are not "granted", because they have the nature of an automatic benefit;

• Concluding with the manifest lack of merit of the exception invoked by the Tax Authority.

II. CASE MANAGEMENT

1. This Arbitral Tribunal was duly constituted on 03-02-2016, with the arbitrators designated by the Deontological Council of CAAD, with the respective legal and regulatory formalities complied with (cf. Articles 11-1/a) and b), of the RJAT and 6 and 7 of the Deontological Code of CAAD), Judge José Poças Falcão, Dr. Augusto Vieira and Dr. Ana Teixeira de Sousa, a designation accepted by the parties.

2. The meeting provided for in Article 18 of the RJAT was held on 17-06-2016 with representatives of both parties present.

3. The parties waived written and oral arguments.

4. The Tribunal set July 15 for the delivery of the decision and notification of the final decision.

5. The parties have legal standing and legal capacity, are duly interested parties and are regularly represented (cf. Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Order no. 112-A/2011, of March 22). The request for ruling was timely filed, as evidenced by the fact that the additional assessments were notified by official letters of 14.08.2015 and 07.08.2015, respectively to the 1st and 2nd Claimants and to the 3rd Claimant, with the request for ruling being registered in CAAD's SGP on 29-10-2015.

6. No procedural nullities were identified.

7. The success of each of the present 3 claims depends essentially on the same circumstances of fact and on the interpretation and application of the same principles and rules of law.

8. Whereby the joinder of claimants should be admitted, under Article 3, paragraph 1 of the RJAT.

9. The Respondent raised the dilatory exception of incompetence of the tribunal, namely pursuant to the provisions of Article 2 of the RJAT, alleging that the arbitral tribunal is incompetent ratione materiae to assess and decide the claim of the Claimants or to know of the matter relating thereto; since the tax acts relating to the recognition of tax exemptions constitute separable acts of the tax procedure, susceptible to challenge by the subjects of the tax obligation through an appropriate means, the tax assessment resulting therefrom cannot be called into question through judicial challenge or, in the case now at issue, through a request for arbitral ruling.

10. Let us recall what the RJAT provides regarding the competence of arbitral tribunals:

Article 2

Competence of arbitral tribunals and applicable law

The competence of arbitral tribunals comprises the assessment of the following claims:

a) The declaration of illegality of acts of taxation, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts fixing the taxable matter when not giving rise to the taxation of any tax, acts of determination of the collectible matter and acts of fixing patrimonial values; (Wording from Law no. 64-B/2011, of December 30)

c) (Revoked) (Wording from Law no. 64-B/2002, of December 30)

2 – Arbitral tribunals decide in accordance with established law, being prohibited recourse to equity.

1. In accordance with Article 2 of the Order binding the Tax and Customs Authority (Order no. 112-A/2011, of March 22):

«The services and bodies referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals functioning at CAAD which have as their object the assessment of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of Article 2 of Decree-Law no. 10/2011, of January 20 (…)».

1. In the Tax Authority's thesis, the recognition of a tax exemption related to the transfer of real estate assets integrated in an insolvency process constitutes a matter subject to judicial jurisdiction and, therefore, outside the scope of the arbitral tribunal.

2. The invocation that what is at issue in the proceedings is a matter relating to the recognition of a tax exemption does not preclude the competence of the arbitral tribunal to settle the dispute in question, inasmuch as the claim in judicio is intended to result in the annulment of the IMT assessment in question, based on its illegality, with the cause of action including the invocation of the existence of a tax exemption (IMT exemption), associated with the transfer of real estate assets in the context of an insolvency plan.

3. The law does not restrict the grounds on the basis of which the claim for annulment of the assessments in question is formulated, with a view to delimiting the material competence of the arbitral tribunal.

4. Whereby it results that the additional IMT assessment discussed in the proceedings is included, in terms of applicable law, within the competence attributed by law (Article 2, paragraph 2 of the RJAT) to arbitral tribunals.

5. This decision was followed in similar proceedings both by arbitral tribunals (CAAD, case no. 99/2015-T and case no. 809/2014-5, of 12/7/2015) and by judicial tribunals (Judgment of the Central Administrative Court of the South, of 06/09/2016, case no. 09156/15).

6. Whereby the tribunal concludes with the lack of merit of the exception of incompetence raised by the Respondent and with the judgment of the case which is the subject of the request for arbitral ruling.

III. SUBSTANTIATION

1. The present action concerns the additional IMT assessment in the amount of €22,802.01, notified to the 1st Claimant on 14/08/2015 by official letter number ... from the Financial Services of Cascais ... (see Doc. 1); additional IMT assessment in the amount of €23,240.68, notified to the 2nd Claimant by official letter number..., dated 14/08/2015, from the Financial Services of Cascais ... (see Doc. 2); and the additional IMT assessment in the amount of €21,958.94, notified to the 3rd Claimant by official letter number ... dated 07/08/2015, from the Financial Services of Cascais ... (see Doc. 3), the defects of illegality being imputable to these assessments.

FACTUAL MATTER

Facts Proven

1. For the assessment of these issues, it is important to take into account the following proven facts, which are basically those alleged by the Claimants, considering that they were not disputed by the Tax Authority:

2. The Tax Authority made additional IMT assessments to the Claimants as follows:

a. Additional IMT assessment in the amount of €22,802.01, notified to the 1st Claimant on 14/08/2015 by official letter number ... from the Financial Services of Cascais ...(see Doc. 1);

b. Additional IMT assessment in the amount of €23,240.68, notified to the 2nd Claimant by official letter number..., dated 14/08/2015, from the Financial Services of Cascais ...(See Doc. 2);

c. Additional IMT assessment in the amount of €21,958.94, notified to the 3rd Claimant by official letter number ... dated 07/08/2015, from the Financial Services of Cascais ...(see Doc. 3);

1. The 1st Claimant and his wife acquired, on 19.07.2011, the autonomous unit "D" of the urban real estate located in the parish of ..., Municipality of Cascais, real property article no. ..., through a public deed executed in the Notarial Office of ... (see doc. 4).

2. The acquisition of the autonomous unit was preceded by the issuance of a declaration of IMT exemption pursuant to Article 270, paragraph 2 of the CIRE, dated 07/07/2011 (see Doc. 5).

3. The 2nd Claimant and his wife acquired, on 07.11.2011, the autonomous unit "E" of the urban real estate located in the parish of ..., Municipality of Cascais, real property article no. ..., through a public deed executed in the Notarial Office of ... (see doc. 6).

4. As documented in the public deed, the "Document of Assessment of Municipal Tax on Onerous Transfers of Real Estate, with number DUC..., to zero euros" was displayed and filed in the notarial office (see Doc. 6 and 7).

5. The 3rd Claimant and his wife acquired, on 08.09.2011, the autonomous unit "F" of the urban real estate described in the 1st Registry of Real Property of Cascais under number ..., located in the Municipality of Cascais, parish of ..., real property article no. ..., through a public deed executed in the Notarial Office of ... (see doc. 8).

6. The acquisition of the autonomous unit was preceded by the issuance of a declaration of IMT exemption, on the basis of which the Notary verified the IMT exemption (see Doc. 8).

7. The acquisition of the three autonomous units was carried out from the company "D..., Ltd., in Liquidation", represented in that act by its Judicial Administrator of Insolvency, since the aforementioned company had been declared insolvent by judgment rendered on 05.11.2008 by the Commercial Court of Lisbon – 1st Division, in the context of Case no. .../07... TYLSB.

8. The Claimants filed on 29-10-2015 the present request for arbitral ruling – as recorded in CAAD's SGP.

Facts Not Proven

1. No essential facts, with relevance to the assessment of the merits of the case, were found to be unproven.

Motivation

1. The Tribunal based its conviction on the documentary evidence attached to the proceedings by the Claimants, in particular those indicated above, in conjunction with the absence of controversy between the parties regarding the essential facts considered proven.

Substantiation (cont.)

The Law

1. The tax acts whose ruling is requested concern additional IMT assessments relating to public deeds executed in 2011.

2. The Claimants point to a defect of violation of law, alleging that such assessment was made in violation of the law inasmuch as, according to their allegation, the application of the tax benefits of Article 270, paragraph 2 of the CIRE does not depend on the real estate assets being integrated into the universality of the company or establishment sold, exchanged or transferred in the context of an insolvency plan, or payments plan or liquidation of the insolvent company", with the exemption also covering "a transfer of real estate asset in isolation from the company or establishment".

3. For ease of exposition, the principal legal provisions essential to subsequently assess the tax act in light of the defect invoked by the Claimants are transcribed.

4. Article 270 of the CIRE has the following wording:

Article 270 – Benefit relating to the municipal tax on onerous transfers of real estate:

1. The following transfers of real estate assets, integrated into any insolvency plan, payments plan or recovery plan, are exempt from the tax on onerous transfers of real estate:

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

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

c) Those resulting from the transfer in performance of assets of the company and the transfer of assets to creditors.

1. Acts of sale, exchange or transfer of the company or of establishments thereof integrated within the scope of an insolvency plan, payments plan or recovery plan or carried out in the context of the liquidation of the insolvent estate are likewise exempt from the municipal tax on onerous transfers of real estate.

2. The previous Code of Special Procedures for Company Recovery and Bankruptcy (CPEREF) provided in Article 121, paragraph 2, which was replaced in the new CIRE by the cited Article 270, the following;

3. Real estate transfers, integrated in any of the company recovery procedures, which result from:

a) The transfer to third parties or the alienation of shareholdings in the company, as provided for in paragraphs b) and c) of Article 88, paragraph 2, and in Article 91, as well as in paragraphs 1 and 2 of Article 100;

b) The transfer in performance of assets of the company and the transfer of assets to creditors, as provided for in paragraphs d) and e) of Article 88, paragraph 1, and in Article 93, as well as in paragraph 1 of Article 100;

c) The legal autonomization of commercial or industrial establishments, the sale, exchange or transfer of elements of the company's assets, as well as long-term leases, as provided for, respectively, in paragraphs e), f) and g) of Article 101, paragraph 1.

1. For its part, Article 270 of the CIRE was approved by the Government pursuant to the legislative authorization granted by Law no. 39/2003, of August 22, whose paragraph 3 of Article 9 has the following wording:

«Finally, the Government is authorized to exempt from municipal transfer tax the following transfers of real estate assets, integrated in any insolvency plan or payments plan or carried out in the context of the liquidation of the insolvent estate:

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

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

c) Those resulting from the transfer to third parties or the alienation of shareholdings in the company, the transfer in performance of company assets and the transfer of assets to creditors, the sale, exchange or transfer of the company, establishments or elements of its assets, as well as long-term leases.

1. Paragraph 2 of Article 270 of the CIRE must be interpreted in accordance with what Article 11, paragraph 1 of the General Tax Law (LGT) mandates: "In determining the meaning of tax provisions and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed".

2. For this purpose, it should be noted that Article 10 of the Tax Benefits Statute provides: "Provisions establishing tax benefits are not susceptible to analogical integration, but admit extensive interpretation".

3. The rules and interpretative principles enshrined in Article 9 of the Civil Code are applicable:

4. "Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking above all into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

5. However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

6. In establishing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express his intent in adequate terms.

7. The question that must be assessed and decided is whether the acquisitions in question were exempt from IMT under the provisions of Article 270 of the Code of Insolvency and Company Recovery (CIRE), approved by Decree-Law no. 53/2004, of March 18, which requires inquiry into whether said exemption operates only with respect to sales, exchanges or transfers of companies or establishments as a universality of assets, as the Respondent argues, or also with respect to sales, exchanges or transfers of real estate (as elements of its portfolio), provided they are framed within the scope of an insolvency plan or payments plan, or carried out in the context of the liquidation of the insolvent estate, as the Claimants maintain.

8. Article 270, paragraph 2 of the CIRE has been subject to different readings.

9. In the view of the Tax Administration, the IMT exemption covers only acts of sale or exchange of the company or establishment as a whole, not applying to the separate transfer of real estate, separately from the company or establishment of which they form part.

10. In the words of Opinion no. 166 of the Legal Advisory and Litigation Services Department of the Directorate-General of Taxes, of May 26, 2008, "the application of the tax benefits of Article 270, paragraph 2 of the CIRE depends on the transmitted real estate assets being integrated in the universality of the company or establishment sold, exchanged or transferred in the context of an insolvency plan or payments plan or liquidation of the insolvent company. The onerous transfer of real estate assets separately from the company or establishment is thus not covered by the exemption".

11. Within the scope of judicial tribunals the issue is not new and has been dealt with repeatedly and uniformly in the Supreme Administrative Court as cited in the Judgment of the STA of 01/20/2016 in Case no. 01350/15[1]:

12. This Judgment fundamentally follows what was decided in the Judgment of the STA of May 30, 2012, Case no. 0949/11, to which it refers and makes the respective transcription in the following terms; [...].

13. The Public Treasury disagrees with what was decided, arguing that the prerequisites for meeting the requirements that determine obtaining the exemption benefit were not met by the purchaser, since he did not acquire the company or its establishment and that the provision of Article 270, paragraph 2 of the CIRE, even by way of extensive interpretation, does not contemplate the outright sale of elements of the company's assets.

However, the appellant provides no reason whatsoever to shake our conviction that the appealed sentence judged well in adopting the interpretation of Article 270, paragraph 2 of the CIRE that has been peacefully and repeatedly adopted by this STA since the Judgment mentioned in the sentence appealed – cf. in addition to the judgments already cited in the opinion of the Honorable Adjunct Attorney General before this STA transcribed above, the recent Judgments of November 11, 2015, case no. 0968/13 and of November 18, 2015, cases no. 0575/15 and 1067/15 –, the fact that the Tax Authority has from the provision an interpretation that conflicts with the jurisprudence of the STA – which will have, moreover, caused to appear in recent information 1/2014 of DSIMT and provided to the Bar Association of Notaries (cf. allegations of appeal at pp. 67, verso and 68 of the record) –, being no reason to postpone the understanding that has been adopted and is reaffirmed here, inasmuch as it constitutes what best adapts the legal text to the meaning and scope of the legislative authorization pursuant to which the provision was issued by the Government in a matter reserved to the Assembly of the Republic and because that interpretation is the one that best serves the teleology of paragraph 2 of Article 270 of the CIRE - «to promote and support the quick sale of assets that form part of the insolvent estate for obvious reasons of interest to creditors, but also of the public interest in the resumption of normal functioning of the business world in which each insolvency process presents itself as a disruptive element», giving tax incentives to whoever acquires the real estate assets forming part of the insolvent estate and which will be sold in the liquidation phase – there being, in that light, no reason to distinguish situations in which the company is being sold as a whole with all its assets and liabilities, from situations in which one or more of the commercial establishments that comprised it are being sold, or situations in which real estate assets that formed part of its portfolio are being sold (cf. the Judgment of the STA of November 18 last, case no. 01067/15).

It is concluded, therefore, that there is nothing to censure in the appealed judgment which judged well, the appeal by the Public Treasury being destined to fail».

1. Paragraph 2 of Article 270 of the CIRE is a provision of a tax nature that establishes a tax benefit.

2. As already stated, to the interpretation of tax provisions the general rules and principles of interpretation of laws are applicable, in particular Article 9 of the Civil Code (cf. paragraph 1 of Article 11 of the General Tax Law).

3. Consequently, to establish the meaning of paragraph 2 of Article 270 of the CIRE, the interpreter must undertake to "reconstruct from the texts the legislative intent, taking above all into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

4. Let us then examine this.[2]

5. As to the literal element, it should be considered that when the Legislator, in Article 270, paragraph 2 of the CIRE, refers to "acts of sale, exchange or transfer of the company or of establishments thereof", does he intend that the terms "sale", "exchange" and "transfer" all refer to the company or establishment? Does the Legislator intend to exempt from IMT only (i) acts of sale of the company or of its establishments, (ii) acts of exchange of the company or of its establishments and (iii) acts of transfer of the company or of its establishments?

6. Or, conversely, does the law not establish any relationship between the terms "sale" and "exchange" and the terms "company" and "establishments thereof"? Does the Legislator intend that the acts of "sale" and "exchange" to which Article 270, paragraph 2 of the CIRE alludes refer to sales and exchanges of any real estate and not only to sales and exchanges of companies or establishments?

7. The use of these various concepts, without a pre-defined scope or specific definition for these purposes, does not facilitate the interpretation of the provision in question.

8. Inasmuch as the concepts of "exchange" and "transfer" are not commonly used with regard to a company or establishment but are more appropriately used with regard to assets or parts of the assets of companies and establishments. In this regard, recall that, in the context of insolvency proceedings, the insolvent estate cannot perform gratuitous acts as this would prejudice the patrimonial interests of creditors).

9. Thus, when the law speaks of transfer of the company or of the establishment, it is, by definition, referring to an onerous transfer of a right (i.e., of the ownership of the company or of the establishment).

10. Furthermore, as is known, the rules of interpretation require that a useful meaning be found for the words of the Legislator, with it being presumed, moreover, that the same knew how to express himself adequately (cf. Article 9, paragraph 3 of the Civil Code).

11. Whereby it may be deduced from the text of the law that the term "sale" has a specific useful meaning, quite distinct from the term "transfer". Both terms apply to distinct realities, eliminating any redundancy or overlap.

12. Nevertheless, the literal element does not, of itself, resolve the issue subject to the proceedings, being necessary to have recourse to other interpretative elements such as the historical and the teleological.

13. As to the historical element, it is necessary to ascertain the origin of the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE

14. The Code of Special Procedures for Company Recovery and Bankruptcy (hereinafter, "CPEREF"), the statute that preceded the CIRE, was guided by the principle of primacy of the recovery of the debtor company, and it can be read in its preamble that "this statute affirms, in categorical terms, the priority of the recovery regime over the bankruptcy process leading to the definitive extinction of the debtor company". Bankruptcy should only be decreed when the failed company proved to be "economically unviable" or it was not considered possible "its financial recovery" (Article 1, paragraph 2 of CPEREF).

15. By Law no. 39/2003, of August 22, the Government was authorized to legislate on the insolvency of individuals and legal entities, repealing the CPEREF. The new law should place emphasis on the satisfaction of creditors, whether through the liquidation of assets or through an insolvency plan (cf. Article 1, paragraph 2 of Law no. 39/2003).

16. In the matter of tax benefits, paragraph 3 of Article 9 of Law no. 39/2003 authorized the Government "to exempt from municipal transfer tax the following transfers of real estate assets, integrated in any insolvency plan or payments plan or carried out in the context of the liquidation of the insolvent estate: (…) those resulting from (…) the sale, exchange or transfer of the company, establishments or elements of its assets (…)".

17. Law no. 39/2003 – apparently more generous than the CPEREF, precisely because it deemed the insolvency plan route and the liquidation of the insolvent estate route as valid alternatives to ensure the satisfaction of creditors – did not restrict the exemption from taxation to transfers of real estate that could take place in a context of company recovery. Rather, that exemption was extended to transfers taking place in a context of liquidation of the insolvent company or its establishments, or elements of its assets.

18. The tax benefits provided for in the CPEREF were transposed to the CIRE, with the important difference that they no longer applied only within the scope of company recovery procedures and came to apply also within the scope of asset liquidation, following the provisions of the legislative authorization law - Law no. 39/2003.

19. Whereby there is no foreseeable basis for arguing that the tax benefit provided for in paragraph 2 of Article 270 of the CIRE covers only the transfer of real estate together with the company or with the establishment of which they form part, when the CPEREF admitted this exemption to the transfer also of elements of the company or establishment's assets, and the new regime intends to be more advantageous in the possibilities offered for the recovery of insolvent companies.

20. As to the purpose of the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE

21. The legislator recognizes that, in the insolvency process, it is not only the insolvent company that is at stake. The financial soundness and, at the limit, the very survival of creditor companies is also at risk, because their capacity to accommodate the losses resulting from the debtor's insolvency is far from unlimited.

22. It is thus the need to minimize the repercussion of the debtor's insolvency on the patrimonial and financial situation of creditors – avoiding, at the limit, situations of chain insolvencies – that leads the Legislator to elect the satisfaction of creditors as the main objective of the insolvency process.

23. It is, fundamentally, a matter of protecting sound economic agents from the contagion of disease, in the interest not only of the economic agents themselves but also of the community in general.

24. Thus, since what is always at stake is the maximization of creditor satisfaction, the tax benefit provided for in paragraph 2 of Article 270 of the CIRE should apply indifferently to all onerous transfers of real estate, whether such transfers take place together with or separately from the company or establishment of which the said real estate forms part.

25. Only in this way can the objective of the law be promoted, namely the promotion of the recovery of companies.

26. Furthermore, it is incumbent on the interpreter to presume that the Legislator is coherent in the solutions it adopts for similar problems and that such solutions follow a unitary line of thinking.

27. Now, in addition to the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE, this statute also establishes other tax benefits applicable to onerous transfers of real estate that take place within the scope of the insolvency process. This is, in particular, the case of the stamp duty exemption provided for in subsections d) and e) of Article 269 of the CIRE and the IMT exemption provided for in paragraph 1 of Article 270 of the same statute.

28. It so happens that both the stamp duty exemption and the IMT exemption provided for in paragraph 1 of Article 270 of the CIRE cover (uncontestedly) both the transfer of real estate carried out together with the company or establishment of which they form part, and the separate transfer of real estate, separately from the company or establishment of which they form part.

29. Being thus, the interpretation according to which the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE only covers the transfer of real estate when carried out together with the company or establishment of which they form part also does not withstand the test of coherence or harmony of the legal system.

30. For this reason, it is to be concluded that the available interpretative elements, including the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied", clearly point to the intention to include within the scope of exemption of paragraph 2 of Article 270 of the CIRE both the transfer of real estate carried out together with the company or establishment of which they form part and the separate transfer of real estate, separately from the company or establishment of which they form part.

31. This solution, supported and accompanied extensively by jurisprudence of the STA and also more recently of CAAD, is the one we follow, and should likewise be upheld in the present proceedings, as it constitutes a correct interpretation of the law, and the Claimants' claim should therefore succeed.

III. DECISION

Pursuant to the foregoing, this Collective Tribunal decides to declare the illegality of the assessments object of these proceedings, for lack of legal basis and violation of paragraph 2 of Article 270 of the CIRE and, consequently, judging the claim to be well-founded on this ground, decides to annul the acts of additional IMT assessment identified in point 25 of the factual matter of this decision.

Value of the Case: In accordance with the provisions of Article 306, paragraphs 1 and 2 of the CPC and 97-A, paragraph 1, subsection a) of the CPPT and 3, paragraph 2 of the Regulation of Court Costs in Tax Arbitration Proceedings, the value of the case is set at € 68,001.63.

Costs: In accordance with Article 22, paragraph 4 of the RJAT, the amount of costs is set at €2,448.00 (two thousand four hundred forty-eight euros), in accordance with Table I attached to the Regulation of Court Costs in Tax Arbitration Proceedings, entirely at the charge of the Tax and Customs Authority.

Lisbon, 14-7-2016

The Collective Arbitral Tribunal,

José Poças Falcão
(President)

Augusto Vieira
(Member)

Ana Teixeira de Sousa
(Member)

[1] of December 17, 2014, rendered in Case no. 1085/13, published in the Appendix to the Official Journal of January 15, 2016 (http://www.dre.pt/pdfgratisac/2014/32240.pdf), pp. 4249 to 4252, also available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/bdbf686acbd6970380257dc6005569fb;

1. • of November 11, 2015, rendered in Case no. 968/13, not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/8641778b75f387b380257efc005b1e99;
2. • of November 18, 2015, rendered in Case no. 575/15, not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/dfc2214b865a8eb680257f07003bc47d;
3. • of November 18, 2015, rendered in Case no. 1076/15, not yet published in the official journal, available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/6584532b3466938c80257f07004e7be1.

Furthermore, regarding a different issue, but within the same legal framework, see also the following judgments:

1. • of July 3, 2013, rendered in Case no. 765/13, published in the Appendix to the Official Journal of May 26, 2014 (http://www.dre.pt/pdfgratisac/2013/32230.pdf), pp. 3060 to 3065, also available at

2. http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/9c68c763d8eb1a1580257ba3004cca44;

3. • of September 25, 2013, rendered in Case no. 866/13, published in the Appendix to the Official Journal of May 26, 2014 (http://www.dre.pt/pdfgratisac/2013/32230.pdf), pp. 3535 to 3541, also available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/dfcedf1ffe47cf2380257bf80047940a. )

[2] Follows in part the doctrine explained by Dr. David Sequeira Dinis and Dr. Luis Bértolo Rosa "The Exemption from Municipal Tax on Onerous Transfers of Real Estate in Sales and Exchanges in Insolvency Proceedings" in the Journal of the Bar Association, no. 1-2, 2015