IMT Exemption Under Article 270(2) CIRE for Insolvency Asset Sales – CAAD Decision 693/2015-T

ARBITRAL DECISION

The arbitrators Counsellor José Baeta de Queiroz (arbitrator-president), Professor Doctor Luis Menezes Leitão and Dr. Cristina Aragão Seia, appointed by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 01.02.2016, agree as follows:

1. On 23.11.2015, the Claimant, A… SA, holder of collective identification number …, with registered office at Avenue …, Plot …, Fraction …, parish of ..., …-… Lisbon, requested the CAAD to constitute an arbitral tribunal, under the terms of article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority (TA) is Respondent, with a view to annulling the assessment for Municipal Tax on Onerous Property Transfers (MTOPT) no. …, with all legal consequences and, namely, the issuance of a new assessment applying the MTOPT exemption provided for in art. 270, no. 2 of the Insolvency and Business Recovery Code (IBRC).

2. The request for constitution of the Arbitral Tribunal was accepted by the Excellency the President of the CAAD and notified to the Tax and Customs Authority.

Under the terms and for the purposes of the provisions in no. 1, of article 6, of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties, within the legally applicable periods, the signatories were appointed as arbitrators, who communicated to the Deontological Council and to the CAAD the acceptance of their appointment within the applicable period.

I. Report

1. The grounds presented by the Claimant in support of its claim were, in summary, as follows:

It considers that the requirements for the application of the MTOPT exemption provided for in art. 270, no. 2 of the IBRC are met, which it requested as the principal claim when presenting the MTOPT Declaration Form 1, with a view to executing the deed of purchase and sale of the real estate awarded to it in an insolvency procedure.

The TA, when issuing the emergency assessment, applying to the Claimant the exemption intended for the acquisition of real estate for resale, provided for in art. 7 of the Code of Municipal Tax on Onerous Property Transfers (CMTOPT), under the terms of art. 10, no. 8, al. a) of the CMTOPT and not the one requested as the principal claim, violated the aforementioned art. 270, no. 2 of the IBRC.

It disagrees with the interpretation and application that the TA makes of art. 270, no. 2 of the IBRC and bases its understanding on jurisprudence of the Supreme Administrative Court (SAC) and of the CAAD, arguing that the exemption in question also applies to sales, exchanges or cession of real estate (as elements of the company's assets or its establishments), provided that they are within the scope of an insolvency or payment plan, or undertaken within the liquidation of the insolvency estate.

Because it suffers from the defect of violation of law, it considers that the disputed assessment should be annulled.

1. The TA, called upon to state its position, presented a Response raising the exceptions of impropriety of the initial petition due to contradiction between the claim and the cause of action, lack of subject matter, impropriety of the procedural means employed and incompetence of the Arbitral Jurisdiction ratione materiae, defending the rejection of the claim.

It also defended itself, by way of counter-argument, alleging summarily that the Claimant's interpretation of art. 270, no. 2 is wrong, since the MTOPT exemption under that provision applies only to the transfer of the company or establishment as a whole and no longer to the sale of part or parcels of the insolvency estate.

1. The meeting provided for in article 18 of the LRAT was waived, as it was considered that there was no further evidence to produce.

2. The parties presented submissions in which, in essence, they maintained the positions already set out in the pleadings.

3. It is necessary to resolve the following issues:

a) Whether the Arbitral Tribunal should be declared incompetent ratione materiae, regarding the question of recognition of a tax exemption related to the transfer of real estate included in an insolvency procedure, under the terms of art. 270, no. 2 of the IBRC;

b) Whether the procedural means used is improper;

c) Whether the initial petition should be considered improper due to contradiction between the claim and the cause of action;

d) Whether the request for arbitral pronouncement made by the Claimant lacks subject matter;

e) Whether the assessment that is the subject of this procedure suffers from the defect of violation of law.

II. Jurisdictional Matters

1. Exceptions of material incompetence of this Arbitral Tribunal and impropriety of the means used.

The issues of material incompetence of this Arbitral Tribunal and the impropriety of the means used have common grounds and will therefore be considered together.

The TA argues that, since the Claimant intends for the Collective Arbitral Tribunal to make a pronouncement to the effect of recognition of the MTOPT exemption provided for in art. 270, no. 2 of the IBRC, it is the special administrative action (within the jurisdiction of state courts) that constitutes the appropriate procedural means for conducting an examination of the matter – art. 97, no. 2 of the Tax Procedure and Process Code (TPPC) – and not the request for arbitral pronouncement, which it considers improper. Therefore, the Collective Arbitral Tribunal, materially incompetent, must refrain from considering the claim since the examination of such matter is beyond the competencies reserved to it by law (see art. 2, no. 1 of the LRAT).

The TA also raises the incompetence of the Collective Arbitral Tribunal for the examination of the recognition of a tax exemption related to the transfer of real estate included in an insolvency procedure, under the terms of art. 270, no. 2 of the IBRC.

The TA further argues that only the judge overseeing the insolvency proceeding is in a position to verify the legal prerequisites required for the application of the exemption of art. 270, no. 2 of the IBRC, in full consonance with the functioning of the similar exemption provided for in art. 8 of the CMTOPT and, consequently, with the verification of the legal prerequisites inherent in that rule, verification that is exclusively carried out by the judge overseeing the judicial proceeding (executive, bankruptcy or insolvency) by way of a judicial order or a judgment homologating a settlement. It will be one of these two documents that will serve as the basis for recognition of the exemption in question, when the Model 1 declaration is presented by the taxpayer to the competent tax office. Since the Collective Arbitral Tribunal is not the judicial body where the insolvency proceeding was conducted, it does not even have the minimum elements to assess the verification of the legal prerequisites required in art. 270, no. 2 of the IBRC, and the examination of any questions regarding the recognition of a tax exemption related to the transfer of real estate included in an insolvency procedure is clearly beyond its sphere, in the TA's view.

Following closely the understanding of the CAAD in Cases nos. 123/2015-T and 599/2015-T, which dealt with issues of the same nature, we do not find merit in the TA's position with respect to these questions.

In fact, the claim presented by the Claimant concerns the declaration of illegality of a tax assessment act, in the case of MTOPT, due to violation of the provisions in no. 2 of art. 270 of the IBRC.

Now, article 2, no. 1 of the LRAT establishes with respect to the competence of the arbitral tribunals functioning in the CAAD:

"1 - The competence of arbitral tribunals comprises the examination of the following claims:

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

b) The declaration of illegality of acts of determination of taxable income when it does not give rise to the assessment of any tax, of acts of determination of taxable amount and of acts of fixing patrimonial values;"

This competence is limited by the commitment of the TA which was defined, in accordance with art. 4, no. 1 of the LRAT, by Ordinance no. 112-A/2011, of 12 March, which establishes the following:

"Article 2

Subject Matter of the Commitment

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals functioning in the CAAD whose subject matter is the examination of claims relating to taxes whose administration is entrusted to them as referred to in no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that were not preceded by resort to the administrative procedure under the terms of articles 131 to 133 of the Tax Procedure and Process Code;

b) Claims relating to acts of determination of taxable amount and acts of determination of taxable income, both by indirect methods, including the decision of the revision procedure;

c) Claims relating to customs duties on importation and other indirect taxes levied on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff contingents, or whose resolution depends on laboratory analysis or proceedings to be carried out by another Member State within the scope of administrative cooperation in customs matters."

Limiting the arbitral proceeding to acts of tax assessment, (…) including administrative acts that entail the examination of the legality of assessment acts, it is understood that the claim deduced by the Claimant for the declaration of illegality of the act of MTOPT assessment, based on the violation of art. 270, no. 2 of the IBRC, is capable of being examined by the Arbitral Tribunal.

As Jorge Lopes de Sousa teaches, as regards the scope of the competence of tax arbitral tribunals, "the competence of these arbitral tribunals is restricted to activity connected with acts of tax assessment, remaining outside their competence the examination of the legality of administrative acts of total or partial rejection or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Authority, as well as other administrative acts relating to tax questions that do not entail examination of the legality of the assessment act, as referred to in subparagraph p) of no. 1 of article 97 of the TPPC, as well as acts of increase in collection, seizure and adoption of precautionary measures by the Tax Authority, referred to in the same article 97, no. 1, in its subparagraph e) and articles 143 and 144 of the same Code.

In that sense, and following here the arbitral decision rendered in Case 599/2015-T, the competence of the tribunals of the CAAD, with the exception of what relates to customs matters, "is defined solely having regard to the type of acts that are the subject of the challenge, there being, in particular, no prohibition on the examination of matters relating to tax exemptions or any other questions of legality relating to acts of the types referred to in article 2 of the LRAT. (…)

In the present case, an act of MTOPT assessment is being challenged, which falls under subparagraph a) of no. 1 of article 2 of the LRAT, and whose examination is not excluded by any of the provisions of the aforementioned Ordinance.

Thus, in the arbitral proceeding, any illegality may, as a general rule, be attributed to assessment acts, as follows from article 99 of the TPPC, which applies as supplementary law.

(…) Since the assessment act is harmful to the interests of the Claimant, because a more favorable exemption is not applied therein, and since it is the only act performed by the TA following the MTOPT Declaration Form 1 presented by the Claimant, its challengeability in contention must be ensured on the basis of any illegality, as follows from the principle of effective judicial protection, enshrined in articles 20, no. 1, and 268, no. 4, of the Constitution.

On the other hand, the question of whether the assessment act is legal in not recognizing an exemption is concerned with the legality of the assessment examined in tax tribunals in proceedings of judicial challenge, as follows from subparagraph a) of no. 1 of article 97 of the TPPC."

In fact, in the case sub judice, we are dealing with an exemption of automatic recognition, under the terms of art. 10, no. 8, al. d) of the CMTOPT, so it is at the appropriate moment itself to decide whether the assessment act should be performed that the question arises of the verification by the TA of whether or not the prerequisites of the tax benefit occur.

And it is the examination of the legality of that assessment act that the Claimant intends.

Also the thesis defended by the TA that only the judicial body where the insolvency proceeding was conducted would have competence for the verification of the legal prerequisites required in art. 270, no. 2 of the IBRC has no legal foundation.

Citing the same judgment:

"In truth, there is no special rule of insolvency procedure that attributes competence to judicial courts to recognize tax exemptions and the general regime of tax benefits clearly contradicts this hypothesis.

In effect, the Tax Benefits Statute (TBS) applies to all tax benefits (its article 1). From article 5 of the TBS it results that tax benefits, when they are automatic, are not the subject of any autonomous act of recognition, so it is at the appropriate moment itself to decide whether an assessment act should be performed that the question arises of the verification by the Tax and Customs Authority of whether or not the prerequisites of the tax benefit occur.

In the specific case of the exemption provided for in article 270 of the IBRC, we are dealing with a tax benefit for which article 16, no. 2, of the IBRC only provides for the need for prior recognition by the Tax and Customs Authority when applied within the scope of a business restructuring and revitalization process, provided for in Decree-Law no. 178/2012, of 3 August ( [1] ). In other cases covered by article 270 of the IBRC, not expressly providing for the need for prior recognition (neither in the IBRC, nor in the TBS, nor in article 10 of the CMTOPT), we are dealing with an exemption of automatic recognition, whose verification and declaration is incumbent upon the tax office where the declaration provided for in article 19, no. 1, of the CMTOPT is presented, as results from the provision in subparagraph d) of no. 8 of that article 10.

On the other hand, since the right to tax benefits is a right in tax matters, the possibility of its direct recognition by the Courts is reserved to the Tax Courts, through the action for recognition of a right or legitimate interest in tax matters, under the terms of articles 212, no. 3, of the Constitution, 144, no. 1, of the Law on Organization of the Judicial System (Law no. 62/2013, of 26 August), 49, no. 1, subparagraph c), of the Statute of the Administrative and Tax Courts, 101, subparagraph b) of the General Tax Law and 97, no. 1, subparagraph h) and 145 of the TPPC, so there is no legal foundation for affirming the exclusive competence of the Judicial Courts for recognition of the exemption in question."

Endorsing this understanding, we also consider, for the reasons indicated, that there is no material incompetence.

In addition, the SAC has repeatedly examined the verification of the prerequisites of the exemption provided for in art. 270, no. 2 of the IBRC, as can be seen in the judgments rendered in cases nos. 1350/2015, 1345/2015, 1085/2015 and 1067/2015, among many others, all of which are appeals brought in proceedings of judicial challenge, which equally contradicts the TA's position when defending "special administrative action or other" as a procedural means of reaction to the non-attribution of the MTOPT exemption under art. 270, no. 2 of the IBRC.

The exceptions of impropriety of the procedural means and material incompetence of the Arbitral Tribunal are therefore unfounded, with respect to the principal claim.

1. Exception of impropriety of the arbitral claim due to contradiction between the claim and the cause of action.

The TA raises the impropriety of the arbitral claim on the grounds that it considers there to be an irremediable contradiction between the claim and the cause of action.

It argues, in its Response, that this contradiction exists because:

• the disputed assessment, in addition to corresponding to what was requested (even if subsidiarily) by the Claimant itself as appears from documents nos. 2 and 3 attached to the request for arbitral pronouncement, was issued in accordance with what the law establishes (see art. 7 of the CMTOPT);

• in the arbitral claim, the Claimant comes to request the annulment of that assessment on the grounds that it suffers from the defect of violation of law;

• the claim made by the Claimant is concerned with the annulment of a (purported and non-existent) assessment due to violation of art. 270, no. 2 of the IBRC;

• there is in the present case a lack of logical-normative correspondence between the concrete fact alleged by the Claimant and the judicial remedy requested by it.

The impropriety of the initial petition is considered an incurable nullity, under the terms of art. 98, no. 1, al. a), of the TPPC, applicable to tax arbitral proceedings by force of the provision in art. 29, no. 1, al. c) of the LRAT.

Article 186, no. 2 of the Code of Civil Procedure (CCP), applicable to tax arbitral proceedings by force of art. 29, no. 1, al. e) of the LRAT, establishes as one of the situations of impropriety of the initial petition that of contradiction between the claim and the cause of action.

As results from articles 99 and 124 of the TPPC, in tax contentious proceedings for annulment of assessment acts, the cause of action is constituted by the defects or illegalities that the taxpayer attributes to them.

The Claimant requests, in the present proceedings, the annulment of the disputed assessment due to the defect of violation of law since the exemption of art. 270, no. 2 of the IBRC should have been applied to it and not the one provided for in art. 7 of the CMTOPT, and no contradiction is seen here between the claim and the cause of action.

In fact, by not applying the exemption requested as the principal claim, in violation of art. 270, no. 2 of the IBRC, the assessment would suffer from an illegality which, under the terms of the aforementioned articles 99 and 124 of the TPPC, would be grounds for annulment.

Therefore, no contradiction is seen between the cause of action (illegality of the assessment due to failure to apply the exemption of art. 270 of the IBRC – violation of law) and the claim (annulment of the assessment on the basis of the said illegality).

In this context, it is irrelevant the fact that the Claimant requested from the Tax and Customs Authority, subsidiarily, the application of the exemption of article 7 of the CMTOPT since the procedural obstacle that the granting of the subsidiary claim could raise would be at the level of lack of interest in proceeding, which is an unnamed procedural prerequisite. Now, there is no lack of interest in proceeding on the part of the Claimant: the definitive MTOPT exemption not subordinated to the resolutory condition provided for in art. 234, no. 2 of the IBRC is legally more advantageous to the Claimant than the conditional exemption of art. 7 of the CMTOPT.

The exception of impropriety of the arbitral claim raised by the TA is therefore unfounded.

1. Exception of lack of subject matter of the arbitral claim

The TA argues that the request for arbitral pronouncement deduced by the Claimant lacks subject matter, which constitutes a peremptory exception under the terms of art. 577, no. 3 of the CCP, as per art. 29, no. 1, al. e) of the LRAT.

To that end, it argues that the disputed assessment, in addition to corresponding to what was requested (even if subsidiarily) by the Claimant itself (documents nos. 2 and 3 attached to the request for arbitral pronouncement) was issued in accordance with what the law establishes (see art. 7 of the CMTOPT); that it is only legally possible to annul what exists and is contrary to law: there does not exist, either within or outside this arbitral proceeding, any assessment relating to art. 270, no. 2 of the IBRC, but only and solely an assessment issued under article 7 of the CMTOPT, wholly in conformity with tax law and requested at the tax office, even if subsidiarily, by the Claimant; that the competence of arbitral tribunals can never be directed to the examination of a possible future MTOPT assessment, beyond the 3-year period provided for in art. 7, no. 4 of the CMTOPT; and, finally, that the request for arbitral pronouncement collides frontally with the fundamental requirement of the harmful content of the act since the MTOPT assessment was issued at 0.00 (zero), being, in that measure, incapable of causing harm to the rights or legitimate interests of the Claimant.

The Claimant, in turn, argues that the disputed assessment should have applied the exemption of art. 270, no. 2 of the IBRC, as requested as its principal claim, and not that of art. 7 of the CMTOPT, seeking its annulment, due to violation of law, and the issuance of a new assessment in which the exemption of MTOPT provided for in art. 270, no. 2 of the IBRC is applied.

Now, the illegality of an assessment act does not necessarily consist in the application of a rule not in conformity with constitutional or community law. It can also result from the non-application of a rule that should have been applied.

Thus, since the Claimant requested as its principal claim that the exemption of art. 270, no. 2 of the IBRC be granted to it, if this should be applied, there will be illegality of the assessment act that did not apply it, regardless of whether another exemption requested subsidiarily is also applicable.

This is the subject matter of the request for arbitral pronouncement: the disputed assessment that did not apply the exemption of art. 270, no. 2 of the IBRC.

The exception of lack of subject matter of the arbitral claim is therefore unfounded.

1. The tribunal is materially competent and is regularly constituted under the terms of the LRAT.

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

3. The proceeding does not suffer from nullities.

4. There are no other circumstances that impede knowledge of the merits of the case.

III. Merits

A. Matters of Fact

1. Proven Facts

On the basis of the elements contained in the file and in the administrative file joined to the record, the following facts are considered proven:

a. The company B… – …, S.A. - in liquidation (hereinafter B…), holder of collective identification number …, with registered office at Street …, no. …, … floor, parish of ..., …-… Lisbon, was the owner of the fractions designated by the letters A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, X, Z, AA, AB, AC, AD, AE, AF, AG, AH, AI, AJ, AK, AL, AM, AN, AO, AP, AQ, AR, AS, AT, AU, AV, AX, AZ, BA, BB, BC, BD, BE, BF, BG, BH, BI, BJ, BK, BL, BM, BN, BO, BP, BQ, BR, BS, BT, BU, BV, BX, BZ, CA, CB, CC, CD, CE, CF, CG, CH, CI, all of the real estate inscribed in the urban property registration matrix under article …, of the parish of Avenidas Novas, municipality and district of Lisbon (former matricial article … of the parish of São Sebastião da Pedreira), hereinafter abbreviated as "Real Estate."

b. By judgment of 17 December 2014, rendered in case no. 11627/14.3T8LSB, by the Judicial Court of the District of Lisbon – Central Instance – 1st Commercial Section, Judge 2, the said company B… was declared insolvent (document no. 4 attached to the request for arbitral pronouncement);

c. As a creditor of B… and beneficiary of mortgages over the real estate, the Claimant claimed its credits in the insolvency proceeding in the amount of € 41,737,477.91 (document no. 5 attached to the request for arbitral pronouncement);

d. The Claimant's credits were fully recognized by the Insolvency Administrator and classified as secured (by mortgage over the Real Estate) (document no. 6 attached to the request for arbitral pronouncement);

e. In the insolvency proceeding it was resolved in a creditors' assembly to proceed with the liquidation of the insolvency estate (document no. 7 attached to the request for arbitral pronouncement);

f. Within that liquidation, the sale of the real estate indicated in paragraph A) was announced (document no. 8 attached to the request for arbitral pronouncement);

g. The Claimant, as a creditor of the insolvent, submitted a proposal for the acquisition of the Real Estate for the total amount of € 50,000,000.00, through dation in payment (up to the maximum limit of its mortgage credits - € 41,737,477.91) and purchase and sale (for the remaining price of € 8,262,522.09), following which it was awarded (documents nos. 9 and 10 attached to the request for arbitral pronouncement);

h. The Claimant, for the purposes of executing the deed for the acquisition of the Real Estate, presented the "MTOPT Declaration Form 1" which appears in documents nos. 2 and 3 attached to the request for arbitral pronouncement, in which it states:

"7. Thus and with a view to executing the aforementioned deed, the Claimant comes, under the terms of art. 19, no. 1 and 3 of the Code of MTOPT and of art. 23, no. 4 of the Code of Stamp Tax to present the Declaration Form 1 of MTOPT for purposes of assessment of the MTOPT and Stamp Tax relating to the acquisition of the aforementioned real estate;

1. Further requesting, under the terms of 10, no. 8, al. d) of the Code of MTOPT the application of the exemption of Stamp Tax and MTOPT, provided for in articles 269 and 270 of the IBRC respectively, in accordance with the interpretation conveyed by the Supreme Administrative Court, in its judgments of 30 May 2012 and 17 December 2014, rendered in cases nos. 0949/11 and 01085/13 respectively;

2. Should it not be understood thus and with respect to MTOPT, it is requested subsidiarily that the exemption applicable to the acquisition of real estate for resale provided for in art. 7, under the terms of 10, no. 8, al. a) of the Code of MTOPT be applied."

i. The TA recognized only the application of the Stamp Tax exemption - issuing in consequence the assessment whose copy appears in document no. 12 attached to the request for arbitral pronouncement, in which it assessed a total value of € 0;

j. With respect to the acquisition of the aforementioned real estate by the Claimant, the TA made the assessment with document no. …, dated 24-08-2015, in the amount of € 0.00 (document no. 1 attached to the request for arbitral pronouncement) in which it refers to Benefit Associated with the Taxpayer 15 - Real Estate for Resale (art. 7 of the CMTOPT);

1. Unproven Facts

With interest for the decision of the case, there are no unproven facts.

1. Reasoning of the Decision Regarding Matters of Fact

The facts were given as proven on the basis of the documents submitted by the parties and contained in the administrative file, as well as the positions of the parties, it being noted that there does not emerge from the positions taken by the Claimant and Respondent effective disagreement regarding matters of fact, with the dispute being confined to matters of law.

B. Matters of Law

1. Question to be Answered

It is necessary, in the present proceedings, to examine the legality of the assessment act that did not apply the exemption provided for in art. 270 of the IBRC to the acquisition of real estate by the Claimant in an insolvency proceeding, which entails inquiring whether the said exemption applies only to sales, exchanges or cession of companies or establishments as universalities of goods, as the Respondent argues, or whether it also applies to sales, exchanges or cession of real estate, as elements of their assets, provided that they are within the scope of an insolvency or payment plan, or undertaken within the liquidation of the insolvency estate, as the Claimant argues.

1. Regarding the MTOPT Exemption Relating to Acquisitions of Real Estate in Insolvency Proceedings

On this matter and in a question identical to that of the present proceedings, both the CAAD and the Supreme Administrative Court have previously pronounced themselves, in a settled, reiterated and uniform manner, in various judgments.

Noteworthy, for its clarity, is the Judgment of the SAC of 16 December 2015, rendered in case no. 1345/15, which we transcribe:

"The Treasury Department disagrees with the ruling, arguing that the prerequisites for fulfilling the requirements that determine the obtaining of the benefit of exemption were not met by the purchaser, since it did not acquire the company or its establishment and that the provision of art. 270, no. 2 of the IBRC, even by way of an extensive interpretation, does not contemplate the outright sale of elements of the company's assets.

The appellant provides, however, no argument that would shake our conviction that the appealed judgment correctly ruled when it adopted the interpretation of article 270, no. 2 of the IBRC that has been calmly and repeatedly adopted by this SAC since the Judgment mentioned in the judgment under appeal – see, in addition to the judgments already cited in the opinion of the Excellency the Deputy Attorney General before this SAC above transcribed, the recent Judgments of 11 November 2015, case no. 0968/13 and of 18 November 2015, cases nos. 0575/15 and 1067/15 –, and the fact that the TA has an interpretation of the provision that is not in accordance with the jurisprudence of the SAC – which will, moreover, have been stated in a recent information …/2014 of the DSIMT and provided to the Order of Notaries (see allegations of appeal at pages 67, back and 68 of the record) –, is not a reason to postpone the understanding that has been adopted and which is here reaffirmed, since it constitutes what best adapts the legal text to the meaning and scope of the legislative authorization under which the rule was promulgated by the Government in a matter reserved to the Assembly of the Republic and because that interpretation is the one that best serves the purpose of no. 2 of article 270 of the IBRC - «to encourage and support the rapid sale of goods that make up the insolvency 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 proceeding presents itself as a disturbing element», giving tax incentives to whoever acquires the real estate that make up the insolvency estate and that will be sold in the liquidation phase – there being no reason, in that light, to distinguish between situations in which the company is being sold as a whole with all its assets and liabilities, and situations in which one or more of the commercial establishments that comprised it are being sold, or in which real estate that comprised its assets are being sold (see the Judgment of the SAC of 18 November last, case no. 01067/15)".

Furthermore, the Judgment of the SAC of 30 May 2012, rendered in case no. 949/11, adds that the interpretation of the TA "clashes, however - as well observed in the appealed judgment –, with what the legislator set out in no. 49 of the preamble of the IBRC with respect to tax benefits, where it is stated that: «the regimes existing in the CEREF are essentially maintained as to the exemption of fees and tax benefits», it being certain that subparagraph c) of no. 2 of article 121 of the CEREF exempted from municipal sisa tax the transfers of real estate included in any of the company recovery measures that arise, in particular, from the sale, exchange or cession of elements of the company's assets. And it clashes, also – as well observed by the Public Ministry in first instance (see the opinion at pages 66 to 68 of the record) –, with the meaning and scope of the legislative authorization granted to the Government under which the IBRC was approved, set out in articles 2 and following of Law no. 39/2003, of 22 August, since, with respect to the exemptions from municipal sisa tax (today MTOPT), the provision in no. 3 of article 9 of that law of authorization established that: «The Government is finally authorized to exempt from municipal sisa tax the following transfers of real estate, included in any insolvency or payment plan or carried out within the scope of the liquidation of the insolvency estate: c) (…) of the sale, exchange or cession of the company, establishment or elements of their assets (…)».

It can, it is true, be argued that, in the perspective of the legislator of the IBRC, the differences as to the scope of the MTOPT exemption relative to that which existed in the CEREF for SISA did not appear as essential, hence the legislator did not make any particular reference to them. Indeed, particularly in tax matters, the preamble of statutes does not always accurately reflect their content, and it is not even unprecedented that they include mentions that the statutory content contradicts (see with respect to SISA/MTOPT the Judgment of this Supreme Court of 3 November 2010, case no. 499/10).

And it can, also, be argued that in carrying out the legislative authorization for the approval of the IBRC, in the matter that concerns us, the Executive decided to be more parsimonious than the Assembly of the Republic with respect to the granting of MTOPT exemption, deciding to exclude that exemption in cases of sale, exchange or cession of elements of its assets, granting it only in cases of sale, exchange or cession of the company or its establishment. If that was the case, however, it would not have respected the meaning and scope of the legislative authorization that was granted to it, having legislated in a matter reserved to the Assembly of the Republic (see no. 2 of article 103 and subparagraph i) of no. 1 of article 165 of the Constitution) in disregard of the parliamentary credential granted to it.

As is well known, between two meanings of the law, both with support - at least minimal - in its text, the interpreter must choose the one that makes it compatible with the constitutional text (interpretation in conformity with the Constitution), in detriment of the interpretation that vitiates it with unconstitutionality.

It is for that fundamental reason that the appealed judgment is understood to merit no censure, since although it is doubtful that the ordinary legislator of the IBRC intended to grant the MTOPT exemption provided for in no. 2 of its article 270 the same scope that the previous SISA exemption had provided for in subparagraph c) of no. 2 of article 121 of the CEREF, the option of the meaning of its restriction was not permitted to it, since in the matter of tax benefits it legislates in a domain reserved to the Assembly of the Republic, and must respect the limits that the latter has fixed, in particular those relating to the meaning and scope of the authorization (see no. 2 of article 165 of the Constitution of the Republic)."

In the face of the interpretation defended in the Judgments of the SAC identified above, which we endorse, it follows that the Claimant is correct when it argues the illegality of the MTOPT assessment act relating to the acquisition of those real estate.

Thus, this Tribunal understands that the MTOPT exemption provided for by no. 2 of art. 270 of the IBRC applies, not only to sales or exchanges of companies or establishments as universalities of goods, but also to sales and exchanges of real estate (as elements of their assets), provided that they are within the scope of an insolvency or payment plan, or undertaken within the liquidation of the insolvency estate.

It remains, therefore, to render the arbitral claim presented against the MTOPT assessment relating to the acquisition of real estate in an insolvency proceeding as founded, annulling the emergency MTOPT assessment act, considering that such acquisition is covered by the exemption rule contained in no. 2 of article 270 of the IBRC.

IV. Operative Part

In these terms, this collegiate body of arbitrators agrees:

a) To render unfounded the exceptions of incompetence of the Arbitral Tribunal ratione materiae and impropriety of the procedural means;

b) To render unfounded the exception of impropriety of the arbitral claim due to contradiction between the claim and the cause of action;

c) To render unfounded the exception of lack of subject matter of the arbitral claim;

d) To render founded the request for arbitral pronouncement that is the subject of this action and, in consequence, to annul, on the basis of the violation of art. 270, no. 2 of the IBRC, the assessment with document no. …, dated 24-08-2015, and a new assessment must be issued in which the said exemption is applied.

The value of the case is fixed at € 3,250,000 (three million two hundred and fifty thousand euros), in accordance with the provisions in articles 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, no. 1, subparagraph a), of the TPPC, and 306, no. 2, of the Code of Civil Procedure.

The amount of costs is fixed at € 41,310.00 (forty-one thousand three hundred and ten euros) at the charge of the Tax and Customs Authority, in accordance with the provisions in articles 12, no. 2, of the LRAT and 4, no. 4, of the RCPAT.

Text prepared by computer, under the terms of article 138, no. 5, of the Code of Civil Procedure (CCP), applicable by referral of article 29, no. 1, subparagraph e), of the Legal Regime of Tax Arbitration, with blank verses and reviewed by us.

The preparation of this decision follows the old spelling conventions.

Notify.

The President Arbitrator

(José Baeta de Queiroz)

The Arbitrator Member

(Luis Menezes Leitão)

The Arbitrator Member

(Cristina Aragão Seia)

Lisbon, 30 May 2016

[1] In Commentary on the Legal Regime of Tax Arbitration, in Guide to Tax Arbitration, Publisher Almedina, 2013, p. page 105

[2] See Judgment of 1 September 2015, rendered in case no. 123/2015-T; judgment of 10 February 2016, rendered in case no. 599/2015-T; judgment of 9 June 2015, rendered in case no. 95/2015-T; judgment of 27 October 2015, rendered in case no. 99/2015-T, all of the CAAD.

[3] See, among others, the following judgments of the SAC: judgment of 30 May 2012, rendered in case no. 949/11; judgment of 17 December 2014, rendered in case no. 1085/13; judgment of 11 November 2015, rendered in case no. 968/13; judgment of 18 November 2015, rendered in case no. 575/15; judgment of 16 December 2015, rendered in case no. 1345/15; judgment of 20 January 2016, rendered in case no. 1350/15.