IMT Tax Exemption Under Article 270(2) CIRE: Insolvency Property Transfer Ruling (81/2016-T)

ARBITRAL DECISION

I – REPORT

On 15 February 2016, the company "A…, S.A.", holder of tax identification number …, with registered office at Rua …, …-… ... (hereinafter the Claimant) filed a request for constitution of an arbitral tribunal, in accordance with and for the purposes of the provisions of articles 2 and 10 of the Legal Regime of Arbitration in Tax Matters, approved by Decree-Law 10/2011 of 20 January (RJAT).

By means of the request for constitution of the arbitral tribunal and for arbitral pronouncement, the Claimant seeks the annulment of the official assessment act for IMT, relating to the year 2010, in the total amount of €65,000.45 (sixty-five thousand euros and forty-five cents), for violation of the provisions of article 270, paragraph 2, of the Code of Insolvency and Corporate Recovery (CIRE).

Indeed, not accepting the official IMT assessment referred to above, the Claimant requested the constitution of this arbitral tribunal, formulating the following claims:

a) Declaration of illegality and consequent annulment of the official IMT assessment act on the grounds of:

i. Defect of violation of law by breach of the provisions of article 270, paragraph 2, of the CIRE; and

ii. Defect of substantiation of the act for failure to indicate the number of the underlying assessment.

b) Condemnation of the Tax Authority to pay compensation for guarantee improperly provided in tax enforcement proceedings subsequently instituted, in accordance with article 53 of the LGT.

The petition was accompanied by 7 documents.

As the Claimant opted for no appointment of an arbitrator, in accordance with the provisions of paragraph 2, letter a) of article 6 and paragraph 1, letter b) of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal Counsellor Maria Fernanda dos Santos Maçãs, Professor Dr. João Ricardo Catarino, and Dr. Carla Castelo Trindade, who communicated acceptance of their appointment within the applicable time period.

The parties were notified of this appointment, and no request for recusal of the designation as arbitrator of those composing this tribunal was presented.

Thus, in accordance with the provisions of paragraph 1, letter c) and paragraph 8 of article 11 of the RJAT, in the wording introduced by article 228 of Law No. 66-B/2012 of 31 December, the collective arbitral tribunal was constituted on 29 April 2016.

On 1 June 2016, the Tax and Customs Authority (hereinafter "Respondent") presented a response in which it alleged, on the one hand, error in form of the proceedings and lack of material jurisdiction of the Arbitral Tribunal, and on the other hand, complete lack of merit of the request for arbitral pronouncement, defending the maintenance of the official IMT assessment act as its application embodies a correct interpretation of the provisions of article 270, paragraph 2, of the CIRE.

On 14 June 2016, the Claimant responded to the exceptions raised, arguing for their lack of merit.

Given that, in the case, none of the purposes legally assigned to the meeting referred to in article 18 of the RJAT were verified, and taking into account the position taken by the parties in the pleadings, under the provisions of articles 16, letter c) and 19 of the RJAT, as well as the principles of procedural economy and prohibition of useless acts, the holding of this meeting was dispensed with, and the parties were notified that, if they so wished, they could present arguments. The Tribunal set 29 October 2016 as the deadline for rendering the arbitral decision.

Both parties submitted written arguments.

The Claimant concluded its argument by petitioning for the lack of merit of the exceptions raised by the Respondent and the complete merit of the request for arbitral pronouncement.

The Respondent counter-argued, reiterating the exceptions raised and the complete lack of merit of the request for arbitral pronouncement, with the further legal consequences.

The arguments presented were taken into consideration in the assessment of the factual and legal matters.

II. PRELIMINARY MATTERS

The Respondent raised, in its response, the dilatory exception of error in form of the proceedings and the dilatory exception of lack of material jurisdiction of the arbitral tribunal.

The possible merit of the exceptions raised prevents examination of the merits of the case, which is why it is necessary to decide on them forthwith.

Since the exceptions raised have a common basis, they will be examined concurrently.

II. Exception of Error in Form of Proceedings and Lack of Material Jurisdiction of the Arbitral Tribunal

The Respondent argues that the subject matter of decision concerns the granting of a tax benefit, specifically that provided for in article 270, paragraph 2, of the CIRE, and that, in essence, the Claimant seeks that the arbitral tribunal issue a decision in the sense of recognition of the IMT exemption. In this way, according to the Respondent's understanding, the procedural means appropriate to the Claimant's claim would be the Special Administrative Action – since that constitutes the means of reaction intended to examine acts in tax matters, in accordance with article 97, paragraph 2, of the CPPT – and not the request for arbitral pronouncement – since this constitutes one of the means of reaction intended to examine tax acts, in accordance with article 2, paragraph 1, of the RJAT.

The Respondent further argues that the examination of any questions concerning the recognition of tax exemptions is outside the jurisdiction of tax arbitration, this being a matter reserved to the jurisdiction of the (judicial) administrative and tax courts.

Furthermore, according to the Respondent's argument, the tax arbitral tribunal is also incompetent to examine the recognition of tax exemption related to property transfer integrated in an insolvency proceeding, because the tax exemption provided for in article 270, paragraph 2, of the CIRE is based on the verification of two conditions: (i) that the transfer of the properties takes place by sale, exchange, or assignment of the company or of its establishments; and (ii) that the transfer of the properties is integrated into an insolvency plan or a payment plan or that the transfer is carried out within the framework of the liquidation of the insolvent estate. In this way, the Respondent alleges, the verification of those legal conditions falls exclusively within the power of the judicial authority where the insolvency proceeding took place, such that only the judge conducting the insolvency proceeding is in a position to proceed with the verification of the legal conditions required in article 270, paragraph 2, of the CIRE.

Let us examine whether the Respondent's argument has merit.

The jurisdiction of the tax arbitral tribunals functioning within the CAAD is delimited, in the first instance, by the provisions of article 2, paragraph 1, of the RJAT, in accordance with which:

1. The jurisdiction of arbitral tribunals comprises the examination of the following claims:

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

b) The declaration of illegality of acts of determination of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable matter, and of acts of determination of property values;

However, article 4, paragraph 1, of the RJAT determined that the binding of the tax authority to the jurisdiction of the tax arbitral tribunals depends on an ordinance of the Government members responsible for the areas of finance and justice. Thus, the binding of the Administration to tax arbitral jurisdiction was concretized in Ordinance No. 112-A/2011 of 12 March (Binding Ordinance), whose article 2 establishes the following:

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals functioning within the CAAD which have as their object the examination of claims relating to taxes whose administration is assigned to them referred to in paragraph 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 have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process;

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

c) Claims relating to customs duties on imports and other indirect taxes affecting 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 procedures to be carried out by another Member State within the framework of administrative cooperation in customs matters.

The delimitation of jurisdiction assigned to tax arbitral jurisdiction effected by the Binding Ordinance is, as can be seen, of negative content, that is, the Administration excluded from tax arbitral jurisdiction the examination of certain claims which, in accordance with article 2, paragraph 1, of the RJAT, would, in the abstract, be arbitrable.

In the concrete case, the Claimant seeks the declaration of illegality and consequent annulment of the official IMT assessment relating to the tax year 2010. In other words, the Claimant seeks the declaration of illegality of the tax act of official IMT assessment. Naturally, the examination of this question depends on a prior, or preliminary question, if you will, which is whether or not there is grounds for the exemption. Nevertheless, this does not prevent or by this fact the object of the arbitral action from being a tax act – that of official IMT assessment. In this way, there is no doubt that the examination of that act may be subject to tax arbitral jurisdiction through the provisions of paragraph 1, letter a) of article 2 of the RJAT.

Furthermore, article 2 of the Binding Ordinance transcribed above does not exclude the examination of matters relating to tax exemptions or any other legality questions relating to the acts referred to in article 2 of the RJAT.

Indeed, and strictly speaking, an assessment of tax, even if it proceeds from disregard of an exemption, does not cease to be, in all respects, a tax act of assessment.

Thus, it should be clarified from the outset that the act whose (i)llegality the Claimant seeks to have examined by this tribunal is not an act in tax matters, but a true tax act of assessment.

Indeed, "assessment is the operation through which the tax rate is applied to the taxable matter, whereupon the amount owed by the taxpayer is calculated, being the assessment act the act through which this is concretized by the Tax Authority". Being official assessment "that which is carried out by the Tax Authority in the absence of impetus or assessment by the taxpayer" (cf. Carla Castelo Trindade (2016) Legal Regime of Tax Arbitration Annotated, pp. 60 and 61). Now, in the concrete case, the Respondent, the Tax Authority, applied a tax rate to a certain taxable matter, thereby calculating the amount owed by the taxpayer in the form of IMT, and did so precisely due to the lack of assessment of that same tax by the taxpayer. There is no doubt, therefore, that it is a tax act of official assessment.

The legislator was clear when it established, in the RJAT, the arbitrability of tax acts, excluding, however, from the jurisdiction of the tax arbitral tribunals, the examination of the (i)llegality of acts in tax matters.

"Acts of assessment, self-assessment, withholding at source, payment on account, determination of property values, and determination of taxable matter or tax matter are tax acts. Distinguished from these acts are administrative acts in tax matters.

As taught by CASALTA NABAIS, acts in tax matters are those acts that fall within the category of administrative acts, included in the concept contained in article 148 of the CPA, carried out in the context of tax law relationships through which various procedures autonomous to the procedure that ends in the tax act or act of assessment of tax are concluded.

(…)

Tax acts stricto sensu, those which have been referred to, may be the object of judicial challenge or, as was seen in the preceding points, of arbitral proceedings.

Already administrative acts in tax matters, in accordance with article 97, paragraph 2, of the CPPT, shall only be reviewable through special administrative action, regulated in articles 50 et seq. of the CPTA, being, in reality, true administrative acts." (cf. Carla Castelo Trindade (2016) Legal Regime of Tax Arbitration Annotated, p. 114).

Now, as decided in Case No. 123/2015-T,

"This shall not be the case only in cases where the law provides for autonomous challengeability of administrative acts that are a prerequisite of assessment acts, as may occur with acts of recognition of tax exemptions, which, in the case of non-automatic exemptions, assume the nature of severable acts for purposes of contentious challenge. But, for there to be this limitation on the challengeability of the assessment act challenged, some administrative act would have to be previously carried out that was a prerequisite of the assessment act, which did not occur in the case at hand."

However, the exemption provided for in article 270, paragraph 2, of the CIRE is an exemption of automatic recognition, in accordance with the provisions of article 10, paragraph 8, letter d) of the IMT Code, such that there is no administrative act in tax matters which, being autonomous, is a prerequisite of the assessment act issued.

In this way, the assessment act issued is harmful to the interests of the Claimant, such that its challengeability in contentious proceedings (whether by judicial or arbitral means) must be assured in favor of respect for the principle of access to the law and effective judicial protection, enshrined in articles 20, paragraph 1, and 268, paragraph 4, of the Constitution of the Portuguese Republic.

Furthermore, in tax arbitral jurisdiction, the tax act under review may, as a rule, be attributed any illegality, as follows from the provisions of article 99 of the CPPT, applicable subsidiarily ex vi article 29, paragraph 1, of the RJAT.

Thus, because there is no severable or autonomous preceding act to the tax assessment act, the question of whether or not the latter is legal, even though the examination of that (i)llegality passes through the recognition, or not, of an exemption is a question subsidiary to the legality (or illegality) of the assessment which should be examined by tax jurisdiction, whether judicial or arbitral. Whereby the thesis of the Respondent that the judicial court where the insolvency proceeding took place is exclusively competent to examine the question at issue cannot proceed, being devoid of any legal foundation.

Moreover, the Statute of Tax Benefits itself clearly contradicts the thesis of the Respondent. And here we resort again to what was decided in Case No. 213/2015-T, where it can be read that:

Indeed, the Statute of Tax Benefits (STB) applies to all tax benefits (its article 1). From article 5 of the STB it follows that tax benefits, when automatic, are not the object of any autonomous act of recognition, such that it is at the appropriate moment to decide whether an assessment act should be carried out that the question of the verification by the Tax and Customs Authority of the occurrence or not of the conditions of the tax benefit arises. Regarding tax benefits dependent on recognition, this is done through an administrative act, as follows from paragraphs 2 and 3 of the same article 5, in consonance with articles 54, paragraph 1, letter d), of the LGT and 65 of the CPPT.

In the specific case of the exemption provided for in article 270 of the CIRE, we are dealing with a tax benefit for which only the provision in article 16, paragraph 2, of the CIRE envisages the need for prior recognition by the Tax and Customs Authority when applied within the framework of a restructuring and revitalization procedure for companies, provided for in Decree-Law No. 178/2012 of 3 August. In other cases falling under article 270 of the CIRE, as no express need for prior recognition is provided (neither in the CIRE, nor in the STB, nor in article 10 of the IMT Code), we are dealing with an exemption of automatic recognition, being its verification and declaration the responsibility of the finance service where the declaration provided for in article 19, paragraph 1, of the IMT Code is presented, as follows from the provisions of letter d) of paragraph 8 of that article 10.

Thus, the jurisdiction of tax arbitral tribunals to examine the (i)llegality of the tax act of official IMT assessment follows from the provisions of article 2, paragraph 1, letter a) of the RJAT, even though the ground of illegality underlying it is the failure to recognize the exemption provided for in article 270, paragraph 2, of the CIRE, such claim not being excluded by any of the letters of article 2 of the Binding Ordinance.

Similarly, the examination of the conditions on which the exemption provided for in article 270, paragraph 2, of the CIRE depends is also the exclusive jurisdiction of the tax courts (judicial or arbitral), and not of the judicial courts – especially, of the judicial court where the insolvency proceeding took place – inasmuch as, being of automatic recognition, its verification and declaration is the responsibility, in the first instance, of the finance service where the declaration provided for in article 19 of the IMT Code is presented.

In this way, and because it is a tax act of assessment, the procedural means appropriate is judicial challenge and not Special Administrative Action, which is intended, within the scope of tax contention, for the exclusive examination of acts in tax matters.

For the foregoing reasons, the exceptions raised by the Respondent, of (i) error in form of the proceedings; and of (ii) lack of material jurisdiction of the tax arbitral tribunals, lack merit.

The arbitral tribunal was regularly constituted.

The proceedings are free of nullities.

The parties have legal personality and capacity and are properly constituted to sue.

All having been seen, it is proper to decide.

III. FACTUAL MATTERS

III.1. FACTS PROVEN

With respect to factual matters, it is important, first of all, to note that the tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish proven matter from unproven matter. All as provided in article 123, paragraph 2, of the Code of Tax Procedure and Process and article 607, paragraphs 2, 3, and 4 of the Code of Civil Procedure, applicable ex vi article 29, paragraph 1, letters a) and e), of the RJAT. In this way, the facts pertinent to the judgment of the case are chosen and delimited in function of their legal relevance, which is established in attention to the various plausible solutions of the question(s) of Law (cf. article 596 Code of Civil Procedure applicable ex vi article 29, paragraph 1, letter e), of the RJAT).

Now, taking into account the positions assumed by the parties, the documentary evidence, and the Administrative File attached to the record, the following facts with relevance to the decision are considered proven:

• On 31.03.2010, at the 2nd Registry of Real Property of…, the Claimant, as buyer, and the insolvent company "B…, S.A.", as seller, represented by the Insolvency Administrator Dr. C…, executed a contract of purchase and sale and mutual loan with mortgage, with a view to the acquisition of 54 autonomous units of the urban property located at Avenida …, …-…, parish of…, municipality of…, described in the Registry of Real Property of… under No. …, and registered under matricial article No. …, for the global price of €1,005,000 (one million and five thousand euros) – as per Document No. 2 attached with the request for arbitral pronouncement;

• The alienation of the property described above took place within the framework of the liquidation proceedings of the insolvent estate of the company "B…, S.A.", holder of NIPC…, under number …/07…, …, which took place before the… of the Commercial Section of the Central Division of the Judicial Court of the District of... – as per Document No. 3 attached with the request for arbitral pronouncement;

• The property in question constituted the totality of the insolvent company, nor is it integrated into the global and complete transfer of one of the establishments of the insolvent company.

• The Claimant did not proceed, at the time of acquisition of the property, to any payment of IMT;

• On 15.09.2015, by way of Office No. …, of 14 September 2015, the Claimant was notified of the draft decision for official IMT assessment so that, if it so wished, it could exercise the right to a hearing, in accordance with the provisions of article 60 of the LGT, or request the voluntary regularization of the identified tax situation – as per Document No. 4 attached with the request for arbitral pronouncement;

• In accordance with the draft decision, the Claimant improperly benefited from the IMT exemption provided for in article 270, paragraph 2, of the CIRE, which stipulates, according to the Tax and Customs Authority, that only "(…) transfers of real property integrated into the whole of the company (that is, in the case of transfer of the whole thereof) or, at least, integrated into the global and complete transfer of one of its establishments" are exempt from this tax;

• The Claimant did not exercise its right to a prior hearing;

• On 20.10.2015, the Claimant was notified, by way of Office …, of 16 October 2015, of the official IMT assessment in the total amount of €65,000.45 (sixty-five thousand euros and forty-five cents), plus compensatory interest – as per Document No. 1 attached with the request for arbitral pronouncement;

• The Claimant did not proceed to payment of the official IMT assessment within the time period for voluntary payment of the tax;

• On 15.12.2015, the Claimant was served, within the framework of tax enforcement proceeding No. …2015…, to pay the total amount of €80,056.95 (eighty thousand and fifty-six euros and ninety-five cents), with the amount of €79,667.40 (seventy-nine thousand, six hundred and sixty-seven euros and forty cents) as the amount to be enforced, and the amount of €59.76 (fifty-nine euros and seventy-six cents) as accrued default interest, and the amount of €329.79 (three hundred and twenty-nine euros and seventy-nine cents) as case costs – as per Document No. 5 attached with the request for arbitral pronouncement;

• To suspend the tax enforcement proceeding instituted against it, the Claimant provided a bank guarantee in the amount of €101,110.01 (one hundred and one thousand one hundred and ten euros and one cent) – as per Document No. 6 attached with the request for arbitral pronouncement;

• On 15.02.2016, the expenses borne by the Claimant for maintenance of the bank guarantee provided for suspension of the tax enforcement proceeding amounted to €1,269.71 (one thousand, two hundred and sixty-nine euros and seventy-one cents).

III.2. FACTS NOT PROVEN

As stated, regarding factual matters established as proven, the tribunal does not have to pronounce on everything that was alleged by the parties, but rather has the duty to select the facts that matter for the decision and distinguish proven matter from unproven matter, as provided in article 123, paragraph 2, of the CPPT applicable ex vi article 29, paragraph 1, letters a) and e), of the RJAT. In this way, the facts pertinent to the judgment of the case were, as stated above, chosen and delimited in function of their legal relevance, there being no other factuality alleged that is relevant for the correct resolution of the procedural dispute.

IV. LEGAL MATTERS

Taking into account the positions assumed by the parties in the pleadings presented, the central question to be resolved by this arbitral tribunal consists of examining the legality of the official IMT assessment act relating to the tax year 2010.

As the Claimant imputed various defects to the tax acts challenged, it is necessary to determine the order of examination of the same, the order provided in article 124 of the CPPT being observed, applicable by force of article 29, paragraph 1, letter a) of the Legal Regime of Tax Arbitration[1].

The merit of any of the defects raised by the Claimant will lead to the annulment of the tax acts. Thus, the defect of violation of law due to error regarding the legal conditions on which the assessment depends will be analyzed first, to the extent that it is that which will lead to the "most stable or effective protection of the offended interests" and in that its possible merit will prevent renewal of the act, which does not occur with annulment resulting from the remaining defects.

In accordance with this, the tribunal will first examine the defect of violation of law.

Defect of Violation of Law

The question at issue here consists in determining whether there was a defect of violation of law, due to error regarding the legal conditions on which the assessment depends, by failure to apply the provisions of article 270, paragraph 2, of the CIRE to the acquisition of the 54 autonomous units of the property described above, within the framework of the insolvency proceeding of the company "B…, S.A.".

Let us then examine the provisions of article 270 of the CIRE:

1. The following transfers of real property are exempt from municipal tax on onerous transfers of real property, integrated into any insolvency plan, payment plan, or recovery plan:

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

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

c) Those arising from performance in satisfaction of company assets and assignment of assets to creditors.

1. Acts of sale, exchange, or assignment of the company or of its establishments, integrated within insolvency plans, payment plans, or recovery plans or carried out within the framework of the liquidation of the insolvent estate, are also exempt from municipal tax on onerous transfers of real property.

Now, from the factual matters established, it follows that the Claimant acquired 54 autonomous units of the property described above within the framework of the liquidation proceedings of the insolvent estate of the company "B…, S.A.", such that the situation could potentially be framed within paragraph 2 of the article transcribed above.

The wording transcribed above is that currently in force, having been introduced by article 234 of Law No. 66-B/2012 of 31 December (State Budget Law for 2013).

At the time of transfer of the goods in question, in 2010, the wording of paragraph 2 of article 270 of the CIRE was as follows:

Acts of sale, exchange, or assignment of the company or of its establishments, integrated within insolvency plans or payment plans or carried out within the framework of the liquidation of the insolvent estate, are also exempt from municipal tax on onerous transfers of real property.

The amendment introduced in 2013 was limited, as can be seen, to broadening the scope of the provision of paragraph 2 of article 270 of the CIRE by allowing its application to transfers carried out in acts of company recovery.

In the understanding of the Claimant, paragraph 2 of article 270 of the CIRE establishes an IMT exemption in cases where "acts of sale, exchange, or assignment of company or of its establishment" occur, being sufficient that such acts be carried out within the framework of an insolvency plan or the liquidation of the insolvent estate.

To the contrary, the Respondent understands that the provision transcribed above is solely and exclusively applicable to onerous transfers of real property integrated into the whole of the company or integrated into the global and complete transfer of one of its establishments.

The underlying question therefore arises from an interpretive doubt relating to the text of paragraph 2 of article 270. Specifically, the underlying question is whether the reference to "acts of sale" should be understood as referring to any "act of sale", provided it is inserted within the framework of an insolvency plan, recovery plan, or the liquidation of the insolvent estate, or whether, to the contrary, it should relate only to the "sale of the company" or to the "sale of the establishments" integrated therein.

As the Claimant refers, the question has been widely discussed in judicial forums, the Supreme Administrative Court having already pronounced on it on several occasions, specifically in the Judgment of 30.05.2012, case No. 0949/11, in the Judgment of 17.12.2014, case No. 01085/13, and in the Judgment of 18.11.2015, case No. 01067/15 (all available at http://www.dgsi.pt/), where it was decided that "not only sales of the company or its establishments, as universalities of assets, but also sales of elements of its assets are exempt from IMT, provided that they are integrated within an insolvency plan or payment plan or carried out within the framework of the liquidation of the insolvent estate".

And the Supreme Administrative Court further decided, in the identified case:

The assets that make up the insolvent estate are the assets of the patrimony of the company declared insolvent and no others belonging to another natural or legal person. By definition, the assets that are sold in an insolvency proceeding are assets of the insolvent person or which, at least, were taken as such. There is no sale of assets other than those that made up the insolvent's patrimony.

The legislator, to ensure that this is the case, even provides for a procedure of claim for restitution and separation of assets intended to separate from the estate assets of third parties improperly apprehended, or those of which the insolvent is not the sole and exclusive owner, or which are foreign to the estate or incapable of being apprehended for the estate – article 141 of the Code of Insolvency and Corporate Recovery. Moreover, in the chapter on liquidation of the Code of Insolvency and Corporate Recovery, there are clear and precise indications of the assets that may be sold in that liquidation and those that should be temporarily or permanently excluded from sale, with the right of the insolvent being liquidated in the insolvency proceeding only to those assets of which it is a co-owner – article 159 – and with no sale being carried out of assets with controversial ownership until the judgment that defines the ownership right regarding those assets becomes final – article 160.

The insolvency proceeding is – article 1 of the Code of Insolvency and Corporate Recovery – a universal execution proceeding whose purpose is the satisfaction of creditors in the manner provided in an insolvency plan intended to promote the recovery of the company included in the insolvent estate, or, when that is not possible, to liquidate the patrimony of the insolvent debtor with the subsequent distribution of the proceeds obtained among creditors. The insolvent estate encompasses all the patrimony of the debtor at the date of declaration of insolvency, as well as the assets and rights that it acquires during the course of the proceeding and those whose absolute non-attachability is not the case and which are voluntarily presented by the debtor – article 46 of the Code of Insolvency and Corporate Recovery – such that it is not possible to conceive that there are assets that, making up the insolvent estate of a company declared insolvent, may be integrated into a category of assets without any relationship with that company or establishment."

Dealing with an interpretive question, let us examine, in a first analysis, what follows exclusively from the letter of the law.

Now, the expression contained in paragraph 2 of article 270 of the CIRE "of the company or establishments thereof" appears only after the reference made in the same norm to "acts of… assignment". As a consequence, from a purely literal analysis, one could easily argue that the expression "of the company or establishments thereof" appears as a direct complement not only of the acts of assignment, but also of the acts of sale and exchange, thus determining that only acts of sale of the company or of its establishments would be covered by the exemption.

However, as the Supreme Administrative Court refers, in the Judgment cited above of 30.05.2012, Case 0949/11:

"(…) although the wording of the provision is ambiguous, lending itself to the interpretation that both "sale" and "exchange", together with "assignment", are referred to the company or to its establishments, such interpretation should be rejected lest one conclude that were it so, there would be an inexplicable tautology, as the "assignment" of the company (or of the establishment) is nothing more than its "sale", it being judged, therefore, that the only plausible interpretation of said provision is that which understands it as relating the exemption to the acts of sale and exchange of the properties themselves, including the acts covered by the assignment of the company or of its establishment."

Indeed, making use of the historical and teleological element of the interpretation of the provision, the interpretation given to the provision by the Supreme Administrative Court appears to be the interpretation that best accords with the purpose intended by the legislator, by being that by which the norm in question externalizes its deeper meaning, more beneficial meaning, and more salutary meaning for the interests it is intended to protect. (in this sense, MANUEL DE ANDRADE, Essay on the Theory of Interpretation of Laws, Arménio Amado, editors, Coimbra, 1978).

See:

As referred to in the Judgment of the Supreme Administrative Court of 17-12-2014, Case No. 01085/13, which is now cited, in the relevant part:

"Having regard to the purpose which the legislator intends to achieve with the granting of such exemption, - to foster and support the swift sale of the assets that make up the insolvent estate for obvious reasons of interest of the creditors, but also of the public interest of resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disturbing element, giving "a bonus" to whoever acquires the real property assets that make up the insolvent estate – such person who buys will buy more cheaply because they do not have to pay the IMT that would be due on the acquisition of a similar property outside the insolvency proceeding – and that will be sold in the liquidation phase, the ambiguous text of paragraph 2 of article 270 can be the object of a clearer and unambiguous reading without recourse to any extensive interpretation. It suffices that we ask ourselves whether, to achieve the purpose previously defined, it makes any difference that one is selling the company globally with all of its assets and its liabilities, that one is selling one or more of the commercial establishments that made it up, that one is selling assets that were part of its patrimony but were not used in its business – for example a property received in payment of a debt which the insolvent company was owed – so that one is facing a sale that is carried out within the framework of the liquidation of the insolvent estate? And, if in the same situations it is not sales but exchanges or assignments – it being that this word must have been used in an improper sense in that associated with the business world it usually refers to the assignment of operation, assignment of the commercial establishment, close to leasing and not alienation, and in the Code of Insolvency and Corporate Recovery it is shown to be used also as to the acquisition of assets by creditors -? We believe that the answer cannot fail to be negative."

Indeed, the ratio legis of the provision appears to be the incentive for the acquisition of real property belonging to companies in a situation of insolvency, so as to accelerate the liquidation of assets. This allows creditors the satisfaction of their credits in timely fashion and the resolution of the uncertain situation of the insolvent company, the definition of which is of interest to all involved, but also benefits public order and peace, at the same time encouraging economic activity, which is why tax benefits are granted to the transfer of real property assets.

To such a degree that, and in concordance with what appears to us to be the purpose of the scheme, also the Supreme Administrative Court, in its Judgment of 18.11.2015, issued within the framework of case No. 01067/15, discerns in it that "(…) the objective which presides over the teleology of the norm will equally be pursued when the acquisition has as its object elements of the assets of the company, it not becoming necessary that the object be the company or establishments thereof integrated in the insolvency plan".

Identical interpretation appears to result from the meaning and extent of the legislative authorization granted to the Government, contained in Law No. 39/2003 of 22 August, which corroborates this understanding, under which the CIRE was approved. Indeed, its article 9, paragraph 3, provides that "The Government is finally authorized to exempt from municipal property transfer tax the following transfers of real property, integrated into any insolvency plan or payment plan or carried out within the framework of the liquidation of the insolvent estate: (…) c) (…) the sale, exchange, or assignment of the company, establishment, or elements of its assets (…)".

This was, moreover, the understanding of the Supreme Administrative Court, argued in the Judgment of 30.05.2012, Case 0949/11, where it is stated that:

"paragraph 2 of article 270 of the CIRE, whose wording is not clear with respect to the scope of the IMT exemption there provided, should be interpreted in conformity with letter c) of paragraph 3 of article 9 of Law No. 39/2003 of 22 August, because among two meanings of the law, both with support – at least minimal – in its respective letter, the interpreter must choose that which makes it compatible with the constitutional text (interpretation in conformity with the Constitution), to the detriment of the interpretation which would taint it with unconstitutionality."

Appealing also to the historical element, it is further worth mentioning that the legislator, in point 49 of the preamble of the CIRE, further noted that the existing schemes in the Code of Special Procedures for Company Recovery and Bankruptcy (CPEREF) regarding the exemption of fees and tax benefits were essentially maintained.

Now, article 121, paragraph 2, letter c) of the CPEREF exempted from municipal property transfer tax "transfers of real property integrated into any of the company recovery procedures which arise, in particular, from the sale, exchange, or assignment of elements of the company's assets" (emphasis ours).

In this way, and on the basis of the preamble of the CIRE itself, the provision currently contained in article 270, paragraph 2, of the CIRE should also follow the same line of interpretation of its predecessor.

This tribunal's understanding is thus in complete consonance with the recurring jurisprudence of the Supreme Administrative Court, and is also that which has been upheld by the most recent tax arbitration jurisprudence, specifically that arising from cases No. 95/2015-T, 99/2015-T, and 123/2015-T (whose decisions are available at http://www.caad.org.pt/).

Thus, without need for further considerations, in a situation where there exists settled and firm jurisprudence, we uphold here the understanding that acts of sale of real property carried out within the framework of insolvency plans or payment plans or recovery plans or carried out within the framework of the liquidation of the insolvent estate are not subject to IMT, even though they are "mere" elements of the company's assets and not real property integrated into the whole of the company or in the global and complete transfer of one of its establishments.

For the foregoing reasons, it is concluded that the tax act of official IMT assessment relating to the year 2010 is illegal, due to defect of violation of law, due to error regarding the legal conditions on which the assessment depends, embodied in violation of article 270, paragraph 2, of the CIRE, which justifies its annulment in accordance with article 135 of the Code of Administrative Procedure, applicable in accordance with article 29, paragraph 1, letter d), of the RJAT and article 2, letter c) of the LGT.

The request for arbitral pronouncement thus has merit.

Defect of Substantiation

As already previously decided in arbitration in Case No. 91/2012-T: "The full merit of the defects of violation of law precludes the examination of the defects of form and procedure, as follows from the order of examination of defects provided in paragraph 2 of article 124 of the CPPT, subsidiarily applicable by force of the provisions of letter a) of paragraph 1 of article 29 of the Legal Regime of Tax Arbitration".

In truth, the establishment of an order of examination of defects is only justified by the possible merit of the defects of primary examination rendering unnecessary the examination of the remainder, because, if it were always necessary to examine all defects, the order of their examination would be irrelevant.

For the foregoing reasons, as the defects of violation of law due to error regarding the legal conditions on which the assessment depends have merit, the examination of the defect of insufficient substantiation of the tax act is precluded.

Compensation for Guarantee Improperly Provided

The Claimant further requests that the bank guarantee provided for suspension of the tax enforcement proceeding be restored to it, as well as compensation for the harm resulting from such provision.

As provided in the proven facts, the Claimant was served with tax enforcement proceeding No. …2015…, and provided a bank guarantee in the amount of €101,110.01 (one hundred and one thousand, one hundred and ten euros and one cent) with a view to its suspension.

In accordance with the provisions of letter b) of article 24 of the Legal Regime of Tax Arbitration, the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the Tax Authority from the expiration of the period provided for appeal or challenge, the Tax Authority having, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the expiration of the period provided for voluntary execution of the decisions of tax judicial courts, to "restore the situation that would have existed had the tax act that is the object of the arbitral decision not been carried out, adopting the acts and operations necessary for that purpose", which is in harmony with the provision in article 100 of the LGT, applicable by force of the provisions of letter a) of paragraph 1 of article 29 of the Legal Regime of Tax Arbitration[2].

Further, article 24, paragraph 2 of the RJAT determines that to the arbitral decision on the merits of the claim for which no appeal or challenge is available, there are attributed, beyond those specially provided in article 24 of the RJAT, the other effects provided in the CPPT.

The doctrine and jurisprudence have argued that the determination of the effects of their decisions falls within the scope of the competencies of the arbitral tribunals, in the same terms as provided for judicial challenge, specifically, regarding condemnation for compensatory interest or condemnation for compensation for improper guarantee (Cf. Carla Castelo Trindade (2016), "Legal Regime of Tax Arbitration Annotated", 121 and Jorge Lopes de Sousa (2013), "Commentary on the Legal Regime of Tax Arbitration", 116).

Indeed, in the legislative authorization granted to the Government for approval of the RJAT, contained in article 124 of Law No. 3-B/2010 of 28 April, the intention of a true alternative between judicial process and tax arbitration process is indubitably proclaimed, reading there that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and the action for recognition of a right or legitimate interest in tax matters".

Thus, although article 2, paragraph 1, letters a) and b), of the RJAT uses the expression "declaration of illegality" to define the jurisdiction of the tax arbitral tribunals, making no express reference to constitutive (annulling) decisions and condemnatory decisions, it should be understood, in harmony with the legislative authorization transcribed above and, equally, with the effects attributed to arbitral decisions provided in article 24 of the RJAT, that the jurisdiction of the tax arbitral tribunals encompasses the powers which, in the process of judicial challenge, are attributed to tax judicial courts in relation to the acts whose examination of (i)llegality falls within their jurisdiction.

Thus, if despite the judicial challenge process being essentially a process of mere annulment – as provided in articles 99 and 124 of the CPPT – condemnation of the tax authority to payment of compensatory interest and compensation for improper guarantee can be issued in it, identical conclusion should follow in the scope of the tax arbitration process.

This was also the understanding of the arbitral tribunal constituted within case No. 48/2013-T, where claims for reimbursement and condemnation to payment of compensatory interest were also at issue. That tribunal concluded that:

"The request for constitution of an arbitral tribunal has as its corollary that it will be in the arbitral process that the legality of the executory debt will be discussed, such that, as results from the express tenor of paragraph 1 of said article 117 of the CPPT, it is also the arbitral process that is appropriate to examine the request for compensation for improper guarantee."

In conclusion, in the case at hand, it is manifest that, following the declaration of illegality of the official IMT assessment act, there is grounds for the restoration of the bank guarantee provided in tax enforcement proceedings and, when the conditions set out in article 53 of the LGT are met, for compensation for guarantee improperly provided.

Now, with respect to the request for condemnation to payment of compensation for provision of improper guarantee, article 171 of the CPPT establishes that "compensation in the case of a bank guarantee or equivalent improperly provided shall be requested in the proceeding in which the legality of the executory debt is disputed" and that "compensation should be requested in the claim, challenge, or appeal or, if its basis is supervening, within 30 days after its occurrence".

The request for arbitral pronouncement is thus the procedural means appropriate for formulating the request for compensation for improper guarantee, to the extent that it is in this that the discussion of the "legality of the executory debt" will take place.

Let us now examine the scheme governing the right to compensation for improper guarantee contained in article 53 of the LGT:

1. The debtor who, to suspend enforcement, offers a bank guarantee or equivalent shall be compensated in whole or in part for the harm resulting from its provision, if it has maintained it for a period in excess of three years in proportion to the accrual in administrative appeal, challenge, or opposition to enforcement which have as their object the guaranteed debt.

2. The period referred to in the preceding paragraph does not apply when it is verified, in gracious claim or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3. The compensation referred to in paragraph 1 has a maximum limit equal to the amount resulting from the application to the guaranteed amount of the rate of compensatory interest provided in this law and may be requested in the claim itself or judicial challenge, or autonomously.

4. Compensation for provision of improper guarantee shall be paid by offset against the revenue of the tax of the year in which payment is made.

In the case sub judice, it is manifest that the error underlying the IMT assessment and compensatory interest – that of non-application of the exemption provided for in article 270, paragraph 2, of the CIRE – is attributable to the Respondent, since the assessments were carried out at its initiative, the Claimant having not contributed to the occurrence of such error.

In this way, under the provisions of paragraph 2 of article 53 of the LGT, the Claimant is entitled to compensation for the guarantee improperly provided.

V. DECISION

The arbitral tribunal hereby decides as follows:

a) Judgment that the exceptions of lack of material jurisdiction of the Arbitral Tribunal and error in form of proceedings raised by the Tax and Customs Authority lack merit;

b) Judgment that the request for arbitral pronouncement has merit;

c) Declaration of the illegality of the tax act of official IMT assessment and compensatory interest relating to the year 2010 and, in this consequence,

d) Annulment of the official IMT assessment referred to above;

e) Condemnation of the Tax and Customs Authority to pay the Claimant compensation for improper guarantee, in accordance with article 53 of the LGT.

VI. VALUE OF THE PROCEEDING

The value of the proceeding is fixed at €65,000.45, in accordance with article 97-A, paragraph 1, letter a), of the Code of Tax Procedure and Process, applicable by force of letters a) and b) of paragraph 1 of article 29 of the Legal Regime of Tax Arbitration and paragraph 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

VII. COSTS

The arbitration fee is fixed at €2,448.00 in accordance with Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was wholly successful, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the Legal Regime of Tax Arbitration, and article 4, paragraph 4, of the cited Regulation.

Notify.

Lisbon, 28 September 2016.

The Arbitrator President

(Fernanda Maçãs)

The Arbitrator Member

(João Ricardo Catarino)

The Arbitrator Member (Reporter)

(Carla Castelo Trindade)

Document prepared by computer, in accordance with article 138, paragraph 5 of the Code of Civil Procedure (CPC), applicable by referral from article 29, paragraph 1, letter e) of the Tax Arbitration Regime.

The present decision is written in accordance with pre-reform Portuguese orthography.

[1] Jorge Lopes de Sousa, Commentary on the Legal Regime of Tax Arbitration, in Guide to Tax Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, p. 202.

[2] Which establishes that "the Tax Authority is obliged, in case of full or partial merit of claim, judicial challenge, or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation that is the object of the dispute, including payment of compensatory interest, if applicable, from the expiration of the period for execution of the decision".