Process: 123/2015-T

Date: September 1, 2015

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration case (123/2015-T) examines whether the acquisition of real estate by secured creditors in insolvency liquidation proceedings qualifies for IMT (Municipal Tax on Onerous Transfers of Real Estate) exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE). The claimant, A... S.A., challenged an IMT assessment of €2,246,010 levied on properties acquired through insolvency proceedings. The company held mortgage-secured credits against an insolvent debtor (Company B) and, together with another creditor, acquired five building land parcels for €47,511,000 to partially satisfy their recognized secured claims. The arbitral tribunal, constituted under Decree-Law 10/2011, addressed preliminary procedural objections raised by the Tax Authority regarding the attachment of legal opinion documents with pleadings and jurisdictional competence. The tribunal ruled that documents containing Tax Authority legal positions constitute 'opinions' admissible at any procedural stage under Article 426 CPC, applied subsidiarily per Article 29(1)(e) RJAT, provided adversarial principles are respected. Since these documents were submitted with the claimant's pleadings before the Tax Authority's response deadline, due process was preserved. The core substantive issue concerns interpreting the scope of CIRE Article 270(2) exemption: whether transfers to creditors acquiring assets to satisfy insolvency claims constitute exempt transactions. This case illustrates the intersection between insolvency law exemptions and IMT taxation, with significant implications for secured creditors participating in judicial liquidations and the procedural framework for challenging IMT assessments through CAAD arbitration.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 123/2015-T

The arbitrators Dr. Jorge Manuel Lopes de Sousa (presiding arbitrator), Prof. Doctor Guilherme W. d'Oliveira Martins and Dr. Rui Ferreira Rodrigues, appointed by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 30-04-2015, agree as follows:

1. Report

"A…, S. A.", Tax Number (NIPC) …, with registered office at Avenue …, no. …, …, … Lisbon (hereinafter designated as "Claimant"), filed a request for constitution of a collective arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), with a view to the declaration of illegality and consequent annulment of the assessment of Municipal Tax on Onerous Transfers of Real Estate ("IMT") No. …, in the total amount of € 2,246,010, and the condemnation of the Tax and Customs Authority ("AT") to reimburse the amount unduly paid with respect to this assessment, plus the corresponding compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the TAX AND CUSTOMS AUTHORITY on 25-02-2015.

Pursuant to the provisions of item (a) of paragraph 2 of article 6 and item (b) of paragraph 1 of article 11 of the RJAT, the Deontological Council appointed as arbitrators the signatories, who communicated acceptance of their duty within the applicable time period.

On 15-04-2015, the Parties were notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrators, pursuant to the combined provisions of article 11, paragraph 1, items (a) and (b) of the RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provision in item (c) of paragraph 1 of article 11 of the RJAT, the collective arbitral tribunal was constituted on 30-04-2015.

The Tax and Customs Authority responded by contesting the claims.

By order of 03-06-2015, the hearing provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with written pleadings.

The Parties submitted written pleadings.

With its pleadings, the Claimant attached three documents that reproduce texts issued by the Tax and Customs Authority on the legal question that is the subject matter of the proceedings.

The Tax and Customs Authority did not attach to the case file the administrative process on which the assessment act was based.

The arbitral tribunal was properly constituted.

The parties possess legal personality and capacity, are qualified (articles 4 and 10, paragraph 2, of the same statute and article 1 of Ordinance No. 112-A/2011, of 22 March) and are properly represented.

The proceedings do not suffer from any nullities.

The Tax and Customs Authority raised preliminary issues of impropriety of the procedural method employed (procedural form error) and material incompetence of this Arbitral Tribunal.

It is necessary to consider primarily the preliminary issues, which constitute possible obstacles to the determination of the merits of the case.

2. Question of Attachment of Documents with the Claimant's Pleadings

The Tax and Customs Authority contends that documents cannot be attached with the pleadings, as this is not permitted by article 10, paragraph 2, item (d), of the RJAT, which provides that the request for constitution of the Arbitral Tribunal must include "the evidence elements of the facts stated and the indication of the means of proof to be produced".

However, the documents referred to in that article 10 are those intended to prove the material facts of the case. The documents attached by the Claimant with its pleadings reproduce legal positions of the Tax and Customs Authority, which constitute "opinions" for procedural purposes, and therefore do not have relevance for establishing the facts, but rather for assessing the legal issues.

There is no obstacle to attaching with the pleadings documents containing legal positions of the Tax and Customs Authority, as opinions, regardless of who issues them, may be attached at any stage of the proceedings [article 426 of the CPC, subsidiarily applicable by virtue of the provision in article 29, paragraph 1, item (e), of the RJAT], provided that the principle of adversarial procedure is ensured.

On the other hand, as for the only facts for which the referred documents could have utility to prove, which are that the Tax and Customs Authority issued these opinions, these are irrelevant to the decision of the case, since there is no issue of assessing any defect based on prior actions of the Tax and Customs Authority.

Furthermore, since these opinions are attached with the pleadings of the Claimant and the deadline for pleadings of the Tax and Customs Authority only begins after the pleadings of the Claimant have been attached, the exercise of adversarial procedure is duly ensured.

Consequently, the attachment of the referred documents with the arbitral request was not mandatory, and therefore nothing needs to be ordered regarding this matter.

2. Factual Matters

2.1. Established Facts

The following facts are considered established:

A) The company B… -…, S.A. - in liquidation (hereinafter "B"), tax number … with registered office at Avenue …, no. …, parish of ..., municipality of ..., was the owner of the following real estate:

(i). Building land, registered in the registry under article …, of the Union of Parishes of ... and ... – (property record attached with the arbitral request as doc. no. 2)

(ii). Building land, registered in the registry under article …, of the Union of Parishes of ... and ... - (property record attached with the arbitral request as doc. no. 3);

(iii). Building land, registered in the registry under article …, of the Union of Parishes of ... and ... (property record attached with the arbitral request as doc. no. 4);

(iv). Building land, registered in the registry under article …, of the Union of Parishes of ... and ... (property record attached with the arbitral request as doc. no. 5); and

(v). Building land, registered in the registry under article …, of the Union of Parishes of ... and ... (property record attached with the arbitral request as doc. no. 6);

B) By judgment of 28 November 2013, issued in case no. …/13….TYVNG, by the Commercial Court of ... 3rd hearing, the referred company B was declared insolvent (document no. 7 attached with the arbitral request, whose contents are taken as reproduced);

C) As a creditor of B and beneficiary of mortgages on the Real Estate, the Claimant claimed its credits in the insolvency proceedings (document no. 8 attached with the arbitral request, whose contents are taken as reproduced);

D) The Claimant's credits were fully recognized by the Insolvency Administrator and classified as secured (by mortgage on the Real Estate) (document no. 9 attached with the arbitral request, whose contents are taken as reproduced);

E) In the referred insolvency proceedings, it was resolved in creditors' assembly to proceed with the liquidation of the insolvent estate (document no. 10 attached with the arbitral request, whose contents are taken as reproduced);

F) In the course of this liquidation, the sale of the Real Estate indicated in item A) was announced (document no. 11 attached with the arbitral request, whose contents are taken as reproduced);

G) The Claimant and C… - …, …., tax number …, with registered office in Lisbon, at Street …, …-…, … Lisbon (hereinafter "C"), as creditors of the insolvent, presented a proposal for acquisition of the referred real estate for the total amount of € 47,511,000.00, as a result of which they were awarded to them, in the proportions, respectively, of 72.728421% (or € 34,554,000.01) for the first and 27.271579% (or € 12,956,999.99) for the second, to satisfy partially the credits that both held on the insolvent company (document no. 12 attached with the arbitral request, whose contents are taken as reproduced);

H) The Claimant submitted the "Model 1 IMT" declaration relating to the referred real estate, requesting "the exemption provided for in articles 269 and 270 of the CIRE" (documents nos. 13 and 14 attached with the arbitral request, whose contents are taken as reproduced);

I) The Tax and Customs Authority recognized only the application of the IS exemption - issuing in consequence the assessment whose copy is contained in document no. 15 attached with the arbitral request, whose contents are taken as reproduced, in which it determined a total amount of € 0 of tax to be paid);

J) With respect to the acquisition of the referred real estate by the Claimant, the Tax and Customs Authority made the assessment with document number …, dated 24-11-2014, in the amount of € 2,246,010.00, with payment deadline of 25-11-2014 (document no. 1 attached with the arbitral request, whose contents are taken as reproduced);

K) On 25-11-2014, the Claimant paid the amount of € 2,246,010.00, relating to the referred assessment (document no. 16 attached with the arbitral request, whose contents are taken as reproduced);

L) On 25-11-2014, the deed of purchase and sale, mutual agreement and mortgages was executed, which is contained in document no. 17 attached with the arbitral request, whose contents are taken as reproduced;

M) On 23-02-2015, the Claimant submitted the arbitral request that gave rise to the present proceedings.

2.2. Unproven Facts

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

2.3. Justification for Establishment of Factual Matters

The facts were established as proven on the basis of documents attached with the arbitral request, as the Tax and Customs Authority did not attach the administrative file.

There is no controversy regarding the factual matters.

3. Questions of Impropriety of the Method Employed and Material Incompetence of this Arbitral Tribunal Due to the Issue of a Tax Exemption

The questions of procedural form error and material incompetence have common foundation and will therefore be considered together.

The Tax and Customs Authority argues that:

– the Claimant seeks to challenge the IMT assessment, alleging, in summary, that such tax act constitutes a violation of article 270/2 of the CIRE, inasmuch as the Claimant is entitled to the tax exemption provided for in that rule;

– the subject matter to be decided concerns the granting of a tax benefit provided for in article 270/2 of the CIRE;

– that is, fundamentally, the Claimant intends for the Collective Arbitral Tribunal to render a decision recognizing the IMT exemption;

– in light of this claim, it is the Special Administrative Action that constitutes the appropriate procedural method to assess the matter (since this constitutes the means of challenge intended to assess acts in tax matters – article 97/2 of the CPPT), and not the arbitral request (since this constitutes one of the means of challenge intended to assess tax acts – article 2/1 of the RJAT);

– the Claimant intends to graft a Special Administrative Action onto the present arbitral request, but this is not legally possible, and therefore the Collective Arbitral Tribunal should refrain from considering the request, since the procedural method employed by the Claimant does not provide for the assessment of that matter;

– the competence of arbitral tribunals is limited to the matters listed in article 2/1 of the RJAT;

– outside the jurisdiction of tax arbitration is the assessment of any questions concerning the recognition of tax exemptions, on pain of violation of law;

– the question of recognition of tax exemptions is a matter reserved to the jurisdiction of tax and administrative courts;

– furthermore, the Collective Arbitral Tribunal is also incompetent to assess the recognition of a tax exemption related to the transfer of real estate integrated in insolvency proceedings, because the tax exemption provided for in article 270/2 of the CIRE rests on the verification of two prerequisites:

1st That the transfer of real estate is effected by (i) sale, (ii) exchange, or (iii) transfer of the company or its establishments; and

2nd That the (i) transfer of real estate is integrated in an insolvency plan or a payment plan, or (ii) the transfer is carried out within the scope of the liquidation of the insolvent estate.

– the verification of those legal prerequisites falls exclusively upon the judicial authority in which the insolvency proceedings occurred;

– only the judge responsible for the insolvency proceedings is in a position to verify the legal prerequisites required in article 270/2 of the CIRE;

– in complete harmony with the operation of the similar exemption provided for in article 8 of the IMT Code and, consequently, with the verification of the legal prerequisites inherent in that rule, verification that is exclusively carried out by the judge responsible for the judicial proceedings (execution, bankruptcy or insolvency):

– such verification is carried out by means of a judicial order or a judgment homologating the transaction;

– it being one of these two documents that will constitute the document 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 service of the Respondent;

– the present Collective Arbitral Tribunal was not the judicial authority in which the insolvency proceedings occurred;

– the present Collective Arbitral Tribunal does not even possess the minimum elements to assess the verification of the legal prerequisites required in article 270/2 of the CIRE (elements that the Claimant has not even alleged, let alone proven);

– this means that, either in light of article 270/2 of the CIRE or by virtue of the elements (not) adduced in the arbitral request, it is clearly evident that the assessment of any questions concerning the recognition of a tax exemption related to the transfer of real estate integrated in insolvency proceedings is outside the scope of the Collective Arbitral Tribunal;

– the recognition of the exemption of article 270/2 of the CIRE constitutes a question subject to judicial jurisdiction.

The Tax and Customs Authority raises the exceptions of procedural form error and material incompetence of this Arbitral Tribunal on the grounds that, in summary, the assessment of an IMT exemption is at issue and, in the view of the Tax and Customs Authority, the assessment of questions concerning the recognition of tax exemptions is not included within the scope of the material competence of the Arbitral Tribunal, which should be assessed in tax courts in special administrative action.

Furthermore, the Tax and Customs Authority argues that it is exclusively the responsibility of the Judge of the insolvency proceedings to assess whether the prerequisites of the exemption are met.

The competence of arbitral tribunals operating in CAAD is defined, in the first place, by article 2, paragraph 1, of the RJAT, which establishes the following:

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

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

b) The declaration of illegality of acts determining taxable matter when this does not result in the assessment of any tax, acts determining taxable income and acts fixing patrimonial values;

In the second place, the competence of arbitral tribunals operating in CAAD is limited by the binding commitment of the Tax and Customs Authority which, pursuant to article 4, paragraph 1, of the RJAT, has been defined by Ordinance No. 112-A/2011, of 12 March, which establishes the following, to the extent relevant here:

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of arbitral tribunals operating in 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 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of self-assessment acts, withholding at source acts and advance payment acts that have not been preceded by recourse to the administrative avenue pursuant to articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts determining taxable income and acts determining taxable matter, both by indirect methods, including the decision of the revision 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 quotas, or whose resolution depends on laboratory analysis or measures to be taken by another Member State within the scope of administrative cooperation in customs matters.

As can be seen, only with regard to customs matters is the definition of competences made taking into account the type of taxes to which the claims are directed. And as to these the Tax and Customs Authority only bound itself to taxes administered by it.

As for the rest, competence is defined solely taking into account the type of acts that are the object of the challenge, there being no, in particular, any prohibition on the assessment 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 RJAT. A tax assessment that proceeds from the disregard of an exemption is nonetheless a tax assessment act. And the assessment of the legality or illegality of that disregard is therefore the assessment of a claim relating to the declaration of illegality of assessment acts.

In the case at hand, a tax assessment act for IMT is being challenged, which falls within item (a) of paragraph 1 of article 2 of the RJAT, and whose assessment is not excluded by any of the provisions of the referred Ordinance.

Thus, in the arbitral proceedings, any illegality can, in general, be imputed to assessment acts, as follows from article 99 of the CPPT, subsidiarily applicable.

This will not be the case only in instances where the law provides for the autonomous challengeability of administrative acts that are prerequisites of assessment acts, as may occur with acts of recognition of tax exemptions, which, in the cases of non-automatic exemptions, assume the nature of separable acts for purposes of contentious challenge. But, for this limitation on the challengeability of the challenged assessment act to exist, there would have to be a prior administrative act that was a prerequisite of the assessment act, which has not occurred in the case at hand.

On the other hand, in this case, we are dealing with an exemption of automatic recognition, as follows from item (d) of paragraph 8 of article 10 of the CIMT, and therefore there did not have to be any autonomous act of recognition of the exemption, being at the appropriate moment for the enactment of an assessment act that the Tax and Customs Authority will have to assess whether the interested party enjoys the tax benefit.

Therefore, since the assessment act is prejudicial to the interests of the Claimant and being the only act practiced by the tax administration on the situation, its contentious challengeability must be ensured on the grounds of any illegality, as follows from the principle of effective judicial protection, enshrined in articles 20, paragraph 1, and 268, paragraph 4, of the Portuguese Constitution (CRP).

On the other hand, the question of whether the assessment act is legal, when there is no separable act, is the question of whether there needs to be a recognition of the exemption (by the Judicial Court or by the Tax and Customs Authority) – these are questions that have to do with the legality of the assessment, which should be assessed in tax tribunals in proceedings to challenge the decision, as follows from item (a) of paragraph 1 of article 97 of the CPPT.

With regard to the thesis defended by the Tax and Customs Authority that it would be exclusively competent for the Judicial Court in which the insolvency proceedings took place, it is manifest that it has no legal foundation whatsoever.

In fact, there is no special rule of insolvency proceedings that attributes competence to judicial courts to recognize tax exemptions and the general regime of tax benefits contradicts this hypothesis unequivocally.

Indeed, the Tax Benefits Code (EBF) applies to all tax benefits (its article 1). From article 5 of the EBF it follows that tax benefits, when they are automatic, are not the object of any autonomous act of recognition, and therefore it is at the appropriate moment itself to decide whether an assessment act should be practiced that the question of verification by the Tax and Customs Authority of the occurrence or not of the prerequisites of the tax benefit arises. With regard to tax benefits dependent on recognition, this is carried out through an administrative act, as follows from paragraphs 2 and 3 of the same article 5, in accordance with articles 54, paragraph 1, item (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, in article 16, paragraph 2, of the CIRE, the need for prior recognition by the Tax and Customs Authority is provided only when applied in the context of a process of company restructuring and revitalization provided for in Decree-Law No. 178/2012, of 3 August ([1]). In other cases encompassed by article 270 of the CIRE, where the need for prior recognition is not expressly provided (neither in the CIRE, nor in the EBF, nor in article 10 of the CIMT), we are dealing with an exemption of automatic recognition, the responsibility for its verification and declaration being with the tax service where the declaration provided for in article 19, paragraph 1, of the CIMT is presented, as follows from the provision in item (d) of paragraph 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 an action for recognition of a right or legitimate interest in tax matters, pursuant to articles 212, paragraph 3, of the CRP, 144, paragraph 1, of the Law on the Organization of the Judicial System (Law No. 62/2013, of 26 August), 49, paragraph 1, item (c), of the ETAF, 101, item (b) of the LGT and 97, paragraph 1, item (h) and 145 of the CPPT, and therefore there is no legal basis for affirming the exclusive competence of Judicial Courts to recognize the exemption in question.

Therefore, the exceptions of procedural form error and material incompetence raised by the Tax and Customs Authority are without merit.

4. Question of the Legality of the Assessment

The legality of the assessment act is in question, which did not apply the exemption provided for in article 270 of the Code of Insolvency and Enterprise Recovery to the acquisition of real estate made by the Claimant.

This article 270 of this Code of Insolvency and Enterprise Recovery establishes the following:

Article 270

Benefit relating to the municipal tax on onerous transfers of real estate

1 - The following transfers of real estate, integrated in any insolvency plan, payment plan or recovery plan, are exempt from municipal tax on onerous transfers of real estate:

a) Those intended for the constitution of a new company or companies and for 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 performance in fulfillment of company assets and from the transfer of assets to creditors.

2 - The following are also exempt from municipal tax on onerous transfers of real estate: acts of sale, exchange or transfer of the company or its establishments integrated within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate.

It follows from the factual matters established that the Claimant acquired real estate within the scope of the liquidation of the insolvent estate of B… -…, S.A., and therefore the situation will potentially be encompassed by paragraph 2 of this article.

The interpretative doubts arise from the lack of clarity in the text of paragraph 2, more specifically as to whether the reference to sale relates only to the sale of the company or of its establishments or encompasses any real estate.

As the Claimant refers, the Supreme Administrative Court has ruled on this question twice, in the judgments of 30-05-2012, case no. 0949/11, and of 17-12-2014, case no. 01085/13 ([2]), having decided that are "exempt from IMT not only the sales of the company or of its establishments, as universalities of assets, but also the sales of elements of its assets, provided they are integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate".

As stated in this latter judgment:

"However, the assets that form the insolvent estate are the assets of the property of the company declared insolvent and no others belonging to another natural or legal person. By definition, the assets that are sold in insolvency proceedings are assets of the insolvent or that, at least, were considered as such. There is no sale of assets different from those that formed the insolvent's property. The legislator to ensure that this is so even provides for a claim procedure for the return 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 not susceptible to apprehension for the estate – article 141 of the Code of Insolvency and Enterprise Recovery.

Moreover, in the chapter on liquidation of the Code of Insolvency and Enterprise 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 the sale, with only the right that the insolvent has over assets of which it is a co-owner being liquidated in the insolvency proceedings – article 159 – and there being no sale of assets of disputed ownership until the judgment that defines the ownership of the property right with respect to those assets has become final – article 160.

The insolvency proceedings are – article 1 of the Code of Insolvency and Enterprise Recovery – a universal execution process whose purpose is the satisfaction of creditors by the form provided for in an insolvency plan intended to promote the recovery of the company comprised in the insolvent estate, or, when this is not possible, to liquidate the property of the insolvent debtor with the subsequent distribution of the product obtained among the creditors. The insolvent estate encompasses all the property 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 proceedings and also those whose non-seizability is not absolute and are voluntarily presented by the debtor – article 46 of the Code of Insolvency and Enterprise Recovery - for which it is not possible to conceive that there are assets that, integrating the insolvent estate of a company declared insolvent, can be integrated into a category of assets without any relationship with that company or establishment.

It can be read in point 49 of the preamble of the Code of Insolvency and Enterprise Recovery that the regimes existing in the CPEREF regarding exemption from court fees and tax benefits are maintained, in essence. As analyzed in the judgment of the Supreme Administrative Court of 30 May 2012, issued in case 949/11, looking at the meaning and scope of the legislative authorization granted to the Government under which the Code of Insolvency and Enterprise Recovery was approved, - articles 2 and following of Law No. 39/2003, of 22 August, and as regards exemptions from municipal property transfer tax (now IMT), paragraph 3 of article 9 of that authorization law provided that: 'Finally, the Government is authorized to exempt from municipal property transfer tax the following transfers of real estate, integrated in any insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate: c) (…) of the sale, exchange or transfer of the company, establishment or elements of its assets (…)'.

It may be admitted that in the implementation of the legislative authorization for approval of the CIRE, the Government decided 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, in disregard of the meaning and scope of the legislative authorization that was granted to it, and legislated on matters reserved to the Assembly of the Republic (see paragraph 2 of article 103 and item (i) of paragraph 1 of article 165 of the Constitution) in disregard of that legislative authorization that was conferred on it.

Taking into account the purpose that the legislator intends to achieve with the granting of such an exemption, - to encourage and support the rapid sale of assets that form the insolvent estate for obvious reasons of interest to creditors, but also the interest public in the resumption of the normal functioning of the business world in which each insolvency process presents itself as a disturbing element, giving "a bonus" to whoever acquires the real estate that make up the insolvent estate – buy these assets that buy cheaper because they do not have to pay the IMT that would be due on the acquisition of similar real estate outside the insolvency proceedings – and that will be sold in the liquidation phase, the ambiguous text of paragraph 2 of article 270 can be the subject of a clearer and more unequivocal reading without recourse to any extensive interpretation. It suffices that we ask ourselves whether, to achieve the purpose defined above, it makes any difference whether we are selling globally the company with all its assets and liabilities, whether we are selling one or more of the commercial establishments that comprised it, whether we are selling assets that were part of its property but were not used in its commercial dealings – for example a real estate received in payment of a debt of which the insolvent company was a creditor – to be dealing with a sale that is carried out within the scope of the liquidation of the insolvent estate? And, if in the same situations we are not dealing with sales but with exchanges or transfers – it being understood that this word must have been used in an improper sense inasmuch as associated with the business world it usually refers to the transfer of exploitation, transfer of the commercial establishment, close to leasing and not to alienation, and in the Code of Insolvency and Enterprise Recovery it is shown to be used also regarding the acquisition of assets by creditors -? We believe that the answer cannot but be negative.

Paragraph 1 of article 270 of the Code of Insolvency and Enterprise Recovery grants the IMT exemption to transfers of real estate carried out in fulfilment of:

  1. insolvency plan

  2. payment plan

  3. recovery plan

provided that such transfers have as their purpose one of the following situations:

a. constitution of a new company or companies

b. realization of the capital of a new company or company

c. realization of an increase in the capital of the debtor company

or result from:

i. performance in fulfillment of company assets

ii. transfer of assets to creditors.

Paragraph 2 of this article does not repeat the exemption that it established in paragraph 1, but extends it to persons who, external to the insolvency proceedings because they are not the creditors who acquired the assets, the insolvent company that saw its capital increased, or the company that was formed from this proceeding, these, already contemplated in paragraph 1 of article 270, but to those who acquire real estate considered individually or integrated in the global or partial acquisition of the company.

We believe that paragraph 2 of article 270 of the Code of Insolvency and Enterprise Recovery should be interpreted, taking into account what has just been set out, without the need for any extensive interpretation, respecting its text, the purpose it intends to achieve, the various variants of the insolvency proceeding contained in the Code of Insolvency and Enterprise Recovery and the systematic logic of this statute, as conferring IMT exemption to the following acts:

  1. Sale

  2. Exchange

  3. Transfer

. of the company

. or of establishments of that company,

provided that any one of those acts is either integrated within the scope of

  1. insolvency plan

  2. payment plan

  3. recovery plan,

or is carried out within the scope of the liquidation of the insolvent estate."

Beyond this interpretation, permitted by the literal text of paragraph 2 of article 270 of the CIRE, being manifestly the one that harmonizes with the teleology of the exemption modality identified, which is to encourage acquisitions of assets of the insolvent company, in the case at hand the sale was carried out to creditors of the insolvent company, and therefore we are dealing with a situation whose economic substance is essentially identical to those of performance in fulfillment of company assets or transfer of assets to creditors, which are expressly provided for in item (c) of paragraph 1 of the same article 270, as cases of IMT exemption.

Therefore, in cases where the sale is carried out to creditors of the insolvent company, the economic substance, to which article 11, paragraph 3, of the LGT mandates attention in the interpretation of tax incidence rules ([3]), would always require that it be understood that these are situations encompassed by the exemption, and therefore, if the situation did not fall within paragraph 2 of article 270 of the CIRE, it would always fall, by extensive interpretation, within paragraph 1 of the same article.

For the foregoing reasons, the challenged assessment suffers from a defect of error regarding the legal prerequisites, embodied in violation of article 270, paragraph 2, of the Code of Insolvency and Enterprise Recovery, which justifies its annulment (article 135 of the Code of Administrative Procedure).

5. Questions Rendered Moot

Given that the arbitral request succeeds for the reasons stated above, the consideration of other questions raised by the Claimant is rendered moot and unnecessary.

6. Reimbursement of Amounts Paid and Compensatory Interest

The Claimant requests reimbursement of the amounts paid and compensatory interest, and it has been proven that it paid the assessed amount of € 2,246,010.00.

Article 43, paragraph 1, of the LGT establishes that "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services from which resulted the payment of the tax debt in an amount greater than legally due".

In the case at hand, the error affecting the assessment is attributable to the Tax and Customs Authority which enacted the assessment act on its own initiative, despite the Claimant having requested the exemption.

Therefore, the Claimant is entitled to be reimbursed of the amount it paid (articles 100 of the LGT and 24, paragraph 1, of the RJAT) and compensatory interest from the date of payment of the amount, 25-11-2014, until reimbursement, at the legal supplementary rate, pursuant to articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the LGT, article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.

7. Decision

For these reasons, this Arbitral Tribunal agrees that:

a) The arbitral request is granted;

b) The assessment with document number …, dated 24-11-2014, in the amount of € 2,246,010.00, is annulled;

c) The claim for condemnation of the Tax and Customs Authority to reimburse the amount paid by the Claimant plus interest, at the legal rate, from the date of payment until reimbursement of the paid amount, is granted.

8. Case Value

In accordance with the provision in article 306, paragraph 2, of the CPC, 97-A, paragraph 1, item (a), of the CPPT and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is set at € 2,246,010.00.

9. Costs

Pursuant to article 22, paragraph 4, of the RJAT, the amount of costs is set at € 29,070.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 01-09-2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Guilherme W. d'Oliveira Martins)

(Rui Ferreira Rodrigues)

[1] Amended and republished by Decree-Law No. 26/2015, of 6 February.

[2] In the judgment of 03-07-2013, case no. 765/13, the Supreme Administrative Court did not decide this question, although it makes reference to it.

[3] Rules of incidence, in the broad sense, are those that "define the scope of incidence, that is, the complex of prerequisites from whose conjunction results the birth of the tax obligation, as well as the elements of this obligation" (SOARES MARTINEZ, Tax Law, 7th edition, page 126; In the same sense, see NUNO SÁ GOMES, Manual of Tax Law, volume II, page 56).

In this sense, rules of incidence are those that determine the active and passive subjects of the tax obligation, those that indicate the taxable matter, the rate and the tax benefits.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption provided under Article 270(2) of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides an exemption from IMT (Municipal Tax on Onerous Transfers of Real Estate) for certain property transfers occurring within insolvency proceedings. This exemption is designed to facilitate the liquidation of insolvent estates by reducing tax burdens on transactions that occur as part of court-supervised insolvency processes. The specific scope of this exemption—particularly whether it extends to acquisitions by secured creditors satisfying their mortgage claims through the purchase of assets in insolvency liquidation—is frequently disputed. The exemption aims to avoid imposing additional tax costs on already financially distressed situations and to enable creditors to recover amounts owed through the insolvency framework without incurring supplementary IMT liabilities that would reduce recovery rates.
Can a taxpayer challenge an IMT liquidation through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge IMT liquidation assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings pursuant to Decree-Law 10/2011 (RJAT). The arbitration request must be filed under the combined provisions of Articles 2 and 10 RJAT, seeking declaration of illegality and annulment of the IMT assessment. This alternative dispute resolution mechanism provides jurisdiction for arbitral tribunals to review tax assessments, including IMT, and order refunds of amounts unduly paid plus compensatory interest. The Tax Authority is notified of the request, appoints or accepts arbitrators through the CAAD Deontological Council, and the collective arbitral tribunal is formally constituted with proper legal representation for both parties. CAAD arbitration offers an efficient alternative to traditional administrative courts for resolving IMT disputes, with specialized arbitrators experienced in tax law adjudicating the cases.
How does the CAAD tax arbitral tribunal assess claims for IMT refund and compensatory interest?
The CAAD tax arbitral tribunal assesses IMT refund claims and compensatory interest requests through a structured proceeding under RJAT (Regime Jurídico da Arbitragem Tributária). The process begins with verification of procedural requirements: legal personality, capacity, standing, proper representation, and absence of nullities. The tribunal considers preliminary objections (jurisdictional competence, procedural form errors) before reaching substantive merits. Evidence evaluation includes documents submitted with the arbitration request per Article 10(2)(d) RJAT, which requires identification of evidentiary elements and proof methods. The tribunal may dispense with hearings under Article 18 RJAT and proceed with written pleadings. For IMT refund claims, the tribunal examines whether the assessment was legally valid, whether exemptions apply, and calculates compensatory interest on amounts unduly collected from the payment date until refund, applying applicable Portuguese tax interest rates. Decisions address both the principal claim and accessory obligations.
What are the procedural requirements for requesting annulment of an IMT assessment at CAAD?
Procedural requirements for requesting annulment of an IMT assessment at CAAD include: (1) filing a formal request for constitution of an arbitral tribunal pursuant to Articles 2 and 10 of Decree-Law 10/2011 (RJAT); (2) demonstrating legal personality, capacity, and standing as the assessed taxpayer per Article 10(2) RJAT and Article 1 of Ordinance 112-A/2011; (3) specifying the contested IMT assessment number and amount; (4) articulating grounds for illegality and requesting specific relief (annulment and refund with compensatory interest); (5) including evidentiary elements supporting factual allegations and indicating proof methods per Article 10(2)(d) RJAT; (6) proper legal representation; and (7) payment of applicable arbitration fees. The request is accepted by the CAAD President, notified to the Tax Authority, and arbitrators are appointed by the Deontological Council. Parties have opportunities to refuse arbitrator appointments under Article 11 RJAT and the Code of Ethics. The tribunal is constituted once arbitrators accept their appointments and refusal periods expire.
Does the acquisition of real estate in insolvency proceedings qualify for IMT exemption under Portuguese tax law?
Whether acquisition of real estate in insolvency proceedings qualifies for IMT exemption under Portuguese tax law depends on the specific circumstances and application of Article 270(2) CIRE. This provision creates an exemption for certain transfers within insolvency contexts, but its scope—particularly regarding acquisitions by secured creditors purchasing assets to satisfy mortgage-backed claims in judicial liquidation—is subject to interpretation and dispute. In Case 123/2015-T, the claimant argued that properties acquired by creditors with recognized, mortgage-secured claims during court-supervised insolvency liquidation should qualify for exemption. The rationale is that such transfers are integral to the insolvency resolution process, serving to satisfy legitimate creditor claims rather than constituting ordinary taxable real estate transactions. However, the Tax Authority may contest this interpretation, arguing that any onerous transfer triggers IMT regardless of the insolvency context. The arbitral tribunal's role is to interpret Article 270(2) CIRE, examining legislative intent, statutory language, and policy considerations regarding the balance between facilitating insolvency proceedings and preserving municipal tax revenues from property transfers.