Process: 13/2017-T

Date: May 9, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

Portuguese tax arbitration case examining whether IMT (Municipal Tax on Onerous Transfers of Real Estate) exemption applies to property acquisitions from insolvency estates under Article 270(2) of the Corporate Insolvency and Recovery Code (CIRE). A company acquired a residential property unit for €98,800 through judicial auction in insolvency proceedings and was subsequently assessed additional IMT of €1,375.93 by the Tax Authority. The taxpayer challenged this assessment at CAAD, arguing that Article 270(2) CIRE provides IMT exemption for all real estate transmitted within insolvency proceedings, consistent with previous Bankruptcy Code provisions. Key arguments included: maintenance of exemption regimes from old legislation per Decree-Law 53/2004 preamble, violation of legality and typicality principles, insufficient legal reasoning in the assessment act, and improper revocation of exemption beyond the one-year statutory limit. The case raises fundamental questions about scope of tax exemptions in insolvency contexts, proper interpretation of CIRE Article 270(2), whether exemption extends to individual property sales versus enterprise transmissions, and procedural requirements for challenging IMT assessments through administrative appeal and subsequent CAAD arbitration.

Full Decision

ARBITRAL DECISION

I. REPORT

A…, S.A., NIPC…, with registered office at …, n.º…, parish of …, …-… Porto, hereby requests, pursuant to articles 1, 2, n.º 1 a) and 10 of Decree-Law n.º 10/2011, of 20 January (Legal Framework for Tax Arbitration - RJAT), and article 99 of the Tax Procedure Code applicable ex vi article 10, n.º 2 c) of the RJAT, the constitution of a single Arbitral Tribunal, in which the Tax and Customs Authority is named as respondent, hereinafter AT or Respondent, with a view to obtaining the annulment of the rejection of the administrative appeal filed against the assessment act for Municipal Tax on Onerous Transfers of Real Estate n.º…, issued on 21.07.2016 by the Tax Service of …, in the amount of €1,375.93 (one thousand three hundred seventy-five euros and ninety-three cents).

The application for the constitution of the Arbitral Tribunal was accepted by His Excellency the President of the CAAD and automatically notified to the AT on 13 January 2017.

In accordance with the provisions of paragraph c) of n.º 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law n.º 66-B/2012, of 31 December, the single Arbitral Tribunal was constituted on 14 March 2017.

The AT responded, arguing that the petition should be judged unmeritorious.

The hearing referred to in article 18 of the RJAT and the submission of final arguments were dispensed with, given the nature of the matters contained in the record.

The Arbitral Tribunal is properly constituted and is substantively competent, pursuant to paragraph a) of n.º 1 of article 2 of the RJAT.

The parties have legal personality and capacity, are legitimate parties and are represented (article 4 and n.º 2 of article 10 of the RJAT and article 1 of Regulation n.º 112/2011, of 22 March).

There are no nullities, exceptions or preliminary issues that prevent the immediate examination of the merits of the case.

II. STATEMENT OF FACTS

Based on the elements contained in the file and the administrative procedure appended to the record, the following facts are considered proven:

A) On 21 June 2012, the Petitioner acquired the autonomous unit designated by the letter "I", intended for residential purposes, of the urban property under the horizontal property regime, located at …, …, parish of …, Municipality of Figueira da Foz, described in the … of the Land Registry of Figueira da Foz under number … and registered in the property records of said parish under article …, within the scope of the insolvency proceedings of B…, which took place in the 4th Civil Court of Coimbra, under n.º …/11… TJCBR - (Document n.º 1);

B) The property in question was catalogued and seized for the insolvency estate and the Petitioner purchased it at the price of €98,800.00 (ninety-eight thousand eight hundred euros) - (Doc. 1);

C) Prior to said auction, the Petitioner filed with the competent Tax Service a declaration for assessment of Municipal Tax on Onerous Transfers of Real Estate (IMT) and Stamp Duty (IS), under the provisions of n.º 2 of article 270 of the Corporate Insolvency and Recovery Code (CIRE) (Doc. 2);

D) However, the Petitioner was notified by official letter n.º…, of 04.12.2015, sent by the Tax Service of Leiria -…, to proceed with payment of the additional assessment issued, relating to IMT in the amount of €1,375.93 (one thousand three hundred seventy-five euros and ninety-three cents) - (Doc. 3);

E) In July 2016, the Petitioner proceeded to pay the aforementioned IMT to the AT - (Doc. 4);

F) On 16 August 2016, the Petitioner filed an administrative appeal against the aforementioned assessment - (Doc. 5);

G) On 28 October 2016, the Petitioner was notified to exercise the right of prior hearing and to be informed of the draft decision and its reasoning, concluding with the rejection of the administrative appeal filed;

H) On 25 November 2016, the Petitioner was notified of the decision rejecting the administrative appeal filed.

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

This Tribunal formed its conviction based on the consideration of the documents submitted to the record by the Parties.

III. LEGAL ISSUES

The principal question arising in these proceedings comes down to whether the purchase of real estate within the scope of the insolvency proceedings of an individual is (or is not) exempt from IMT, as provided for in article 270, n.º 2 of the Corporate Insolvency and Recovery Code (hereinafter CIRE).

In this regard, the Petitioner alleges in its petition for constitution of the Arbitral Tribunal the following:

A) In relation to the State, the principles of social solidarity underlying the CIRE find their legal consecration i) with respect to the chapter on claims for credits, in the loss (albeit partial) of privileges of State credits and, ii) with respect to the chapter on revenues or, better, in favour of maximizing revenues intended, in the context of the IMT exemption, despite the unfortunate wording of article 270 of the CIRE, the legislator intended only to consecrate for the CIRE a regime equivalent to that which already resulted from paragraph c) of n.º 2 of article 121 of the Old Bankruptcy Code;

B) As expressly stated in n.º 49 of the Preamble of Decree-Law n.º 53/2004, of 18 March, where it refers that "the regimes existing in the Old Bankruptcy Code regarding the exemption of stamp duties and tax benefits are maintained in substance";

C) The various interpretative elements of the provision in question converge towards a single conclusion: that, in the context of an insolvency plan or payment plan or the liquidation of the insolvency estate, the IMT exemption established in n.º 2 of article 270 of the CIRE covers real estate transmitted by sale or exchange, even when such transmission is not integrated into the transmission of an enterprise or establishment;

D) Being more than evident that the act of additional IMT assessment now being challenged arises from an erroneous interpretation of the provisions of n.º 2 of article 270 of the CIRE, thus suffering from the defect of error as to the legal prerequisites;

E) The Petitioner has the right to restitution of the amount wrongly paid, plus legal interest from the date of payment until its actual return, by virtue of the assessment whose annulment is hereby requested;

F) In this sense, in accordance with the principle of legality and of typicality, the AT must proceed with such assessment as is pertinent, only in the case of verification of all and each of the typical elements provided by law as generating the State's right to the tax;

G) The act under examination is thus null and void for lack of authority and for having created taxes or special contributions not permitted by law (article 133, n.º 2 a) and d) of the Administrative Procedure Code and articles 103, n.º 2 and 165, n.º 1, i) of the Constitution);

H) In effect, the act in question does not indicate and there exists no applicable legal provision that bases and legitimizes the quantification of the amounts ascertained and the assessment of the tax in question, nor were any reasons provided justifying the assessment now being challenged;

I) The challenged act thus suffers from manifest lack of factual and legal reasoning, or, at the very least, this is insufficient, unclear and incongruous, whereby article 268, n.º 3 of the Constitution, articles 124 and 125 of the Administrative Procedure Code and article 77 of the General Tax Code were openly violated;

J) The revocation of the exemption could only be carried out within one year of having been granted, being a constitutive act of rights, by the combined application of the provisions of articles 141, n.º 1, of the Administrative Procedure Code and 58 of the Tax Procedure Code;

K) To this extent, there is illegality of the revocation, as the revocatory act, with retroactive effect, occurred more than one year after the act granting the exemption, in clear violation of the provisions of article 141 of the Administrative Procedure Code.

For its part, the AT alleges, in summary, the following:

A) The Petitioner acquired an autonomous unit intended for residential purposes in insolvency proceedings, but in which the insolvent party is an individual;

B) The exemption provided for in n.º 2 of article 270 of the CIRE covers all acts within the scope of insolvency plans, or payment plans, or the liquidation of the insolvency estate, with the reservation that the insolvent is a company or an establishment;

C) By way of example, reference is made to the Decision of the Supreme Administrative Court, of 03.07.2013, rendered in Case n.º 765/13, which, in its Summary, states: "I - N.º 2 of article 270 of the CIRE, whose wording is not clear as to the scope of the IMT exemption therein provided, may, at most, be interpreted as covering not only sales of the company or its establishments, as universal assets, but also sales of elements of its assets, provided they are within the scope of an insolvency plan or payment plan or are carried out within the scope of the liquidation of the insolvency estate.

II - Thus, said exemption does not cover the sale of urban real estate intended for residential purposes, belonging to an individual, it not being sufficient to benefit from that exemption the fact that such sale acts are carried out within the scope of the liquidation of the insolvency estate, regardless of whether it belongs to an individual or a legal entity (business entity)". (emphasis ours);

D) If article 270, n.º 2, of the CIRE were unconstitutional, as the Petitioner contends, the only logical consequence, by virtue of being the only consequence compatible with the constitutional text, would be the illegality of the assessment by virtue of the non-applicability of a provision on tax benefits approved without any authorization granted by Parliament;

E) A case in which the provision granting the tax benefit would, in fact, be affected by organic unconstitutionality;

F) It so happens that the purported organic unconstitutionality is completely superseded by the wording of articles 16, n.º 1, and 270, n.º 2 of the CIRE given by article 234 of Law n.º 66-B/2012, of 31 December, which approved the State Budget for 2013;

G) Pursuant to the Decision of the Supreme Administrative Court, of 12 February 1997, case n.º 20733, an interpretation of the law cannot be considered valid which, even though in compliance with the Constitution, violates the rules that are mandatorily applicable to it, exceeding the literal scope of the provision to be applied;

H) Compliance with the Constitution of the solution reached does not thus guarantee the validity of the interpretation of tax norms – it is indispensable that the general principles of interpretation and application of tax laws are equally observed in the interpretative activity;

I) "Interpretation in conformity with the Constitution" is only illegal when it violates the fundamental principles of interpretation and application of legal norms developed in this provision and in the Civil Code, which is not demonstrably the case;

J) In summary, the assessment challenged is legal and in accordance with the Constitution, with the multiple constitutional principles that the Petitioner merely invoked in its reasoned submission not being violated, however, it having failed to demonstrate any unconstitutionality;

K) In the case at hand, we are dealing with the acquisition of a property, albeit in insolvency proceedings, but which does not belong to a company nor was intended for the exercise of any business activity, but which was the property of an individual intended for residential purposes;

L) Whereby the legal prerequisites for the IMT exemption are not met due to its transmission having been carried out in insolvency proceedings of an individual;

M) For all the above stated, the Petitioner's arguments lack merit, as regards the interpretation to be made of the legal provision in question, whereby the AT acted properly in the application and interpretation of the legislation applicable to the assessment challenged in these proceedings, as it is proven that the Petitioner acquired the property, within the scope of insolvency proceedings, from an individual taxpayer who does not engage in any business activity;

N) In the same line of interpretation on the matter of acquisitions of real estate carried out from insolvent individuals, albeit in the context of Stamp Duty, paragraph e) of article 269 of the CIRE, see the Arbitral Decision rendered in case n.º 13/2016, in 765/2013, of 3 July 2013 and in the context of case 866/13, of 25 September 2013)".

O) "There is no formal defect of lack of reasoning if the party challenging the decision itself expressly demonstrates that it has understood perfectly the logical and legal process that led to the decision to impose the tax, acknowledging that it has perceived the prerequisites concretely taken into account by the author of the act and the reasons why the assessed amounts were reached, denouncing the cognitive and evaluative path followed…", in the Decision of the Supreme Administrative Court in case n.º 0105/12 of 30-01-2013.

P) Pursuant to articles 35 of the IMT Code, article 45 of the General Tax Code, article 10, n.º 8 d) of the IMT Code, the recognition of the exemption at issue in this case is automatic, flows directly from law and there is no prior analysis nor prior verification of its prerequisites;

Q) This rule determines that the recognition of benefits is subject to control and after such control, that is when the verification of the exemption prerequisites is carried out, whereby, strictly speaking, there was no constitution of a right to the tax benefit.

Considering the foregoing, relative to the position of the Parties and the arguments presented, to determine whether or not the act of IMT assessment now in question is illegal it will be necessary to verify:

Whether the provision in article 270, n.º 2 of the CIRE exempts from IMT the real estate acquired, within the scope of the insolvency proceedings of B… by the Petitioner.

Let us examine what must be understood.

It results from article 11 of the General Tax Code (LGT) that the interpretation of tax law must be carried out taking into account the general principles of interpretation.

The general principles of interpretation are established in article 9 of the Civil Code (CC), as follows:

"1. Interpretation shall not be confined to the letter of the law, but shall reconstruct from the texts the legislative intention, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied.

  1. However, the interpreter cannot take into account legislative intention that does not have in the letter of the law a minimum of verbal correspondence, albeit imperfectly expressed.

  2. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express its intention in adequate terms."

Article 270 of the CIRE, approved by Decree-Law n.º 53/2004, provides as follows:

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

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

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

c) Those arising from satisfaction by delivery of company assets and the transfer of assets to creditors;

2 - The following are likewise exempt from municipal tax on onerous transfers of real estate: acts of sale, exchange or transfer of the company or of 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 insolvency estate.

Considering the literal wording of article 270 of the CIRE, it results that n.º 1 of article 270 of the CIRE grants the IMT exemption to transfers of real estate carried out in performance of:

  1. insolvency plan
  2. payment plan
  3. recovery plan

provided that such transfers are intended for one of the following situations:

a. constitution of a new company or companies
b. realization of the share capital of a new company or company
c. realization of the increase in share capital of the debtor company

or result from:

i. satisfaction by delivery of company assets
ii. transfer of assets to creditors.

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

Consequently, the literal meaning of the provision in question grants IMT exemption to sales of elements of the assets of companies, and cannot here be understood to include sales of assets of individuals, non-entrepreneurs or holders of companies, since this is not provided for in the provision under consideration.

Furthermore, considering the rational element of legal interpretation, it must be considered that every rule was created with a certain purpose and that, consequently, it must be understood in the sense that best responds to the result intended to be achieved.

In this sense, it may be said that the tax exemption created by article 270 of the CIRE appears to have had as its purpose to facilitate the realization of the acts described therein, eliminating the impact of the tax burdens normally associated with such acts.

The purpose of the rule could, therefore, in principle, cover acts of sale that had their origin in the insolvency of individuals, non-entrepreneurs or holders of companies, for, if the objective of the rule is to facilitate the realization of those operations in situations of insolvency or recovery, no impediment to such legal provision regarding individuals is envisaged.

Notwithstanding, the provision under consideration provides clearly and expressly that the IMT exemption applies to the "sale, exchange or transfer of elements of the assets of the company" and does not provide that the IMT exemption applies to the sale, exchange or transfer of assets held by individuals - Where the law does not distinguish neither should we distinguish.

Whence, the IMT exemption provided for in article 270 of the CIRE applies only with respect to real estate that forms part of the assets of a company and not to real estate of individuals (See Decision of the Supreme Administrative Court rendered in the context of case n.º 765/2013, of 3 July 2013 and in the context of case 866/13, of 25 September 2013).

Considering that, in the case at hand, the Petitioner acquired, by judicial sale, within the scope of the insolvency proceedings already identified, real estate belonging to an individual, it is understood that the situation is not subsumed under the provision of n.º 2 of article 270 of the CIRE, which refers exclusively to the sale of "elements of the assets of the company".

Thus, and in light of the interpretation upheld, among others, in the decisions of the Supreme Administrative Court rendered in the context of case 765/13, of 3.07.2013 and case 866/13, of 25.09.2013, it is concluded that the Respondent is correct when it argues for the legality of the act of IMT assessment based on the non-applicability of the exemption provided for in article 270, n.º 2 of the CIRE with respect to the acquisition made by the Petitioner of the property of B…, in insolvency proceedings.

Regarding the lack of reasoning of the act of IMT assessment now in question, from the facts and documents brought to these proceedings, in particular document n.º 3, it appears that the Petitioner was always aware of the objective incidence of the taxable event, resulting from the second assessment carried out, in a succinct but sufficient, congruous and clear manner, the reasons why the Respondent considered that there was no right to the mentioned exemption and, consequently, proceeded with the assessment.

Thus, the alleged defect of lack of reasoning of the tax assessment act is also judged unmeritorious.

The petition of the Petitioner with grounds in items 51 to 65 of the arbitral petition presented is also unmeritorious, although, in accordance with paragraph d) of n.º 8 of article 10 of the IMT Code, the exemption in question is of automatic recognition, without prejudice to its subsequent verification.

As a consequence, it is understood that the act of assessment resulting from the verification of the initially submitted IMT declaration does not constitute an administrative act of revocation, but rather an act of tax assessment (See decision rendered in the context of case 834/2014, of 21.08.2015), and therefore articles 140 and 141 of the Administrative Procedure Code are not applicable.

It is concluded that the arbitral petition presented against the rejection of the administrative appeal of the act of IMT assessment identified, affecting the acquisition of real estate in the insolvency proceedings of an individual, is unmeritorious, considering that such acquisition is not covered by the exemption provided for in n.º 2 of article 270 of the CIRE.

IV. DECISION

Wherefore this Arbitral Tribunal decides:

A) To judge the petition for annulment of the rejection of the administrative appeal presented relating to the IMT assessment act n.º… to be completely unmeritorious;

B) To condemn the Petitioner in the costs of these proceedings, as the unsuccessful party.

V. VALUE OF THE CASE

In accordance with the provisions of article 306, n.º 2 of the Civil Procedure Code, 97-A, n.º 1 a) of the Tax Procedure Code and article 3, n.º 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the petition is fixed at €1,375.93.

VI. COSTS

Pursuant to the provisions of articles 12, n.º 2 and 22, n.º 4, both of the RJAT, and article 4, n.º 4 of the Regulation of Costs of Tax Arbitration Proceedings, the arbitration fee is fixed at €306, pursuant to Table I of the aforementioned Regulation, to be borne by the Petitioner.

Let notice be given.

Lisbon, 9 May 2017

The Arbitrator

Magda Feliciano

(The text of this decision was prepared by computer, pursuant to article 131, n.º 5, of the Civil Procedure Code, applicable by reference under article 29, n.º 1, paragraph e) of Decree-Law n.º 10/2011, of 20 January (RJAT) and its wording is governed by the spelling prior to the Orthographic Agreement of 1990)

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt when purchasing real estate from an insolvency estate under Article 270(2) of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the CIRE addresses IMT exemption for property acquisitions within insolvency proceedings. The provision's interpretation is disputed - taxpayers argue it exempts all real estate transmitted by sale or exchange in insolvency contexts (payment plans, liquidation), while the Tax Authority may apply a narrower interpretation. The exemption's scope depends on whether the property transfer occurs as part of an enterprise/establishment transmission or as an isolated asset sale, with case law suggesting stricter requirements than under the previous Bankruptcy Code.
What are the requirements to qualify for the IMT exemption on property acquisitions within insolvency proceedings in Portugal?
To qualify for IMT exemption under Article 270(2) CIRE, the property acquisition must occur within the formal framework of insolvency proceedings (insolvency plan, payment plan, or estate liquidation). Disputed requirements include whether the exemption applies only to enterprise/establishment transmissions or extends to individual property sales. Taxpayers must file appropriate IMT declarations before the judicial sale referencing CIRE Article 270(2). The acquisition must be through proper insolvency procedures including cataloguing and seizure for the insolvency estate, with judicial approval of the sale.
How can a taxpayer challenge an IMT assessment issued by the Portuguese Tax Authority (AT) through CAAD tax arbitration?
To challenge an IMT assessment through CAAD arbitration in Portugal: (1) File a reclamação graciosa (administrative appeal) within 120 days of notification of the assessment or payment; (2) If rejected, file a request for arbitration with CAAD within 90 days of notification of the rejection decision or 4 months after filing if no response; (3) Submit detailed petition identifying the contested act, legal grounds (e.g., error on legal prerequisites, lack of legal basis, insufficient reasoning), and requested relief; (4) Pay required arbitration fee; (5) The single arbitrator tribunal is constituted within legal timeframes; (6) Tax Authority responds; (7) Tribunal issues binding decision on the assessment's legality.
Does the IMT exemption under CIRE apply to residential property fractions acquired through judicial sale in insolvency?
The applicability of IMT exemption under CIRE to residential property fractions acquired through judicial sale in insolvency is the core dispute in this case. The taxpayer position argues that Article 270(2) CIRE exempts all real estate transmitted within insolvency proceedings regardless of property type (residential, commercial) or whether sold as isolated assets versus part of an enterprise. This interpretation relies on Decree-Law 53/2004 preamble indicating maintenance of previous Bankruptcy Code exemption regimes. However, Tax Authority practice suggests stricter interpretation potentially limiting exemption to commercial property or enterprise transmissions, requiring case-by-case analysis of the specific insolvency context and property characteristics.
What is the procedure for filing a gracious complaint (reclamação graciosa) against an IMT liquidation and subsequently requesting CAAD arbitration?
Procedure for challenging IMT liquidation and requesting CAAD arbitration: (1) Pay the IMT assessment (payment does not preclude challenge); (2) File reclamação graciosa with the competent Tax Service within 120 days, identifying the contested assessment act, legal and factual grounds (e.g., incorrect application of Article 270(2) CIRE, lack of legal basis, insufficient reasoning), and requesting annulment; (3) Tax Authority must issue draft decision with prior hearing opportunity; (4) If administrative appeal rejected, file CAAD arbitration request within 90 days of rejection notification; (5) Include in arbitration petition: contested act identification, legal grounds (violations of legality, Administrative Procedure Code Articles 124-125, Tax Procedure Code Article 77), evidence, and request for restitution of amounts wrongly paid plus legal interest from payment date.