Process: 136/2016-T

Date: November 7, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 136/2016-T) addresses whether Stamp Tax (Imposto do Selo) is due on property acquired through insolvency proceedings under Article 269 of the Insolvency and Company Recovery Code (CIRE). The claimant, A... S.A., acquired urban property for €150,000 via adjudication in an insolvency liquidation process and was subsequently assessed €1,200 in Stamp Tax. The claimant argued that Article 269 CIRE provides automatic exemption from Stamp Tax for asset transfers to creditors within insolvency proceedings, requiring no subsequent recognition by tax authorities. The Tax Administration raised a procedural defense of caducidade (expiration of the right to action), arguing the claimant challenged the assessment act rather than the rejection of the administrative claim. The core substantive issue concerns whether Article 269(d) CIRE's exemption applies to property acquisitions from insolvent natural persons not engaged in commercial activity. The claimant paid the contested tax on 16.10.2014 and filed an administrative claim on 13.02.2015, which was rejected on 02.12.2015. The arbitration request filed on 07.03.2016 sought both declaration of illegality of the claim rejection and compensatory interest under Article 43 of the General Tax Law for unlawful tax payment. The case illustrates critical issues in Portuguese insolvency taxation: the scope of CIRE tax exemptions, procedural deadlines for challenging tax assessments, and the interplay between insolvency law exemptions and general stamp duty obligations under item 1.1 of the General Stamp Duty Table.

Full Decision

ARBITRAL DECISION

1. Report

A - General

1.1. A…, S.A., with the unique registration number and collective person number …, with registered office at Av. …, no.…, …-… Lisbon (hereinafter designated "Claimant"), filed, on 07.03.2016, a request for the constitution of an arbitral tribunal in tax matters, which was accepted, aiming, on the one hand, at the declaration of illegality of the rejection of the administrative claim no. …2015…, presented by the Claimant in reaction to the act of additional assessment of Stamp Duty (hereinafter "SD"), concerning item 1.1 of the General Table of Stamp Duty (hereinafter "GTSD"), in the amount of € 1,200.00 (one thousand two hundred euros) which was communicated to it by Official Letter … of 30.09.2014 from the Tax Service of ...…, relating to a property acquired by it, as will be seen hereinafter, and, on the other hand, the recognition of the right to compensatory interest for the payment of an unlawful tax payment.

1.2. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Centre (CAAD) designated the signatory as arbitrator, and the Parties, after being duly notified, did not manifest opposition to this designation.

1.3. By order of 21.03.2016, the Tax and Customs Administration (hereinafter designated "Respondent") proceeded to designate Ms. B… and Ms. C… to intervene in the present arbitral proceedings, on behalf and in representation of the Respondent.

1.4. In accordance with what is laid down in subparagraph c) of paragraph 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 20.05.2016.

1.5. On the same day 20.05.2016 the highest official of the Respondent's service was notified to, if it so wished, within the period of 30 days, file a reply and request the production of additional evidence and also to attach to the file a copy of the respective administrative process.

1.6. On 22.06.2016 the Respondent filed its reply.

B – Position of the Claimant

1.7. The Claimant acquired by adjudication, in accordance with article 164 of the Insolvency and Company Recovery Code ("ICCR"), for €150,000.00 (one hundred and fifty thousand euros), in the context of the insolvency process of D… (the "Insolvent") identified by number 5.246/13.9 TBVNG – which was pending in the 1st civil court of the Court of …, the urban property located on Rua …, Housing…, no.…, …, parish of…, municipality of ..., described in the Property Registry of ... under number…, and registered in the property matrix under article…, to which the "deed of opening and acceptance of proposals" annexed to its request refers as document no. 2, the content of which is hereby reproduced (hereinafter designated "Property").

1.8. The sale of the Property to the Claimant was carried out by the insolvency administrator, within the insolvency process itself, in the exercise of the powers conferred on it by law, having availed itself of the exemption from Municipal Tax on Onerous Transfers of Real Property (hereinafter designated "MTT") provided for in paragraph 1 of article 8 of the respective Code (hereinafter designated "CMTT").

1.9. The Claimant understands that the exemptions of MTT and SD are automatic, not depending on subsequent recognition by the tax administration, it being incumbent upon the insolvency administrator to confirm the respective requirements, being this conclusion authorized by a historical and systematic interpretation of article 269 of the ICCR.

1.10. The Claimant further contends that article 269 of the ICCR exempts from SD the performance in payment of the company's assets and the transfer of assets to creditors, provided that it is foreseen in insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate. In the interpretation made by the Claimant, subparagraph d) of said provision exempts the transfer of debtor's assets to creditors, regardless of the basis on which the transfer is made.

1.11. Notwithstanding this understanding, the Claimant was notified of the SD assessment referred to in 1.1., (and not also of MTT), the collection document having been annexed to the request for arbitral pronouncement as document no. 3, the content of which is hereby reproduced, which was based on article 1 of the Stamp Duty Code and on item 1.1 of the GTSD.

1.12. Against the SD assessment referred to in 1.1., the Claimant reacted by presenting on 13.02.2015 an administrative claim, which was rejected by order of 02.12.2015.

1.13. The claim for compensatory interest, since the Claimant paid, on 16.10.2014, a tax payment which in its view was unlawful, is provided for in article 43 of the General Tax Law.

C – Position of the Respondent

1.14. The Respondent, in its reply, defends itself by way of exception, considering that the Claimant does not truly contest the rejection of the administrative claim to which it incidentally refers, pointing out no defect in it and failing to take care to attach it to the file, limiting itself to contesting the assessment act no. … of 2014, whose payment deadline is 16.10.2014, whereby the request for arbitral pronouncement is time-barred.

1.15. By way of opposition on the merits, the Respondent understands that the acquisition of the Property made by the Claimant is not exempt from SD since subparagraph e) of article 269 of the ICCR does not encompass acquisitions made from insolvents who are natural persons and do not exercise an industrial, commercial or agricultural activity.

D – Conclusion of the Report and Case Management

1.16. By request of 19.07.2016, the Claimant came to comment on the alleged expiration of the right to action, reiterating that it had become clear, already in the request for arbitral pronouncement, that the object of the claim was the illegality of the rejection of the administrative claim it had presented.

1.17. By order of 20.09.2016 the Arbitral Tribunal dispensed with the meeting provided for in article 18 of the Legal Regime for Arbitration in Tax Matters (LRATM), on the grounds that the Parties had already brought to the process the necessary and sufficient factual elements for the rendering of the decision, which was predicted could take place by 07.11.2016, and they had waived their right to present arguments.

1.18. The arbitral tribunal is materially competent, pursuant to the provisions of articles 2, paragraph 1, subparagraph a) of the LRATM.

1.19. The Parties have legal personality and capacity and have standing in accordance with article 4 and paragraph 2 of article 10 of the LRATM, and article 1 of Ordinance no. 112-A/2011, of 22 March.

1.20. The cumulation of claims made in the present request for arbitral pronouncement, in homage to the principle of procedural economy, is justified since article 3 of the LRATM, by expressly admitting the possibility of "cumulation of claims even if relating to different acts", accommodates, without hermeneutical abuse, the appreciation of a claim that derives, in necessary terms, from the judgment that the arbitral tribunal sustains regarding the validity of the assessment indirectly placed in question.

1.21. The case does not suffer from any nullity. However, the exception of expiration of the right to action alleged by the Respondent requires that it be dealt with immediately, since the appreciation of the merits of the case would be prejudiced if it were allowed.

2. The exception of expiration of the right to action

The Respondent understands that the Claimant does not truly contest the rejection of the administrative claim to which it incidentally refers, pointing out not a single defect in it, limiting itself to contesting the assessment act no. … of 2014, whose payment deadline was 16.10.2014, whereby the request for arbitral pronouncement is time-barred. Now, the expiration of the right to action, if upheld, would result in the absolution of the Respondent from the proceedings.

However, it does not appear to the arbitral tribunal disputable that the Claimant has identified the rejection of the administrative claim as the immediate object of its request for arbitral pronouncement. It expressly requests the declaration of illegality of that rejection, which is founded on the invalidity of the assessment act that underlies it. There is no doubt that the Claimant identifies in its request, with the required clarity, the administrative claim process presented by it, the outcome of that same process and the assessment act with which it does not conform and which gave rise to said administrative claim[1].

Thus, because it is truly being appreciated the validity of the rejection of the administrative claim presented by the Claimant, which will not dispense, as is known, the evaluation of the legality of the assessment act that motivated it, the exception of timeliness of the claim raised by the Respondent fails, and, therefore, the arbitral tribunal is in a position to appreciate the merits of the case.

3. Matter of fact

3.1. Proven facts

3.1.1. The facts referred to in 1.7., 1.8., 1.11. and 1.12. are hereby deemed proven.

3.1.2. The Claimant was a creditor of the Insolvent.

3.1.3. The Property, at the date of acquisition by the Claimant, did not belong to a sole proprietor exercising an industrial, commercial or agricultural activity, in whose business it was integrated.

3.1.4. The Claimant paid the assessment referred to in 1.1. on 16.10.2014, in the amount of €1,200.00 (one thousand two hundred euros), as is confirmed by the document annexed to the request for arbitral pronouncement as doc. 3.

3.2. Unproven facts

There are no facts relevant to the appreciation of the merits of the case that have been deemed unproven.

3.3. Rationale for the determination of the matter of fact

The facts were deemed proven based on the documents filed with the case by the Parties and on the positions assumed by them in the pleadings presented.

4. Matter of law

4.1. Questions to be decided

It follows from what has been said above that the questions to be appreciated are, essentially, two:

a) To know whether the acquisition of the Property, having been carried out within the framework of the insolvency process of a non-entrepreneur and non-holder of a business in whose assets the Property was integrated, is or is not exempt from SD in accordance with the provisions of article 269 of the ICCR; and

b) To clarify whether, if the claim for declaration of illegality of the rejection of the administrative claim presented by the Claimant is upheld with the consequent annulment of the SD assessment indirectly contested, the Claimant, within the framework of the present arbitral proceedings, may obtain a condemnation of the Respondent to pay compensatory interest concerning the amount it paid to satisfy the tax payment illegally demanded by it.

4.2. The exemption from SD and article 269 of the ICCR

a) General

By Law no. 39/2003, of 22 August, the National Assembly authorized the Government to approve the Insolvency and Company Recovery Code, repealing the Code of Special Procedures for Company Recovery and Bankruptcy. In paragraph 2 of article 9 of the authorization diploma one can read:

2 — The Government is further authorized to exempt from stamp duty, when subject to it, the following acts, provided that they are foreseen in an insolvency or payment plan or carried out within the framework of the liquidation of the insolvent estate:

a) The issuance of promissory notes or bills of exchange;

b) The modifications of the maturity dates or interest rates of the insolvency credits;

c) The increases in capital, the conversions of credits into capital and the disposals of capital;

d) The constitution of new company or companies;

e) The performance in payment of the company's assets and the transfer of assets to creditors;

f) The carrying out of financing operations, the transfer or assignment of the operation of business establishments, the constitution of companies and the transfer of business establishments, the sale, exchange or transfer of elements of the company's assets, as well as the leasing of assets.

Consequently, and without infringing the aforementioned legislative authorization, article 269 of the ICCR, under the heading "Benefit concerning stamp duty", provides as follows:

The following acts are exempt from stamp duty, when subject to it, provided that they are foreseen in insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate:

a) The modifications of the maturity dates or interest rates of credits on the insolvency;

b) The increases in capital, the conversions of credits into capital and the disposals of capital;

c) The constitution of new company or companies;

d) The performance in payment of the company's assets and the transfer of assets to creditors;

e) The carrying out of financing operations, the transfer or assignment of the operation of business establishments, the constitution of companies and the transfer of business establishments, the sale, exchange or transfer of elements of the company's assets, as well as the leasing of assets;

f) The issuance of promissory notes or bills of exchange.

Paragraph 49 of the preamble of the diploma approving the ICCR, concerning tax benefits, states that "the existing regimes are maintained, in essence, from the CPEREF concerning the exemption from fees and tax benefits". Now, the benefits relating to SD were previously provided for in article 120 of the Code of Special Procedures for Company Recovery and Bankruptcy ("CPEREF"), within the scope of company recovery measures, whose wording was as follows:

The following company recovery measures are exempt from stamp duty, when subject to it:

a) The issuance of promissory notes or bills of exchange under article 71;

b) The constitution of the new company, provided for in paragraph 1 of article 80;

c) The modifications of the maturity dates or interest rates of credits, provided for in subparagraph c) of paragraph 1 of article 88, as well as in paragraph 1 of article 100;

d) The increases in capital, the conversions of credits into capital and the disposals of capital, provided for in paragraph 2 of article 88, as well as in paragraphs 1 and 2 of article 100;

e) The performance in payment of the company's assets and the transfer of assets to creditors, provided for in subparagraphs d) and e) of paragraph 1 of article 88 and in article 93, as well as in paragraph 1 of article 100;

f) The carrying out of financing operations, the transfer or assignment of the operation of business establishments, the constitution of companies and the transfer of business establishments, the sale, exchange or transfer of elements of the company's assets, as well as the leasing of assets, provided for, respectively, in subparagraphs b), c), e), f) and g) of paragraph 1 of article 101.

As can be seen, the acts referred to in article 269 of the ICCR to which the benefits in question relate are precisely the same as those provided for in the various subparagraphs of article 120[2] of the CPEREF.

b) Subparagraph d) of article 269 of the ICCR

The Respondent bases its defense on the interpretation of subparagraph e) of article 269 [corresponding to subparagraph f) of article 120 of the former diploma]. The Claimant appears equally to invoke in favor of its claim the provision of subparagraph d) of said article 269 [corresponding to subparagraph e) of article 120 of the former diploma] by contending that "article 269 of the ICCR (…) would exempt from stamp duty the performance in payment of the company's assets and the transfer of assets to creditors, provided that it is foreseen in insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate" (article 31 of the request for arbitral pronouncement), to then conclude that "it is sufficient for the exemption", in this way, "the transfer of assets, which do not have to be company assets, is foreseen in an insolvency, payment or recovery plan and that it is carried out to creditors" (article 32 of the request for arbitral pronouncement).

Now, the transfer of assets to creditors is a precise legal figure, provided for, from the outset, in article 831 of the Civil Code:

"The transfer of assets to creditors occurs when these, or some of them, are entrusted by the debtor to liquidate the debtor's patrimony, or part thereof, and to distribute among themselves the respective proceeds, for satisfaction of their credits"

As the Professors Pires de Lima and Antunes Varela rightly explain, "the cessio bonorum avoids forced execution, with its detriments, or the declaration of insolvency or bankruptcy of the debtor"[3]. It was also not ignored by the CPEREF, which referred to it expressly in article 93.

It is not, therefore, notwithstanding what the Claimant states, a mechanism that appears to have been used in the insolvency process within the framework of which the Claimant acquired the Property[4], which is why it would not make sense to admit the applicability of subparagraph d).

c) Subparagraph e) of article 269 of the ICCR

It remains for us to consider the possible application of subparagraph e) of article 269 of the ICCR and it is important that we focus on the "sale, exchange or transfer of elements of the company's assets", acts that would be exempt from SD, provided that they are foreseen in insolvency, payment or recovery plans or carried out within the framework of the liquidation of the insolvent estate.

It appears to result from the text of the norm to which we have been referring that the SD exemption is granted only to sales of elements of the assets of companies, which excludes, a contrario, the sales of assets that do not form part of the assets of companies, namely assets that are the property of natural persons, non-entrepreneurs or holders of companies. A different interpretation, although defensible from the point of view of law to be established, has no basis in the literal wording of the provision in force, and therefore cannot be accepted.

It is worthwhile to note the doctrine on this matter set out in the Judgment of the Supreme Administrative Court of 25.09.2013, delivered in process no. 866/13:

"In this case the question is only whether the sale of an immovable asset, which does not belong to a company nor was intended for the exercise of any business activity, but was the property of a natural person and intended for housing, with no notice of its being allocated to any business activity, can benefit from a SD exemption by reason of having been carried out in an insolvency process. The answer, in our view, can only be negative, since the hypothesis is not subsumable under the provision of subparagraph e) of article 169 of the ICCR, which refers exclusively to the sale of 'elements of the company's assets'."

Thus, the learned judgment concludes that "I - Pursuant to the provisions of article 269, subparagraph e), of the ICCR, sales of 'elements of the company's assets' are exempt from SD. II - Thus, said exemption does not extend to the sale of an urban property intended for housing that belongs to a natural person, it not being sufficient to benefit from that exemption the fact that it concerns sales acts carried out within the framework of the liquidation of the insolvent estate, rather it must be demonstrated that the asset sold forms part of a company's assets".

An identical understanding was upheld by the CAAD decisions delivered in processes 649/2015-T and 13/2016-T, and this, as has been said, is also the position of the arbitral tribunal.

4.3. On compensatory interest

The contested act, as has been sought to be demonstrated, does not suffer from any illegality. Thus, the requirements for compensatory interest to be paid are not met.

Decision

In accordance with and based on the grounds set forth above, the arbitral tribunal decides:

a) To find the exception of expiration of the right to action invoked by the Respondent not well founded;

b) To find the claim for declaration of illegality of the rejection of the administrative claim presented not well founded, the SD assessment act that gave rise to it thus remaining in force;

c) To find the claim for condemnation of the Respondent to pay compensatory interest not well founded.

Value of the case

In accordance with the provisions of paragraph 2 of article 306 of the Code of Civil Procedure, article 97-A of the Code of Tax Procedure and also paragraph 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is set at € 1,200.00 (one thousand two hundred euros).

Costs

For the purposes of the provisions of paragraph 2 of article 12 and paragraph 4 of article 22 of the LRATM and paragraph 4 of article 4 of the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is set at € 306.00 (three hundred and six euros), in accordance with Table I annexed to said Regulations, to be borne entirely by the Claimant.

Lisbon, 7 November 2016

The Arbitrator

_______________________________

(Nuno Pombo)

Text prepared by computer, in accordance with paragraph 5 of article 131 of the Code of Civil Procedure, applicable by referral of subparagraph e) of paragraph 1 of article 29 of Decree-Law no. 10/2011, of 20 January and with the spelling prior to said Orthographic Agreement of 1990.

[1] After the submission of the request for arbitral pronouncement, the Claimant came to attach to the file a copy of the administrative claim it presented and the respective order rejecting it, it being certain that these documents form part of the administrative process which the Respondent had the duty to bring to the knowledge of the tribunal in accordance with paragraph 2 of article 17 of the LRATM.

[2] See LUÍS A. CARVALHO FERNANDES and JOÃO LABAREDA, Insolvency and Company Recovery Code Annotated, 3rd ed., Quid Iuris, Lisbon, 2015, pages 918 et seq..

[3] See FERNANDO ANDRADE PIRES DE LIMA and JOÃO DE MATOS ANTUNES VARELA, Annotated Civil Code, vol. II, 3rd ed., Coimbra Editora, 1986, page 119.

[4] Note, moreover, that "the performance in payment and the transfer of assets to creditors cannot take place within the framework of the liquidation of the insolvent estate" according to DAVID SEQUEIRA DINIS and LUÍS BÉRTOLO ROSA, The Exemption from Municipal Tax on Onerous Transfers of Real Property in Sales and Exchanges in Insolvency Proceedings, in Journal of the Bar Association, 75, nos. 1 and 2, Jan – Jun 2015, page 476, note 17.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) due on properties acquired through insolvency proceedings under the CIRE?
Stamp Tax on property acquired through insolvency proceedings depends on the application of Article 269 CIRE exemptions. While the claimant argued for automatic exemption under Article 269(d) for asset transfers to creditors in insolvency liquidation, the Tax Administration contended the exemption under Article 269(e) does not extend to acquisitions from insolvent natural persons not exercising commercial, industrial, or agricultural activities. The property acquisition was assessed under Article 1 of the Stamp Duty Code and item 1.1 of the General Stamp Duty Table at €1,200.
Does Article 269 of the CIRE grant a tax exemption for asset transfers in insolvency processes?
Article 269 CIRE provides specific tax exemptions for insolvency processes, including exemptions from Municipal Property Transfer Tax (IMT) and Stamp Tax. The claimant interpreted Article 269(d) as exempting transfers of debtor's assets to creditors regardless of the transfer basis. However, the scope of this exemption is disputed, particularly whether it applies automatically without tax administration recognition and whether it covers acquisitions from individual insolvents not engaged in commercial activities. The interpretation requires both historical and systematic analysis of the CIRE provision.
What is the deadline for challenging an additional Stamp Tax assessment before it expires (caducidade)?
The deadline for challenging a Stamp Tax assessment involves complex procedural timelines. In this case, the assessment was communicated on 30.09.2014 with payment deadline 16.10.2014. The administrative claim was filed on 13.02.2015 and rejected on 02.12.2015. The arbitration request was filed on 07.03.2016. The Tax Administration raised caducidade (expiration of right to action), arguing the claimant challenged the assessment act rather than properly contesting the rejection of the administrative claim, creating a critical procedural issue regarding what constitutes the proper object of challenge and applicable time limits.
Can a taxpayer claim compensatory interest (juros indemnizatórios) after an unlawful Stamp Tax payment?
Compensatory interest (juros indemnizatórios) after unlawful Stamp Tax payment is provided under Article 43 of the General Tax Law. The claimant paid €1,200 on 16.10.2014 and sought compensatory interest for this allegedly unlawful payment. The claim for compensatory interest depends on establishing that the tax payment was indeed unlawful, which requires first determining whether Article 269 CIRE exempted the transaction. This secondary claim was cumulatively joined with the principal challenge to the assessment, justified by procedural economy principles under Article 3 LRATM.
How does the CAAD arbitral tribunal assess the legality of Stamp Tax on property acquired by adjudicação in insolvency?
The CAAD arbitral tribunal assesses Stamp Tax legality on property acquired by adjudication (adjudicação) in insolvency by examining: (1) procedural admissibility including caducidade defenses; (2) the scope of Article 269 CIRE exemptions and whether they apply automatically; (3) whether the specific transaction falls within exempted categories; and (4) the proper interpretation of insolvency law tax provisions. The tribunal must determine whether challenging the rejection of an administrative claim differs from challenging the underlying assessment for procedural deadline purposes, and whether Article 269 exemptions extend to the specific factual circumstances of property acquisitions from individual insolvents.