Process: 224/2016-T

Date: December 2, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

This arbitral decision addresses the revocation of IMT (Municipal Property Transfer Tax) exemption granted under Article 270 of the Portuguese Insolvency Code (CIRE). Four co-owners purchased urban and rural properties through insolvency proceedings in 2009, receiving IMT exemption which was initially recognized by tax authorities. In 2015, the Tax Authority issued additional assessments totaling €26,037.92, claiming the exemption prerequisites were not met. The claimants challenged these assessments on two grounds: first, that the four-year limitation period for additional assessments under Article 31(3) of the IMT Code had expired (the assessments should have been issued by July 2013); second, that the legal requirements for exemption under Article 270(2) CIRE were fulfilled. The claimants argued that the Tax Authority incorrectly classified the assessments to avoid the four-year limitation, and that Article 270 CIRE exempts property sales integrated in insolvency, payment or recovery plans without requiring disposal of all company assets. This case illustrates critical issues regarding temporal limits on tax reassessments, the scope of insolvency-related tax exemptions, and the distinction between additional assessments correcting errors versus exemption revocations. The arbitral tribunal procedure under RJAT (Decree-Law 10/2011) provides taxpayers with an alternative dispute resolution mechanism for challenging IMT assessments, particularly valuable in complex insolvency-related transactions where co-ownership structures and exemption interpretations intersect.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. On 12 April 2016, the taxpayers A…, B…, C… and D…, with tax identification numbers …, …, … and …, respectively, filed a petition for the constitution of a single arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as LRATM), with a view to reviewing the legality of the tax acts relating to Additional Assessment of Municipal Tax on Onerous Transfer of Property (IMT) on the transfer of the urban property with registry number … and of the rural property with registry number…, fraction …, both in the parish of …, embodied in Documents, respectively, No.…, in the amount of €8,679.31, No.…, in the amount of €4,339.65, No.…, in the amount of €4,339.65, and No.…, in the amount of €8,679.31.

  2. Pursuant to No. 1 of Article 6 of the LRATM, the Ethics Council of the Arbitration Centre appointed the arbitrator now signing, notifying the parties.

  3. The Tribunal is properly constituted to review and decide on the subject matter of the case.

  4. The allegations supporting the Claimant's request for arbitral pronouncement are, in summary, as follows:

4.1 The Claimants are co-owners of the urban property registered in the Property Register of … under article … and of the Fraction … of the rural property registered in the property register of the same parish under article….

4.2 In the case in question, what is at issue is the additional assessment of IMT on the tax event embodied in the onerous acquisition of the two properties identified above, in a regime of co-ownership, by the Claimants, by virtue of the acquisition having benefited from IMT exemption under the provisions of Article 270 of the Insolvency and Business Recovery Code ("IBRC"), approved by Decree-Law No. 53/2004 of 18 March, a benefit which the Tax Authority is now seeking to terminate by considering the exemption inapplicable to that acquisition.

4.3 The Claimants have paid the additional IMT now under challenge.

4.4 The said transfer, being integrated in an insolvency, payments or recovery plan, benefited from IMT exemption pursuant to Article 270 of the IBRC, a benefit which was duly recognized, pursuant to Article 16 of the IBRC, in the respective IMT assessments, following presentation by each of the purchasers, now Claimants, of the corresponding IMT Model 1 Declaration, to which were assigned, correspondingly, the registration numbers 2009/…; 2009/…; 2009/… and 2009/….

4.5 By Official Letters Nos., respectively, …, …, … and …, all dated 09/10/2015, the Claimants were notified to exercise the right to be heard regarding the projected decision for additional IMT assessment on that transfer, by virtue of, in the understanding of the Tax Authority services, the prerequisites for IMT exemption not being met.

4.6 The Claimants duly exercised the right to be heard regarding the projected decision.

4.7 However, by Official Letters Nos.…, …, … and …, all dated 18/12/2015, the Claimants were notified of the final decision regarding the expiration of the IMT exemption benefit, maintaining the projected decision for IMT assessment on the onerous transfer of the properties sub judice, in the amounts of €8,679.31, €4,339.65, €4,339.65, and €8,679.31, respectively.

4.8 A period of 30 days was granted to the Claimants to proceed with the respective payment, by means of payment forms to be requested at the Finance Service of…-….

4.9 The Claimants consider that the period for exercising the right to assessment had expired in the case in question.

4.10 In fact, on 3 July 2009, in the context of the transfer that constitutes the tax event on which the IMT assessments now under challenge were based, the Claimants proceeded to file the Model 1 Declaration, in accordance with the provisions of Nos. 1 and 3 of Article 19 of the IMT Code.

4.11 Now, pursuant to the provisions of No. 2 of Article 31 of the IMT Code, additional assessments are admissible when there has been an error of fact or law from which a loss to the State has resulted, as well as in cases where valuation is required, with competence to issue the respective additional assessment vesting in the head of the finance service where the assessment was made or the declaration was filed for purposes of the provision in No. 3 of Article 19.

4.12 Furthermore, No. 3 of the same Article 31 provides that, when an additional assessment is required, it may only be made within four years from the assessment to be corrected, except in the case of omission of assets or values, in which case it may still be made later, with the provision of Article 35 being reserved in all cases.

4.13 In view of the foregoing, any additional assessment would have had to occur, imperatively, by 3 July 2013, a deadline far exceeded in the case of the assessments sub judice.

4.14 Although the Tax Authority argues that there is no additional assessment in question, whereby the limitation period would be 8 years in accordance with Article 35 of the IMT Code, this understanding has no merit whatsoever, which is immediately contradicted by the IMT assessments now under challenge themselves, in which one can read, in their respective description, that it is a matter of "Additional Assessment to registration No. 2009/…"; "Additional Assessment to registration No. 2009/…"; "Additional Assessment to registration No. 2009/…"!

4.15 Furthermore, from No. 2 itself of Article 31 of the IMT Code, it is unequivocally clear that any assessment subsequent to the filing of the declaration for purposes of the provision in No. 3 of Article 19, motivated by the existence of an error of fact or law from which a loss to the State has resulted, will be an additional assessment!

4.16 In the same sense, No. 4 of Article 31 of the IMT Code, which imposes prior hearing of the taxpayer, a procedure unequivocally followed in the case of the additional assessments in question.

4.17 Article 35 of the IMT Code refers rather to cases in which exemptions or reductions in tax rates become void, pursuant to Article 11, i.e., in situations of expiration of IMT exemptions, as indeed results from the combined reading of that article with the preceding Article 34.

4.18 In the situation under analysis, if the prerequisites on which the IMT exemption depends were indeed considered not to be met, this would correspond not to a situation of expiration of the exemption, but solely to an error in the prerequisites of fact or law of the initial assessment.

4.19 In addition to the defect previously invoked, the Claimants consider that, in this case, the prerequisites for IMT exemption are met, and therefore the decision and subsequent IMT assessment now under challenge is illegal, by violation of the provision in No. 2 of Article 270 of the IBRC.

4.20 That provision determines that the following are exempt from IMT: acts of sale, exchange or assignment, provided that such acts of sale, exchange or assignment are integrated in an insolvency plan, payments plan or recovery plan or practiced within the framework of the liquidation of the insolvent company's assets.

4.21 In fact, by providing for IMT exemption arising from acts of sale practiced "within the framework of insolvency plans, payments plans or recovery plans," it must manifestly be understood that the sale of all the company's assets cannot be required, under penalty of making any and all application of the said provision impossible in payments plans or recovery plans of companies!

4.22 Thus, in accordance with the provision in No. 3 of Article 9 of the Civil Code, applicable by virtue of the provision in Article 11 of the General Tax Law, "in fixing the meaning and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and knew how to express his thought in adequate terms."

4.23 Therefore, the interpretation of No. 2 of Article 270 of the IBRC defended by the Tax Authority collides frontally with the provision in No. 3 of Article 9 of the Civil Code, and is, for that reason, manifestly illegal.

4.24 In view of the foregoing, it is manifest that the prerequisites on which the IMT exemption provided for in No. 2 of Article 270 of the IBRC depended were met in the case in question.

4.25 The Claimants do not accept the additional IMT assessments under challenge, which they deem illegal, and therefore request that the illegality of the additional IMT assessments sub judice be declared, and consequently, they be ordered to be annulled and replaced by a decision in which the benefit of IMT exemption is recognized, pursuant to No. 2 of Article 270 of the IBRC;

4.26 Having the amount of tax improperly assessed been duly paid by the Claimants, the Tax Authority should furthermore be ordered to pay compensatory interest, which is a matter of right, pursuant to Articles 43 of the GTL and 61 of the TPC.

  1. For its part, the Defendant Tax Authority and Customs Authority filed a response, in which it defended itself in the following terms:

5.1 The Arbitral Tribunal does not have competence to grant recognition of tax benefits by virtue of the stipulation in Article 2 of the LRATM.

5.2 But rather only to pronounce on the legality of the assessment acts impugned, under penalty of violation of the constitutional principle of the Rule of Law and Separation of Powers, established in Articles 2 and 111 of the Portuguese Constitution (PC), as well as the principle of legality, cf. Articles 3, No. 2, and 266, No. 2, also of the PC.

5.3 The incompetence of the tribunal constitutes a dilatory exception of ex officio knowledge that determines the dismissal of the instance pursuant to Article 576 and item a) of Article 577 of the Code of Civil Procedure (CCP) applicable ex vi Article 29, No. 1, item e) of the LRATM, which is hereby requested.

5.4 The Defendant alleges that, having the acquisition of the properties been effected within the framework of the liquidation of a certain insolvent company's assets, it is covered by the IMT exemption provided for in No. 2 of 270 of the IBRC.

5.5 However, the Defendant, despite attaching documents to the case file, does not minimally identify the insolvency court proceeding within the framework of which the properties above identified were acquired, nor does it identify the insolvent entity, namely whether it is a natural or legal person and what economic activity it carries out.

5.6 It so happens that in the case in question, the purchasers and now Claimants do not prove the legal nature of the insolvent transferring entity and the activity that was carried out by it, nor do they prove that they carry out the same activity as the insolvent company, or that the said acquisition was intended for the pursuit of the same activity.

5.7 Much less that the acquisition corresponded to the purchase of the totality of all assets allocated to the activity of the insolvent company.

5.8 The sale of the company's properties, in isolation, is not covered by the exemption provided for in No. 2 of Article 270 of the IBRC, being consequently subject to IMT under general terms.

5.9 This exemption, previously provided for, covers all acts integrated within the framework of insolvency plans, or payments plans, or liquidation of the insolvent company's assets, with the reservation, however, that, where the object of the exempt transfer is the totality of the totality of the company's assets or the establishment and not one or two assets of its active.

5.10 Despite the legislative authorization having been more permissive, the legislator regarding the situation in question only intended to maintain the exemption in the case of the transfer of the totality of assets associated with the exercise of the economic activity of the company.

5.11 Furthermore, the fact that the Preamble of the IBRC provides that as for tax benefits, those essentially provided for in the CPEREF are maintained, as to the exemption of fees and tax benefits, has no interpretive relevance to Article 270, No. 2. "Essentially" is not confused, in fact, with "exclusively."

5.12 If the meaning of the legislative authorization were that the legislative authorization could only be used in a block and never partially, such intent would have had to be expressed in Law No. 39/2003, which was not the case.

5.13 The binding of the ordinary legislator to the legislative authorization granted by the Assembly of the Republic is not absolute, covers only its temporal limit of duration, consequently, as long as the partial authorization does not collide with the meaning of the authorization law, it is entirely admissible.

5.14 It should also be noted that the alleged organic unconstitutionality has been completely superseded with the rewording of Articles 16, No. 1, and 270, No. 2, of the IBRC given by Article 234 of Law No. 66-B/2012 of 31 December, which approved the State Budget for 2013.

5.15 Here we arrive at the result that the interpretation of No. 2 of Article 270 of the IBRC has no legal support.

5.16 Compliance with the Constitution of the solution reached does not thus guarantee the validity of the interpretation of tax rules – it is essential that the general principles of interpretation and application of tax laws are also observed in interpretive activity.

5.17 The tax benefit provided for in No. 2 of Article 270 of the IBRC has an automatic nature, not being dependent on any administrative act of recognition.

5.18 In fact, in the case under analysis, there was no act of recognition of tax benefit, as the right operates by the mere application of the law to the facts, facts which the taxpayer declares before the Tax Authority through the IMT Model 1, with a document being issued so that the Claimant can perform the deed of transfer of the property with IMT exemption.

5.19 The document making reference to the value of the assessment at €0.00 was not an assessment in the true sense of the term.

5.20 But rather a document of automatic recognition of the exemption which had the objective of providing the taxpayer with the document necessary to allow him to effect the contract of acquisition (public deed or other).

5.21 In the case under analysis we are facing the original exercise of an assessment.

5.22 In accordance with Article 35, No. 1 of the IMT Code, combined with the provisions of Nos. 1 and 4 of Article 45 of the GTL, the period for practicing the tax act, under penalty of expiration of the respective right, is set at 8 years, counted from the date on which the tax event occurs.

5.23 That is, having there been no IMT assessment prior to the celebration of the deed, it cannot be considered that the assessments impugned are an additional assessment.

5.24 Not being, thus, that fact, an assessment, and having the transfer of the property taken place, the limitation period for the right to assessment is 8 years, in accordance with Article 35 of the IMT Code, and not 4 years.

5.25 The Defendant has not only the right, but also the duty by constitutional imperative to assess the prerequisites of tax assessment within the period of limitation.

5.26 This means that, within the limitation period, the Defendant can assess the tax owed.

5.27 Otherwise one would be defending the impossibility of restoration of fiscal legality in defense of an interpretation of the law which violates the constitutional principles of legality and impartiality as well as the duty to collect taxes.

5.28 Consequently, the assessment now impugned is based on a correct interpretation and application of the said exemption rule, and none of the arguments can succeed, nor can any of the defects alleged by the Claimants proceed against the assessments impugned.

5.29 Since there is no illegality of the assessment act nor legal ground supporting the Claimants' claim, the request for payment of compensatory interest is accordingly unfounded.

  1. The Claimants responded to the exception raised by the Defendant, in the following terms:

6.1 The claim filed by the Claimants was for this Arbitral Tribunal to grant the petition for constitution of an arbitral tribunal and arbitral pronouncement on the tax acts better identified in the introduction and, consequently, declaring the illegality of the additional IMT assessments under challenge, with all legal consequences, including their annulment, reimbursement of the amounts of tax improperly assessed and paid, accrued with compensatory interest, and costs, pursuant to legal terms.

6.2 For which reason it is well evident that the claim filed by the Claimants corresponds to the annulment of the IMT assessment in question, and therefore the allegation of the Defendant does not proceed.

  1. On 18/10/2016, an arbitral order was issued, in which the Tribunal considered it unnecessary to promote the meeting provided for in Article 18 of the LRATM, given that the circumstances referred to in the various items of No. 1 of that provision were not present, although admitting, however, to convene that meeting if the parties so requested.

  2. The parties did not request that the meeting provided for in Article 18 of the LRATM be promoted.

II. PROVEN FACTS

  1. Based on the documentary evidence attached to the case file, the Arbitral Tribunal considers the following facts proven, relevant to the decision of the case:

9.1. The Claimants are co-owners of the urban property registered in the Property Register of … under article … and of the Fraction … of the rural property registered in the property register of the same parish under article….

9.2. The Claimants acquired ownership of the properties mentioned above within the framework of an insolvency plan and company recovery plan.

9.3. The said transfer benefited from IMT exemption pursuant to Article 270 of the IBRC, a benefit which was recognized in the respective IMT assessments, following presentation by each of the Claimants of the corresponding IMT Model 1 Declaration, to which were assigned, correspondingly, the registration numbers 2009/…; 2009/…; 2009/… and 2009/….

9.4. The Model 1 Declaration was filed by the Claimants on 3 July 2009.

9.5. By Official Letters Nos., respectively, …, …, … and …, all dated 09/10/2015, the Claimants were notified to exercise the right to be heard regarding the projected decision for additional IMT assessment on that transfer, by virtue of, in the understanding of the Tax Authority services, the prerequisites for IMT exemption not being met.

9.6. The Claimants duly exercised the right to be heard regarding the projected decision.

9.7. By Official Letters Nos.…, …, … and …, all dated 18/12/2015, the Claimants were notified of the final decision regarding the expiration of the IMT exemption benefit, with assessments No.…, in the amount of €8,679.31, No.…, in the amount of €4,339.65, No.…, in the amount of €4,339.65, and No.…, in the amount of €8,679.31 having thus been effected.

9.8. A period of 30 days was granted to the Claimants to proceed with the respective payment, by means of payment forms to be requested at the Finance Service of…-….

9.9. The Claimants proceeded to pay the assessed tax.

III. UNPROVEN FACTS

There are no unproven facts relevant to the decision of the case.

IV – ON THE LAW

  1. The following are the issues to be examined in the course of this proceeding:
  • The exception of incompetence of the Arbitral Tribunal
  • The legitimacy of the parties and the admissibility of the joinder of claimants
  • The expiration of the right to assessment
  • The interpretation and application of No. 2 of Article 270 of the IBRC
  • The right to compensatory interest

Let us thus examine these issues successively.

ON THE EXCEPTION OF INCOMPETENCE OF THE ARBITRAL TRIBUNAL

  1. Article 2, No. 1 of the Legal Regime for Arbitration in Tax Matters provides that arbitral tribunals are competent to decide on:

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

b) The declaration of illegality of acts fixing taxable income when giving rise to no assessment of any tax, acts determining collective taxable income and acts fixing patrimonial values.

  1. The Claimants' request is as follows: "We therefore request of Your Excellency to be pleased to grant this petition for constitution of an arbitral tribunal and arbitral pronouncement on the tax acts better identified in the introduction and, consequently, declaring the illegality of the additional IMT assessments under challenge, with all legal consequences, including their annulment, reimbursement of the amounts of tax improperly assessed and paid, accrued with compensatory interest, and costs, pursuant to legal terms."

  2. Even though what is at issue involves the recognition of a tax exemption, the request presented before this Arbitral Tribunal was the declaration of illegality of the additional IMT declarations, which are a consequence of the decision on the existence or not of the tax exemption.

As stated in the Judgment of the Southern Administrative Court of 9 June 2016, Proc. No. 09156/15: "The invocation that what is at issue in the case involves a question relating to the recognition of a tax exemption does not preclude the competence of the arbitral tribunal to resolve the dispute in reference, insofar as the claim in litigation aims at the annulment of the IMT assessment in question, based on its illegality, with the cause of action including the invocation of the existence of tax exemption (IMT exemption), associated with the transfer of immovable property within the framework of an insolvency plan. The law does not restrict the grounds on which the request for annulment of the assessments in question is formulated, with a view to delimiting the material competence of the arbitral tribunal. It follows that the assertion contained in the decision in question of the enforcement of tax exemption that precludes the taxation in question corresponds to the application of the legality parameter, a task which was assigned by law (Article 2, No. 2, of the LRATM) to arbitral tribunals. There is, therefore, no improper pronouncement by the part of the arbitral decision impugned (Article 28, No. 1, item c), of the LRATM)."

Therefore, this Arbitral Tribunal is competent to decide on the illegality of the IMT assessments in question, regardless of the subject matter to which they relate.

  1. The Arbitral Tribunal is thus competent to decide the present dispute.

ON THE LEGITIMACY OF THE PARTIES AND THE ADMISSIBILITY OF THE JOINDER OF CLAIMANTS

  1. In accordance with Article 3, No. 1 of the Legal Regime for Arbitration in Tax Matters, the cumulation of requests even if relating to different acts and the joinder of claimants is admissible when the approval of the requests depends essentially on the assessment of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.

The Claimants are co-owners of the urban property registered in the Property Register of … under article … and of the Fraction … of the rural property registered in the property register of the same parish under article … and acquired ownership of the properties mentioned above within the framework of an insolvency plan.

We are dealing with the same property, the same circumstances of acquisition, and in all cases, it is discussed whether the transfer of the property should be subject to tax exemption, in light of Article 270 of the IBRC, whereby, in light of Article 3, No. 1 of the LRATM, the conditions for the joinder of requests are met.

  1. The Tribunal thus considers the parties legitimate.

ON THE EXPIRATION OF THE RIGHT TO ASSESSMENT

  1. Article 45, No. 1 of the General Tax Law provides that "the right to assess taxes is barred if the assessment is not validly notified to the taxpayer within four years, when the law does not set another period."

In accordance with Article 35 of the Code of the Municipal Tax on Onerous Transfer of Property, "tax may only be assessed in the eight years following the transfer or the date on which the exemption became void, without prejudice to the provision in the following number and, as to the rest, in Article 46 of the General Tax Law."

The Claimants allege that Article 35 of the IMT is not applicable in the concrete case, as it refers to cases in which exemptions or reductions in tax rates become void, pursuant to Article 11, i.e., in situations of expiration of IMT exemptions, as would result from the combined reading of that article with the preceding Article 34.

The Claimants further assert that, if the prerequisites on which the IMT exemption depends were indeed considered not to be met, this would correspond not to a situation of expiration of the exemption, but solely to an error in the prerequisites of fact or law of the initial assessment.

In accordance with the Judgment of the Supreme Administrative Court of 14 September 2011, Proc. No. 0294/11: "The assessment that gave rise to the enforceable debt was not effected in order to correct or rectify a prior assessment vitiated by error of fact or law or by omissions or inaccuracies made in the declarations filed for purposes of assessment. This is so, right away, because, as was well noted by the Judge of the court a quo, the transfer of the property constituting the tax event had not given rise to the assessment of the tax because, given the value and destination declared, it was exempt from it. That act constitutes, rather, a first assessment, effected as a consequence of the expiration of the exemption which had prevented the assessment prior to the transfer, expiration resulting from the value assigned to the property in the context of evaluation. Nor should one seek to invoke in favor of the additional nature of the assessment the provision of Article 31, No. 2 of the IMT Code (As the Representative of the Public Ministry did before the South Administrative Court, to which, by oversight, the Tax and Administrative Court of Loulé sent the case), which provides: 'When it is verified that in assessments error of fact or law has been committed, from which a loss to the State has resulted, as well as in cases where valuation is required, the head of the finance service where the assessment was made or the declaration was filed for purposes of the provision in No. 3 of Article 19, promotes the corresponding additional assessment.' In fact, although an interpretation restricted solely to the letter of the law might suggest the idea that any and all assessment effected as a consequence of valuation would have the nature of an additional assessment, it is manifest that this is not so: the assessment effected as a consequence of valuation will only have such nature if there has previously been an assessment."

In the concrete case, there is no prior assessment, but merely the automatic recognition of an exemption, with the assessment being subsequently issued.

In such terms, the limitation period is not 4 years, as in Article 45, No. 1 of the GTL, but 8 years, in accordance with Article 35, No. 1 of the IMT Code.

  1. Given that the recognition of the tax exemption dates from 2009, it cannot be considered that the right to assessment has expired, whereby the allegation of expiration of the right to effect the assessment in question is unfounded in this respect.

ON THE INTERPRETATION AND APPLICATION OF NO. 2 OF ARTICLE 270 OF THE IBRC

  1. What is at issue in these proceedings is to determine whether No. 2 of Article 270 of the IBRC can be applicable to the situation under analysis. This provision, as worded at the date applicable to the tax events, provided: "Equally exempt from municipal tax on onerous transfers of property are acts of sale, exchange or assignment of the company or of establishments thereof integrated within the framework of an insolvency plan or payments plan or practiced within the framework of the liquidation of the insolvent company's assets."

The case law that has addressed this question, both in the context of the Administrative Courts and in the context of the CAAC, has been unanimous to the effect that this exemption applies not only to sales or exchanges of companies or establishments as a whole assets, but also to sales and exchanges of property (as elements of its assets), provided that they are framed within the scope of an insolvency plan or payments plan, or practiced within the framework of the liquidation of the insolvent company's assets.

This interpretation emerged early in the Judgment of the SAC of 30/5/2012, case 0949/11, where it is stated that "in light of the letter of the law, either of the two interpretations is defensible, though grammatically more correct appears to be that sustained by the Tax Administration, since the verbs 'to sell,' 'to exchange' and 'to assign' are all transitive verbs, hence in the phrase the reference to 'company or establishments thereof' appears as the direct object of all three. This interpretation, however – as well noted in the appealed decision – collides with what the legislator set down in No. 49 of the Preamble of the IBRC regarding tax benefits, where it is stated that: «maintained, in the essential, the regimes existing in the CPEREF as to the exemption of fees and tax benefits», it being certain that item c) of No. 2 of Article 121 of the CPEREF exempted immovable property transfers integrated in any of the company recovery measures flowing, in particular, from the sale, exchange or assignment of elements of the company's assets. And it also collides – as well noted by the Public Ministry at first instance (cf. the opinion of pages 66 to 68 of the case file) – with the meaning and scope of the legislative authorization granted to the Government under which the IBRC was approved, fixed in Articles 2 and following of Law No. 39/2003 of 22 August, for, as to the exemptions from municipal tax on sisa (today IMT), the provision of No. 3 of Article 9 of that legislative authorization law stated: «The Government is, finally, authorized to exempt from municipal tax on sisa the following transfers of immovable property, integrated in any insolvency plan or payments plan or effected within the framework of the liquidation of the insolvent company's assets: c) (…) of the sale, exchange or assignment of the company, establishment or elements of its assets (…)». It can, certainly, be argued that, in the perspective of the IBRC legislator, the differences regarding the scope of IMT exemption relative to that existing in the CPEREF for SISA did not appear as essential, hence why it made no particular reference to them. This is so, particularly in tax matters, because not always do the preambles of legal instruments accurately reflect their content, it not being unprecedented that they include mentions that the legal provisions contradict (cf., as to SISA/IMT, the Judgment of this Supreme Court of 3 November 2010, appeal No. 499/10). And it can, also, be argued that in the implementation of the legislative authorization for approval of the IBRC, on the matter that concerns us, the Executive decided to be more parsimonious than the Assembly of the Republic as to the granting of IMT exemption, deciding to exclude that exemption in cases of sale, exchange or assignment of elements of its assets, granting it only in cases of sale, exchange or assignment of the company or its establishment. If that was so, however, it would not have respected the meaning and scope of the legislative authorization granted to it, having legislated on a matter reserved to the Assembly of the Republic (cf. No. 2 of Article 103 and item i) of No. 1 of Article 165 of the Constitution) in disrespect of the parliamentary credential granted to it. As is known, between two meanings of the law, both with support – at least minimal – in its letter, the interpreter must opt for that which makes it compatible with the constitutional text (interpretation in conformity with the Constitution), to the detriment of the interpretation that vitiates it with unconstitutionality. It is fundamentally for that reason that it is understood that the appealed decision does not merit censure, for, although it is doubtful that the ordinary IBRC legislator intended to grant the IMT exemption provided for in No. 2 of its Article 270 the same scope that the previous SISA exemption provided for in item c) of No. 2 of Article 121 of the CPEREF had, the option of the meaning of its restriction was not permitted to it, for in the matter of tax benefits it legislates in a domain reserved to the Assembly of the Republic, having to respect the limits which this fixed for it, particularly those respecting the meaning and scope of the authorization (cf. No. 2 of Article 165 of the Portuguese Constitution)."

In the sequel to this judgment, the case law of the Supreme Administrative Court has been convergent in the sense that Article 270, No. 2, of the IBRC does not exempt merely sales of companies and establishments, but also sales of elements of its assets, provided that they are effected under an insolvency plan or within the framework of the liquidation of the insolvent company's assets. In this sense, cf. Judgment of the SAC of 11/11/2015, case 0968/13, Judgment of the SAC of 26/12/2015, case 01345/15, Judgment of the SAC of 20/1/2016, case 01350/15.

In the same sense the case law of this CAAC has pronounced in the decisions of 27/10/2015, case 99/2015-T, and of 14/7/2016, case 664/2015-T.

In divergent position we have only in the case law of this CAAC, the decision of 31/10/2015, in case 200/2015-T. But this decision is based on the fact that Article 234 of Law No. 66-B/2012, by extending the application of the IMT exemption to transfers effected in company recovery proceedings, which the previous wording did not contemplate, maintaining the remainder of the provision in question, would have another significant effect regarding the applicability of No. 2 of Article 270 of the IBRC, insofar as after its entry into force it came to remedy the possible organic unconstitutionality, making irrelevant any argument which one might seek to invoke for the case in question arising from that defect.

Regardless of whether or not this position is correct, it is manifest, however, that it cannot be applied to the case of the files, in which the tax events were practiced in 2009, long before the application of the law mentioned therein.

We accordingly adopt the position widely dominant in the sense that the provision in Article 270, No. 2, of the IBRC equally covers the sale of property of the assets of the insolvent company, whereby the request for annulment of the assessments in question is considered justified.

  1. It is therefore decided that the tax acts in question are illegal and that the amount of tax relating to the assessments now annulled should be refunded to the Claimants.

ON THE RIGHT TO COMPENSATORY INTEREST

  1. The Claimants further requested the payment of compensatory interest, under Article 43 of the GTL.

It follows from No. 1 of that article that "when it is determined, in gracious reclamation or judicial impugnation, that there was error imputable to the services from which resulted payment of the tax debt in an amount superior to that legally owed."

We can further understand that, as follows from No. 5 of Article 24 of the LRATM, the right to compensatory interest can be recognized in arbitral proceedings. It will, however, have to be determined whether or not there was error imputable to the services.

As already stated, the Tax Authority had full knowledge of the existing case law in the sense of the interpretation of Article 270, No. 2, IBRC, the only decision supporting the contrary position having been issued under different legislation.

We are, in this case, before action by the Tax Authority that translates into an "error imputable to the services," as stated in Article 43 of the GTL.

Taking into account what is established in Article 61 of the TPC and given the verification of the existence of error imputable to the services of the Tax Administration, from which resulted payment of the tax debt in an amount superior to that legally owed (see Article 43, No. 1 of the GTL), we understand that the Claimants are entitled to compensatory interest at the legal rate, calculated on the amount of €26,037.92, which shall be counted from the date of payment of that amount, until full reimbursement of the same amount.

VI – DECISION

In view of the foregoing, the request for declaration of the illegality of the tax acts assessing the Tax on Onerous Transfer of Property ("IMT"), formalized by the assessment notices issued with the numbers assessments No.…, in the amount of €8,679.31, No.…, in the amount of €4,339.65, No.…, in the amount of €4,339.65, and No.…, in the amount of €8,679.31 is hereby granted.

Consequently, the Tax Administration is ordered to reimburse the amount improperly paid, in the amount of €26,037.92 plus compensatory interest at the legal rate, counted from the date on which that amount was paid by the Defendant, until full reimbursement of the mentioned amount.

VALUE OF THE CASE

The case is assigned a value of €26,037.92 (amount indicated and not contested).

COSTS

Pursuant to Article 22, No. 4, of the LRATM, the amount of costs is set at €1,530 in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings.

Lisbon, 2 December 2016

THE ARBITRATOR

(Luís Menezes Leitão)

Frequently Asked Questions

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What is the IMT tax exemption under Article 270 of the Portuguese Insolvency Code (CIRE)?
Article 270 of the Portuguese Insolvency Code (CIRE) provides IMT exemption for acts of sale, exchange or assignment of property when these transactions are integrated in an insolvency plan, payment plan or recovery plan, or conducted within the liquidation of insolvent company assets. This exemption aims to facilitate corporate recovery and asset realization in insolvency proceedings by eliminating the IMT tax burden that would otherwise apply to onerous property transfers, thereby maximizing creditor recoveries and enabling viable business restructuring.
Can the Portuguese Tax Authority revoke an IMT exemption previously granted for property acquired under an insolvency plan?
The Portuguese Tax Authority can challenge IMT exemptions previously granted under insolvency proceedings, but faces strict temporal limitations. If the revocation results from correcting errors of fact or law causing State revenue loss, it constitutes an 'additional assessment' under Article 31(2) of the IMT Code, which must be issued within four years from the original assessment. However, tax authorities may argue that exemption revocations fall under Article 35's eight-year limitation period. The classification determines whether the reassessment is time-barred, making this distinction crucial in insolvency-related IMT disputes.
How does co-ownership affect IMT liability when purchasing property from insolvency proceedings in Portugal?
In co-ownership situations involving insolvency property acquisitions, each co-owner is jointly and severally liable for IMT proportionate to their ownership share. When multiple purchasers acquire property through insolvency proceedings, each must file a separate IMT Model 1 Declaration. The Article 270 CIRE exemption applies to each co-owner's acquisition individually, provided the transaction meets the statutory prerequisites. If the Tax Authority revokes the exemption, it issues separate additional assessments to each co-owner for their proportionate share of the tax, as demonstrated in this case where four co-owners received individual assessments totaling the full IMT liability.
What is the arbitral tribunal procedure for challenging additional IMT tax assessments in Portugal?
The arbitral tribunal procedure for challenging IMT assessments is governed by the Legal Regime for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Taxpayers file a petition requesting constitution of an arbitral tribunal at the Administrative Arbitration Centre (CAAD). The Ethics Council appoints an arbitrator, who reviews the legality of contested tax acts. This procedure offers an alternative to judicial courts, providing specialized, faster resolution of tax disputes. Prior to arbitration, taxpayers must exercise their right to prior hearing when notified of proposed additional assessments, as required by Article 31(4) of the IMT Code.
What are the requirements for IMT exemption on property transfers integrated in insolvency recovery plans under CIRE?
For IMT exemption under Article 270(2) CIRE on insolvency-related transfers, the property sale must be integrated in a court-approved insolvency plan, payment plan or recovery plan, or conducted within liquidation of insolvent assets. The exemption does not require disposal of all company assets—such interpretation would render the provision inapplicable to payment or recovery plans where companies continue operating. Taxpayers must demonstrate the transfer's integration in formal insolvency proceedings through documentation submitted with IMT declarations. The exemption's scope should be interpreted according to Article 9 of the Civil Code, presuming the legislator intended workable solutions that facilitate insolvency objectives while providing reasonable tax relief.