Process: 23/2017-T

Date: June 20, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 23/2017-T) addresses the critical issue of IMT exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) for property acquired in insolvency proceedings. The claimant company challenged an IMT assessment after purchasing residential property from an insolvent natural person, arguing that CIRE Article 270(2) exempts all property transfers within insolvency plans, regardless of whether they constitute a business transfer. The Tax Authority countered that the exemption applies exclusively to properties forming part of a business or establishment, not personal residential property. The case examines whether the IMT exemption requires transfer of an operational business unit or extends to individual asset sales in insolvency contexts. Key legal issues included: the scope of automatic tax benefits under insolvency law; whether the initial recognition of exemption created vested rights; the applicability of time limits for revoking tax benefits; and procedural requirements for assessment validity including adequate legal reasoning. The tribunal analyzed the interpretation of CIRE Article 270(2), considering uniform case law that restricts the exemption to business assets. Constitutional principles were invoked regarding tax legality, legal certainty, protection of legitimate expectations, and non-retroactivity. The decision has significant implications for insolvency practitioners, real estate investors, and tax advisors regarding IMT planning in insolvency acquisitions and the extent of tax exemptions available under Portuguese insolvency law.

Full Decision

ARBITRAL DECISION

I – REPORT

1. A…, S.A., NIPC…, with registered office at Praça …, n.º…, parish of …, …-… Porto, came, on 05-01-2017, under the terms of the combined provisions of articles 2.º and 10.º of Decree-Law n.º 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to simply as RJAT), submitted a request for the constitution of a singular arbitral tribunal and a request for arbitral pronouncement with a view to the declaration of nullity or the annulment of the IMT assessment described below.

2. The Respondent is the Tax and Customs Authority (hereinafter referred to simply as "Respondent").

3. The request for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD and automatically notified to the Respondent on 20-01-2017.

4. Given that the Claimant did not proceed with the appointment of an arbitrator, under the terms of article 6.º, n.º 2, paragraph a), of the RJAT, the undersigned was appointed as arbitrator by the President of the Ethics Council of the CAAD, and the appointment was accepted within the deadline and under the terms legally provided.

5. On 06-03-2017 both Parties were duly notified of that appointment and did not express any willingness to refuse the appointment of the arbitrator, under the terms of article 11.º, n.º 1, paragraphs a) and b) of the RJAT, combined with articles 6.º and 7.º of the Code of Ethics.

6. In compliance with what is provided for in paragraph c), of n.º 1, of article 11.º of the RJAT, the Arbitral Tribunal was constituted on 21-03-2017.

7. The Claimant alleges, in summary, that:

a. Under an insolvency plan or payment plan or the liquidation of the insolvent estate, the IMT exemption enshrined in n.º 2 of article 270 of the CIRE covers immovable property transferred by sale or exchange, even when such transfer is not integrated in the transfer of a business or establishment", wherefore the assessment act now being challenged should be annulled, with all legal consequences, including the restitution of the amount unduly paid, plus legal interest from the date of payment until its effective return;

b. It was not proven by the AT, in the present case, the existence of the requirements upon which, according to law, depends the exigibility of the tax in question, and it is manifest that no tax fact was constituted, therefore the payment demanded from the Claimant is illegal and inexigible;

c. The assessment act sub judice constitutes the creation of a true tax or special contribution not permitted by law; I request that it be null and void due to lack of jurisdiction and as it results from the creation of a tax or special contribution not permitted by law (article 133º/2/a) and d) of the CPA and articles 103º/2 and 165º/1/i) of the CRP);

d. The challenged act suffers from manifest lack of factual and legal reasoning, or at least this is insufficient, obscure and incongruous, therefore articles 268º/3 of the CRP, articles 124º and 125º of the CPA and article 77º of the LGT were frontally violated;

e. The Tax Administration violated the legitimate expectations and guarantees previously constituted for the Claimant, and the principle of confidence and legal certainty inherent to the principle of the Rule of Law, in addition to having violated the principles of tax legality, prohibition of retroactivity of tax law and certainty and legal security provided for, among others, in articles 12.º of the LGT, 12.º of the CC and 103.º n.º 3 of the CRP;

f. The interpretation of the Tax Administration applied to a tax fact entirely completed under the old law constitutes a violation of the principle of protection of confidence, in the aspect of legal security;

g. There is an error of law on the part of the Tax Authority, since it induced the Claimant into error when it recognized the exemption from IMT to be levied prior to the execution of the public deed;

h. The assessment in question should be annulled due to omission of legal formality, violation of the principles of cooperation and good faith as referred to above (article 59.º of the LGT, and article 99.º/d of the CPPT; see article 7.º of the CPA and n.º 2 of article 266.º of the C.R.P);

i. It is added that the revocation of the exemption could only be carried out within the period of 1 year after it was granted, being an act constitutive of rights, by the combined application of the provisions of articles 141º, n.º 1, of the CPA and 58.º of the CPTA;

j. Thus, the revocation of such an administrative act was carried out beyond the one-year period in which it was legally possible, under the terms of articles 136.º and 141.º of the CPA applicable ex vi article 2.º, paragraph c), of the LGT and article 2.º, paragraph d), of the CPPT.

8. The Respondent submitted a Response, in which it defends itself by challenge, alleging, in the sense of the dismissal of the request for arbitral pronouncement, in summary, the following:

a. In the context of the interpretation of the previous wording of n.º 2 of article 270.º of the CIRE, case law understanding has been uniform in the sense that there must be immovable property that forms part of the assets of a business and not immovable property of natural persons, with the only justification of being part of an insolvency process;

b. The challenged assessment is legal and in accordance with the Constitution, and the multiple constitutional principles that the Claimant merely invoked in the learned Arbitration Petition are not violated, without, however, having succeeded in demonstrating any unconstitutionality;

c. In the case at hand, we are facing the acquisition of an immovable property, although in an insolvency process, but which does not belong to a business nor was intended for the exercise of any business activity, but which was owned by a natural person for residential purposes, wherefore the legal requirements for the exemption from IMT are not met due to its transfer having been made in an insolvency process of a natural person;

d. Since the legal requirements are not met for the Claimant to be able to benefit from the IMT exemption, under the terms of n.º 2 of article 270º of the CIRE, the tax administration could not fail to levy the due tax, provided that the statute of limitations is respected, which, under the terms of article 35.º of the CIMT, combined with article 45.º, n.º 1, in fine, of the LGT, is eight years from the transfer or from the date on which the exemption ceased to have effect;

e. Contrary to what is alleged by the Claimant, there was no act constitutive of rights, because the benefit in question is an automatic benefit, under the terms of article 5º of the EBF;

f. The recognition of benefits is subject to control, and after such control is that the verification of the requirements of the exemption is assessed, wherefore, strictly speaking, there was no constitution of a right to the fiscal benefit;

g. Thus, the levy of tax controlled in the case sub judice cannot be considered a revocation of the exemption.

9. By order of 28-04-2017, the Tribunal decided to dispense with the holding of the meeting provided for in article 18.º of the RJAT, as well as to dispense with the production of written allegations, unless one of the Parties objected to this, substantively, which did not occur.

II – PROCEDURAL RULING

10. No exceptions were raised.

11. The Parties possess legal personality and capacity, are legitimate with respect to the request for arbitral pronouncement and are duly represented, under the terms of articles 4.º and 10.º of the RJAT and article 1.º of Ordinance n.º 112-A/2011, of 22 March.

12. No nullities are verified, wherefore it is necessary to examine the merits.

III. MERITS

III. 1. FACTUAL MATTERS

§1. Established Facts

13. The Tribunal considers the following facts to be established:

a) On 18 October 2013, the Claimant acquired the autonomous fraction designated by the letter "I" of the urban property in a regime of horizontal property, located at…, …, Rua …, n.º…, parish of Union of Parishes of … and … and Municipality of ..., described in the Second Land Registry Office of ... under the number … and registered in the matrix of the said parish under the article…, in the context of the insolvency process of B…, which took place in the … Court of the …, under the n.º…/12… TJ…;

b) The property in question was seized and apprehended for the insolvent estate and the Claimant purchased it for the price of € 103,000.00;

c) Prior to the said acquisition, the Claimant presented before the competent Finance Service the declaration for assessment of the Municipal Tax on Onerous Transfers of Immovable Property (IMT) and Stamp Duty (IS), having at that time benefited from the exemption from IMT, under the terms of n.º 2 of article 270.º of the CIRE;

d) By means of Letter n.º …/…, dated 10-09-2015, the Claimant was notified, in order to be able to exercise the right of prior hearing, that, following an inspection action, carried out by the AT under article 7.º of the Tax Benefits Statute, it is concluded that it could not benefit from the exemptions from IMT and Stamp Duty provided for, respectively, in n.º 2 of article 270.º of the CIRE and in paragraph e) of article 269.º of the CIRE, on the grounds that the acquisition of the property in question was made in the context of the liquidation process of a natural person, and not of a business;

e) The Claimant was notified by Letter n.º …/…, dated 04-02-2016, sent by the Finance Service of ... -…, of the IMT assessment n.º…, in the amount of € 1,135.93, relating to the acquisition of the autonomous fraction described above;

f) On 15-04-2016 the Claimant proceeded with the payment of the said tax, in the amount of € 1,135.93;

g) On 15-07-2016, the Claimant submitted a gracious appeal of the assessment mentioned above, requesting its annulment;

h) By means of Letter n.º…, dated 20-10-2016, from the Finance Directorate of ... –…, the Claimant was notified to exercise, if he so wishes, the right of prior hearing with respect to the draft decision concerning the Gracious Appeal submitted by him, identified by n.º …2016… – IMT, and which was in the sense of its respective dismissal;

i) By means of Letter n.º…, dated 24-11-2016, from the Finance Directorate of ... –…, the Claimant was notified of the order dismissing the gracious appeal submitted by him, which was issued by the Head of the Finance Directorate Division, under delegation of powers;

j) Not conforming to the decision dismissing the gracious appeal, the now Claimant submitted the present request for constitution of an arbitral tribunal and respective request for arbitral pronouncement.

§2. Unestablished Facts

14. With relevance to the decision, there are no essential unestablished facts.

§3. Reasoning Regarding Factual Matters

15. With regard to the established factual matters, the conviction of the Tribunal was based on the free appreciation of the positions assumed by the Parties regarding facts, in the Administrative Proceedings and on the content of the documents attached to the record, not contested by the Parties.

III.2. MATTERS OF LAW

§1. Question to be Decided

16. In the present proceeding, at issue is the interpretation and application of the provision contained in article 270.º, n.º 2, of the CIRE (Code of Insolvency and Business Recovery, approved by Decree-Law nº 53/2004 and successive amendments), and it is important to know whether the IMT exemption provided for there applies in cases of acquisition of immovable property within the scope of a liquidation process of the insolvent estate of a natural person.

§2. Application of Law to the Case Sub Judice

17. Article 270.º, n.º 2, of the CIRE provides as follows:

"Equally exempt from municipal tax on onerous transfers of immovable property are the acts of sale, exchange or assignment of a business or of establishments thereof integrated within the scope of an insolvency or payment plan or carried out within the scope of the liquidation of the insolvent estate".

18. The literal meaning of article 270.º, n.º 2 of the CIRE determines that only acquirers of immovable property of a business or of establishments thereof integrated within the scope of an insolvency or payment plan or carried out within the scope of the liquidation of the insolvent estate can benefit from the IMT exemption provided for there.

19. In other words, the IMT exemption provided for in article 270.º, n.º 2 of the CIRE presupposes that the transfers occur within the scope of an insolvency process and concern immovable property of the business or of establishments thereof.

20. As is stated in the Decision of the Supreme Administrative Court of 03-07-2013, issued in the context of Case n.º 0765/13, "there must be immovable property that forms part of the assets of a business and not immovable property of natural persons, with the only justification of being part of an insolvency process", wherefore, as is mentioned in the summary of the same decision, "the said exemption does not cover the sale of urban property intended for housing, which belongs to a natural person, it being insufficient to benefit from that exemption the fact that there are acts of sale carried out within the scope of the liquidation of the insolvent estate, regardless of whether it belongs to a natural person or legal entity (business entity)".

21. In the same sense has been pronounced the case law of the CAAD, namely in the decisions issued in the context of cases n.ºs 649/2015, 558/2015, 136/2016, 106/2016, 368/2016, 512/2016, 514/2016 and 518/2016.

22. The interpretation defended by the Claimant does not have, therefore, the least support in the literal meaning of n.º 2 of article 270.º of the CIRE.

23. Also, no violation of the constitutional principles invoked by the Claimant is identified.

24. Indeed, there is no "creation of a tax or special contribution not permitted by law", nor is any insufficiency of reasoning identified in the act performed by the AT.

25. Neither is it clear in what way the principles of protection of confidence and legal security could have been violated, as there is no retroactive application of a tax rule, nor any breach of the duty of the principles of cooperation and good faith.

26. In fact, the AT limited itself to interpreting and applying the rule contained in n.º 2 of article 270.º of the CIRE, and it did so correctly, without having incurred in any error.

27. The argument invoked by the Claimant also does not stand, according to which the AT performed a revocatory act of the exemption that it had previously granted, which could only happen within the period of 1 year after the granting of the tax benefit in question.

28. It turns out that, as the Respondent rightly points out, there was no act constitutive of rights, because the benefit provided for in n.º 2 of article 270.º of the CIRE is an automatic benefit, under the terms defined in article 5.º of the EBF.

29. As results from the provision of article 7.º of the EBF, all persons, natural or legal, to whom fiscal benefits are granted, automatic or dependent on recognition, are subject to inspection by the AT and the other competent entities, for control of the verification of the requirements of the respective fiscal benefits and the compliance with the obligations imposed on the holders of the right to the benefits.

30. It was in the following of that inspection that the AT concluded that the requirements were not met for the Claimant to benefit from the exemption provided for in n.º 2 of article 270.º of the CIRE, subjecting the acquisition of the property in question to taxation under IMT, in accordance with the general rules applicable.

31. The AT, in compliance with tax law, could not fail to levy the due tax, provided that it respected, as it did respect, the statute of limitations, which, under the terms of article 35.º of the CIMT, combined with article 45.º, n.º 1, in fine, of the LGT, is eight years from the transfer or from the date on which the exemption ceased to have effect.

V – DECISION

For these reasons, and with the grounds set out, this Arbitral Tribunal decides to declare the request for arbitral pronouncement wholly unmerited and to acquit the Respondent of the claim, with all legal consequences.

VI - VALUE OF THE PROCEEDING

In accordance with the provision of article 306.º, n.º 2, of the CPC and 97.º-A, n.º 1, paragraph a), of the CPPT and 3.º, n.º 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 1,135.93.

VII – COSTS

Under the terms of article 22.º, n.º 4, of the RJAT, the amount of costs is fixed at € 306.00, under the terms of Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Claimant.

Lisbon, 20/06/2017

The Arbitrator

(Paulo Nogueira da Costa)

Frequently Asked Questions

Automatically Created

Is IMT (Municipal Property Transfer Tax) exempt for property sales carried out under an insolvency plan according to Article 270(2) of CIRE?
Under Article 270(2) of CIRE, IMT exemption for property sales in insolvency proceedings is not automatic for all assets. Portuguese case law and the Tax Authority consistently interpret this provision as requiring the transferred property to form part of a business or establishment (estabelecimento). When residential property owned by a natural person for personal use is sold in insolvency, the exemption does not apply because the asset was not integrated into business operations. The exemption aims to facilitate business restructuring and continuity, not to provide blanket relief for all insolvency asset sales.
Does the IMT exemption in CIRE Article 270(2) apply only when a business or establishment is transferred as a whole, or also to individual property sales?
The IMT exemption in CIRE Article 270(2) applies specifically when a business or establishment is transferred as a functional economic unit, not to isolated individual property sales. The distinction is fundamental: the exemption protects business continuity and encourages acquisition of operating businesses in insolvency, but does not extend to personal assets of insolvent individuals even when sold through insolvency procedures. Properties must be demonstrably part of business assets used for commercial activity to qualify. Residential property owned by natural persons falls outside this scope regardless of the insolvency context.
What are the grounds for annulling an IMT assessment issued by the Portuguese Tax Authority (AT) in the context of insolvency proceedings?
Grounds for annulling an IMT assessment in insolvency proceedings include: (1) lack of legal basis when statutory exemption requirements are met; (2) insufficient or absent legal reasoning violating Article 77 LGT and Article 268(3) CRP; (3) lack of jurisdiction or ultra vires tax creation; (4) violation of legitimate expectations and legal certainty principles when Tax Authority initially recognized exemption; (5) procedural irregularities including omission of legal formalities; (6) unlawful revocation of exemption beyond the one-year time limit under Articles 141 CPA and 58 CPTA; (7) errors inducing taxpayer reliance; and (8) violation of cooperation and good faith principles under Article 59 LGT.
Can a taxpayer challenge an IMT assessment before the CAAD tax arbitration tribunal for lack of legal basis and insufficient reasoning?
Yes, taxpayers can challenge IMT assessments before CAAD (Administrative Arbitration Centre) under the RJAT (Legal Framework for Tax Arbitration). Challenges may be based on lack of legal basis, insufficient factual or legal reasoning, constitutional violations, procedural irregularities, or errors of law. The arbitration request must articulate specific grounds such as nullity under Article 133(2) CPA or unconstitutionality. CAAD has jurisdiction to review both substantive tax law application and procedural compliance, including whether exemption requirements under CIRE were properly assessed and whether the Tax Authority provided adequate reasoning for its determination.
What legal consequences follow from the annulment of an unlawful IMT assessment, including refund and interest obligations?
When an IMT assessment is annulled as unlawful, the taxpayer is entitled to: (1) full restitution of amounts unduly paid; (2) compensatory interest (juros indemnizatórios) calculated from the payment date until effective refund, pursuant to Article 43 LGT; (3) elimination of the assessment from tax records; and (4) prohibition against the Tax Authority issuing a new assessment for the same facts unless new elements justify it within applicable limitation periods. The refund obligation is automatic upon annulment. Interest accrues to compensate for the taxpayer's loss of use of funds, reflecting the principle that the State must remedy damages from unlawful administrative acts.