Process: 27/2017-T

Date: May 21, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Case 27/2017-T addressed whether the Portuguese Tax Authority (AT) could lawfully revoke an IMT (Municipal Property Transfer Tax) exemption previously granted under Article 270(2) of the Insolvency Code (CIRE). The claimant, A... S.A., acquired property in 2013 from two insolvent natural persons through insolvency liquidation proceedings and initially benefited from IMT exemption. The AT subsequently revoked this exemption and assessed €6,298.50 in IMT, arguing that Article 270(2) CIRE only exempts property transfers integrated into the sale of an enterprise or establishment in insolvency, not transfers from insolvent natural persons. The claimant contended that the exemption should apply to all property transfers in insolvency contexts (liquidation, plans, or payments), regardless of whether the property forms part of an enterprise transfer. The claimant further argued that the AT's restrictive interpretation violated constitutional principles (Article 165(2) CRP), legitimate expectations, legal certainty, and good faith. Additionally, the claimant asserted that any revocation should have occurred within one year of granting the exemption. The AT countered that the legal requirements for exemption were not satisfied since the insolvents were natural persons, not enterprises, and that no constitutive rights had been created since IMT exemptions under CIRE are automatic benefits. The AT maintained it acted within the eight-year assessment prescription period and violated no principles of legal certainty or non-retroactivity. This arbitration highlights the critical distinction in Portuguese tax law between insolvency proceedings involving enterprises versus natural persons for IMT exemption purposes.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A..., S.A., taxpayer no. ..., with registered office at Praça ..., no. ..., in Porto (hereinafter referred to as "Claimant"), submitted on 05/01/2017 a petition for arbitral pronouncement with a view to annulling the assessment act for Municipal Tax on Onerous Transfers of Real Property (IMT), in the amount of € 6,298.50 (six thousand two hundred and ninety-eight euros and fifty cents).

1.2. His Excellency the President of the Ethics Council of the Administrative Arbitration Centre (CAAD) designated, on 27/02/2017, as sole arbitrator the undersigned of this decision.

1.3. On 21/03/2017 the arbitral tribunal was constituted.

1.4. In compliance with the provisions of Article 17, paragraph 1, of the Legal Framework for Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified, on 21/03/2017, to, if it so wished, submit a response and request the production of additional evidence.

1.5. On 05/05/2017 the AT submitted its response, requesting the exemption from holding the meeting described in Article 18 of the RJAT.

1.6. Since this is a matter exclusively of law, the arbitral tribunal on 08/05/2017 decided to exempt the holding of the meeting to which paragraph 1 of Article 18 of the RJAT refers, based on the principle of the arbitral tribunal's autonomy in conducting proceedings, inviting both parties to, if they so wished, submit optional written submissions and scheduled the date for the pronouncement of the final decision.

1.7. On 10/05/2017 the Claimant submitted a submission regarding the arguments, reproducing the previously alleged in the petition for arbitral pronouncement.

1.8. On 18/05/2017 the AT submitted arguments reproducing the entire content of its response duly submitted, demonstrating the absence of any illegality in the IMT assessment act.

2. ADMISSIBILITY

The arbitral tribunal was regularly constituted and is materially competent.

The parties have legal personality and capacity and are legitimate, with no defects of legal representation.

There are no nullities, exceptions or preliminary matters that would prevent examination of the merits and knowledge of which should be taken ex officio.

Consequently, the conditions for pronouncing the final decision are met.

3. POSITIONS OF THE PARTIES

There are two positions in conflict: that of the Claimant, set forth in the petition for arbitral pronouncement, and that of the AT in its response.

In summary, the Claimant alleges that:

a) The assessment in question results from the allegedly improper application to the Claimant of the IMT exemption benefit, provided for in Article 270, paragraph 2, of the Insolvency and Business Recovery Code (CIRE).

b) According to the Claimant, if the legislator's objective was to exempt from IMT only transfers of real property affected to enterprises or establishments sold or ceded, it would have been sufficient to state that only the transfer of real property when included in the sale, exchange or cession of the enterprise or establishment would benefit from the aforementioned exemption.

c) Furthermore, invoking jurisprudence of the Supreme Administrative Court (STA), the interpretation of Article 270, paragraph 2, of the CIRE in the sense that only transfers of real property included in the transfer of the enterprise or its establishment are exempt from IMT, is not an interpretation in accordance with the Constitution of the Portuguese Republic (CRP).

d) By deciding on the IMT assessment, the action of the AT suffers from a defect of violation of law, since the assessment is based on a norm that, when interpreted in a way to justify the assessment now impugned, becomes itself unconstitutional by violation of Article 165, paragraph 2, of the CRP.

e) The Claimant thus concludes that, in the context of an insolvency plan, of payments or of the liquidation of the insolvent estate, the IMT exemption enshrined in Article 270, paragraph 2, of the CIRE covers real property transferred by sale or exchange, even if such transfer does not appear integrated in the transfer of the enterprise or establishment.

f) However, in accordance with the principle of legality and typicality, the AT must proceed to assessment only in the event that all legally prescribed typical elements are verified.

g) The Claimant further adds that the AT violated its legitimate expectations and previously constituted guarantees and, as well, the principle of confidence and legal certainty, in addition to having violated the principles of tax legality, prohibition of retroactivity of fiscal law and good faith.

h) The Claimant further argues that the revocation of the exemption granted could only be effected within the period of 1 year after its granting, so that, having the AT revoked the granting after the elapse of one year, this revocation act is illegal.

Conversely, the AT maintains that:

a) The acquisition of the real property was effected in the context of the liquidation of a certain insolvent estate, but in which the insolvent is a natural person.

b) Nevertheless, the application of the IMT exemption enshrined in Article 270, paragraph 2, of the CIRE depends on the transferred real property being integrated into the universality of the enterprise or establishment sold, in the context of an insolvency plan.

c) The legally prescribed requirements for the IMT exemption are therefore not met by reason of the transfer having been effected in an insolvency proceeding of a natural person.

d) Furthermore, and having in mind that the legislative thought to be considered by the interpreter must have a minimum of verbal correspondence in the letter of the law and, as well, the assumption that the legislator knew how to express itself in adequate terms, it is not apparent from the letter of the norm, nor from the spirit of the legislator, that the IMT exemption can encompass acquisitions of property in the context of insolvency proceedings of natural persons.

e) The AT thus concludes that an interpretation in the sense of recognizing the IMT exemption in acquisitions effected from insolvent natural persons in the same way as in insolvency proceedings of enterprises has no legal and constitutional support.

f) Furthermore, the AT maintains that, not verifying the legal requirements for the Claimant to be able to benefit from the IMT exemption, the AT could not fail to assess the tax, provided that the prescription period for IMT assessment was observed, that is, that it occurred within the period of 8 years.

g) Furthermore, contrary to what is invoked by the Claimant, there was no act constitutive of rights, in the measure that the benefit in question is an automatic benefit according to Article 5 of the Tax Benefits Statute (EBF).

h) Thus, the tax act in question is not violative of the principles of legal certainty and confidence and good faith, it being manifest that no violation of the principle of prohibition of retroactivity of fiscal law occurred.

4. MATTERS OF FACT

4.1. FACTS CONSIDERED PROVEN

In light of the documents brought into the proceedings, the following is established as proven:

4.1.1. On 01/11/2013, the Claimant acquired the autonomous fraction designated by the letter "C" of urban real property in the regime of horizontal property, situated at ..., ..., lot ..., parish of ... (...) and Municipality of Guarda, registered in the urban property matrix of the aforementioned parish under the property article no. ..., in the context of the insolvency proceedings of B... and C..., which were conducted in the ... Civil Court of the Judicial Court of Viseu, under no. .../11... TBVIS.

4.1.2. The insolvents B... and C..., from whom the Claimant acquired the real property, are natural persons.

4.1.3. On 25/10/2013, the Claimant presented before the competent Tax Service the declaration for assessment of the Municipal Tax on Onerous Transfers of Real Property (IMT) – document no. ..., having been issued a certification in which it is certified that the transfer in question was exempt from IMT, under the provisions of Article 270, paragraph 2, of the CIRE.

4.1.4. On 10/02/2016, the Claimant was notified, by Official Dispatch no. .../..., of 05/02/2016, sent by the Tax Service of ..., to proceed with payment of the assessment relating to IMT, in the amount of € 6,298.50 (six thousand two hundred and ninety-eight euros and fifty cents).

4.1.5. The IMT assessment now impugned was paid in full and within the deadline by the Claimant, on 15/04/2016.

4.1.6. On 18/07/2016, the Claimant submitted a gracious complaint requesting the annulment of the assessment in question.

4.1.7. On 24/10/2016, the Claimant was notified, by Official Dispatch no. ..., of 20/10/2016, sent by the Finance Directorate of ..., if it wished to exercise the right to prior hearing and to take notice of the draft decision and its grounds concluding for the dismissal of the gracious complaint presented.

4.1.8. On 29/11/2016, the Claimant was notified, by Official Dispatch no. ..., of 25/11/2016, sent by the Finance Directorate of ..., of the decision to dismiss the gracious complaint presented.

4.1.9. On 05/01/2017, the Claimant submitted the petition for arbitral pronouncement that gave rise to the proceeding identified above.

4.2. FACTS NOT CONSIDERED PROVEN

There are no facts relevant to the decision that have not been established as proven.

5. THE LAW

On the interpretation of Article 270, paragraph 2, of the CIRE

Considering the arguments set forth by the parties, it is important to analyze the provisions of Article 270, paragraph 2, of the CIRE and determine whether the acquisition of the real property effected in the context of the liquidation of the insolvent estate of B... and C... is, or is not, covered by the IMT exemption.

To this end, the current wording of Article 270, paragraph 2, of the CIRE provides as follows:

"The acts of sale, exchange or cession of the enterprise or of its establishments integrated within the scope of insolvency plans, of payment plans or of recovery or practiced within the scope of the liquidation of the insolvent estate are equally exempt from the municipal tax on onerous transfers of real property." [1]

Whereas the previous wording of Article 270, paragraph 2, of the CIRE established as follows:

"The acts of sale, exchange or cession of the enterprise or of its establishments integrated within the scope of insolvency plans or of payment plans or practiced within the scope of the liquidation of the insolvent estate are equally exempt from the municipal tax on onerous transfers of real property".

As can be observed, the amendment introduced by the State Budget Act for 2013 merely extended the application of the IMT exemption to transfers effected in the acts of business recovery, which the previous wording did not contemplate, maintaining the remaining content of the provision in question.

To this extent, considering the literal content of Article 270, paragraph 2, of the CIRE, it follows that all acts integrated within the scope of insolvency plans, or of payment plans, or of liquidation of the insolvent estate are exempt from IMT, with the reservation that the insolvent is an enterprise or establishment.

Consequently, the literal meaning of the norm in question grants IMT exemption to acts of sale, exchange or cession of the enterprise or of its establishments, and it cannot be understood here to include sales of assets of natural persons, not entrepreneurs or owners of enterprises, since this is not provided for in the norm under analysis.

Furthermore, the rational element of legal interpretation must consider that every norm was created with a specific purpose and that, consequently, it should be understood in the sense that best responds to the result that was intended to be achieved.

In this sense, it may be said that the exemption created by Article 270, paragraph 2, of the CIRE appears to have had as its purpose to facilitate the performance of the operations described therein, eliminating the impact of the fiscal charges normally associated.

Therefore, the ratio of the norm could, in principle, encompass acts of sale that originated from insolvency of natural persons, not entrepreneurs or owners of enterprises, in the measure that, being the objective of the norm to facilitate the performance of those operations in situations of insolvency or recovery, no impediment to such legal provision regarding natural persons is evident.

Notwithstanding the foregoing, the norm under analysis establishes clearly and unequivocally that the IMT exemption applies to the "(…) sale, exchange or cession of the enterprise or of its establishments (…)" and does not provide that the IMT exemption applies to the sale, exchange or cession of assets held by natural persons.

Now, where the law does not distinguish, it is not incumbent upon the interpreter to distinguish.

Whence, the IMT exemption provided for in Article 270, paragraph 2, of the CIRE applies only with respect to real property that integrates the patrimony of an enterprise and not to real property of natural persons.

This interpretation has been supported by uniform jurisprudence, in the sense of considering that these must be real property that integrates the patrimony of an enterprise and not real property of natural persons, with the sole justification of being part of an insolvency proceeding.

In this regard, see, by way of example, the Decision of the Supreme Administrative Court (STA), pronounced within the scope of Case no. 765/13, of 03/07/2013 [2], where it is concluded that "(…) the aforementioned exemption does not encompass the sale of urban real property intended for housing, which belongs to a natural person, it not being sufficient to benefit from that exemption the fact of being acts of sale practiced within the scope of the liquidation of the insolvent estate, regardless of whether such estate belongs to a natural or legal person (business entity)."

In conclusion, considering that, in the case at hand, the Claimant acquired, by adjudication, in the context of the insolvency proceeding already identified, a real property belonging to two natural persons and not an enterprise, the situation is not subsumed under the provision of Article 270, paragraph 2, of the CIRE, which refers exclusively to acts of "sale," "exchange" or "cession" of enterprises or their establishments.

Similarly, the alleged violation of the various constitutional principles that the Claimant merely invoked in Articles 53 and 61 of the petition for arbitral pronouncement does not stand, inasmuch as it did not succeed in demonstrating any unconstitutionality or any violation of principles of law.

On the revocation of the IMT exemption granted under Article 270, paragraph 2, of the CIRE

In accordance with the provisions of Article 5, paragraph 1, of the Tax Benefits Statute (EBF), these are automatic or dependent on recognition, with the former resulting directly and immediately from the law and the latter presupposing one or more subsequent acts of recognition.

As to tax benefits dependent on recognition, Article 5, paragraph 2, of the EBF provides that recognition may take place by administrative act or by agreement between the AT and the interested parties.

As is unanimously accepted by jurisprudence and doctrine, the IMT exemption provided for in Article 270, paragraph 2, of the CIRE constitutes an automatic tax benefit, not requiring, therefore, any act of recognition.

In turn, Article 14, paragraph 4, of the EBF provides:

"The administrative act granting a tax benefit is not revocable, nor can the respective agreement of granting be rescinded, or the rights acquired be diminished, by unilateral act of the tax administration, unless there is non-compliance attributable to the beneficiary of the imposed obligations, or if the benefit has been improperly granted, in which case that act may be revoked."

In the case at hand, although we are dealing with an automatic tax benefit, not dependent, therefore, on any administrative act, it cannot be overlooked that its granting constitutes an act constitutive of the beneficiary's rights, in the case in question, of the Claimant.

And, as an act constitutive of rights, it can only be revoked by the AT by unilateral act in the situations expressly provided for in the cited Article 14, paragraph 4, of the EBF, namely: (i) if there is non-compliance attributable to the beneficiary of the imposed obligations or (ii) if the benefit has been improperly granted.

As we have seen, in the case at hand, the tax benefit of IMT exemption was improperly granted, since the onerous transfer of a real property forming part of the insolvent estate of a natural person does not benefit from the exemption provided for in Article 270, paragraph 2, of the CIRE.

Wherefore, the AT could revoke the exemption granted within the legally prescribed period, although such revocation would represent the diminution of the Claimant's acquired rights.

Now, as expounded by António Lima Guerreiro, "administrative acts in tax matters that are constitutive of rights can therefore only be revoked on the ground of invalidity, in accordance with the terms and periods of Article 141 of the CPA". [3]

Furthermore, under the new Administrative Procedure Code (CPA) [4], the revocation of administrative acts is only possible for reasons of merit or convenience, with invalid acts being subject to the regime of administrative annulment.

Having the AT advanced no ground for the revocation of the IMT exemption granting act for reasons of merit or convenience, this could only be annulled on the basis of its invalidity, due to failure to verify the factual and legal requirements for the granting of the exemption to the Claimant.

It happens, however, that, as expressly stated in Article 168, paragraph 2, of the CPA, the act constitutive of rights can only be the object of administrative annulment within the period of 1 year.

Since the IMT exemption granted to the Claimant is an act constitutive of rights, the same could only be annulled by the AT within the period of one year after its performance.

Thus,

Having the IMT exemption been granted on 25/10/2013, its respective annulment could only occur up to 25/10/2014. Therefore, on the date of annulment of the act in question – 10/02/2016 – the period of 1 year for annulment of the IMT exemption granting act had long since elapsed.

In fact, the 8-year period referred to by the AT is the period of expiration of the right to assess, which does not coincide with the period for annulment of the IMT exemption granting act.

Having the IMT exemption granting act been performed outside the one-year period legally prescribed therefor, the same is illegal, by violation of the provisions of Article 168, paragraph 2, of the CPA, and its annulment is therefore necessary.

In support of this understanding, consider the Decision of the Supreme Administrative Court (STA), of 15/05/2013, where the following conclusion was reached:

"I – In determining the legal consequences of invalidity of an administrative act in tax matters of granting of a tax benefit, in the context of the legal possibility of its revocation, the rules of the CPA must be applied in accordance with what Article 2 of the CPPT provides.

II – The act of revocation of a tax benefit of exemption from a tax, which produces ex tunc effects and occurs more than one year after the act granting the exemption, is illegal by violation of the provisions of Article 141 of the CPA." [5]

On the payment of compensatory interest

The Claimant further petitions for the condemnation of the AT to pay compensatory interest, in accordance with the provisions of Article 43 of the General Tax Law (LGT), according to which:

"Compensatory interest is due when it is determined, in a gracious complaint or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than legally due."

In the case at hand, it is verified that, due to error attributable to the services, the Claimant was forced to pay a tax in an amount greater than due.

Thus, compensatory interest is due, to be paid by the AT to the Claimant, calculated on the amount of the assessed tax – € 6,298.50 – at the legal rates from 15/04/2016 until complete and full reimbursement by the AT.

6. DECISION

With the grounds set forth, the arbitral tribunal decides:

a) To declare well-founded the petition for annulment of the assessment act for Municipal Tax on Onerous Transfers of Real Property (IMT);

b) To condemn the AT to reimburse the Claimant the amount of € 1,047.93 (one thousand forty-seven euros and ninety-three cents);

c) To condemn the AT to pay the Claimant compensatory interest, calculated on the amount of € 6,298.50 (six thousand two hundred and ninety-eight euros and fifty cents), at the legal rates from 15/04/2016 until complete and full reimbursement by the AT.

d) To condemn the AT to pay the costs of the present proceeding, as the losing party.

7. VALUE OF THE PROCEEDING

The value of the proceeding is fixed at € 6,298.50 (six thousand two hundred and ninety-eight euros and fifty cents), in accordance with Article 97-A of the Code of Administrative and Tax Procedure (CPPT), applicable by virtue of subsections a) and b) of paragraph 1 of Article 29 of the RJAT and of paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne by the AT, in the amount of € 612 (six hundred and twelve euros), in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, in accordance with paragraph 2 of Article 22 of the RJAT.

Notify.

Lisbon, 21 May 2017

The arbitrator,

(Hélder Filipe Faustino)

Document prepared by computer, in accordance with the provisions of paragraph 5 of Article 131 of the Code of Civil Procedure (CPC), applicable by reference of subsection e) of paragraph 1 of Article 29 of the RJAT. The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Wording introduced by Article 234 of Law no. 66-B/2012, of 31 December (State Budget for 2013).

[2] Available at www.dgsi.pt.

[3] "General Tax Law Annotated", Rei dos Livros Publisher, page 343.

[4] Approved by Decree-Law no. 4/2015, of 7 January.

[5] Decision cited in "General Tax Law Commented and Annotated", José Maria Fernandes Pires (Coordinator), Gonçalo Bulcão, José Ramos Vidal, Maria João Menezes, Almedina, 2015, p. 858.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides an exemption from IMT (Municipal Property Transfer Tax) for property transfers occurring in the context of insolvency proceedings. The key interpretative dispute concerns whether this exemption applies only to properties integrated into the sale or transfer of an enterprise or establishment during insolvency, or whether it extends to all property transfers in insolvency contexts, including liquidations involving natural persons. The Tax Authority interprets this provision narrowly, requiring that the transferred property be part of a business universality, while taxpayers may argue for broader application to any insolvency-related property transfer.
Can the Portuguese Tax Authority revoke an IMT exemption previously granted in insolvency proceedings?
Yes, the Portuguese Tax Authority can revoke an IMT exemption previously granted in insolvency proceedings if it determines that the legal requirements for the exemption were not met. In Case 27/2017-T, the AT revoked an exemption granted under Article 270(2) CIRE after determining that the acquisition did not qualify because the insolvents were natural persons rather than enterprises. The AT argued that since the exemption is an automatic benefit under Article 5 of the Tax Benefits Statute (EBF), no constitutive act creating definitive rights occurred, allowing reassessment within the eight-year prescription period. Taxpayers may challenge such revocations on grounds including legitimate expectations, legal certainty, good faith, and timing limitations.
What conditions must be met to qualify for IMT exemption on property transfers in insolvency under CIRE?
To qualify for IMT exemption under Article 270(2) CIRE on property transfers in insolvency, the key disputed condition is whether the property must be integrated into the transfer of an enterprise or establishment. The Tax Authority's interpretation requires: (1) the insolvency proceeding must involve a business entity or enterprise, not merely a natural person; (2) the property transfer must occur as part of selling or transferring the enterprise or establishment as a universality; and (3) the transfer must occur within an insolvency plan framework. However, taxpayers may argue that the exemption should apply more broadly to any property transfer in insolvency contexts (liquidation, payment plans, or insolvency plans) regardless of whether the insolvent is a natural person or enterprise.
How does CAAD arbitration work for disputes over IMT tax assessments in Portugal?
CAAD (Administrative Arbitration Centre) arbitration for IMT disputes follows the Legal Framework for Tax Arbitration (RJAT). The process begins with a taxpayer petition requesting annulment of a tax assessment. The CAAD President designates an arbitrator (or panel), and the arbitral tribunal is constituted. The Tax Authority is notified and may submit a response and request evidence (Article 17 RJAT). For legal matters, the tribunal may exempt the hearing under Article 18 RJAT. Parties may submit written arguments. The tribunal examines admissibility, legal personality, legitimacy, and any nullities before deciding on the merits. In Case 27/2017-T, the process spanned from petition filing (January 2017) to tribunal constitution (March 2017), with both parties submitting arguments and the tribunal scheduling a final decision by May 2017.
What was the outcome of CAAD Case 27/2017-T regarding the revocation of the IMT insolvency exemption?
The complete outcome of CAAD Case 27/2017-T is not provided in the available text excerpt, which ends before the tribunal's final decision and reasoning. The case involved a dispute over whether the Portuguese Tax Authority could lawfully revoke an IMT exemption of €6,298.50 granted under Article 270(2) CIRE for property acquired from insolvent natural persons. The central legal question was whether the insolvency exemption applies only to enterprise transfers or extends to property transfers from any insolvent party. The tribunal heard arguments from both sides regarding constitutional interpretation, legitimate expectations, and the scope of automatic tax benefits, but the final ruling, reasoning, and ultimate disposition of the €6,298.50 assessment are not included in this excerpt.