Process: 321/2016-T

Date: November 1, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 321/2016-T) addresses a fundamental dispute about the scope of IMT (Municipal Tax on Onerous Property Transfers) exemption for real estate acquired in insolvency proceedings. The Claimant purchased seven building plots totaling €979,100 from an insolvent company (B… S.A.) during liquidation of the insolvent estate, initially benefiting from exemption under Article 270 of the Insolvency and Company Recovery Code (CIRE). However, the Tax Authority subsequently rejected the exemption and issued an assessment for €63,641.50, arguing that Article 270 only exempts transfers of properties forming part of a business or establishment universality, not individualized property acquisitions. The Authority noted the insolvent company held other immovable property, demonstrating the plots were not part of a complete establishment transfer. The Claimant paid the assessment and sought CAAD arbitration to declare it illegal and obtain reimbursement with compensatory interest. The core legal question is whether Article 270(2) of CIRE, which exempts sales performed within liquidation of the insolvent estate, applies broadly to individual property sales or narrowly to transfers of entire establishments. The tribunal analyzed the statutory text distinguishing n.º 1 (transfers in plans for specific purposes) from n.º 2 (sales of company or establishments in plans or liquidation). This decision has significant implications for creditors and purchasers in insolvency proceedings, clarifying whether IMT exemption protection extends to individual asset acquisitions or requires acquiring a business universality. The case demonstrates the CAAD arbitration process for challenging IMT assessments and the availability of compensatory interest when unlawful assessments are annulled.

Full Decision

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Dr. A. Sérgio de Matos and Dr. Ricardo Marques Candeias, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 15-09-2016, hereby decide as follows:

1. Report

A… LDA., NIPC…, (hereinafter referred to as "the Claimant"), with registered office at Rua…, n.º…, …-…Lisbon, pursuant to subsection a) of n.º 1 of Article 2.º and n.ºs 1 and 2 of Article 10.º, both of Decree-Law n.º 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "LRATM"), submitted a request for constitution of a collective arbitral tribunal, with a view to declaring the illegality and consequent annulment of the Municipal Tax on Onerous Property Transfers ("IMT") assessment n.º…, in the amount of € 63,641.50, and to condemning the Tax Authority and Customs Authority ("TA") to reimburse the amount unduly paid with respect to this assessment, plus the appropriate compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the TAX AUTHORITY AND CUSTOMS AUTHORITY on 01-07-2016.

Pursuant to the provisions of subsection a) of n.º 2 of Article 6.º and subsection b) of n.º 1 of Article 11.º of the LRATM, the Deontological Council appointed as arbitrators the signatories, who communicated acceptance of the appointment within the applicable period.

On 31-08-2016, the Parties were notified of this appointment, and did not express any intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of Article 11.º n.º 1 subsections a) and b) of the LRATM and Articles 6.º and 7.º of the Deontological Code.

Thus, in accordance with the provisions of subsection c) of n.º 1 of Article 11.º of the LRATM, the collective arbitral tribunal was constituted on 15-09-2016.

The Tax Authority and Customs Authority filed a defence contesting the merits of the claims.

By order of 03-06-2015, the meeting provided for in Article 18.º of the LRATM was dispensed with and it was decided that the proceedings would continue with written arguments.

The Parties did not submit written arguments.

The arbitral tribunal was properly constituted.

The parties possess legal personality and capacity, are legitimate (Articles 4.º and 10.º, n.º 2, of the same Decree-Law and Article 1.º of Order n.º 112-A/2011, of 22 March) and are duly represented.

The proceedings do not suffer from any nullities.

There are no obstacles to the consideration of the merits of the case.

2. Facts

2.1. Proven Facts

The following facts are considered proven:

· The Claimant acquired on 20-06-2014 for the total amount of € 979,100.00 the following properties, intended as building land lots, all in the Union of parishes of … and …, Municipality of … (Algarve):

1 - For the amount of € 182,500.00, property at Site …, Lot…, …, registered in the respective urban property record under article number…;

2 - For the amount of € 122,600.00, property at Site…, Lot…, …, registered in the respective urban property record under article number…;

3 - For the amount of € 123,800.00, property at Site…, Lot…, …, registered in the respective urban property record under article number…;

4 - For the amount of € 137,000.00, property at Site…, Lot…, …, registered in the respective urban property record under article number…;

5 - For the amount of € 137,800.00, property at Site…, Lot …, …, registered in the respective urban property record under article number…;

6 - For the amount of € 137,900.00, property at Site…, Lot …, …, registered in the respective urban property record under article number…;

7 - For the amount of € 137,500.00, property at Site …, Lot …, …, registered in the respective urban property record under article number…;

· The properties were acquired with exemption from IMT under Article 270.º of the Insolvency and Company Recovery Code, in the insolvency proceedings of their former owner B…, S.A., of which the Claimant was a creditor;

· The Tax Authority and Customs Authority, on 04-03-2016, notified the Claimant in accordance with the terms contained in document n.º 2 attached to the request for arbitral pronouncement, the content of which is reproduced herein, in which it stated, among other things, the following:

The properties were acquired with exemption from IMT under Article 270º of the Insolvency and Company Recovery Code, but the Claimant cannot benefit from this exemption as only transfers of immovable property integrated in the universality of the establishment or business can be exempt from IMT, which is not the case here since the transferor (B… SA) had other immovable property. If you wish to exercise your right to be heard, the written petition should be sent to this Tax Office, making reference to the above-mentioned letter.

· Following the notification, the Tax Authority and Customs Authority issued the IMT assessment with number…, in the amount of € 63,641.50, which is contained in document n.º 1 attached to the request for arbitral pronouncement, the content of which is reproduced herein;

· On 15-03-2016, the Claimant paid the amount assessed, referred to above (document n. 3 attached to the request for arbitral pronouncement, the content of which is reproduced herein);

· On 09-06-2016, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision of the case that were not proven.

2.3. Reasoning for the Determination of the Facts

The facts were established based on the documents attached to the request for arbitral pronouncement.

There is no controversy regarding the facts.

3. Legal Issues

The assessment is to determine the legality of the assessment act which was based on the understanding that the exemption provided for in Article 270.º of the Insolvency and Company Recovery Code is not applicable to the acquisition of properties effected by the Claimant, within the context of insolvency proceedings, from the company that was declared insolvent.

The Tax Authority and Customs Authority held that "only transfers of immovable property integrated in the universality of the establishment or business can be exempt from IMT, which is not the case here since the transferor (B… SA) had other immovable property".

The question that is the subject of the present proceedings is whether the exemption in question has application only in the cases referred to by the Tax Authority and Customs Authority of transfer of properties within the context of transfer of the establishment, or whether it also covers individualized acquisitions of properties from the insolvent company.

Article 270.º of the Insolvency and Company Recovery Code establishes the following:

Article 270.º

Benefit relating to the municipal tax on onerous property transfers

1 - The following transfers of immovable property, integrated in any insolvency plan, payment plan or recovery plan, are exempt from the municipal tax on onerous property transfers:

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

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

c) Those resulting from payment in kind of company assets and the transfer of assets to creditors.

2 - The following acts of sale, exchange or transfer of the company or of establishments thereof integrated within insolvency plans, payment plans or recovery plans or performed within the context of the liquidation of the insolvent estate are also exempt from the municipal tax on onerous property transfers.

From the facts as established, the Claimant acquired properties within the context of the liquidation of the insolvent estate of B…, S.A., whereby the situation would potentially fall within n.º 2 of this article.

The interpretive doubts arise from the lack of clarity in the text of this n.º 2, more specifically as to whether the reference to sale refers only to the sale of the company or of establishments integrated therein or covers any properties.

As the Claimant states, the Supreme Administrative Court has already ruled on this question, namely in decisions of 30-05-2012, case n.º 0949/11, and of 17-12-2014, case n.º 01085/13 ([1]), having decided that there are exempt from IMT "not only sales of the company or establishments thereof, as universalities of assets, but also sales of elements of its assets, provided they are integrated within an insolvency plan or payment plan or performed within the context of the liquidation of the insolvent estate".

As stated in this latter decision:

"However, the assets that make up the insolvent estate are the assets of the patrimony of the company declared insolvent and no others belonging to another natural or legal person. By definition, the assets that are sold in insolvency proceedings are assets of the insolvent or which, at least, were considered as such. There is no sale of assets other than those that made up the patrimony of the insolvent. The legislator, to ensure that this is the case, even provides for a procedure of reclamation for the restitution and separation of assets intended to separate from the estate the assets of a third party wrongly seized, or those of which the insolvent is not the full and exclusive owner, or which are foreign to the estate or unsuitable for seizure for the estate – Article 141º of the Insolvency and Company Recovery Code-.

Moreover, in the chapter on liquidation of the Insolvency and Company Recovery Code, there are clear and precise indications of the assets that may be sold in that liquidation and those that must be temporarily or permanently excluded from sale, with only the right that the insolvent has over assets of which it is joint owner being liquidated in the insolvency proceedings – Article 159º - and no sale of assets of disputed ownership being carried out until the judgment defining the ownership of the property right with respect to those assets becomes final – Article 160º.

The insolvency proceedings are – Article 1º of the Insolvency and Company Recovery Code – a universal execution proceeding whose purpose is the satisfaction of creditors in the manner provided for in an insolvency plan intended to promote the recovery of the company included in the insolvent estate, or, when this is not possible, to liquidate the patrimony of the insolvent debtor with the subsequent distribution of the product obtained among the creditors. The insolvent estate comprises all the patrimony of the debtor at the date of the declaration of insolvency, as well as the assets and rights that it acquires during the proceedings and also those whose non-seizability is not absolute and are voluntarily presented by the debtor – Article 46º of the Insolvency and Company Recovery Code - so it is not possible to conceive that there are assets that, while integrating the insolvent estate of a company declared insolvent, could be integrated in a category of assets with no relationship whatsoever with that company or establishment.

It can be read in point 49 of the preamble of the Insolvency and Company Recovery Code that it maintains, in essence, the existing regimes in the CPEREF regarding exemption from fees and tax benefits. As analyzed in the decision of the Supreme Administrative Court of 30 May 2012, issued in case 949/11, looking at the meaning and scope of the legislative authorization granted to the Government under which the Insolvency and Company Recovery Code was approved, - Articles 2.º and following of Law n.º 39/2003, of 22 August, and as regards the exemptions from municipal property transfer tax (now IMT), Article 9.º n.º 3 of that authorization law provided:

"Finally, the Government is hereby authorized to exempt from municipal property transfer tax the following transfers of immovable property, integrated in any insolvency plan or payment plan or carried out within the context of the liquidation of the insolvent estate: c) (…) the sale, exchange or transfer of the company, establishment or elements of its assets (…)".

It may be admitted that in implementing the legislative authorization for approval of the CIRE, the government decided to exclude this exemption in cases of sale, exchange or transfer of elements of its assets, granting it only in cases of sale, exchange or transfer of the company or its establishment, in breach of the meaning and scope of the legislative authorization granted to it, having legislated on matters reserved to the Assembly of the Republic (cf. n.º 2 of Article 103.º and subsection i) of n.º 1 of Article 165.º of the Constitution) in breach of that legislative authorization conferred upon it.

Having regard to the purpose that the legislator intended to achieve with the granting of such an exemption, - to promote and support the rapid sale of assets that make up the insolvent estate for obvious reasons of interest to the creditors, but also in the public interest of resuming the normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element, giving "a bonus" to whoever acquires the immovable property that makes up the insolvent estate – whoever buys these assets buys them more cheaply because he does not have to pay the IMT that would be due in the acquisition of a similar property outside the insolvency proceedings – and which will be sold in the liquidation phase, the ambiguous text of n.º 2 of Article 270º can be the subject of a clearer and more unequivocal reading without resorting to any extensive interpretation. It is sufficient to ask ourselves whether, in order to achieve the purpose previously defined, it makes any difference whether we are selling the company globally with all its assets and liabilities, whether we are selling one or more of the commercial establishments that comprised it, whether we are selling assets that made up its patrimony but were not used in its commercial operations – for example an immovable property received in payment of a debt of which the insolvent company was a creditor – in order for us to be faced with a sale that is carried out within the context of the liquidation of the insolvent estate? And, if in the same situations it is not a case of sales but of exchanges or transfers – bearing in mind that this word must have been used in an improper sense insofar as it is associated with the business world and usually refers to the transfer of operations, transfer of the commercial establishment, close to lease and not to alienation, and in the Insolvency and Company Recovery Code it is also shown to be used as regards the acquisition of assets by creditors -?. We believe that the answer cannot but be negative.

N.º 1 of Article 270º of the Insolvency and Company Recovery Code grants the exemption from IMT to transfers of immovable property carried out in fulfillment of:

1. insolvency plan

2. payment plan

3. recovery plan

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

a. constitution of a new company or companies

b. implementation of the capital of a new company or company

c. realization of the increase in capital of the debtor company

or result from:

i. payment in kind of company assets

ii. transfer of assets to creditors.

N.º 2 of this article does not repeat the exemption that was established in n.º 1, but extends it to persons who, external to the insolvency proceedings because they are not the creditors who acquired the assets, the insolvent company that saw its capital increased, or the company that was formed from this proceedings, these, already contemplated in n.º 1 of Article 270º, but to those who acquire immovable property individually considered or integrated in the global or partial acquisition of the company.

We believe that n.º 2 of Article 270º of the Insolvency and Company Recovery Code should be interpreted, taking into account what has just been set out, without the need for any extensive interpretation, respecting its text, the purpose it aims to achieve, the various variants of the insolvency proceedings contained in the Insolvency and Company Recovery Code and the systematic logic of this Decree-Law, as conferring exemption from IMT to the following acts:

1. Sale

2. Exchange

3. Transfer

. of the company

. or of establishments of that company,

provided that any one of these acts is either integrated within the scope of

1. insolvency plan

2. payment plan

3. recovery plan,

or is practiced within the context of the liquidation of the insolvent estate."

Beyond this interpretation, permitted by the literal content of n.º 2 of Article 270.º of the CIRE, being manifestly the one that is in tune with the teleology of the mode of exemption identified, which is to encourage acquisitions of assets of the insolvent company, in the case in question the sale was effected to a creditor company that is insolvent (as the Claimant refers in the document on page 19 of the administrative proceedings, a statement that is not contested by the Tax Authority and Customs Authority), whereby we are faced with a situation whose economic substance is essentially identical to that of situations of payment in kind of company assets or of transfer of assets to creditors, which are expressly provided for in subsection c) of n.º 1 of the same Article 270.º, as cases of exemption from IMT.

For this reason, in cases where the sale is effected to creditors of the insolvent company, the economic substance, to which Article 11.º, n.º 3, of the General Tax Law directs us to pay attention in the interpretation of tax incidence rules ([2]), would always impose that we understand that these are situations covered by the exemption, whereby, if the situation does not fall within n.º 2 of Article 270.º of the CIRE, it would always fall, by extensive interpretation, within n.º 1 of the same article.

For the above reasons, the contested assessment is vitiated by an error as to the legal presuppositions, consisting of a violation of Article 270.º, n.º 2, of the Insolvency and Company Recovery Code, which justifies its annulment (Article 163.º, n.º 1, of the Administrative Procedure Code of 2015).

4. Reimbursement of Amounts Paid and Compensatory Interest

The Claimant requests reimbursement of the amounts paid and compensatory interest, and it has been proven that it paid the assessed amount of € 63,641.50.

Article 43.º, n.º 1, of the General Tax Law establishes that "compensatory interest is due when it is determined, in a gracious objection or judicial challenge, that there was an error attributable to the services which resulted in payment of the tax debt in an amount exceeding the amount legally due".

In the case in question, the error that affects the assessment is attributable to the Tax Authority and Customs Authority which carried out the assessment act on its own initiative.

For this reason, the Claimant has the right to be reimbursed of the amount it paid (Articles 100.º of the General Tax Law and 24.º, n.º 1, of the LRATM) and to compensatory interest from the date of payment of the amount, 15-03-2016, until reimbursement, at the legal default rate, pursuant to Articles 43.º, n.ºs 1 and 4, and 35.º, n.º 10, of the General Tax Law, Article 559.º of the Civil Code and Order n.º 291/2003, of 8 April.

5. Decision

For the foregoing reasons, the Arbitral Tribunal hereby decides that:

a) The request for arbitral pronouncement is upheld;

b) The IMT assessment n.º…, dated 14-03-2016, in the amount of € 63,641.50 is annulled;

c) The request to condemn the Tax Authority and Customs Authority to reimburse the amount paid by the Claimant plus interest, at the legal rate, from the date of payment until reimbursement of the amount paid is upheld.

6. Value of the Proceedings

In accordance with the provisions of Article 306.º, n.º 2, of the Code of Civil Procedure, Article 97.º-A, n.º 1, subsection a), of the Code of Civil Procedure on Tax Matters and Article 3.º, n.º 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the proceedings is set at € 63,641.50.

7. Costs

Pursuant to Article 22.º, n.º 4, of the LRATM, the amount of costs is set at € 2,448.00, in accordance with Table I annexed to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Authority.

Lisbon, 01-11-2016

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(A. Sérgio de Matos)

(Ricardo Marques Candeias)

[1] In the decision of 03-07-2013, case n.º 765/13, the Supreme Administrative Court did not rule on this question, although it makes reference to it.

[2] Tax incidence rules, in the broad sense, are those that "define the plane of incidence, that is, the complex of presuppositions from whose combination results the birth of the tax obligation, as well as the elements of the same obligation" (SOARES MARTINEZ, Tax Law, 7th edition, page 126; In the same sense, one can see NUNO SÁ GOMES, Manual of Tax Law, volume II, page 56).

In this sense, tax incidence rules are those that determine the active and passive subjects of the tax obligation, those that indicate what is the taxable matter, the rate and the tax benefits.

Frequently Asked Questions

Automatically Created

Is the acquisition of real estate in insolvency proceedings exempt from IMT tax in Portugal?
Properties acquired in insolvency proceedings may be exempt from IMT under Article 270 of the Insolvency and Company Recovery Code (CIRE). The exemption applies to transfers integrated in insolvency, payment, or recovery plans, and to sales of companies or establishments during liquidation of the insolvent estate. However, the Tax Authority disputes whether this exemption extends to individualized property acquisitions or only to transfers of properties as part of a business or establishment universality. In this case, the Authority denied exemption for seven building plots acquired in liquidation, arguing the insolvent company held other property, indicating the plots were not part of a complete establishment transfer.
What are the legal requirements for claiming an IMT exemption on properties purchased during insolvency?
Article 270 CIRE establishes two exemption categories. Under n.º 1, transfers must be integrated in insolvency, payment, or recovery plans for: (a) constituting new companies and implementing capital, (b) capital increases of the debtor company, or (c) payment in kind of company assets to creditors. Under n.º 2, sales or transfers of the company or its establishments within such plans or performed during liquidation of the insolvent estate are exempt. The disputed requirement is whether properties must be transferred as part of an establishment universality. The Tax Authority requires properties to be integrated in a business/establishment transfer, not sold individually, particularly when the insolvent entity retains other immovable property.
How can taxpayers challenge an IMT tax assessment through CAAD arbitration in Portugal?
Taxpayers challenge IMT assessments through CAAD arbitration under Decree-Law 10/2011 (LRATM). The process requires: (1) filing a request for constitution of an arbitral tribunal under Articles 2 and 10 LRATM; (2) acceptance by the CAAD President and notification to the Tax Authority; (3) appointment of arbitrators by the Deontological Council; (4) constitution of the tribunal after parties' opportunity to refuse arbitrators; (5) Tax Authority defense submission; (6) optional hearing under Article 18 or continuation with written arguments; and (7) final decision. In this case, the Claimant filed on 09-06-2016 after paying €63,641.50, the tribunal constituted on 15-09-2016, and proceedings continued without hearing or written arguments.
Are compensatory interest (juros indemnizatórios) available when an unlawful IMT assessment is annulled?
Yes, compensatory interest (juros indemnizatórios) is available when unlawful IMT assessments are annulled. Portuguese law provides for compensatory interest on amounts paid in excess or unduly to compensate taxpayers for financial loss from funds withheld by the Tax Authority. The Claimant specifically requested reimbursement of €63,641.50 'plus the appropriate compensatory interest.' This forms standard relief in CAAD proceedings alongside principal amount recovery. Compensatory interest compensates for the time value of money and the taxpayer's inability to use funds while held by authorities pending resolution of the illegality, distinguishing it from late payment interest charged on unpaid taxes.
Does the IMT exemption apply to the purchase of building plots (lotes de terreno para construção) acquired in insolvency sales?
This is the central legal dispute in the case. The Claimant acquired seven building plots (lotes de terreno para construção) totaling €979,100 from B… S.A. during liquidation of the insolvent estate, claiming Article 270(2) CIRE exemption. The Tax Authority denied exemption, asserting it applies only when properties are transferred as part of a business or establishment universality, not individual plots. The Authority emphasized that B… S.A. held other immovable property beyond the acquired plots, indicating they were not part of a complete establishment transfer. The arbitral tribunal must interpret whether 'sales performed within the context of liquidation of the insolvent estate' under Article 270(2) encompasses individual property acquisitions or requires transfer of an entire establishment as a business universality.