Process: 343/2015-T

Date: February 10, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

This arbitration case (Process 343/2015-T) concerns the Municipal Tax on Onerous Transfers of Real Estate (IMT) exemption under Article 8(1) of the Portuguese IMT Code (CIMT) when a banking institution acquires property through insolvency proceedings. The Claimant bank was awarded real estate in September 2014 through insolvency proceedings. The insolvency administrator issued an award certificate claiming IMT exemption under Article 270 of the Insolvency Code (CIRE), which applies only when the insolvent debtor is a company, not a natural person. The Tax Authority notified the bank of its intention to revoke the exemption and issued an additional IMT assessment. The bank argued this was a clerical lapse by the insolvency administrator, as the correct legal basis should have been Article 8(1) CIMT, which exempts acquisitions by credit institutions in satisfaction of claims from loans granted. The bank had requested this specific exemption from the insolvency administrator before submitting documentation. The bank paid the additional assessment under protest and filed a gracious complaint (reclamação graciosa), which was rejected in April 2015. The bank then initiated arbitration proceedings at CAAD. The Claimant's key arguments include: violation of principles of justice, collaboration and good faith; the Tax Authority should have corrected the obvious error; the exemption request was timely under DGCI Circular 5/2011; and conversion of exemption basis should be permitted. The bank also claimed entitlement to compensatory interest (juros indemnizatórios) under Article 43(1) LGT for unduly paid taxes. The Tax Authority defended by raising preliminary objections regarding tribunal competence on exemption matters and arguing it was bound to assess tax based on official documents presented, with no obligation to investigate beyond submitted documentation.

Full Decision

ARBITRAL DECISION[1]

  1.  Report

A - General

1.1. A..., S.A. TIN..., with registered office in Lisbon, at ... Street (hereinafter referred to as the "Claimant"), filed on 29.05.2015 a request for the constitution of a singular arbitral tribunal in tax matters, which was accepted, seeking the declaration of illegality of the act rejecting the Gracious Reclamation No. ...2015... and consequent annulment of the act imposing an additional levy of Municipal Tax on Onerous Transfers of Real Estate (IMT), notified to the Claimant by official letter No. .../..., of 18.12.2014, which constitutes document No. 2 attached to the proceedings with the request for arbitral pronouncement.

1.2. Pursuant to the provisions of subparagraph a) of section 2 of article 6 and subparagraph b) of section 1 of article 11 of Decree-Law No. 10/2011, of 20 January, in the wording given to it by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of the Center for Administrative Arbitration (CAAD) designated as arbitrator Nuno Pombo, and the parties, after being duly notified, did not manifest opposition to such designation.

1.3. By order of 22.06.2015, the Tax and Customs Administration (hereinafter referred to as the "Respondent") proceeded with the designation of Dr. B... and Dr. C... to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.4. In accordance with the provision of subparagraph c) of section 1 of article 11 of Decree-Law No. 10/2011, of 20 January, in the wording given to it by article 228 of Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 12.08.2015.

1.5. On the same day 12.08.2015, the head of the Respondent's service was notified to, if willing, within 30 days, present a response and request the production of additional evidence.

1.6. On 30.09.2015, the Respondent presented its response.

B – Position of the Claimant

1.7. The Claimant is a banking institution, pursuing the activities authorized to credit institutions.

1.8. On 23.09.2014, the Claimant was awarded, in the context of the insolvency proceedings of D... which were pending at the Central Court – Commercial Division of the Judicial Court of ..., under No. .../13... T..., the autonomous fraction Q of the urban property described under No. ...-Q in the Land Registry of …, located in the parish and municipality of..., and registered in the matrix of the aforementioned parish under article ... (the "Property").

1.9. The award certificate is evidenced by a document issued on said day 23.09.2014 by the respective insolvency administrator, Mr. Dr. E... .

1.10. The award certificate served as the basis for the assessment of the respective IMT, with the act benefiting from IMT exemption.

1.11. The award certificate was issued by the insolvency administrator with the following statement: "The present transfer is exempt from IMT under the terms of section 2 of article 270 of the CIRE".

1.12. The Claimant was notified by official letter No. .../..., of 20.10.2014 from the Finance Service of Coimbra ... to exercise the right to prior hearing, before the definitive decision to revoke the said exemption, since the Claimant could not have benefited from the exemption granted by article 270 of the CIRE, as the insolvent was a natural person.

1.13. The Claimant exercised its right to prior hearing on 05.11.2014, having stated that such non-conformity would have been due to a "probable lapse in exposition" attributable solely and exclusively to the insolvency administrator.

1.14. The reference to article 270 of the CIRE is a lapse, since the request made by the Claimant to the insolvency administrator for the issuance of the award certificate and the transfer certificate issued by the same insolvency administrator on 26.09.2014 expressly refer to section 1 of article 8 of the CIMT as the basis for the exemption.

1.15. On 17.11.2014, a decision was issued rejecting the exemption requested by lapse, which resulted in the additional IMT assessment now challenged.

1.16. On 12.01.2015, the Claimant proceeded to pay the additional IMT assessment that was notified to it by document..., of 09.01.2015, justified on the grounds that the Respondent considered there had been an error in the IMT assessment with registration No. 2014/... .

1.17. The Claimant presented on 10.02.2015 a gracious reclamation of the said additional assessment, which was rejected by order of 20.04.2015.

1.18. The Claimant submits that the conduct of the Respondent in this proceeding manifestly violates the principle of justice, which requires a tax procedure oriented towards the discovery of material truth.

1.19. The Claimant, furthermore, within the scope of the principle of collaboration and cooperation referred to in section 1 of article 59 of the LGT, should have been alerted to the lapse by the Finance Service of Coimbra ... when at its counters it requested the IMT exemption, which did not occur, and the non-admission of the testimonial evidence offered by the Claimant in the Gracious Reclamation is equally a violation of the mentioned principle.

1.20. The Claimant also alleges that the Respondent's services should have promoted the appropriate procedure for automatic recognition of the exemption under point 10 of Circular No. 5/2011, of 11.03 of the DGCI (Circular No. 5/2011), with even greater reason.

1.21. Now, the Claimant petitioned the insolvency administrator, on 17.09.2014, therefore at a time prior to the presentation to the Respondent's services of the award certificate, for the exemption provided for in section 1 of article 8 of the CIMT, so that the exemption request made should be considered timely, under the terms provided for in point 11 of Circular No. 5/2011.

1.22. Furthermore, although the conversion of exemption is not expressly provided for in the CIMT, it should, in the present case, be admitted because the requirements upon which its admission depends are met, and which are contained in section 2 of Circular No. 16/88, of 19.08, subsequently reconsidered by Circular No. 18/95, of 11.10, both from the Directorate of Services for Stamp Duties and Property Transfers.

1.23. Furthermore, the acquisition to which the present proceedings refer does not constitute a true and proper acquisition but rather a means of amortizing a credit granted to a client, which is why the legislator established the exemption set forth in section 1 of article 8 of the CIMT, considering it worthy of automatic recognition.

1.24. Finally, the Claimant requests that the right to receive compensatory interest be recognized, for having paid unduly assessed tax, under the terms of section 1 of article 43 of the LGT.

C – Position of the Respondent

1.25. The Respondent, in its response, begins its defense by exception, raising the incompetence of the arbitral tribunal on the grounds that it concerns the examination of matters relating to the recognition of exemptions and tax benefits.

1.26. The fact is that the Claimant does not attribute to the additional assessment No. ... any legal defect, invoking only an alleged lapse by the insolvency administrator.

1.27. The Respondent rejects the alleged violation of the principles of justice, collaboration and cooperation, and good faith on the grounds of not having supposedly brought to the record other elements that should have been taken into account in the final decision beyond those that were brought to the knowledge of the Respondent by the Illustrious Attorney F... .

1.28. The Respondent is bound, under the terms of article 23 of the CIMT, to assess the tax on the basis of official documents, in this case, the Award Certificate delivered by the Claimant's representative to the counters of the respective Finance Service, and it is not reasonable to assume that the taxpayer's representative is unaware of the documents which it delivers to instruct the requests it makes in the name and interest of its clients.

1.29. Since it is the responsibility of the Claimant to initiate the assessment, which is moreover made on the basis of documents that it presents for this purpose to the services, the Respondent cannot be charged with any violation of the principles of justice, collaboration and cooperation, and good faith.

1.30. The Claimant did not bother to request the exemption under the provision which it now invokes to benefit from it, as it was its responsibility under section 3 of article 36 of the CIMT, nor did it request in a timely manner any amendment to the request it had presented.

1.31. The alleged possibility of converting the request for exemption made under article 270 of the CIRE into a request for exemption under section 1 of article 8 of the CIMT is a matter directly relating to the recognition of rights related to exemptions, and the arbitral tribunal is materially incompetent to rule upon it.

1.32. It is the responsibility of the taxpayers to, under section 3 of article 19 of the CIMT, present the competent official model 1 declaration of IMT, before the act or fact transferring the assets, providing the elements indispensable for the assessment of the tax and for the verification of the conditions for exemption, if any.

1.33. Article 23 of the CIMT provides that "in transfers made by division, partition, judicial or administrative sale, auction, adjudication, transaction or settlement, the corresponding legal instruments serve as the basis for assessment", which in the case of the present proceedings is the Award Certificate issued by the insolvency administrator, which refers to article 270 of the CIRE and not to section 1 of article 8 of the CIMT.

1.34. With regard to IMT exemptions, section 1 of article 10 of the CIMT establishes that the same are recognized upon application by the interested party, to be submitted before the act or contract that gave rise to the transfer, with the services competent to decide, but always before the assessment that would be made, and this discipline does not exclude automatic exemptions, which is why the Claimant should have requested the exemption which it intended and not another for which it did not meet the required conditions.

1.35. The powers of verification of the legal conditions for exemptions fall upon the holders of the judicial bodies where the relevant enforcement or insolvency proceedings are pending, and the formulation of the exemption request is made with the judicial instances, always before the act that gave rise to the transfer.

1.36. Now, point 10 of the aforementioned Circular No. 5/2011 established a residual procedure to be applied only when there is an omission in the verification or declaration of the IMT exemption by the judicial instances, and it is only in these cases that the services have the responsibility for automatic recognition, provided that the taxpayer meets the time limits for assessment provided for in section 3 of article 36 of the CIMT and expressly requests the verification and declaration of the exemption, which did not occur in the present case.

1.37. The conversion of exemptions, admitted in theory even in the absence of express legal provision, shall have to comply with the following requirements: (i) that the exemption regime which it is intended to adopt is coexistent, at the date of transfer, with the regime which was chosen; and (ii) that, on the said date, all the conditions for the exemption which the taxpayer intends to apply are met.

1.38. Thus, in order for there to be conversion of exemption, it would be necessary for the coexistence, at the same moment (that of the date of transfer), of the right to the exemption initially requested and of the right to the one which it is intended to be applied. Now, in the present case, the initially requested exemption is not applicable, so the possibility of conversion does not exist.

D – Conclusion of the Report

1.39. By order of 29.01.2016, the arbitral tribunal dispensed with the meeting provided for in article 18 of the Legal Framework for Tax Arbitration (RJAT), as it was its understanding that the parties had brought to the proceedings all the elements of fact necessary and sufficient for the pronouncement of the decision, and the Parties did not oppose this.

1.40. The parties have legal personality and capacity and have standing under article 4 and section 2 of article 10 of the RJAT, and article 1 of Ordinance No. 112-A/2011, of 22 March.

1.41. The joinder of claims made in the present request for arbitral pronouncement, in homage to the principle of procedural economy, is justified insofar as article 3 of the RJAT, by expressly admitting the "joinder of claims even if relating to different acts", accommodates, without hermeneutic abuse, the examination of a claim that flows, in necessary terms, from the judgment which the arbitral tribunal may make regarding the validity of the assessment challenged.

1.42. The proceedings do not suffer from any nullity, with the Respondent having raised the exception of the arbitral tribunal's material incompetence, knowledge of which shall precede the examination of any other question, since, if considered well-founded, this exception prevents the examination of the merits of the case.

1.43. On 06.10.2015, the Claimant ruled on the exception of incompetence invoked by the Respondent, arguing for its rejection, on the grounds that the exemption provided for in section 1 of article 8 of the CIMT "is classified in our tax legal system as an automatic tax benefit (see article 5 of the EBF), and not dependent on recognition".

  1.  On the exception of the arbitral tribunal's incompetence

Section a) of section 1 of article 2 of the RJAT determines that the competence of arbitral tribunals includes the examination of declarations of illegality of acts of assessment of taxes, self-assessments, withholdings at source, and payments on account. In turn, article 4 of the RJAT provides that "the binding of the tax administration to the jurisdiction of the tribunals constituted under the terms of the present law depends on an ordinance of the members of the Government responsible for the areas of finance and justice, which establishes, in particular, the type and maximum value of the disputes covered". In other words, the examination of matters relating to the recognition of exemptions and tax benefits is not included within the scope of the material competence of arbitral tribunals.

The Respondent argues that it follows from the claim and the cause of action which the present proceedings concern that the Claimant's pretension consists precisely in the recognition that it met the conditions to enjoy the exemption provided for in section 1 of article 8 of the CIMT, further contending that tax acts relating to the recognition of tax exemptions are separable from the tax procedure, susceptible themselves to reaction on the part of taxpayers through appropriate means, and that the tax assessment flowing from it cannot be challenged through a request for arbitral pronouncement.

Now, the Claimant filed the request for constitution of the arbitral tribunal because it did not conform to the act rejecting the Gracious Reclamation No. ...2015... relating to the act of additional IMT assessment notified to the Claimant by official letter No. .../..., of 18.12.2014. In fact, in the official letter by which the Claimant was notified of the order rejecting said gracious reclamation, it is stated that the Claimant "has the possibility of requesting the constitution of the Arbitral Tribunal".

It is clear that the examination which the arbitral tribunal will have to undertake can include a judgment on whether the Claimant can benefit from the exemption referred to in section 1 of article 8 of the CIMT, but this examination will always be conducted in light of the necessary discernment regarding whether the act of additional assessment that motivated the gracious reclamation, whose rejection motivated the present request for arbitral pronouncement, is legal or not.

Thus, the arbitral tribunal considers itself materially competent to examine the claim filed by the Claimant, under the terms of article 2, section 1, paragraph a) of the RJAT.

  1.  Facts

3.1. Established Facts

The following facts with relevance for the present proceedings are considered established:

3.1.1. The Claimant is a banking institution, pursuing the activities authorized to credit institutions (article 1 of the request for arbitral pronouncement).

3.1.2. On 23.09.2014, the Property was adjudicated to the Claimant, in the context of the insolvency proceedings of D... which were pending at the Central Court – Commercial Division of the Judicial Court of ..., under No. .../13... T... (doc. No. 3, attached with the request for arbitral pronouncement).

3.1.3. On 23.09.2014, the respective Award Certificate was issued by the insolvency administrator (doc. No. 3, attached with the request for arbitral pronouncement).

3.1.4. Also on 23.09.2014, the assessment of the IMT relating to the acquisition, in insolvency proceedings, of the Property was requested from the Coimbra finance services ... (agreement of the Parties).

3.1.5. For the purposes of the aforementioned assessment, the Award Certificate was exhibited by the Claimant's representative to the Coimbra finance service ... (agreement of the Parties).

3.1.6. The Award Certificate states "The present transfer is exempt from IMT under the terms of section 2 of article 270 of the CIRE" (doc. No. 3, attached with the request for arbitral pronouncement).

3.1.7. The corresponding IMT assessment was made, to which corresponds the IMT collection document No. ... (doc. No. 4, attached with the request for arbitral pronouncement).

3.1.8. The IMT document contains, in the section intended for the identification of benefits, the following: "Benefits: 60 - Code of Insolvency and Corporate Recovery – Transfers within the scope of the liquidation of the insolvent estate (Art. 270, section 2, of D.L 53/04), 100% on the taxable basis" (doc. No. 4, attached with the request for arbitral pronouncement).

3.1.9. On 17.09.2014, the Claimant requested from the insolvency administrator the issuance of a "statement for the fulfillment of tax obligations – adjudication certificate", which reads that "the acquiring Bank enjoys exemption from payment of the Municipal Tax on Onerous Transfers, under the terms and under section 1 of article 8 of the Municipal Property Transfer Tax Code" (doc. No. 6, attached with the request for arbitral pronouncement).

3.1.10. On 26.09.2014, the insolvency administrator issued the Transfer Certificate under what is now provided for in section 1 of article 827 of the Civil Procedure Code, reading therein "The present transfer is exempt from IMT under the terms of section 1 of article 8 of the CIMT, as evidenced by the document identified with No. ... issued on 23/09/2014" (doc. No. 9, attached with the request for arbitral pronouncement).

3.1.11. By means of official letter No. .../..., of 20.10.2014, the claimant was notified to exercise the right to prior hearing provided for in subparagraph c) of section 1 of article 60 of the LGT, in view of the intention to revoke the exemption contained in the IMT record No. 2014/... (doc. No. 7, attached with the request for arbitral pronouncement).

3.1.12. On 05.11.2014, the Claimant exercised its right to prior hearing provided for in subparagraph c) of section 1 of article 60 of the LGT (doc. No. 8, attached with the request for arbitral pronouncement).

3.1.13. On 17.11.2014, an order was issued revoking the exemption requested under article 270 of the CIRE (doc. No. 2, attached with the request for arbitral pronouncement).

3.1.14. By official letter No. .../..., of 18.12.2014, the Claimant was notified of the act of additional IMT assessment registered under No. 2014/..., which shows a tax to be paid of € 348.22 (doc. No. 2, attached with the request for arbitral pronouncement).

3.1.15. On 12.01.2015, the Claimant proceeded to pay the additional IMT assessment that was notified to it by document..., of 09.01.2015 (doc. No. 10, attached with the request for arbitral pronouncement).

3.2. Unproven Facts

With relevance for the decision, there are no facts that should be considered as unproven.

  1.  Law

4.1. Questions to be decided

It follows from what has been stated above that the questions to be examined are, essentially:

a) Whether the Claimant acted in such a manner that the Respondent should recognize the benefit of the exemption referred to in section 1 of article 8 of the CIMT, and therefore the act of additional IMT assessment practiced following the revocation of the exemption requested under article 270 of the CIRE is illegal;

b) Whether, in case the claim for declaration of illegality and consequent annulment of the contested additional assessment is held to be well-founded, the Claimant, within the scope of the present arbitral proceedings, may obtain the condemnation of the Respondent to pay compensatory interest with respect to the amount delivered by it to satisfy the tax illegally required by the latter.

4.2. The exemption provided for in section 1 of article 8 of the CIMT

Section 1 of article 8 of the CIMT provides as follows:

Article 8

Exemption for the acquisition of real estate by credit institutions

1 – The acquisitions of real estate by credit institutions or by commercial companies whose capital is directly or indirectly dominated by them, in enforcement proceedings initiated by those institutions or by another creditor, as well as those made in bankruptcy or insolvency proceedings, are exempt from IMT, provided that, in any case, they are intended for the realization of credits resulting from loans made or guarantees provided.

In the case to which these proceedings relate, we are dealing with an acquisition made by a credit institution in insolvency proceedings, which acquisition is intended for the realization of credits resulting from loans made or guarantees provided.

It appears that there are no doubts, nor does the Respondent appear to have any, that the Claimant, under the terms of section 1 of article 8 of the CIMT, in the acquisition of the Property, could have benefited from IMT exemption.

Already section 1 of article 10 of the same Code establishes that "the exemptions are recognized upon application by the interested parties, to be submitted before the act or contract that gave rise to the transfer, with the services competent to decide, but always before the assessment that would be made".

It has long been assumed that "the powers of verification of the legal conditions conditioning the identified exemption fall upon the holders of the judicial bodies where the relevant enforcement or insolvency proceedings are pending", as is recognized in section 2 of Circular No. 5/2011. As we have seen, section 1 of article 10 of the CIMT requires from the interested parties an application, which must be submitted with the services competent to decide, imposing that the same application take place before the assessment that would be made.

Without prejudice to the provisions of article 19 of the CIMT, with the wording given to it by Law 64-A/2008, of 31 December, the application, prima facie, must be submitted to the relevant insolvency administrator so that he issues the corresponding award certificate. This is what the Claimant did when it requested from the insolvency administrator the declaration from the latter for the purposes of fulfilling its tax obligations, as adjudicatee.

The Claimant's request expressly sets out the exemption situation and its basis. However, despite the correctness of the application, the insolvency administrator, it is admitted that by lapse, issued the requested document, declaring the intended effect (and in fact existing) – the exemption – associating it, however, with a different source from that indicated in the interested party's application – article 270 of the CIRE, instead of section 1 of article 8 of the CIMT.

4.2.1. The declaratory effect of the recognition of the exemption by the Tax and Customs Administration

We have already noted that section 1 of article 10 of the CIMT establishes that "the exemptions are recognized upon application by the interested parties, to be submitted before the act or contract that gave rise to the transfer, with the services competent to decide, but always before the assessment that would be made".

Already section 2 of said article 10 imposes that the request for recognition of the exemptions referred to in section 1, where applicable, contains "the identification and description of the assets, as well as the purpose for which they are intended", and further provides that documents demonstrating the conditions for the exemption must be attached.

It is curious to note that no provision of this article 10 specifically refers to the exemption established in section 1 of article 8, and it cannot be admitted that the recognition of it by the tax administration is more restrictive or more demanding than the said automatic recognition.

As point 1 of Circular No. 5/2011 rightly states, "the tax exemption posited in article 8, section 1, of the CIMT, applying to situations of acquisition of real estate by credit institutions, intended for the realization of credits, in enforcement or insolvency proceedings, has an automatic nature, with its recognition having merely declaratory efficacy".

This understanding is, moreover, in accordance with the provisions of section 1 of article 5 of the Tax Benefits Statute, which reads that "tax benefits are automatic or dependent on recognition; the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition".

This means that the exemption in question, strictly speaking, does not depend on the recognition made by the administration but rather on the meeting of the conditions established in the law, namely:

(i) that the purchaser is a credit institution;

(ii) that the acquisition is made in insolvency proceedings; and

(iii) that the acquisition is intended for the realization of credits resulting from loans made or guarantees provided.

Let us invoke again the provision of section 2 of article 10 of the CIMT, when it imposes that the documents demonstrating the conditions for the exemption be attached to the application. This attachment, as can be seen, intends to bring to the knowledge of the tax administration services the evidence that the conditions for the applicant to benefit from the exemption are met. Now, it seems evident that the tax and customs administration either did not know or could not ignore that the conditions for the recognition of the requested exemption were met, with the Claimant being the one to demonstrate to the tax administration the meeting of those conditions, namely:

(i) the purchaser is knowingly a credit institution;

(ii) the acquisition was made in insolvency proceedings, which results clearly from the fact that the Award Certificate is issued by Aníbal dos Santos Almeida, in his confessedly declared capacity as insolvency administrator identified; and, finally

(iii) the acquisition was intended for the realization of credit resulting from a loan made or guarantee provided, as is shown in the said Award Certificate that "under the terms of section 1 of article 887, of the Civil Procedure Code, the purchaser was exempted from depositing 80.00% of the said price. The provision to which the insolvency administrator refers is what now corresponds to article 815 of the same statute: "the judgment creditor who acquires assets through enforcement is exempted from depositing the part of the price which is not necessary to pay creditors ranked before him and does not exceed the amount which he is entitled to receive; the same exemption is granted to the secured creditor who acquires the assets".

Therefore, not only were the conditions met for the acquisition in question to benefit from IMT exemption, but the tax administration could not ignore such a situation, so it should have recognized the exemption. Moreover, it seems to be the conclusion that, by contrast, can be extracted from section 5 of article 36 of the LGT, as the recognition of the exemption in question seems to be "entirely binding".

4.2.2. Section 3 of article 19 of the CIMT

Even if we accept the mere declaratory effect of the recognition of an exemption, such as that of section 1 of article 8 of the CIMT, it cannot be forgotten that section 3 of article 19 provides that an official model declaration for the assessment of IMT "must also be presented, in any finance service or by electronic means, before the act or fact transferring the assets, in situations of exemption". Therefore, even in cases of exemption, the interested party must present to the services an official model declaration so that that exemption can be recognized.

As the Respondent rightly points out, citing article 23 of the CIMT, "in auctions, judicial or administrative sales, and adjudications, serve as the basis for assessment the corresponding legal instruments issued by the competent entities". It happens that the Claimant, when it requested the assessment of the IMT, presented, for this purpose, an official document issued by the insolvency administrator, containing that document, the express statement that the transfer is exempt from IMT under section 2 of article 270 of the CIRE.

The Respondent intends to extract from this statement the corollary that the interested party does not merely request from the tax and customs administration the recognition of an exemption from which it is a beneficiary, but rather the recognition of the exemption which the "competent entity" specifically refers to. With all due respect, the arbitral tribunal cannot follow this understanding.

What the law requires in these cases is that the interested party request the recognition of the exemption, whose examination is strictly binding and produces merely declaratory effects. As is known, the tax administration is not in absolute dependence on what is submitted to it by the taxpayer. There are several examples in which the administration is given the possibility to correct what is submitted to it for examination (articles 19, section 9; 36, section 4; and 79, section 2, all of the LGT and article 48, section 1 of the TCPC). In fact, section 1 of article 48 of the TCPC is very instructive, which, under the heading "cooperation of the tax administration and the taxpayer", imposes on the former the duty to clarify the latter "on the necessity of presentation of applications, reclamations and petitions and the performance of any other acts necessary to the exercise of their rights, including the correction of manifest errors or omissions observed". Therefore, the problem of the admissibility of conversion referred to in Circular No. 16/88, of 09.08, reconsidered by Circular No. 18/95, of 11.10, both from the Directorate of Services for Stamp Duties and Property Transfers, does not even arise.

4.2.3. Circular No. 5/2011

Point 10 of Circular No. 5/2011 reads as follows:

"10 – Without prejudice to everything stated above, where there is an omission in the verification or declaration of the IMT exemption by the judicial instances, the competent Finance Service should promote the appropriate procedure for automatic recognition, provided that the taxpayer meets the time limits for assessment provided for in article 36, section 3, of the CIMT and expressly requests the verification and declaration of the exemption from the Head of the Finance Service".

And point 11 concludes:

"11 – If the taxpayer acts in compliance with the obligation inherent in article 36, section 3, of the CIMT and there is evidence that at an earlier time and with the judicial instances he had petitioned for the exemption in question, this should be considered as timely submitted to the DGCI itself".

The discipline imposed by Circular No. 5/2011 is not of such a nature as to support the understanding which the Respondent appears to make of the situation. In fact, what can be concluded from the provisions we have just cited is that the tax administration should not be bound by what the judicial instances say or fail to say, but rather should seek to clarify whether the conditions for the automatic recognition of an exemption are met, provided that it has been timely requested by the taxpayer.

There is no doubt that the Claimant requested from the enforcement administrator, before the transfer of the Property, the respective exemption from IMT. And it did so by invoking section 1 of article 8 of the CIMT, as was its responsibility. And when it submitted its request to the tax administration to have the IMT exemption recognized, the Claimant did not omit any data relevant for the administration to proceed with its automatic recognition, even though it felt the need to proceed with the correction of the manifest error, under the terms and for the purposes of section 1 of article 48 of the TCPC.

Therefore, for the reasons adduced, it will not be legitimate to admit that the Claimant is now seeking to benefit, after the transfer of the asset, from an exemption that is no longer in a position to request. The facts demonstrate that this is not the case.

It is true, however, that in the Award Certificate, article 270 of the CIRE is mentioned, manifestly inapplicable in the case of these proceedings. However, it is no less true to contend that from that document the tax administration can conclude the exemption from IMT under section 1 of article 8 of the CIMT, recognizing it as was required.

Furthermore, if the omission in the verification or declaration of the IMT exemption on the part of the judicial instances does not prevent the recognition of that exemption in cases where it is shown that the taxpayer requested it with those same instances before the transfer of the assets, it is not surprising that the same judgment applies when there is an error attributable to those instances, when it is clear that the services cannot ignore that error. This conclusion seems to us to be a corollary of the principles of justice and cooperation referred to in articles 55 and 59, both of the LGT.

4.3. Conclusion

Based on the foregoing, the arbitral tribunal considers that the decision to reject the gracious reclamation timely presented by the Claimant is illegal, as it is not in accordance with the legal order and the practice of the act of additional assessment which is the subject of that reclamation.

4.4. Compensatory Interest

Subparagraph b) of section 1 of article 24 of the RJAT provides that "the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the tax administration from the end of the term provided for appeal or challenge, and the latter, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and until the end of the term provided for voluntary compliance with the decisions of the tax courts, shall restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been practiced, adopting the necessary acts and operations for such purpose".

It is not overlooked that the legislative authorization granted to the Government by article 124 of Law No. 3-B/2010, of 28 April, on the basis of which the RJAT was approved, determines that the tax arbitral process constitutes an alternative procedural means to the process of judicial challenge and to the action for the recognition of a right or legitimate interest in tax matters. Even if subparagraphs a) and b) of section 1 of article 2 of the RJAT base the competence of arbitral tribunals on "declarations of illegality", it seems reasonable the understanding that their competences include the powers that in the process of judicial challenge are attributed to the tax courts, and it is certain that in processes of judicial challenge, in addition to the annulment of tax acts, claims for indemnification can be examined, in particular those relating to compensatory interest.

In effect, the principle of cognizability of claims for indemnification, in gracious reclamation or in judicial process, is always justified when the damage which it is intended to see compensated results from a fact attributable to the tax and customs administration. Manifestations of this principle are found in section 1 of article 43 of the LGT and in article 61 of the TCPC.

The right of the Claimant to the receipt of compensatory interest depends on the verification of the following conditions: a) error attributable to the services; b) that from the said error results the payment of tax in an amount higher than that legally due; c) that the error of the services is analyzed either in the context of gracious reclamation or of judicial challenge.

In the present case, the error attributable to the services exists and resides in the refusal of the Respondent to repair what required evident remedy. From the analysis of the administrative process, it is verified that the Respondent, in the phase of gracious reclamation, could and should have granted the Claimant's request, as it had been transmitted the elements necessary and sufficient to the indispensable repair of the situation. The Respondent erred when it understood that it should not accede to the Claimant's claim, an error that merits censure under the law, in particular in light of the provisions of articles 43 and 100 of the LGT. Consequently, the arbitral tribunal considers that, in principle, the Claimant has the right to compensatory interest.

  1.  Decision

Based on the terms and grounds set forth above, the arbitral tribunal decides:

a) To uphold the claim for arbitral pronouncement, declaring the illegality of the decision rejecting the Gracious Reclamation No. ...2015...;

b) Consequently, to annul the tax act of additional IMT assessment, notified to the Claimant by official letter No. .../..., of 18.12.2014, in the amount of € 348.22 (three hundred and forty-eight euros and twenty-two cents).

c) To uphold the claim for recognition of the right to compensatory interest, condemning the Respondent to pay it to the Claimant, calculated from the date of the unduly made payment until its full reimbursement.

  1.  Case Value

In accordance with the provisions of section 2 of article 306 of the CPC, subparagraph a) of section 1 of article 97-A of the TCPC, and also section 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 348.22 (three hundred and forty-eight euros and twenty-two cents).

  1.  Costs

For the purposes of the provisions of section 2 of article 12 and section 4 of article 22 of the RJAT and section 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 306.00 (three hundred and six euros), in accordance with Table I attached to the said Regulation, to be borne entirely by the Respondent.

Lisbon, 10 February 2016

The Arbitrator

(Nuno Pombo)

[1] Text prepared by computer under the terms of article 131, section 5, of the CPC, applicable by referral of article 29 of the RJAT. The drafting of the present arbitral decision follows the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt when a bank acquires real estate through insolvency proceedings in Portugal?
Yes, IMT is exempt when a bank acquires real estate through insolvency proceedings in Portugal under Article 8(1) of the IMT Code (CIMT). This exemption applies to acquisitions by credit institutions when the property is obtained in satisfaction of claims arising from loans granted to clients. The exemption recognizes that such acquisitions are not true property purchases but rather a means of recovering debts, and is considered worthy of automatic recognition by the tax authority. However, the exemption must be properly requested with correct legal basis cited in the official documentation submitted to the Finance Service.
What does Article 8(1) of the Portuguese IMT Code (CIMT) establish regarding tax exemptions on property transfers?
Article 8(1) of the Portuguese IMT Code (CIMT) establishes an exemption from Municipal Tax on Onerous Transfers of Real Estate for acquisitions made by credit institutions (banks) when such acquisitions occur in satisfaction of claims resulting from loans granted to customers. This provision recognizes that when banks acquire property through foreclosure, insolvency proceedings, or payment in kind (dação em pagamento), they are not making conventional property purchases but rather recovering debts. The exemption must be requested at the time of presenting the deed or document that serves as the basis for IMT assessment to the competent Finance Service.
How can a taxpayer challenge an additional IMT assessment through arbitration at CAAD?
A taxpayer can challenge an additional IMT assessment through arbitration at CAAD (Centro de Arbitragem Administrativa) by first exhausting administrative remedies and then filing a request for arbitration. The procedure involves: (1) exercising the right to prior hearing if notified by the Tax Authority; (2) filing a gracious complaint (reclamação graciosa) against the assessment within the legal deadline; (3) after rejection of the gracious complaint, submitting a formal request for constitution of an arbitral tribunal to CAAD within the statutory time limit; (4) paying applicable fees; and (5) presenting legal arguments and supporting documentation. The arbitral tribunal is then constituted with designated arbitrators, and both parties present their positions before a binding decision is rendered.
Are compensatory interest (juros indemnizatórios) awarded when an IMT exemption is wrongfully denied by the Portuguese Tax Authority?
Yes, compensatory interest (juros indemnizatórios) may be awarded when an IMT exemption is wrongfully denied by the Portuguese Tax Authority. Under Article 43(1) of the General Tax Law (LGT), taxpayers are entitled to compensatory interest when they have paid taxes that were not legally due, including situations where exemptions were improperly rejected. The interest accrues from the date of payment until reimbursement and is calculated at the legal rate. For compensatory interest to be awarded, the taxpayer must demonstrate that: the tax was paid, the payment was not legally due (exemption should have been recognized), and there was no fault attributable to the taxpayer in the incorrect assessment.
What is the procedure for filing a gracious complaint (reclamação graciosa) against an IMT liquidation in Portugal?
The procedure for filing a gracious complaint (reclamação graciosa) against an IMT liquidation in Portugal involves: (1) submitting a written complaint to the head of the Finance Service that issued the assessment within 120 days from notification of the tax liquidation; (2) clearly identifying the contested act and stating the factual and legal grounds for challenging the assessment; (3) attaching supporting documentation and evidence; (4) the Tax Authority must decide within a legally established timeframe (typically within a specified number of months); (5) if the complaint is rejected or there is administrative silence, the taxpayer may then escalate to judicial or arbitral review. The gracious complaint is an administrative remedy that must generally be exhausted before accessing arbitration at CAAD or judicial courts for tax disputes.