Process: 350/2016-T

Date: January 12, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 350/2016-T) addresses whether IMT exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) applies to individual property sales in insolvency proceedings. The claimant, A, SA, acquired industrial property for €500,000 from insolvent company B, Lda. through court-supervised insolvency proceedings. The Tax Authority granted Stamp Duty exemption but assessed IMT at €32,500, arguing that Article 270(2) exemption requires transfer of the entire business universality, not individual asset sales. The claimant contested this, asserting the exemption applies to all sales within insolvency proceedings regardless of whether individual assets or the complete business are transferred, citing Supreme Administrative Court precedent. The claimant argued that limiting the exemption contradicts the legislature's intent to facilitate insolvency asset liquidation. The Tax Authority relied on binding information stating the exemption only covers transfers of complete business units, consistent with CIRE's preamble emphasizing 'prevalence of alienation of the company as a whole.' The central legal question is whether Article 270(2) CIRE exempts IMT based on the nature of the act (sale in insolvency) or requires specific conditions (transfer of business universality). This distinction significantly impacts insolvency proceedings taxation, affecting both administrators' liquidation strategies and purchasers' acquisition costs. The tribunal must reconcile conflicting interpretations of statutory language with legislative purpose and prior CPEREF regime benefits.

Full Decision

ARBITRAL DECISION

A – REPORT

  1. A…, SA, legal entity no.…, with registered office at Square …, no.…, Porto, has requested the constitution of an arbitral tribunal, under the terms set out in art. 2, no. 1, a) and 10, no. 1 and 2 of the Legal Regime for Tax Arbitration, provided for in DL 10/2011, of 20 January, hereinafter designated "LRTA" and in articles 1 and 2 of Order no. 112-A/2011, of 22 March, with a view to declaring the illegality of the assessment of Tax on Transfers of Real Estate (IMT) no.…, in the amount of 32,500.00 €, with the consequent reimbursement of the amount paid, as well as recognition of the right to compensatory interest, with the Tax and Customs Authority (hereinafter designated "TCA") being requested to intervene.

  2. On 30-06-2016 the request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority.

  3. Having admitted the request for constitution of a single arbitral tribunal, and the Claimant having not opted for the appointment of an arbitrator, pursuant to the terms set out in subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of the LRTA, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator.

  4. The parties were notified of this appointment on 31-08-2016 and, having not manifested an intention to challenge the appointment of the arbitrator, pursuant to the combined terms set out in article 11, no. 1, subparagraphs a) and b) of the LRTA and articles 6 and 7 of the Deontological Code, in accordance with the terms set out in subparagraph c) of no. 1 of article 11 of the LRTA, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 21-09-2016.

  5. Notified, the TCA submitted a response in which it raised no exceptions.

  6. The holding of the meeting provided for in art. 18 of the LRTA was dispensed with, with the consent of the parties, as was the submission of written arguments.

  1. The Claimant requests that the illegality of the assessment of IMT no.…, in the amount of 32,500.00 €, be declared, with the consequent restitution of the amount paid and recognition of the right to compensatory interest, alleging in summary:

    a) In the context of the insolvency proceedings no. …, which took place in the District of Porto – ..., Central Instance – 1st Commercial Court Section-J4, it acquired, for the price of 500,000.00 €, the urban property consisting of a building for industrial purposes with basement, ground floor, first floor and courtyard, located at …, parish of …, municipality of ...;

    b) Such property formed part of the assets of the insolvent company "B…, Lda".

    c) That, having submitted the "IMT form 1" regarding the property, attaching the declaration of the insolvency administrator for purposes of recognition of the exemption provided for in no. 2 of art. 270 of the CIRE, the TCA only recognized the stamp duty exemption, having proceeded to assess the IMT.

    d) It considers that the IMT assessment is vitiated by illegality as the requirements for the application of the IMT exemption provided for in art. 270, no. 2 of the CIRE are met.

    e) It disagrees with the interpretation and application that the TCA makes of the said legal provision, relying on case law of the Supreme Administrative Court.

    f) It understands that the exemption provided for in no. 2 of art. 270 is granted taking into account the acts considered in themselves, independently of the status of the person or entity subject to the payment of the tax, applying both to sales, and to exchanges, and to transfers (being that only as regards the latter is the transfer of the enterprise or universality of assets required).

    g) It considers, thus, that it is contrary to the purpose intended by the legislature to understand that sales of elements of the company's assets would be excluded from the IMT exemption, even when integrated within the scope of an insolvency or payment plan or the liquidation of the insolvent estate.

    h) It concludes, therefore, on the illegality of the assessment that is the subject of the arbitral request, requesting the restitution of the tax paid and the payment of compensatory interest.

  2. For its part, the Respondent, in its response, alleged, in summary:

    a) That the legislature only intended to maintain the IMT exemption in the case of transfer of the universality of assets associated with the exercise of the company's economic activity.

    b) Contrary to what the Claimant claims, the fact that the preamble of the CIRE provides that, as regards tax benefits, those essentially provided for in the CPEREF are maintained, what the legislature meant was that the majority of the benefits enshrined in that regulation or, if you will, its fundamental core, was maintained by the CIRE and not that all tax benefits of the CPEREF were maintained by the CIRE.

    c) Relying on binding information with an order from the Deputy Director-General of Taxes in the Heritage Area, it concludes that the sale of the company's real estate properties individually is not covered by the exemption in no. 2 of art. 270 of the CIRE, and is, consequently, subject to IMT under the general rules.

    d) With regard to the situation at hand, not all the real estate properties of which the insolvent company was the owner were sold, therefore the tax benefit is attributed to companies and individual businessmen and is in accordance with the "principle of the prevalence of the alienation of the company as a whole", as stated in the preamble of the CIRE.

    e) It concludes, therefore, on the legality of the contested assessment act which should, therefore, be maintained, as it finds its basis in the fact that the sale of the real estate does not meet the requirements of art. 270, no. 2 of the CIRE.

  1. The Arbitral Tribunal was regularly constituted and is materially competent.

    The parties have legal personality and capacity and are entitled to bring proceedings (arts. 4 and 10, no. 2, of the same instrument and art. 1 of Order no. 112-A/2011, of 22 March).

    The proceedings are timely and free from nullities.

    No exceptions have been raised that would prevent the examination of the merits of the case.

B. DECISION

  1. MATERIAL FACTS

1.1. FACTS ESTABLISHED

In light of the positions taken by the Parties and the documentary evidence attached to the case file, the following facts with relevance to the decision are considered established:

a) The claimant acquired, on 29-04-2016, for the price of 500,000.00 €, the urban property consisting of a building for industrial purposes with basement, ground floor, first floor and courtyard, located at…, parish of …, municipality of ..., described in the Land Registry Office under no. … and currently registered in the tax matrix under article …;

b) Such property was part of the assets of the company "B…, Lda.", which was declared insolvent in insolvency proceedings no.…, which took place in the District of Porto – ..., Central Instance – 1st Commercial Court Section-J4, with the judicial administrator appointed in those proceedings executing the public deed of sale and purchase as seller;

c) In order to execute the public deed of sale and purchase of the real estate, the Claimant submitted the "IMT form 1", attaching, for purposes of recognition of the IMT exemption, the declaration of the insolvency administrator;

d) The TCA did not recognize such exemption, having proceeded to assess the tax, in the amount of 32,500.00 €;

e) The claimant proceeded to payment of the tax;

f) The request for arbitral determination was submitted on 29-06-2016.

1.2 FACTS NOT ESTABLISHED

   There are no facts deemed unproven with relevance for the assessment of the request.

1.3 The facts were established on the basis of the documents attached to the case file, as well as the positions of the parties, it being noted that no disagreement emerges from the positions taken by Claimant and Respondent regarding the material facts, with the dispute being confined to matters of law.

  1. THE LAW

In light of the positions taken by the parties in their respective pleadings, the only issue to be resolved consists in assessing the legality of the IMT assessment act, determining whether there was a defect of violation of law, by error concerning the legal requirements on which the assessment depends, by the non-application of the provisions set out in article 270, no. 2, of the CIRE to the acquisition of the real estate in question.

Article 270 of the CIRE (in the wording given by Law no. 66-B/2012, of 31 December) provides:

  1.    The following transfers of real estate property, integrated in any insolvency plan, payment plan or recovery plan, are exempt from municipal tax on transfers of real estate:

a) Those intended for the constitution of a new company or companies and the establishment of their capital;

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

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

  1.    The acts of sale, exchange or transfer of the company or of its establishments integrated within the scope of insolvency plans, payment plans or recovery plans or carried out in the context of the liquidation of the insolvent estate are likewise exempt from municipal tax on transfers of real estate.

That is to say, it must be determined whether the exemption provided for in said no. 2 of art. 270 of the CIRE operates only in relation to sales, exchanges or transfers of companies or establishments as universalities of assets (as the Respondent contends), or whether it also applies to sales, exchanges or transfers of real estate property, as elements of their assets, provided that they are framed within an insolvency or payment plan, or carried out in the context of the liquidation of the insolvent estate (as the Claimant argues).

On this interpretive question and in an identical matter to that of the present case, both the CAAD[1] and the Supreme Administrative Court[2] have previously pronounced themselves, in a peaceful, reiterated and uniform manner, in several decisions.

It is stated in the Court's Decision of 18-11-2015 (Case no. 01067/15) that "the following are exempt from IMT: not only sales of the company or its establishments, as universalities of assets, but also sales of elements of its assets, provided that they are integrated within the scope of an insolvency or payment plan or carried out in the context of the liquidation of the insolvent estate".

Adding that:

  • "The assets that make up the insolvent estate are the assets of the patrimony of the company declared insolvent and no other assets belonging to another individual or legal person. By definition, assets that are sold in insolvency proceedings are assets of the insolvent person or which, at least, were considered as such. There is no sale of assets other than those that were part of the insolvent person's patrimony.

The legislature, to guarantee that this is the case, even provides for a procedure for claiming the restitution and separation of assets designed to separate from the estate the assets of a third party wrongfully seized, or those of which the insolvent is not the full and exclusive owner, or are unrelated to the estate or incapable of being seized for the estate – art. 141 of the Code of Insolvency and Business Recovery. Furthermore, in the chapter on liquidation of the Code of Insolvency and Business Recovery, 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, only the right that the insolvent has over assets of which he is co-owner being liquidated in the insolvency proceedings – art. 159 – and there being no sale of assets of controversial ownership until the judgment that defines the ownership of the right of property with respect to such assets becomes final and binding – art. 160.

The insolvency proceedings are – art. 1 of the Code of Insolvency and Business Recovery – 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 comprised in the insolvent estate, or, when that is not possible, to liquidate the patrimony of the insolvent debtor with the subsequent distribution of the product obtained among creditors. The insolvent estate encompasses all the patrimony of the debtor as of the date of the declaration of insolvency, as well as the assets and rights which he acquires during the proceedings and also those whose unattachability is not absolute and are voluntarily presented by the debtor – art. 46 of the Code of Insolvency and Business Recovery – whereby it cannot be conceived that there are assets that, being part of the insolvent estate of a company declared insolvent, could be integrated into a category of assets with no relationship whatsoever with that company or establishment"

No grounds are perceived for not following the indicated case law.

In fact, the literal wording of no. 2 of article 270 of the CIRE determines that the IMT exemption is applicable to sale, exchange and transfer alike, being that only as regards the latter is the transfer of the company or universality of assets required.

Whereby it is understood that acts of sale of real estate carried out within the scope of insolvency or payment plans or recovery plans or carried out in the context of the liquidation of the insolvent estate are not subject to IMT, even where these are "mere" elements of the company's assets and not real estate property integrated in the whole of the company or in the global and complete transfer of one of its establishments.

From which it follows that, as the acquisition in question is covered by the exemption provision contained in no. 2 of article 270 of the CIRE, the arbitral request presented against the IMT assessment should be granted, and the respective assessment act should be annulled.

COMPENSATORY INTEREST

In addition to the restitution of the improperly paid tax, the Claimant requests that the right to payment of compensatory interest be declared.

Such right is established in art. 43 of the LGT which has as a prerequisite that it be determined, in voluntary reclamation or judicial challenge – or in tax arbitration – that there was an error attributable to the services from which resulted payment of the debt in an amount greater than that legally due.

Recognition of the right to compensatory interest in the arbitral proceedings results from the provision of art. 24, no. 5 of the LRTA.

In the case at hand, there was, in fact, an error attributable to the TCA in the assessment made.

Whereby the Claimant is entitled to the requested payment of compensatory interest.

  1. DECISION

In light of the foregoing, it is decided:

                                         a)  To grant, by defect of violation of law, the request for annulment of the tax act that is the subject of the arbitral request corresponding to the IMT assessment no.…, in the amount of 32,500.00 €;

                                         b) To order the Tax and Customs Administration to refund to the claimant the amount of tax paid, plus the respective compensatory interest;

                                         c)  To order the Tax and Customs Administration to pay the costs of the proceedings.

CASE VALUE: In accordance with the provisions of art. 306, no. 2 of the Code of Civil Procedure, art. 97-A, no. 1, a) of the Code of Tax Procedure and Proceeding and art. 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of 32,500.00 € (thirty-two thousand five hundred euros).

COSTS: Pursuant to the provision of art. 22, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 1,836.00 € (one thousand eight hundred and thirty-six euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Let notice be given.

Lisbon, 12-01-2017

The Arbitrator

António Alberto Franco

[1] See, by way of example: Decision of 10-02-2016 - Case no. 599/2015-T; Decision of 27-10-2015 - Case no. 99/2015-T; Decision of 01-09-2015 - Case no. 123/2015-T; Decision of 09-06-2015 - Case no. 95/2015-T.

[2] See, in particular, Court's Decision of 20-01-2016 - Case no. 1350/15; Court's Decision of 16-12-2015 - Case no. 1345/15; Court's Decision of 18-11-2015 - Case no. 575/15; Court's Decision of 11-11-2015 - Case no. 968/13; Court's Decision of 17-12-2014 - Case no. 1085/13 and Court's Decision of 30-05-2012 - Case no. 949/11.

Frequently Asked Questions

Automatically Created

Is the acquisition of property in insolvency proceedings exempt from IMT under Article 270(2) of the CIRE?
Article 270(2) of CIRE's IMT exemption application to individual property acquisitions in insolvency proceedings is disputed. The Tax Authority interprets this provision as requiring transfer of the entire business universality or complete enterprise, excluding individual asset sales. However, claimants argue the exemption applies to all sales executed within insolvency proceedings frameworks, regardless of whether individual properties or complete businesses are transferred, based on the act's nature rather than scope. This interpretation aligns with facilitating insolvency estate liquidation and mirrors prior CPEREF regime benefits.
Can the Tax Authority refuse IMT exemption while granting Stamp Duty exemption on the same insolvency transaction?
The Tax Authority can administratively distinguish between Stamp Duty and IMT exemptions on the same insolvency transaction based on different legal interpretations of Article 270(2) CIRE. While Stamp Duty exemption may be granted for acts within insolvency proceedings, the TCA maintains that IMT exemption requires additional conditions—specifically, transfer of business universality rather than individual asset sales. This differential treatment creates inconsistency, as both taxes theoretically apply the same statutory exemption provision, raising questions about coherent interpretation of insolvency tax benefits.
What is the procedure to claim IMT exemption when purchasing assets from an insolvent estate?
To claim IMT exemption when purchasing assets from an insolvent estate, taxpayers must submit IMT Form 1 with the transaction documentation, attaching a declaration from the court-appointed insolvency administrator certifying the sale occurs within official insolvency proceedings under CIRE jurisdiction. This declaration evidences compliance with Article 270(2) requirements. However, the Tax Authority may still reject the exemption claim if it determines conditions are unmet (e.g., lack of business universality transfer). If rejected, taxpayers can contest through administrative review, court appeal, or CAAD tax arbitration proceedings.
What are the taxpayer's rights to reimbursement and compensatory interest after an unlawful IMT assessment?
After an unlawful IMT assessment, taxpayers have statutory rights to full reimbursement of taxes paid plus compensatory interest calculated from payment date until restitution. Compensatory interest compensates for the State's improper retention of funds, computed according to legal rates established in tax procedure codes. These rights are automatic upon determination of assessment illegality by courts or arbitral tribunals. The restitution must include both principal tax amount and accrued interest, with the Tax Authority obligated to execute payment within specified legal timeframes following the binding decision.
How does CAAD arbitration resolve disputes over IMT exemptions in insolvency-related property transfers?
CAAD arbitration provides an alternative dispute resolution mechanism for IMT exemption disputes in insolvency property transfers under LRTA (DL 10/2011). Taxpayers can request arbitral tribunal constitution to challenge Tax Authority assessments, with proceedings typically faster than traditional court litigation. The arbitral tribunal examines whether statutory exemption requirements under Article 270(2) CIRE are met, considering both parties' arguments, relevant jurisprudence, and legislative intent. Decisions are binding and enforceable, providing definitive resolution on exemption applicability, tax reimbursement obligations, and compensatory interest entitlements, offering taxpayers effective protection against potentially erroneous administrative interpretations.