Process: 407/2017-T

Date: March 8, 2018

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Process 407/2017-T, the CAAD arbitral tribunal ruled on whether IMT (Municipal Property Transfer Tax) applies to real estate acquired by a financial institution during insolvency liquidation proceedings. A… S.A. purchased properties for €1,738,546.00 in 2012 through the insolvency proceedings of B… Lda. Five years later, when the company had not disposed of the properties, the Tax Authority assessed IMT of €137,444.64. The Claimant paid but challenged the assessment through tax arbitration, arguing the acquisition was exempt under Article 270(2) of the Portuguese Insolvency and Corporate Recovery Code (CIRE). This provision exempts from IMT real estate transfers within insolvency plans, payment plans, recovery plans, or liquidation of the insolvency estate. The Tax Authority acknowledged that the exemption had been granted based on Article 270(2) CIRE and that the Claimant was never notified of any cessation of the exemption. The arbitral tribunal confirmed that the Claimant benefited from the exemption, citing consistent jurisprudence from the Court of Last Resort in multiple decisions (cases 1085/13, 968/13, 575/15, 1076/15, 1345/15, and 01350/15). The tribunal emphasized that this interpretation best adapts the statutory text to the legislative intent behind the CIRE provisions. This decision reinforces that acquisitions of real estate during insolvency liquidation proceedings are exempt from IMT, and taxpayers can successfully challenge improper assessments through the CAAD arbitration process under the RJAT framework.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Pedro Soares Martinez and Rui Ferreira Rodrigues, designated by the Deontological Council of the Centre for Administrative Arbitration to constitute an Arbitral Court:

I – REPORT

On 04 July 2017, A…, S.A., NIPC…, with registered office at Rua…, n.º…, …-…Lisbon, filed a petition for constitution of an arbitral tribunal, under the combined provisions of articles 2º and 10º of Decree-Law n.º 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Fiscal Matters, as amended by article 228º of Law n.º 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality of the act assessing Municipal Tax on Onerous Transfers of Real Estate (IMT), documented under n.º … of 2017, in the amount of € 137,444.64.

To support its petition, the Claimant alleges, in summary, that the taxed acquisition benefits from an IMT exemption, provided for in article 270º/2 of the Corporate Insolvency and Recovery Code (CIRE).

On 05/07/2017, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

The Claimant did not proceed with the appointment of an arbitrator, and therefore, pursuant to the provisions of subparagraph a) of paragraph 2 of article 6º and subparagraph a) of paragraph 1 of article 11º of the RJAT, the President of the Deontological Council of the CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable time limit.

On 28-08-2017, the parties were notified of these designations and did not manifest any wish to decline any of them.

In accordance with the provisions of subparagraph c) of paragraph 1 of article 11º of the RJAT, the collective Arbitral Court was constituted on 12-09-2017.

The Respondent, duly notified for that purpose, submitted a response, defending itself solely by challenge.

Given that, in this case, none of the objectives legally assigned to it were present, pursuant to the provisions of articles 16º/c) and 19º of the RJAT, as well as the principles of procedural economy and prohibition of futile acts, by order of 04-12-2017, the holding of the meeting referred to in article 18º of the RJAT was dispensed with, as was the submission of arguments by the parties, and a period of 30 days was fixed for the issuance of the final decision, following submission of arguments by the Tax Authority, which period was extended until the end of the period referred to in article 21º/1 of the RJAT, by order of 15-01-2018.

The Arbitral Court is materially competent and is properly constituted, under the terms of articles 2º, paragraph 1, subparagraph a), 5º and 6º, paragraph 1, of the RJAT.

The parties have standing and capacity to sue, are entitled and are legally represented, under the terms of articles 4º and 10º of the RJAT and article 1º of Ordinance n.º 112-A/2011, of 22 March.

The case does not suffer from defects in form.

Thus, there is no obstacle to the examination of the case.

Therefore, it is necessary to issue

A. STATEMENT OF FACTS

A.1. Facts established as proven

The Claimant is a financial institution whose corporate purpose consists of carrying out financial operations.

On 08/02/2012, and in the exercise of its activity, the Claimant, in its capacity as creditor, acquired by public deed of purchase and sale the real estate identified below, within the scope of the Insolvency Proceedings of "B…, Lda.", holder of NIF…, which proceeded in the Judicial Court of the Judicial District of Pombal under n.º .../10…. TBPBL-D and which became final on 18/01/2011:

The real estate in question was registered and seized for the insolvency estate and the Claimant purchased them for the price of € 1,738,546.00 (one million seven hundred thirty-eight thousand five hundred and forty-six euros).

In the public deed of purchase and sale, the following is stated:

On 09/02/2017, A…, SA, NIPC … requested from the Tax Office of ...- …, the assessment of IMT relating to the acquisition of urban real estate that it identifies, stating "(...) since it did not dispose of the real estate within 5 years after its acquisition, it hereby requests the issuance of the respective IMT assessments (...)."

The corresponding IMT assessment was made under document n.º …, issued on 05/04/2017, in the amount of €137,444.64.

The Claimant proceeded with the payment of the aforementioned assessment, within its respective time limit.

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the proven and not proven statement of facts

With regard to the statement of facts, the Court does not have to pronounce on everything alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish proven from not proven facts (cf. article 123º, paragraph 2, of the CPPT and article 607º, paragraph 3 of the CPC, applicable ex vi article 29º, paragraph 1, subparagraphs a) and e), of the RJAT).

Accordingly, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions of the legal issue(s) (cf. former article 511º, paragraph 1, of the CPC, corresponding to the current article 596º, applicable ex vi article 29º, paragraph 1, subparagraph e), of the RJAT).

Thus, taking into account the positions taken by the parties, in light of article 110º/7 of the CPPT and the documentary evidence attached to the case file, the facts listed above were considered proven, with relevance to the decision.

B. LAW

The disputed issue in the present arbitral action concerns the application of the provisions of paragraph 2 of article 270º of the CIRE, specifically with regard to acquisitions of real estate in the context of insolvency and corporate recovery proceedings, which are exempt from IMT.

The aforementioned paragraph 2 of article 270º of the CIRE, in its current wording, provides as follows:

"Real estate transfers, exchanges or assignments of the business or of its establishments, integrated within the scope of insolvency plans, payment plans or recovery plans, or effected in the context of liquidation of the insolvency estate, are equally exempt from municipal tax on onerous transfers of real estate."

The Tax Authority recognizes that the exemption in question was "granted based on acquisition within the scope of Insolvency Proceedings under paragraph 2 of article 270º of the CIRE" and that the Claimant was not notified "of any cessation of the granted exemption," whereby the Claimant is "benefiting from the exemption provided for in paragraph 2 of article 270º of the CIRE".

There is, in fact, no doubt that the Claimant has such exemption, and the question has been treated persistently in the Tax Courts, as shown by Court of Last Resort Decision no. 01350/15 of 20/01/2016:

- Decision of 17 December 2014, issued in case n.º 1085/13;

- Decision of 11 November 2015, issued in case n.º 968/13;

- Decision of 18 November 2015, issued in case n.º 575/15;

- Decision of 18 November 2015, issued in case n.º 1076/15.

The aforementioned Decision refers to the reasoning and understanding set forth in the judgment of 16 December 2015, issued in case n.º 1345/15, of the same Court of Last Resort, which, in essence, states:

(…) The adoption of the interpretation of article 270º, paragraph 2 of the CIRE that has been consistently and repeatedly adopted by the Court of Last Resort is the understanding that is being adopted and hereby reaffirmed, as it constitutes what best adapts the statutory text to the meaning and scope of the legislative authorization under which the rule was issued by the Government in a matter reserved to the Assembly of the Republic and because that interpretation is the one that best serves the teleology of paragraph 2 of article 270º of the CIRE - "to foster and support the rapid sale of assets that make up the insolvency estate for obvious reasons of interest to creditors, but also of public interest in the resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element", providing fiscal incentives to those who acquire real estate assets that make up the insolvency estate and that will be sold in the liquidation phase – there being, therefore, no reason to distinguish between situations where the business is being sold as a whole with all its assets and liabilities, and situations where one or more commercial establishments that comprised it are being sold, or where real estate assets that made up its assets are being sold (…)

Arbitral jurisprudence has also addressed the question, concluding in the same sense as the Court of Last Resort, as evidenced, for example, in cases 764/2014-T of 29-05-2015, n.º 99/2015-T of 27-10-2015, n.º 95/2015-T of 09-06-2015, 123/2015-T of 01-09-2015, 321/2016 of 01-11-2016 and 138/2016-T of 10-10-2016.

As can be read in this last Decision:

(…) The CPEREF, the statute that preceded the CIRE, provided, in paragraph 2 of article 121º, an exemption from transfer tax for "transfers of real estate assets, integrated in any of the corporate recovery measures, that result (…) from the sale, exchange or assignment of elements of the company's assets (…)". There was, therefore, no doubt that the exemption applied to the isolated sale of real estate that occurred in the context of corporate recovery proceedings.

Later, Law n.º 39/2003, of 22 August, authorized the Government to legislate on the insolvency of natural and legal persons, repealing the CPEREF. The new legal regime should place emphasis on the satisfaction of creditors, either through the liquidation of assets or through an insolvency plan (cf. article 1º, paragraph 2, of Law n.º 39/2003). With regard to tax benefits, paragraph 3 of article 9º of Law n.º 39/2003 authorized the Government "to exempt from municipal transfer tax the following transfers of real estate, integrated in any insolvency plan or payment plan or carried out within the scope of liquidation of the insolvency estate: (…) those that result (…) from the sale, exchange or assignment of the business, establishments or elements of its assets (…)". Thus, Law n.º 39/2003 was even more favorable to the transfer of real estate included in the insolvency estate than the CPEREF in that it did not restrict the exemption from taxation to transfers of real estate that might take place in a context of corporate recovery, extending it also to transfers that took place in a context of liquidation of the insolvent business or its establishments.

The same decision states that the Supreme Administrative Court (Court of Last Resort) has had the opportunity, on several occasions, to clarify what should be understood as the ratio legis of the legal provision under analysis, citing, by way of example, the Decision of 17.12.2014, appeal 01085/13, where it is stated that "one must take into account the purpose that the legislator intends to achieve with the granting of such exemption, - 'to foster and support the rapid sale of assets that make up the insolvency estate for obvious reasons of interest to creditors, but also of public interest in the resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element', providing fiscal incentives to those who acquire real estate assets that make up the insolvency estate and that will be sold in the liquidation phase. There being no need to differentiate, for that purpose, between situations where the business is being sold as a whole with all its assets and liabilities, and situations where one or more commercial establishments that comprised it are being sold, or where real estate assets that made up its assets are being sold. The objective that presides over the teleology of the norm will equally be pursued when the acquisition has as its object elements of the company's assets, it not being necessary that the object be the company or establishments thereof integrated within the scope of an insolvency plan."

Finally, it is further stated there that "it is important to take into account the systematic element to determine the meaning of the provision in question, firstly because the IMT exemption provided for in paragraph 2 of article 270º of the CIRE is not the only one provided for in transactions of onerous transfer of real estate that take place within the scope of the insolvency proceeding, being accompanied by the IMT exemption also provided for in paragraph 1 of article 270º of the CIRE and by the stamp duty exemption provided for in subparagraphs d) and e) of article 269º of the CIRE. It so happens that both of them apply, clearly, both to the transfer of real estate effected together with the business or the establishment of which they are part, and to the isolated transfer of real estate. Also from this perspective it therefore seems that the interpretation according to which the IMT exemption provided for in paragraph 2 of article 270º of the CIRE covers the transfer of real estate when effected together with the business or establishment of which they are part or when effected in isolation is the most consistent with the overall spirit of the legal system.

Concluding that "...in light of the doubts raised by the lack of clarity of the verbal statement of the provision in question, resort to historical, teleological and systematic elements make it possible to conclude with certainty that the IMT exemption provided for by paragraph 2 of article 270º of the CIRE applies, not only to sales or exchanges of businesses or establishments as a whole body of assets, but also to sales and exchanges of real estate (as elements of its assets), provided that they are framed within the scope of an insolvency plan or payment plan, or carried out within the scope of liquidation of the insolvency estate.

The aforementioned understanding has been maintained, as evidenced by the Court of Last Resort decision of 01-02-2017, issued in case 0724/16, in which it was held that the IMT exemption provided for by paragraph 2 of article 270º of the CIRE applies, not only to sales or exchanges of businesses or establishments as a whole body of assets, but also to sales and exchanges of real estate (as elements of its assets), provided that they are framed within the scope of an insolvency plan or payment plan, or carried out within the scope of liquidation of the insolvency estate.

In light of the consolidated jurisprudence transcribed above, to which we adhere in full, as it is important to contribute to a uniform interpretation and application of the Law (article 8º, paragraph 3 of the Civil Code), it is necessary to conclude that the provision of paragraph 2 of article 270º of the CIRE covers real estate transfer operations from the insolvency estate that take place in isolated form, that is, not integrated in the transfer of the business or a commercial establishment, as well as those that take place in the context of these more comprehensive transfers, as is the case here, whereby the Claimant should be considered covered by such exemption.

In light of the foregoing, the assessment that is the subject of the present arbitral action suffers from an error regarding the legal grounds, by violation of article 270º, paragraph 2 of the CIRE, necessitating its annulment.

As for the Claimant's claim for compensatory interest, article 43º, paragraph 1, of the Tax Code (LGT) provides that compensatory interest is due when it is determined that there was an error attributable to the Tax Authority services resulting in payment of the tax debt in an amount higher than that legally due.

In this case, it is found that the error affecting the assessment is not attributable to the Tax Authority and Customs, which carried out the unlawful assessment act on the initiative of the Claimant, which requested it to do so.

Thus, as the necessary legal requirements are not met, the Claimant is not entitled to the requested interest.

*

C. DECISION

The Arbitral Court hereby decides to uphold the arbitral petition filed and, in consequence:

Annul the act assessing Municipal Tax on Onerous Transfers of Real Estate (IMT), documented under n.º … of 2017, in the amount of € 137,444.64;

Determine the reimbursement of the unduly paid tax;

Condemn the Respondent to pay the costs of the proceedings, fixed below.

D. Value of the Case

The value of the case is set at € 137,444.64, under the terms of article 97º-A, paragraph 1, a), of the Tax Procedure and Process Code, applicable pursuant to subparagraphs a) and b) of paragraph 1 of article 29º of the RJAT and paragraph 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is set at € 3,060.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the petition was upheld, under the terms of articles 12º, paragraph 2, and 22º, paragraph 4, both of the RJAT, and article 4º, paragraph 4, of the aforementioned Regulation.

Notice is given.

Lisbon, 8 March 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator

(Pedro Soares Martinez)

The Arbitrator

(Rui Ferreira Rodrigues)

Frequently Asked Questions

Automatically Created

Is the acquisition of property in insolvency proceedings exempt from IMT (Municipal Property Transfer Tax) under Portuguese law?
Yes, acquisitions of property in insolvency proceedings are exempt from IMT under Article 270(2) of the Portuguese Insolvency and Corporate Recovery Code (CIRE). This exemption applies to real estate transfers effected within the context of liquidation of the insolvency estate, as well as those integrated within insolvency plans, payment plans, or recovery plans. The CAAD arbitral tribunal in Process 407/2017-T confirmed this exemption applies even when the acquiring company retains the property beyond five years, and multiple Court of Last Resort decisions have consistently upheld this interpretation.
What does Article 270(2) of the Portuguese Insolvency and Corporate Recovery Code (CIRE) establish regarding IMT exemption?
Article 270(2) of the Portuguese Insolvency and Corporate Recovery Code (CIRE) establishes that real estate transfers, exchanges, or assignments of businesses or their establishments are exempt from IMT (Municipal Property Transfer Tax) when they occur within the scope of insolvency plans, payment plans, recovery plans, or are effected in the context of liquidation of the insolvency estate. This exemption is designed to facilitate the restructuring and liquidation processes in insolvency proceedings by removing the IMT tax burden that would otherwise apply to onerous transfers of real estate.
How can taxpayers challenge an IMT assessment through tax arbitration at CAAD?
Taxpayers can challenge an IMT assessment through tax arbitration at CAAD (Centro de Arbitragem Administrativa) by filing a petition for constitution of an arbitral tribunal under Articles 2 and 10 of Decree-Law 10/2011 (RJAT - Legal Framework for Arbitration in Fiscal Matters). The petition must identify the contested tax act and legal grounds for challenge. Once filed, the petition is automatically notified to the Tax Authority. The parties may appoint arbitrators, or the Deontological Council of CAAD will designate them. The process provides an alternative to judicial courts for resolving tax disputes efficiently.
What are the requirements for constituting an arbitral tribunal under the RJAT (Decreto-Lei 10/2011) for tax disputes?
Under the RJAT (Decreto-Lei 10/2011), constituting an arbitral tribunal for tax disputes requires: (1) filing a valid petition identifying the contested tax act and grounds for illegality; (2) designation of arbitrators - either by party appointment or by the CAAD Deontological Council under Article 6(2) and 11(1); (3) acceptance of appointment by designated arbitrators within the applicable time limit; (4) notification to parties of arbitrator designations with opportunity to decline; and (5) formal constitution of the tribunal under Article 11(1)(c) of RJAT. The tribunal must have material competence under Articles 2, 5, and 6 of RJAT, and parties must have standing and capacity.
Can a company recover IMT paid on real estate acquired during insolvency liquidation proceedings in Portugal?
Yes, a company can recover IMT paid on real estate acquired during insolvency liquidation proceedings in Portugal if the acquisition qualifies for the Article 270(2) CIRE exemption. As demonstrated in Process 407/2017-T, where a financial institution challenged an IMT assessment of €137,444.64 after acquiring properties for €1,738,546.00 in insolvency liquidation, the company can file for tax arbitration at CAAD to declare the assessment illegal and seek recovery of the tax paid. The Tax Authority must recognize the exemption applies to acquisitions within the liquidation of insolvency estates, supported by consistent Court of Last Resort jurisprudence.