Process: 511/2016-T

Date: December 28, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 511/2016-T addressed whether IMT exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) applies to property acquisitions from insolvent estates. The claimant company acquired two mixed properties valued at €535,000 from an insolvent estate in liquidation proceedings before the Commercial Court of Lisbon. Initially, the Tax Authority granted full IMT exemption under the insolvency benefit code. However, in January 2016, the TA reversed its position, proposing to withdraw the exemption and assess additional IMT, arguing the benefit did not apply to individual asset sales. The claimant contested this reversal, asserting Article 270(2) CIRE clearly exempts sales carried out within the scope of liquidation of the insolvent estate, not merely transfers of companies or establishments as universalities. The claimant cited Supreme Administrative Court precedent (Case 0949/11, 2012) interpreting IMT exemptions broadly to include sales of individual estate assets integrated in insolvency or payment plans, or conducted during estate liquidation. The legal dispute centered on statutory interpretation: whether the exemption provision covers only business transfers as going concerns or extends to liquidation sales of individual assets. The claimant emphasized that CIRE was enacted under Authorization Law 39/2003, which explicitly authorized IMT exemption for transfers integrated in insolvency plans or carried out within insolvent estate liquidation. The arbitral tribunal established competence under RJAT Article 2(1)(a) to review the IMT assessment act. This case illustrates critical distinctions in applying insolvency-related tax benefits and highlights interpretative tensions between restrictive and purposive readings of CIRE Article 270(2) exemptions.

Full Decision

Arbitral Decision

I. REPORT

A…, S.A. (hereinafter Claimant), a commercial company registered at the Commercial Registry Office of … under the single registration number and collective person number …, with registered office at Rua …, nº…, …, … –… …, parish of the Union of parishes of …, municipality of Sintra, has submitted a request for the constitution of a sole arbitral tribunal, in which the Tax and Customs Authority (hereinafter TA or Respondent) is called upon, with a view to obtaining the annulment of the assessment act no. … of Municipal Tax on Onerous Real Property Transfers (IMT).

The request for constitution of the Arbitral Tribunal was accepted by the Illustrious President of CAAD and automatically notified to the TA on 14 September 2016.

In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the sole Arbitral Tribunal was constituted on 15 November 2016.

The TA responded, arguing that the petition should be ruled unfounded.

The meeting referred to in Article 18 of the RJAT and the holding of final submissions were dispensed with, given the nature of the matters contained in the record, and both parties manifested their agreement thereto.

The Arbitral Tribunal is properly constituted and is materially competent, in accordance with subparagraph a) of paragraph 1 of Article 2 of the RJAT.

The parties have legal personality and capacity, are legally entitled and are represented (Article 4, and paragraph 2 of Article 10 of the RJAT and Article 1 of Ordinance no. 112/2011, of 22 March).

There are no nullities, exceptions or preliminary matters that prevent immediate examination of the merits of the case.

II. FACTS

Based on the elements contained in the proceedings and in the administrative file attached to the record, the following facts are established as proven:

A) Within the scope of Insolvency Proceedings no. …/12….TY… pending before the 1st Court of the Commercial Court of …, insolvency was declared of "B…, S.A.", with Tax and Corporate Identity Number …;

B) The Claimant acquired on 5 March 2014, in the aforementioned Insolvency Proceedings, from the insolvent estate of B…, the following real property that appeared in items 1 and 2 of the Seizure Schedule of Real Property:

• Item no. 1

Mixed Property, located at …, nos … and …, composed of a set of makeshift buildings, in ruins, intended for agricultural purposes, with a total area of 2,235 m² and 14,880 m² of vegetable garden and mixed orchard; described in the 2nd Property Registry Office of … under no…, parish of …, and recorded in the matrix under articles … – Section F (rustic portion) and article … (urban portion); with the patrimonial value of €973.15 (nine hundred seventy-three euros and fifteen cents) and €733,720.00 (seven hundred thirty-three thousand, seven hundred twenty euros) respectively, for a total of €734,693.15 (seven hundred thirty-four thousand, six hundred ninety-three euros and fifteen cents);

• Item no. 2

Mixed Property, denominated "…", located in … of …, composed of property held in full ownership with storeys or divisions capable of independent use (17), with swimming pool, tennis court and roundabout, with a total area of 5,696 m², implantation area of 2,288 m², total gross private area of 2,638 m² and land area forming part of the fractions of 738 m²; and vegetable garden of 10,040 m²; described in the 2nd Property Registry Office of … under no…, parish of …, and recorded in the matrix under articles … and … (urban portions) and article … – Section F (rustic portion); with the patrimonial value of €573,642.17 (five hundred seventy-three thousand, six hundred forty-two euros and seventeen cents) and €34,144.13 (thirty-four thousand, one hundred forty-four euros and thirteen cents) and €204.13 (two hundred four euros and thirteen cents) respectively, for a total of €607,990.43 (six hundred seven thousand, nine hundred ninety euros and forty-three cents).

C) The Claimant acquired the aforementioned properties for the overall value of €535,000.00 (five hundred thirty-five thousand euros), as appears from the judicial certificate issued on 2 April 2014 by the competent Commercial Court of Lisbon;

D) On 7 April 2016, the TA issued document … of IMT assessment with the total value of €0.00 (zero euros), which contains:

"Benefits: 59 – Code of Insolvency and Business Recovery – Transmissions integrated in Insolvency Plans or payments (art. 270, para. 1 and 2 of D-L 53/04), 100% on the taxable matter."

E) On 4 January 2016, the Claimant was notified, by means of Official Letter no. …, for the exercise of the right of prior hearing regarding the proposal for additional IMT assessment relating to declaration no. …/2014 assessed with reference to the purchase of the real property identified in B, stating that the tax benefit of exemption granted in the tax return was not applicable;

F) On 21 January 2016, the Claimant exercised the right of prior hearing, requesting the maintenance of the IMT exemption benefit;

G) On 29 April 2016, the Claimant was notified through Official Letter no. … of the rejection of the IMT exemption request;

H) The Claimant proceeded to pay the Assessment Act no. …, relating to the IMT.

There are no facts relevant to the examination of the merits of the case that have not been established as proven.

This Tribunal formed its conviction on the basis of the documents filed in the record by the Parties.

III. LAW

The main issue raised in the present proceedings reduces to determining whether the acquisition of real property effected by the Claimant, in the context of the liquidation proceedings of the insolvent company, is (or is not) exempt from IMT, as provided for in Article 270, paragraph 2 of the Code of Insolvency and Business Recovery (hereinafter CIRE).

To this end, the Claimant alleges in its request for constitution of the Arbitral Tribunal the following:

A) Article 270, paragraph 2 of the CIRE provides that "Also exempt from the municipal tax on onerous real property transfers are the acts of sale, exchange or transfer of the company or its establishments integrated within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate";

B) The transfer in question is, without doubt, a transfer effected through sale, carried out within the scope of the liquidation of the insolvent estate, so that by not applying the exemption provided for in Article 270, paragraph 2 of the CIRE, the TA acted in manifest illegality;

C) To this end, on 30.05.2012 the Supreme Administrative Court understood, in the context of proceedings no. 0949/11, that IMT exemptions should be understood to include not only sales of the company or its establishments as a universality of assets, but also sales of elements of its assets, provided that they are integrated within an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate;

D) The CIRE is approved by Authorized Decree-Law no. 53/2004, of 18 March, and therefore, by virtue of the Constitution, the legislator's freedom – in this case, the Government – is limited by the limits of Authorization Law no. 39/2003;

E) Article 9, para. 3 subparagraph c) of Law no. 39/2003 addresses the tax benefit in IMT, which is reproduced here:

"Article 9 (Tax benefits in the context of insolvency proceedings)

(…)

3 — The Government is finally authorized to exempt from municipal surtax the following real property transfers, integrated in any insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate:

(…)

c) Those arising from the transfer to third parties or the disposal of shareholdings representing the capital of the company, from the payment of company assets and the transfer of assets to creditors, from the sale, exchange or transfer of the company, establishments or elements of its assets, as well as long-term leases." (emphasis ours)

F) From any possible infelicity in the choice of terms by the legislator, no other interpretation can be drawn from the provision of Article 270, paragraph 2 of the CIRE than that the benefit must be granted to the acquisition of elements of its assets, and not merely to the universality of the insolvent estate, as the TA seeks to interpret, under penalty of illegality of Decree-Law no. 53/2004, of 10 March, by violation of the limits of Authorization Law;

G) In fact, doctrine and case law have been consistent in affirming that the restrictive elements of the legislator's freedom of discretion, as is the case here with the Authorization Law, also act as binding interpretive criteria, when it comes to discerning a meaning compatible with the underlying legal framework;

H) The Legislating Legislator, in establishing the exemption in question, opts to forgo tax revenue for the benefit of protecting the claims owed by the insolvent party, as a measure functionally capable of reducing the economic impact of insolvency on those with whom the insolvent party deals, just as in the business fabric where, as the STA well understood in its judgment handed down on 18.11.2015 in the context of Proceedings 575/15 and 1067/15, "each insolvency proceeding presents itself as a disruptive element";

I) It does so understanding, and rightly, that there will be greater ease in finding a purchaser for the real property of the insolvent party by granting exemption from the substantial burden that is IMT, placing economic health in priority over revenue needs;

J) In this spirit of the provision, there is no justifiable reason for the discrimination operated by the TA regarding partial acquisitions of the insolvent estate;

K) Thus, the assessment whose annulment is now sought is marred by illegality as to its factual and legal premises, expressly violating the provision of paragraph 2 of Article 270 of the CIRE;

L) The sought annulment will always found, in accordance with Article 43 of the LGT, the right of the Claimant to payment of compensatory interest, which is hereby claimed for the amount to be calculated upon the effective restitution of the sum improperly collected by virtue of the illegal IMT assessment.

For its part, the TA argues, in summary, the following:

A) The Claimant alleges that, given that the acquisition of the aforementioned properties was effected within the scope of the liquidation of a certain insolvent estate, the same is covered by the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE;

B) The Respondent considers that the Claimant's claim is without merit, as shall be demonstrated below;

C) First and foremost, it should be noted that the current paragraph 2 of Article 270 of the CIRE provides:

"Also exempt from the municipal tax on onerous real property transfers are the acts of sale, exchange or transfer of the company or its establishments integrated within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate. (As amended by Article 234 of Law no. 66-B/2012, of 31 December, entering into force on 1 January 2013)."

D) This exemption, previously provided for, covers all acts integrated within insolvency plans, or payment plans, or the liquidation of the insolvent estate, with the reservation, however, that the subject matter of the exempt transfer be the company or its establishment and not one or two assets of its portfolio;

E) Article 5 of the CIRE defines as a company, for purposes of that Code, any organization of capital and labour intended for the exercise of any economic activity;

F) By authorizing the Government only to approve a set of tax benefits within the scope of insolvency and business recovery proceedings, the Assembly of the Republic granted it the possibility of approving all of those tax benefits in a block, approving only part of them or then purely and simply not using the legislative authorization;

G) In fact, the ordinary legislator's binding to the legislative authorization granted by the Assembly of the Republic is not absolute, it covers only its temporal limit of duration;

H) Consequently, the Government cannot proceed to use the legislative authorization after its expiration, nor can it distort or exceed the meaning and scope of the authorizing legal norm;

I) The legislative authorization is not an absolute mandate to legislate, contrary to what the aforementioned Judgment of the Supreme Administrative Court erroneously argues;

J) No relationship of indissociability or inseparability manifests itself between the tax benefits of Law no. 39/2003, the legislator being able to have used them in a block or, as it ended up doing, only partially;

K) If Article 270, paragraph 2, of the CIRE were indeed unconstitutional, the only logical consequence, by virtue of being the only one compatible with the constitutional text, would be the legality of the assessment by virtue of the inapplicability of a norm on tax benefits approved without any legislative authorization granted by Parliament;

L) It thus clearly results that the acquisition did not involve the purchase of the universality of all assets affected by the activity of the insolvent company;

M) That is to say, the sale of real property of the company, in isolation, is not, thus, covered by the exemption provided for in paragraph 2 of Article 270 of the CIRE, being consequently subject to IMT under general law;

N) For all the above reasons, the Claimant's arguments fail, with respect to the interpretation to be made of the legal provision under analysis here, so the TA acted correctly in the application and interpretation of the applicable legislation to the assessments in question in the present proceedings;

O) Since there is no illegality of the assessment act nor legal ground that sustains the Claimant's claim, the petition for reimbursement of the sums paid by the Claimant and the petition for compensatory interest are consequently unfounded, and there was no error attributable to the services in the implementation of the assessment.

Given the foregoing, regarding the position of the Parties and the arguments presented, to determine whether the IMT assessment act sub judice is or is not illegal, it will be necessary to verify:

Whether the provision set out in Article 270, paragraph 2 of the CIRE exempts from IMT the real property acquired, within the scope of liquidation proceedings of insolvent companies, regardless of whether the property transferred is integrated into the universality of the companies or establishments sold, exchanged or transferred within the scope of an insolvency plan or payment plan or the liquidation of the insolvent company, such as the acquisition made by the Claimant.

Let us examine what should be understood.

Article 270 of the CIRE, approved by Decree-Law no. 53/2004, provides as follows:

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

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

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

c) Those arising from the payment of company assets and the transfer of assets to creditors;

2 - Also exempt from the municipal tax on onerous real property transfers are the acts of sale, exchange or transfer of the company or its establishments integrated within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate.

On this matter and in a question identical to that of the present proceedings, the Supreme Administrative Court has already ruled in various judgments, from which stands out for its clarity Judgment no. 0949/11, of 30 May 2012, which we now reproduce:

In light of the letter of the law, either one or the other of the interpretations are defensible, appearing, however, grammatically more correct that sustained by the tax administration, since the verbs "sell," "exchange" and "transfer" are all transitive verbs, hence in the phrase the reference to "the company or its establishments" appears as the direct object of all three.

This interpretation, however, clashes – as well observed in the appealed judgment – with what the legislator set forth in paragraph 49 of the preamble of the CIRE regarding tax benefits, where it is stated that: "are maintained, in essence, the regimes existing in the CPEREF regarding the exemption of notarial fees and tax benefits," and it is certain that subparagraph c) of paragraph 2 of Article 121 of the CPEREF exempted from municipal surtax the transfers of real property integrated in any of the company recovery measures arising, namely, from the sale, exchange or transfer of elements of the company's assets. And it clashes, also – as well observed by the Public Prosecutor in the first instance (see the opinion at pages 66 to 68 of the record) – with the meaning and scope of the legislative authorization granted to the Government under which the CIRE was approved, established in Articles 2 and following of Law no. 39/2003, of 22 August, because, as regards the exemptions from municipal surtax (now IMT), paragraph 3 of Article 9 of that legislative authorization law provided that: "The Government is finally authorized to exempt from municipal surtax the following real property transfers, integrated in any insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate: c) (…) the sale, exchange or transfer of the company, establishment or elements of its assets (…)".

It can, it is true, be argued that, from the perspective of the CIRE legislator, the differences regarding the scope of the IMT exemption relative to that which existed in the CPEREF for SISA did not appear essential, hence it made no particular reference to them. In fact, particularly in tax matters, the preambles of statutes do not always precisely reflect their content, and it is not even unusual for them to include mentions that the statutory provisions undermine (as regards SISA/IMT see the Judgment of this Supreme Court of 3 November 2010, appeal no. 499/10).

And it can, also, be argued that in the implementation of the legislative authorization for the approval of the CIRE, in the matter at hand, the Executive decided to be more parsimonious than the Assembly of the Republic regarding the granting of IMT exemption, deciding to exclude that 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. If that was the case, however, it would not have respected the meaning and scope of the legislative authorization granted to it, having legislated in a matter reserved for the Assembly of the Republic (see paragraph 2 of Article 103 and subparagraph i) of paragraph 1 of Article 165 of the Constitution) in disregard of the parliamentary credential granted to it.

As is known, between two meanings of the law, both with support – at least minimal – in its respective letter, the interpreter must opt for the one that makes it compatible with the constitutional text (interpretation in conformity with the Constitution), to the detriment of the interpretation that vitiates it with unconstitutionality.

It is for this fundamentally that reason it is understood that the appealed decision does not merit censure, because while it may be doubtful that the ordinary legislator of the CIRE intended to grant the IMT exemption provided for in paragraph 2 of its Article 270 the same scope that the previous SISA exemption provided for in subparagraph c) of paragraph 2 of Article 121 of the CPEREF had, the option for the meaning of its restriction was not permitted to it, because in the matter of tax benefits it legislates in a domain reserved for the Assembly of the Republic, and it must respect the limits that this body sets for it, namely those relating to the meaning and scope of the authorization (see paragraph 2 of Article 165 of the Constitution of the Republic).

Thus, just as was argued in the aforementioned Judgment, this Tribunal understands that the acts referred to in paragraph 2 of Article 270 of the CIRE cover not only the transfers of real property integrated in a universality of the company or establishment of the insolvent estate, but also the isolated transfers of elements of its assets, provided that they are integrated within the scope of the insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate.

In the present case, the Claimant acquired the real property from the insolvent estate of the company B…, S.A. – a fact that the Respondent does not dispute.

Therefore, and in light of the interpretation defended in the Judgment of the STA above identified, which we endorse, it is necessary to conclude that the Claimant is correct in defending the illegality of the IMT assessment act relating to the acquisition of those properties.

Thus, it is necessary to rule the arbitral petition presented against the IMT assessment relating to the acquisition of the property in insolvency proceedings well-founded, annulling the IMT assessment act sub judice, considering that such acquisition is covered by the exemption provision contained in paragraph 2 of Article 270 of the CIRE.

The Claimant also petitions for the condemnation of the TA to the payment of compensatory interest, in accordance with the provisions of Article 43 of the LGT.

Now, Article 46 of the IMT Code establishes the following:

  1. Once the assessment is annulled, either ex officio or by decision of the competent entity or court, with final force, the respective reimbursement is made.

  2. There is no annulment whenever the amount of tax to be annulled is less than €10.

  3. Compensatory interest is due, in accordance with Article 43 of the General Tax Law, which are assessed and paid in accordance with the Code of Tax Procedure and Process.

As results from the interpretation given to Article 270, paragraph 2 of the CIRE, IMT was not due, so such tax was improperly collected.

Consequently, the Claimant has the right to compensatory interest, in accordance with the legal provisions set forth above.

In summary: the IMT assessment act underlying the present arbitral petition is illegal and must be annulled.

IV. DECISION

In view of the foregoing, this Arbitral Tribunal decides:

A) To rule well-founded, as proven, the petition for arbitral pronouncement and, in consequence, to declare illegal and annul the IMT assessment act, in the total amount of €20,068.28.

B) To rule well-founded, as proven, the petition for payment of compensatory interest, namely condemning the Respondent to the payment of compensatory interest calculated from the date of improper payment until the date of processing of the respective credit note, as provided for in paragraph 1 of Article 43 of the General Tax Law in conjunction with the provision of paragraph 5 of Article 61 of the Code of Tax Procedure and Process.

C) To condemn the Respondent in the costs of the present proceedings, as the unsuccessful party.

V. VALUE OF PROCEEDINGS

In accordance with the provisions of Article 306, paragraph 2 of the Code of Civil Procedure, Article 97-A of the CPPT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the petition is fixed at €20,068.28.

VI. COSTS

In accordance with the provisions of Articles 12, paragraph 2 and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4 of the Regulation of Costs of Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €1,224, in accordance with Table I of the aforementioned Regulation, charged to the Respondent, given the entire success of the petition.

Let notice be given.

Lisbon, 28 December 2016

The Arbitrator

Magda Feliciano

(The text of this decision was drawn up by computer, in accordance with Article 131, paragraph 5, of the Code of Civil Procedure, applicable by referral from Article 29, paragraph 1, subparagraph e) of Decree-Law no. 10/2011, of 20 January (RJAT), its drafting being governed by the spelling prior to the Portuguese Orthographic Agreement of 1990.)

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270 of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides IMT exemption for acts of sale, exchange, or transfer of companies or establishments integrated within insolvency plans, payment plans, or recovery plans, or carried out within the scope of liquidating the insolvent estate. The exemption aims to facilitate asset realization in insolvency proceedings by eliminating IMT tax burdens that could reduce recovery values for creditors.
Can a company acquiring property from an insolvent estate claim IMT exemption in Portugal?
Yes, companies acquiring property from insolvent estates can claim IMT exemption under Article 270(2) CIRE if the acquisition occurs within the liquidation of the insolvent estate or as part of an approved insolvency or payment plan. However, the Tax Authority may challenge whether individual asset sales qualify for the exemption, which is intended primarily for transfers of companies or establishments as going concerns. Supreme Administrative Court precedent suggests the exemption applies broadly to asset sales in liquidation contexts.
How does the CAAD arbitral tribunal handle disputes over IMT tax on insolvency asset purchases?
CAAD arbitral tribunals review IMT assessment acts challenged by taxpayers who acquired assets in insolvency proceedings. The tribunal examines whether the statutory requirements for Article 270 CIRE exemption are satisfied, considering the nature of the transaction, the insolvency procedural context, and relevant precedents. Tribunals assess whether the Tax Authority correctly applied or denied the exemption, ensuring interpretation aligns with CIRE's legislative authorization and constitutional framework.
What are the requirements to qualify for IMT exemption when buying property in Portuguese insolvency proceedings?
To qualify for IMT exemption under Article 270(2) CIRE when buying property in Portuguese insolvency proceedings, the acquisition must occur: (1) within the scope of liquidation of the insolvent estate, (2) as part of an approved insolvency plan, payment plan, or recovery plan, or (3) involve transfer of the company or establishment. The property must be transferred through acts of sale, exchange, or transfer formally integrated within the insolvency judicial proceedings.
What was the outcome of CAAD Process 511/2016-T regarding IMT exemption on property acquired from a bankrupt estate?
The provided excerpt does not include the final decision outcome. The case involved a dispute where the Tax Authority initially granted IMT exemption for property acquired from a bankrupt estate, then reversed its position and assessed additional IMT. The claimant challenged this assessment before CAAD, arguing Article 270(2) CIRE exempts liquidation sales and citing Supreme Administrative Court precedent supporting broad interpretation of insolvency-related IMT exemptions.