Process: 514/2016-T

Date: February 15, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Decision 514/2016-T addresses whether the IMT (Municipal Tax on Real Estate Transfer) exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) applies to residential property acquisitions in personal insolvency proceedings. A company acquired a residential property through adjudication in the insolvency proceedings of two natural persons and claimed IMT exemption, arguing Article 270(2) CIRE covers all real estate transfers within insolvency liquidation operations. The Tax Authority rejected this interpretation, contending the exemption requires the insolvent to be a company or business establishment, not natural persons. The insolvents had ceased their declared business activities years before the property transfer (2011 and 2004 respectively), and the 2013 acquisition involved a residential property. The tribunal found no proof that the insolvents carried on commercial activity or that the property was dedicated to any commercial activity. Article 270 CIRE provides two types of IMT exemptions: subsection 1 covers specific transfers within insolvency plans (company incorporations, capital increases, dation in payment), while subsection 2 exempts sales of 'the company or business establishments' within insolvency plans or estate liquidation. The interpretative issue centers on whether subsection 2's reference to 'company or business establishments' limits the exemption to business asset transfers only, or extends to any property sold in insolvency. The burden of proof for the exemption's constitutive requirements rested with the claimant. This case exemplifies the restrictive interpretation of insolvency-related tax exemptions when personal rather than corporate insolvency is involved, establishing that Article 270(2) CIRE exemptions do not automatically extend to residential property transfers from insolvent individuals without demonstrated commercial activity.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1 The A…, S.A., legal person number …, with registered address at …, …, in the …, on 26.08.2016, requested the constitution of an arbitral tribunal, under the provisions of Articles 1st, 2nd, no. 1, paragraph a), and 10th of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and of Article 99th of the CPPT.

1.2 The Defendant in these proceedings is the TAX AND CUSTOMS AUTHORITY

1.3 The Deontological Council of the Administrative Arbitration Centre (CAAD) designated the undersigned to form the Single Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 18 November 2016.

1.4 The request for arbitral decision concerns the annulment of the Municipal Tax on Real Estate Transfer (IMT) collection act contained in document no. … in the amount of 1,367.93€, relating to the acquisition of an urban property, intended for residential purposes, registered under article …º in the property register of the Parish of …, municipality of ..., which took place within an insolvency proceeding of B… and C… pending before the 2nd Civil Court of the District Court of ... under no.… , collection and property which are better identified both in the Claimant's request and in the administrative proceedings and in the documents attached thereto, to which reference is made here.

The collection was subject to the Amicable Complaint Procedure which received number n.º…2016….

The Claimant argues the illegality of the collection based on the provision of Article 270, no. 2, of the Insolvency Code (CIRE), which grants an exemption that, in the interpretation it considers to be correct, also covers real estate transferred within the scope of insolvency plans or insolvency estate liquidation operations, by sale or exchange, when not included in the sale, exchange or assignment of the company or business establishment.

Therefore, in its view, the collection is illegal and it accordingly petitions for its annulment.

Furthermore, the Claimant petitions the condemnation of the Defendant to reimburse the amounts paid by virtue of the contested collections, plus indemnity interest on all amounts paid, accrued until the date of reimbursement.

1.5 The TAX AND CUSTOMS AUTHORITY responded on 21.12.2016 and on the same date attached the administrative proceedings to the file.

In the response presented, the Defendant defended itself by way of objection, arguing that the interpretation that the Claimant makes of the cited provision of the Insolvency Code is wrong.

Namely, it states, because "this exemption, already previously provided for, covers all acts included within the scope of insolvency plans, or payment plans, or insolvency estate liquidation, with the reservation that the insolvent is a company or business establishment".

Now, it continues, "the insolvents, the taxpayer (TP) B…, NIF … and C… NIF…, from whom the Claimant acquired the property, are natural persons", that the activity of TP B… ceased on 30.11.2011 and that of TP C… on 28.04.2004, so that, "on the date of transfer of the property (11.12.2013), the taxpayers had long since ceased the declared activity, do not carry on any industrial, commercial or agricultural activity, and are thus single natural persons".

Therefore, the Defendant concludes that the claim should be judged as unfounded.

1.6 Notified of the order issued by the Tribunal on 18.01.2017 to the effect that it was its intention to dispense with the meeting of the arbitral tribunal provided for in Article 18 of the RJAT, as well as the arguments, the parties did not oppose.

2. CASE SANITATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2.9 of the RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented.

The proceedings do not suffer from any defects that would invalidate it.

3. FACTUAL MATTERS

With relevance to the decision on the merits, the Tribunal considers the following facts to be proven:

1) The Claimant acquired the urban property, intended for residential purposes, registered under article …º in the property register of the Parish …, municipality of ..., by adjudication, given its status as claiming creditor and holder of a real guarantee (mortgage), on 11.12.2013 in the insolvency proceedings of B… and C… pending before the 2nd Civil Court of the District Court of ... under no.…;

2) The Defendant notified the Claimant of its intention to proceed with the correction of the Municipal Tax on Real Estate Transfer that preceded that adjudication and subsequently notified it of the collection dated 11.12.2015 with a payment deadline of 14.12.2015;

3) The Claimant presented, on 21.03.2016, an amicable complaint of that collection act, in which it petitioned for the recognition of the exemption provided for in Article 270 of the Insolvency Code;

4) The amicable complaint was – preceded by the right to be heard – dismissed by order of 20.07.2016, notified to the Claimant by official notice dated 22 of the same month;

Unproven Facts

It was not proven that the insolvents carried on commercial activity.

It was not proven, likewise, that the property was dedicated to any commercial activity that they carried on.

The burden of proof of these facts lay with the Claimant, as it concerns the constitutive matter of the right it claims, namely, the exemption provided for in Article 270 of the Insolvency Code.

Reasoning for the Decision on Factual Matters

The conviction as to the facts was based on the facts alleged by the Claimant itself and, likewise, on the documentary evidence attached by the Claimant and on the administrative proceedings attached by the Defendant, whose authenticity and correspondence to reality were not questioned.

4. ISSUE TO BE DECIDED: ON THE APPLICABILITY OF THE PROVISIONS OF ARTICLE 270 OF THE INSOLVENCY CODE TO ACQUISITIONS OF RESIDENTIAL PROPERTIES IN INSOLVENCY PROCEEDINGS OF NATURAL PERSONS

It is therefore necessary to decide on the merits of the request for arbitral decision on the legality of the Municipal Tax on Real Estate Transfer collection sub judice.

Let us see:

The issue is to assess the legality of the collection act that did not apply the exemption provided for in Article 270 of the Insolvency and Business Recovery Code to the acquisition of real estate carried out by the Claimant within the scope of the insolvency proceedings of two natural persons without commercial activity.

This Article 270 of this Insolvency and Business Recovery Code provides, in its current wording, as follows:

Article 270

Benefit relating to municipal tax on onerous transfers of real estate

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

a) Those intended for the incorporation of a new company or companies and the performance of their capital contribution;

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

c) Those resulting from the dation in payment of company assets and the assignment of assets to creditors.

2 - The following are equally exempt from municipal tax on onerous transfers of real estate: the acts of sale, exchange or assignment of the company or of business establishments integrated therein within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvency estate.

The interpretative doubts arise from the lack of clarity in the text of this no. 2. The question is raised, namely, whether the reference to sale relates only to the sale of the company or of business establishments integrated therein or covers any real estate, a matter on which there is already extensive jurisprudence both of the CAAD and of the Courts, particularly as to what we could call the scope of the tax exemption provided therein.

Such jurisprudence has come to understand that it results from the wording of no. 2 of Article 270 of the Insolvency Code that the legislator included in the provision of the rule, not only the global transfer of the assets of the insolvent company, but also the partial transfer of those assets, corresponding to one or more business establishments of the insolvent company and even corresponding to mere real estate (even if not business establishments).

There also arises – and insofar as it is relevant to the case at hand – the question of whether the exemption extends to acquisitions of real estate carried out in insolvency proceedings of natural persons, namely, when they do not have commercial activity or when, having it, the acquired property is not dedicated to that activity.

On that question, the Supreme Administrative Court has already pronounced itself, namely, in the decision cited by the Defendant [1] in its response and, likewise, in the Judgment of 25.06.2013, handed down in case 0866/13, in which Counsellor Francisco Rothes was the Rapporteur, the summary of which is transcribed:

"I – In accordance with the provision of art. 269, paragraph e), of the Insolvency Code, sales of "elements of the assets of the company" are exempt from Income Tax. II – Therefore, the said exemption does not cover the sale of an urban property intended for residential purposes that belongs to a natural person, and it is not sufficient to benefit from that exemption the fact that these are acts of sale carried out within the scope of the liquidation of the insolvency estate, but rather it must be demonstrated that the asset sold forms part of the assets of a company." [2].

Also in this CAAD, in the Tribunal constituted in case 13/2016, albeit in the context of stamp duty, it pronounced itself to the effect that the exemption [from Income Tax provided for in paragraph e) of Article 269 of the Insolvency Code] applies only to real estate that form part of the assets of a company and not to real estate of natural persons.

This is the understanding that seems to us to correspond to the best interpretation of the provision of Article 270 of the Insolvency Code: when the insolvent is a natural person without commercial activity or when, having it, the acquired property was not dedicated to that activity.

This is because it is a provision that establishes a tax benefit, of an exceptional nature, which does not permit analogical application (not mere extensive interpretation) which, in this case, would have to be made for the exemption to be applied to the case sub judice.

6. DECISION

In light of the foregoing, it is decided to judge the Claimant's claim as wholly unfounded.

* * *

The value of the proceedings is fixed at 1,367.93€ (one thousand, three hundred and sixty-seven euros and ninety-three cents) in accordance with the provisions of Articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the CPPT and 306 of the Code of Civil Procedure.

The amount of costs is fixed at 306.00€ (three hundred and six euros) under Article 22, no. 4 of the RJAT and Table I annexed to the RCPAT, to be borne by the Claimant, in accordance with the provisions of Articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notify.

Lisbon, 15 February 2017

The Arbitrator

(Eva Dias Costa)

Text prepared by computer, pursuant to Article 131, no. 5 of the Code of Civil Procedure, applicable by reference of Article 29, no. 1, paragraph e) of the RJAT.

[1] The full text is available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/9c68c763d8eb1a1580257ba3004cca44?OpenDocument.

[2] Full text available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/dfcedf1ffe47cf2380257bf80047940a?OpenDocument&ExpandSection=1.

Frequently Asked Questions

Automatically Created

Does the IMT exemption under Article 270 of CIRE apply to properties sold in individual (personal) insolvency proceedings?
No, the IMT exemption under Article 270(2) CIRE does not apply to properties sold in individual personal insolvency proceedings. CAAD Decision 514/2016-T clarified that this exemption requires the insolvent to be a company or business establishment. When natural persons in insolvency have ceased commercial activities and the property is residential with no proven commercial use, the exemption does not apply. The burden of proving commercial activity and business-related property use rests with the party claiming the exemption.
What are the requirements for IMT tax exemption on real estate transfers within insolvency processes in Portugal?
The IMT exemption on real estate transfers within Portuguese insolvency processes under Article 270 CIRE requires specific conditions: (1) For subsection 1 - transfers must be integrated into insolvency/payment/recovery plans for company incorporation, capital increases, or dation in payment; (2) For subsection 2 - transfers must involve sale of 'the company or business establishments' within insolvency plans or estate liquidation. The exemption generally applies to business-related transfers, not personal residential properties. The insolvent must be operating as a company or business establishment, and proof of commercial activity is required.
Can a company that purchases property from an insolvent individual claim IMT exemption under the Portuguese Insolvency Code (CIRE)?
No, based on CAAD Decision 514/2016-T, a company purchasing property from an insolvent individual cannot claim IMT exemption under Article 270(2) CIRE when the insolvents are natural persons without active commercial operations. The tribunal ruled that the exemption requires the insolvent to be a company or business establishment. In this case, the insolvents had ceased business activities years before the transfer, the property was residential, and there was no proof of commercial activity or business-related property use, making the exemption inapplicable.
How did CAAD rule on the scope of Article 270(2) CIRE regarding insolvency of natural persons versus companies?
CAAD ruled restrictively on Article 270(2) CIRE's scope in Decision 514/2016-T, holding that the exemption does not extend to insolvency of natural persons without commercial activity. The Tax Authority's interpretation was upheld: the exemption covers transfers when 'the insolvent is a company or business establishment,' not natural persons. The tribunal emphasized that insolvents who had ceased business activities years prior (2011 and 2004) and transferred residential property without proven commercial use do not qualify. This establishes a clear distinction between corporate/business insolvency and personal insolvency for IMT exemption purposes.
What is the procedure to challenge an IMT tax assessment through arbitration at CAAD in Portugal?
To challenge an IMT assessment through CAAD arbitration in Portugal: (1) First, file an amicable complaint (reclamação graciosa) with the Tax Authority within the legal deadline; (2) If denied, request arbitration under Decree-Law 10/2011 (RJAT) and Article 99 CPPT within the applicable time limit after notification of the complaint decision; (3) Submit the arbitration request identifying the contested collection act, legal grounds, and attach supporting documentation; (4) The CAAD Deontological Council appoints an arbitrator to form the tribunal; (5) The Tax Authority responds and submits the administrative file; (6) The tribunal may dispense with oral hearings if parties agree; (7) A written decision is issued on the legality of the collection.