Process: 516/2016-T

Date: May 23, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 516/2016-T addressed whether IMT exemption under Article 270 of the Insolvency and Company Recovery Code (CIRE) applies to property transfers from insolvent estates when the insolvent parties are natural persons who ceased commercial activity. The claimant acquired property in December 2013 from insolvent individuals and initially received full IMT exemption. In 2015, the Tax Authority issued an additional IMT assessment of €969.93, arguing the exemption only applies when the insolvent operates an active business or establishment at the time of transfer. The claimant challenged this interpretation, contending Article 270 encompasses all property transfers within insolvency proceedings regardless of the insolvent's status, citing principles of social solidarity and creditor protection. The claimant also raised procedural defenses: nullity for lack of legal basis, violation of legitimate expectations by retroactive application, insufficient substantiation, and illegal revocation beyond the one-year period. The Tax Authority maintained that exemption requires the insolvent to be an enterprise or establishment, and that natural persons without commercial activity do not qualify. The tribunal must resolve whether Article 270 CIRE's IMT exemption is conditional on the insolvent's business status or applies broadly to all insolvency-related transfers. Note: The provided excerpt is incomplete and does not contain the tribunal's final decision or reasoning.

Full Decision

ARBITRAL DECISION

REPORT

A…, S.A., taxpayer no.…, with registered office at Praça …, no.…, … – … Porto, hereinafter referred to as the Claimant, filed on 25/08/2016 a request for arbitral pronouncement regarding the express dismissal of the administrative complaint no. …2016… concerning the assessment of Municipal Tax on Onerous Property Transfers (IMT), registration no. …/2013, of 11/12/2013, in the amount of € 997.78 and issued by the Tax Office of Amadora - …

The Honourable President of the Deontological Council of the Administrative Arbitration Centre (CAAD) designated on 03/11/2016 Francisco Nicolau Domingos as arbitrator.

On 18/11/2016 the arbitral tribunal was constituted.

In compliance with the provision of article 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 22/11/2016 to, if so wished, file its answer, request the production of additional evidence and remit the administrative file (PA).

On 05/01/2017 the Respondent filed its answer in which it contended for the dismissal of the request for arbitral pronouncement and attached two documents to attest that the insolvent parties, at the date of the transfer of the right of ownership of the property, did not engage in any industrial, commercial or agricultural activity.

On 04/04/2017, the tribunal decided to grant the Claimant the right to reply regarding such documents, to dispense with the holding of the meeting to which article 18, no. 1 of the RJAT refers, on the grounds of the principle of autonomy of the arbitral tribunal in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable period, a decision on the merits of the claims formulated, cf. article 16, subsection c) of the RJAT, granted a deadline for the parties, if so wished, to file final written submissions and set a date for issuing the arbitral decision.

On 06/04/2017 the Claimant filed its final written submissions, referring both as to facts and law to the request for arbitral pronouncement.

The Respondent filed on 21/04/2017 its final written submissions, in which it concluded as in its answer.

POSITION OF THE PARTIES

The Claimant petitions for the annulment of the IMT assessment on the basis of a fact occurring on 12/12/2013, as it contends that the exemption provided for in article 270 of the Insolvency and Company Recovery Code (CIRE) should be interpreted as encompassing properties transferred by sale or exchange, when not included in the sale, exchange or assignment of the enterprise or establishment. It bases this conclusion on the following arguments: i) the legislator did not state that the IMT exemption existed only within the scope of the transfer of properties when included in the sale, exchange or assignment of an establishment and ii) the basis for the statutory provision lies in common sacrifice and social solidarity in the protection of those who, as a result of the insolvency of their debtors, see their possibility of receiving their credits greatly reduced or lost, a fact which led the legislator to provide tax incentives to those who acquire assets integrated in insolvent estates.

Secondly, it contends that the IMT assessment is null and void, as the Tax and Customs Authority (AT) cannot demand the tax without verification of the prerequisites upon which it depends, as occurs in the present case. If this were not so, the assessment would constitute the creation of a genuine tax.

Thirdly, it further contends that the IMT assessment at issue in these proceedings does not indicate any statutory basis and there is no legal provision that substantiates and legitimates the quantification of the amounts determined, nor were its justifying reasons given, whereby it suffers from the defect of lack of substantiation, as it has no factual or legal basis.

Fourthly, it alleges that the interpretation of the AT applied to a past tax fact, entirely conducted under the old law, constitutes, in particular, a violation of the principle of protection of legitimate expectations, in the aspect of legal certainty and the principle of good faith.

Finally, it further contends that the revocation of the exemption could only have been carried out within one year following its grant, as it is constitutive of rights, whereby, having the revocation been carried out beyond the one-year period, it is illegal.

Therefore, it argues that it is entitled to reimbursement of the amount unduly paid by way of IMT and compensatory interest.

The Respondent begins by factually contending that the insolvent parties from whom the Claimant acquired the right of ownership of the property are natural persons and that, at the date of the onerous transfer, the taxpayer had long since ceased to engage in any industrial, commercial or agricultural activity, and is therefore a natural person taxpayer. Therefore, it observes that the exemption provided for in article 270 of the CIRE encompasses acts integrated within the scope of insolvency, payment or liquidation plans of the insolvent estate, always on the condition that the insolvent is an enterprise or establishment.

It further contends that the AT cannot refrain from assessing the tax due, provided that the 8-year prescription period is respected.

The Respondent further argues that the value of the proceedings indicated by the Claimant is not correct, as it not only does not correspond to the value of the IMT assessment which is € 969.93, but also has no correspondence with any other value nor is its source demonstrated.

In this sequence, the following questions are those which the tribunal must consider:

a) Whether the IMT assessment is illegal by virtue of a violation of article 270 of the CIRE and whether, consequently, it should be annulled for error in the legal prerequisites;

b) Whether the interpretation carried out on article 270 of the CIRE is null by constituting the conduct of an act beyond the powers of the AT;

c) Whether the assessment is null for lack of substantiation of fact and law;

d) Whether the AT, by conducting the IMT assessment in 2015, violated the principle of prohibition of retroactive tax law, legal certainty and good faith, by applying its interpretation of the aforementioned provision to a past tax fact;

e) Whether the revocation of the exemption which the Claimant enjoyed at the moment of acquisition of the property is illegal.

PRELIMINARY MATTERS

The proceedings do not suffer from any nullities, no questions have been raised that preclude consideration of the merits of the case, the arbitral tribunal is regularly constituted and is materially competent to know and decide the request, with the conditions consequently being met for the final decision to be issued.

4. FACTS

4.1. Facts Deemed Proven

4.1.1. The Claimant acquired on 12/12/2013 the right of ownership over fraction D of the urban property under the horizontal property regime, registered in the urban property matrix of the parish of … –… under article no. … and described in the First Land Registry Office of Sintra under no.…, within the scope of the insolvency proceedings of B… and C… which is being conducted under no. …/12… T2SNT, following the execution of a public deed of purchase and sale.

4.1.2. In such deed the document no. … – AT was exhibited and filed, dated 11/12/2013 and in which the following appears: "Benefits: 60 – Insolvency and Company Recovery Code – Transfers integrated within the scope of liquidation of the insolvent estate (article 270, no. 2 of DL 53/04), 100% on the taxable amount. Taxable amount: € 94,700.00. Rate: 6.50%. Collection: € 0.00".

4.1.3. The Claimant was notified to exercise the right of hearing with respect to the project of additional assessment with respect to registration no.…/2013, of 11/12/2013 – IMT, in the amount of € 969.93.

4.1.4. On 11/12/2015 the additional IMT assessment was made in the amount of € 969.93 and relating to the registration of the same tax no. …/2013, of 11/12/2013, stating that: "…insolvent parties who are natural persons and who do not engage in any industrial, commercial or agricultural activity are not covered by this statutory provision".

4.1.5. In the cadastral situation (System for Management and Registration of Taxpayers) of the insolvent B…, taxpayer no.…, the cessation of activity of category B – Other Service Providers was recorded, under IRS and VAT, on 21/06/2011.

4.1.6. In the cadastral situation (System for Management and Registration of Taxpayers) of the insolvent C…, taxpayer no. …, there is no record of having derived income from IRS category B.

4.1.7. The IMT assessment was paid on 27/01/2016 within the scope of the tax enforcement proceedings no. …2016…

4.1.8. The Claimant on 21/03/2016 filed an administrative complaint of the IMT assessment identified in 4.1.4. herein.

4.1.9. By order dated 20/07/2016 the Claimant was notified of the express dismissal of the administrative complaint.

4.1.10. The request for arbitral pronouncement was filed on 25/08/2016.

4.2. Facts Not Deemed Proven

There are no facts with relevance to the arbitral decision that have not been deemed proven.

4.3. Substantiation of the Facts Deemed Proven

The facts deemed proven originate from the documents used for each of the alleged facts and whose authenticity was not called into question.

5. LAW

The first question to be resolved in these proceedings consists of an assessment of the legality of the act that assessed IMT, as the Tax Office of Amadora – … understood that the prerequisites for applying article 270 of the CIRE were not met.

The content of such statutory provision is as follows:

"1 – The following transfers of immovable property, integrated in any insolvency, payment or recovery plan, are exempt from municipal tax on onerous property transfers:

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

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

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

  1. Acts of sale, exchange or assignment of the enterprise or establishments thereof integrated within the scope of insolvency, payment or recovery plans or conducted within the scope of the liquidation of the insolvent estate are equally exempt from municipal tax on onerous property transfers."

The interpretation of the provision has been a source of litigation, revealing two questions: i) whether the literal reference to sale encompasses solely and exclusively the onerous alienation of the enterprise or establishments incorporated therein or encompasses any immovable properties (as elements of its assets) and ii) whether the exemption only encompasses immovable property acquired in insolvency proceedings that integrates the business patrimony or whether it extends to acquisitions of such property in insolvency proceedings of natural persons, when they do not engage in any commercial activity or, having such activity, the property is not dedicated to such purpose.

Regarding the first question, jurisprudence aligns in concluding that the statutory provision encompasses not only the global transfer of the assets of the insolvent enterprise, but also piecemeal transfers of such assets, even if they do not belong to any establishment and even in isolation.

Thus jurisprudence states: "The IMT exemption provided for in no. 2 of article 270 of the CIRE applies not only to sales or exchanges of enterprises or establishments as universality of assets, but also to sales and exchanges of immovable properties (as elements of their assets), provided they are framed within the scope of an insolvency or payment plan, or conducted within the scope of the liquidation of the insolvent estate", judgment of the Supreme Administrative Court issued within the scope of proceedings no. 0968/13, of 11/11/2015 and in which the Advisor PEDRO DELGADO served as reporter. See in the same sense the judgment of the Supreme Administrative Court issued within the scope of proceedings no. 0765/13, of 03/07/2013 and in which Advisor FERNANDA MAÇÃS served as reporter and the judgment of the Supreme Administrative Court issued within the scope of proceedings no. 01085/13, of 17/12/2014, in which Advisor ANA PAULA LOBO served as reporter.

As a result of such unified interpretive sense, the AT altered its understanding regarding the question through circular no. 4/2017. Thus, it now contends that: "The application of the tax benefits provided for in no. 2 of article 270 of the CIRE does not depend on the thing sold, exchanged or assigned encompassing the universality of the insolvent enterprise or one of its establishments. Therefore, acts of sale, exchange or assignment, in isolation, of property of the enterprise or of its establishments are exempt from IMT, provided they are integrated within the scope of insolvency, payment or recovery plans or conducted within the scope of the liquidation of the insolvent estate".

In sum, the provision of article 270, no. 2 of the CIRE is justified teleologically as a means to promote promptness in the alienation of assets that integrate the insolvent estate, protecting not only the interests of creditors, but also the consequent public interest in the return to normal functioning of the business world, providing for the grant of tax incentives to acquirers of immovable property that integrate the insolvent estate and in the liquidation phase. Therefore, there is no basis for distinguishing situations in which the enterprise is being sold globally with all of its assets, from those in which one or more commercial establishments that formed part of it are being sold – universality of assets and even those instances in which the object of the sale is identified with immovable property that formed part of its assets.

Regarding the second question, the one that is truly at issue in these proceedings, jurisprudence contends that the exemptions from Stamp Duty and IMT – articles 269 and 270 of the CIRE – apply only when we are in the presence of immovable property that integrates the patrimony of an enterprise and not regarding immovable property of natural persons, as, there being no notice of its dedication to professional activity "…of the enterprise…" at the date of insolvency, it is not possible to benefit from the tax incentive. In this line see the arbitral proceedings no. 514/2016, of 15/02/2017, in which Professor Doctor EVA DIAS COSTA served as arbitrator and the judgment issued by the Supreme Administrative Court within the scope of proceedings no. 0866/13, of 25/09/2013 in which Advisor FRANCISCO ROTHES served as reporter. Now, although its reference to Stamp Duty (article 269 of the CIRE), we understand them to be fully applicable to the correct interpretation of the provision in article 270, no. 2 of the CIRE.

Thus, this tribunal also finds no statutory basis to diverge from the position taken by such influential state and tax arbitration jurisprudence, especially as article 5 of the CIRE provides that enterprise shall be: "…any organization of capital and labour intended for the conduct of any economic activity". Consequently, the Claimant's annulment claim must fail on this ground.

As regards the second question which the tribunal must consider, it cannot be agreed that the assessment was conducted beyond the powers of the AT, as, among its powers falls: "To ensure the assessment and collection of taxes on income, on property and on consumption, of customs duties and other taxes which it is incumbent upon it to administer, as well as to collect and recover other revenues of the State or of legal entities under public law", cf. article 2, no. 2, subsection a) of Decree-Law no. 118/2011, of 15 December in the version currently in force.

Now, as the deconcentrated local services integrate the AT, cf. article 39 of Ordinance no. 320-A/2011, of 30 December and the competence for the assessment of IMT being officially attributed, in light of article 19 of the Municipal Tax Code on Onerous Property Transfers (CIMT) to the tax offices, the assessment was conducted by the entity having such competence.

As for lack of substantiation, jurisprudence contends that: "The act shall be sufficiently substantiated when the addressee, placed in the position of a normal recipient – the bonus pater familiae of which article 487, no. 2 of the Civil Code speaks – can come to know the factual and legal reasons that are at its genesis, in order to enable him to choose, in an informed manner, between acceptance of the act or the activation of legal means of challenge, and in such manner that, in this latter circumstance, the court can also exercise effective control of the legality of the act, assessing its legal correctness in light of its contextual substantiation".[1] Or, put another way, the substantiation must incorporate elements of fact and law that enable the addressee of the act to understand the decision-making process of the AT.

In the case sub judice, it is possible to discern in the assessment, the reference to the nature of the tax, to the day of the tax event, to the price and to the rate used, to the portion to be deducted and, finally, to the value of the collection. For which reason, the tribunal understands that the act is sufficiently substantiated, as it contains the minimum references to the factual and legal matters used by the AT for its conduct. Especially as the lack of substantiation imputed to it did not constitute any obstacle to the Claimant invoking the nullity of the assessment and requesting its annulment in a pleading in which it imputes to it a list of defects. In sum, the act does not suffer from the defect of lack of substantiation which the Claimant attributes to it.

With respect to the fourth question which the tribunal must consider, the Claimant further alleges that there is a violation of the principle of prohibition of retroactive tax law, as the AT applied in the assessment in dispute its interpretation of article 270, no. 2 of the CIRE to a past tax fact, entirely occurring under the old law and that this is violative of the principle of good faith which is provided for in article 59, no. 2 of the General Tax Law (LGT), as it induced the Claimant into error when it recognized the IMT exemption prior to the execution of the public deed.

It happens that, the legislative changes introduced by article 234 of Law no. 66-B/2012, of 31 December were already in force at the date of acquisition of the property at issue in these proceedings, maintaining the tax benefit provided for in article 270, no. 2 of the CIRE.

Furthermore, already at a date prior to the execution of the public deed of purchase and sale, in opinion no. 166 of the Legal and Contentious Services Directorate of the AT, of 16/07/2008 sent to the Bar Association of Notaries it was written that: "c) The tax benefits…, encompass all immovable property of the fixed or exchangeable assets of the enterprise, and do not apply when the insolvent is not an enterprise or, being self-employed, the immovable property sold, exchanged or assigned do not integrate the assets of the enterprise of which he is owner".

As well as, the IMT exemption operates without the need for any administrative act of recognition, that is, it reveals automaticity. The CIMT itself points in such direction, when in its article 10, no. 8, subsection d) it provides that: "The following are of automatic recognition, with responsibility for their verification and declaration falling to the tax office where the statement provided for in no. 1 of article 19 is presented, the following exemptions: …d) The exemptions of automatic recognition provided for in legislation outside the present code".

This naturally does not mean that the AT, within the scope of its duty of control of the prerequisites of the tax benefits, does not conduct an assessment when it ascertains that these are not met.

Thus, it is not seen how both the principle of prohibition of retroactive tax law and that of good faith have been disregarded.

Finally, the tribunal must consider whether the revocation of the exemption which the Claimant enjoyed at the moment of acquisition of the property is illegal, due to disrespect to articles 136 and 141, no. 1 of the Code of Administrative Procedure (CPA) in its prior version and of article 58 of the Code of Administrative Court Procedure (CPTA).

The existence of an invalid administrative (tax) act is an essential condition for administrative revocation, being necessary to inquire whether the IMT assessment reflects the revocation of any prior act of the AT.

In the concrete case, it has already been stated that the tax benefit is automatic and does not depend on recognition.

If this is so, the argument that the IMT assessment constitutes the revocation of a tax benefit does not obtain force, as no prior administrative act was conducted, in view of the automatic nature of the benefit in question. Therefore, one can only conclude that within the scope of the duty of control of the benefits which the AT has there is the possibility of the latter promoting an assessment within the prescription period, when it ascertains that there is no subjective right to the tax benefit. This is what occurred in the concrete case, whereby, also on this ground, the Claimant's claim does not succeed.

In this manner, the IMT assessment does not suffer from the defects that are imputed to it, and should be maintained in the legal order.

6. DECISION

In these terms, the request for arbitral pronouncement is decided to be wholly dismissed, with all legal consequences.

7. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 969.93 – value corresponding to the assessment – in accordance with article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by force of the provision in article 29, no. 1, subsection a) of the RJAT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne by the Claimant, in the amount of € 306, cf. article 22, no. 4 of the RJAT and Schedule I attached to the RCPAT.

Let notice be given.

Lisbon, 23 May 2017

The Arbitrator,

(Francisco Nicolau Domingos)

[1] Judgment of the Supreme Administrative Court issued within the scope of proceedings no. 01690/13, of 23/04/2014 and in which Advisor ASCENSÃO LOPES served as reporter.

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt for real estate sold during insolvency proceedings under Art. 270 of the CIRE?
IMT exemption under Article 270 of the CIRE for property transfers in insolvency proceedings is subject to interpretation dispute. The Tax Authority contends the exemption only applies when the insolvent party is an operating enterprise or establishment, not to natural persons who have ceased commercial activity. Taxpayers argue the exemption should apply to all property transfers within insolvency proceedings to protect creditors and facilitate asset liquidation.
Does the IMT exemption under Art. 270 CIRE apply only when property is transferred as part of a business or establishment sale?
This is the central legal question in the dispute. The Tax Authority's position is that Article 270 CIRE exemption applies only when property is transferred as part of a business or establishment sale, and the insolvent must be actively operating such business. The claimant argues the statutory language does not restrict exemption to business transfers and that the legislative purpose supports broader application to all insolvency-related property transfers.
What was the outcome of CAAD arbitration process 516/2016-T regarding IMT and insolvency?
The provided text excerpt is incomplete and does not include the tribunal's final decision, legal analysis, or ruling. The document ends during the factual findings section before presenting the tribunal's reasoning or judgment on whether the IMT assessment should be annulled or upheld. The outcome cannot be determined from the available portion of the decision.
How can taxpayers challenge an IMT assessment through arbitration at CAAD?
Taxpayers can challenge IMT assessments through CAAD arbitration by filing a request for arbitral pronouncement within the legal deadline after exhausting administrative remedies (such as filing a complaint). The process follows the RJAT (Administrative Arbitration Legal Regime): an arbitrator is designated, the Tax Authority files an answer and submits the administrative file, parties may present evidence and written submissions, and the tribunal issues a binding decision. Legal representation is recommended given the technical complexity of tax law issues.
What conditions must be met for IMT exemption on property transfers in Portuguese insolvency proceedings?
Based on the Tax Authority's interpretation in this case, conditions for IMT exemption under Article 270 CIRE include: (1) the transfer occurs within insolvency, payment, or liquidation plans of the insolvent estate; and (2) the insolvent party is an operating enterprise or establishment at the time of transfer. However, this interpretation is contested, with taxpayers arguing the exemption should apply more broadly to all property transfers in insolvency proceedings regardless of whether the insolvent maintains active business operations, as the legislative purpose is to facilitate creditor recovery and asset liquidation.