Process: 519/2016-T

Date: February 21, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

Process 519/2016-T addresses a fundamental dispute regarding the scope of IMT (Municipal Property Transfer Tax) exemption under Article 270(2) of the Portuguese Insolvency and Recovery Code (CIRE). The case involved A… S.A., which acquired residential property in June 2014 from two natural persons undergoing insolvency proceedings. Initially granted IMT exemption, the Tax Authority (AT) subsequently revoked it in October 2015, assessing €1,047.93 in tax. The central legal question is whether the IMT exemption under Article 270(2) CIRE applies exclusively to property transfers integrated within the sale of a company or establishment, or extends to all real estate transfers occurring within insolvency contexts, including individual insolvencies. The Applicant argued for a broad interpretation, contending that restricting the exemption to corporate transfers would violate constitutional principles under Article 165(2) of the Portuguese Constitution. The company also claimed violations of legitimate expectations, legal certainty, and good faith principles, asserting the revocation exceeded the one-year limitation period. Conversely, the AT maintained that the exemption's legislative intent and textual interpretation require the transferred property to be integrated into a company or establishment universality. Since the insolvents were natural persons without business establishments, the AT argued the statutory requirements were not met, making the tax assessment legally justified within the eight-year assessment period. This arbitral decision has significant implications for interpreting tax exemptions in insolvency proceedings and determining whether benefits apply equally to individual and corporate insolvencies under Portuguese tax law.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, S.A., taxpayer no. …, with registered office at …, no.…, in Porto (hereinafter referred to as "Applicant"), submitted on 25/08/2016, a request for arbitral ruling with a view to the appraisal and declaration of illegality and annulment of the act of assessment of Municipal Tax on Onerous Property Transfers (IMT) contained in document no.…, in the amount of € 1,047.93 (one thousand and forty-seven euros and ninety-three cents).

1.2. The Honorable President of the Ethics Council of the Administrative Arbitration Center (CAAD) designated, on 13/10/2016, the undersigned as sole arbitrator.

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

1.4. In compliance with the provisions of no. 1 of article 17 of the Legal Regime for Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified on 18/11/2016, to, if it so wishes, submit its response and request the production of additional evidence.

1.5. On 21/12/2016 the AT submitted its response, requesting the dispensing of the meeting described in article 18 of the RJAT.

1.6. As this involves a matter exclusively of law, the arbitral tribunal on 12/12/2016 decided to dispense with the meeting referred to in no. 1 of article 18 of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in the conduct of proceedings, inviting both parties to, if they so wish, submit optional written submissions and scheduled the date for delivery of the final decision.

1.7. On 03/01/2017 the Applicant submitted submissions in the proceedings, restating what had been previously alleged in the request for arbitral ruling.

2. PROCEEDINGS REGULARITY

The arbitral tribunal was regularly constituted and is materially competent.

The parties have legal personality and capacity and are legitimate, with no defects in representation.

There are no nullities, exceptions or preliminary matters that obstruct consideration of the merits and which must be known ex officio.

Consequently, the conditions are met for the final decision to be delivered.

3. POSITIONS OF THE PARTIES

There are two positions in confrontation, that of the Applicant, set out in the request for arbitral ruling and that of the AT in its response.

In summary, the Applicant alleges that:

a) The assessment in question results from the allegedly improper application to the Applicant of the IMT exemption benefit provided for in article 270, no. 2, of the Code on Insolvency and Company Recovery (CIRE).

b) According to the Applicant, if the legislator's objective was to exempt only the transfers of property assets of companies or establishments sold or transferred, it would have been sufficient to state that only the transfer of property when integrated in the sale, exchange or transfer of the company or establishment benefited from said exemption.

c) Furthermore, invoking jurisprudence of the Supreme Administrative Court (STA), the interpretation of article 270, no. 2, of the CIRE to the effect that only transfers of property assets integrated in the transfer of the company or its establishment are exempt from IMT, is not an interpretation in accordance with the Constitution of the Portuguese Republic (CRP).

d) In deciding to levy IMT, the AT's action is affected by a defect of violation of law, since the assessment is based on a norm which, when interpreted in order to justify the assessment now contested, becomes itself unconstitutional by violation of article 165, no. 2, of the CRP.

e) The Applicant concludes, therefore, that in the context of an insolvency plan, payment plan or liquidation of the insolvent estate, the IMT exemption enshrined in article 270, no. 2, of the CIRE covers property transferred by sale or exchange, even if such transfer is not integrated in the transfer of the company or establishment.

f) Now, in accordance with the principle of legality and typicality, the AT must proceed with the assessment only in the event of verification of all legal typical elements.

g) The Applicant further adds that the AT violated its legitimate expectations and guarantees previously constituted and, likewise, the principle of trust and legal certainty, in addition to violating the principles of tax legality, prohibition of retroactivity of tax law and good faith.

h) The Applicant further argues that the revocation of the exemption granted could only be effected within the period of one year following its grant, so that, the AT having revoked the grant after the expiry of one year, this act of revocation is illegal.

In another sense, the AT sustains that:

a) The urban property acquired for housing benefited from IMT exemption in the terms of article 270, no. 1 and no. 2, of the CIRE, "Transfers integrated in the context of liquidation of the insolvent estate".

b) However the application of said exemption depends on the immovable property transferred being integrated into the universality of the company or establishment sold, in the context of an insolvency plan.

c) The legal prerequisites for IMT exemption are therefore not met since the transfer was effected in an insolvency process of a natural person.

d) Furthermore, and bearing in mind that the legislative intent to be considered by the interpreter must have a minimum of verbal correspondence to the letter of the law and likewise the assumption that the legislator knew how to express itself in adequate terms, it cannot be inferred from the letter of the norm, nor from the spirit of the legislator, that the IMT exemption can cover acquisitions of assets in the context of insolvency proceedings of natural persons.

e) The AT concludes, therefore, that an interpretation in the sense of recognizing IMT exemption in acquisitions made from insolvent natural persons in the same way as in insolvency proceedings of companies has no legal and constitutional support.

f) Furthermore, the AT sustains that, since the legal prerequisites for the Applicant to benefit from IMT exemption are not met, the AT could not fail to levy the tax, provided that the time limit for assessment of IMT was respected, that is to say, provided it occurred within the period of 8 years.

g) Thus, as the revocation of the exemption occurred within the indicated period of 8 years, the act of revocation in question suffers from no illegality, according to the AT.

4. MATTERS OF FACT

4.1. FACTS CONSIDERED PROVED

In view of the documents filed in the case, it is established as proven that:

4.1.1. On 19/06/2014, the Applicant acquired the autonomous fraction designated by the letter "F", intended for housing, of the urban property located at Rua…, no.…, registered in the urban real property matrix of the parish of…, municipality of ..., under article number…, in the context of insolvency proceedings of B… (taxpayer no. …) and C… (taxpayer no.…) which took place in the Court of the District of Greater Lisbon - …, ..., Commercial Court, under no. …/11….T….

4.1.2. The insolvents B… and C…, from whom the Applicant acquired the property, are natural persons and ceased professional activity on 31/12/2010 and 31/12/2009, respectively.

4.1.3. On 05/10/2015, the Applicant was notified, by Official Notice no.…, of 01/10/2015, sent by the Tax Service of ... –… (…), to proceed with payment of the assessment contained in document no.…, relating to IMT, in the amount of € 1,047.97 (one thousand and forty-seven euros and ninety-three cents).

4.1.4. The IMT assessment now contested was paid in full and within the time limit by the Applicant, on 18/02/2016.

4.1.5. On 24/05/2016, the Applicant submitted a request for reconsideration requesting the annulment of the assessment in question.

4.1.6. On 26/06/2016, the Applicant was notified, by Official Notice no.…, of 21/06/2016, sent by the Tax Service of ... –… (…), to, if it so wishes, exercise the right of prior hearing and take note of the draft decision and its reasoning concluding by dismissing the request for reconsideration presented.

4.1.7. On 04/08/2016, the Applicant was notified, by Official Notice no.…, of 02/08/2016, sent by the Tax Service of ... –… (…), of the conversion into final form of the draft decision on the request for reconsideration presented.

4.1.8. On 25/08/2016, the Applicant submitted the request for arbitral ruling which gave rise to the case identified above.

4.2. FACTS NOT CONSIDERED PROVED

There are no facts relevant to the decision that have not been established as proven.

5. THE LAW

On the interpretation of article 270, no. 2, of the CIRE

Considering the arguments presented by the parties, it is important to analyze the provisions of article 270, no. 2, of the CIRE and determine whether the acquisition of the property effected in the context of liquidation of the insolvent estate of B… and C… is, or is not, covered by the IMT exemption.

In this regard, the current wording of article 270, no. 2, of the CIRE provides as follows:

"Acts of sale, exchange or transfer of the company or of establishments thereof integrated in the context of insolvency plans, payment plans or recovery plans or undertaken in the context of liquidation of the insolvent estate are equally exempt from municipal tax on onerous property transfers." [1]

The previous wording of article 270, no. 2, of the CIRE established the following:

"Acts of sale, exchange or transfer of the company or of establishments thereof integrated in the context of insolvency plans or payment plans or undertaken in the context of liquidation of the insolvent estate are equally exempt from municipal tax on onerous property transfers".

As can be seen, the amendment introduced by the State Budget Law for 2013 only expanded the application of the IMT exemption to transfers carried out in acts of company recovery, which the previous wording did not contemplate, maintaining the remainder of the provision in question.

In this measure, considering the literal wording of article 270, no. 2, of the CIRE, it follows that all acts integrated in the context of insolvency plans, or payment plans, or liquidation of the insolvent estate are exempt from IMT, with the reservation that the insolvent must be a company or establishment.

Consequently, the literal meaning of the norm in question confers IMT exemption on acts of sale, exchange or transfer of the company or of its establishments, and cannot be understood here as including sales of assets of natural persons, non-entrepreneurs or holders of companies, since this is not provided for in the norm under analysis.

On the other hand, the rational element of legal interpretation must consider that every norm was created with a certain purpose and that, consequently, it must be understood in the sense that best responds to the result intended to be achieved.

In this sense, it could be said that the exemption created by article 270, no. 2, of the CIRE appears to have had as its purpose to facilitate the realization of the operations described therein, eliminating the impact of the fiscal charges normally associated.

Now, the ratio of the norm could, therefore, in principle, cover acts of sale that had their origin in the insolvency of natural persons, non-entrepreneurs or holders of companies, in so far as being the objective of the norm to facilitate the realization of those operations in situations of insolvency or recovery, there appears to be no impediment to such legal provision as regards natural persons.

Nevertheless, the norm under analysis establishes clearly and unequivocally that the IMT exemption applies to "(…) sale, exchange or transfer of the company or of its establishments (…)" and does not provide that the IMT exemption applies to the sale, exchange or transfer of assets held by natural persons.

Now, where the law does not distinguish, it is not for the interpreter to distinguish.

Whence, the IMT exemption provided for in article 270, no. 2, of the CIRE applies only to immovable property that form part of the assets of a company and not to immovable property of natural persons.

This interpretation has received uniform understanding in jurisprudence, in the sense of considering that it must be immovable property that forms part of the assets of a company and not immovable property of natural persons, with the sole justification of being part of an insolvency process.

In this regard, see, by way of example, the Judgment of the Supreme Administrative Court (STA) delivered in the context of Case no. 765/13, of 03/07/2013 [2], where it is concluded that "(…) said exemption does not cover the sale of urban property intended for housing, which belongs to a natural person, it not being sufficient to benefit from that exemption the fact of being acts of sale carried out in the context of liquidation of the insolvent estate, irrespective of whether it belongs to a natural or legal person (business entity).".

In conclusion, considering that, in the case at hand, the Applicant acquired, by adjudication, in the context of the insolvency process already identified, property belonging to two natural persons and not a company, the situation is not subsumed under the provision of article 270, no. 2, of the CIRE, which refers exclusively to acts of "sale", "exchange" or "transfer" of companies or their establishments.

Equally unfounded is the alleged violation of the various constitutional principles that the Applicant merely invoked in articles 54 and 60 of the request for arbitral ruling, without, however, having succeeded in demonstrating any unconstitutionality or any violation of principles of law.

On the revocation of the IMT exemption granted under the provisions of article 270, no. 2, of the CIRE

In accordance with the provisions of article 5, no. 1, of the Tax Benefits Statute (EBF), these are automatic or dependent on recognition, the former resulting directly and immediately from law and the latter presupposing one or more subsequent acts of recognition.

As regards tax benefits dependent on recognition, article 5, no. 2, of the EBF provides that recognition may take place by administrative act or by agreement between the AT and those interested.

As is unanimously accepted by jurisprudence and doctrine, the IMT exemption provided for in article 270, no. 2, of the CIRE constitutes an automatic tax benefit, and thus does not presuppose any act of recognition.

For its part, article 14, no. 4, of the EBF provides:

"The administrative act granting a tax benefit is not revocable, nor can the respective agreement for its grant be rescinded, or the rights acquired be diminished, by unilateral act of the tax authority, unless there is non-compliance attributable to the beneficiary of the obligations imposed, or if the benefit was improperly granted, in which case that act may be revoked.".

In the case at hand, although we are faced with an automatic tax benefit, not dependent, therefore, on any administrative act, it cannot be overlooked that its grant constitutes an act constitutive of the rights of the beneficiary, in this case, of the Applicant.

And, as an act constitutive of rights, it may only be revoked by the AT by unilateral act in the situations expressly provided for in the cited article 14, no. 4, of the EBF, namely: (i) if there is non-compliance attributable to the beneficiary of the obligations imposed or (ii) if the benefit was improperly granted.

As we have seen, in the case at hand, the tax benefit of IMT exemption was improperly granted, since the onerous transfer of property forming part of the insolvent estate of a natural person does not benefit from the exemption provided for in article 270, no. 2, of the CIRE.

For which reason the AT could revoke the exemption granted, within the legally provided time period, although such revocation would represent a diminution of the acquired rights of the Applicant.

Now, as António Lima Guerreiro expounds, "administrative acts in tax matters that are constitutive of rights can only, therefore, be revoked on the basis of invalidity, in accordance with the terms and periods of article 141 of the CPA". [3]

On the other hand, under the new Administrative Procedure Code (CPA) [4], the revocation of administrative acts is only possible on grounds of merit or convenience, with invalid acts being subject to the regime of administrative annulment.

As the AT advanced no ground for the revocation of the act granting IMT exemption on grounds of merit or convenience, this could only be annulled on the basis of its invalidity, for failure to verify the factual and legal prerequisites for granting the exemption to the Applicant.

It happens, however, that, as expressly provided for in article 168, no. 2, of the CPA, an act constitutive of rights may only be the subject of administrative annulment within the period of one year.

As the IMT exemption granted to the Applicant is an act constitutive of rights, it could only be annulled by the AT within the period of one year following its making.

Thus,

Given that the IMT exemption was granted on 05/06/2014, its annulment could only occur until 05/06/2015.

For which reason, on the date of the annulment of the act in question – 05/10/2015 – the period of one year for annulment of the act granting IMT exemption had long since expired.

In fact, the period of 8 years referred to by the AT is the period of limitation of the right to make the assessment, which is not to be confused with the period for annulment of the act granting the IMT exemption.

As the act granting IMT exemption was made outside the period of one year legally provided for the purpose, it is illegal, by violation of the provisions of article 168, no. 2, of the CPA, imposing itself, therefore, its annulment.

In support of this understanding, note the Judgment of the Supreme Administrative Court (STA), of 15/05/2013, where the following was concluded:

"I – In determining the legal consequences of the invalidity of an administrative act in tax matters of granting a tax benefit, in the context of the possibility of its legal revocation, the rules of the CPA must be applied in accordance with what is provided for in article 2 of the CPPT.

II – The act of revocation of a tax benefit of exemption from a tax, which produces effects ex tunc and occurs more than one year after the act granting the exemption, is illegal by violation of the provisions of article 141 of the CPA.". [5]

On the payment of compensatory interest

The Applicant further petitions for the condemnation of the AT in the payment of compensatory interest, in the terms provided for in article 43 of the LGT, according to which:

"Compensatory interest is due when it is determined, in a request for reconsideration or judicial challenge, that there was an error attributable to the services as a result of which the tax debt was paid in an amount greater than legally due.".

In the case at hand, it is verified that, by error attributable to the services, the Applicant was forced to pay a tax in an amount greater than due.

Thus, compensatory interest is due, to be paid by the AT to the Applicant, calculated on the amount of the assessed tax – € 1,047.93 – at the legal rates from 18/02/2016 until the effective and complete reimbursement by the AT.

6. DECISION

With the grounds set out above, the arbitral tribunal decides:

a) To uphold the request for annulment of the act of assessment of Municipal Tax on Onerous Property Transfers (IMT) contained in document no.…;

b) To condemn the AT to reimburse the Applicant in the amount of € 1,047.93 (one thousand and forty-seven euros and ninety-three cents);

c) To condemn the AT to pay to the Applicant compensatory interest, calculated on the amount of € 1,047.93 (one thousand and forty-seven euros and ninety-three cents), at the legal rates from 18/02/2016 until the effective and complete reimbursement by the AT.

d) To condemn the AT in the costs of the present case, as the party losing.

7. VALUE OF THE CASE

The value of the case is set at € 1,047.93 (one thousand and forty-seven euros and ninety-three cents), in the terms of article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Processes (RCPAT).

8. COSTS

Costs to be borne by the AT, in the amount of € 306 (three hundred and six euros), in the terms of Table I of the Regulation of Costs of Tax Arbitration Processes, in the terms of no. 2 of article 22 of the RJAT.

Let notification be made.

Lisbon, 21 February 2017

The Arbitrator,

(Hélder Filipe Faustino)

Document prepared by computer, in the terms of the provisions in no. 5 of article 131 of the CPC, applicable by remission of paragraph e) of no. 1 of article 29 of the RJAT. The wording of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

[1] Wording introduced by article 234 of Law no. 66-B/2012, of 31 December (State Budget for 2013).

[2] Available at www.dgsi.pt.

[3] "General Tax Law Annotated", Editor Rei dos Livros, page 343.

[4] Approved by Decree-Law no. 4/2015, of 7 January.

[5] Judgment cited in "General Tax Law Commented and Annotated", José Maria Fernandes Pires (Coordinator), Gonçalo Bulcão, José Ramos Vidal, Maria João Menezes, Almedina, 2015, page 858.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270(2) of the Portuguese Insolvency and Recovery Code (CIRE)?
Article 270(2) of the Portuguese Insolvency and Recovery Code (CIRE) provides an exemption from IMT (Municipal Property Transfer Tax) for property transfers occurring within insolvency proceedings. The provision specifically addresses transfers made in the context of insolvency plans, payment plans, or liquidation of insolvent estates. However, the precise scope remains contested: the Tax Authority interprets it as applying only when immovable property is integrated within the sale or transfer of a company or establishment as a going concern, while taxpayers argue it should encompass all real estate transfers occurring within any insolvency context, including individual insolvencies.
Can IMT exemption apply to property transfers that are not part of a direct sale of a business or establishment in insolvency proceedings?
This is the core dispute in Process 519/2016-T. The Applicant argued that IMT exemption under Article 270(2) CIRE should apply to all property transfers within insolvency proceedings, regardless of whether they form part of a business or establishment sale. The company contended that restricting the exemption to integrated business transfers contradicts the legislative purpose and violates constitutional principles. The Tax Authority maintained the opposing view: exemption applies exclusively when property is transferred as part of a company or establishment universality. According to AT, extending the benefit to standalone property sales from individual insolvents lacks legal and constitutional support, as the legislative intent requires integration within a business transfer.
How did the CAAD arbitral tribunal rule on the legality of the IMT tax assessment in Process 519/2016-T?
The complete arbitral decision is not provided in the excerpt, which concludes during the factual recitation phase. The tribunal, constituted with a sole arbitrator designated by the CAAD President, accepted jurisdiction and found the case procedurally regular. Both parties submitted written arguments, with the tribunal dispensing with the oral hearing as the matter involved exclusively legal questions. The fundamental issue for determination was whether Article 270(2) CIRE exemption applies to property acquired from insolvent natural persons or only to transfers integrated within corporate or establishment sales. The final ruling on the legality of the €1,047.93 IMT assessment is not included in the provided text excerpt.
What is the procedure for challenging an IMT tax assessment through arbitral proceedings at CAAD in Portugal?
The procedure demonstrated in this case follows the Legal Regime for Tax Arbitration (RJAT). First, the Applicant submitted an arbitration request on 25/08/2016 seeking annulment of the IMT assessment. The CAAD President designated a sole arbitrator on 13/10/2016, and the tribunal was constituted on 18/11/2016. The Tax Authority was notified to submit its response within the statutory deadline, which it did on 21/12/2016, requesting to dispense with the hearing. The tribunal granted this request given the exclusively legal nature of the dispute and invited optional written submissions. The Applicant submitted final arguments on 03/01/2017. Throughout this process, established deadlines under RJAT Articles 17-18 were observed, demonstrating the structured nature of CAAD arbitral proceedings for challenging tax assessments.
Does the IMT exemption under CIRE cover all real estate transfers made in the context of insolvency or only those integrated in the sale of a business?
This represents the central controversy in Process 519/2016-T. Two competing interpretations exist: (1) The Tax Authority's restrictive interpretation holds that Article 270(2) CIRE exemption applies exclusively to immovable property transferred as an integrated component of a company or establishment sale within insolvency proceedings. Under this view, standalone property sales from individual insolvents do not qualify. (2) The taxpayer's broad interpretation argues the exemption covers all real estate transfers occurring within any insolvency context—whether corporate or individual—without requiring integration into a business transfer. The Applicant contended that the restrictive interpretation lacks textual support and violates constitutional principles of tax legality. Resolution of this interpretative conflict determines whether IMT exemption availability depends on the insolvent's legal status (company versus individual) and the transaction structure (integrated business sale versus isolated property transfer).