Process: 557/2016-T

Date: March 30, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD arbitration decision 557/2016-T addresses the legality of a supplementary IMT assessment issued after initial exemption was granted for property acquired from an insolvency estate. The taxpayer purchased residential property from insolvent company C... in May 2014, initially receiving zero IMT assessment based on Article 270 CIRE exemption. In 2016, the tax authority revoked this benefit and demanded €6,536.88 in IMT. The taxpayer challenged on three grounds: territorial incompetence of the assessing authority, eligibility for CIRE Article 270(2) exemption for insolvency-related transfers, and violation of legal certainty principles. The tax authority argued that territorial competence exists where the declaration was filed (Finance Service of the property location), that Article 270(2) CIRE exemption applies only to transfers of entire business establishments rather than individual properties, and that all tax benefits remain subject to inspection regardless of initial approval. The central legal question is whether individual property sales from insolvency liquidation qualify for IMT exemption under CIRE Article 270(2), or whether this provision requires transfer of the complete business unit. The case highlights tensions between taxpayer protection principles (legal certainty, legitimate expectations) and the tax authority's power to correct erroneous benefit grants. It also demonstrates procedural issues regarding territorial competence in IMT assessments. The decision carries significant implications for real estate acquisitions from insolvency proceedings and the scope of CIRE tax exemptions in Portuguese tax law.

Full Decision

Arbitral Decision

I - REPORT

1 A..., Taxpayer[1] ... residing at ... Street, no. ... –..., ...-... Lisbon, filed a request for an arbitral pronouncement, pursuant to the provisions of paragraph a) of no. 1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT[2], with AT[3] being named as respondent, with a view to assessing the legality of the tax acts for the supplementary assessment of IMT[4], relating to the year 2014, concerning the paid transfer, effected by public deed of 13 May 2014, executed at the Notarial Office of Dr. B..., in Lisbon, of the autonomous unit designated by the letter ... of the urban property ... of the parish of ... of the municipality of Lisbon, as per notification from the Finance Directorate of ..., under registered mail with acknowledgment of receipt, dated 23 July 2016 and collection document ..., in the amount of € 6,536.88.

2 That the request was filed without exercising the option to designate an arbitrator, and was accepted by His Excellency the President of CAAD[5] and automatically notified to AT on 15/09/2016.

3 Pursuant to and for the purposes of the provisions of no. 2 of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Board, duly communicated to the parties within the legally applicable time limits, on 16/11/2016, arbitrator Arlindo José Francisco was appointed to the tribunal, who communicated his acceptance of the appointment within the legally stipulated time limit.

4 The tribunal was constituted on 02/12/2016 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.

5 With his request, the petitioner seeks the annulment of the said tax, on the grounds that prior to the transfer he requested the calculation of IMT which resulted in zero, without payment of tax as he benefited from the provision of article 270 of the CIRE[6].

6 He supports his point of view, in summary, on the understanding that the tax act for the supplementary assessment in question was performed by a territorially incompetent organ, for this purpose, whereby it suffers from a defect of relative incompetence which causes its annulment.

7 He further considers the assessment act illegal, since the transfer benefits from an exemption under no. 2 of article 270 of the CIRE, since the same occurred within the context of the liquidation of the insolvent estate for the satisfaction of the creditors of the insolvent company, citing in this sense both decisions already rendered by arbitral tribunals and rulings of the STA.

8 He also considers that the principle of legal certainty and good faith was violated, since the organ that initially considered the transfer exempt subsequently revoked the fiscal benefit granted.

9 Finally, and as he proceeded to pay the tax, he requests its reimbursement, considering it undue plus indemnificatory interest, given that there was error attributable to the services.

10 In the reply, the respondent considers that there is no reason to support the petitioner's claim and the request should be dismissed with the appropriate legal consequences.

11 He supports his point of view, also in summary, that, as for territorial incompetence, it does not exist, since the assessment act has as its reference the place where the model 1 declaration for the calculation of the tax is presented, in the specific case, the FS of ..., the organ that performed and is competent to perform the assessment act.

12 As for the fiscal benefit provided for in no. 2 of article 270 of the CIRE, the same does not apply to the specific case, given that from the same only the transfer of the totality of the company's assets or the establishment can benefit, which is not the case.

13 There was also no violation of the principle of legal certainty, since all fiscal benefits granted, whether automatic or dependent on recognition, remain subject to inspection by the different organs of AT, and what occurred, in the specific case, was merely the action of AT in fulfilling its functions.

14 Concluding for the legality of the assessment act, with no place for the reimbursement of the tax paid nor for the payment of indemnificatory interest.

II - CASE MANAGEMENT

The tribunal was regularly constituted, it is competent, the parties have legal personality and capacity, are shown to be legitimate and are regularly represented in accordance with articles 4 and 10, no. 2 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March.

In the reply, AT requested the waiver of the hearing referred to in article 18 of the RJAT, as well as of the production of oral or written arguments, the tribunal having ordered notification of the petitioner to state his position within 10 days.

On 27/01/2017, the petitioner stated in the record that he was not opposed to the waiver of the hearing under article 18 of the RJAT, but that the production of arguments be admitted; by order of the same date, the tribunal granted 10 days with successive treatment for the production of arguments.

On 20/02/2017, the petitioner submitted his arguments to the record, it being verified that, in essence, they limited themselves to presenting the point of view already set out in the petition. As for the respondent, after the granted time period elapsed, the same were not submitted.

As stated in the order of 16/03/2016, the position of the parties is perfectly defined and the proceedings suffering from no nullities, it is necessary to decide.

III - REASONING

1 - The issues to be resolved, which are relevant to these proceedings, are as follows:

a) Whether the IMT assessment act here challenged, performed by the chief of the Finance Service of ..., suffers from the defect of relative incompetence and should be annulled.

b) Whether the said act suffers from the defect of violation of law and error in the factual and legal assumptions and whether the principles of legal certainty and good faith are violated, it should be annulled.

c) If, in case of annulment, its reimbursement should or should not be accompanied by the payment of indemnificatory interest.

2 - Facts of the Case

a) The petitioner acquired by public deed of 13 May 2014, the unit ... of article ... of the parish of ... intended for housing.

b) The said unit was acquired from company C..., declared insolvent on 13 February 2013, by judgment rendered on the same date as per process 250/13.OTYLSB of the 4th Court of the Commercial Court of Lisbon.

c) The acquisition occurred through private negotiation promoted by the insolvency administrator and executed by D... Ltd.

d) Proposals for bidding on any of the properties listed in the property listings owned by the insolvent, as per publication by the auctioneer, had to be submitted in writing until 27 December 2013, with the unit acquired by the petitioner appearing on the respective list.

e) The petitioner submitted his proposal on 18 December 2013 in the amount of € 210,000.00, which was accepted, and he was notified to proceed with payment in accordance with the established terms.

f) He requested the calculation of IMT for the purpose of executing the deed of sale and purchase, with submission of the respective model 1 declaration to the Finance Service of ..., and a zero assessment was issued because he benefited from the exemption provided for in article 270 of the CIRE.

g) On 4 March 2016, he was notified to exercise the right to be heard on the demonstration of the supplementary assessment of IMT with reference to the acquisition of the unit already identified, a right which he waived, and was subsequently notified on 21 June 2016 to pay the IMT here in dispute within a period of 30 days and that within the same period he could lodge a complaint or appeal.

h) Although disagreeing with the said assessment, he paid it on 22 June 2016.

The facts described are proven by documents attached to the record and we consider them to be relevant for the assessment of the merits of the case.

3 - Legal Analysis

3.1 - On the defect of relative incompetence of the assessment act.

The petitioner came forward, in the first instance, to raise the question of the territorial incompetence of the author of the assessment act, the chief of the finance service of ..., invoking the provisions contained in no. 2, paragraph b), article 21 of the CIMT[7], which determines that, in the case of supplementary assessments, as is the present case, the finance service competent to perform the assessment act shall be the one in the area where the transmitted properties are located.

In turn, AT considers that the petitioner is not correct, given that, considering that the declaration for the calculation of IMT was presented to the finance service of ..., it is this service that is competent to proceed with the assessment taking into account the provisions of paragraph a) of no. 2 of article 21 of the CIMT.

Article 21 of the CIMT is transcribed, in the relevant part:

"1 - IMT is assessed by the central services of the General Tax Directorate, based on the declaration of the taxpayer or ex officio, being considered, for all legal purposes, the tax act performed by the competent finance service.

2 - For the purposes of the preceding paragraph, the following rules apply:

a) When the assessment is made based on the declaration of the taxpayer, the finance service where the declaration referred to in no. 1 of article 19 is presented shall be considered competent for the assessment of IMT;

b) In cases where the assessment is promoted ex officio, the finance service in the area where the properties are located shall be considered competent for the assessment of IMT, without prejudice to the provisions of the following paragraphs.

3 - ..."

It is verified that assessments are made by the Central Services of AT, with the same being considered performed by the finance services competent to perform the act, whether they originate from the taxpayer's declaration or are ex officio. In the specific case and on the initiative of the interested parties, an official model declaration was presented to the finance service of ... requesting the assessment, and a zero assessment notice was issued because the transfer was considered exempt under the terms of article 270 of the CIRE. Subsequently, AT concluded that tax was due and proceeded with the respective supplementary assessment, which was promoted by the finance service of .... It is the tribunal's understanding that, taking into account the provisions contained in paragraph a) of no. 2 of article 21, read together with the provisions of article 19, no. 1, and no. 2 of article 31, all of the CIMT, the finance service competent for the assessment can only be the finance service that performed it, and thus the invoked territorial incompetence is not upheld.

3.2 - On the defects of violation of law and error in the factual and legal assumptions and on the violation of the principles of legal certainty and good faith.

With respect to the defects of violation of law and error in the factual and legal assumptions, the petitioner alleges that the transfer in question should benefit from the exemption provided for in article 270 of the CIRE, despite being in the presence of an isolated sale of a property that was part of the insolvent estate, it not being necessary that the transfer be integrated in the transfer of the totality of the establishment or company. In this sense, he refers to decisions rendered by CAAD tribunals and rulings of the STA[8].

In turn, AT considers that the invoked and sought exemption takes place only in situations of transmission of the totality of assets associated with the exercise of the economic activity of the company, and the petitioner did not acquire the totality of the company, nor was his acquisition aimed at maintaining business activity, whereby the petitioner's point of view is not upheld since it is an isolated acquisition.

What is truly at issue is whether article 270 of the CIRE provides for the exemption of IMT in the paid acquisition of properties regardless of whether their transmission is or is not integrated in the totality of the company or establishment, as in the case here in question where the property was acquired separately from that totality.

The said normative provision is transcribed, to better analyze:

"1 - The following transmissions of real property integrated in any insolvency, payment or recovery plan are exempt from municipal tax on paid transfers of real property:

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

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

c) Those that result from the giving in performance of company assets and the cession of assets to creditors.

2 - The acts of sale, exchange or cession of the company or of its establishments, integrated within insolvency, payment or recovery plans or performed within the context of the liquidation of the insolvent estate, are also exempt from municipal tax on paid transfers of real property".

There are already several rulings of the STA and decisions of arbitral tribunals on matters similar to the present proceedings, and we will closely follow the decision in Ruling no. 0949/11, of 30 May 2012, which was also followed in process 95/2015 of CAAD.

We will transcribe, in the part that we consider relevant to the case at hand, the said Ruling of the STA:

"In face of the letter of the law, both interpretations are defensible, although grammatically more correct appears to be the one sustained by the Tax Administration, since the verbs "sell", "exchange" and "cede" are all transitive verbs, hence in the sentence the reference to "the company or its establishments" would appear as the direct object of all three. This interpretation, however, clashes, as well observed in the appealed judgment, with what the legislator set out in no. 49 of the preamble of the CIRE with respect to fiscal benefits, where it states that: 'the existing regimes in CPEREF are essentially maintained regarding the exemption of fees and fiscal benefits', it being true that paragraph c) of no. 2 of article 121 of CPEREF exempted from municipal stamp duty the transmissions of real property integrated in any of the company recovery procedures that resulted, in particular, from the sale, exchange or cession of elements of the company's assets. And it also clashes, as well observed by the Public Ministry at first instance (cf. the opinion in 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, fixed in articles 2 and following of Law no. 39/2003, of 22 August, since, with respect to exemptions from municipal stamp duty (now IMT), no. 3 of article 9 of that legislative authorization law provided that: 'Finally, the Government is authorized to exempt the following transmissions of real property from municipal stamp duty, integrated in any insolvency or payment plan or realized within the context of the liquidation of the insolvent estate: c) (...) from the sale, exchange or cession of the company, establishment or elements of its assets (...)'.

It can, certainly, be argued that, in the perspective of the CIRE legislator, the differences as to the scope of the IMT exemption compared to what existed in CPEREF for SISA did not appear as essential, hence why they made no particular reference to them. That is, particularly in tax matters, the preamble of instruments does not always precisely reflect its content, it is not even unprecedented that they include mentions that the law text undermines (cf. with respect to SISA/IMT the Ruling of this Supreme Court of 3 November 2010, rec. no. 499/10). And it can also be argued that in implementing the legislative authorization for the approval of the CIRE, in the matter at hand, the Executive decided to be more parsimonious than Parliament with respect to the granting of IMT exemption, deciding to exclude this exemption in cases of sale, exchange or cession of elements of its assets, granting it only in cases of sale, exchange or cession of the company or its establishment. If so, however, it would not have respected the meaning and scope of the legislative authorization granted to it, having legislated on a matter reserved to Parliament (cf. no. 2 of article 103 and paragraph i) of no. 1 of article 165 of the Constitution) in disregard of the parliamentary credentials conferred on it. As is known, between two meanings of the law, both with at least minimal support in its letter, the interpreter must choose the one that is compatible with the constitutional text (interpretation in conformity with the Constitution), to the detriment of the interpretation that renders it unconstitutional. It is for that reason fundamentally that it is understood that the appealed decision does not merit censure, for although it is doubtful that the ordinary legislator of the CIRE intended to confer on the IMT exemption provided for in no. 2 of its article 270 the same scope that the previous SISA exemption provided for in paragraph c) of no. 2 of article 121 of CPEREF had, the choice of the meaning of its restriction was not permitted to it, for in the matter of fiscal benefits it legislates in a domain reserved to Parliament, and it must respect the limits that it sets for it, in particular those relating to the meaning and scope of the authorization (cf. no. 2 of article 165 of the Constitution of the Republic)".

Sharing with this tribunal what was defended in the cited Ruling, that no. 2 of article 270 of the CIRE applies not only to paid transmissions of real property integrated in the totality of the company or establishment of the insolvent estate, but also to isolated transmissions of elements of its assets, as is the case, provided that they are integrated within the scope of the insolvency or payment plan or practiced within the context of the liquidation of the insolvent estate, we conclude that the petitioner is correct and the IMT assessment should be annulled, without need to assess the issues of violation of the principles of legal certainty and good faith raised by the petitioner in the request for pronouncement.

3.3 - Payment of indemnificatory interest together with the reimbursement of IMT

Once the assessment is annulled, article 46 of the CIMT, nos. 1 and 3, determine that indemnificatory interest is due, provided for in article 43 of the LGT[9], thus, once the illegality of the IMT assessment is declared and its consequent annulment, AT is obliged to reconstitute the situation that would have existed if the annulled act had not been performed, as per article 100 of the LGT.

Proven the payment of the IMT in question by the petitioner, he has the same right to the payment of indemnificatory interest in the precise terms of the cited article 43, no. 1, of the LGT and article 61 of the CPPT[10].

IV - DECISION

In view of the foregoing, the tribunal decides as follows:

a) To declare unfounded the invoked territorial incompetence of the finance service of ... for the performance of the IMT assessment act, raised by the petitioner.

b) To declare the petition for an arbitral pronouncement well-founded with the consequent annulment of the IMT assessment act and its reimbursement to the petitioner in the amount of € 6,536.88 plus the respective indemnificatory interest calculated at the legal rate, from the date the payment was made to the date the reimbursement occurs.

c) To set the value of the proceedings at € 6,536.88 in accordance with the provisions contained in article 299, no. 1, of the CPC[11], article 97-A of the CPPT, and article 3, no. 2, of the RCPAT[12].

d) To set the costs, under no. 4 of article 22 of the RJAT, in the amount of € 612.00 in accordance with the provisions of table I referred to in article 4 of the RCPAT, which shall be borne by the respondent.

Notify.

Lisbon, 30 March 2017

Text prepared on computer, in accordance with article 131, no. 5 of the CPC, applicable by referral from article 29, no. 1, paragraph e) of the RJAT, with blank lines and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for Taxpayer (Contribuinte Fiscal)

[2] Acronym for Legal Framework for Arbitration in Tax Matters (Regime Jurídico da Arbitragem em Matéria Tributária)

[3] Acronym for Tax and Customs Authority (Autoridade Tributária e Aduaneira)

[4] Acronym for Municipal Tax on Paid Transfers of Real Property (Imposto Municipal sobre as Transmissões Onerosas de Imóveis)

[5] Acronym for Administrative Arbitration Center (Centro de Arbitragem Administrativa)

[6] Acronym for Insolvency and Company Recovery Code (Código da Insolvência e da Recuperação de Empresas)

[7] Acronym for Municipal Tax on Paid Transfers of Real Property Code (Código do Imposto Municipal sobre as Transmissões Onerosas de Imóveis)

[8] Acronym for Supreme Administrative Court (Supremo Tribunal Administrativo)

[9] Acronym for General Tax Law (Lei Geral Tributária)

[10] Acronym for Tax Procedure and Process Code (Código de Procedimento e de Processo Tributário)

[11] Acronym for Code of Civil Procedure (Código de Processo Civil)

[12] Acronym for Regulation of Costs in Tax Arbitration Proceedings (Regulamento de Custas Nos Processos de Arbitragem Tributária)

Frequently Asked Questions

Automatically Created

Is the transfer of real estate from an insolvency estate exempt from IMT under Article 270 of CIRE?
Article 270(2) of CIRE provides IMT exemption for property transfers occurring within insolvency proceedings, but its scope is contested. The tax authority interprets this provision narrowly, arguing it applies only when the entire business establishment or totality of company assets is transferred, not individual properties. Taxpayers argue the exemption should extend to all asset liquidations serving creditor satisfaction within insolvency context. CAAD case law and Supreme Administrative Court rulings have addressed this interpretation, with the critical distinction being whether the transfer involves a going concern (establishment) versus isolated asset sale. The exemption's rationale is facilitating insolvency estate liquidation by reducing transaction costs that would otherwise diminish creditor recoveries.
Can an IMT additional assessment be annulled due to territorial incompetence of the issuing tax authority?
Territorial competence for IMT assessment is determined by where the Model 1 declaration is submitted, typically the Finance Service of the property's location. In this case, the taxpayer argued the supplementary assessment was issued by a territorially incompetent authority. However, Portuguese tax procedure law establishes that the competent authority for IMT assessment is the Finance Service where the declaration is filed, which generally corresponds to the property's fiscal jurisdiction. Territorial incompetence constitutes a relative procedural defect that must be raised promptly. The assessment's validity depends on whether the issuing authority had jurisdiction over the property's location, not where the taxpayer resides or where the deed was executed.
What happens when the tax authority revokes an IMT exemption previously granted for an insolvency-related property transfer?
When the tax authority revokes a previously granted IMT exemption, it must follow proper procedure including notification and right to be heard. In this case, the taxpayer received initial zero assessment based on CIRE Article 270 exemption, which was later challenged through supplementary assessment. Portuguese tax law permits authorities to review and correct erroneous benefit grants during the limitation period, even if initially approved. However, such revocation may violate legal certainty and legitimate expectations principles if the taxpayer reasonably relied on the initial decision. The consequences include potential obligation to pay the assessed tax, but if the revocation is deemed unlawful upon challenge, the taxpayer is entitled to annulment. The balance between tax authorities' inspection powers and taxpayer protection remains a key issue in such disputes.
Are taxpayers entitled to a refund and compensatory interest when an unlawful IMT assessment is annulled by CAAD?
When CAAD annuls an unlawful IMT assessment, taxpayers are entitled to full reimbursement of amounts paid plus compensatory interest under Article 43 of the Portuguese Tax Procedural Code (CPPT). Compensatory interest accrues from payment date until refund, calculated at the legal rate for tax refunds. The entitlement arises automatically when the assessment is deemed illegal, whether due to procedural defects (like territorial incompetence), substantive legal violations (incorrect application of exemptions), or factual errors. If the tax authority's error is attributable to its services rather than taxpayer conduct, compensatory interest must be paid without requiring separate claim. This principle aims to compensate taxpayers for loss of use of funds during the period between unlawful collection and restitution.
How does the principle of legal certainty and good faith apply to the revocation of tax benefits in Portuguese tax law?
The principles of legal certainty (segurança jurídica) and good faith (boa fé) in Portuguese tax law protect taxpayers from arbitrary changes in tax authorities' positions. When an exemption is initially granted and later revoked, courts analyze whether: (1) the taxpayer provided complete and accurate information; (2) the taxpayer legitimately relied on the initial decision; (3) the revocation followed proper procedure; and (4) the tax authority's initial approval was clearly erroneous or fraudulently obtained. Legal certainty requires consistent application of law and protects legitimate expectations formed by taxpayers based on administrative acts. However, these principles don't prevent correction of manifest legal errors. The balance requires authorities to respect justified taxpayer reliance while maintaining power to enforce correct tax application. Abrupt revocations without adequate justification may be deemed unlawful violations of these fundamental principles.