Process: 583/2016-T

Date: April 13, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 583/2016-T) addresses a critical interpretation of Article 270(2) of the Portuguese Insolvency and Business Recovery Code (CIRE) regarding IMT (Municipal Tax on Onerous Transfers of Real Estate) exemptions. The case involves a company that acquired real estate during the liquidation of an insolvent estate in which it was a creditor. Initially, no IMT was assessed based on automatic exemption under Article 270(2) CIRE. However, the Tax Authority (AT) subsequently challenged this exemption, issuing an IMT assessment of €617,664.26, arguing that the exemption only applies to transfers of entire companies or commercial establishments, not isolated property acquisitions. The claimant contested this assessment through CAAD arbitration, arguing that the legislative intent behind Article 270(2) CIRE was to facilitate quick and attractive sales of real estate within insolvency proceedings to satisfy creditors' interests, regardless of whether properties are sold individually or as part of a business unit. The central legal question concerns whether the IMT exemption for 'acts of sale, exchange or assignment of the company or its establishments' carried out during insolvent estate liquidation extends to isolated property acquisitions or is restricted to transfers of companies or establishments as unified business entities. This interpretation has significant implications for creditors acquiring assets in insolvency proceedings and for the broader restructuring and liquidation process in Portuguese insolvency law. The case demonstrates the importance of the CAAD arbitration system as an alternative dispute resolution mechanism for tax disputes in Portugal.

Full Decision

ARBITRAL DECISION

The arbitrators Counselor José Baeta de Queiroz (arbitrator-president), Professor Doctor Pedro Soares Martínez and Dr. Hélder Faustino (arbitrator-members), appointed by the Deontological Council of the CAAD to constitute the Arbitral Tribunal, constituted on 23-12-2016, agree on the following:

I. REPORT

  1. The A A…, Lda. (hereinafter referred to as "Claimant"), legal entity number…, with registered office at Rua …, no.…, in Lisbon, having been notified of the tax assessment act for the Municipal Tax on Onerous Transfers of Real Estate (IMT), formalized by the assessment document no. …, in the amount of € 617,664.26, presented, on 28-09-2016, pursuant to paragraph a), of no. 1 of article 2.º and paragraph a) of no. 1 of article 10.º of Decree-Law no. 10/2011, of 20 January ("Legal Regime of Tax Arbitration", hereinafter "RJAT"), a request for arbitral decision with a view to annulling that act.

  2. The respondent is the Tax and Customs Authority (AT).

  3. The claim subject to the request for arbitral decision consists of the annulment of that act, along with the condemnation of the AT to reimburse the tax unduly paid and, furthermore, to the payment of compensatory interest for the unduly paid tax act.

  4. The request for constitution of the Arbitral Tribunal was accepted by the President of the CAAD and automatically notified to the AT.

4.1. The Claimant did not proceed with the appointment of an arbitrator, and therefore, pursuant to paragraph a) of no. 2 of article 6.º and paragraph b) of no. 1 of article 11.º of the RJAT, the President of the Deontological Council appointed arbitrators Counselor José Baeta de Queiroz, Professor Doctor Pedro Soares Martínez and Dr. Hélder Faustino as arbitrators of the collective Arbitral Tribunal, who communicated their acceptance of the assignment within the applicable period.

4.2. On 07-12-2016, the parties were notified of the appointment of the arbitrators and raised no objections.

4.3. In conformity with the provision of paragraph c) of no. 1 of article 11.º of the RJAT, the collective Arbitral Tribunal was constituted on 23-12-2016.

  1. To support the request for arbitral decision, the Claimant alleges, in summary, the following:

a) In the context of the activity carried out, the Claimant acquired, in the context of the settlement of the insolvent estate of B…, Lda., whose insolvency proceedings took place in the … Court of the Commercial Court of Lisbon, with no. …/09… TYLSB, acting in the capacity of creditor thereof, the real estate identified in paragraph 7 of the request for arbitral decision.

b) The IMT exemption provided for in no. 2 of article 270.º of the Insolvency and Business Recovery Code (CIRE) was automatically granted to the Claimant, and thus tax was not assessed with reference to that liquidation operation.

c) Subsequently, however, the Claimant was notified of the AT's understanding regarding the alleged incorrect application of said IMT exemption in the context of that operation, according to which the Claimant would have benefited "unduly" from the exemption in question because, in the acquisitions of the real estate in question, the necessary requirements for the application of no. 2 of article 270.º of the CIRE were not met.

d) The Claimant alleges that, having acquired the properties in the context of the settlement of a certain insolvent estate, it is covered by the IMT exemption provided for in no. 2 of article 270.º of the CIRE.

  1. The AT presented its response, alleging, in summary, the following:

The exemption in question covers all acts integrated within insolvency plans, or payment plans, or settlement of the insolvent estate, with the reservation, however, that the object of the exempt transfer be the company or the establishment and not one or two assets of its holdings considered in isolation.

  1. As the production of evidence had not been requested, it was decided to dispense with the meeting provided for in article 18.º of the RJAT, and the date 02-05-2017 was set as the deadline for rendering the arbitral decision.

  2. The parties dispensed with the submission of pleadings.

II. SANATION

9.1. The Arbitral Tribunal is competent and properly constituted.

9.2. The parties have legal personality and capacity, are legitimate, and are properly represented (articles 4.º and no. 2 of article 10.º of the RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March).

9.3. The proceedings do not suffer from nullities.

9.4. There are no other circumstances that prevent consideration of the merits of the case.

III. MERITS

III.1. Statement of Facts

  1. Proven Facts

10.1. With relevance to the examination and decision of the questions raised, the following facts are taken as established and proven:

a) The Claimant is a company whose corporate purpose is the purchase and sale of real estate;

b) The Claimant was notified of the IMT assessment act no. …, in the total amount of € 617,664.26, referring to the real estate identified below, which it paid on 29-06-2016:

c) The Claimant acquired the real estate identified in the previous paragraph in the context of the settlement of the insolvent estate of B…, Lda., of which it was a creditor, and whose insolvency proceedings took place in the … Court of the Commercial Court of Lisbon under no. …/09…TYLSB.

10.2. Justification of the Statement of Facts

The factual record was based on the documents attached to the request for arbitral decision and in the administrative file, and there is no controversy about them.

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

III.2. Statement of Law

On the Merits

The central question to be decided concerns the interpretation of the provisions of no. 2 of article 270.º of the CIRE, namely, with regard to whether all acquisitions of real estate within insolvency and business recovery proceedings are exempt from IMT or only those that occur within the context of the acquisition of companies or commercial establishments.

The current no. 2 of article 270.º of the CIRE establishes the following:

"The following are equally exempt from municipal tax on onerous transfers of real estate: acts of sale, exchange or assignment of the company or of its establishments, integrated within insolvency plans, payment plans or recovery plans or carried out within the context of settlement of the insolvent estate." [1]

Now, the Claimant argues that this norm should be interpreted to mean that the IMT exemption is granted, on one hand, within the context of operations for the entire or partial acquisition of the company subject to the insolvency proceedings, and, on the other hand, to mere acts of acquisition of real estate considered in isolation carried out during the asset liquidation phase thereof.

And so it should be, according to the Claimant, because the legislator, in establishing that fiscal benefit in the context of IMT within insolvency proceedings, aimed at enabling the quick and attractive sale of real estate forming part of the debtor's patrimony, in order to satisfy the interests of creditors or to promote the company's recovery, for which reason it would be incongruous to exclude from the scope of the exemption the acts of transfer of real estate comprehended in the insolvent estate of the company when it is a matter of an isolated sale.

The Claimant further alleges that the approval of the CIRE, through Decree-Law no. 53/2004, of 18 March, aimed at conducting a structural reform of the company recovery and bankruptcy proceedings process – contemplated in the Code of Special Proceedings for Business Recovery and Bankruptcy (CPEREF) – that would promote the streamlining and restructuring of asset liquidation and creditor payment procedures.

In parallel with the creation of standardizing measures for the different existing procedures, the new statute adopted a model based essentially on the primacy of creditor will in the conduct of the proceedings, an option that is evident immediately from the wording of article 1.º of the CIRE, which determines as the purpose of the insolvency process "(…) the satisfaction of creditors (…) ".

To achieve that objective, the legislator clarified that, if it is not possible to achieve it through the recovery of the company comprehended in the insolvent estate, such objective should be obtained through "(…) the liquidation of the insolvent debtor's patrimony and the distribution of the proceeds obtained among creditors" – see no. 1 of article 1.º of the CIRE.

Thus, and considering the patrimony of debtors (insolvents) as the guarantee for the satisfaction of existing claims, it behooves creditors to decide on the implementation of that guarantee.

Such implementation may be enabled either through the complete liquidation of the debtors' patrimony or through the maintenance of activity and consequent restructuring of the insolvent company, being "(…) by that means that, surely, the public interest in the preservation of proper market functioning is best satisfied" – see point 3 of the Preamble preceding the CIRE.

Regarding the regulation of tax matters within the insolvency process, the foundational principle of the prevalence of creditor will is evident in the normative provisions relating to the attribution of "Emolument and Tax Benefits", provided for in Title XIII of the CIRE.

For the AT, the norm in question only establishes the IMT exemption for cases in which real estate is acquired within the context of a company or commercial establishment, and that the sale of real estate of the company, in isolation, is not covered by the exemption and is therefore subject to IMT under general terms.

It is necessary, therefore, to decide.

The provision of no. 2 of article 270.º of the CIRE establishes a tax benefit.

This qualification derives from no. 2 of article 2.º of the Statute of Tax Benefits (EBF), which establishes that "tax benefits are measures of an exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to those of taxation itself that prevent" (no. 1) and that "tax benefits are exemptions, reductions in rates, deductions from the taxable base and from the tax due, accelerated depreciation and reinstatement and other fiscal measures that comply with the characteristics set forth in the preceding number" (no. 2).

To the interpretation of tax norms are applicable, in accordance with no. 1 of article 11.º of the General Tax Law (LGT), the rules and general principles of interpretation of laws, in particular article 9.º of the Civil Code (CC), with special emphasis, when doubt persists "about the meaning of the applicable incidence norms", on "the economic substance of the tax facts" (see no. 3 of article 11.º of the LGT).

It is also important to refer to article 10.º of the EBF, according to which "norms that establish tax benefits are not susceptible to analogical integration, but do admit extensive interpretation."

Now, in accordance with the general rules of legal hermeneutics, the letter of the law is the minimum limit of the interpretive task (in the sense that it is from the legislative text that one must start to determine the meaning of the norm), but also its maximum limit (in the sense that it is not possible to attribute to the norm a meaning that is not minimally provided for in its letter).

In the present case, starting from the literal element, the result of the interpretation is not univocal.

Suffice it to say.

On one hand, if the provision in question refers to acts of sale of "company" and of "establishment", it is equally true that it also includes operations of "exchange" or "assignment", which seem to open the door to transfers of something other than a company or establishment – to the extent that exchanges of companies or establishments are not known – and that assignment, being onerous because only thus could the application of IMT be at issue, does not have conceptual autonomy vis-à-vis sale.

In this measure, the literal element does not allow us to draw firm conclusions about which operations the legislator wished to include in the exemption norm, and therefore, in light of the provision of no. 2 of article 9.º of the CC, the teleological, systematic, and historical elements of the norm in question should be considered as aids to the interpretive task.

Regarding the historical element, the CPEREF, the statute that preceded the CIRE, provided in no. 2 of article 121.º, an exemption from property transfer tax for "the transfers of real estate, integrated into any of the company recovery measures, that derive (…) from the sale, exchange or assignment of elements of the company's assets (…) ".

There remained, therefore, no doubt that the exemption applied to the isolated sale of real estate occurring within company recovery proceedings.

Later, Law no. 39/2003, of 22 August, authorized the Government to legislate on the insolvency of individuals and legal entities, repealing the CPEREF.

The new legal regime should place emphasis on the satisfaction of creditors, either through the liquidation of patrimony or through an insolvency plan (see no. 2 of article 1.º of Law no. 39/2003, of 22 August).

Regarding tax benefits, no. 3 of article 9.º of Law no. 39/2003, of 22 August authorized the Government "to exempt from municipal property transfer tax the following transfers of real estate, integrated into any insolvency plan or payment plan or carried out within the context of settlement of the insolvent estate: (…) those that derive (…) from the sale, exchange or assignment of the company, establishments or elements of its assets (…) ".

In this measure, Law no. 39/2003, of 22 August was even more favorable to the transfer of real estate included in the insolvent estate than the CPEREF, because it did not restrict the exemption from taxation to transfers of real estate that could take place in a company recovery context, extending it also to transfers that took place in a context of liquidation of the insolvent company or its establishments.

Regarding the teleological element, it is important to determine the reason for the IMT exemption provided for in no. 2 of article 270.º of the CIRE and, in particular, whether that reason for being justifies the exemption of operations involving isolated transfer of real estate or only those that take place in the broader context of the transfer of the company or the establishment.

Now, regarding this aspect, the Supreme Administrative Court (STA) has already had the opportunity to clarify, citing here, by way of example, the Decision of 17 December 2014, in the context of appeal no. 01085/13, where it is concluded that one must " (…) take into account the objective the legislator intended to achieve with the granting of such exemption, – to foster and support the quick sale of assets forming part of the insolvent estate for obvious reasons of interest to creditors, but also of the public interest in the resumption of normal functioning of the business world in which each insolvency proceedings appears as a disturbing element (…) ", by granting tax incentives to whoever acquires the real estate forming part of the insolvent estate and which will be sold during the liquidation phase.

There is, therefore, no need to differentiate, for this purpose, situations in which the company is being sold globally with all its assets and liabilities, from situations in which one or more of the commercial establishments comprising it are being sold, or in which real estate forming part of its assets is being sold.

In fact, the objective that presides over the teleology of the norm will be equally pursued when the acquisition is concerned with elements of the company's assets, and it is not necessary for the object to be the company or establishments thereof integrated within an insolvency plan.

Finally, it is also important to consider the systematic element to determine the meaning of the norm in question, particularly because the IMT exemption provided for in no. 2 of article 270.º of the CIRE is not the only one provided for onerous transfer operations of real estate taking place within the insolvency process, being accompanied by the IMT exemption also provided for in no. 1 of article 270.º of the CIRE and by the Tax Stamp exemption established in paragraphs d) and e) of article 269.º of the same statute.

It turns out that both one and the other clearly apply, both to the transfer of real estate carried out together with the company or the establishment of which they form part, and to the transfer of real estate in isolation.

Also from this point of view, it would therefore appear that the interpretation according to which the IMT exemption provided for in no. 2 of article 270.º of the CIRE covers the transfer of real estate when carried out together with the company or establishment of which they form part or when carried out in isolation is the most in harmony with the overall spirit of the legal system.

In conclusion, and in view of the doubts raised by the lack of clarity of the verbal statement of the provision in question, recourse to the historical, teleological, and systematic elements allows one to conclude with certainty that the IMT exemption provided for in no. 2 of article 270.º of the CIRE applies, not only to sales or exchanges of companies or establishments as a totality of assets, but also to sales and exchanges of real estate (as elements of its assets), provided that they are framed within an insolvency plan or payment plan, or carried out within the context of settlement of the insolvent estate.

This has also been the sense of the prevailing jurisprudence of the arbitral tribunals constituted with the CAAD, as exemplified by the decision rendered in proceedings no. 123/2015-T, of 01-09-2015, according to which, "Beyond this interpretation, permitted by the literal content of no. 2 of article 270.º of the CIRE, being manifestly the one that is in harmony with the teleology of the type of exemption identified, which is to encourage acquisitions of assets of the insolvent company, in the case at issue the sale was made to creditors of the insolvent company, and therefore there is a situation whose economic substance is essentially identical to those of performance in kind of company assets or assignment of assets to creditors, which are expressly provided for in paragraph c) of no. 1 of the same article 270.º, as cases of IMT exemption. For this reason, in cases in which the sale is made to creditors of the insolvent company, the economic substance, which article 11.º, no. 3, of the LGT directs to be observed in the interpretation of tax incidence norms, would always require that it be understood as situations covered by the exemption, and therefore, if the situation does not fall within no. 2 of article 270.º of the CIRE, it would always fall, by extensive interpretation, within no. 1 of the same article."

It is thus concluded, in the same sense as the prevailing jurisprudence of the STA and the arbitral tribunals constituted with the CAAD, that is, that the provision of no. 2 of article 270.º of the CIRE covers the operations of transfer of real estate of the insolvent estate that take place in an isolated manner, that is, not integrated in the transfer of the company or a commercial establishment, as well as those that take place in the context of these more comprehensive transfers.

The "New" Interpretation of the AT

Following the submission of the request for arbitral decision that gave rise to the present proceedings, Circular no. 4/2017 was published, on 10 February 2017, issued by the DSIMT – Tax Affairs Directorate for IMT, Tax Stamp, Single Circulation Tax and Special Contributions, which, in compliance with the Dispatch of the Secretary of State for Tax Affairs no. 14/2017-XXI, of 26 January 2017, proceeded with the revision of the interpretation of the CIRE with regard to IMT exemption in the acquisition of real estate carried out within insolvency plans, payment plans or recovery. [2]

Now, the AT comes to recognize that the IMT exemption does not depend on the thing sold, exchanged or assigned encompassing the totality of the insolvent company or an establishment thereof.

In this measure, the acts of sale, exchange or assignment, in isolated form, of real estate of the insolvent company or of its establishments are exempt from IMT, provided that they are integrated within insolvency plans, payment plans or recovery plans, or carried out within the context of settlement of the insolvent estate.

This new understanding reflects, moreover, the reiterated and uniform jurisprudence of the STA on this matter. [3]

For the foregoing, the assessment in question suffers from a defect of error concerning the legal prerequisites, consisting of a violation of no. 2 of article 270.º of the CIRE, which justifies its annulment pursuant to the provision of article 163.º of the new Code of Administrative Procedure. [4]

Regarding Compensatory Interest

Article 43.º, no. 1, of the LGT establishes that "compensatory interest is owed when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services that resulted in payment of the tax debt in an amount exceeding what is legally due."

In the case at issue, the payment of tax in the total amount of € 617,664.26 is proven.

On the other hand, the error affecting the assessment is attributable to the AT, which performed the assessment act on its own initiative.

From the conjunction of the two facts it follows that the Claimant has the right to be reimbursed the amount it paid, pursuant to the provision of articles 100.º of the LGT and 24.º, no. 1, of the RJAT and, furthermore, to be indemnified for the unduly paid amount by means of compensatory interest, by the AT, from the date of payment of the amount, 29-06-2016, until reimbursement, at the supplementary legal rate, pursuant to articles 43.º, no. 1 and no. 4, and 35.º, no. 10, of the LGT, article 559.º of the Civil Code and Ordinance no. 291/2003, of 8 April.

IV. DECISION

Wherefore the present Arbitral Tribunal agrees to:

a) Completely uphold the claim presented by the Claimant, declaring the illegality of and annulling the IMT assessment act no. …, in the amount of € 617,664.26 (with the consequent right to reimbursement of the amount unduly paid);

b) Condemn the AT to payment of compensatory interest due from the date of payment of the tax until the complete reimbursement of the amount paid;

c) Condemn the AT in the costs of these proceedings.

V. VALUE OF THE CASE

In accordance with the provision of no. 2 of article 306.º and no. 2 of article 297.º, both of the Civil Procedure Code, paragraph a) of no. 1 of article 97.º-A of the Tax Procedure and Process Code and no. 2 of article 3.º of the Regulation of Costs in Tax Arbitration Proceedings, the value assigned to this case is € 617,664.26 (six hundred seventeen thousand, six hundred sixty-four euros and twenty-six cents).

VI. COSTS

In accordance with the provision of no. 4 of article 22.º, no. 2 of article 12.º, both of the RJAT, article 2.º, no. 1 of article 3.º and nos. 1 to 4 of article 4.º of the Regulation of Costs in Tax Arbitration Proceedings, as well as in Table I attached to this statute, the total value of costs is set at € 9,180.00 (nine thousand, one hundred eighty euros).

Lisbon, 13 April 2017.

The arbitrators,

José Baeta de Queiroz (Arbitrator President)

Pedro Soares Martínez (Arbitrator Member)

Hélder Faustino (Arbitrator Member - Rapporteur)

Text prepared by computer, in accordance with the provision of no. 5 of article 131.º of the CPC, applicable by reference of paragraph e) of no. 1 of article 29.º of the RJAT.

The preparation of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Wording of article 234.º of Law no. 66-B/2012, of 31 December.

[2] Available at http://info.portaldasfinancas.gov.pt/NR/rdonlyres/101D68AD-0366-4B37-A491-903E7EC938FF/0/Circular_4_2017_Insolvência-.pdf.

[3] See, by way of example, the Decisions of 11 November 2015, rendered in proceedings no. 968/13, of 18 November 2015, rendered in proceedings no. 0575/15, rendered in proceedings no. 1076/15, of 25 September 2013, rendered in proceedings no. 866/13, of 16 December 2015, rendered in proceedings no. 1345/15 and, furthermore, the Decision of 20 January 2016, rendered in proceedings no. 01350/15.

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

Frequently Asked Questions

Automatically Created

Is the acquisition of property during insolvency liquidation exempt from IMT under Article 270(2) of the CIRE?
Article 270(2) of the CIRE establishes IMT exemption for 'acts of sale, exchange or assignment of the company or its establishments' within insolvency proceedings. The key interpretative dispute is whether this exemption applies only to transfers of companies or establishments as unified business entities, or extends to isolated property acquisitions during insolvent estate liquidation. The Tax Authority takes a restrictive view, limiting exemption to business unit transfers, while taxpayers argue that the legislative purpose of facilitating asset liquidation supports a broader interpretation including individual property sales during insolvency settlement.
Can a creditor who purchases assets from an insolvent estate benefit from the IMT tax exemption?
Creditors who purchase assets from an insolvent estate may potentially benefit from the IMT exemption under Article 270(2) CIRE if the acquisition occurs within insolvency plans, payment plans, recovery plans, or during settlement of the insolvent estate. However, the Tax Authority may challenge this exemption if it considers that the acquisition involves isolated assets rather than the company or establishment as a whole. The automatic recognition of the exemption at the time of acquisition does not prevent subsequent challenge by the AT, as occurred in this case where an IMT assessment was issued after initial exemption was granted.
What are the conditions for automatic recognition of IMT exemption in Portuguese insolvency proceedings?
Automatic recognition of IMT exemption in insolvency proceedings under Article 270(2) CIRE requires that the acquisition occurs within the context of insolvency plans, payment plans, recovery plans, or settlement of the insolvent estate. The exemption is initially applied automatically when these conditions appear to be met. However, the Tax Authority may subsequently review the application and challenge it if it determines that the transaction does not meet the legal requirements, particularly if the AT interprets the provision as requiring transfer of a company or establishment as a whole rather than isolated assets. This can result in retroactive IMT assessments.
How does the Portuguese Tax Authority (AT) challenge the application of the IMT insolvency exemption?
The Portuguese Tax Authority challenges IMT insolvency exemption applications by conducting post-transaction reviews to determine whether the legal requirements of Article 270(2) CIRE are met. In this case, the AT issued a formal tax assessment notice (liquidação) after initially allowing automatic exemption, arguing that the taxpayer improperly benefited from the exemption because the acquisition involved isolated properties rather than a company or establishment as required by the provision. The AT's challenge is formalized through an IMT assessment document specifying the tax amount due, which triggers the taxpayer's right to contest through administrative or arbitral proceedings.
What is the procedure for filing an arbitral claim with CAAD to contest an IMT tax assessment?
To file an arbitral claim with CAAD contesting an IMT assessment, taxpayers must submit a request for arbitral decision (pedido de pronúncia arbitral) under Article 2(1)(a) and Article 10(1)(a) of Decree-Law 10/2011 (RJAT - Legal Regime of Tax Arbitration). The request must be filed after notification of the contested tax assessment act. The CAAD President accepts the request and notifies the Tax Authority. If the claimant does not appoint an arbitrator, the President of the Deontological Council appoints a collective arbitral tribunal (three arbitrators) under Article 6(2)(a) and Article 11(1)(b) RJAT. Parties are notified of arbitrator appointments and may raise objections. The tribunal is formally constituted and sets deadlines for response, evidence, and decision.