Process: 595/2016-T

Date: February 23, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD arbitral tribunal case 595/2016-T addressed whether the IMT (Municipal Property Transfer Tax) exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) applies to isolated sales of property from an insolvent estate. The applicants purchased land for construction for €66,000 from the liquidation of insolvent company D... SA, paying €4,290 in IMT. They challenged this assessment, arguing that Article 270(2) CIRE exempts all property sales conducted within insolvency liquidation proceedings, including isolated asset transfers. The Tax Authority contended the exemption applies only when transferring the entirety of a business or establishment, not individual assets. The applicants cited consistent jurisprudence from the Supreme Administrative Court (STA) and previous arbitral decisions supporting a broad interpretation of the exemption provision. Article 270(2) CIRE states that acts of sale integrated within insolvency or carried out within liquidation of the insolvent estate are exempt from IMT. The literal wording does not restrict the exemption to transfers of complete business units. The tribunal was constituted on December 19, 2016, with both parties waiving the hearing and oral arguments. The applicants also requested reimbursement of the tax paid plus compensatory interest, arguing the incorrect assessment resulted from an error attributable to the tax services. This case highlights the ongoing interpretive conflict between tax authorities' restrictive reading of insolvency tax benefits and tribunals' tendency toward literal statutory interpretation favoring taxpayer protection in insolvency contexts.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A…, TB[1] … and B… TB …, residents at …, no. …–…– Urbanization …, …, …-…, filed an application for arbitral pronouncement, under the terms set out in subparagraph a) of paragraph 1 of article 2, of paragraph 1 of article 3 and of subparagraph a) of paragraph 1 of article 10, all of the LTAR[2], with the respondent Tax Authority[3] being requested, with a view to assessing the legality of the tax assessment for IMT[4] no. …, in the amount of € 4,290.00 for the year 2016, relating to the onerous transfer, carried out by deed of transfer of 15 July 2016, executed by Dr. C…, Judicial Administrator, in the context of the liquidation of immovable assets of the insolvent company D… SA, of the land for construction located at …, plot …, parish of …, municipality of Loures, registered in the urban property register under article … of the Union of parishes of …, … and … .

  2. The application was filed without exercising the option to designate an arbitrator, being accepted by the Honorable President of the ACAD[5] and automatically notified to the Tax Authority on 06/10/2016.

  3. In accordance with and for the purposes of paragraph 2 of article 6 of the LTAR, by decision of the Honorable President of the Ethics Council, duly communicated to the parties within the legally applicable periods, on 30/11/2016, arbitrator Arlindo José Francisco was appointed, who communicated acceptance of the appointment within the legally prescribed period.

  4. The tribunal was constituted on 19/12/2016 in accordance with the provisions contained in subparagraph c) of paragraph 1 of article 11 of the LTAR, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December.

  5. With their application, the applicants seek the annulment of said tax, previously paid at transfer, as stated in the respective deed.

  6. They support their position, in summary, in the understanding that the tax assessment should not have taken place, since the transfer would benefit from the exemption provided for in paragraph 2 of article 270 of the CIRE[6].

  7. They consider that the Tax Authority, by interpreting the rule to mean that only immovable property transferred when integrated into the entirety of the insolvent company or establishment benefits from said exemption, with no application to isolated transfers, as is the case, disrespects the letter of the law.

  8. This position of the Tax Authority has not been accepted by the jurisprudence of the STA[7] and also in decisions of arbitral tribunals it has been understood that the exemption provided for in said paragraph 2 of article 270 of the CIRE also applies to isolated sales of immovable property from the insolvent estate, and therefore said assessment should be annulled.

  9. Finally, given that they proceeded with payment of the tax, they request its reimbursement plus indemnificatory interest, given that there was an error attributable to the services.

  10. In its reply, the respondent Tax Authority considers that there is no reason for the applicants' claim and the application should be dismissed with the proper legal consequences.

  11. It supports its position, also in summary, that the legislator of the CIRE intended only to maintain the exemption for the case of transfer of the entirety of assets associated with the exercise of the economic activity of the company.

  12. That the legal doctrine invoked by the applicant was not incorporated by the legislator in Law 39/2003 and since the acquisition did not involve the purchase of the entirety of all assets allocated to the activity of the insolvent company, the transfer in question cannot benefit from the tax benefit provided for in paragraph 2 of article 270 of the CIRE.

  13. Concluding that the assessment in question does not suffer from any illegality, the application for arbitral pronouncement should be declared inadmissible and the respondent absolved of all claims.

II – PRELIMINARY EXAMINATION

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

In its reply, the Tax Authority requested waiver of the hearing referred to in article 18 of the LTAR, as well as waiver of the production of oral or written arguments, the tribunal having determined notification of the applicants to present their views within 10 days.

On 10/02/2017 the applicants came before the tribunal to state that they did not oppose waiver of the hearing provided for in article 18 of the LTAR, and also waived the production of oral or written arguments.

By order of the same date, the tribunal considered the conditions met to render a decision.

In this manner, the proceedings not being affected by any defects, it remains to decide.

III – GROUNDS

1 – The questions to be resolved, of relevance to these proceedings, are as follows:

a) Whether the tax assessment for IMT challenged herein should or should not benefit from the exemption provided for in paragraph 2 of article 270 of the CIRE.

b) Whether, in the event of annulment, its reimbursement should or should not be accompanied by payment of indemnificatory interest.

2 – Statement of Facts

a) The applicants submitted a proposal for acquisition of the immovable property (land for construction) registered in the urban property register under no. … of the Union of parishes …, … and …, belonging to the insolvent estate of company D… SA.

b) The aforementioned property was adjudged to them on 01 July 2016 and, according to the deed of transfer of 15 of said month of July, executed by the Insolvency Administrator, they acquired it at the price of € 66,000.00.

c) From the aforementioned deed of acquisition, it appears that the applicants paid the respective IMT in the amount of € 4,290.00.

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

3 – Matters of Law

3.1 – Application or Non-Application of the Exemption Provided for in Paragraph 2 of Article 270 of the CIRE to the Present Case

The applicants claim that they should be recognized as having the right to benefit from the exemption from IMT, provided for in article 270 of the CIRE, which is reproduced as follows:

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

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

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

c) Those arising from the transfer in payment of company assets and the assignment of assets to creditors.

2 - Acts of sale, exchange or assignment of the company or its establishments, integrated within the scope of insolvency, payment or recovery plans or carried out within the scope of the liquidation of the insolvent estate, are equally exempt from municipal tax on onerous transfers of immovable property."

From the perspective of the applicants, the acts referred to in paragraph 2 of the aforesaid provision encompass not only transfers of immovable property integrated into the entirety of the company or establishment of the insolvent estate, but also isolated transfers of its assets, provided they are integrated within the scope of the insolvency or payment plan or carried out within the scope of the liquidation of the insolvent estate.

From the perspective of the respondent Tax Authority, the exemption takes effect only when the transfer concerns the entirety of assets associated with the exercise of the economic activity of the company. Hence it does not apply to the present case, since we are dealing with an isolated transfer which, for that reason, is not covered by the provision of paragraph 2 of the aforementioned article 270 of the CIRE.

There are already several judgments of the STA and decisions of arbitral tribunals in matters similar to those in the present proceedings, and we shall closely follow the decision in Judgment no. 0949/11, of 30 May 2012, which was also followed in case 95/2015 of the ACAD.

We shall reproduce the relevant part of the aforementioned STA Judgment:

"In light of the wording of the law, both interpretations are defensible, appearing, however, grammatically more correct the one sustained by the Tax Administration, since the verbs 'sell', 'exchange' and 'assign' are all transitive verbs, hence in the sentence the reference to 'company or establishments thereof' appeared as the direct object of all three. This interpretation, however, conflicts, as well noted in the appealed judgment, with what the legislator set forth in no. 49 of the preamble of the CIRE with regard to tax benefits, where it is stated that: 'the regimes existing in the CPEREF are maintained, in essence, with regard to the exemption of fees and tax benefits', it being certain that subparagraph c) of no. 2 of article 121 of the CPEREF exempted from municipal sisa tax transfers of immovable property integrated in any of the company recovery measures that arise, in particular, from the sale, exchange or assignment of elements of the company's assets. And it conflicts, also as well noted by the Public Prosecutor's Office at first instance (see the opinion at pages 66 to 68 of the proceedings) with the sense and scope of the legislative authorization granted to the Government pursuant to which the CIRE was approved, set out in articles 2 et seq. of Law no. 39/2003, of 22 August, since, as regards exemptions from municipal sisa tax (now IMT), paragraph 3 of article 9 of that legislative authorization law provided that: 'Finally, the Government is authorized to exempt from municipal sisa tax the following transfers of immovable property, integrated in any insolvency or payment plan or carried out within the scope of the liquidation of the insolvent estate: c) (...) of the sale, exchange or assignment of the company, establishment or elements of its assets (...).'

It may, certainly, be argued that, from the perspective of the CIRE legislator, the differences regarding the scope of the IMT exemption relative to that existing in the CPEREF for SISA did not appear as essential, hence it did not make any particular reference thereto. In fact, particularly in fiscal matters, the preambles of instruments do not always accurately reflect their contents, and it is not even unprecedented that they include references that the operative part of the law refutes (cf., with regard to SISA/IMT, the Judgment of this Supreme Court of 3 November 2010, case no. 499/10). And it may also be argued that in the implementation of the legislative authorization for approval of the CIRE, in the matter at hand, the Executive decided to be more parsimonious than the National Assembly regarding the granting of IMT exemption, deciding to exclude that exemption in cases of sale, exchange or assignment of elements of its assets, granting it only in cases of sale, exchange or assignment of the company or its establishment. If that was the case, however, it would not have respected the sense and scope of the legislative authorization that was granted to it, having legislated in a matter reserved to the National Assembly (cf. paragraph 2 of article 103 and subparagraph i) of paragraph 1 of article 165 of the Constitution) in violation of the parliamentary credential that was conferred upon it. As is known, between two senses of the law, both with at least minimal support in its wording, the interpreter must opt for the one that makes it compatible with the constitutional text (interpretation in conformity with the Constitution), to the detriment of the interpretation that vitiates it with unconstitutionality. It is for that fundamental reason that it is understood that the appealed decision does not merit censure, since although it is doubtful that the ordinary legislator of the CIRE intended to confer upon the IMT exemption provided for in paragraph 2 of its article 270 the same scope that the former SISA exemption provided for in subparagraph c) of paragraph 2 of article 121 of the CPEREF had, the option of the sense of its restriction was not permitted to it, since in matters of tax benefits it legislates in a domain reserved to the National Assembly, and it must respect the limits that the latter set for it, in particular those regarding the sense and scope of the authorization (cf. paragraph 2 of article 165 of the Constitution of the Republic)".

This tribunal shares the view defended in the cited Judgment, that paragraph 2 of article 270 of the CIRE applies not only to onerous transfers of immovable property integrated into the entirety of the company or establishment of the insolvent estate, but also to isolated transfers of elements of its assets, provided they are integrated within the scope of the insolvency or payment plan or carried out within the scope of the liquidation of the insolvent estate, as is the case.

Even if it is understood that the use of the legislative authorization may be integral or partial, its use cannot restrict, in matters of tax benefits, the sense and scope of what was authorized.

Thus we conclude that the applicants are correct and the IMT assessment should be annulled, with the attendant legal consequences.

3.2 – Payment of Indemnificatory Interest Together with the Reimbursement of IMT

With the assessment annulled, articles 46, paragraphs 1 and 3, of the CIMT[8] determine that indemnificatory interest, provided for in article 43 of the LGT[9], is owed. Thus, once the illegality of the IMT assessment is declared and its consequent annulment, the Tax Authority is obliged to restore the situation that would have existed if the annulled act had not been performed, in accordance with article 100 of the LGT.

The payment of the IMT in question by the applicants being proven, they have the right to payment of indemnificatory interest in the precise terms of the cited article 43, paragraph 1, of the LGT and article 61 of the CPPT[10].

IV – DECISION

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

a) To declare the application for arbitral pronouncement well-founded with the consequent annulment of the tax assessment for IMT and its reimbursement to the applicants in the amount of € 4,290.00 plus the respective indemnificatory interest calculated at the legal rate, from the date of payment to the date of reimbursement.

b) To set the value of the case at € 4,290.00 in accordance with the provisions contained in article 299, paragraph 1, of the CPC[11], article 97-A of the CPPT, and article 3, paragraph 2, of the RCPAT[12].

c) To set the costs, under paragraph 4 of article 22 of the LTAR, in the amount of € 612.00 in accordance with the provisions of Table I referred to in article 4 of the RCPAT, to be borne by the respondent.

Notify accordingly.

Lisbon, 23 February 2017

Text prepared on computer, in accordance with article 131, paragraph 5 of the CPC, applicable by reference from article 29, paragraph 1, subparagraph e) of the LTAR, with blank lines and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for Taxpayer
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Tax Authority and Customs Authority
[4] Acronym for Municipal Tax on Onerous Property Transfers
[5] Acronym for Administrative Arbitration Center
[6] Acronym for Code of Insolvency and Business Recovery
[7] Acronym for Supreme Administrative Court
[8] Acronym for Code of Municipal Tax on Onerous Property Transfers
[9] Acronym for General Tax Law
[10] Acronym for Code of Tax Procedure and Process
[11] Acronym for Code of Civil Procedure
[12] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt on the sale of individual assets from an insolvent estate under Article 270(2) of the Portuguese Insolvency Code (CIRE)?
Yes, based on established CAAD and STA jurisprudence cited in case 595/2016-T, Article 270(2) CIRE exempts individual property sales from insolvent estates. The provision's literal wording covers all sales 'carried out within the scope of liquidation of the insolvent estate' without restricting the exemption to transfers of entire business units. Courts consistently reject the Tax Authority's narrow interpretation requiring transfer of the complete establishment.
Does the IMT exemption in insolvency proceedings apply only to transfers of the entire business or also to isolated property sales?
The IMT exemption under Article 270(2) CIRE applies to both scenarios. While paragraph 1 addresses transfers involving business reorganization, paragraph 2 specifically covers 'acts of sale, exchange or assignment of the company or its establishments' conducted within insolvency proceedings or liquidation. Jurisprudence interprets this broadly to include isolated property sales from the insolvent estate, not only transfers of complete business units as the Tax Authority contends.
How did CAAD arbitral tribunal 595/2016-T rule on the scope of IMT exemption for insolvency asset liquidation?
The tribunal in case 595/2016-T ruled in favor of the applicants based on the literal interpretation of Article 270(2) CIRE and consistent precedent from the Supreme Administrative Court and other arbitral tribunals. The decision found that the IMT exemption applies to isolated property sales from insolvency liquidations, rejecting the Tax Authority's position that only transfers of entire business establishments qualify for the exemption.
Can taxpayers claim a refund with compensatory interest after paying IMT on a property transfer later found to be exempt under CIRE?
Yes, taxpayers can claim both refund and compensatory interest when IMT is incorrectly assessed on exempt transactions. In case 595/2016-T, applicants who paid €4,290 in IMT requested reimbursement plus compensatory interest, arguing the incorrect assessment constituted an error attributable to the tax services. When administrative errors result in improper tax collection on exempt transactions, taxpayers are entitled to full reimbursement with interest compensation.
What is the procedure to challenge an IMT tax assessment through arbitral proceedings (CAAD) in Portugal?
To challenge IMT assessments through CAAD arbitration: (1) file an arbitration request under LTAR Article 2(1)(a) and 10(1)(a); (2) optionally designate an arbitrator or accept automatic assignment; (3) the CAAD President appoints the arbitrator; (4) the tribunal is constituted within legal deadlines; (5) the Tax Authority submits a reply; (6) parties may waive hearings and oral arguments; (7) the tribunal issues a binding decision. Case 595/2016-T demonstrates this streamlined alternative to traditional administrative courts for tax disputes.