Process: 599/2015-T

Date: February 10, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision addresses the critical question of IMT (Municipal Property Transfer Tax) and Stamp Duty exemptions in insolvency proceedings under Portuguese law. The case involved A...S.A., a creditor who acquired multiple property units from insolvent company B...S.A. through court-supervised insolvency liquidation proceedings. The claimant sought annulment of 18 IMT assessments issued by the Tax Authority, arguing that Article 270(2) of the CIRE (Insolvency and Corporate Recovery Code) and Article 269 CIRE provide mandatory exemptions from IMT and Stamp Duty respectively for property transfers occurring within insolvency proceedings. The taxpayer invoked Article 10(8)(d) of the IMT Code, which requires recognition of such exemptions, citing Supreme Administrative Court precedents from 2012 and 2014 supporting this interpretation. The Tax Authority raised procedural defenses including ineptitude of the petition, lack of standing, impropriety of the arbitration remedy, and material incompetence of the arbitral tribunal, while also challenging the substantive merit of the exemption claim. The case exemplifies the tension between insolvency law's objective of maximizing creditor recovery by eliminating tax burdens on asset sales, and the Tax Authority's narrow interpretation of exemption provisions. The arbitral tribunal, properly constituted under Decree-Law 10/2011 establishing the tax arbitration framework, had to determine whether creditors acquiring assets in court-supervised insolvency liquidations qualify for automatic tax exemptions under CIRE provisions. This decision has significant implications for insolvency practitioners, creditors, and distressed asset acquirers, as IMT rates can reach 6.5% of property value, substantially impacting insolvency estate recoveries and restructuring economics.

Full Decision

ARBITRATION DECISION TRANSLATION

The undersigned arbitrators Dr. Jorge Manuel Lopes de Sousa (presiding arbitrator), Prof. Doctor Paulo Jorge Nogueira da Costa and Prof. Doctor Vasco Valdez, designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 30-04-2015, hereby agree as follows:

1. Report

A…, S.A., a public limited company with registered office at Avenida…, Lot…, Unit…, parish of…, …-… Lisbon, registered at the Commercial Registration Office of Lisbon under the tax identification number and registration … (hereinafter abbreviated as "Claimant"), has, in accordance with the combined provisions of articles 2, no. 1, paragraph a), and 10, no. 1, paragraph a), of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as "RJAT") and 102, no. 1, paragraph a), of the Code of Tax Procedure and Process ("CPPT"), requested the constitution of a collective arbitral tribunal to render a decision annulling the assessments of Municipal Tax on Onerous Transfers of Real Property ("IMT") no.s IMT Assessments no.s…, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, … and ….

The Claimant further requests the issuance of new assessments applying the IMT exemption provided for in article 270, no. 2, of the CIRE.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and notified to the REVENUE AND CUSTOMS AUTHORITY on 01-10-2015.

In accordance with the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, the Deontological Council designated the undersigned arbitrators, who communicated acceptance of the appointment within the applicable period.

On 13-11-2015, the parties were notified of this designation and did not manifest the intention to reject the designation of the arbitrators, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in compliance with the provision of paragraph c) of no. 1 of article 11 of the RJAT, the collective arbitral tribunal was constituted on 30-11-2015.

The Revenue and Customs Authority raised exceptions of ineptitude of the initial petition due to contradiction between the claim and the cause of action, lack of object, impropriety of the procedural means employed and material incompetence of the Arbitral Tribunal, and argued the unfoundedness of the claims.

By order of 13-01-2015, the meeting provided for in article 18 of the RJAT was waived and it was decided that the process should proceed with written arguments.

The parties submitted written arguments.

The arbitral tribunal was duly constituted.

The parties possess personality and procedural capacity, are legitimate (articles 4 and 10, no. 2, of the same decree and article 1 of Regulation no. 112-A/2011, of 22 March) and are properly represented.

The process is free from procedural defects.

The Revenue and Customs Authority raised exceptions which must be assessed on a priority basis as preliminary questions, as they constitute possible obstacles to the determination of the merits of the case.

2. Factual Matter

2.1. Proven Facts

The following facts are considered proven:

· The company B…, S.A., … , registered at the Commercial Registration Office of Lisbon, with registered office at Rua do…, no.…, …floor, …-… Lisbon, was the owner of the following units of the property registered in the real estate matrix under matriculation article…, of the Parish of…, municipality of Lisbon:

(i). A, B, C, D, E, F, G, H, I, J, K, L, M, N, O, P, Q, R, S, T, U, V, W, X, Y, Z, AA, AB, AC, AD, AE, AF, AG, AH, AI, AJ, AK, AL, AM, AN, AO, AP, AQ, AR, AS, AT, AU, AV, AW, AX, AY, AZ, BA, BB, BC, PH, PI, PJ, PK, PL, PM, PN, PO, PP, PQ, PR, PS, PT, PU, PW, PX, PY, PZ, QA, QB, QC, QD, QE, QF, QG, QH, QI, QJ, QK, QU, QV, QW, QX, QY, QZ, RA, RB, RC, RD, RE, RF, WB, WC, WD, AHB, AHC, AHD, AHE, AHF, AHG, AHH, AHI, AHJ, AHK, AHL, AHM, AHN, AHO, AHP, AHQ, AHR, AHS, AHT, AHU, AHV, AHW, AHX, AHY, AHZ, AIA, AIB, AIC, AID, AIH, AII, AIK, AIO, AIP, AIQ, AIR, AIS, AIT, AIU, AIV, AIW, AIX, AIY, AIZ, AJB, AJC, AJD, AJF, AJG, AJH, AJI, AJJ, AJK, AJL, AJM, AJN, AJO, AJP, AJQ, AJR, AKW, AKX, AKY, ALC, ALD, ALE, ALF, ALG, ALH, ALI, AMR, AMT, AMV, AMW, ANJ, ANL, ANM, ANP, ANQ, ANR, ANS, ANT, AYV, AYW, AYX, AYY, AYZ, AZA, AZB, AZC, AZD, AZE, AZF, AZG, AZH, AZI, AZJ, AZK, AZL, AZM, AZN, AZO, AZP, AZQ, AZR, AZS, AZT, AZU, AZV, AZW, AZX, AZY, AZZ, BAA, BAB, BAC, BAI, BAJ, BAK, BAL, BAM, BAN, BAO, BAP, BAQ, BAR, BAS, BAT, BAU, BAV, BAW, BAX, BAY, BAZ, BBA, BBB, BBC, BBD, BBE, BBF, BBG, BBH, BBI, BBJ, BBK, BBL, BBM, BBN, BBO, BCA, BCB, BCC, BCD, BCE, BCF, BCL, BCM, BCN, BCO, BCQ, BCR, BCS, BCT, BCU, BCW, BCX, BCY, BCZ, BDA, BDB, BFI, BFJ, BFK, BFL, BFO, BFQ, BFR, BFS, BRF, BRG, BRH, BRI, BRJ, BRK, BRL, BRM, BRN, BRO, BRP, BRQ, BRR, BRS, BRU, BRV, BRW, BRX, BRY, BSC, BSD, BSE, BSI, BSJ, BSN, BSO, BSP, BSQ, BSR, BSS, BST, BSU, BSV, BSW, BSX, BSY, BSZ, BTA, BTB, BTC, BTD, BTE, BTF, BTG, BTH, BTI, BTJ, BTL, BTM, BTN, BTO, BTQ, BTR, BTS, BTT, BTU, BTV, BUB, BUC, BUD, BUE, BVF, BVG, BVH, BVI, BVJ, BVK, BVL, BVX, BVY, BVZ, BWA, BWB, BXQ, BXR, BXS, BXT, BXX, BXY, BXZ, BYA and BYB

· Insolvency proceedings concerning the aforementioned company B…, S.A., with reference number …/14…LSB, were conducted before the Commercial Court of the Lisbon District - Central Office - First Commercial Section - Judge 5 (documents no.s 2 to 4 attached with the arbitration request, the contents of which are hereby reproduced);

· By judgment of 11 December 2014, rendered in the aforementioned proceedings, the aforementioned company B…, S.A. was declared insolvent (documents no.s 2 to 4 attached with the arbitration request, the contents of which are hereby reproduced);

· As a creditor of B…, S.A., the Claimant claimed its credits in the aforementioned proceedings, which were recognized by the insolvency administrator (documents no.s 2 to 4 attached with the arbitration request, the contents of which are hereby reproduced);

· Within the scope of the insolvency proceedings, the liquidation of the insolvent estate was decided and ordered (documents no.s 2 to 4 attached with the arbitration request, the contents of which are hereby reproduced);

· Within the framework of this liquidation, the Claimant submitted a proposal to acquire the aforementioned units, which were adjudicated to it (documents no.s 2 to 7 attached with the arbitration request, the contents of which are hereby reproduced);

· The Claimant, for purposes of executing the deed of acquisition of the units, submitted to the Chief Officer of the Finance Service of Lisbon … the IMT Form 1 declaration which is set out in documents no.s 2 and 8 attached with the arbitration request, the contents of which are hereby reproduced, in which it stated inter alia the following:

  1. Thus and for purposes of executing the aforementioned deed, the Claimant hereby, in accordance with article 19, no.s 1 and 3 of the IMT Code and article 23, no. 4 of the Stamp Tax Code, submits Form 1 IMT declaration for purposes of assessment of the IMT and Stamp Tax relating to the acquisition described above;

  2. Further requesting, in accordance with article 10, no. 8, paragraph d) of the IMT Code, the application of the exemption from Stamp Tax and IMT, provided for in articles 269 and 270 of the CIRE respectively, in accordance with the interpretation conveyed by the Supreme Administrative Court, in its judgments of 30/05/2012 and 17-12-2014, rendered in proceedings no.s 0949/11 and 01085/13 respectively;

  3. If not accepted as above and as regards the IMT, it is subsidiarily requested the application of the exemption provided for in article 7, in accordance with article 10, no. 8, paragraph a) of the IMT Code.

· Following the aforementioned request, the Revenue and Customs Authority issued assessments no.s IMT Assessments no.s…, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, … and…, attached with the arbitration request, the contents of which are hereby reproduced, in which it stated the amount € 0.00, and the «BENEFIT ASSOCIATED WITH THE TAXPAYER 15 – Real property for resale (article 7 of the CIMT)»;

· In the aforementioned assessments, the Revenue and Customs Authority included «Observations» with the following content:

Observations: Insolvency proceedings no. …/14… LSB. The application of the IMT exemption provided for in article 270/2 of the CIRE and Stamp Tax exemption provided for in article 269 of the CIRE was requested. Only the Stamp Tax exemption was granted, in accordance with the opinion of the DSJC disclosed to the Bar Association of Notaries by letter of 08.07.10. As subsidiarily requested, the exemption provided for for acquisition of real property for resale was applied.

· On 16-09-2015, the Claimant submitted the arbitration request which gave rise to the present proceedings.

2.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

2.3. Justification for the Determination of Factual Matter

The facts were proven on the basis of the documents attached with the arbitration request and the administrative file.

There is no controversy regarding the factual matter.

3. Exception of Ineptitude of the Arbitration Request Due to Contradiction Between the Claim and the Cause of Action

The Claimant acquired real property in insolvency proceedings and requested an IMT exemption under article 270, no. 2, of the CIRE, when submitting the IMT Form 1 Declarations giving rise to the assessments impugned. Subsidiarily, the Claimant requested the application of the exemption provided for in article 7 of the CIMT, in accordance with article 10, no. 8, paragraph a) of the CIMT.

The Revenue and Customs Authority understood that the first exemption requested was not applicable, but that the second was applicable, and therefore issued the impugned assessments, with zero value, invoking as justification the exemption provided for in article 7 of the CIMT, relating to acquisition of real property for resale.

In the present proceedings, the Revenue and Customs Authority argues that there is an irremediable contradiction between the claim and the cause of action, because, in summary,

– the assessments now contested, in addition to corresponding to what was requested (albeit subsidiarily) by the Claimant itself (cf. Doc. 2 attached to the petition), were issued in accordance with what the law establishes (cf. article 7 of the CIMT);

– the Claimant seeks annulment of those assessments, on the grounds that they are vitiated by violation of law;

– the Claimant's claim concerns the annulment of (alleged) assessments due to violation of article 270/2 of the CIRE;

– there is in the present case a lack of logical and normative correspondence between the concrete fact alleged by the Claimant and the judicial remedy requested by it.

Article 98, no. 1, paragraph a), of the CPPT, applicable to tax arbitral proceedings by virtue of the provision of article 29, no. 1, paragraph c), of the RJAT, considers ineptitude of the initial petition to be an irremediable procedural defect.

In accordance with article 186, no. 2, of the CPC, applicable to tax arbitral proceedings by virtue of the provision of article 29, no. 1, paragraph e), of the RJAT, one of the situations of ineptitude of the initial petition is when the claim is in contradiction with the cause of action.

The cause of action, in tax contentious proceedings concerning annulment of assessment acts, is constituted by the defects or illegalities that the taxpayer ascribes to them, as may be inferred from articles 99 and 124 of the CPPT.

In the case at hand, the Claimant seeks annulment of the impugned assessments on the grounds of a defect of violation of law, on the understanding that the exemption provided for in article 270, no. 2 of the CIRE should have been applied and not that provided for in article 7 of the CIMT.

Being so, there is no contradiction between the claim and the cause of action, because, if it is a situation in which the exemption provided for in article 270 of the CIRE should have been applied, the assessments will be vitiated by illegality in not having applied it, as the Claimant intended in the first instance,

And that illegality will constitute grounds for annulment, in accordance with the aforementioned articles 99 and 124 of the CPPT.

Therefore, no contradiction is perceived between the cause of action (illegality of the assessments for not having applied the exemption provided for in article 270 of the CIRE) and the claim (annulment of the assessments on the grounds of that alleged illegality).

In this context of hypothetical contradiction between cause of action and claim, it is irrelevant that the Claimant has requested from the Revenue and Customs Authority, subsidiarily, the application of the exemption in article 7 of the CIMT, which was applied, as the procedural obstacle that the acceptance of the subsidiary claim might raise would be at the level of lack of interest to act, which is an unnamed procedural prerequisite.

However, there is no lack of interest to act on the part of the Claimant, as the final IMT exemption not subordinated to the resolutory condition provided for in article 234, no. 2, of the CIRE is legally more advantageous for the Claimant than the conditioned exemption provided for in article 7 of the CIMT.

Thus, the exception of ineptitude of the initial petition raised by the Revenue and Customs Authority is unfounded.

4. Exception of Lack of Object of the Arbitration Request

The Revenue and Customs Authority argues, in summary, that

– the Claimant is opposing 18 IMT assessments which, in addition to corresponding to what was requested (albeit subsidiarily) by the Claimant itself, were issued in accordance with what the law establishes (cf. article 7 of the CIMT);

– it is legally only possible to annul what exists and is contrary to law;

– there do not exist, either within or outside this arbitral proceedings, any 18 assessments relating to article 270, no. 2, of the CIRE, but only 18 assessments legally issued under article 7 of the CIMT;

– it is legally impossible to annul 18 IMT Assessments issued under article 270, no. 2, of the CIRE, insofar as they simply do not exist; and 18 IMT Assessments issued under article 7 of the CIMT, insofar as they are entirely in accordance with tax law and were requested at the finance service, albeit subsidiarily, by the Claimant;

– the competence of arbitral tribunals can never be directed, as essentially the Claimant now intends, to the assessment of any future IMT assessments issued under article 270, no. 2, of the CIRE;

– the Claimant cannot here contend that the arbitral tribunal should sanction the legality of assessments that conflict with article 270, no. 2, of the CIRE, when such assessments were not only not identified in the arbitration request, but also – and more importantly – such assessments simply do not exist.

It is true that assessments applying article 270, no. 2, of the CIRE are not being impugned, but rather assessments that applied article 7 of the CIMT.

But what the Claimant argues is that the assessments should have applied the exemption of article 270, no. 2, of the CIRE and not that of article 7 of the CIMT, arguing that these should be annulled and that «new assessments in which the IMT exemption provided for in article 270, no. 2, of the CIRE is applied» should be issued.

The illegality of an assessment act does not necessarily consist in the application of an illegal norm; it may arise from an omission, from the failure to apply a norm that should have been applied.

Indeed, article 55 of the General Tax Law (LGT), in line with article 266 of the Constitution of the Portuguese Republic, establishes that «the tax administration exercises its duties in pursuit of the public interest, in accordance with the principles of legality, equality, proportionality, justice, impartiality and speed, in respect of the guarantees of taxpayers and other tax-bound parties».

Specifying the «principle of legality», article 3, no. 1, of the Code of Administrative Procedure [subsidiarily applicable, through article 2, paragraph c), of the LGT] provides that «the organs of the Public Administration must act in obedience to law and right, within the limits of the powers conferred on them and in accordance with their respective purposes».

Given this positive formulation of the principle of legality, the realization of the legislative intentions regarding tax benefits is a mandatory purpose of the action of the Tax Administration, so that, if there is a situation in which two tax exemptions are potentially applicable, there will be illegality in refusing to apply either of them, since the powers granted to the Tax Administration to practice assessment acts are connected with the realization of the purposes intended by the legislature in establishing them.

Thus, in the case at hand, given that the Claimant requested, in the first instance, that the tax benefit provided for in article 270, no. 2, of the CIRE be granted, if there is a situation in which the requested exemption should be applied, there will be illegality in the assessment acts that did not apply it, regardless of whether another exemption is also applicable, whose application was only subsidiarily requested.

Being so, there is not a situation of lack of object of the arbitration request, as the Claimant explicitly states that it intends the «annulment of the Contested Assessments, due to a defect of violation of law, with all legal consequences and, in particular, the issuance of new assessments in which the IMT exemption provided for in article 270, no. 2, of the CIRE is applied».

Given that those assessments that did not apply the exemption requested in the first instance exist, they are the object of the arbitration request, and therefore there is no situation of lack of object thereof.

5. Exception of Impropriety of the Means Used and Material Incompetence of the Arbitral Tribunal

The Revenue and Customs Authority argues that the Claimant should use administrative action, as it is «the means of recourse by the Claimant regarding the non-granting of the (main) request for IMT exemption under article 270/2 of the CIRE» and «the final part of the Claimant's petition can never be accepted» because «the request for a decision by the Respondent to issue new assessments in which the IMT exemption provided for in article 270, no. 2, of the CIRE is applied» can only be assessed, at most, in administrative action or mandamus, since such granting relates to an act of taxable matter» and the «arbitration request, insofar as it necessarily must have as its object tax acts».

The Revenue and Customs Authority further understands that «in essence the Claimant intends that the Collective Arbitral Tribunal should render a decision recognizing the IMT exemption provided for in article 270/2 of the CIRE» and that administrative action is the appropriate procedural means to assess acts in tax matters.

The Revenue and Customs Authority further states that competence to verify the prerequisites of the exemption provided for in article 270, no. 2, of the CIRE «falls exclusively on the judicial authority in which the insolvency proceedings were conducted», because only the judge conducting the proceedings is in a position to verify the legal prerequisites required by that provision.

The issues of error in form of procedure and material incompetence share partially common grounds and will therefore be assessed concomitantly.

The Revenue and Customs Authority raises the exceptions of error in form of procedure and material incompetence of this Arbitral Tribunal, in summary, because what is at issue is the recognition of an IMT exemption and, in the understanding of the Revenue and Customs Authority, it is not covered within the scope of the material competence of the Arbitral Tribunal to consider matters relating to the recognition of tax exemptions, which should be assessed in tax courts in administrative action.

The competence of arbitral tribunals operating in the CAAD is defined, primarily, by article 2, no. 1, of the RJAT, which establishes the following:

1 - The competence of arbitral tribunals comprises the assessment of the following claims:

a) The declaration of illegality of acts assessing taxes, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts establishing the taxable base when it does not give rise to the assessment of any tax, of acts determining the taxable material and of acts establishing real estate values;

Secondly, the competence of arbitral tribunals operating in the CAAD is limited by the commitment of the Revenue and Customs Authority which, in accordance with article 4, no. 1, of the RJAT, has been defined by Regulation no. 112-A/2011, of 12 March, which establishes the following, as relevant here:

The services and bodies referred to in the preceding article commit to the jurisdiction of arbitral tribunals operating in the CAAD that have as their object the assessment of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts determining the taxable material and acts determining the taxable base, both by indirect methods, including the decision of the revision procedure;

c) Claims relating to customs duties on importation and other indirect taxes on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or procedures to be carried out by another Member State within the framework of administrative cooperation in customs matters.

As can be seen, only in relation to customs matters is the definition of competencies made taking into account the type of taxes to which the claims relate. And as regards these, the Revenue and Customs Authority has only committed itself as to the taxes administered by this authority.

As for the rest, competence is defined only taking into account the type of acts that are the subject of the challenge, there being, in particular, no prohibition on the assessment of matters relating to tax exemptions or any other questions of legality relating to acts of the types referred to in article 2 of the RJAT. A tax assessment that proceeds from the disregard of an exemption ceases not to be a tax assessment act. And the assessment of the legality or illegality of this disregard does not, therefore, cease to be the assessment of a claim relating to the declaration of illegality of assessment acts.

In the case at hand, acts assessing IMT, which fall within paragraph a) of no. 1 of article 2 of the RJAT, are being impugned, and their assessment is not excluded by any of the provisions of the aforementioned Regulation.

Thus, in arbitral proceedings, any illegality may, in general, be imputed to assessment acts, as follows from article 99 of the CPPT, subsidiarily applicable.

This will only not be the case in cases where the law provides for the autonomous challengeability of administrative acts that are prerequisites of assessment acts, as may happen with acts of recognition of tax exemptions, which, in the case of non-automatic exemptions, assume the nature of severable acts for purposes of contentious challenge. However, for there to be this limitation on the challengeability of the impugned assessment act, some administrative act that was a prerequisite of the assessment act must have previously been practiced, which has not occurred in the case at hand.

On the other hand, in this case, we are dealing with an automatically recognized exemption, as results from paragraph d) of no. 8 of article 10 of the CIMT, whereby there need not be any autonomous act of recognition of the exemption, and at the appropriate moment for the practice of an assessment act the Revenue and Customs Authority will have to assess whether the interested party enjoys a tax benefit.

Therefore, since the assessment acts are prejudicial to the interests of the Claimant, by not applying a more favorable exemption than the one that was applied, and since those are the only acts practiced by the Tax Administration following the submission of the IMT Form 1 declarations, its challengeability in contentious proceedings must be ensured on the grounds of any illegality, as follows from the principle of effective judicial protection, enshrined in articles 20, no. 1, and 268, no. 4, of the Portuguese Constitution.

Furthermore, the question of whether the assessment act is legal in not recognizing an exemption relates to the legality of the assessment, and therefore should be assessed in tax courts in judicial challenge proceedings, as follows from paragraph a) of no. 1 of article 97 of the CPPT.

Thus, the thesis of the Revenue and Customs Authority that it is «outside the jurisdiction of tax arbitration to assess any questions concerning the recognition of tax exemptions» has no legal basis, as the limits defined in article 2, no. 1 of the RJAT are defined exclusively on the basis of the type of acts and not on the basis of the type of illegality issues imputed to them.

As regards the thesis defended by the Revenue and Customs Authority that the Judicial Court conducting the insolvency proceedings would have exclusive competence, it is clear that this has no legal basis.

In fact, there is no special provision of insolvency procedure law that assigns competence to Judicial Courts to recognize tax exemptions, and the general regime for tax benefits expressly contradicts this possibility.

Indeed, the Tax Benefits Statute (EBF) applies to all tax benefits (its article 1). From article 5 of the EBF it follows that tax benefits, when automatic, are not the object of any autonomous act of recognition, so that it is at the appropriate moment to decide whether an assessment act should be practiced that the question arises of verification by the Revenue and Customs Authority of whether or not the prerequisites of the tax benefit have occurred. As regards tax benefits dependent on recognition, this is done through an administrative act, as results from no.s 2 and 3 of the same article 5, in line with articles 54, no. 1, paragraph d), of the LGT and 65 of the CPPT.

In the specific case of the exemption provided for in article 270 of the CIRE, there is a tax benefit for which article 16, no. 2, of the CIRE only provides for the need for prior recognition by the Revenue and Customs Authority when applied within the scope of business restructuring and revitalization proceedings, provided for in Decree-Law no. 178/2012, of 3 August ( [1] ). In other cases covered by article 270 of the CIRE, as prior recognition is not expressly provided for (neither in the CIRE, nor in the EBF, nor in article 10 of the CIMT), there is an automatically recognized exemption, with its verification and declaration being the responsibility of the finance service where the declaration provided for in article 19, no. 1, of the CIMT is submitted, as results from the provision of paragraph d) of no. 8 of that article 10.

Furthermore, as the right to tax benefits is a matter of tax law, the possibility of its direct recognition by the Courts is reserved for Tax Courts, through an action for recognition of a right or legitimate interest in tax matters, in accordance with articles 212, no. 3, of the Portuguese Constitution, 144, no. 1, of the Law on the Organization of the Judicial System (Law no. 62/2013, of 26 August), 49, no. 1, paragraph c), of the Statute of the Administrative Tax Court (ETAF), 101, paragraph b) of the LGT and 97, no. 1, paragraph h) and 145 of the CPPT, so there is no legal basis to assert the exclusive competence of Judicial Courts to recognize the exemption at issue.

Indeed, the Supreme Administrative Court, as the highest judicial body in tax matters, has repeatedly and consistently assessed whether the prerequisites of the exemption provided for in article 270, no. 2, of the CIRE are met, as can be seen from the following judgments

– of 30-05-2012, proceedings no. 0949/11;

– of 3-7-2013, proceedings no. 765/13;

– of 17-12-2014, proceedings no. 01085/13;

– of 11-11-2015, proceedings no. 968/13;

– of 18-11-2015, proceedings no. 1067/15;

– of 18-11-2015, proceedings no. 575/15;

– of 16-12-2015, proceedings no. 01345/15.

It is worth noting, in addition to the unequivocal recognition of the competence of tax courts to assess whether the prerequisites of the exemption are met, that all the appeals assessed by the Supreme Administrative Court in this matter were brought in judicial challenge proceedings, which also removes any doubt about the consistent understanding of the Supreme Administrative Court regarding the viability of assessment in judicial challenge proceedings of whether the prerequisites of the exemption provided for in article 270, no. 2, of the CIRE are met, which has as a corollary the competence of arbitral tribunals operating in the CAAD to assess the legality of assessments of this type.

Therefore, the exceptions of error in form of procedure and material incompetence raised by the Revenue and Customs Authority are unfounded.

6. Question of the Legality of the Assessments

The question to be assessed concerns the legality of the assessment act that did not apply the exemption provided for in article 270 of the Code of Insolvency and Business Recovery to the acquisition of real property effected by the Claimant.

This article 270 of the Code of Insolvency and Business Recovery establishes the following:

Article 270

Benefit relating to municipal tax on onerous transfers of real property

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

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

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

c) Those arising from transfer in satisfaction of company property and transfer of property to creditors.

2 - Sales, exchanges or transfers of the company or establishments thereof integrated within the scope of insolvency plans, payments plans or recovery plans or carried out within the scope of liquidation of the insolvent estate are equally exempt from municipal tax on onerous transfers of real property.

It results from the established factual matter that the Claimant acquired real property within the scope of the liquidation of the insolvent estate of B…, S.A., so that the situation will potentially be framed within no. 2 of this article.

As justification of the position adopted by the Revenue and Customs Authority to refuse to apply the exemption provided for in this no. 2 of article 270. Of the CIRE, the assessments contain only a reference to a «the opinion of the DSJC disclosed to the Bar Association of Notaries by letter of 08.07.10.», which is neither attached to the administrative file nor to the present arbitral proceedings.

In its Response, the Revenue and Customs Authority states that «given the scarce elements brought to the proceedings, which point to the Claimant having only acquired elements of the assets of the insolvent company, and not the insolvent company itself or even establishments thereof, it is necessary to conclude that it is not in a position to enjoy the tax exemption established in article 270/2 of the CIMT, there being nothing therefore to point out regarding the assessment under challenge by virtue of the arbitration request submitted by that party».

In any case, the interpretive doubts stem from the lack of clarity of the text of this no. 2, more specifically as to whether the reference to sale refers only to the sale of the company or of establishments integrated therein or covers any real property.

As referred to, the Supreme Administrative Court has ruled on this question several times, in the judgments of 30-05-2012, proceedings no. 0949/11, of 17-12-2014, proceedings no. 01085/13, of 11-11-2015, proceedings no. 968/13, of 18-11-2015, proceedings no. 1067/15, of 18-11-2015, proceedings no. 575/15 and of 16-12-2015, proceedings no. 1345/15 ( [2] ), having decided that they are «exempt from IMT not only sales of the company or its establishments, as universalities of property, but also sales of elements of its assets, provided that they are integrated within the scope of an insolvency plan or payments plan or carried out within the scope of liquidation of the insolvent estate».

The judgment of 17-12-2014, proceedings no. 01085/13, states:

«However, the property that integrates the insolvent estate are the property of the assets of the company declared insolvent and no others belonging to another natural or legal person. By definition, the property that is sold in insolvency proceedings is property of the insolvent or which, at least, was deemed as such. There is no sale of property other than that which integrated the assets of the insolvent. The legislature, to guarantee that this is so, even provides a procedure for claiming for the recovery and separation of property intended to separate from the estate property of third parties wrongfully seized, or those of which the insolvent is not full and exclusive owner, or which are foreign to the estate or not susceptible of seizure for the estate – article 141 of the Code of Insolvency and Business Recovery.

Furthermore, in the chapter on liquidation of the Code of Insolvency and Business Recovery there are clear and precise indications of the property that may be sold in that liquidation and those that should be temporarily or permanently excluded from sale, only the right that the insolvent has over property of which he is a co-owner being liquidated in insolvency proceedings – article 159 – and there being no sale of property of controversial ownership until the judgment establishing the ownership of the right of property as regards that property becomes final – article 160.

The insolvency proceedings are – article 1 of the Code of Insolvency and Business Recovery – a universal execution proceeding whose purpose is to satisfy creditors in the manner provided in an insolvency plan intended to promote the recovery of the company comprised in the insolvent estate, or, when this is not possible, to liquidate the assets of the insolvent debtor with the subsequent distribution of the product obtained among creditors. The insolvent estate covers all the assets of the debtor at the date of declaration of insolvency, as well as property and rights that he acquires pending the proceedings and still those whose non-seizability is not absolute and are voluntarily presented by the debtor – article 46 of the Code of Insolvency and Business Recovery - so that it cannot be conceived that there is property integrating the insolvent estate of a company declared insolvent that may be integrated into a category of property without any relationship with that company or establishment.

It may be read in paragraph 49 of the preamble to the Code of Insolvency and Business Recovery that essentially the existing regimes in the CPEREF are maintained as regards the exemption of notary fees and tax benefits. As analyzed in the judgment of the Supreme Administrative Court of 30 May 2012, rendered in proceedings 949/11, looking at the meaning and scope of the legislative authorization granted to the Government under which the Code of Insolvency and Business Recovery was approved - articles 2 and following of Law no. 39/2003, of 22 August, and in what concerns exemptions from municipal property transfer tax (now IMT), no. 3 of article 9 of that authorization law provided that: «The Government is finally authorized to exempt from municipal property transfer tax the following transfers of real property, integrated in any insolvency plan or payments plan or carried out within the scope of liquidation of the insolvent estate: c) (…) the sale, exchange or transfer of the company, establishment or elements of its assets (…)».

It may be admitted that in implementing the legislative authorization for approval of the CIRE, the government decided to exclude that exemption in cases of sale, exchange or transfer of elements of its assets, granting it only in cases of sale, exchange or transfer of the company or its establishment, in disrespect of the meaning and scope of the legislative authorization granted to it, having legislated in matters reserved to the Assembly of the Republic (cf. no. 2 of article 103 and paragraph i) of no. 1 of article 165 of the Constitution) in disrespect of that legislative authorization conferred on it.

Taking into account the purpose which the legislature intends to achieve with the granting of such exemption, - to foster and support the rapid sale of property comprising the insolvent estate for obvious reasons of interest of the creditors, but also of the public interest in resumption of normal business operations in which each insolvency proceeding presents itself as a disruptive element, giving «a bonus» to those who acquire the real property comprising the insolvent estate – buy these properties cheaper because they do not have to pay the IMT that would be due on the acquisition of similar real property outside insolvency proceedings – and which will be sold in the liquidation phase, the ambiguous text of no. 2 of article 270 may be subject to a clearer and more unambiguous reading without recourse to any extensive interpretation. It suffices that we ask ourselves whether, to achieve the purpose defined above, it makes any difference whether the sale is of the company as a whole with all its assets and liabilities, whether it is of one or more commercial establishments that comprised it, whether it is of property that comprised its assets but were not used in its commercial operation – for example real property received in payment of a debt of which the insolvent company was creditor – so that we are faced with a sale that is carried out within the scope of liquidation of the insolvent estate? And, if in the same situations there is not a sale but exchange or transfer – bearing in mind that this word must have been used in an improper sense insofar as it is associated with the business world it usually refers to the transfer of operation, transfer of commercial establishment, close to lease and not to transfer of ownership, and in the Code of Insolvency and Business Recovery it is shown to be used also regarding the acquisition of property by creditors -? We believe that the answer cannot fail to be negative.

No. 1 of article 270 of the Code of Insolvency and Business Recovery grants the exemption from IMT to transfers of real property carried out in compliance with:

  1. insolvency plan

  2. payments plan

  3. recovery plan

provided that such transfers are for one of the following purposes:

a. constitution of a new company or companies

b. realization of capital of a new company or company

c. realization of increase of capital of the debtor company

or arise from:

i. transfer in satisfaction of company property

ii. transfer of property to creditors.

No. 2 of this article, does not repeat the exemption which it established in no. 1, extends it to persons who, external to insolvency proceedings because they are not the creditors who acquired the property, the insolvent company that saw its capital increase, or the company that was formed from this proceedings, those already covered in no. 1 of article 270, but to those who acquire real property considered individually or integrated in the global or partial acquisition of the company.

We believe that no. 2 of article 270 of the Code of Insolvency and Business Recovery should be interpreted, taking into account what has just been set out, without need of any extensive interpretation, respecting its text, the purpose it seeks to achieve, the various variants of the insolvency proceedings contained in the Code of Insolvency and Business Recovery and the systematic logic of this diploma, as granting exemption from IMT, to the following acts:

  1. Sale

  2. Exchange

  3. Transfer

. of the company

. or of establishments of that company,

provided that any of these acts is either integrated within

  1. insolvency plan

  2. payments plan

  3. recovery plan,

or is carried out within the scope of liquidation of the insolvent estate.»

Beyond this interpretation, permitted by the literal wording of no. 2 of article 270 of the CIRE, being manifestly the one that harmonizes with the teleology of the exemption modality identified, which is to incentivize acquisitions of property of the insolvent company, in the case at hand the sale was effected to a creditor of the insolvent company, so that we are faced with a situation whose economic substance is essentially identical to situations of transfer in satisfaction of company property or transfer of property to creditors, which are expressly provided for in paragraph c) of no. 1 of the same article 270, as cases of IMT exemption.

Therefore, in cases where the sale is effected to creditors of the insolvent company, the economic substance, to which article 11, no. 3, of the LGT directs attention in the interpretation of tax incidence norms ( [3] ), would always require that it be understood that these are situations covered by the exemption, so that, if the situation does not fall within no. 2 of article 270 of the CIRE, it would always fall, by extensive interpretation, within no. 1 of the same article.

Therefore, the impugned assessment is vitiated by the defect of error as to the legal prerequisites, embodied in violation of article 270, no. 2, of the Code of Insolvency and Business Recovery, which justifies its annulment (article 135 of the Code of Administrative Procedure).

7. Questions of Prejudiced Knowledge

As the arbitration request should be granted for the reasons stated, knowledge of the other questions raised by the Claimant is rendered moot and unnecessary.

8. Decision

In these terms, this Arbitral Tribunal agrees to:

a) Declare the exceptions raised by the Revenue and Customs Authority unfounded;

b) Declare the arbitration request founded;

c) Annul the IMT Assessments no.s…, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, … and….

9. Process Value

In accordance with article 306, no. 2, of the CPC, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Tax Arbitration Costs Regulation, the process is assigned a value of € 1,904,500.00.

10. Costs

In accordance with article 22, no. 4, of the RJAT, the amount of costs is set at € 25,092.00, in accordance with Table I annexed to the Tax Arbitration Costs Regulation, to be borne by the Revenue and Customs Authority.

Lisbon, 10-02-2016

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(Paulo Jorge Nogueira da Costa)

(Vasco Valdez)

[1] Amended and republished by Decree-Law no. 26/2015, of 6 February.

[2] In the judgment of 03-07-2013, proceedings no. 765/13, the Supreme Administrative Court did not decide this question, although it makes reference to it.

[3] Rules of tax incidence, in a broad sense, are those that «define the scope of tax incidence, that is, the complex of prerequisites from whose conjunction results the birth of the tax obligation, as well as the elements of that obligation» (SOARES MARTINEZ, Direito Fiscal, 7th edition, page 126; Similarly, see NUNO SÁ GOMES, Manual de Direito Fiscal, volume II, page 56).

In this sense, rules of tax incidence are those that determine the active and passive subjects of the tax obligation, those that indicate what the taxable material is, the tax rate and tax benefits.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270 of the CIRE insolvency code?
Article 270 of the CIRE (Insolvency and Corporate Recovery Code) establishes an exemption from IMT (Municipal Property Transfer Tax) for property transfers occurring within insolvency proceedings. Specifically, Article 270(2) provides that transfers of real estate assets that form part of the insolvent estate are exempt from IMT when such transfers occur as part of the court-supervised liquidation process. This exemption aims to facilitate the realization of assets and maximize recovery for creditors by eliminating the tax burden that would otherwise reduce the net proceeds available for distribution. The exemption applies regardless of whether the acquirer is a creditor exercising dation in payment or a third-party purchaser at insolvency sale.
Can property transfers in insolvency proceedings be exempt from IMT and Stamp Duty?
Yes, property transfers in insolvency proceedings can be exempt from both IMT and Stamp Duty under Portuguese law. Article 270 of the CIRE provides exemption from IMT, while Article 269 of the CIRE provides exemption from Stamp Duty (Imposto do Selo) for acts and contracts carried out within the scope of insolvency proceedings. These exemptions are grounded in insolvency law policy objectives: maximizing asset realization value and creditor recoveries by eliminating transaction costs. The taxpayer must invoke these exemptions through Article 10(8)(d) of the IMT Code when filing the IMT Form 1 declaration. Supreme Administrative Court jurisprudence has confirmed that these exemptions apply automatically to court-supervised insolvency asset sales, though tax authorities may challenge their applicability in specific circumstances.
How does CAAD arbitration work for challenging IMT tax liquidations in Portugal?
CAAD (Centro de Arbitragem Administrativa) arbitration for challenging IMT liquidations follows a structured process under Decree-Law 10/2011. First, the taxpayer files an arbitration request under Article 10(1)(a) RJAT seeking annulment of the IMT assessment pursuant to Article 102(1)(a) CPPT. The CAAD President accepts the request and notifies the Tax Authority. The Deontological Council designates arbitrators (one or three depending on claim value). Parties may reject arbitrator appointments within established timeframes. Once constituted, the tribunal addresses preliminary exceptions (jurisdiction, standing, procedural propriety) before reaching substantive merits. The Tax Authority typically files a response raising procedural defenses and substantive arguments. Parties submit written arguments unless oral hearings are ordered. The tribunal issues a binding decision subject to limited judicial review. This process typically takes 6-12 months and offers advantages over traditional tax court litigation including speed, specialized arbitrators, and cost-effectiveness.
What are the legal requirements for IMT exemption recognition under Article 10(8)(d) of the IMT Code?
Article 10(8)(d) of the IMT Code establishes the legal framework for recognizing IMT exemptions provided in special legislation, including the CIRE insolvency code. The key requirements are: (1) the taxpayer must expressly invoke the exemption when filing the IMT Form 1 declaration before the property transfer deed; (2) the factual circumstances must fall squarely within the exemption provision (i.e., transfer must occur within court-supervised insolvency proceedings); (3) the taxpayer must provide documentary evidence supporting the exemption claim, including insolvency court orders, adjudication decisions, and creditor recognition documents; (4) the property transfer must be executed in compliance with insolvency law procedures under judicial supervision; and (5) subsidiary exemption requests (such as Article 7 exemptions) should be pleaded alternatively. Failure to properly invoke the exemption at the declaration stage can result in automatic IMT assessment, requiring subsequent challenge procedures.
What procedural defenses can the Tax Authority raise in CAAD arbitration proceedings?
The Tax Authority can raise several procedural defenses in CAAD arbitration proceedings, as demonstrated in this case: (1) Ineptitude of the initial petition (ineptidão) based on contradictions between claims and legal grounds; (2) Lack of object (falta de objeto) arguing the assessment is valid or the claim is moot; (3) Impropriety of procedural means (inadequação do meio processual) contending that arbitration is not the appropriate remedy for the relief sought; (4) Material incompetence of the arbitral tribunal (incompetência material) asserting the claim falls outside CAAD's subject-matter jurisdiction under RJAT; (5) Lack of standing or legitimacy (ilegitimidade) of either party; and (6) Procedural defects (vícios processuais) in how the arbitration was initiated or conducted. These exceptions must be addressed as preliminary questions before the tribunal reaches the merits. Additionally, the Tax Authority argues the substantive unfoundedness (improcedência) of the claims on the merits.