Process: 67/2017-T

Date: June 13, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 67/2017-T addressed whether the stamp tax exemption under Article 269(e) of the Insolvency and Company Recovery Code (CIRE) applies to residential property acquired in individual insolvency proceedings. The claimant, a real estate company, acquired property from two natural persons in insolvency and challenged a €3,108.80 stamp tax assessment, arguing that since one debtor was a self-employed lawyer, they qualified as a 'company' under a broad interpretation of CIRE. The Tax Authority countered that the exemption exclusively covers property forming part of business assets, not residential property owned by individuals merely because insolvency proceedings exist. Critical facts established that on the transfer date (16.01.2013), the debtors had no active commercial registration or business activity, and the claimant failed to prove the residential property was ever used for commercial purposes. The tribunal emphasized that uniform case law restricts Article 269(e) exemption to property integrated in business operations, not personal assets of natural persons. The decision turned on the distinction between property belonging to an enterprise or business establishment versus personal residential property, regardless of the owner's historical self-employment status. This ruling clarifies that individual insolvency alone does not trigger CIRE tax exemptions designed for business liquidations, establishing that taxpayers must demonstrate both active business status and business use of the property at the time of transfer to qualify for stamp tax relief.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1 A…, LDA., legal person number …, with registered office on … street, …, in Lisbon, submitted on 19.01.2017 a request for the establishment of an arbitral tribunal, pursuant to Articles 2, No. 1, subparagraph a), and 10, Nos. 1 and 2, of Decree-Law No. 10/2011, of 20 January (hereinafter RJAT).

1.2. The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY

1.3 The Ethics Council of the Administrative Arbitration Centre (CAAD) designated the undersigned to form the Sole Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 28 March 2017.

1.4 The request for an arbitral decision has as its object the annulment of the stamp tax assessment act contained in document No. …, in the amount of 3,108.80€, dated 17 November 2016 with payment deadline the following day, relating to the acquisition of an autonomous fraction, designated by the letters DS, of an urban building intended for residential purposes, registered under article … in the property registry of the parish of … in the municipality of Cascais, which was carried out within the scope of the insolvency proceedings of B… and his wife, C…, being processed in the … Civil Court of the Court of the District of Cascais under number …/09… TBCSC, assessment, property and proceedings which are better identified in the Claimant's request and in the documents attached thereto, to which reference is made here.

The Claimant challenges the illegality of the assessments based on the provisions of Article 269, subparagraph e), of the CIRE, which grants an exemption that, in the interpretation which she considers to be correct, also covers real property transferred within the scope of an insolvency plan or operations of liquidation of the insolvent estate, by sale or exchange, when not incorporated in the sale, exchange or transfer of the company or establishment.

The Claimant maintains that the insolvents, despite being natural persons, acted as sole traders and that, therefore, the concept of "company" also applies to them in a broad interpretation.

Whereby the assessment is, in her view, illegal and she consequently requests its annulment.

The Claimant further requests the condemnation of the Respondent to refund the amounts paid by virtue of the assessments in question, plus compensatory interest on all amounts paid accrued until the date of reimbursement.

1.5 The TAX AND CUSTOMS AUTHORITY replied on 08 May 2017 and on the same date submitted the administrative file to the proceedings.

In the reply presented, the Respondent defended itself by way of objection, maintaining that the interpretation which the Claimant makes of the cited provision of the CIRE is wrong.

Specifically, it says, because "In the case at hand, we are dealing with the acquisition of a real property, although in insolvency proceedings, but which does not belong to a company nor was intended for the exercise of any business activity, but which was owned by natural persons for residential purposes".

It continues its argument in the sense that "It has been uniformly understood by case law of both Courts and Arbitration that the exemption provided for in subparagraph e) of Article 269 of the CIRE covers real property that forms part of the assets of a company and not real property of natural persons, with the sole justification that they are part of insolvency proceedings"

Now, it continues, "the taxpayer B… registered as a self-employed worker on 23.01.1991 (CIRS 0702, Lawyer) having been covered by the special exemption regime (Art. 53 of the CIVA), which regime he maintained until 01.02.2002, date from which he moved to the normal regime, with quarterly periodicity; The date of cessation of activity is 31.12.2015. In turn, in the tax records of the taxpayer C… she appears as an employed worker subject to filing of IRS model 3 declaration", and, consequently, that "On the date of the transfer of the real property (16.01.2013), the taxpayers had no industrial, commercial or agricultural activity, nor were even registered as sole traders, being registered as individual taxpayers".

Whereby the Respondent concludes that the claim should be judged to be without merit.

1.6 Notified of the order issued by the Tribunal on 08 May 2017 to the effect that it was its intention to dispense with the hearing of the arbitral tribunal provided for in Article 18 of the RJAT, as well as final arguments, the parties did not come forward to object.

2. PRELIMINARY EXAMINATION

The Tribunal was regularly constituted and has jurisdiction ratione materiae in accordance with Article 2.9 of the RJAT.

The parties have legal standing and capacity to sue, are shown to be legitimate and are regularly represented.

The proceedings do not suffer from any defects that would invalidate them.

3. MATTER OF FACT

With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:

1) The Claimant is a company whose object is the purchase and sale of real property;

2) In the exercise of its activity and as a creditor, the Claimant acquired the autonomous fraction, designated by the letters DS, of an urban building intended for residential purposes, registered under article … in the property registry of the parish of … in the municipality of Cascais, which was carried out within the scope of insolvency proceedings of B… and his wife, C…, being processed in the … Civil Court of the Court of the District of Cascais under number …/09… TBCSC;

3) The taxpayer B… registered as a self-employed worker on 23.01.1991 (CIRS 0702, Lawyer) having been covered by the special exemption regime (Art. 53 of the CIVA), which regime he maintained until 01.02.2002, date from which he moved to the normal regime, with quarterly periodicity; The date of cessation of activity is 31.12.2015;

4) In the tax records of the taxpayer C… she appears as an employed worker subject to filing of IRS model 3 declaration;

5) On the date of the transfer of the real property (16.01.2013), the taxpayers had no industrial, commercial or agricultural activity, nor were even registered as sole traders, being registered as individual taxpayers;

6) The Respondent notified the Claimant of its intention to proceed with the correction of the stamp tax assessment that preceded the adjudication;

7) As a result, the stamp tax assessment No. … was issued, in the amount of 3,108.80€, dated 17 November 2016 with payment deadline the following day;

8) The Claimant paid the tax assessed on 17 November 2016.

Facts Not Proven

It was not proven that the fraction acquired was affected by any commercial activity that the insolvents carried out, a fact whose proof was incumbent upon the Claimant, as it is a matter constitutive of the right which she claims, namely, the exemption provided for in Article 269 of the CIRE.

Grounds for the Decision on the Matter of Fact

The conviction about the facts was based on the facts alleged by the Claimant herself and also on the documentary evidence submitted by the Claimant and on the administrative file submitted by the Respondent, whose authenticity and correspondence to reality were not questioned.

4. ISSUE TO BE DECIDED: ON THE APPLICABILITY OF THE PROVISIONS OF ARTICLE 269 OF THE CIRE TO THE ACQUISITION OF REAL PROPERTY INTENDED FOR RESIDENTIAL USE IN INSOLVENCY OF NATURAL PERSONS

It is therefore necessary to decide on the merits of the request for an arbitral decision on the legality of the Stamp Tax assessment sub judice.

Let us examine:

At issue is the assessment of the legality of the act of assessment which did not apply the exemption provided for in Article 269 of the Insolvency and Company Recovery Code to the acquisition of real property made by the Claimant within the scope of the insolvency proceedings of two natural persons without commercial activity.

This Article 269 of this Insolvency and Company Recovery Code establishes the following:

Article 269 - Benefit relating to stamp tax

The following acts are exempt from stamp tax, when subject to it, provided they are provided for in insolvency, payment or recovery plans or carried out within the scope of the liquidation of the insolvent estate:

a) Modifications of the maturity dates or interest rates of credits against the insolvency;

b) Increases in capital, conversions of credits into capital and alienations of capital;

c) The establishment of new company or companies;

d) Delivery in performance of company assets and the transfer of assets to creditors;

e) The carrying out of financing operations, the transfer or transfer of the operation of company establishments, the establishment of companies and the transfer of commercial establishments, the sale, exchange or transfer of elements of company assets, as well as the leasing of assets;

f) The issuance of bills of exchange or promissory notes.

The interpretative doubts which arose from the lack of clarity of this article, as well as of No. 2 of Article 270, regarding the related exemption from IMT, namely, the question of whether the reference to sale refers only to the sale of the company or establishments integrated therein or encompasses any real property, a matter on which there is already extensive case law from both CAAD and Court decisions in particular what we could call the scope of the tax exemption provided for there.

The understanding of the Tax Authority on this matter is now set out in recent Circular 4/2017, which amends the understanding contained in the first two paragraphs of point III of the "Guide for Compliance with Tax Obligations of Legal Persons in Insolvency Situation", annexed to Circular No. 10/2015, of 9 September, adopting the following: «The application of the tax benefits provided for in No. 2 of Article 270 of the CIRE does not depend on the thing sold, exchanged or transferred encompassing the totality of the insolvent company or one of its establishments. Thus, acts of sale, exchange or transfer, in isolation, of company assets or establishments thereof are exempt from IMT, provided they are integrated within the scope of insolvency, payment or recovery plans or carried out within the scope of the liquidation of the insolvent estate.».

The understanding now adopted, in line with case law, in the context of IMT is, without doubt, connected with that which is at issue in the proceedings, which is that of Article 269, in the context of Stamp Tax, and which would lead us, if it were insolvency proceedings of a legal person, to an equal understanding.

However, the fact is that this is an insolvency proceeding of natural persons, which was proven not to have, on the date of the acquisition of the real property by the Claimant, any activity, that it is an autonomous fraction intended for residential purposes and that the Claimant neither alleged nor proved was or was affected by any activity which the insolvents carried out or had carried out before the insolvency.

Whereby the question - which remains open, even after the change in the understanding of the Tax Authority regarding acquisitions of real property within the scope of insolvency proceedings - is whether the exemption extends to acquisitions of real property carried out in insolvency proceedings of natural persons, namely, when they do not have commercial activity or when, having it, the real property acquired is not affected to that activity.

On that question, the Supreme Administrative Court has already pronounced, specifically in the Decision of 25.06.2013, rendered in case 0866/13, in which Counselor Francisco Rothes was the Rapporteur, whose summary is transcribed:

«I – In accordance with the provisions of Art. 269, subparagraph e), of the CIRE, sales of «elements of company assets» are exempt from Stamp Tax. II – Accordingly, the said exemption does not cover the sale of an urban building intended for residential purposes which belongs to a natural person, and the fact that the acts of sale are carried out within the scope of the liquidation of the insolvent estate is not sufficient to benefit from that exemption, but rather it must be demonstrated that the asset sold forms part of the assets of a company.» [1].

This CAAD also, in the Tribunal constituted in case 13/2016, pronounced to the effect that the exemption [from Stamp Tax provided for in subparagraph e) of Article 269 of the CIRE] applies only to real property that forms part of the assets of a company and not to real property of natural persons.

This is the understanding which we believe corresponds to the best interpretation of the provision of Article 269 of the CIRE: being the insolvent a natural person without commercial activity or when, having it, the real property acquired was not affected to that activity, the exemption provided for there does not apply, namely, that of subparagraph e) invoked by the claimant.

This is because it is a provision which grants a tax benefit, of an exceptional nature, which does not permit analogical application (not mere extensive interpretation) which, in this case, would have to be done in order for the exemption to be applicable to the case sub judice.

6. DECISION

In light of the foregoing, it is decided that the Claimant's claim is wholly without merit.

* * *

The value of the case is fixed at 3,108.80€ (three thousand, one hundred and eight euros and eighty cents) in accordance with the provisions of Articles 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, No. 1, subparagraph a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at 612.00€ (six hundred and twelve euros) under Article 22, No. 4 of the RJAT and Table I annexed to the RCPAT, to be borne by the Claimant, in accordance with the provisions of Articles 12, No. 2 of the RJAT and 4, No. 4 of the RCPAT.

Let it be notified.

Lisbon, 13 June 2017

The Arbitrator

(Eva Dias Costa)

Document prepared by computer in accordance with Article 131, No. 5 of the Code of Civil Procedure, applicable by reference to Article 29, No. 1, subparagraph e) of the RJAT.

Frequently Asked Questions

Automatically Created

Does the stamp tax exemption under Article 269 of CIRE apply to property acquired in individual insolvency proceedings?
No, the stamp tax exemption under Article 269(e) CIRE does not apply to property acquired in individual insolvency proceedings when the property is residential and not part of business assets. CAAD ruled that the exemption exclusively covers property forming part of a company or business establishment, not personal property of natural persons simply because they are in insolvency. The tribunal found that on the transfer date, the debtors had no active commercial activity and the property's business use was not proven.
Can individual debtors acting as sole traders qualify as an 'enterprise' under CIRE for stamp tax exemption purposes?
No, individual debtors acting as sole traders do not automatically qualify as an 'enterprise' under CIRE for stamp tax exemption purposes. In Process 67/2017-T, CAAD held that historical registration as self-employed is insufficient. The exemption requires the property to be integrated in active business operations at the time of transfer. Since the debtor-lawyer had ceased commercial activity and was registered as an individual taxpayer when the property transferred in 2013, the broad interpretation of 'company' was rejected.
What are the conditions for stamp tax (Imposto de Selo) exemption on real estate transfers in insolvency liquidation?
Stamp tax exemption on real estate transfers in insolvency liquidation under Article 269(e) CIRE requires: (1) the property must form part of a company or business establishment's assets; (2) the transfer must occur within insolvency proceedings; (3) the property must not be sold as part of an entire company or establishment transfer; (4) there must be active business operations, not merely historical self-employment; and (5) the claimant must prove the property's commercial use. Residential property of natural persons without proven business affectation does not qualify.
How did CAAD rule on the scope of Article 269(e) CIRE regarding property sales outside enterprise transfers?
CAAD ruled that Article 269(e) CIRE applies restrictively to business property only. The tribunal held that property sales in individual insolvency proceedings outside enterprise transfers do not qualify for exemption when the property is residential and owned by natural persons for personal use. Uniform case law supports that the exemption protects business liquidations, not personal asset sales. The fact that property was sold in insolvency proceedings is insufficient without proof of business integration and active commercial operations.
Is a buyer entitled to a refund and compensatory interest after an unlawful stamp tax assessment in insolvency proceedings?
The decision does not appear to grant the refund request. Since the tribunal found the exemption inapplicable to residential property in individual insolvency without proven business use, the stamp tax assessment was likely upheld as lawful. Buyers are only entitled to refunds plus compensatory interest when an assessment is annulled for illegality. When the tax assessment is confirmed as legal, no reimbursement obligation arises, and the tax authority's collection is validated.