Process: 674/2016-T

Date: May 12, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral award (Process 674/2016-T) addresses the scope of IMT exemption under Article 270(2) of the Portuguese Insolvency and Business Recovery Code (CIRE) when acquiring real estate in insolvency proceedings. The claimant purchased 22 properties for €1,738,546 during the liquidation phase of an insolvency proceeding. Initially, the Tax Authority issued certificates confirming IMT exemption under CIRE Article 270(2). However, in 2015, the Tax Authority reversed its position and demanded €86,233.60 in IMT.

The central legal dispute concerns whether the IMT exemption applies to: (1) all property acquisitions during insolvency liquidation, or (2) only acquisitions of properties as part of purchasing a company or commercial establishment. The claimant argued for a broad interpretation covering isolated property purchases in liquidation. The Tax Authority maintained that exemption requires acquisition within the context of transferring a company or establishment as a going concern.

Article 270(2) CIRE exempts "acts of sale, exchange or assignment of the company or of establishments thereof, integrated within insolvency plans, payment plans or recovery plans or carried out within the liquidation of the insolvency estate." The claimant initially received exemption certificates, paid the tax after the reversal, filed an unsuccessful administrative review, and subsequently initiated CAAD arbitration. The Tax Authority failed to file a formal response, submitting only the administrative file. The tribunal waived the hearing phase under procedural economy principles.

This case highlights critical interpretative issues regarding tax exemptions in insolvency contexts, the doctrine of legitimate expectations when tax authorities reverse prior positions, and the rights of acquirers who rely on official exemption certificates. The outcome significantly impacts real estate investors participating in insolvency asset sales.

Full Decision

ARBITRAL AWARD

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Glória Teixeira and Alberto Amorim Pereira, designated by the Ethics Board of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby decide:

I – STATEMENT OF FACTS

On 8 November 2016, A…, S.A., NIPC…, with registered office at Praça …, No.…, parish of …, …-… Porto, filed a request for constitution of an arbitral tribunal pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter abbreviated as RJAT), seeking the declaration of illegality of the tax assessment notice for Municipal Tax on Onerous Real Estate Transfers (IMT), issued by document No.…, with payment deadline of 12-04-2016, in the amount of € 86,233.60.

To substantiate its request, the Claimant argues, in summary, that the taxed acquisition benefits from an exemption under the IMT exemption provided for in Article 2, paragraph 2 of Article 270 of the Corporate Insolvency Regime Code (CIRE).

On 09/11/2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant did not appoint an arbitrator, and therefore, pursuant to Article 6, paragraph 2, sub-paragraph a) and Article 11, paragraph 1, sub-paragraph a) of the RJAT, the President of the Ethics Board of the Administrative Arbitration Centre designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of their appointment within the applicable deadline.

On 11-01-2017, the parties were notified of these designations and did not manifest any intention to challenge any of them.

In accordance with Article 11, paragraph 1, sub-paragraph c) of the RJAT, the Collective Arbitral Tribunal was constituted on 26-01-2017.

The Respondent, duly notified for such purpose, presented no response, submitting only the administrative file.

Given that, in this case, none of the purposes legally entrusted to the tribunal were present, pursuant to Articles 16(c) and 19 of the RJAT, as well as the principles of procedural economy and prohibition of useless acts, by order of 03-04-2017, the holding of the meeting referred to in Article 18 of the RJAT was waived, as well as the submission of arguments by the parties, and a period of 30 days was set for the issuance of the final award, following the submission of arguments by the Tax Authority.

The Arbitral Tribunal is materially competent and is regularly constituted pursuant to Articles 2, paragraph 1, sub-paragraph a), Article 5 and Article 6, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from any defects of nullity.

Therefore, there is no obstacle to the examination of the case.

Having considered all the foregoing, the Tribunal must render a decision as follows:

A. STATEMENT OF FACTS

A.1. Facts found proven

1. On 30 September 2013, by public deed of sale and purchase, the Claimant acquired twenty-two real properties in the context of the insolvency proceedings of company B…, Lda., with TIN…, which took place in the … Court of the Marinha Grande District Court, under No.… …TBMGR.

2. The properties in question were listed and seized for the insolvency estate and the Claimant purchased them for the price of € 1,738,546.00 (one million seven hundred thirty-eight thousand five hundred and forty-six euros).

3. Prior to the said adjudication, the Claimant presented to the competent Tax Office a declaration for assessment of Municipal Tax on Onerous Real Estate Transfers (IMT) and Stamp Duty (IS), and certificates were issued certifying that the transfer in question was exempt from IMT under Article 2, paragraph 2 of Article 270 of the CIRE.

4. The Claimant was notified by official letter No.…, of 05-11-2015, sent by the Tax Office of Lisbon -…, to submit a statement in a prior hearing, proving that it had proceeded with payment of the outstanding IMT or that it had requested its payment.

5. In April 2016, the Claimant proceeded with payment to the Tax Authority of the said tax in the amount of € 86,233.60 (eighty-six thousand two hundred thirty-three euros and sixty cents).

6. On 12 May 2016, the Claimant filed an administrative review of the assessment mentioned above.

7. On 9 August 2016, the Claimant was notified to exercise the right to prior hearing and to take cognizance of the draft decision and its grounds, which concluded with the dismissal of the administrative review filed.

8. On 26 August 2016, the Claimant was notified of the decision dismissing the administrative review filed, which states, among other things, the following:

"For purposes of the IMT exemption provided for in Article 2, paragraph 2 of Article 270 of the CIRE, only acts of sale, exchange or assignment of the company or of establishments thereof integrated within insolvency plans, payment plans or recovery plans or carried out within the liquidation of the insolvency estate"

A.2. Facts found not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Justification of the proven and not proven facts

With regard to the statement of facts, the Tribunal does not need to rule on everything that was alleged by the parties; rather, it is incumbent upon it to select the facts that are relevant to the decision and to distinguish the facts proven from those not proven (cf. Article 123, paragraph 2, of the Code of Tax and Administrative Procedure and Article 607, paragraph 3 of the Code of Civil Procedure, applicable by virtue of Article 29, paragraph 1, sub-paragraphs a) and e), of the RJAT).

In this manner, the pertinent facts for the judgment of the case are chosen and delimited according to their legal relevance, which is established in view of the various plausible solutions of the legal question(s) (cf. former Article 511, paragraph 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable by virtue of Article 29, paragraph 1, sub-paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110(7) of the Code of Tax and Administrative Procedure and the documentary evidence filed in the case, the facts listed above were considered proven, with relevance to the decision.

B. LEGAL ANALYSIS

The disputed issue in this arbitral proceeding concerns the interpretation of Article 2, paragraph 2 of Article 270 of the CIRE, specifically regarding whether all acquisitions of real properties in the context of 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.

Article 2, paragraph 2 of Article 270 of the CIRE, in its current wording, provides as follows:

"Also exempt from municipal tax on onerous real estate transfers are acts of sale, exchange or assignment of the company or of establishments thereof, integrated within insolvency plans, payment plans or recovery plans or carried out within the liquidation of the insolvency estate".

The Claimant contends that this provision should be interpreted to mean that the IMT exemption is granted both within the scope of operations for complete or partial acquisition of the company subject to the insolvency proceedings and for mere acts of acquisition of real properties considered in isolation, carried out in the phase of liquidation of its assets.

In the view of the Tax Authority, the provision in question only grants the IMT exemption in cases where properties are acquired within the scope of a company or commercial establishment, and the sale of properties of the company, in isolation, is not covered by the exemption and is subject to IMT under general terms.

Let us examine this.

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The question has been treated persistently in the Tax Courts, as evidenced by the Supreme Administrative Court (STA) Decision No. 01350/15 of 20/01/2016:

- Decision of 17 December 2014, rendered in case No. 1085/13;

- Decision of 11 November 2015, rendered in case No. 968/13;

- Decision of 18 November 2015, rendered in case No. 575/15;

- Decision of 18 November 2015, rendered in case No. 1076/15.

The said Decision refers to the grounds and understanding set out in the ruling of 16 December 2015, rendered in case No. 1345/15, of the same STA, which, in essence, establishes:

(…) The adoption of the interpretation of Article 270, paragraph 2 of the CIRE that has been consistently and repeatedly adopted by the STA, the understanding that is being adopted and is hereby reaffirmed, since it constitutes what best adapts the legal text to the meaning and scope of the legislative authorization under which the provision was issued by the Government in a matter reserved to the Parliament and because this interpretation is the one that best serves the purpose of paragraph 2 of Article 270 of the CIRE - "to promote and support the rapid sale of goods that are part of the insolvency estate for obvious reasons of interest to creditors, but also in the public interest of resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element", giving tax incentives to those who acquire the real properties that are part of the insolvency estate and that will be sold in the liquidation phase – there being, in this light, no reason to distinguish 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 that comprised it are being sold, or in which real properties that were part of its assets are being sold (….)

Also, arbitral jurisprudence has decided in the same sense as the STA, as is evident from cases 764/2014-T of 29-05-2015, No. 99/2015-T of 27-10-2015, No. 95/2015-T 123/2015-T of 01-09-2015, 321/2016 of 01-11-2016 and 138/2016-T of 10-10-2016.

As can be read in the latter Decision:

(…) The CPEREF, which was the predecessor to the CIRE, provided, in paragraph 2 of Article 121, an exemption from surtax for "transfers of real properties, integrated in any of the company recovery measures, that result (…) from the sale, exchange or assignment of elements of the company's assets (…)". There was, therefore, no doubt that the exemption applied to the isolated sale of properties that occurred within the scope of company recovery proceedings.

Subsequently, Law No. 39/2003, of 22 August, authorized the Government to legislate on insolvency of natural and legal persons, revoking the CPEREF. The new legal framework should place emphasis on the satisfaction of creditors, whether through the liquidation of assets or through an insolvency plan (cf. Article 1, paragraph 2, of Law No. 39/2003). Regarding tax benefits, paragraph 3 of Article 9 of Law No. 39/2003 authorized the Government "to exempt from municipal surtax the following transfers of real properties, integrated in any insolvency plan or payment plan or carried out within the liquidation of the insolvency estate: (…) those that result (…) from the sale, exchange or assignment of the company, establishments or elements of its assets (…)". Thus, Law No. 39/2003 was even more favorable to the transfer of properties included in the insolvency estate than the CPEREF in that it did not restrict the tax exemption to transfers of properties that could take place in a context of company recovery, extending it also to transfers that took place in a context of liquidation of the insolvent company or its establishments.

The same decision notes that the Supreme Administrative Court (STA) has had the opportunity, on several occasions, to clarify what should be understood as the legislative intent of the legal provision under analysis, citing, by way of example, the Decision of 17.12.2014, case 01085/13, where it is mentioned that "account must be taken of the objective that the legislator intends to achieve with the grant of such exemption, - "to promote and support the rapid sale of goods that are part of the insolvency estate for obvious reasons of interest to creditors, but also in the public interest of resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element", giving tax incentives to those who acquire the real properties that are part of the insolvency estate and that will be sold in the liquidation phase. There being 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 that comprised it are being sold, or in which real properties that were part of its assets are being sold. The objective that presides over the purpose of the provision will be equally pursued when the acquisition has as its object elements of the company's assets, it not being necessary that the object be the company or establishments thereof integrated within an insolvency plan."

Finally, it is noted there that "…it is important also to consider the systematic element to determine the meaning of the provision in question, not least because the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE is not the only one provided for operations of onerous transfer of real properties that take place within the scope of the insolvency proceeding, being accompanied by the IMT exemption also provided for in paragraph 1 of Article 270 of the CIRE and by the stamp duty exemption provided for in sub-paragraphs d) and e) of Article 269 of the CIRE. It happens that both one and the other apply, clearly, both to the transfer of properties carried out together with the company or the establishment of which they form part, and to the isolated transfer of properties. Also from this perspective, it seems, therefore, that the interpretation according to which the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE covers the transfer of properties when carried out together with the company or establishment of which they form part or when carried out in isolation is the most consistent with the overall spirit of the legal system.

Concluding that "…in light of the doubts raised by the lack of clarity in the wording of the provision in question, the use of historical, teleological and systematic elements allow it to be concluded with certainty that the IMT exemption provided for by paragraph 2 of Article 270 of the CIRE applies, not only to sales or exchanges of companies or establishments as a whole set of goods, but also to sales and exchanges of real properties (as elements of their assets), provided that they are framed within an insolvency plan or payment plan, or carried out within the liquidation of the insolvency estate.

The understanding set out above has been maintained, as evidenced by the STA decision of 01-02-2017, rendered in case 0724/16, in which it was held that the IMT exemption provided for in paragraph 2 of Article 270 of the CIRE applies, not only to sales or exchanges of companies or establishments as a whole set of goods, but also to sales and exchanges of real properties (as elements of their assets), provided that they are framed within an insolvency plan or payment plan, or carried out within the liquidation of the insolvency estate.

In view of the consolidated jurisprudence transcribed above, to which full adherence is given, since it is important to contribute to uniform interpretation and application of the law (Article 8, paragraph 3 of the Civil Code), it is necessary to conclude that the provision set out in paragraph 2 of Article 270 of the CIRE covers operations involving the transfer of properties from the insolvency 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.

In light of the above, the contested assessment is defective due to an error as to the legal prerequisites, by violation of Article 270, paragraph 2 of the CIRE, and its annulment is necessary.

As to the request for compensatory interest filed by the Claimant, Article 43, paragraph 1, of the General Tax Code (LGT) provides that compensatory interest is due when it is determined that there has been an error attributable to the services resulting in payment of tax debt in an amount greater than that legally owed.

In this case, the error that affects the assessment is attributable to the Tax Authority, which issued the illegal assessment on its own initiative.

The Claimant therefore has the right to be reimbursed for the amount paid (pursuant to Articles 100 of the LGT and 24, paragraph 1, of the RJAT) and, furthermore, to be compensated for the improper payment through the payment of compensatory interest by the Respondent, from the date of payment of the amount until reimbursement, at the legal default rate, pursuant to Articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the LGT, Article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.

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C. AWARD

Wherefore, this Arbitral Tribunal decides to render judgment in favor of the arbitral claim filed and, consequently:

a) annul the tax assessment notice for IMT contested in the amount of € 86,233.60;

b) determine the reimbursement of the tax improperly paid;

c) order the Tax Authority to pay the compensatory interest due from the date of payment of the tax until the full reimbursement of the amount paid;

d) order the Respondent to pay the costs of the proceedings, fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at € 86,233.60, pursuant to Article 97-A, paragraph 1, sub-paragraph a), of the Code of Tax and Administrative Procedure, applicable by virtue of sub-paragraphs a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 2,754.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was deemed entirely successful, pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4, of the said Regulation.

Notify all parties accordingly.

Lisbon, 12 May 2017

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator

(Glória Teixeira)

The Arbitrator

(Alberto Amorim Pereira)

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt when acquiring real estate in insolvency proceedings under Article 270(2) of CIRE?
The exemption under Article 270(2) CIRE is subject to interpretation. The provision exempts 'acts of sale, exchange or assignment of the company or of establishments thereof' in insolvency plans or liquidation. The Tax Authority interprets this narrowly, requiring property acquisition as part of a company or establishment transfer, not isolated property sales. The claimant argued the phrase 'carried out within the liquidation of the insolvency estate' extends exemption to all property sales in insolvency liquidation. The dispute centers on whether the exemption facilitates only business rescue transactions or all insolvency liquidations.
What are the legal requirements for claiming IMT exemption on property purchases within Portuguese insolvency processes?
Under Article 270(2) CIRE, IMT exemption requires: (1) acquisition through sale, exchange, or assignment; (2) of a company or establishments thereof; (3) integrated in insolvency plans, payment plans, recovery plans, or liquidation of the insolvency estate. According to the Tax Authority's interpretation, property must be acquired as part of a company or establishment transfer, not as isolated assets. Claimants must submit IMT declarations to the competent tax office before the transfer. The key contested requirement is whether isolated property purchases in liquidation qualify or only transfers of operational business units.
How does the CAAD arbitral tribunal handle disputes over IMT liquidation in insolvency-related acquisitions?
The CAAD tribunal follows standard RJAT arbitration procedures. After exhausting administrative review, claimants file arbitration requests. A three-arbitrator tribunal is constituted. When the Tax Authority fails to respond formally, proceedings continue based on the administrative file submitted. Under procedural economy principles (Articles 16(c) and 19 RJAT), the tribunal may waive hearings and oral arguments if unnecessary. The tribunal examines jurisdiction, legitimacy, and procedural regularity before addressing merits. Decision-making focuses on interpreting tax exemption provisions in light of insolvency law objectives, even without the Authority's formal defense.
Can a company challenge an IMT assessment issued by the Portuguese Tax Authority (AT) through tax arbitration?
Yes. Companies can challenge IMT assessments through CAAD arbitration under RJAT (Decree-Law 10/2011). The procedure requires: (1) filing prior administrative review; (2) after rejection, submitting an arbitration request within statutory deadlines; (3) payment of required fees. Arbitration covers disputes over tax assessment legality, including exemption eligibility. In this case, the claimant filed administrative review in May 2016, received rejection in August 2016, and initiated arbitration in November 2016. CAAD arbitration provides an alternative to judicial courts for resolving tax disputes efficiently.
What happens when the Tax Authority fails to respond in CAAD arbitration proceedings regarding IMT exemptions?
When the Tax Authority fails to file a formal response, arbitration proceeds nonetheless. The Authority must submit the administrative file, which becomes the evidentiary basis for its position. Under Article 18 RJAT and procedural economy principles, the tribunal may waive hearings and oral arguments. The Authority's silence does not result in automatic claimant victory; the tribunal independently examines the merits using available evidence, legal interpretation, and administrative file documentation. The claimant retains the burden of proving the tax assessment's illegality, and the tribunal decides based on law and facts presented.