Process: 675/2015-T

Date: May 12, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Process 675/2015-T, the CAAD Arbitral Tribunal addressed whether IMT (Municipal Property Transfer Tax) applies to individual asset sales during insolvency liquidation under Article 270(2) of the Portuguese Insolvency Code (CIRE). The claimant purchased rustic property from insolvency proceedings in 2011 and challenged an additional IMT assessment, arguing the CIRE exemption should apply. The Tax Authority contended the exemption only covers sales of companies or establishments as universalities, not individual assets, and raised a preliminary exception claiming CAAD lacked jurisdiction over exemption recognition matters. The claimant cited a Supreme Administrative Court decision from May 2012 supporting broad interpretation of Article 270(2) to include individual asset sales in insolvency plans, payment plans, or liquidation proceedings. The Tribunal rejected the jurisdiction challenge, ruling this concerned an assessment act disregarding an automatic exemption under Article 10(8)(d) of the IMT Code, not exemption recognition requiring separate application. Since automatic exemptions are verified during assessment, challenging the resulting tax act falls within CAAD's material competence under Article 2(1)(a) RJAT. The case illustrates the tension between restrictive and expansive interpretations of insolvency-related tax exemptions, the procedural distinction between exemption recognition and assessment challenges, and CAAD's broad jurisdiction over tax assessment acts that implicitly reject automatic tax benefits, ensuring effective judicial protection for taxpayers.

Full Decision

ARBITRAL DECISION

I – REPORT

A... ("Claimant"), divorced, taxpayer no...., resident at Avenue..., no...., ..., ..., ...-... Cascais, has requested the establishment of a Singular Arbitral Tribunal, pursuant to the provisions of Article 10 of the Legal Regime of Tax Arbitration.

The respondent is the Tax and Customs Authority (hereinafter referred to as AT).

The Claimant seeks the pronouncement of the Arbitral Tribunal with a view to annulling the additional assessment act relating to the acquisition on 23/11/2011 of the rustic property of the extinct parish of ... registered in the property register under article..., section ...-....

The Claimant alleges, in summary, that:

The understanding of the AT, according to which Article 270, No. 2, of the Code of Insolvency and Business Recovery (CIRE) "does not apply to the specific case, since we are faced with an onerous transmission of a real estate property separately from the company or its establishment", is "unconstitutional, unlawful and different from the understanding endorsed by the Supreme Administrative Court [in Decision of 30/05/2012]", in which it is expressly stated that if the wording of the provision in question is not clear, "it should be understood that not only the sales of the company or establishments thereof are exempt from IMT as universalities of goods, but also the sales of elements of its assets, provided that they are integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate" (cf. summary of the aforementioned Decision);

A restrictive interpretation of the CIRE provision in question would be unconstitutional because it would disregard the meaning and scope of the legislative authorization granted to the Government in this matter.

The Claimant opted for not designating an arbitrator.

In accordance with the provisions of subsection a) of No. 2 of Article 6 and subsection b) of No. 1 of Article 11 of RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the arbitrator of the arbitral tribunal, who communicated acceptance of the designation within the applicable period.

The parties were notified of that designation, having manifested no intention to refuse the designation of the arbitrator, in accordance with the combined provisions of Article 11, No. 1, subsections a) and b) of RJAT and Articles 6 and 7 of the CAAD Code of Ethics.

Therefore, in conformity with the provisions of subsection c) of No. 1 of Article 11 of RJAT, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 16/02/2016.

The AT presented a reply, in which it raised the exception of material incompetence of the Arbitral Tribunal and, without dispensing with that, challenged the grounds of the request for arbitral pronouncement.

The AT alleges, in essence, the following:

A – Exception of material incompetence of the Arbitral Tribunal

a) The appreciation of matters relating to the recognition of exemptions and tax benefits are not covered within the scope of the material competence of the Arbitral Tribunal;

b) It follows from the request and the cause of action deduced that the Claimant's claim consists of the recognition that she met the requirements to enjoy the exemption provided for in No. 2 of Article 270 of the Code of Insolvency and Business Recovery (CIRE);

c) Thus it results from the provisions of Articles 2, No. 1, subsection a) and 4, both of RJAT, that the arbitral tribunal is materially incompetent to appreciate and decide on the Claimant's claim or to know of the matter relating to it;

d) The incompetence of the tribunal constitutes a dilatory exception of official knowledge that determines the dismissal of the instance in accordance with Article 576 and subsection a) of Article 577 of the Code of Civil Procedure (CPC) applicable ex vi Article 29, No. 1, subsection e) of RJAT, which the AT requests without delay.

B – Defence by challenge

e) Without dispensing with that, the AT further presents defence by challenge, considering that there is no ground whatsoever for the Claimant's claim;

f) According to the AT, the exemption provided for in No. 2 of Article 270 of the CIRE "covers all acts integrated within the scope of insolvency plans, or payment plans, or liquidation of the insolvent estate, with the reservation, however, that if the object of the exempt transmission is the company or the establishment and not one or two assets of its assets";

g) It is the understanding of the AT that "one can perfectly accept, in the interpretation of the spirit of the legislature, that although the legislative authorization was more permissive, that the legislature regarding the situation in question only intended to maintain the exemption in the case of transmission of the universality of goods associated with the exercise of the economic activity of the company";

h) In the same sense, the AT maintains that "with regard to the new wording of No. 2 of Article 270 of the CIRE, which was amended through the wording given by Article 234 of Law No. 66-B/2012, of 31/12, if the legislature made no other amendment other than adding the "recovery" plans, this means that the legislature did not intend to grant more exemptions than that which was included in the current wording";

i) Regarding the legislative authorization, the AT maintains that "[i]n authorizing the Government only to approve a set of tax benefits within the scope of insolvency and business recovery proceedings, the National Assembly granted it the possibility of approving all such tax benefits in bulk, approving only part of them or then simply not using the legislative authorization", with there being, in the case of No. 2 of Article 270 of the CIRE, a partial use of the legislative authorization granted;

j) The AT concludes that "the act in question does not suffer from any illegality, so it is impugned as unfounded, all of the alleged in the Request for Arbitral Pronouncement that contradicts the above, the Claimant's claim should be considered as unfounded and the Respondent absolved of all claims".

By order of 14/03/2016, the Tribunal decided to dispense with the holding of the meeting provided for in Article 18 of RJAT, determining that the proceedings continue with successive optional written arguments.

No arguments were presented.

II – DECISION ON PRELIMINARY MATTERS

Deciding on the exception

The object of the case is not a question of recognition of an exemption, but rather an act of tax assessment resulting from the disregard of an exemption, so the appreciation of its legality falls within Article 2, No. 1, subsection a) of RJAT.

In fact, the exemption in question is of automatic recognition, as follows from the provisions of Articles 10, No. 8, subsection d) of the IMT Code and Article 5, No. 1 of the Tax Benefits Statute, with only the tax service responsible for its verification and declaration.

Just as affirmed in arbitral case no. 123/2015-T, of 1 September 2015, in which it was decided that the arbitral tribunal has competence to annul IMT assessments where the tax benefit provided for in Article 270, No. 2 of the CIRE is disregarded, "one is faced with an exemption of automatic recognition, as results from subsection d) of No. 8 of Article 10 of the CIMT, so there did not have to be any separate act of recognition of the exemption, being at the appropriate moment for the performance of an act of assessment the Tax and Customs Authority will have to assess whether the interested party enjoys a tax benefit. Therefore, if the assessment act is injurious to the interests of the Claimant and if it is the only act performed by the tax authority on the situation, its contestability must be assured on the basis of any illegality, as follows from the principle of effective judicial protection, enshrined in Articles 20, No. 1, and 268, No. 4, of the CRP. On the other hand, the question of whether the assessment act is legal, when there is no separate act, concerns the question of whether there must or must not be a recognition of the exemption (by the Judicial Court or by the Tax and Customs Authority) are questions that relate to the legality of the assessment, which must be appreciated in the tax courts in a process of judicial challenge, as follows from subsection a) of No. 1 of Article 97 of the CPPT".

Therefore, the present tribunal considers itself to have material competence to know of the claim, so the exception of material incompetence of the tribunal raised by the AT is unfounded.

The Tribunal is duly constituted, in accordance with Articles 2, No. 1, subsection a), 5 and 6, No. 1, of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

The merits of the claim must be appreciated and decided.

III – ON THE FACTS

Proven facts

The Tribunal considers the following facts as proven:

On 23/11/2011, the Claimant purchased, within the scope of an insolvency proceeding in which the commercial company with the name "B..., Lda." was bankrupt, the rustic property described in the Land Registry of Cascais under no. ... and registered in the rustic registry under article...., section ...-..., for the price of € 130,000.00;

As part of that purchase and sale, the Claimant was exempt from the payment of IMT, based on the norm contained in Article 270, No. 2, of the CIRE;

Through official letter no...., of 01/09/2015, the Claimant was notified of the order of the Head of the Finance Service of Cascais..., dated 28/05/2015, issued following the exercise of the right to prior hearing, regarding the additional IMT assessment of which the Claimant was notified through official letter no...., of 27/07/2015, with the Claimant also being notified for payment, within 30 days, of the assessed tax, in the amount of € 6,500.

Facts not proven

With relevance to the decision, there are no essential facts not proven.

Justification of the decision on the facts

The facts were given as proven on the basis of documentary evidence.

IV – ON THE LAW

In the present case, it is necessary to ascertain whether the additional IMT assessment in question suffers from illegality due to violation of the provisions of Article 270, No. 2, of the CIRE (Code of Insolvency and Business Recovery, approved by Decree-Law No. 53/2004 and successive amendments), which provides as follows:

"Are likewise exempt from municipal tax on onerous transmissions of immovable property the acts of sale, exchange or transfer of company or establishments thereof integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate".

The literal element of Article 270, No. 2 of the CIRE determines that the IMT exemption is applicable both to sales and to exchanges, and only with respect to transfers is the transmission of a company or universality required.

According to the preamble of Decree-Law No. 53/04, of 18 March, which approved the CIRE, "the existing regimes in CPEREF are maintained, in essence, regarding the exemption of fees and tax benefits, as well as the indication of criminal infraction" (§49).

Under the terms of the diploma that approved the CPEREF (DL No. 123/93, of 23 April), "in addition to quite favorable treatment of the two proceedings covered by the diploma in the field of court costs, a set of incentives of a fiscal nature is also adopted in this decree-law, through which an attempt is made especially to avoid undue penalties or serious inconveniences for the legal, economic or financial operations in which the recovery process may unfold".

Still according to this diploma, "[s]ome charges of a fiscal or parafiscal nature related to the legal business capable of constituting the approved means of recovery were removed with that intention, namely with a view to the stamp duty, the municipal contribution, the municipal tax on transfers and the fees themselves due for the acts".

Thus, it is contrary to the purpose intended by the legislature – maintenance in essence of the existing regimes in CPEREF regarding the exemption of fees and tax benefits – the understanding that the sales of elements of the company's assets would be excluded from IMT exemption, even if integrated within the scope of the insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate.

In the words of the Supreme Administrative Court, in a Decision issued on 30 May 2012 (Case No. 0949/11):

"This interpretation [followed by the Tax Authority in this case] clashes, however - as well observed in the appealed judgment -, with what the legislature recorded in No. 49 of the preamble of the CIRE regarding tax benefits, where it states that: "the existing regimes in CPEREF are maintained, in essence, regarding the exemption of fees and tax benefits" and it is certain that subsection c) of No. 2 of Article 121 of the CPEREF exempted from municipal tax on transfers the transmissions of immovable property".

The understanding expressed by the Supreme Administrative Court is also subscribed to, in the Decision of 17 December 2014 (Case No. 01085/14), according to which:

"Taking into account the purpose that the legislature intends to achieve with the granting of such exemption, - to promote and support the quick sale of the goods that make up the insolvent estate for obvious reasons of interest of the creditors, but also of the public interest in the resumption of the normal functioning of the business world in which each insolvency proceeding presents itself as a disturbing element, giving a "bonus" to whoever acquires the immovable property that makes up the insolvent estate – buy these goods that you buy cheaper because you don't have to pay the IMT that would be due on the acquisition of similar immovable property outside the insolvency proceeding – and that will be sold in the liquidation phase, the ambiguous text of No. 2 of Article 270 can be subject to a clearer and more unequivocal 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 one is selling globally the company with all its assets and liabilities, whether one is selling one or more of the commercial establishments that comprised it, whether one is selling assets that comprised its patrimony but were not used in its commercial activity – for example an immovable property received in payment of a debt of which the insolvent company was creditor – for us to be faced with a sale that is carried out within the scope of the liquidation of the insolvent estate? And, if in the same situations it is not sales but exchanges or transfers – it being that this word must have been used in an improper sense insofar as associated with the business world it usually refers to the transfer of exploitation, transfer of the commercial establishment, close to leasing and not to alienation, and in the Code of Insolvency and Business Recovery it is also shown used regarding the acquisition of goods by creditors? We believe that the answer cannot but be negative".

An interpretation of the provisions of Article 270, No. 2 of the CIRE in conformity with the Constitution of the Portuguese Republic points in the same direction.

Indeed, as is affirmed in the Decision of the Supreme Administrative Court, of 30 May 2012 (Case No. 0949/11):

"No. 2 of Article 270 of the CIRE, whose wording is not clear with regard to the scope of the IMT exemption therein provided, must be interpreted in conformity with subsection c) of No. 3 of Article 9 of Law No. 39/2003, of 22 August, because between two meanings of the law, both with support - at least minimal - in its wording, should the interpreter opt for the one that makes it compatible with the constitutional text (interpretation in conformity with the constitution) [thus] it should be understood that not only the sales of the company or establishments thereof are exempt from IMT as universalities of goods, but also the sales of elements of its assets, provided that they are integrated within the scope of the insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate".

In the same sense, the Supreme Administrative Court also ruled in the Decision of 3 July 2013 (Case No. 0765/13) in which it was decided that:

"No. 2 of Article 270 of the CIRE, whose wording is not clear with regard to the scope of the IMT exemption therein provided, could, at most, be interpreted as covering not only the sales of the company or establishments thereof as a universality of goods, but also the sales of elements of its assets, provided that they are integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate".

It is concluded, thus, on the merits of the request to annul the act of IMT assessment contested, with all legal consequences.

V – DECISION

In accordance with the above, this Arbitral Tribunal decides:

a) That the exception raised by the AT is unfounded;

b) That the request for arbitral pronouncement is well-founded;

c) To annul, with all legal effects, the act of IMT assessment in question in the present case.

Value of the case

In accordance with the provisions of Article 306, No. 2, of the CPC and 97-A, No. 1, subsection a), of the CPPT and No. 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 6,500.00.

Costs

Under the terms of Article 22, No. 4, of RJAT, the amount of costs is fixed at € 612.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, with payment thereof being charged to the Tax and Customs Authority.

Lisbon, 12/05/2016

The Arbitrator

(Paulo Nogueira da Costa)

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) due on the sale of individual assets during insolvency liquidation in Portugal?
Whether IMT is due on individual asset sales during insolvency liquidation depends on the interpretation of Article 270(2) CIRE. The Tax Authority argued IMT applies because the exemption only covers sales of companies or establishments as universalities, not separate assets. The claimant contended the exemption should apply to all asset sales within insolvency liquidation, supported by Supreme Administrative Court precedent. The Tribunal proceeded to examine the merits after rejecting the jurisdiction challenge.
How does Article 270(2) of the Portuguese Insolvency Code (CIRE) apply to IMT exemptions?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides IMT exemption for transmissions within insolvency plans, payment plans, or liquidation of the insolvent estate. The Tax Authority interpreted this restrictively to require sale of the company or establishment as a whole. The claimant advocated a broader interpretation covering individual asset sales during insolvency proceedings, consistent with Supreme Administrative Court jurisprudence from 2012 that expanded the exemption beyond universalities to include elements of company assets sold within the insolvency framework.
Can a taxpayer challenge an additional IMT assessment through CAAD tax arbitration?
Yes, taxpayers can challenge additional IMT assessments through CAAD tax arbitration under Article 2(1)(a) of the Legal Regime of Tax Arbitration (RJAT). The Tribunal rejected the Tax Authority's argument that CAAD lacks jurisdiction over exemption matters, clarifying that Article 270(2) CIRE provides an automatic exemption under Article 10(8)(d) of the IMT Code. When challenging an assessment act that disregarded this automatic exemption, the dispute concerns the legality of the tax assessment itself, not a separate exemption recognition procedure, placing it squarely within CAAD's material competence.
What did the Supreme Administrative Court rule on IMT exemptions for asset sales in insolvency proceedings?
The Supreme Administrative Court ruled in its decision of May 30, 2012, that Article 270(2) CIRE should be interpreted broadly. While acknowledging the provision's wording is not entirely clear, the Court concluded the exemption applies not only to sales of companies or establishments as universalities but also to sales of individual elements of company assets, provided they occur within insolvency plans, payment plans, or liquidation of the insolvent estate. This expansive interpretation supported the claimant's position in the arbitration.
Does the CAAD Arbitral Tribunal have jurisdiction to review IMT exemption disputes under the RJAT?
Yes, the CAAD Arbitral Tribunal has jurisdiction to review IMT exemption disputes under RJAT when framed as challenges to assessment acts. The Tribunal distinguished between exemptions requiring separate recognition procedures and automatic exemptions verified during assessment. Since Article 270(2) CIRE provides an automatic exemption under Article 10(8)(d) of the IMT Code and Article 5(1) of the Tax Benefits Statute, no separate recognition act is required. The Tax Authority's assessment disregarding this exemption is challengeable under Article 2(1)(a) RJAT, ensuring effective judicial protection for taxpayers.