Process: 675/2016-T

Date: March 24, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 675/2016-T) addresses the scope of IMT exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) for property acquired from insolvent estates. The claimant, A..., S.A., challenged an IMT assessment of €3,638.84 on a property purchased from an insolvent estate, arguing that the exemption applies to all real estate transfers from insolvency proceedings, not only when property is part of a business or establishment sale. The claimant contended that literal interpretation of Article 270(2) CIRE supports broader exemption, consistent with the legislator's intent to implement 'common sacrifice' principles by reducing State tax privileges in insolvency to maximize creditor recovery. The argument emphasized that lower transaction costs increase net proceeds for creditors, reflecting social solidarity principles underlying insolvency law reforms. The Tax Authority failed to respond or present the administrative file, a procedural default that can impact the tribunal's assessment. This case illustrates the interpretation of tax exemptions in insolvency contexts and the balance between fiscal revenue and creditor protection policies in Portuguese tax law.

Full Decision

ARBITRAL DECISION

1. Report

1.1 "A…, S.A.", hereinafter referred to as the "Claimant", taxpayer no. …, with registered office at …, no. …, in Porto, requested the constitution of a singular arbitral tribunal, pursuant to the combined provisions of article 2, no. 1, subparagraph a) and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to only as "LRTA") and articles 1 and 2 of Order no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (TCA) is the Respondent.

1.2 The request for arbitral decision, presented on 09 November 2016, has as its object the decision of dismissal by the Head of the Sintra Finance Service…, of 31-08-2016, rendered in the administrative appeal process no. …2016… and the consequent annulment of the assessment of municipal tax on onerous transfers of immovable property (IMT), of 17-02-2016, in the amount of 3,638.84 €, concerning the purchase, effected on 26-08-2013, of the autonomous fraction identified by the letter "O" of the urban building constituted under the horizontal property regime, located at Rua…, nos. … to …, of the extinct parish of … (currently parish of … and …), municipality of Sintra, registered in the respective property matrix under the article…, in which the insolvent estate of the company "B…, SA", taxpayer no. … was the seller.

1.3 The Claimant opted not to appoint an arbitrator.

1.4 The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the TCA on 28 November 2016.

1.5 The signatory was appointed by the President of the Deontological Council of CAAD as arbitrator of the singular arbitral tribunal, pursuant to the provisions of article 6 of the LRTA, and acceptance of the assignment was communicated within the applicable period.

1.6 On 11 January 2017, the Parties were notified of this appointment, and raised no objection thereto, pursuant to the combined provisions of article 11, no. 1, subparagraphs a) and b) of the LRTA and articles 6 and 7 of CAAD's Deontological Code.

1.7 Thus, in accordance with the provision of subparagraph c) of no. 1 of article 11 of the LRTA, the singular arbitral tribunal was constituted on 26 January 2017.

1.8 The Respondent was notified, by arbitral order of 26 January 2017, to, pursuant to article 17, no. 1 of the LRTA and within the period of 30 days, submit a response and, if so desired, request the production of additional evidence.

1.9 She was further notified to, within the same period, present the administrative file (AF) referred to in article 111 of the Code of Tax Procedure and Process (CTPP).

1.10 However, the Respondent neither responded to the request for arbitral decision nor presented the administrative file.

1.11 Considering that the Claimant did not request the production of any evidence other than documentary evidence, cf. documents (eight) attached to the request for arbitral decision, the Arbitral Tribunal, given the principles of autonomy in case management, speed, simplification and procedural informality, inherent in no. 2 of articles 19 and 29 of the LRTA, by order of 06 March 2017, notified to the Parties on the same date, dispensed with the holding of the meeting provided for in article 18 of the same decree as well as the presentation of arguments.

1.12 It was further determined that the final arbitral decision would be rendered within ten days from said order.

2. Sanitation

2.1 The Parties possess legal personality and capacity, are legitimate, and are regularly represented (articles 4 and 10, no. 2 of the LRTA and article 1 of Order no. 112-A/2011, of 22 March).

2.2 The case does not suffer from any nullities.

2.3 The Arbitral Tribunal is regularly constituted and is materially competent to hear and decide on the request, cf. article 2, no. 1, subparagraph a) of the LRTA.

2.4 No other circumstances exist that prevent the tribunal from considering the merits of the case.

3. Position of the Claimant

The Claimant supports its request for arbitral decision, briefly summarized, as follows:

The controversial issue lies in determining whether no. 2 of article 270 of the ICBR is applicable, in the context of insolvency plans or payment plans carried out within the liquidation of the insolvent estate, only to the transfer of immovable property, whose sale occurs by reason of selling or exchanging or transferring the business or establishment in which the immovable property (transferred) is integrated, or, as is its understanding, whether such exemption extends to immovable property transferred by sale or exchange, when not integrated in the sale, exchange or transfer of the business or establishment.

That a mere analysis of the letter of the Law already suggests that the second proposition is the correct one, not least because if the legislator's objective were to, in the matter at hand, exempt only the transfers of immovable property related to businesses or establishments sold, exchanged or transferred from IMT, then it would have sufficed for it to refer – and it did not – that only the transfer of immovable property when integrated in the sale, exchange or transfer of the business or establishment enjoyed exemption from IMT.

That in the context of the Code of Special Procedures for Business Recovery and Bankruptcies (CSPRBB), when the legislator reviewed the position of privileged creditors, resulting in "the most significant privileges of the State and Local Authorities ceasing to be invocable in the bankruptcy proceeding…" it did so – as mentioned by Carvalho Fernandes and João Labareda in annotation to article 97 of the ICBR, and as can be read in the Preamble of the respective decree – with the awareness that it was necessary to "set an example of participation in common sacrifice".

And it is precisely this notion of common sacrifice and social solidarity in protecting the position of those who, as a result of their debtors' insolvency, see the probability of receiving their credits lost or greatly reduced and their own solvency threatened, that led the legislator to create incentives for the recovery of revenues for those creditors, through, in particular, the grant of tax advantages to those who acquire assets integrated in insolvent estates, among which stands out the exemption from stamp duty (now IMT) on the transfer of immovable property.

That immovable property, like everything in general, is sold at the price someone accepts to pay for it, necessarily including the price and all price accessories, in particular fiscal costs, notarial fees or others that the acquirer must bear in order to acquire the asset.

For which reason, the higher the "accessory" costs, the lower the price, that is, the value destined for creditors, or, alternatively, the longer the period of time necessary for the sale.

And it was in order to attempt to optimize, in value and in timeframe (in the context of insolvency plans or payment plans or the liquidation of the insolvent estate) the obtaining of revenues destined for the creditors (including the State) of the insolvent estate, that the legislator provided already in the CSPRBB (in subparagraph c) of no. 2 of its article 121) the exemption from stamp duty for situations equivalent to the one now contested.

A solution which, for the same substantive reasons, the legislator intended to maintain in the ICBR through no. 2 of its article 270, reflecting these provisions, in the systematic analysis of these legal instruments, the principles of equity and social solidarity that, in this matter, guided both instruments.

Being possible to state that, in its relation with the State, the principles of social solidarity, underlying the ICBR, find their legal consecration with regard to the chapter on credit claims, in the loss (albeit partial) of privileges of State credits and, as concerns the chapter of revenues, or better, in the fostering of the maximization of revenues destined for creditors, in the stamp duty and IMT exemptions consecrated.

Otherwise, the State would have in IMT a sort of privilege, which would assure it an alternative and exclusive source of revenues, benefiting it in relation to other creditors (secured, ordinary or even privileged), contrary to the principles of social solidarity that guided this legal regime and, in particular, to the sense and extent of the legislative authorization that legitimizes the ICBR.

It emphasizes that, in the context of IMT exemption, despite the less felicitous wording of article 270 of the ICBR, the legislator merely intended to establish for the ICBR a regime equivalent to that which already resulted from subparagraph c) of no. 2 of article 121 of the CSPRBB, as it expressly states in no. 49 of the Preamble of Decree-Law no. 53/2004, of 18 March, where it refers that "the regimes existing in the CSPRBB regarding the exemption of notarial fees and tax benefits are maintained in essence".

Therefore, if no. 2 of article 270 of the ICBR were interpreted in the sense that the transfer of immovable property in the context of the liquidation of the insolvent estate or of insolvency plans or payment plans is subject to IMT, then the proposition contained in said no. 49 of said Preamble would, without more, become false.

Thus, the interpretation that the Tax Administration seeks to impose does not prevail, perhaps ignoring how much more punitive it is for the State to make difficult the re-entry into the market of assets of insolvent estates, in particular, by their economic significance, of immovable property, and the delaying of the (possible) satisfaction of creditors, they themselves, as a rule, with serious liquidity problems.

It concludes, by advocating for the granting of the request for arbitral decision and thereby for the annulment of the impugned assessment with all the legal consequences provided for.

4. Rationale

4.1 Established Facts

With relevance for the appreciation and decision of the substantive issue raised, the following facts are established and proven:

4.1.1 By public deed of purchase and sale executed on 26 August 2013, at the Notarial Office of notary Dr. C…, at Avenida…, no. …, …, in Lisbon, the Claimant herein acquired, for the price of 167,100.00 €, the autonomous fraction identified by the letter "O" of the urban building constituted under the horizontal property regime, located at Rua…, nos. … to …, of the extinct parish of … (currently parish of … and …), municipality of Sintra, registered in the respective property matrix under the article…, with the tax patrimonial value of 165,810.00 €, and described in the First Land Registration Office of … under no. … (cf. doc. 1 attached to the p.i., the contents of which are hereby reproduced in full).

4.1.2 The said immovable property was acquired from the Insolvent Estate of the company "B…, SA – In Liquidation", taxpayer no. …, of which it forms part, in the context of the insolvency proceeding that took place at the … Court of the Commercial Court of Lisbon under no. …/12… TYLSB (cf. doc. 1 attached to the p.i., the contents of which are hereby reproduced in full).

4.1.3 On 23 August 2013, the TCA issued document no. …, following the model 1 declaration for IMT, presented pursuant to no. 1 of article 19 of the CIMT (registration no. 2013/…) with a view to the execution of the said notarial deed, which contains: "(…) Property Seller – 1 – Tax Identification: …– Name: B… S.A.– In Liquidation – Share: 1/1 – No. Assessment: …– Tax Patrimonial Value IMT: € 165,810.00 – Benefits: 59 Insolvency and Business Recovery Code – Transfers integrated in Insolvency Plans or Payment Plans (Art. 270, nos. 1 and 2 of DL 53/04) – 100% on the Taxable Base: € 167,100.00 – Rate: 6.50 % - Assessment: € 0.00" (cf. doc. 2).

4.1.4 The Claimant was notified, cf. letter no. … of the Sintra Finance Service … (…), of 01-10-2015, to, within the period of 15 days, express his view, if so desired, pursuant to article 60 of the General Tax Law, on the intention of that finance service to proceed with an additional assessment of IMT in the amount of 3,638.84 €, with the following grounds: (cf. doc. 3)

"(…) The exemption from Municipal Tax on Transfers of Immovable Property (IMT) and Stamp Duty (SD) was granted pursuant to articles 270, no. 2 and 269, subparagraph e) of the Insolvency and Business Recovery Code (ICBR).

It has now been verified that the purchaser did not buy the entirety of the immovable property of the insolvent company, therefore does not benefit from the IMT exemption of article 270, no. 2 of the ICBR.

Therefore, this Service will proceed with the assessment owed pursuant to the general rules, as per the demonstrative table below:

Demonstrative Table of IMT Assessment

Article Parish Taxable Base Share Rate (%) Deductible Amount Assessment Due Prior Assessment Amount Due
…-O … (extinct) 167,100.00 1/1 5.0 4,716.16 3,638.84 0.00 3,638.84

4.1.5 On 17-02-2016 the IMT assessment was made, in the precise terms and grounds contained in the above-mentioned notification, with payment due date of 18-02-2016, pursuant to single collection document no. … (cf. doc. 5).

4.1.6 Payment of the assessed tax was made on 18-02-2016 (cf. doc. 4).

4.1.7 The assessment was the subject of an administrative appeal, as per administrative appeal process no. …, dismissed on the merits, by order of the Head of the Sintra Finance Service …, of 31-08-2016.

4.1.8 Which was notified to the Claimant by letter no. …, of 02-09-2016, and received on 07-09-2016 (cf. doc. 8).

4.2 Unproven Facts

There are no facts relevant to the decision of the case that should be considered unproven.

4.3 Reasoning

Regarding the factual matter, the Tribunal does not have the duty to rule on all the facts alleged, but rather has the duty to select those that are relevant to the decision, taking into consideration the cause (or causes) of action that grounds the claim filed by the claimant [(cf. articles 596, no. 1 and 607, nos. 2 to 4 of the CCP, applicable by virtue of article 29, no. 1, subparagraphs a) and e) of the LRTA)] and to establish whether it considers it proven or unproven (cf. article 123, no. 2 of the CTPP).

According to the principle of free evaluation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and assessment it makes of the means of proof brought to the proceeding and in accordance with its life experience (cf. article 607, no. 5 of the CCP). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents, cf. article 371 of the Civil Code) does the principle of free evaluation not dominate in the assessment of the evidence produced.

Thus, the Tribunal's conviction was based on the documentary file attached to the proceedings as well as on the position assumed by the Claimant.

5. Matter of Law (Rationale)

The following are the questions that constitute the thema decidendum:

  • On the illegality of the assessment due to error as to the legal grounds; and

  • On the request for payment of indemnatory interest.

5.1 On the Illegality of the Impugned Assessment Due to Error as to Legal Grounds

The controversial issue in the present arbitral action relates to the interpretation of the provision in no. 2 of article 270 of the ICBR, in particular as to whether all acquisitions of immovable property in the context of insolvency and business recovery proceedings are exempt from IMT or only those that occur in the context of the acquisition of businesses or commercial establishments.

No. 2 of article 270 of the ICBR, in its current wording, provides as follows:

"Equally exempt from municipal tax on onerous transfers of immovable property are acts of sale, exchange or transfer of the business or establishments thereof, integrated in the context of insolvency plans, payment plans or recovery, or carried out in the context of the liquidation of the insolvent estate".

The Claimant understands that this rule should be interpreted in the sense that the IMT exemption is granted, both in the context of operations of total or partial acquisition of the business subject to the insolvency proceeding, as well as to mere acts of acquisition of immovable property considered in isolation carried out in the asset liquidation phase of the same.

And the Claimant is correct, it must be said from the outset, since this interpretation is the one that best serves the teleology of no. 2 of article 270 of the ICBR, which is to foster and support the swift sale of the assets that make up the insolvent estate for obvious reasons of creditor interest, 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 disruptive element, by granting tax incentives to those who acquire the immovable property that makes up the insolvent estate and that will be sold in the liquidation phase – there being no reason, in that light, to distinguish situations where the business is being sold as a whole with all its assets and liabilities, from situations where one or more of the commercial establishments that comprised it are being sold, or from situations where immovable property that formed part of its assets is being sold (cf. order of the Supreme Administrative Court of 18 November 2015, Case no. 01067/15).

This question has already been extensively dealt with both by the Supreme Administrative Court and by CAAD, not warranting a different response in the present proceedings from that which has been found throughout dozens of orders and arbitral decisions already rendered, since no relevant legislative amendment has occurred and the factual situation has been essentially the same.

From the jurisprudence of the Supreme Administrative Court, we mention, among others, the orders rendered in the following cases: 949/11, of 30-05-2012; 765/13, of 03-07-2013; 968/13, of 11-11-2015; 1085/13, of 17-12-2014; 788/14, of 16-08-2016; 575/15, of 18-11-2015; 1067/15, of 18-11-2015; 1345/15, of 16-12-2015; 1350/15, of 20-01-2016; 724/16, of 01-02-2017; 793/16, of 15-02-2017; 1159/16, of 25-01-2017.

We transcribe below part of the order rendered in this latter case, which we fully endorse:

"Thus, the issue that needs to be appreciated and decided is whether (the appealed sentence correctly judged in considering that) the acquisition in question was exempt from IMT pursuant to article 270 of the ICBR, approved by Decree-Law no. 53/2004, of 18 March, which, as we shall endeavor to demonstrate, involves inquiring whether the said exemption operates only in relation to sales, exchanges or transfers of businesses or establishments as a whole, as the Appellant [Public Treasury] contends, or also in relation to sales, exchanges or transfers of immovable property (as elements of its assets), provided they are framed in the context of an insolvency or payment plan, or carried out in the context of the liquidation of the insolvent estate, as the appealed sentence held.

(…) The issue is not new and has been dealt with repeatedly and uniformly in this Court, therefore we shall limit ourselves to referring to the rationale set forth in one of the most recent such orders, that of 16 December 2015, rendered in case no. 1345/15.

Thus, and we quote, '[the] appealed sentence, at fls. […] of the proceedings, held that the impugnation filed by the appellant against an IMT assessment concerning the acquisition of property in the asset liquidation phase in an insolvency proceeding was well-founded, annulling the impugned assessment act and condemning the Administration to refund the tax unduly paid plus indemnatory interest, on the understanding that such acquisition is covered by the exemption provision contained in no. 2 of article 270 of the ICBR.

The decision was based on the order of this Supreme Administrative Court of 30 May 2012, case no. 0949/11, to which it referred and from which it transcribed […].

The Public Treasury disagrees with the decision, arguing that the prerequisites for fulfilling the requirements that determine the obtaining of the exemption benefit were not met by the acquirer, since it did not acquire the business or establishment thereof and that the provision of article 270, no. 2 of the ICBR, even through an extensive interpretation, does not contemplate the simple and straightforward sale of elements of the business assets.

However, the appellant provides no reason that would shake our conviction that the appealed sentence correctly judged in adopting the interpretation of article 270, no. 2 of the ICBR that has been peacefully and repeatedly adopted by this Supreme Administrative Court since the Order mentioned in the appealed sentence – cf. besides the orders already cited in the opinion of the Excellent Deputy Attorney General before this Supreme Administrative Court above transcribed, the recent Orders of 11 November 2015, Case no. 0968/13 and of 18 November 2015, Cases nos. 0575/15 and 1067/15 –, and the fact that the TCA has an interpretation of the provision that differs from the jurisprudence of the Supreme Administrative Court – which it may even have included in recent information 1/2014 of the DSIMT and provided to the Bar Association of Notaries (cf. appeal arguments at fls. 67, verso and 68 of the proceedings) – is not a reason to set aside the understanding that has been adopted and which is reaffirmed here, since it constitutes what best adapts the legal text to the sense and extent of the legislative authorization under which the norm was emanated by the Government in a matter reserved to the Parliament and because that interpretation is the one that best serves the teleology of no. 2 of article 270 of the ICBR – 'to foster and support the swift sale of assets that make up the insolvent estate for obvious reasons of creditor interest, but also of the public interest in the resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element', granting tax incentives to those who acquire the immovable property that makes up the insolvent estate and that will be sold in the liquidation phase – there being no reason, in that light, to distinguish situations where the business is being sold as a whole with all its assets and liabilities, from situations where one or more of the commercial establishments that comprised it are being sold, or from situations where immovable property that formed part of its assets is being sold (cf. the Order of the Supreme Administrative Court of 18 November last, Case no. 01067/15).

It is concluded, therefore, that there is nothing to censure in the appealed sentence which correctly judged, and the Public Treasury's appeal is doomed to fail'.

From the arbitral jurisprudence we may mention, among others, the decisions rendered in the following cases: 764/2014, of 29-05-2015; 95/2015, of 09-06-2015; 99/2015, of 27-10-2015; 123/2015, of 01-09-2015; 137/2016, of 07-11-2016; 138/2016, of 10-10-2016; 224/2016, of 02-12-2016; 229/2016, of 13-12-2016; 283/2016, of 08-11-2016; 286/2016, of 17-10-2016; 295/2016, of 06-01-2017; 321/2016, of 01-11-2016; 371/2016, of 11-10-2016; 350/2016, of 12-11-2016; and 511/2016, of 28-12-2016.

We transcribe below part of the arbitral order rendered in Case no. 138/2016, of 10-10-2016, which we support and with which we concur:

"(…) The CSPRBB, the instrument that preceded the ICBR, provided, in no. 2 of article 121, an exemption from stamp duty for 'the transfers of immovable property, integrated in any of the business recovery measures, which result from (…) the sale, exchange or transfer of elements of the business assets (…)'. There were, therefore, no doubts that the exemption applied to the isolated sale of immovable property that occurred in the context of business recovery proceedings.

Later, Law no. 39/2003, of 22 August, authorized the Government to legislate on the insolvency of natural and legal persons, repealing the CSPRBB. The new legal regime should place emphasis on the satisfaction of creditors, whether through the liquidation of assets or through an insolvency plan (cf. article 1, no. 2 of Law no. 39/2003). In terms of tax benefits, no. 3 of article 9 of Law no. 39/2003 authorized the Government 'to exempt from municipal stamp tax the following transfers of immovable property, integrated in any insolvency or payment plan or carried out in the context of the liquidation of the insolvent estate: (…) those which result from (…) the sale, exchange or transfer of the business, establishments or elements of its assets (…)'. Thus, Law no. 39/2003 was even more favorable to the transfer of immovable property included in the insolvent estate than the CSPRBB in that it did not restrict the exemption from taxation to transfers of immovable property that could take place in a business recovery context, extending it also to transfers that took place in a context of liquidation of the insolvent business or its establishments'.

The same order notes that the Supreme Administrative Court (Supreme Administrative Court) had the opportunity to, on several occasions, clarify what should be regarded as the ratio legis of the legal provision under analysis, citing, by way of example, the Order of 17.12.2014, Case 01085/13, where it is mentioned that 'account must be taken of the purpose the legislator intended to achieve with the grant of such exemption, 'to foster and support the swift sale of assets that make up the insolvent estate for obvious reasons of creditor interest, but also of the public interest in the resumption of normal functioning of the business world in which each insolvency proceeding presents itself as a disruptive element', granting tax incentives to those who acquire the immovable property that makes up the insolvent estate and that will be sold in the liquidation phase. There being no reason to differentiate, for this purpose, situations where the business is being sold as a whole with all its assets and liabilities, from situations where one or more of the commercial establishments that comprised it are being sold, or from situations where immovable property that formed part of its assets is being sold. The purpose that presides over the teleology of the norm will be equally pursued when the acquisition has as its object elements of the business assets, without it being necessary for the object to be the business or establishments thereof integrated in the context of an insolvency plan.'

Finally, the illustrious Arbitrators mention that '(…) it is further important to consider the systematic element to determine the meaning of the provision in question, not least because the IMT exemption provided for in no. 2 of article 270 of the ICBR is not the only one provided for operations of onerous transfer of immovable property that take place in the context of the insolvency proceeding, being accompanied by the exemption also from IMT provided for in no. 1 of article 270 of the ICBR and by the exemption from stamp duty provided for in subparagraphs d) and e) of article 269 of the ICBR. It happens that both one and the other apply, clearly, both to the transfer of immovable property carried out together with the business or establishment of which they form part, and to the isolated transfer of immovable property. Also from this perspective, therefore, it appears that the interpretation according to which the IMT exemption provided for in no. 2 of article 270 of the ICBR encompasses the transfer of immovable property when carried out together with the business or establishment of which they form part or when carried out in isolation is the most consonant with the overall spirit of the legal system.

In conclusion, they state, …in light of the doubts raised by the lack of clarity in the verbal statement of the provision in question, recourse to the historical, teleological and systematic elements makes it possible to conclude with certainty that the IMT exemption provided for by no. 2 of article 270 of the ICBR applies, not only to sales or exchanges of businesses or establishments as a whole, but also to sales and exchanges of immovable property (as elements of its assets), provided they are framed in the context of an insolvency or payment plan, or carried out in the context of the liquidation of the insolvent estate.

This has also been the understanding of the majority jurisprudence of the arbitral courts constituted with CAAD, as exemplified by the order rendered in case no. 123/2015T, of 01.09.2015, where one can read, on the interpretation being defended here, that 'In addition to this interpretation, allowed by the literal tenor of no. 2 of article 270 of the ICBR, being manifestly the one that harmonizes with the teleology of the mode of exemption identified, which is to encourage acquisitions of assets of the insolvent business, in the case at hand the sale was effected to creditors of the insolvent business, therefore one is faced with a situation whose economic substance is essentially identical to those of situations of performance of assets of the business or of transfer of assets to creditors, which are expressly provided for in subparagraph 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 business, the economic substance, which article 11, no. 3, of the General Tax Law orders to be considered in the interpretation of tax incidence rules, would always impose that one understand that these are situations covered by the exemption, so that, if the situation did not fall within no. 2 of article 270 of the ICBR, it would always be covered, by extensive interpretation in no. 1 of the same article.'

Faced with the consolidated jurisprudence above transcribed, to which full adherence is given, since it is important to contribute to a uniform interpretation and application of the Law (article 8, no. 3 of the Civil Code), it is necessary to conclude that the provision in no. 2 of article 270 of the ICBR encompasses operations of transfer of immovable property of the insolvent estate that take place in an isolated manner, that is, not integrated in the transfer of the business or a commercial establishment, as well as those that take place in the context of these more comprehensive transfers.

In view of the foregoing, the contested assessment suffers from the vice of error as to the legal grounds, embodied in the violation of no. 2 of article 270 of the ICBR, which determines the declaration of illegality and consequent annulment of the impugned assessment, necessitating its annulment.

5.2 On the Request for Payment of Indemnatory Interest

The Claimant further requests that it be paid indemnatory interest, due to an error of the services, pursuant to no. 1 of article 43 of the General Tax Law (GTL), having proven that it paid the assessed amount, in the sum of 3,638.84 €.

This provision, applicable subsidiarily to the tax arbitral proceeding, by virtue of the provision in article 29, no. 1, subparagraph a), of the LRTA, states "Indemnatory interest is due when it is determined, in an administrative appeal or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally owed."

An error attributable to the services is considered to exist, according to uniform jurisprudence of the Supreme Administrative Court[1], whenever they proceed with an administrative appeal or judicial challenge of the assessment act (in the same sense, the decision in arbitral case no. 218/2013-T).

Having established the illegality of the impugned assessment, which justifies its annulment, the Claimant's right to indemnatory interest is recognized at the legal supplementary rate, pursuant to articles 43, nos. 1 and 4, and 35, no. 10, of the GTL, article 559 of the Civil Code and Order no. 291/2003, of 8 April, from the date of actual payment of the tax until the date of processing of the respective tax credit note, in accordance with the provision in no. 5 of article 61 of the CTPP.

6. Decision

In view of the foregoing, the Tribunal decides:

a) To hold that the request for annulment of the order of the Head of the Sintra Finance Service… (…), of 31-08-2016, rendered in administrative appeal process no. …2016… is well-founded;

b) To hold that the request for annulment of the assessment of municipal tax on onerous transfers of immovable property (IMT), of 17-02-2016, in the amount of 3,638.84 €, concerning the purchase that the Claimant made on 26-08-2013 of the autonomous fraction identified by the letter "O" of the urban building constituted under the horizontal property regime, located at Rua…, nos. … to …, of the extinct parish of … (currently parish of … and …), municipality of Sintra, registered in the respective property matrix under the article…, in which the insolvent estate of the company "B…, SA", taxpayer no. … was the seller, is well-founded;

c) To hold that the request for the condemnation of the Tax and Customs Authority to reimburse the amount unduly paid by the Claimant, in the sum of 3,638.84 €, plus indemnatory interest, at the legal rate, from the date of such payment until the date of issuance of the respective tax credit note, is well-founded;

d) To condemn the Respondent in the costs of the proceeding, fixed below.

7. Value of the Proceeding

In accordance with the provision in articles 306, no. 2, of the CCP, 97-A, no. 1, subparagraph a) of the CTPP and 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCTAP), the value of the proceeding is fixed at 3,638.84 €.

8. Costs

Pursuant to article 22, no. 4 of the LRTA, the amount of costs is fixed at 612.00 €, in accordance with Table I, attached to the RCTAP, to be borne by the Tax and Customs Authority.

Let notice be given.

Lisbon, 24 March 2017.

The Arbitrator,

(Rui Ferreira Rodrigues)

Text prepared by computer, pursuant to the provision in article 131, no. 5, of the CCP, applicable by referral of article 29, no. 1, subparagraph e), of the LRTA.

[1] Orders of the Supreme Administrative Court of 22-05-2002, Case no. 457/02; of 31.10.2001, Case no. 26167; of 2.12.2009, Case no. 0892/09

Frequently Asked Questions

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What is the IMT tax exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides an exemption from IMT (Municipal Tax on Onerous Transfers of Immovable Property) for certain transfers of real estate from insolvent estates. The key interpretive issue is whether this exemption applies only when property is transferred as part of a business or establishment sale, or to all property transfers from insolvency proceedings. The exemption reflects legislative policy to maximize creditor recovery by reducing transaction costs, based on principles of common sacrifice and social solidarity, whereby the State reduces its tax privileges to facilitate asset liquidation and optimize proceeds distributed to creditors.
Can property purchased from an insolvent estate qualify for IMT exemption in Portugal?
Yes, property purchased from an insolvent estate can qualify for IMT exemption under Article 270(2) CIRE, though the scope is disputed. Purchasers argue the exemption applies to all real estate acquired from insolvency proceedings, whether through insolvency plans, payment plans, or estate liquidation. This interpretation aligns with the predecessor law (CSPRBB Article 121(2)(c)) which provided stamp duty exemption for similar situations. The exemption aims to reduce acquisition costs, thereby increasing sale prices and maximizing recovery for creditors. Claimants should invoke Article 270(2) CIRE when challenging IMT assessments on properties acquired from insolvent estates, supported by literal interpretation and legislative intent.
What happens when the Tax Authority fails to respond in a CAAD arbitration proceeding?
When the Tax Authority fails to respond in CAAD arbitration proceedings, the tribunal proceeds without the TCA's defense or administrative file. Under Articles 17 and 111 CTPP, the TCA is notified to submit a response and present the administrative file within 30 days. Failure to comply means the arbitral tribunal decides based solely on the claimant's evidence and arguments. This procedural default can significantly strengthen the claimant's position, as the tribunal may proceed under principles of procedural autonomy, speed, and informality (Article 19 and 29 LRTA), potentially dispensing with hearings when only documentary evidence exists. The TCA's absence does not automatically grant the claim but removes contradictory evidence and legal arguments from consideration.
How do you challenge an IMT tax assessment through gracious complaint and arbitration in Portugal?
To challenge an IMT assessment in Portugal, first file a gracious complaint (reclamação graciosa) with the competent Finance Service within 120 days of notification. If dismissed, taxpayers can request CAAD arbitration under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (LRTA). The arbitration request must be filed within 90 days of the dismissal decision. The process involves: (1) submitting the arbitration request identifying the contested act and legal grounds; (2) paying the arbitration fee; (3) constitution of singular or collective arbitral tribunal; (4) TCA's response period (30 days); (5) evidence phase; (6) optional hearing; and (7) final arbitral decision. Claimants can opt not to appoint an arbitrator, allowing CAAD's President to make the appointment.
What are the requirements for claiming IMT exemption on real estate transfers in insolvency proceedings?
To claim IMT exemption on real estate transfers in insolvency proceedings under Article 270(2) CIRE, taxpayers must demonstrate: (1) the seller is an insolvent estate under CIRE proceedings; (2) the transfer occurs within the context of an insolvency plan, payment plan, or liquidation of the insolvent estate; and (3) the transaction qualifies as a sale or exchange of immovable property. Documentation should include the insolvency declaration, court approval of the sale, and evidence the transfer is part of formal insolvency proceedings. When claiming exemption, reference Article 270(2) CIRE explicitly in the acquisition declaration. If exemption is denied and IMT assessed, challenge through gracious complaint citing legislative intent to maximize creditor recovery through reduced transaction costs, supported by principles of common sacrifice and social solidarity underlying CIRE reforms.