Process: 688/2016-T

Date: May 22, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 688/2016-T) involved an IMT assessment of €130,117.78 on the purchase of properties from an insolvent estate. The claimant, A... SA, acquired real estate for €2,187,700 within an insolvency liquidation proceeding and sought annulment of the IMT assessment, arguing exemption under Article 270(2) of the Portuguese Insolvency and Recovery Code (CIRE). Article 270(2) CIRE exempts from IMT acts of sale, exchange or assignment of the company or its establishments integrated within insolvency plans, payment plans, or carried out within liquidation of the insolvent estate. The Tax Authority initially interpreted this provision as requiring the sale to encompass the totality of the company or one of its establishments, leading to the IMT assessment and dismissal of the administrative reclamation. During the arbitration proceedings, the Tax Authority issued Circular 4/2017 on February 10, 2017, revising its interpretation of Article 270(2) CIRE. The circular clarified that the IMT exemption applies to individual property sales from the insolvent estate, not only to transfers of the entire company or establishment. Following this interpretative change, on March 15, 2017, the Tax Authority revoked the contested assessment with all legal consequences. The revocation created a situation of supervening impossibility and futility of the dispute (superveniente inutilidade da lide). With the tax act voluntarily eliminated from the legal order, the proceedings lost their object, as the claimant's claim had been satisfied outside the litigation framework. The Arbitral Tribunal declared the proceedings terminated under Article 277(e) of the Civil Procedure Code, applicable via Article 29 of the Tax Arbitration Regulation (RJAT). The costs, including an arbitration fee of €3,060, were imposed on the Tax Authority. This case demonstrates the impact of administrative circulars on tax interpretation and confirms that real estate sales within insolvency liquidation benefit from IMT exemption under current Portuguese law.

Full Decision

ARBITRAL AWARD

I Report

In these proceedings for arbitral pronouncement, the Claimant, A..., SA came before the tribunal seeking the annulment of the Municipal Tax on Onerous Transfers of Real Property (IMT) assessment [documented in the case file] in the amount of €130,117.78, arising from the acquisition, by purchase for the global price of €2,187,700.00, within the scope of an insolvency proceeding [No. .../13... TBVNO, of the ... Court of the Judicial Court of Ourém] of B... Unipessoal, Lda., of three urban properties [identified in the case file], located in..., located in the Joint Civil Parish of ... and ..., municipality of Alcobaça and of four autonomous housing units of a building located on Rua ..., Nos. ... to..., of the parish of..., municipality of Lisbon, properties and autonomous housing units that had been listed and attached to the aforementioned insolvent estate.

The claimant based its request for annulment of the IMT assessment on the alleged violation of the provisions of Article 270, No. 2, of the CIRE [Insolvency and Recovery Code], from which would result, in this case, the exemption from taxation ["(...)1 - The following transfers of real estate assets are exempt from municipal tax on onerous transfers of real property, integrated in any insolvency plan or payment plan (…)2 - Also exempt from municipal tax on onerous transfers of real property are acts of sale, exchange or assignment of the company or of its establishments integrated within the scope of an insolvency plan or payment plan or carried out within the scope of the liquidation of the insolvent estate (…)"].

These proceedings thus have, and more specifically, as their object the declaration of illegality and annulment of the IMT assessment, documented in the document No..., of 03/03/2016, in the amount of €130,117.78, the restitution of the amount unduly paid, plus the indemnity interest on that amount, whereby a prior Administrative Reclamation was filed with No. ...2016..., which was dismissed by order of the Chief of the Finance Department of Amadora, dated 31.10.2016.

After compliance with the respective regulatory procedures, this Arbitral Tribunal was constituted on 6 February 2017, as confirmed by communication from the President of the Deontological Council of CAAD.

By order of 14-2-2017, the Director-General of the Tax and Customs Authority (AT) was notified by the Tribunal to respond in accordance with Article 17 of the RJAT [Tax Arbitration Regulation].

Following this order, the AT, in a submission presented on 20-3-2017, "(…) brought to the attention of the case file that the aforementioned order [of the Chief of the Finance Department of Amadora ...] was revoked, with all legal consequences, by the Chief of that Finance Department, by order issued on 15.3.2017, in accordance with the revision of the interpretation of No. 2 of Article 270 of the CIRE set out in Circular No. 4/2017, of 10 February, expressed in Section III of the annex to Circular No. 10/2015, according to which the application of the tax benefits provided for in No. 2 of Article 270 of the CIRE does not depend on the property sold, exchanged or assigned encompassing the totality of the insolvent company or one of its establishments. Thus, acts of sale, exchange or assignment, individually, of real property of the company or of its establishments are exempt from IMT, provided that they are integrated within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate. On these grounds, it is requested that Your Excellency declare the proceedings terminated due to supervening futility of the dispute, in accordance with Article 277, letter (e), of the CPC [Code of Civil Procedure], subsidiarily applicable in accordance with the provisions of Article 29 of the RJAT. (…)".

An order was then issued on 18.5-2017, directing the notification of both parties that the proceedings would be declared terminated in case nothing to the contrary was requested.

On 20-5-2017, the Claimant, following this order, came before the tribunal alleging, in essence, that, "(…)in light of the revocation of the order that is the subject matter of the present proceedings and with the consequent duty of restitution of the amount of tax unduly paid, plus legal interest from the date of payment until its effective return, the now Claimant has no objection to the proceedings being declared terminated due to supervening futility of the dispute, in accordance with the provisions of Article 277(e) of the CPC applicable ex vi Article 29 of the RJAT (…)" with costs to be borne by the AT.

Preliminary Assessment of the Case

This Tribunal is competent.

The proceedings are proper and the parties are legitimate and possess legal and procedural personality and capacity.

There are no exceptions or nullities.

It is therefore necessary to assess and decide on the termination of the proceedings.

II Grounds

According to Lebre de Freitas, "supervening impossibility or futility of the dispute occurs when, by a fact occurring during the pendency of the proceedings, the claimant's claim cannot be maintained, by virtue of the disappearance of the subjects or the object of the proceedings, or finds satisfaction outside the scheme of the claim sought. In either case, the claim ceases to be of interest – both due to impossibility of achieving the intended result; here, because it has already been achieved by other means" – See "Code of Civil Procedure Annotated", vol. III, p. 633. In the same understanding, Lopes do Rego, Comments, p. 611 and Remédio Marques, Course on Common Executory Process, p. 381.

Subsuming:

Clearly, having the proceedings as their object the annulment, on grounds of illegality, of the IMT assessment, following and as a consequence of the dismissal of the administrative reclamation, the declared and accepted revocation of this act of dismissal by the AT necessarily entails the annulment of the assessment with all legal consequences.

In other words: with the tax act at issue destroyed by administrative revocation during the pendency of the cause, the proceedings are left without an object and the continuation of the proceedings is not only futile but even impossible, due to lack of object of the dispute.

III Decision

In light of the foregoing and having considered the positions of both parties and the provisions of Articles 277(e) of the CPC applicable ex vi Article 29 of the RJAT, the proceedings are hereby declared terminated due to supervening impossibility of the dispute arising from the voluntary elimination from the legal order, as set out above, of the assessment act that is the subject matter of the proceedings, and the appropriate filing of the case is hereby ordered.

Costs

The costs are to be borne by the AT inasmuch as it gave rise to the termination of the proceedings (See Articles 527 and 536(3) and (4) of the CPC, applicable ex vi Article 29 of the RJAT), with the arbitration fee fixed at €3,060.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings and Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 4, of the aforementioned Regulation.

Value of the Dispute

The value of the dispute is fixed at €130,117.78, in accordance with Article 97-A, No. 1, (a), of the Code of Tax Procedure and Process, applicable by virtue of subsections (a) and (b) of No. 1 of Article 29 of the RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Let it be notified.

Lisbon, 22 May 2017

The Arbitral Tribunal,

José Poças Falcão
(Presiding Arbitrator)

Pedro Soares Martinez
(Adjunct Arbitrator)

Ricardo Rodrigues Pereira
(Adjunct Arbitrator)

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt on real estate sales within insolvency liquidation proceedings under Portuguese law?
Yes, under Article 270(2) of the Portuguese Insolvency and Recovery Code (CIRE), sales of real estate within the liquidation of an insolvent estate are exempt from IMT. Circular 4/2017 clarified that this exemption applies to individual property sales, not only to sales of the entire company or establishment. The exemption covers acts of sale, exchange, or assignment of company properties carried out within insolvency plans, payment plans, or during liquidation of the insolvent estate.
What does Article 270(2) of the Portuguese Insolvency Code (CIRE) establish regarding IMT exemptions?
Article 270(2) of CIRE establishes that acts of sale, exchange, or assignment of the company or its establishments integrated within insolvency plans, payment plans, or carried out within the scope of liquidation of the insolvent estate are exempt from IMT. Following Circular 4/2017, this provision is interpreted to exempt individual real property sales from the insolvent estate, not requiring the transfer to encompass the totality of the company or one of its establishments.
What happens to a CAAD arbitration case when the Tax Authority revokes the contested tax assessment during proceedings?
When the Tax Authority revokes the contested tax assessment during pending arbitration proceedings, the case is declared terminated due to supervening impossibility or futility of the dispute (superveniente inutilidade da lide) under Article 277(e) of the Civil Procedure Code, applicable via Article 29 RJAT. With the tax act destroyed by administrative revocation, the proceedings lose their object, making continuation both futile and impossible. The costs are borne by the Tax Authority as it gave rise to the termination.
How did Circular 4/2017 change the interpretation of IMT exemptions for asset sales in insolvency liquidation?
Circular 4/2017, dated February 10, 2017, revised the interpretation of Article 270(2) CIRE by clarifying that the IMT exemption does not require the property sold to encompass the totality of the insolvent company or one of its establishments. The new interpretation established that individual sales, exchanges, or assignments of real property from the company or its establishments are exempt from IMT, provided they occur within insolvency plans, payment plans, recovery plans, or during liquidation of the insolvent estate.
What is superveniente inutilidade da lide and how does it lead to extinction of tax arbitration proceedings?
Superveniente inutilidade da lide (supervening futility of the dispute) occurs when, by a fact arising during the pendency of proceedings, the claimant's claim finds satisfaction outside the litigation scheme or cannot be maintained due to disappearance of the subjects or object of proceedings. In tax arbitration, when the Tax Authority voluntarily revokes the contested assessment during proceedings, the claim is satisfied administratively, rendering the dispute futile and impossible to continue for lack of object. This leads to termination under Article 277(e) CPC, applicable via Article 29 RJAT.