Process: 689/2016-T

Date: March 22, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 689/2016-T) addresses the scope of IMT (Municipal Property Transfer Tax) exemption for real estate acquisitions from insolvent estates under Article 270(2) of the Portuguese Corporate Insolvency and Reorganisation Code (CIRE). The applicant company purchased two rural properties on December 30, 2013, from an insolvent estate during insolvency proceedings. Initially, the Tax Authority granted a zero-rate IMT exemption under CIRE Article 270(2). However, the Authority subsequently issued an additional IMT assessment of €36,865.51, arguing the exemption only applied to specific acts (sales, exchanges, or company transfers) within formal insolvency plans, payment plans, recovery plans, or liquidation proceedings. The taxpayer challenged this reassessment through administrative appeal and CAAD arbitration, invoking violation of law, legitimate expectations, legal certainty principles, and tax legality. The applicant cited a 2012 Supreme Administrative Court judgment supporting a broader interpretation of the CIRE exemption provision. Significantly, during arbitration proceedings, the Tax Authority revoked its dismissal of the administrative appeal based on Circular No. 4/2017 (February 10, 2017), which introduced a new interpretation of Article 270(2) recognizing broader IMT exemption applicability to insolvency-related property transfers. This represented an implicit acknowledgment of the assessment's illegality. The case demonstrates the importance of consistent tax administration, protection of legitimate expectations, and the binding nature of initial tax determinations. It also highlights CAAD's role in resolving IMT disputes and ensuring proper application of insolvency-related tax exemptions, establishing that property acquisitions from insolvent estates generally qualify for IMT exemption under CIRE provisions, protecting creditors and facilitating efficient asset liquidation in insolvency proceedings.

Full Decision

ARBITRAL DECISION

PARTIES

Applicant: A…, S.A., TIN…, with registered office at …, No.…, …, …-… Porto.

Respondent: TAX AND CUSTOMS AUTHORITY (AT)

I. REPORT

a) On 26 November 2016 the Applicant filed with CAAD a request seeking, pursuant to the Legal Regime of Tax Arbitration (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Applicant challenges the additional assessment of Municipal Tax on Onerous Transfers of Real Property (IMT) that was notified to it by office letter No.…, of 24.11.2015, sent by the Finance Service of Amadora -…, in the amount of € 36,865.51.

c) And although it filed an administrative appeal against said assessment, it was dismissed on the grounds that "for the purposes of the exemption from IMT provided for in article 270, subsection 2 of the Corporate Insolvency and Reorganisation Code (CIRE), only acts of sale, exchange or transfer of the company or its establishments within the scope of insolvency plans, payment plans or recovery plans or carried out within the scope of the liquidation of the insolvent estate" were eligible to fall within the scope of the exemption provision.

d) At issue is the onerous acquisition, on 30 December 2013, of two rural properties: one located in …, parish of Union of Parishes of … and … and Municipality of …, described in the Land Registry Office of … under the number … and recorded in the matrix of the aforementioned parish under article …-A; and one located in …, parish of Union of Parishes of … and … and Municipality of …, described in the Land Registry Office of … under the number … and recorded in the matrix of the aforementioned parish under article …-X; both within the scope of the insolvency proceedings of company B…, S.A., with TIN…, which took place in the 1st Commercial Court of Lisbon, under No. 1544/12.7TYLSB.

e) Prior to the acquisition, the Applicant filed the declaration for assessment of the Municipal Tax on Onerous Transfers of Real Property (IMT) and Stamp Duty (IS) and Single Collection Documents were issued at zero rate, indicating that the onerous transfers were exempt from IMT, pursuant to the provisions of article 270, subsection 2 of the CIRE.

f) The assessed taxes were paid. It seeks the annulment of the IMT assessment and the reimbursement of the amount paid, plus compensatory interest.

THE CAUSE OF ACTION

g) The Applicant invokes the illegality of the assessment act challenged, alleging it has the defect of violation of law due to legal error on the part of the Tax Authority (non-conformity with the provision contained in subsection 2 of article 270 of the CIRE).

h) It argues in its favour, in particular, the interpretation of this legal provision as contained in a judgment of the Supreme Administrative Court of 30.05.2012.

i) It further invokes that the assessment act in question is null and void since there is no legal or factual basis that supports it (article 77 of the General Tax Code and article 99, subsection c) of the Code of Tax Procedure, as per article 133 of the Code of Administrative Procedure).

j) It states expressly that the Tax Authority "… violated the legitimate expectations and guarantees previously established for the Applicant and the principle of confidence and legal certainty inherent to the principle of the Rule of Law, in addition to having violated the principles of tax legality, prohibition of retroactivity of tax law and certainty and legal certainty provided, among others, in articles 12 of the General Tax Code, 12 of the Civil Code and 103, subsection 3 of the Constitutional Law".

k) Since "the interpretation of the Tax Administration applied to a past tax event, entirely carried out under the former law, constitutes a violation of the principle of protection of confidence, in the aspect of legal certainty".

l) Adding that "… the revocation of the exemption could only be effected within one year after it had been granted, being a constitutive act of rights, by the combined application of the provisions of articles 141, subsection 1, of the Code of Administrative Procedure and 58 of the Code of Administrative Court Procedure", therefore "the revocation of such administrative act was effected beyond the one-year period in which it was legally possible, in accordance with articles 136 and 141 of the Code of Administrative Procedure applicable ex vi article 2, subsection c), of the General Tax Code and article 2, subsection d), of the Code of Tax Procedure"

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

m) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to the Tax Authority on 07-12-2016.

n) By CAAD's Deontological Council the signatory of this decision was designated as arbitrator, and the parties were notified thereof on 20-01-2017. The parties did not manifest the will to refuse the designation, in accordance with article 11, subsection 1, subsections a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

o) The Singular Arbitral Tribunal (TAS) has been, since 06-02-2017, duly constituted to examine and decide upon the subject matter of this dispute (articles 2, subsection 1, subsection a) and 30, subsection 1, of the RJAT).

p) All of these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 06-02-2017, which is hereby reproduced.

q) On 06-02-2017 the Tax Authority was notified in accordance with and for the purposes of article 17-1 of the RJAT and responded by petition of 10.03.2017 informing that regarding the Administrative Appeal, instituted with No. …2016…, which had been dismissed by ruling of the Head of the Finance Service of Amadora…, of 29.09.2016 "… was revoked by the Head of that Finance Service, by ruling issued on 10.3.2017, in accordance with the new interpretation of the provision of subsection 2 of article 270 of the CIRE contained in Circular No. 4/2017, of 10 February, with all legal consequences".

r) By ruling of 10.03.2017 the TAS promoted the right of reply so that the Applicant would pronounce itself, within 5 days, on the request of the Respondent, having by petition of 17.03.2017 stated that it had no objection to what was requested, but with costs to be borne by the Tax Authority.

s) The date for the delivery of the decision was also scheduled: 22.03.2017.

PROCEDURAL REQUIREMENTS

t) Legitimacy, capacity and representation – The parties are legitimate parties, have legal personality and procedural capacity and are represented (articles 4 and 10, subsection 2, of the RJAT and article 1 of Regulation No. 112-A/2011, of 22 March).

u) Principle of adversarial procedure - The Tax Authority was notified in accordance with item q) of this Report. All procedural documents and all documents attached to the file were made available to the respective counterpart in the Case Management System of CAAD. Both parties were always notified of their attachment.

v) Dilatory exceptions - The arbitral procedure does not suffer from any defects and the request for arbitral decision is timely since it was presented within the prescribed period in subsection a) of subsection 1 of article 10 of the RJAT, as evidenced by the fact that the Applicant presented the request for decision on 26.11.2016 and the decision dismissing the administrative appeal was notified by office letter … of 29.09.2016.

SUMMARY OF THE APPLICANT'S POSITION

w) The position of the Applicant is briefly described in the part of this Report under the heading "request" and "cause of action".

SUMMARY OF THE RESPONDENT'S POSITION

x) The Respondent adopted a position of implicit acknowledgment of the illegality of the assessment, as results from what is referred to in q) of this Report.

II - QUESTIONS WHICH IT FALLS TO THE TRIBUNAL TO RESOLVE

The only question that arises, given the revocation of the ruling dismissing the administrative appeal that had not granted the request for annulment of the IMT assessment in question, is to examine the request for termination of the proceedings due to subsequent futility of the dispute.

III. FACTUAL MATTERS PROVED AND NOT PROVED

GROUNDS

Regarding factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties, being its duty to select the facts that matter for the decision and to distinguish the facts proved from those not proved (in accordance with article 123, subsection 2, of the Code of Tax Procedure and article 607, subsection 3 of the Civil Procedure Code, applicable ex vi article 29, subsection 1, subsections a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are selected and delineated according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (in accordance with former article 511, subsection 1, of the Civil Procedure Code, corresponding to current article 596, applicable ex vi article 29, subsection 1, subsection e), of the RJAT).

Thus, taking into account the positions assumed by the parties and the documentary evidence attached, the following facts were considered proved, with relevance for the decision, being indicated the respective documents (proof by documents), as grounds.

Facts Proved

• The Applicant, on 20 November 2016, filed with CAAD the present request for arbitral decision (PPA) – registration of entry in the CAAD Case Management System of the request for arbitral decision.

• The Tax Authority was notified on 06.02.2017 in accordance with and for the purposes of subsection 1 of article 17 of the RJAT and responded by petition of 10.03.2017 informing that regarding the Administrative Appeal, instituted with No. …2016…, which had been dismissed by ruling of the Head of the Finance Service of Amadora…, of 29.09.2016 "… was revoked by the Head of that Finance Service, by ruling issued on 10.3.2017, in accordance with the new interpretation of the provision of subsection 2 of article 270 of the CIRE contained in Circular No. 4/2017, of 10 February, with all legal consequences" – as per registration of entry in the CAAD Case Management System of the Respondent's petition of 10.03.2017.

• The Applicant, upon notification of the Respondent's request expressed in the previous item, stated, by petition of 17.03.2017, that it had nothing to object to what was requested, but with costs to be borne by the Respondent in accordance with subsections 3 and 4 of article 536 of the Civil Procedure Code – As per registration of entry in the CAAD Case Management System of the Applicant's petition of 17.03.2017.

Facts Not Proved

There is no other factual matter alleged that was not considered proved and that is relevant to the composition of the procedural dispute.

IV. EXAMINATION OF THE QUESTIONS WHICH IT FALLS TO THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE

The Civil Procedure Code applies subsidiarily to tax arbitral proceedings, by virtue of subsection e) of article 2 of the Code of Tax Procedure and subsection 1 of article 29 of the RJAT.

In accordance with subsection e) of article 277 of the Civil Procedure Code, a cause for termination of proceedings is "the subsequent impossibility or futility of the dispute".

"The Civil Procedure Code maintained, as regards costs, the principle of causality: the party that caused the costs bears the costs" … (Judgment of the Supreme Court of Justice of 18.11.76 BMJ 261-153). This principle continues to be expressed in the various provisions of the current Civil Procedure Code that deal with this subject matter.

Subsections 3 and 4 of article 536 of the current Civil Procedure Code (which reproduces article 450 of the 1961 Civil Procedure Code) state that: "3 - In other cases of termination of proceedings due to subsequent impossibility or futility of the dispute, responsibility for costs falls on the plaintiff or applicant, unless such impossibility or futility is attributable to the defendant or respondent, in which case the latter is responsible for all costs".

"4 - It is considered, in particular, that the subsequent futility of the dispute is attributable to the defendant or respondent when it results from voluntary satisfaction, by the latter, of the claim of the plaintiff or applicant, …".

Now, in the present case, the Respondent proceeded to the "voluntary satisfaction" of the Applicant's claim, granting the administrative appeal that it had previously dismissed and which motivated this proceeding, the effect of which is the annulment of the assessment challenged here, whereby responsibility for procedural costs falls to it.

V. OPERATIVE PART

Pursuant to and on the grounds set out above:

• The proceedings are terminated, dismissing the Tax Authority from the proceedings due to subsequent futility of the dispute, with costs to be borne by the Respondent (subsection e) of article 277 of the Civil Procedure Code and subsections 3 and 4 of article 536 of the Civil Procedure Code).

Value of the case: in accordance with the provisions of article 3, subsection 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subsection a) of subsection 1 of article 97A of the Code of Tax Procedure), the value of the case is fixed at 36,865.51 euros.

Costs: in accordance with the provisions of article 22, subsection 4, of the RJAT, the amount of costs is fixed at 1,836.00 € according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Notify.

Lisbon, 22 March 2017

Singular Arbitral Tribunal (TAS),

(Augusto Vieira)

Text prepared by computer in accordance with the provisions of article 131, subsection 5, of the Civil Procedure Code, applicable by cross-reference of article 29 of the RJAT.

The drafting of this decision follows the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Is the purchase of real estate from an insolvent estate exempt from IMT under Article 270(2) of the CIRE?
Yes, under Article 270(2) of the CIRE (Corporate Insolvency and Reorganisation Code), purchases of real estate from insolvent estates are exempt from IMT. This case confirms that the exemption applies broadly to property transfers within insolvency proceedings, not just to specific acts within formal insolvency or recovery plans. The Tax Authority's Circular No. 4/2017 clarified this interpretation, reversing its prior restrictive position.
What is the scope of the IMT exemption for property transfers in insolvency proceedings in Portugal?
The IMT exemption under Article 270(2) of CIRE applies to onerous transfers of real property within insolvency proceedings. Initially interpreted narrowly to cover only sales, exchanges, or company transfers within formal insolvency plans, payment plans, recovery plans, or liquidation, the scope was broadened by Circular No. 4/2017 to encompass general property acquisitions from insolvent estates, facilitating asset liquidation and creditor protection.
Can the Tax Authority issue an additional IMT assessment after initially granting a zero-rate exemption under the CIRE?
While the Tax Authority can issue additional IMT assessments, doing so after initially granting a zero-rate exemption may violate principles of legal certainty, legitimate expectations, and the rule of law. In this case, the Authority acknowledged the illegality of the reassessment and revoked it. Constitutional and administrative law principles limit the revocation of constitutive acts granting rights, typically requiring action within one year of the initial determination.
What are the taxpayer's rights to compensatory interest when an unlawful IMT assessment is annulled?
When an unlawful IMT assessment is annulled, taxpayers are entitled to reimbursement of amounts paid plus compensatory interest. This right derives from general tax procedure rules that compensate taxpayers for the State's unlawful retention of funds. The interest compensates for the time value of money from payment until reimbursement, protecting taxpayers from financial loss due to illegal tax collection.
How does CAAD arbitration resolve disputes over IMT exemptions in insolvency-related property acquisitions?
CAAD (Centro de Arbitragem Administrativa) provides specialized tax arbitration for IMT disputes arising from insolvency-related property acquisitions. Through singular arbitral tribunals, CAAD offers expedited resolution compared to judicial courts. In this case, CAAD arbitration prompted the Tax Authority to reconsider its position, leading to revocation of the assessment based on updated legal interpretation, demonstrating CAAD's effectiveness in ensuring proper application of tax exemptions and protecting taxpayer rights in complex insolvency contexts.