Process: 693/2016-T

Date: May 11, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Decision 693/2016-T addresses the IMT (Municipal Property Transfer Tax) exemption under Article 270(2) of the Portuguese Insolvency and Business Recovery Code (CIRE). The claimant purchased property from an insolvent company's liquidation estate in May 2011 for €90,000. Although initially no IMT was charged, the Tax Authority issued an assessment in August 2016 for €5,850, taking the position that the exemption did not apply to isolated asset sales. The claimant challenged this assessment through tax arbitration, arguing that the transfer was made within insolvency liquidation proceedings and thus qualified for the CIRE exemption. The controversy centered on whether Article 270(2) CIRE's exemption applied only to transfers of entire businesses or establishments, or also to isolated property sales from insolvency estates. During the arbitration proceedings, the Tax Authority issued Circular 4/2017, which clarified that the IMT exemption applies to isolated sales of immovable property from insolvency estates, provided they occur within insolvency plans, payment plans, recovery plans, or liquidation of the insolvent estate. Following this administrative guidance and aligned with recent Superior Court jurisprudence, the Head of Finance Service revoked the IMT assessment in February 2017. The Tax Authority then requested dismissal of the arbitration case for supervening uselessness of the dispute (inutilidade superveniente da lide) under Article 277(e) of the Portuguese Civil Procedure Code, arguing that the claimant's objective had been achieved through the voluntary revocation, rendering continuation of proceedings futile. This decision illustrates the important principle that property acquisitions from insolvency estates qualify for IMT exemption regardless of whether the sale involves isolated assets or entire business units, provided the statutory conditions are met.

Full Decision

ARBITRAL DECISION

Decided by Arbitrator Andrea Firmino, appointed by the Deontological Council of the Administrative Arbitration Centre to form a Single Arbitral Tribunal:

I – STATEMENT OF FACTS

On 22 November 2016, A… (hereinafter "Claimant"), with tax identification number …, with address at Rua …, Lote …, …, in … filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LRATM), seeking a declaration of illegality of the Municipal Tax on Onerous Transfers of Immovable Property ("IMT") assessment in the amount of EUR 5,850.00 (five thousand eight hundred and fifty euros) issued with reference to the acquisition made by the Claimant by public deed executed on 23-05-2011 relating to the autonomous fraction designated by the letter "A" registered in the urban property register under article …, located in …, …, …, parish and municipality of ….

To substantiate its request, the Claimant argues, in summary, that the immovable property to which the aforementioned assessment act refers is the result of a transfer effected through a sale, in the context of the liquidation of the insolvent estate, for which reason the exemption provided in Article 270, paragraph 2 of the Insolvency and Business Recovery Code ("CIRE") should apply.

On 23 November 2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority ("TA").

The Claimant did not proceed with the appointment of an arbitrator, for which reason, under the provisions of Article 6, paragraph 2, subparagraph a) and Article 11, paragraph 1, subparagraph a) of the LRATM, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 20 January 2017, the parties were notified of this appointment and did not manifest any will to refuse it.

In accordance with the provision in Article 11, paragraph 1, subparagraph c) of the LRATM, the Arbitral Tribunal was constituted on 6 February 2017.

On 9 March 2017, the Respondent, duly notified for this purpose, submitted its reply, requesting that the instance be declared extinct due to subsequent futility of the dispute, as it had in the meantime annulled the aforementioned IMT assessment, whilst these arbitral proceedings were pending.

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

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

Having considered all, it is appropriate to rule as follows:

II. DECISION

A. FINDINGS OF FACT – Summary of relevant facts taken as proven

1. The Claimant acquired, by deed of purchase and sale executed on 23 May 2011, the autonomous fraction designated by the letter "A" of the urban property located in …, denominated …, …, Lote …, parish and municipality of …, registered in the property register under article …, at the price of EUR 90,000.00 (ninety thousand euros);

2. The aforementioned property was part of the assets of the now insolvent company "B…, Lda" and as such was acquired by the Claimant in the context of the insolvency proceedings of a legal entity that were being conducted against that Company;

3. The aforementioned acquisition was exempt from IMT at that date, in accordance with the provisions of Article 270, paragraph 2 of the CIRE;

4. Nevertheless, the Claimant was notified, in August 2016, of the IMT assessment act in the amount of EUR 5,850.00 (five thousand eight hundred and fifty euros), made under Article 17, paragraph 1, subparagraph d) of the IMT Code, with respect to the purchase and sale operation occurring as described above;

5. After being notified for this purpose, the Claimant exercised the right to prior hearing, alleging both the possible statute of limitations of the TA's right and its disagreement with respect to the Respondent's understanding that the exemption provided in Article 270, paragraph 2 of the CIRE should not be granted in the case of isolated sale of assets by the transferor/insolvent party;

6. The right to prior hearing was unsuccessful, the TA maintaining the aforementioned IMT assessment, which gave rise to the present request for arbitral decision;

7. Meanwhile, whilst these jurisdictional proceedings were pending, the Head of the Finance Service of …, on 23 February 2017, ordered the annulment of the IMT assessment in the amount of EUR 5,850.00 (five thousand eight hundred and fifty euros) and, likewise, the termination of the tax enforcement proceedings now instituted due to non-payment of this tax;

8. In accordance with the aforementioned Order, the Head of Service revoked his Order for IMT assessment on the property in question, now considering the transfer to be exempt, sustaining that he did so "taking into account the new instructions disclosed by Circular No. 4/2007, of 10 February, which determines that the application of tax benefits provided for in Article 270, paragraph 2 of the CIRE does not depend on the thing sold, exchanged or transferred encompassing the entirety of the insolvent company or one of its establishments (...)";

9. In a response sent to the Arbitral Tribunal, the TA further informed that it had notified the aforementioned Order to the Claimant by Official Letter dated 23 February 2017;

B. LAW

The request filed by the Claimant to the Arbitral Tribunal was for a declaration of illegality and annulment of the IMT assessment in question, with all legal consequences, having regard to Article 270, paragraph 2 of the CIRE and, likewise, condemnation of the TA to pay the costs of the present proceedings.

In addition, whilst these arbitral proceedings were pending, the aforementioned IMT assessment act was revoked by the Respondent, having regard to the more recent administrative instruction issued by the TA, Circular No. 4/2017.

The aforementioned Circular, in consequence of the Order of the Secretary of State for Tax Affairs No. 14/2017-XXI, of 26 January and the most recent jurisprudence of the Superior Courts, came to amend Point III of the Annex to Circular No. 10/2015, now clarifying regarding the scope of the IMT exemption in the acquisition of immovable property the following: "The application of the tax benefits provided for in Article 270, paragraph 2 of the CIRE does not depend on the thing sold, exchanged or transferred encompassing the entirety of the insolvent company or one of its establishments.

Thus, acts of sale, exchange or transfer, in isolated form, of immovable property of the company or establishments thereof are exempt from IMT, provided that they are integrated in insolvency plans, payment plans or recovery plans or carried out within the context of liquidation of the insolvent estate."

Following the voluntary revocation of the IMT act by the Respondent, pursuant to Article 13, paragraph 1 of the LRATM, it came to request the extinction of the instance due to subsequent futility of the dispute, under the provisions of Article 277, subparagraph e) of the CPC, emphasizing that "(…) given that the claim that the Claimant wished to pursue in court is already satisfied, the useful effect of the present action is entirely emptied, and its continuation brings no beneficial consequences for the claimant. (…)".

In fact, the CPC applies subsidiarily to tax arbitral proceedings, pursuant to Article 2, subparagraph e) of the Code of Tax Procedure and Process ("CTPP") and Article 29, paragraph 1, subparagraph e) of the LRATM.

Consequently, it is applicable to the present case the provision in Article 277, subparagraph e) of the CPC, which indicates that extinction of the instance due to "impossibility or subsequent futility of the dispute" is a cause of extinction.

With respect to condemnation for costs in arbitral proceedings in cases of extinction due to subsequent futility or impossibility of the dispute, Article 536, paragraph 3 of the CPC provides that "in the remaining cases of extinction of the instance due to impossibility or subsequent futility of the dispute, responsibility for costs lies with the claimant or plaintiff, unless such impossibility or futility is attributable to the respondent or defendant, in which case the latter is responsible for all costs."

C. DECISION

Having regard to the fact that the impugned act of IMT assessment, in the amount of EUR 5,850.00 (five thousand eight hundred and fifty euros) was entirely revoked by the Respondent whilst these jurisdictional proceedings were pending, it is confirmed and decided upon the basis of subsequent futility of the dispute.

Under the provisions of Article 12, paragraph 2 and Article 22, paragraph 2, both of the LRATM, combined with the provision in Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings and the attached Table I, and the application of the criteria set out in Article 536, paragraph 3 in fine and paragraph 4 of the CPC, the costs are fixed at EUR 612.00 (six hundred and twelve euros) to be borne by the Respondent Authority.

D. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at EUR 5,850.00 (five thousand eight hundred and fifty euros) pursuant to Article 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Process, applicable by virtue of Article 29, paragraph 1, subparagraphs a) and b) of the LRATM and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings.

E. COSTS

The arbitration fee is fixed at EUR 612.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the claim was entirely successful, due to subsequent futility of the dispute, pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the LRATM, and Article 4, paragraph 4, of the aforementioned Regulation.

Let notification be made.

Lisbon, 11 May 2017

The Arbitrator

(Andrea Firmino)

Frequently Asked Questions

Automatically Created

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 Property Transfer Tax) for acts of sale, exchange, or transfer of immovable property carried out within insolvency contexts. Following Circular 4/2017, this exemption applies to isolated sales of property from insolvent estates, provided they are integrated in insolvency plans, payment plans, recovery plans, or carried out within the liquidation of the insolvent estate. The exemption does not require that the transfer encompass the entirety of the insolvent company or one of its establishments.
Can a property buyer claim IMT exemption when purchasing real estate from an insolvency estate in Portugal?
Yes, a property buyer can claim IMT exemption when purchasing real estate from an insolvency estate in Portugal under Article 270(2) CIRE. The exemption applies when the property is acquired through insolvency liquidation proceedings, insolvency plans, payment plans, or recovery plans. As clarified in CAAD Decision 693/2016-T and Circular 4/2017, this exemption extends to isolated property sales from insolvency estates, not just transfers of entire businesses or establishments. The buyer should ensure the acquisition documentation clearly establishes the insolvency context of the transaction.
What happens when the Tax Authority annuls an IMT assessment during pending arbitration proceedings?
When the Tax Authority annuls or revokes an IMT assessment during pending arbitration proceedings, the Tax Authority typically requests dismissal of the case for supervening uselessness of the dispute (inutilidade superveniente da lide) under Article 277(e) of the Portuguese Civil Procedure Code. As demonstrated in CAAD Decision 693/2016-T, once the contested assessment is voluntarily revoked, the claimant's objective is achieved, and the useful effect of the arbitration action is exhausted. The arbitral tribunal will then declare the proceedings extinct, as their continuation brings no beneficial consequences for the claimant.
What does dismissal for supervening uselessness of the dispute (inutilidade superveniente da lide) mean in Portuguese tax arbitration?
Dismissal for supervening uselessness of the dispute (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the object of the proceedings ceases to exist or becomes moot during the course of litigation. Under Article 277(e) of the Portuguese Civil Procedure Code, applied subsidiarily to tax arbitration, the instance is extinguished when the claim that the claimant wished to pursue is already satisfied. In tax cases, this commonly happens when the Tax Authority voluntarily revokes the contested assessment, making continuation of the proceedings futile as the claimant's requested relief has already been granted.
How does the CAAD arbitral tribunal handle cases where the contested tax assessment is revoked before a decision is reached?
The CAAD arbitral tribunal handles cases where the contested tax assessment is revoked before a decision by declaring the proceedings extinct due to supervening uselessness of the dispute. As illustrated in Decision 693/2016-T, when the Tax Authority voluntarily annuls the challenged assessment during arbitration, the Respondent requests extinction under Article 277(e) CPC, which applies subsidiarily to tax arbitration proceedings. The tribunal recognizes that once the administrative act is revoked, the claimant's objective is satisfied, the useful effect of the action is emptied, and no beneficial consequences remain to justify continuing the proceedings to final judgment.