Process: 700/2016-T

Date: April 26, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 700/2016-T addressed whether individual property sales within insolvency proceedings qualify for IMT exemption under CIRE Article 270(2). The claimant acquired 15 properties in 2013 from an insolvent company for €630,499.99, initially receiving exemption certificates from the Finance Service. However, in November 2015, the Tax Authority issued an IMT assessment of €24,310.03, effectively revoking the exemption. The claimant argued that CIRE Article 270(2) should be interpreted constitutionally to exempt individual property transfers in insolvency, not solely transfers of entire companies or establishments, citing Supreme Administrative Court precedent. The claimant further contended the assessment violated legitimate expectations, legal certainty principles, and lacked proper factual and legal justification under Articles 268(3) CRP, 124-125 CPA, and 77 LGT. Additionally, the revocation occurring more than one year after the exemption grant allegedly violated Article 141(1) CPA. Before submitting a formal response, the Tax Authority revoked the IMT assessment on March 10, 2017, based on Circular 4/2017 which revised the interpretation of CIRE Article 270(2). The new administrative guidance confirmed that IMT exemption applies to isolated sales of individual properties within insolvency proceedings, payment plans, or liquidation of insolvent estates, without requiring transfer of an entire company or establishment. Both parties agreed to terminate proceedings due to subsequent inutility of the dispute, with the claimant requesting costs be charged to the Tax Authority for voluntarily satisfying the claim after litigation commenced.

Full Decision

ARBITRAL DECISION

1. Report

On 26-11-2016, the joint-stock company A…, S.A., collective person number…, with registered office at …, n.º…, parish of …, …-… Porto, registered in the Commercial Registry of Porto under number…, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal for the purpose of annulling the tax assessment act for the levy of Municipal Tax on Onerous Transfers of Real Property (IMT), in the amount of 24.310,03 €.

The Claimant states that it acquired, in 2013, fifteen real properties within the scope of the insolvency process of company B…, Lda, for the price of 630.499,99 €, and that prior to the acquisition, certificates were issued by the competent Finance Service certifying that the transfer in question was exempt from IMT, pursuant to article 270º n.º 2 of the CIRE. The arbitral petition also records that on 27-11-2015, the Claimant was notified of the IMT levy now in dispute, in the amount of 24.310,03 €, relating to the aforementioned acquisition.

Not agreeing with this IMT levy, the Claimant filed an administrative complaint, which was dismissed by the Finance Service of Amadora….

The Claimant believes that the IMT exemption provided for in article 270º n.º 2 of the CIRE should be interpreted to mean that, within the scope of the insolvency process or payments made within the liquidation of the insolvent estate, it encompasses real properties transferred by sale or exchange, when not included in the sale, exchange or cession of the company or establishment. For the Claimant, this regime is equivalent to that which already resulted from subsection c) of n.º 2 of article 121º of the CPEREF.

The Claimant cites the judgment of the Supreme Administrative Court of 30-05-2012, case n.º 0949/11, which states that interpreting n.º 2 of article 270º of the CIRE to mean that only transfers of real properties included in the transfer of a company or its establishment are exempt from IMT, is not an interpretation in accordance with the Constitution.

Thus, for the Claimant, in issuing the IMT levy in question, the action of the Tax Authority suffers from the "defect of violation of law, since the levy is then based on a rule that, when interpreted in such a way as to support the challenged levy, becomes at that moment itself unconstitutional, by violation of n.º 2 of art.º 165.º of the CRP".

The Claimant alleges that the IMT levy object of these proceedings results from an erroneous interpretation of the provisions of article 270º n.º 2 of the CIRE, thus suffering from the defect of error regarding the legal presuppositions, and the legal consequence is the voidability of the levy act.

On the other hand, the Claimant states that the impugned act is not grounded in fact and in law, and therefore articles 268º n.º 3 of the CRP, and 124º and 125º of the CPA and 77º of the LGT were violated, since the act in question does not indicate and there exists no applicable legal provision that justifies and legitimates the quantification of the amounts determined and the levy in question.

For the Claimant, the Tax Authority violated its legitimate expectations and guarantees previously established, and the principle of confidence and legal certainty inherent to the rule of law principle, in addition to having violated the principles of tax legality, prohibition of retroactivity of tax law and certainty and legal security provided for, among others, in articles 12º of the LGT, 12º of the Civil Code and 103º n.º 3 of the CRP.

As regards the principle of protection of confidence, in the aspect of legal certainty, and the principle of good faith, the Claimant cites the judgment of the Supreme Administrative Court of 31-01-2014.

Finally, the Claimant alleges that the revocation of the exemption could only be carried out within one year after it was granted, as it is an act constitutive of rights, by application of the provisions of articles 141º n.º 1 of the CPA and 58º of the CPTA. In support of this understanding, the judgment of the Supreme Administrative Court of 15-05-2013, case n.º 0566/12, is cited, which concluded that the act of revocation of the tax benefit of exemption from taxation, which produces ex tunc effects and occurs more than one year after the act constituting the exemption, is illegal by violation of article 14º of the CPA.

The Claimant states that it proceeded with payment of the IMT levy now impugned, and requests the condemnation of the Tax Authority to reimburse the tax improperly paid, plus compensatory interest.

A sole arbitrator, Suzana Fernandes da Costa, was appointed on 25-01-2017.

In accordance with the provisions of article 11º n.º 1, subsection c) of the RJAT, the singular arbitral tribunal was constituted on 09-02-2017.

The Tax Authority was notified to submit a response within the legal deadline for this purpose.

By a petition presented on 13-03-2017, the Tax Authority communicated the revocation of the levy assessment act investigated in the present proceedings, by the Head of the Finance Service of Amadora…, in accordance with an order dated 10-03-2017.

In accordance with the aforementioned order, the levy assessment act was revoked "in accordance with the revision of the interpretation of n.º 2 of art. 270º of the CIRE contained in Circular n.º 4/2017, of 10 February, expressed in Point III of the annex to Circular n.º 10/2015, according to which the application of the tax benefits provided for in n.º 2 of article 270.º of the CIRE does not depend on the thing sold, exchanged or ceded encompassing the entirety of the insolvent company or one of its establishments. Thus, acts of sale, exchange or cession, in an isolated manner, of real properties of the company or of its establishments are exempt from IMT, provided they are integrated within the scope of insolvency plans, payment or recovery plans or carried out within the scope of the liquidation of the insolvent estate".

In the same petition, the Tax Authority requests that the proceedings be judged terminated by subsequent inutility of the dispute, in accordance with subsection e) of article 277º of the CPC, applicable by virtue of article 29º of the RJAT.

On 14-03-2017, an order was issued ordering the notification of the Claimant to comment within 10 days on the petition presented by the Tax Authority.

On 20-03-2017, the Claimant came before the tribunal to state that it has no objection to the termination of these proceedings by subsequent inutility of the dispute, in accordance with subsection e) of article 277º of the CPC, applicable by virtue of article 29º of the RJAT. And it requests that the responsibility for costs be charged to the Respondent as the subsequent inutility of the dispute is attributable to it, as it has given voluntary satisfaction to the Claimant's claim.

On 21-03-2017, an order was issued dispensing with the holding of the meeting provided for in article 18º of the RJAT, as well as the submission of arguments by the parties, taking into account the position assumed by them, in accordance with the provisions of articles 16º subsection c) and 19º of the RJAT, as well as the principles of procedural economy and prohibition of performance of useless acts. In the same order, 26-04-2017 was set as the date for the rendering of the arbitral decision, and the Claimant was warned to proceed, by that date, with payment of the subsequent arbitral fee.

The parties enjoy legal personality and capacity and are legitimate (articles 4º and 10º n.º 1 and 2 of the RJAT and article 1º of Ordinance n.º 112-A/2011 of 22 March).

This request for arbitral pronouncement was presented in a timely manner, in accordance with article 10º n.º 1 subsection a) of Decree-Law n.º 10/2011 of 20 January.

The proceedings do not suffer from nullities and no preliminary questions were raised.

2. Matter of Fact

2.1. Established Facts:

Having analyzed the documentary evidence produced, the following facts are considered established and of interest for the decision of the case:

1. The Claimant A…, S.A. acquired, on 12-12-2013, by notarial deed of sale and purchase, fifteen real properties, for the price of 630.499,99 €, within the scope of the insolvency process of company B…, Lda, which proceedings were conducted in the Court of the Greater Lisbon District – Northwest, Sintra – Commerce Court, under number …/11… TYLSB, in accordance with document 1 attached to the arbitral petition.

2. The Claimant presented, before the acquisition, before the Finance Service the declaration for the levy of IMT and Stamp Duty, and certificates were issued in which it is certified that the transfer in question was exempt from IMT pursuant to the provisions of n.º 2 of article 270º of the CIRE, in accordance with document 2 attached to the arbitral petition.

3. The Claimant was notified, on 27-11-2015, of the IMT levy in the amount of 24.310,03€, relating to the acquisition mentioned in point 1, in accordance with a copy of the levy attached to the arbitral petition as document 4.

4. On 04-05-2016, the Claimant filed an administrative complaint of the IMT levy, in accordance with a copy attached to the arbitral petition as document 5.

5. The aforementioned administrative complaint was dismissed on 06-10-2016, in accordance with a copy attached to the arbitral petition as document 7.

6. The Head of the Finance Service of Amadora… revoked the IMT levy assessment act in dispute, because the previously prevailing understanding on the matter was altered: "in accordance with the revision of the interpretation of n.º 2 of art. 270º of the CIRE contained in Circular n.º 4/2017, of 10 February, expressed in Point III of the annex to Circular n.º 10/2015, according to which the application of the tax benefits provided for in n.º 2 of article 270.º of the CIRE does not depend on the thing sold, exchanged or ceded encompassing the entirety of the insolvent company or one of its establishments. Thus, acts of sale, exchange or cession, in an isolated manner, of real properties of the company or of its establishments are exempt from IMT, provided they are integrated within the scope of insolvency plans, payment or recovery plans or carried out within the scope of the liquidation of the insolvent estate", in accordance with the petition filed with the court by the Tax Authority on 13-03-2017.

No other facts of relevance to the decision of the case were established.

2.2. Rationale for the Established Matter of Fact:

With regard to the established facts, the arbitrator's conviction was based on the documentary evidence attached to the court file.

3. Matter of Law:

3.1. Object and Scope of These Proceedings

Given the revocation of the impugned levy acts, it falls to this tribunal to pronounce itself on the request for termination of these proceedings due to subsequent inutility of the dispute presented by the Respondent, and on the recognition of the right to compensatory interest presented by the Claimant.

3.2. The Request for Declaration of Illegality and Annulment of the Disputed Levies: on the (in)utility of the Dispute

As noted above in the report, by the petition of 13-03-2017, the Tax Authority communicated to the court file, in accordance with an order by the Head of the Finance Service of Amadora… dated 10-03-2017, the revocation of the levy assessment act investigated in these proceedings, proposing, consequently, the termination of the proceedings by subsequent inutility of the dispute.

By its petition of 20-03-2017, the Claimant states that it has no objection to these proceedings being considered terminated by subsequent inutility of the dispute, in accordance with subsection e) of article 277º of the CPC, applicable by virtue of article 29º of the RJAT.

It is therefore incumbent upon this Court to verify the utility of examining the petition formulated by the Claimant in its initial claim, for declaration of illegality and annulment of the IMT levy investigated in these proceedings.

Subsequent inutility of the dispute occurs when, due to a fact occurring during the pendency of the case, the resolution of the litigation ceases to have interest and utility, which justifies the termination of the proceedings, in accordance with article 277º subsection e) of the CPC.

As stated by Lebre de Freitas, João Rendinha, Rui Pinto, Code of Civil Procedure annotated, volume 1, 2nd edition, Coimbra Editora, 2008, p. 555, subsequent inutility or impossibility of the dispute "occurs when, due to a fact occurring during the pendency of the instance, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or the object of the proceedings, or if satisfaction is found outside the scheme of the remedy sought. In either case, the resolution of the litigation ceases to matter – in the former, due to the impossibility of achieving the intended result; in the latter, because it has already been achieved by another means".

As stated in the CAAD decision in case n.º 220/2016-T, "(…) if, by virtue of new facts occurring during the pendency of the proceedings, the objective pursued with the claim brought before the court has already been achieved by another means, then the decision to be rendered does not involve useful effect, and therefore, in that scope, subsequent inutility of the dispute occurs".

Indeed, as appears from the foregoing, the tax levy assessment act for IMT in dispute in these proceedings was the subject of revocation (in accordance with article 79º n.º 1 of the LGT), and the Tax Authority, with the order issued by the Head of the Finance Service of Amadora… on 10-03-2017, proceeded with the administrative annulment of the tax act because the previously prevailing understanding on the matter was altered.

From this action by the Tax Authority it follows that the claim formulated by the Claimant, which had as its purpose the declaration of illegality and annulment by this Court of the IMT levy investigated, was rendered moot because the suppression of that act and its effects from the legal order was achieved by another means after the institution of these proceedings, as stated in the CAAD decision in case n.º 220/2016-T.

As mentioned in the aforementioned CAAD decision, "the subsequent performance of the express act of revocation of the impugned levies (see art. 79.º, n.º 1 of the LGT) implies that the proceedings concerning the examination of the legality of those levies terminates by subsequent inutility of the dispute, given that, because its effects have been eliminated by the revocation, the examination loses utility, in relation to such levies, of the defects alleged in order to its invalidity, leaving without object the claim for impugnation against them".

In these terms, there is subsequent inutility of the dispute with respect to the request for annulment of the tax act object of these proceedings, which implies the termination of the corresponding proceedings in accordance with the provisions of article 277º subsection e) of the CPC, applicable by virtue of article 29º n.º 1 subsection e) of the RJAT.

3.3. On Compensatory Interest

The Claimant states that it proceeded with payment of the levy in the present proceedings, and requests reimbursement of the amount paid plus compensatory interest.

Article 43º n.º 1 of the LGT provides that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally due", and n.º 4 of art. 61.º of the CPPT stipulates that "if the decision recognizing the right to compensatory interest is judicial, the payment deadline is counted from the beginning of the period for voluntary execution".

In these proceedings, having regard to the revocation of the levy assessment act in question, with the Tax Authority altering its understanding, now accepting the IMT exemption for "acts of sale, exchange or cession, in an isolated manner, of real properties of the company or of its establishments are exempt from IMT, provided they are integrated within the scope of insolvency plans, payment or recovery plans or carried out within the scope of the liquidation of the insolvent estate", it is unquestionable that there will be reimbursement of the tax paid, by virtue of the provisions of n.º 1 of article 43º and of article 100º, both of the LGT, thereby restoring the situation that would exist if the tax act object of the arbitral decision had not been performed, as concluded by the CAAD decisions in cases n.º 152/2016-T and 153/2016-T.

Likewise, it is understood that the illegality of the IMT levy assessment act is attributable to the Tax Authority, which performed it illegally, which cannot fail to be linked with its subsequent revocation.

Thus, we are faced with a defect of violation of substantive law, which is embodied in error regarding the legal presuppositions, attributable to the Tax Authority. Accordingly, the Claimant is entitled, in accordance with the provisions of articles 24.º, n.º 1, subsection b), of the RJAT and 100.º of the LGT, to reimbursement of the amount of tax improperly paid and to compensatory interest, in accordance with the provisions of articles 43.º, n.º 1, of the LGT and 61.º of the CPPT, calculated from the date of payment of the tax, at the rate resulting from n.º 4 of art. 43.º of the LGT, until the date of processing of the respective credit note, in which they will be included, as was decided in the CAAD decision in case n.º 152/2016-T.

4. Decision

In light of the foregoing, it is determined:

a) To judge these proceedings terminated with respect to the request for declaration of illegality of the levy assessment act impugned in these proceedings by subsequent inutility of the dispute, in accordance with article 277º subsection e) of the CPC, applicable by virtue of article 29º n.º 1 subsection e) of the RJAT;

b) To judge the request for condemnation of the Tax Authority to reimburse the Claimant for the amount of the tax paid, plus compensatory interest in accordance with law, from the date such payment was made until the date of full reimbursement thereof;

c) To condemn the Tax Authority to pay the costs of the proceedings.

5. Value of the Proceedings:

In accordance with the provisions of article 315º, n.º 2, of the CPC and 97º-A, n.º 1, subsection a) of the CPPT and 3º, n.º 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 24.310,03 €.

6. Costs:

In accordance with article 22º, n.º 4, of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1.530,00, owed by the Tax and Customs Authority, in that, in accordance with the provisions of the final part of n.º 3 and n.º 4 of article 536º of the CPC, applicable by virtue of article 29º n.º 1 subsection e) of the RJAT, it is attributable to it the fact of the revocation of the impugned IMT levy assessment which determined the subsequent inutility of the dispute with respect to the request for its annulment and given the success, moreover, of the petition in this request for arbitral pronouncement.

Notify.

Lisbon, 26 April 2017.

Text elaborated by computer, in accordance with article 138º, n.º 5 of the Code of Civil Procedure (CPC), applicable by reference to article 29º, n.º 1, subsection e) of the Tax Arbitration Regime, reviewed by me.

The arbitrating judge

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt on real estate acquired during insolvency proceedings under CIRE Article 270(2)?
Yes, IMT is exempt on real estate acquired during insolvency proceedings under CIRE Article 270(2). Following Circular 4/2017, the Tax Authority confirmed that individual property sales within insolvency plans, payment plans, or liquidation of insolvent estates are exempt from IMT, without requiring the transfer to encompass an entire company or establishment. This interpretation aligns with constitutional principles and Supreme Administrative Court jurisprudence.
Can the Portuguese Tax Authority issue an IMT assessment after previously granting an insolvency exemption certificate?
The Tax Authority can issue an IMT assessment after previously granting an exemption certificate, but such revocation is subject to strict legal limitations. Under Article 141(1) CPA and Article 58 CPTA, revocation of an act constitutive of rights must occur within one year. Revocations with ex tunc effects occurring after this period may be illegal. Additionally, revocations must respect principles of legitimate expectations, legal certainty, and good faith under Articles 12 LGT and 103(3) CRP.
How does the Constitutional interpretation of CIRE Article 270(2) affect IMT exemptions on individual property sales in insolvency?
The constitutional interpretation of CIRE Article 270(2), as established by the Supreme Administrative Court (case 0949/11, May 30, 2012), holds that limiting IMT exemption solely to transfers of entire companies or establishments violates Article 165(2) of the Portuguese Constitution. Consequently, individual property sales within insolvency proceedings qualify for exemption. Circular 4/2017 codified this interpretation, confirming that isolated real estate transfers in insolvency liquidation benefit from IMT exemption.
What are the grounds for annulment of an IMT assessment lacking proper legal and factual justification under Portuguese law?
Grounds for annulment of an IMT assessment lacking proper justification include: (1) violation of the duty to provide factual and legal grounds under Articles 268(3) CRP, 124-125 CPA, and 77 LGT; (2) error regarding legal presuppositions resulting in voidability; (3) violation of tax legality principles; (4) breach of legitimate expectations and legal certainty; and (5) violation of the prohibition against retroactivity of tax law under Article 103(3) CRP and Article 12 LGT.
What is the arbitral procedure at CAAD for challenging an IMT tax assessment related to insolvency property transfers?
The CAAD arbitral procedure for challenging an IMT assessment involves: (1) filing an arbitration request within the legal deadline after exhausting administrative remedies; (2) appointment and constitution of the arbitral tribunal; (3) notification of the Tax Authority to submit a response; (4) optional hearing under Article 18 RJAT (may be dispensed if unnecessary); (5) submission of written arguments; and (6) rendering of the arbitral decision. If the Tax Authority revokes the contested act during proceedings, termination may occur due to subsequent inutility of the dispute under Article 277(e) CPC.