Process: 74/2016-T

Date: October 21, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 74/2016-T) addresses whether the IMT tax exemption under Article 270(2) of the Insolvency and Business Recovery Code (CIRE) applies to individual property transfers within insolvency liquidation proceedings. The claimant company acquired three properties from an insolvent real estate company during judicial liquidation and initially benefited from the IMT exemption. However, following a tax inspection, the Tax Authority issued an IMT assessment of €97,528.91, arguing the exemption only applies when an entire company or establishment is transferred as a universality of assets, not to isolated property sales. The claimant contested this interpretation, arguing that Article 270(2) CIRE encompasses individual real property sales within insolvency or liquidation proceedings, citing supporting case law from the Supreme Administrative Court and CAAD. The claimant also raised procedural objections regarding the assessment notification's validity. The core legal dispute centers on the interpretative scope of the CIRE tax benefit: whether the legislative intent was to exempt only transfers of complete business units or to extend the benefit to individual asset sales that occur within the insolvency framework, recognizing the special economic recovery purposes underlying insolvency proceedings.

Full Decision

ARBITRAL DECISION

The arbitrators, José Poças Falcão, Nuno de Oliveira Garcia and Nuno Pombo, appointed by the Deontological Council of the Administrative Arbitration Center (hereinafter only "CAAD") to constitute the present Arbitral Court (AC), hereby decide as follows:

I – REPORT

The company "A…, Unipessoal, Lda", a commercial company with registered office at Rua …, Building "…", no.…, …-… …, …, registered at the Commercial Registry Office of … under collective person number …, with share capital of € 100,000.00 (one hundred thousand euros), (hereinafter only designated as Claimant), presented, on 10-02-2016, a request for constitution of a singular arbitral tribunal, in accordance with articles 2.º and 10.º of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter only designated as LRATM), in conjunction with article 102.° of the Tax Procedure and Process Code (hereinafter only designated as TPPC), in which the Tax and Customs Authority is the Respondent (hereinafter only designated as Respondent).

The Claimant requests the annulment of the notification of the stamp duty (IMT) assessment act practiced by the Tax Authority or, without prejudice thereto, the stamp duty assessment itself fixed as to the "taxable matter of the general regime", through Letter dated 12 October 2015 in the total amount of € 97,528.91 on the grounds of its illegality.

The request for constitution of the arbitral tribunal was accepted by the Illustrious President of CAAD on 26-02-2016 and notified to the Tax and Customs Authority on that same date. The Deontological Council appointed as arbitrators the herein signatories who communicated acceptance of the assignment within the applicable time period.

On 12-04-2016, the Parties were duly notified of this appointment and did not manifest willingness to refuse the appointment of the arbitrators, in accordance with combined article 11.º, no. 1, subsections a) and b) of the LRATM and articles 6.º and 7.º of the Deontological Code.

In accordance with the provision in subsection e) of no. 1 of article 11.º of the LRATM, the singular arbitral tribunal was constituted on 26-02-2016.

Notified to pronounce on the request submitted by the Claimant, the Respondent presented its response, arguing, by way of objection, for the rejection of the request submitted by the Claimant.

The Parties presented arguments within their respective time periods, without there having been any witness examination, as such examination was waived by unanimous decision of the arbitral panel made on 20 June 2016.

II – THE CLAIMANT'S REQUEST

In the present proceedings, the Claimant begins by requesting the nullity of the notification of the tax assessment on the grounds of its invalidity, taking into account the allegations of lack of identification of the author of the act, lack of complete identification of the means of defence, lack of reasoning and lack of competence of the author to perform the act.

Only subsequently does the Claimant request the annulment of the stamp duty assessment effected by violation of the provision in no. 2 of article 270.º of the Insolvency and Business Recovery Code (hereinafter only designated as IBRC). In its view, the stamp duty assessment in question is illegal by violation of the said legal provision as it expressly recognises the exemption of that tax in transmissions of the company or of establishments thereof within the scope of insolvency, payment or recovery plans or carried out within the scope of liquidation of the insolvent estate. Now, the Claimant understands that the said norm encompasses not only the sales of the company or establishments thereof as universalities of assets, but also the sales of real property of its assets, provided that they are integrated within the scope of the insolvency plan or carried out within the scope of liquidation of the insolvent estate. Its position is based on the interpretative scope of the norm and on case law from the Supreme Administrative Court (SAC) and the CAAD which it cites and extensively references.

III – THE RESPONDENT'S REPLY

In its reply, the Respondent argues for the rejection of the formal defects, as well as of the request for annulment of the stamp duty assessment on the grounds that it considers that, in the case at hand, the exemption provided for in no. 2 of article 270.º of the IBRC would not be applicable. The Respondent contends that, in the case at hand, we are not faced with an onerous transmission of assets that are part of the universality of a company or establishment sold, exchanged or transferred within the scope of an insolvency or payment plan or liquidation of the insolvent estate, but rather only with an act of sale of assets in the process of liquidation of the bankrupt estate of a company. In this respect – a formal one moreover – there are no differences between the position of the Claimant and that of the Respondent, however the latter understands that the tax exemption provided for in the normative provision in question only operates if the object of the transmission is the company or the establishment and not some of its assets. That is, the tax benefit in question is only recognised for the transmission of the universality of assets associated with the exercise of the economic activity of the company. This is, in the view of the Respondent, the only interpretation consistent with the letter and spirit of the law and which conforms with the principle of the prevalence of the sale of the company as a whole, as described in the preamble to the IBRC.

IV – Preliminary Issues

The Court was regularly constituted and is competent ratione materiae, in accordance with article 2.º of the LRATM.

The parties have legal capacity and standing, show themselves to be legitimate and are regularly represented (cf. articles 4.º and 10.º, no. 2, of the LRATM and article 1.º of Ordinance no. 112-A/2011, of 22 March).

No procedural nullities were identified.

V – Factual Matters and Respective Foundation

With relevance for the decision on the merits, the Arbitral Court deems the following facts to be proven:

a) The present Claimant was the subject of a credentialed inspection action under service order no. OI.2014… of internal scope – from the Finance Directorate of …, where it was ascertained that it acquired three properties from company B… – Real Estate Company, Lda. – In Liquidation, NIPC …, within the scope of judicial liquidation of the "insolvent estate" of this commercial company;

b) In the said Inspection Report it was concluded that the acquisition of the properties benefited from the stamp duty exemption under article 270.º of the IBRC, through the use of stamp duty assessment no. … dated 15-07-2013, carried out by the Finance Service of …;

c) However, in the said inspection report it was maintained that the present Claimant did not meet the requirements to benefit from the stamp duty exemption under no. 2 of article 270.º of the IBRC, whereby the property transactions constituted operations subject to and not exempt from stamp duty.

d) The stamp duty assessment was sent to the present Claimant, which requested the constitution of the present arbitral tribunal.

e) The present Claimant did not proceed to payment of the assessment within the time period referred to therein, whereby the corresponding debt certificate was issued, and the coercive collection process with no. PEF …2016… is running at the Finance Service of ….

V.II. Foundation of the Factual Matters

The conviction regarding the facts deemed as proven was based on the documentary evidence attached by the Claimant to the initial request – essentially with respect to the procedure subsequent to the assessment, the insolvency process of B…, and the terms of the acquisitions carried out by the Claimant – aspects which were not contested by the Respondent.

V.III. Facts Not Proven

No essential facts, with relevance for the appreciation of the merits of the case, which were not proven, were ascertained.

VI. Question to be Decided

As mentioned above, the initial request imputes defects to the notification of the tax assessment and, subsequently, defects to the tax assessment itself. Simplified (but not entirely accurately), it could be argued that the former defects relate to formal aspects, whereas the violation of law imputed to the assessment constitutes a defect of a material nature. Regardless of this distinction, what appears to be determinant is to ascertain to what extent it is useful in the present proceedings to consider other defects beyond the material defect, if it is concluded that this should be well-founded. From another angle, what would be the point (from the outset to the Claimant) of annulling the notification of the assessment, when such annulment would not be an impediment for the Tax Authority to again, based on the same position regarding article 270.º of the IBRC, issue a new assessment or merely proceed to new notification.

Taking into consideration the case law of the SAC and the CAAD regarding the substantive question to be decided in the present proceedings, the question first to be decided in the present proceedings is as follows:

— Is the stamp duty assessment by the Tax Authority based on the interpretation of the provision in no. 2 of article 270.º of the IBRC, in the sense that this norm only exempts from tax cases of onerous transmission of assets within the scope of liquidation of the insolvent estate when such assets constitute the entirety, and not merely part, of the insolvent company, illegal?

VII. The (Il)legality of the Assessment

It is therefore necessary, first and foremost, to decide on the substance of the question, namely, on the legality of the stamp duty assessment.

It results from the Inspection Report itself on which the assessment is based, that the Claimant acquired some assets within the scope of liquidation of the insolvent estate of company B…, having therefore not acquired the universality of assets associated with the exercise of the economic activity of that insolvent company. As the initial request itself states, both the SAC and the CAAD have already produced abundant case law on the best interpretation of no. 2 of article 270.º of the IBRC, in particular as to what we could call the scope of the tax exemption provided for therein. Such case law has come to understand that it results from the letter of no. 2 of article 270.º of the IBRC, that the legislator included in the provision of the norm, not only the global transmission of the assets of the insolvent company, but also the partial transmission of such assets, corresponding to one or more establishments of the insolvent company and even corresponding to mere real properties (even if not establishments).

An example of this is the unanimous case law of the SAC which has been defending an extensive interpretation of no. 2 of article 270.º of the IBRC, considering that it applies "[...] not only to sales or exchanges of companies or establishments as universality of assets, but also to sales or exchanges of real properties (as elements of their assets) provided that they are framed within the scope of an insolvency or payment plan, or carried out within the scope of liquidation of the insolvent estate". This very fact results from recent decisions dated 20-01-2016, handed down in proc. no. 01350/15, 16-12-2015, handed down in proc. no. 01345/15, 18-11-2015, handed down in procs. no. 01067/15, no. 0575/15, and 11-11-2015, handed down in proc. no. 0968/13.

As for us, we follow this jurisprudential position, whereby, and for all that has been stated above, it is concluded that the assessment effected by the Tax Authority, here contested by the Claimant, is illegal by violation of the provision in no. 2 of article 270.º of the IBRC, whereby it must be annulled, with the other legal consequences, it not being necessary – from the outset due to futility – to consider the other defects invoked in the initial request and imputed to the notification of the assessment.

The request submitted by the Claimant thus succeeds with respect to the annulment of the assessment in the present proceedings.

VIII. DECISION

In light of the above, the request for arbitral pronouncement with respect to the request for annulment of the stamp duty assessment is upheld, declaring it illegal by violation of law, specifically the provision in no. 2 of article 270.º of the IBRC, annulling it in its entirety accordingly.

The value of the case is fixed at 97,528.91 € (ninety-seven thousand, five hundred and twenty-eight Euros and ninety-one Cents), in accordance with the provisions of articles 3.º, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCTAP), 97.º-A, no. 1, subsection a) of the TPPC and 306.º of the CPC.

The amount of costs is fixed at 2,754€ (two thousand, seven hundred and fifty-four Euros) under article 22.º, no. 4 of the LRATM and Table I annexed to the RCTAP, to be borne by the Respondent, in accordance with the provisions of articles 12.º, no. 2 of the LRATM and 4.º, no. 4 of the RCTAP.

Notification ordered.

Lisbon, 21 October 2016

The Arbitrators

José Poças Falcão

Nuno de Oliveira Garcia

Nuno Pombo

Frequently Asked Questions

Automatically Created

Is IMT tax exemption applicable to property transfers within insolvency proceedings under Article 270(2) of CIRE?
Article 270(2) of CIRE provides an IMT exemption for onerous transmissions of companies or establishments within insolvency, payment or recovery plans, or liquidation of insolvent estates. The central interpretative question is whether this exemption applies only to transfers of the company or establishment as a complete universality of assets, or extends to individual property sales occurring within insolvency liquidation proceedings. The Tax Authority maintains a restrictive interpretation requiring transfer of the entire business unit, while taxpayers argue the exemption's purpose is to facilitate asset realization in insolvency contexts, supporting a broader interpretation that includes individual property transfers.
What are the grounds for annulling an IMT tax assessment issued by the Portuguese Tax Authority?
An IMT tax assessment can be challenged on both procedural and substantive grounds. Procedural grounds include: lack of proper identification of the author of the administrative act, incomplete identification of available legal remedies, insufficient reasoning or justification for the assessment, and lack of competence of the official issuing the act. Substantive grounds focus on the incorrect application of tax law, such as improper denial of applicable tax exemptions or benefits, erroneous calculation of taxable value, or misinterpretation of relevant legal provisions. Taxpayers can challenge assessments through administrative appeals or arbitration proceedings at CAAD.
Can a taxpayer challenge an IMT liquidation notice for lack of legal basis and insufficient reasoning?
Yes, a taxpayer can challenge an IMT liquidation notice for lack of legal basis and insufficient reasoning under Portuguese administrative law principles. Tax notifications must comply with formal requirements including proper identification of the issuing authority, clear statement of the legal grounds supporting the assessment, adequate reasoning explaining why the tax is due and how it was calculated, and complete information about available means of legal defense. Failure to meet these requirements can constitute grounds for declaring the notification invalid or null. The CAAD arbitral tribunal has jurisdiction to review both procedural validity of notifications and substantive legality of the underlying tax assessments.
How does the CAAD arbitral tribunal interpret tax benefits for companies acquiring assets in insolvency processes?
CAAD arbitral tribunals interpret tax benefits according to established principles of Portuguese tax law. While tax benefits and exemptions are generally subject to strict interpretation and cannot be applied by analogy (as per Article 10 of the General Tax Law), tribunals consider the legislative purpose and context of specific provisions. In insolvency contexts, tribunals analyze whether the policy objective of facilitating business recovery and asset liquidation supports a broader or narrower interpretation of exemptions. Case law from the Supreme Administrative Court influences CAAD decisions, with some precedents supporting extended application of CIRE tax benefits to individual asset sales within insolvency proceedings, recognizing the special economic and social purposes underlying insolvency legislation.
What procedural requirements must the Tax Authority meet when notifying an IMT liquidation under Portuguese law?
When notifying an IMT liquidation, the Portuguese Tax Authority must comply with procedural requirements established in the Tax Procedure and Process Code (CPPT) and general administrative law. The notification must: identify the competent official or body issuing the act; provide complete legal grounds and factual basis for the assessment; include adequate reasoning explaining the calculation and legal foundation; specify the amount due, payment deadline, and consequences of non-payment; and clearly inform the taxpayer of available legal remedies including deadlines and procedures for administrative appeals or arbitration. The notification must also reference the specific legal provisions applied. Non-compliance with these formal requirements can render the notification invalid and constitute grounds for challenging the assessment.