Process: 760/2016-T

Date: May 11, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 760/2016-T) addresses the scope of IMT (Municipal Property Transfer Tax) exemption under Article 270(2) of the Portuguese Insolvency and Business Recovery Code (CIRE). The Claimant acquired three urban properties for €783,800 on December 20, 2013, from an insolvent company's estate during liquidation proceedings. Initially treated as exempt, the Tax Authority later issued an additional IMT assessment of €50,947, arguing that the exemption only applied when the entire company or establishment was transferred, not isolated asset sales. The Claimant paid under protest, filed an administrative complaint (denied), and subsequently initiated arbitration at CAAD seeking annulment and refund with interest. During the arbitration proceedings, the Tax Authority issued Circular 4/2017, revising its administrative interpretation following guidance from the Secretary of State for Tax Affairs (Order 14/2017-XXI) and superior court jurisprudence. The new circular clarified that Article 270(2) CIRE exemption applies to isolated sales of individual properties from insolvency estates, provided they occur within insolvency plans, payment plans, recovery plans, or liquidation proceedings. Consequently, on March 17, 2017, the Chief of the Tax Office annulled the contested IMT assessment. The Tax Authority then requested termination of arbitration proceedings due to supervening uselessness of the dispute (inutilidade superveniente da lide) under Article 277(e) of the Portuguese Civil Procedure Code. This case illustrates the evolving administrative interpretation of insolvency-related tax exemptions, the Tax Authority's capacity to self-correct during litigation, and the procedural mechanism for terminating arbitration when the underlying dispute becomes moot through voluntary revocation of the contested administrative act.

Full Decision

ARBITRAL DECISION

Hereby decides the Arbitrator Andrea Firmino, designated by the Deontological Council of the Administrative Arbitration Center to form a Singular Arbitral Tribunal:

I – REPORT

On December 29, 2016, A..., S.A. (hereinafter "Claimant"), with tax identification number ..., with registered office at ..., no. ..., parish of ..., in Porto submitted a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of January 20, which approved the Legal Regime of Arbitration in Tax Matters, with the wording introduced by Article 228 of Law No. 66-B/2012, of December 31 (hereinafter, briefly designated RJAT), seeking a declaration of illegality of the tax deed of additional assessment of Municipal Tax on Onerous Transmissions of Real Property ("IMT") in the amount of EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros) issued with reference to the acquisition carried out by the Claimant by public deed executed on December 20, 2013 concerning three urban properties intended as land for construction registered in the urban property matrix under articles ..., ... and ..., all located in ..., in the parish of ... and municipality of Loulé.

To substantiate its request, the Claimant alleges, in summary, that the property referred to in the said assessment deed is the result of a transmission effected through a sale, within the framework of the liquidation of the insolvent estate and therefore the exemption provided in No. 2 of Article 270 of the Insolvency and Business Recovery Code ("CIRE") should apply.

On December 30, 2016, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority ("AT").

The Claimant did not proceed with the appointment of an arbitrator, and therefore, under the provisions of subparagraph a) of No. 2 of Article 6 and subparagraph a) of No. 1 of Article 11 of RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrator of the arbitral tribunal, who communicated acceptance of the office within the applicable period.

On February 14, 2017, the parties were notified of the present designation and did not manifest any intention to refuse it.

In accordance with the provisions of subparagraph c) of No. 1 of Article 11 of RJAT, the Arbitral Tribunal was constituted on March 1, 2017.

On March 20, 2017, the Respondent, duly notified for this purpose, submitted its response, requesting that the proceedings be terminated due to subsequent futility of the dispute, as it had meanwhile annulled the said IMT assessment, already pending in the present arbitral proceedings.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, No. 1, subparagraph a), 5 and 6, No. 1, of RJAT.

The parties have legal capacity and standing, are legitimate and are legally represented, in accordance with Articles 4 and 10 of RJAT and Article 1 of Ordinance No. 112-A/2011, of March 22.

Having considered everything, it is proper to render

II. DECISION

A. FACTUAL MATTERS – Summary of facts established as proven

1- The Claimant acquired, by deed of sale and purchase executed on December 20, 2013, three urban properties intended as land for construction registered in the urban property matrix under articles ..., ... and ..., all located in ..., in the parish of ... and municipality of Loulé, for the total price of EUR 783,800.00 (seven hundred and eighty-three thousand and eight hundred euros);

2- The said property was part of the assets of the now insolvent company "B..., LDA." and, as such, was acquired by the Claimant within the framework of the insolvency proceedings of a legal entity that were pending against that Company;

3- The said acquisition was on that date exempt from IMT, in accordance with the provisions of No. 2 of Article 270 of CIRE;

4- Notwithstanding the foregoing, the Claimant was notified by the Tax Office of Amadora-..., by Official Letter dated November 27, 2015 for the purpose of exercising the right of prior hearing of the project of additional IMT assessment in the amount of EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros), effected under subparagraph d) of No. 1 of Article 17 of the IMT Code, regarding the sale and purchase transaction that occurred as stated above;

5- After being notified for this purpose, on January 26, 2016, the Claimant proceeded to pay the said amount;

6- Nevertheless, the Claimant submitted the corresponding administrative complaint of the additional IMT assessment deed on May 4, 2016, manifesting its disagreement with respect to the Respondent's understanding that the exemption provided in No. 2 of Article 270 of CIRE should not be granted in the case of isolated sale of assets of the transferor/insolvent party;

7- And, consequently, requesting the annulment of the assessment deed, supporting restitution of the amount unduly paid, plus legal interest from the date of payment until the actual refund;

8- A complaint which was unsuccessful, the AT maintaining the aforementioned IMT assessment, which prompted the present request for arbitral decision;

9- Meanwhile, already pending in the present jurisdiction, on March 17, 2017, the Chief of the Tax Office of Amadora-... determined the annulment of the IMT assessment in the mentioned amount of EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros);

10- According to the response now submitted by the Respondent, the Chief of Service revoked his Order for IMT assessment on the three urban properties sub judice, now considering the transmission thereof exempt, sustaining that he did so "in accordance with the revision of the interpretation of No. 2 of Article 270 of CIRE contained in Circular No. 4/2007, of February 10 (...), according to which the application of tax benefits provided in No. 2 of Article 270 of CIRE does not depend on the thing sold, exchanged or transferred encompassing the entirety of the insolvent company or one of its establishments (...)".

B. LAW

The request formulated by the Claimant to the Arbitral Tribunal was for a declaration of illegality and annulment of the IMT assessment in question, having regard to No. 2 of Article 270 of CIRE and, likewise, the restitution of the sum unduly paid, plus legal interest, calculated on the amount of EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros), from the date of payment until its actual refund.

Furthermore, already pending in the present arbitral proceedings, the IMT assessment deed in question was revoked by the Respondent, having regard to the most recent administrative instruction emanated from the AT, Circular No. 4/2017.

The cited Circular, following the Order of the Secretary of State for Tax Affairs No. 14/2017-XXI, of January 26 and the most recent jurisprudence of the Superior Courts came to amend Point III of the annex to Circular No. 10/2015, now clarifying as to the scope of IMT exemption in the acquisition of real properties the following: "The application of tax benefits provided in No. 2 of Article 270 of 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 an isolated manner, of real properties of the company or its establishments are exempt from IMT, provided they are integrated in insolvency plans, payment plans or recovery plans or practiced within the framework of liquidation of the insolvent estate."

Following the voluntary revocation of the IMT deed by the Respondent, under the terms of No. 1 of Article 13 of RJAT, it requested the termination of the proceedings due to subsequent futility of the dispute, under the provisions of subparagraph e) of Article 277 of CPC.

In fact, the CPC is of subsidiary application in relation to tax arbitral proceedings, under the terms of subparagraph e) of Article 2 of the Code of Tax Procedure and Process ("CPPT") and subparagraph e) of No. 1 of Article 29 of RJAT.

Consequently, subparagraph e) of Article 277 of CPC is to be applied to the present case, which indicates that a cause of termination of proceedings is the "impossibility or subsequent futility of the dispute".

As to the interest requested by the Claimant and, taking into account that it is an established fact that the Claimant paid, on January 26, 2016, the amount of EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros) of the additional IMT assessment in question, it is necessary to also assess this component of the request submitted for appreciation by the arbitral tribunal.

Now, insofar as the Claimant paid the aforementioned tax, the annulment of the additional IMT assessment now issued by the AT should have as a consequence, in addition to the reimbursement of the tax, the payment of compensatory interest, under the terms of Nos. 1 and 3 of Article 46 of the IMT Code.

In accordance with the aforementioned normative, compensatory interest shall be due under the terms of Article 43 of the General Tax Law which shall be assessed and paid under the terms of Article 61 of CPPT.

Now, following the jurisprudence emanated by the Supreme Administrative Court – for all, see Judgment No. 0574/14, of January 7, 2016 - given that there was error attributable to the Respondent from which resulted "payment of the tax debt in an amount higher than legally due", compensatory interest shall be calculated from the date on which the payment of IMT was made (i.e., from January 26, 2016) until the actual refund thereof by the AT.

*

C. DECISION

Having regard to the fact that the contested assessment deed of IMT, in the amount of EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros) was wholly revoked by the Respondent pending the present jurisdiction, it is confirmed and decided upon the subsequent futility of the dispute, thus ruling that the arbitral request formulated is granted.

Additionally, it is ruled that the request for condemnation of the AT for the payment of compensatory interest, calculated from the date of payment of the IMT assessment in question until the date of refund of the tax by the Respondent, is granted.

Under the provisions of No. 2 of Article 12 and of No. 2 of Article 22, both of RJAT, combined with the provisions of No. 4 of Article 4 of the Rules of Costs in Tax Arbitration Proceedings and Table I attached, and the application of the criteria fixed in No. 3 in fine and in No. 4 of Article 536 of CPC, I fix the costs at the amount of EUR 2,142.00 (two thousand one hundred and forty-two euros) to be borne by the Respondent Authority.

D. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at EUR 50,947.00 (fifty thousand nine hundred and forty-seven euros) under the terms of Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of No. 1 of Article 29 of RJAT and of No. 2 of Article 3 of the Rules of Costs in Tax Arbitration Proceedings.

E. COSTS

The value of the arbitration fee is fixed at EUR 2,142.00 (two thousand one hundred and forty-two euros), under the terms of Table I of the Rules of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was totally granted, due to subsequent futility of the dispute, under the terms of Articles 12, No. 2, and 22, No. 4, both of RJAT, and Article 4, No. 4, of the aforementioned Rules.

Let it be notified.

Lisbon, May 11, 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 real estate sales, exchanges, or transfers occurring within insolvency proceedings. Following Circular 4/2017, this exemption applies to isolated sales of individual properties from an insolvent estate, not only transfers of entire companies or establishments. The exemption covers transactions integrated in insolvency plans, payment plans, recovery plans, or practiced during liquidation of the insolvent estate.
Can property transfers during insolvency liquidation proceedings be exempt from IMT in Portugal?
Yes, property transfers during insolvency liquidation proceedings can be exempt from IMT in Portugal under Article 270(2) CIRE. Following the administrative interpretation clarified in Circular 4/2017, even isolated sales of individual properties from an insolvent estate qualify for exemption, provided they occur within the framework of liquidation proceedings. This represents a broader interpretation than previously applied, which had restricted the exemption to transfers of entire companies or establishments.
What happens when the Tax Authority annuls an IMT assessment during pending arbitration at CAAD?
When the Tax Authority annuls an IMT assessment during pending CAAD arbitration, it typically requests termination of proceedings due to supervening uselessness of the dispute (inutilidade superveniente da lide) under Article 277(e) of the Portuguese Civil Procedure Code, which applies subsidiarily to tax arbitration under RJAT. The voluntary revocation eliminates the contested administrative act, rendering the arbitration moot. The taxpayer would be entitled to refund of amounts paid plus legal interest from payment date until actual reimbursement.
What is supervening uselessness of the dispute (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of the dispute (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the contested administrative act ceases to exist or the dispute becomes moot during proceedings. Under Article 277(e) CPC (applicable subsidiarily per RJAT Article 13), this grounds termination of arbitration. Common scenarios include voluntary revocation of the contested tax assessment by the Tax Authority, as occurred in this case when Circular 4/2017 led to annulment of the IMT assessment mid-arbitration.
How does CAAD arbitration work for challenging additional IMT tax assessments on real estate transfers?
CAAD arbitration for challenging additional IMT assessments involves: (1) filing a request for constitution of arbitral tribunal within the statutory deadline after exhausting administrative remedies; (2) designation of arbitrator(s); (3) constitution of the tribunal; (4) submission of the Tax Authority's response; (5) evidentiary proceedings if needed; and (6) issuance of arbitral decision. Under RJAT, taxpayers can challenge IMT assessments exceeding the monetary threshold. The process provides an alternative to judicial courts, with specialized arbitrators deciding tax disputes. If the Tax Authority voluntarily revokes the assessment during proceedings, termination due to supervening uselessness may occur.