Process: 761/2016-T

Date: March 21, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 761/2016-T) addresses IMT (Municipal Property Transfer Tax) exemption for properties acquired during insolvency proceedings under Article 270(2) of the CIRE (Portuguese Insolvency Code). The claimant challenged an IMT assessment of €30,472.00 on property acquired at auction in insolvency liquidation proceedings in December 2013. The central dispute concerned whether the IMT exemption applies only to transfers of entire businesses or establishments, or also covers individual property sales within insolvency proceedings. The claimant argued for broad application to all insolvency-related transfers, while the Tax Authority initially rejected this interpretation. However, following Circular 4/2017 (10 February 2017), issued pursuant to Order 14/2017-XXI of the Secretary of State for Tax Affairs, the Tax Authority revised its position. The new interpretation confirmed that the Article 270(2) CIRE exemption does NOT require the property to constitute an entire business or establishment—individual property sales in insolvency also qualify for IMT exemption. On 13 March 2017, the Tax Authority revoked its rejection, rendering the arbitration moot. The tribunal declared the case extinct due to supervening uselessness attributable to the Respondent, but ordered reimbursement of the €30,472.00 IMT plus compensatory interest under Article 43(1) LGT. The interest applies because the error was entirely attributable to Tax Authority services, calculated at the supplementary legal rate from payment until full reimbursement. This decision confirms taxpayers' right to challenge IMT assessments through CAAD arbitration and establishes clear precedent that insolvency property sales benefit from IMT exemption regardless of business transfer configuration.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1 A…, S.A., a legal person number …, with registered office at …, …, in Porto, filed on 26.08.2016 a request for the constitution of an arbitral tribunal, under articles 1st, 2nd, no. 1, item a), and 10th of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and article 99 of the CPPT.

1.2 The Respondent in the proceedings is the TAX AND CUSTOMS AUTHORITY.

1.3 The Deontological Council of the Administrative Arbitration Center (CAAD) designated the undersigned to constitute the Singular Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 01 March 2017.

1.4 The request for arbitral award has as its immediate object the annulment of the decision that rejected the administrative complaint presented by the Claimant and, consequently, the annulment of the IMT (Real Property Transfer Tax) assessment act contested therein, contained in document no. …, in the amount of €30,472.00, relating to the acquisition, by auction, on 18 December 2013, of the autonomous fraction designated by the letter E of the urban property in horizontal property regime, located at …, parish of …, Municipality of …, described in the Land Register Office of … under number … and registered in the matrix of the said parish under article …, within the scope of the insolvency proceedings of a legal person which took place in the … Court of the Lisbon Commercial Court, under number …/11… TYLSB, assessment and fraction which are better identified both in the Claimant's request and in the administrative proceedings and in the documents attached thereto, to which reference is made here.

The assessment was the subject of the Administrative Complaint Procedure which received the number …2016… .

The Claimant contends the illegality of the assessments based on the provisions of article 270, no. 2, of the CIRE, which grants an exemption that, in the interpretation it considers to be correct, also covers immovable property transferred within the scope of an insolvency plan or liquidation operations of the insolvent estate, by sale or exchange, when not included in the sale, exchange or transfer of the company or establishment.

The Claimant further contends that an interpretation different from that which it proposes leads to the nullity of the revocation of the exemption as it constitutes "the creation of a true tax or special contribution not permitted by law", an interpretation that, in another respect, it intends should lead to the lack of substantiation of the act, or, in yet another respect, to the omission of essential formalities.

The Claimant further contended that the revocation of the exemption could only have taken place within one year from the date of the grant, by application of the provisions of articles 141, no. 1 of the CPA and 58 of the CPTA and that, therefore, in the case in question, the revocation occurred outside the period in which it was legally possible, under the terms of articles 136 and 141 of the CPA, applicable ex vi of no. 2, item c), of the LGT and item d) of article 2 of the CPPT.

Therefore, the assessment is, in its view, illegal and it consequently petitions for its nullity and annulment.

The Claimant further petitions for the condemnation of the Respondent to reimburse the amounts paid by virtue of the assessments under dispute, plus compensatory interest on all amounts paid accrued until the date of reimbursement.

1.5 The Tribunal issued an order on 1 March 2017, ordering notification of the Respondent to, in view of the understanding conveyed by Circular no. 4/2017, of 10 February, of the DSIMT, which, in compliance with the Order of the Secretary of State for Tax Affairs no. 14/2017-XXI, of 26 January 2017, proceeded with the revision of the AT's interpretation of the provisions of the CIRE regarding the exemption from IMT in the acquisition of immovable property carried out within the scope of insolvency proceedings, to come before the tribunal to declare whether it maintained the contested act.

1.6 The Respondent came before the tribunal to declare that the act rejecting the administrative complaint under dispute was "revoked, with all legal consequences, by the Head of that Finance Service, by order issued on 13.3.2017, in accordance with the revision of the interpretation of no. 2 of article 270 of the CIRE contained in Circular no. 4/2017, of 10 February, expressed in Point III of the annex to Circular no. 10/2015, according to which, the application of the tax benefits provided for in no. 2 of article 270 of the CIRE does not depend on the thing sold, exchanged or transferred covering the entirety of the insolvent company or one of its establishments".

It therefore seeks the extinction of the instance due to subsequent uselessness of the dispute.

1.7 When notified to pronounce itself, the Claimant came before the tribunal to state that it does not oppose the requested extinction due to subsequent uselessness and to seek the condemnation of the Respondent in costs.

It is therefore necessary to decide.

Let us see:

The revocation of the order rejecting the administrative complaint presented by the Claimant and which is the immediate object of the present request for arbitral award withdraws – to the extent that this is concerned – the subject matter from the proceedings and, consequently, entails, to that extent, the subsequent uselessness of the dispute, for a reason attributable to the Respondent.

However, the Claimant also petitioned for the condemnation of the Respondent to reimburse the amounts paid by virtue of the assessments under dispute, plus compensatory interest on all amounts paid accrued until the date of reimbursement, and therefore it is incumbent upon the Tribunal to also decide on this petition.

As regards reimbursement, it is clear that, as a result of the illegality of the assessment act - illegality which results from the position now assumed by the Respondent and the revocation, on that basis, of the order rejecting the administrative complaint - there is grounds for reimbursement of the tax paid, by force of the aforementioned articles 24, no. 1, item b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out".

As regards interest, the substantive regime for the right to compensatory interest is regulated in article 43 of the LGT, which establishes, as far as is relevant here, that "Compensatory interest is due when it is determined, in administrative complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally due. 2 – It is also considered that there is an error attributable to the services in cases where, despite the assessment being carried out based on the taxpayer's statement, the latter followed, in its completion, the generic guidelines of the tax administration, duly published."

Now, in the case in question, the illegality of the assessment is entirely attributable to the AT, here the Respondent.

On the other hand, the maintenance of the illegal situation, i.e., the decision on the administrative complaint is also attributable to the Tax Administration, here the Respondent, which rejected it on its own initiative.

Consequently, the Claimant is entitled to compensatory interest on the amounts paid by it, by force of the provisions of article 43, no. 1, of the LGT and 61 of the CPPT, at the supplementary legal rate, under the terms of articles 43, nos. 1, and 35, no. 10 of the LGT, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the CPPT, article 559 of the Civil Code and Regulation no. 291/2003, of 8 April (or any other(s) that alter the legal rate), from the date of payment until full payment.

DECISION

In view of the foregoing, it is decided:

- To declare the instance extinct, due to a supervening cause, attributable to the Respondent, as regards the petition for nullity/annulment of the assessment act filed by the Claimant;

- To condemn the Respondent to restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, namely, by reimbursing the Claimant of all amounts that it has paid as a result, plus compensatory interest calculated under the terms of articles 43, nos. 1, and 35, no. 10 of the LGT, article 24, no. 1, of the RJAT, article 61, nos. 3 and 4, of the CPPT, article 559 of the Civil Code and Regulation no. 291/2003, of 8 April (or any other(s) that alter the legal rate), from the date of payment until effective and full payment.

* * *

The value of the proceedings is fixed at €30,472.00 (thirty thousand four hundred and seventy-two euros), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, item a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at €1,836.00 (one thousand eight hundred and thirty-six euros) under article 22, no. 4 of the RJAT and Table I annexed to the RCPAT, at the charge of the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Let it be notified.

Lisbon, 21 March 2017,

The Arbitrator

(Eva Dias Costa)

Text prepared by computer, under the terms of article 131, no. 5 of the Code of Civil Procedure, applicable by reference to article 29, no. 1, item e) of the RJAT.

Frequently Asked Questions

Automatically Created

Is IMT (Municipal Property Transfer Tax) exempt for properties acquired during insolvency liquidation under Article 270 of the CIRE?
Yes. Following the Tax Authority's revised interpretation in Circular 4/2017 of 10 February 2017, IMT is exempt for properties acquired during insolvency liquidation under Article 270(2) of the CIRE. The exemption applies to all property transfers within insolvency proceedings, including liquidation sales by auction, regardless of whether they constitute transfers of entire businesses or establishments.
Does the IMT exemption under CIRE Article 270(2) apply to properties sold individually outside a business transfer in insolvency proceedings?
Yes. The Tax Authority's Circular 4/2017 definitively clarified that the IMT exemption under Article 270(2) CIRE does NOT depend on the property sold covering the entirety of the insolvent company or one of its establishments. Individual properties sold separately in insolvency proceedings—outside complete business transfers—qualify for the IMT exemption. This reversed the prior restrictive interpretation.
What is the legal time limit for the Tax Authority to revoke an IMT exemption granted under insolvency proceedings in Portugal?
The claimant argued that revocation of an IMT exemption could only occur within one year from the grant date, applying Articles 141(1) of the CPA (Administrative Procedure Code) and 58 of the CPTA (Administrative Courts Procedure Code), under Articles 136 and 141 CPA via Article 2(2)(c) LGT and Article 2(d) CPPT. However, the tribunal did not rule definitively on this time limit as the Tax Authority voluntarily revoked its rejection based on the revised interpretation in Circular 4/2017.
Can a taxpayer challenge an IMT liquidation through arbitral proceedings (CAAD) after an unsuccessful gracious complaint?
Yes. This decision demonstrates that taxpayers can challenge IMT liquidation assessments through CAAD (Administrative Arbitration Center) arbitral proceedings after an unsuccessful administrative complaint (reclamação graciosa). The right is established under Articles 1, 2(1)(a), and 10 of Decree-Law 10/2011 (RJAT) and Article 99 of the CPPT. The claimant successfully invoked arbitration to contest the €30,472.00 IMT assessment, ultimately obtaining reimbursement plus compensatory interest.
What are the grounds for claiming nullity of an IMT exemption revocation based on lack of legal basis and procedural formalities?
The claimant raised multiple nullity grounds: (1) the revocation constituted illegal creation of a tax or special contribution not permitted by law, violating the principle of legality; (2) lack of substantiation of the administrative act; (3) omission of essential formalities required for valid administrative acts; and (4) revocation occurred outside the one-year legal time limit under Articles 136 and 141 of the CPA (applicable via Article 2(2)(c) LGT and Article 2(d) CPPT). These arguments combined substantive illegality with procedural defects to challenge the Tax Authority's position.