Process: 762/2016-T

Date: May 30, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Process 762/2016-T, the CAAD arbitral tribunal addressed the IMT exemption scope under Article 270(2) of the Commercial Insolvency Recovery Code (CIRE). The claimant acquired seven properties for €321,000 from an insolvency proceeding in 2013, obtaining prior exemption certificates from the Tax Service. However, in 2016, the Tax Authority issued an IMT assessment of €20,865, contradicting the previously granted exemption. The claimant challenged this assessment, arguing constitutional violations, legitimate expectations breach, and misinterpretation of Article 270(2) CIRE. The claimant contended the exemption should apply to individual property sales within insolvency proceedings, not exclusively to transfers of entire companies or establishments, citing Supreme Administrative Court precedent from 2012. Before the arbitral tribunal ruled on merits, the Tax Authority revoked the contested assessment on March 17, 2017, following the issuance of Circular 4/2017. This circular revised the official interpretation of Article 270(2) CIRE, clarifying that IMT exemption extends to isolated sales of properties within insolvency plans, payment plans, or liquidation of insolvent estates, without requiring transfer of the entire company or establishment. Consequently, the Tax Authority requested extinction of proceedings due to supervening uselessness under Article 277(e) of the Civil Procedure Code. The claimant consented to dismissal but requested the Tax Authority bear procedural costs, given the voluntary satisfaction of the claim. The tribunal dispensed with the hearing under principles of procedural economy and prohibition of useless acts. This decision illustrates the importance of administrative interpretation circulars in Portuguese tax law, the constitutional dimensions of tax exemption interpretation, and the procedural mechanism for resolving disputes when the administration voluntarily corrects contested acts during arbitration proceedings.

Full Decision

Arbitral Decision

  1. Report

On 29-12-2016, the joint-stock company A…, S.A., collective person no. …, with registered office at …, no. …, parish of …, …-… Porto, registered in the Commercial Registry Office of Porto under no. …, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for the constitution of an arbitral tribunal with a view to the annulment of the tax assessment act for Municipal Tax on Onerous Property Transfers (IMT), in the amount of 20,865.00 €.

The Claimant states that it acquired, on 16-10-2013, seven properties within the framework of the insolvency proceeding of company B…, Lda, for the price of 321,000.00 €, and that prior to the acquisition, certificates were issued by the competent Tax Service certifying that the transfer in question was exempt from IMT, under Article 270(2) of the Commercial Insolvency Recovery Code (CIRE). The arbitral request further contains that on 12-01-2016, the Claimant was notified of the IMT assessment now in question, in the amount of 20,865.00 €, relating to the aforementioned acquisition.

Not agreeing with this IMT assessment, the Claimant filed a gracious claim, which was rejected by the Tax Service of Amadora….

The Claimant contends that the IMT exemption contained in Article 270(2) of the CIRE should be interpreted to encompass properties transferred by sale or exchange, when not included in the sale, exchange or assignment of the company or establishment, within the framework of insolvency proceedings or payments carried out in the course of the liquidation of the insolvent estate. For the Claimant, this regime is equivalent to what already resulted from paragraph c) of Article 121(2) of the previous CPEREF.

The Claimant refers to the position conveyed in the judgment of the Supreme Administrative Court of 30-05-2012, case no. 0949/11, according to which it interpreted Article 270(2) of the CIRE to the effect that only property transfers included in the transfer of company or its establishment are exempt from IMT, is not an interpretation in accordance with the Constitution.

Thus, for the Claimant, when issuing the IMT assessment in question, the Tax Authority's action suffers from "a defect of violation of the Law, since the assessment is then based on a rule which, when interpreted in a way to support the claimed assessment, becomes itself, at that moment, unconstitutional, by violation of Article 165(2) of the Portuguese Constitution".

The Claimant alleges that the IMT assessment subject to these proceedings stems from a misinterpretation of the provisions of Article 270(2) of the CIRE, thus suffering from the defect of error as to legal assumptions, with the legal consequence being the voidability of the assessment act.

On the other hand, the Claimant submits that the impugned act is not grounded in fact and in law, and thus Articles 268(3) of the Constitution, and 124 and 125 of the Administrative Procedure Code (CPA) and 77 of the General Tax Law (LGT) were violated.

For the Claimant, the Tax Authority violated its legitimate expectations and guarantees previously established, and the principle of trust 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 legal certainty and security provided for, among others, in Articles 12 of the LGT, 12 of the Civil Code and 103(3) of the Portuguese Constitution.

As to the principle of protection of trust, in the aspect of legal security, and to the principle of good faith, the Claimant refers to the judgment of the Supreme Administrative Court of 31-03-2014.

Finally, the Claimant alleges that the revocation of the exemption could only be carried out within one year after it was granted, being an act constitutive of rights, by application of the provisions of Articles 141(1) of the CPA and 58 of the Tax Court Procedure Code (CPTA). In support of this understanding, reference is made to the judgment of the Supreme Administrative Court of 15-05-2013, case no. 0566/12, which concluded that the act of revocation of tax exemption benefit from tax, which produces ex tunc effects and occurs more than one year after the act giving rise to the exemption, is illegal by violation of Article 14 of the CPA.

The Claimant affirms that it proceeded to pay the IMT assessment object of the present request, and requests the condemnation of the Tax Authority for the reimbursement of the tax unduly paid, plus indemnificatory interest.

A sole arbitrator was appointed on 14-02-2017, Suzana Fernandes da Costa.

In accordance with the provisions of Article 11(1), paragraph c) of the Tax Arbitration Regime (RJAT), the singular arbitral tribunal was constituted on 01-03-2017.

The Tax Authority was notified to present a response within the legal period for that purpose.

By a petition submitted on 17-03-2017, the Tax Authority communicated the revocation of the assessment act in question in the present proceeding, by the Head of the Tax Service of Amadora…, in accordance with the dispatch of 17-03-2017.

According to the said dispatch, the assessment act was revoked "in accordance with the revision of the interpretation of Article 270(2) of the CIRE set out 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 in Article 270(2) of the CIRE does not depend on the thing sold, exchanged or assigned encompassing the totality of the insolvent company or one of its establishments. Thus, acts of sale, exchange or assignment, in an isolated manner, of properties of the company or of establishments thereof are exempt from IMT, as long as they are integrated within the scope of insolvency plans, payment plans or recovery, 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 extinct due to subsequent futility of the litigation, under paragraph e) of Article 277 of the Code of Civil Procedure (CPC), applicable by force of Article 29 of the RJAT.

On 21-03-2017, a dispatch was issued ordering the notification of the Claimant to pronounce itself within 10 days on the petition presented by the Tax Authority.

On 31-03-2017, the Claimant came before the proceedings to inform that it had nothing to object to regarding the extinction of the proceedings due to subsequent futility of the litigation, under paragraph e) of Article 277 of the CPC, applicable by force of Article 29 of the RJAT, and requested that responsibility for costs fall upon the Respondent, as the subsequent futility or impossibility of the litigation is imputable to it, for having given voluntary satisfaction to the Claimant's claim. It also requested the restitution of the amount of tax paid, plus legal interest from the date of payment until its effective return.

On 04-04-2017, a dispatch was issued to dispense with the holding of the meeting provided for in Article 18 of the RJAT, under the provisions of Articles 16 paragraph c) and 19 of the RJAT, as well as the principles of procedural economy and the prohibition of performing useless acts. It was further ordered to notify the Claimant and Respondent to, if they wish, submit written allegations. In the same dispatch, 30-05-2017 was set as the date for the rendering of the arbitral decision, and the Claimant was warned to pay the subsequent arbitration fee by that date.

The Claimant submitted on 06-04-2017 a petition requesting that the allegations previously presented in the initial petition be reproduced, which contains the facts and the matter of law applicable to the case.

The Respondent chose not to present allegations.

On 12-04-2017, the Claimant submitted to the proceedings the proof of payment of the subsequent arbitration fee.

The parties have judicial personality and capacity and are legitimate (Articles 4 and 10(1) and (2) of the RJAT and Article 1 of Ordinance no. 112-A/2011 of 22 March).

The present request for arbitral pronouncement was submitted in a timely manner, in accordance with Article 10(1) paragraph a) of Decree-Law no. 10/2011 of 20 January.

The proceeding does not suffer from any nullities and no preliminary questions were raised.

  1. Matters of Fact

2.1. Proven Facts:

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

  1. The Claimant A…, S.A. acquired, on 16-10-2013, by public deed of purchase and sale, seven properties, for the price of 321,000.00 €, within the framework of the insolvency proceeding of company B…, Lda, which proceeded before the … Civil Court of the Commercial Court of Lisbon under no. …/10… TYLSB, as per document 1 attached with the arbitral request.

  2. The Claimant presented, before the acquisition, before the Tax Service the declaration for IMT and Stamp Duty assessment, and certificates were issued in which it is certified that the transfer in question was exempt from IMT under the provisions of Article 270(2) of the CIRE, as per document 2 attached with the arbitral request.

  3. The Claimant was notified on 12-01-2016 of the IMT assessment in the amount of 20,865.00 €, relating to the acquisition mentioned in point 1, as per copy of the assessment attached to the arbitral request as document 3.

  4. On 04-05-2016, the Claimant presented a gracious claim of the IMT assessment, as per copy attached to the arbitral request as document 5.

  5. The said gracious claim was rejected on 03-10-2016, as per copy attached to the arbitral request as document 7.

  6. The Head of the Tax Service of Amadora… revoked the IMT assessment act in question on 17-03-2017, with the following grounds: "acts of sale, exchange or assignment, in an isolated manner, of properties of the company or of establishments thereof are exempt from IMT, as long as they are integrated within the scope of insolvency plans, payment plans or recovery, or carried out within the scope of the liquidation of the insolvent estate", as per petition attached to the proceedings by the Tax Authority on 17-03-2017.

No other facts with relevance for the decision of the case were proven.

2.2. Grounds for the Proven Matters of Fact:

With regard to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the proceedings.

  1. Matters of Law:

3.1. Object and Scope of the Present Proceeding

Given the revocation of the assessment acts impugned, it falls to this tribunal to pronounce itself on the request for extinction of the proceedings due to subsequent futility of the litigation presented by the Respondent, and on the recognition of the right to indemnificatory interest presented by the Claimant.

3.2. The Request for Declaration of Illegality and Annulment of the Controversial Assessments: The (In)Utility of the Litigation

As accounted for above in the report, by the petition of 17-03-2017, the Tax Authority communicated in the proceedings, in accordance with the dispatch of the Head of the Tax Service of Amadora… of 17-03-2017, the revocation of the assessment act in question in the present proceeding, proposing, consequently, the extinction of the proceedings due to subsequent futility of the litigation.

By its petition of 31-03-2017, the Claimant states that it has nothing to object to regarding the extinction of the present proceedings due to subsequent futility of the litigation, under paragraph e) of Article 277 of the CPC, applicable by force of Article 29 of the RJAT.

It is thus incumbent upon this Tribunal to verify the utility of considering the request formulated by the Claimant in its request for arbitral pronouncement, for a declaration of illegality and annulment of the IMT assessment in question in these proceedings.

Subsequent futility of the litigation occurs when, due to a fact occurring during the pendency of the case, the solution of the dispute ceases to have interest and utility, which justifies the extinction of the proceedings, in accordance with Article 277 paragraph e) of the CPC.

As stated by Lebre de Freitas, João Rendinha, Rui Pinto, Civil Procedure Code annotated, volume 1, 2nd edition, Coimbra Editora, 2008, page 555, subsequent futility or impossibility of the litigation "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 proceeding, or is satisfied outside the scheme of the remedy sought. In both cases, the solution of the dispute ceases to be of interest – here, by impossibility of achieving the intended result; there, by it having already been achieved by another means".

As stated in the decision of CAAD in case no. 220/2016-T, "(…) if, by virtue of new facts occurring during the pendency of the proceedings, the scope aimed at with the claim filed in court has already been achieved by another means, then the decision to be rendered does not involve useful effect, and therefore subsequent futility of the litigation occurs in that respect".

Indeed, as results from what is stated above, the tax assessment act for IMT in question in these proceedings was subject to revocation (in accordance with Article 79(1) of the LGT), the Tax Authority having, with the dispatch rendered by the Head of the Tax Service of Amadora… on 17-03-2017, proceeded to the administrative annulment of the tax act by having altered the previously prevailing understanding on the matter.

It follows from this action by the Tax Authority that the claim formulated by the Claimant, which had as its purpose the declaration of illegality and annulment by this Tribunal of the IMT assessment in question, was prejudiced inasmuch as the suppression of that act and its effects from the legal order was achieved by another means after the institution of proceedings, as stated in the decision of CAAD in case no. 220/2016-T.

As mentioned in the said decision of CAAD, "the subsequent practice of the express act of revocation of the impugned assessments (cf. art. 79(1) of the LGT) implies that the proceedings concerning the examination of the legality of those assessments are extinguished due to subsequent futility of the litigation, given that, having their effects been eliminated by the revocatory annulment, the examination, with respect to such assessments, loses utility of the defects alleged in order to their invalidity, and the impugning claim against them becomes without object".

In these terms, subsequent futility of the litigation is verified with respect to the request for annulment of the tax act subject to the present proceeding, which implies the extinction of the corresponding proceedings under the provisions of Article 277 paragraph e) of the CPC, applicable by force of Article 29(1) paragraph e) of the RJAT.

3.3. Indemnificatory Interest

The Claimant states that it proceeded to pay the assessment in question in the present proceedings, and requests the reimbursement of the amount paid plus indemnificatory interest.

Article 43(1) of the LGT provides that "indemnificatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services which resulted in payment of the tax debt in an amount greater than legally due", and Article 61(4) of the Tax Court Procedure Code (CPPT) establishes that "if the decision recognizing the right to indemnificatory interest is judicial, the payment period is counted from the beginning of the period for its spontaneous execution".

In the present proceedings, taking into account the revocation of the tax assessment act in question, and given that the Tax Authority altered its understanding, now accepting the exemption from IMT for "acts of sale, exchange or assignment, in an isolated manner, of properties of the company or of establishments thereof are exempt from IMT, as long as they are integrated within the scope of insolvency plans, payment plans or recovery, or carried out within the scope of the liquidation of the insolvent estate", it is unquestionable that reimbursement of the tax paid will be due, by force of the provisions of Article 43(1) and Article 100, both of the LGT, thereby restoring the situation that would have existed if the tax assessment act subject to the arbitral decision had not been carried out, as concluded by the decisions of CAAD in cases no. 152/2016-T and 153/2016-T.

Similarly, it is understood that the illegality of the tax assessment act for IMT is attributable to the Tax Authority, which carried it out in an illegal manner, which cannot fail to be interconnected with its subsequent revocation.

Thus, we are faced with a defect of violation of substantive law, which is embodied in error as to legal assumptions, attributable to the Tax Authority. Therefore, the Claimant is entitled, in accordance with the provisions of Articles 24(1) paragraph b) of the RJAT and 100 of the LGT, to the reimbursement of the amount of tax unduly paid and to indemnificatory interest, under the terms established in Articles 43(1) of the LGT and 61 of the CPPT, calculated from the date of payment of the tax, at the rate resulting from Article 43(4) of the LGT, until the date of processing of the respective credit note, in which they will be included, as decided in the decision of CAAD in case no. 152/2016-T.

  1. Decision

In light of the foregoing, it is determined:

a) Judge extinct the proceedings with respect to the request for declaration of illegality of the assessment act impugned in the present proceeding due to subsequent futility of the litigation, under the terms of Article 277 paragraph e) of the CPC, applicable by force of Article 29(1) paragraph e) of the RJAT;

b) Judge as founded the request for condemnation of the Tax Authority to reimburse to the Claimant the amount of the tax paid, plus indemnificatory interest under the legal terms, from the date on which such payment was made until the date of complete reimbursement thereof;

c) Condemn the Tax Authority and Customs Authority in the costs of the proceedings.

  1. Value of the Proceedings:

In accordance with the provisions of Article 315(2) of the CPC and Article 97-A(1) paragraph a) of the CPPT and Article 3(2) of the Regulations of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 20,865.00 €.

  1. Costs:

Under the terms of Article 22(4) of the RJAT, and Table I attached to the Regulations of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00, due by the Tax Authority and Customs Authority, inasmuch as, in accordance with the provisions of the final part of Article 536(3) and Article 536(4) of the CPC, applicable by force of Article 29(1) paragraph e) of the RJAT, the fact of the revocation of the IMT assessment impugned which determined the subsequent futility of the litigation with respect to the request for its annulment is attributable to it and given the success, moreover, of what was claimed in this request for arbitral pronouncement.

Notify.

Lisbon, 30 May 2017.

Text prepared by computer, in accordance with Article 138(5) of the Code of Civil Procedure (CPC), applicable by referral from Article 29(1) paragraph e) of the Tax Arbitration Regime, reviewed by me.

The Arbitrator Judge

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270(2) of CIRE for insolvency property transfers?
Article 270(2) of CIRE provides IMT exemption for property transfers within insolvency proceedings. Following Circular 4/2017, the exemption applies to acts of sale, exchange or assignment of properties, including isolated individual property sales, when integrated within 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, representing a broad interpretation that aligns with constitutional principles and facilitates insolvency asset realization.
When can a tax arbitration case be dismissed due to supervening uselessness of the dispute?
Under Article 277(e) of the Civil Procedure Code, applicable to tax arbitration via Article 29 RJAT, proceedings can be dismissed due to supervening uselessness when the object of the litigation becomes moot. This occurs when the Tax Authority voluntarily revokes the contested act during proceedings, providing complete satisfaction to the claimant's claim. The tribunal may dispense with hearings under procedural economy principles. When supervening uselessness results from the Tax Authority's voluntary satisfaction of the claim, procedural costs typically fall upon the Respondent, and the claimant retains the right to restitution of amounts paid plus legal interest.
Are individual property sales in insolvency proceedings exempt from IMT under Portuguese law?
Yes, individual property sales in insolvency proceedings are exempt from IMT under Portuguese law following the interpretation established in Circular 4/2017. The Tax Authority revised its position to clarify that Article 270(2) CIRE exemption extends to isolated sales of individual properties from the insolvent estate, not exclusively to transfers involving entire companies or establishments. This applies when such sales occur within insolvency plans, payment plans, recovery plans, or liquidation of insolvent estates. Properties transferred by sale or exchange in these contexts benefit from IMT exemption regardless of whether they constitute the totality of the business or establishment.
How does the Constitutional principle affect the interpretation of IMT exemptions in insolvency?
Constitutional principles significantly affect IMT exemption interpretation in insolvency contexts. The Supreme Administrative Court in case 0949/11 (2012) held that restrictive interpretations limiting Article 270(2) CIRE exemption only to transfers of entire companies or establishments violate Article 165(2) of the Portuguese Constitution regarding tax creation and definition. This constitutional dimension compels interpretations favoring insolvency objectives and taxpayer rights. Additionally, principles of legal certainty, protection of legitimate expectations, tax legality, prohibition of retroactivity (Articles 12 LGT, 103(3) Constitution), and good faith constrain arbitrary revocations of previously granted exemption certificates, particularly when such revocations occur beyond the one-year period under Article 141(1) CPA.
What is the procedure for challenging an IMT tax assessment through CAAD arbitration in Portugal?
The procedure for challenging IMT assessments through CAAD arbitration involves: (1) filing an arbitration request identifying the contested act and legal grounds; (2) paying the initial arbitration fee; (3) appointment and constitution of the arbitral tribunal within statutory timeframes (singular or collective tribunal); (4) notification of the Tax Authority to present a response; (5) possible dispense of hearing under Articles 16(c) and 19 RJAT when parties agree or procedural economy warrants; (6) submission of written allegations; (7) payment of the subsequent arbitration fee before decision rendering; and (8) issuance of the arbitral decision within six months from tribunal constitution. The process is governed by RJAT with subsidiary application of the Civil Procedure Code under Article 29 RJAT.