Process: 92/2017-T

Date: November 6, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 92/2017-T addresses the interpretation of Article 269(e) of the Portuguese Insolvency and Business Recovery Code (CIRE) regarding Stamp Tax exemptions in insolvency proceedings. The taxpayer challenged multiple Stamp Tax assessments on property sales during insolvency liquidation, arguing the exemption for 'elements of the business assets' should apply broadly to all asset sales in insolvency contexts, including isolated real estate transactions and properties owned by individual traders. The claimant relied on legislative intent to facilitate creditor satisfaction and cited Supreme Administrative Court precedent. The Tax Authority countered that the exemption applies exclusively to assets forming part of a business enterprise, not residential properties owned by natural persons, even when sold through insolvency proceedings. The case highlights the narrow versus broad interpretation of business asset exemptions, with the Tax Authority asserting that Supreme Administrative Court case 866/13 established that housing properties owned by individuals fall outside the exemption scope regardless of the insolvency context. The arbitration proceeding sought annulment of ten separate assessments plus compensatory interest reimbursement, demonstrating the significant financial stakes in correctly interpreting insolvency tax benefits and the distinction between business and personal assets in Portuguese insolvency tax law.

Full Decision

ARBITRAL DECISION

I – REPORT

PETITION

A..., S.A., legal entity no. ..., with registered office at ... Street ..., ...-... Lisbon, hereinafter referred to as the Claimant, submitted, on 27-01-2017, pursuant to the provisions of subparagraph a) of article 2(1) and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Regulatory Framework for Tax Arbitration (RFTA), a request for arbitral pronouncement, in which the Tax Authority and Customs Authority is the Respondent, with a view to:

The annulment, based on violation of law, of the following Stamp Duty Tax assessment acts:

  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...,
  • Assessment notified by document no. ...

The condemnation of the Respondent to reimburse the amounts paid relating to the assessed tax and payment of the corresponding indemnity interest, calculated until full reimbursement of the amount due.

Alternatively:

The annulment of the assessment notified by document no. ..., as it constitutes duplicate assessment;

The condemnation of the Respondent to reimburse the amounts paid relating to the assessed tax and payment of the corresponding indemnity interest, calculated until full reimbursement of the amount due.

GROUNDS FOR THE PETITION

In support of its petition, the Claimant alleges, in summary:

In order to satisfy their credits, creditors may choose, in an insolvency proceeding, for business recovery comprised in the insolvent estate or for complete liquidation of the debtors' assets;

In accordance with subparagraph e) of article 269 of the Insolvency and Business Recovery Code (IBRC), hereinafter IBRC, are exempted from Stamp Duty Tax, when incorporated into insolvency plans, payment plans or recovery plans, or practiced within the scope of the insolvent estate, the sale, barter or assignment of elements of the business assets";

Accordingly, the Stamp Duty Tax exemption in question is granted, on the one hand, within the scope of operations for complete or partial acquisition of the business subject to the insolvency proceeding and, on the other hand, to mere acts of acquisition of real property considered in isolation carried out in the phase of liquidation of the same.

In fact, since the legislator, upon establishing such tax benefit in Stamp Duty Tax within insolvency proceedings, aimed to enable rapid and attractive sale of real property constituting the debtor's assets in order to satisfy the interests of creditors or to promote business recovery, it would appear incongruous to exclude from the scope of the exemption acts of alienation of real property comprised in the insolvent estate of the business, merely because considered in themselves.

In the Preamble to the IBRC, it is stated that "the existing regimes in the Code for Special Procedures for Business Recovery and Bankruptcy are essentially maintained regarding the exemption of fees and tax benefits."

Article 121 of the Code for Special Procedures for Business Recovery and Bankruptcy exempted from municipal property transfer tax the transmission of real property resulting, among others, from the "legal autonomization of commercial or industrial establishments, the sale, barter or assignment of elements of the business assets."

The preamble to that code stated: "a set of tax-based incentives is also adopted in this decree-law, through which it is sought especially to avoid unjust penalties or serious inconveniences for the legal, economic or financial operations into which the recovery proceeding may develop."

Now, in view of the express intention of the legislator regarding the maintenance of existing regimes in the Code for Special Procedures for Business Recovery and Bankruptcy regarding the exemption of fees and tax benefits, it is therefore necessary to uphold the understanding that the operations of alienation of elements of the business assets within the scope of the liquidation of the insolvent estate are included in the scope of the Stamp Duty Tax exemption provided for in subparagraph e) of article 269 of the IBRC.

It is in this sense the decision of the Supreme Administrative Court in the judgment of 25-09-2013, case no. 866/13.

The Commercial Code, in article 13, provides two distinct categories of entities capable of integrating the concept of "merchant," which are "persons who, having capacity to perform acts of commerce, make of this a profession" and "commercial companies."

Article 5 of the IBRC states that "for the purposes of this code, enterprise is considered to be any organization of capital and labor intended for the exercise of any economic activity."

It follows from the provision that it applies both to enterprises incorporated in a legal entity and to individual enterprises in which the entrepreneur is the merchant operating in his own name exercising an economic activity in business form.

Being thus, the exemption established in article 269, subparagraph e) of the IBRC is equally applicable to situations of acquisition of real property carried out within the scope of the liquidation of the insolvent estate of natural persons, who act in the capacity of individual traders.

RESPONSE

In its Response, the Respondent Tax Authority and Customs Authority alleges, in summary:

In the cases in question, we are dealing with the acquisition of real property, although in an insolvency proceeding, but which do not belong to a business nor were intended for the exercise of any business activity, but which were owned by natural persons intended for housing;

In the judgment of the Supreme Administrative Court rendered in case no. 866/13, of 25.09.2013, which applies entirely to the case of the present proceedings, it was decided: "I- In accordance with the provisions of article 269, subparagraph e) of the IBRC, sales of 'elements of the business assets' are exempted from Stamp Duty Tax. II- Accordingly, the said exemption does not cover the sale of urban property intended for housing belonging to a natural person, the fact that it concerns acts of sale performed within the scope of the liquidation of the insolvent estate not being sufficient to benefit from that exemption; rather, it must be demonstrated that the property sold is part of the assets of a business."

The Stamp Duty Tax exemption provided for in subparagraph e) of article 269 of the IBRC applies only to real property which is part of the assets of a business and not to real property of natural persons."

A different interpretation from that proposed here, namely, in the sense of recognizing Stamp Duty Tax exemption in acquisitions made from insolvent natural persons in the same way as from insolvent businesses, has no legal and constitutional support.

MEETING PROVIDED FOR IN ARTICLE 18 OF THE RFTA AND SUBMISSIONS

With the consent of the Parties, the Tribunal determined the dispensation with the holding of the meeting provided for in article 18 of the RFTA.

The Parties chose not to present written submissions.

II. PRELIMINARY DETERMINATION

The singular Arbitral Tribunal was regularly constituted on 30-03-2017, with the Arbitrator designated by the Ethical Council of the Administrative Arbitration Center, complying with the respective legal and regulatory formalities (articles 11(1), subparagraphs a) and b) of the RFTA and articles 6 and 7 of the Ethical Code of the Administrative Arbitration Center), and is competent ratione materiae, in accordance with article 2 of the RFTA.

The Parties have legal personality and capacity and are regularly represented.

The cumulation of petitions is admissible under article 2(1) of the RFTA.

No procedural defects were identified in the proceedings.

III. QUESTIONS TO BE DECIDED

The principal question to be examined and decided is that of the scope of application of the exemption provided for in subparagraph e) of article 269 of the Insolvency and Business Recovery Code (IBRC) and whether, specifically, the acquisition for consideration of real property included in the insolvent estate of an insolvent natural person is covered by that exemption, when such property was not dedicated to a business activity.

Alternatively, the question of the existence of duplicate assessment in the case of the assessments notified by documents ... and ... is submitted to the Tribunal.

IV – FINDINGS OF FACT

The following are the findings of fact considered relevant for the decision of the case:

1st Finding: The Claimant was notified of the Stamp Duty Tax assessments:

  • Assessment notified by document no. ..., in the amount of € 900.07, on the acquisition of urban property U-...-M of the urban property register of the parish of ..., from B..., within the scope of insolvency proceeding no. .../12... TBOER;

  • Assessment notified by document no. ..., in the amount of € 1,282.35, on the acquisition of urban property U-... of the urban property register of the parish of ..., from C... and D..., within the scope of insolvency proceeding no. .../12... TBLRA;

  • Assessment notified by document no. ..., in the amount of € 720.80, on the acquisition of urban property U-...-G of the urban property register of the former parish of ..., municipality of Paredes, from E..., within the scope of insolvency proceeding no. .../11... TBPRD and .../10... TBPRD;

  • Assessment notified by document no. ... in the amount of € 1,000.00, on the acquisition of urban property U-...-B1 of the urban property register of the parish of ..., municipality of Abrantes, from F... and G..., within the scope of insolvency proceeding no. .../12... TBABT;

  • Assessment notified by document no. ... in the amount of € 657.91, on the acquisition of urban property U-...-A of the urban property register of the Union of Parishes of ..., municipality of Vizela, from H... and I..., within the scope of insolvency proceeding no. .../11-...TBGMR;

  • Assessment notified by document no. ..., in the amount of € 1,096.00, on the acquisition of urban property U-...-BN of the urban property register of the Union of Parishes of ... and ..., municipality of Vila Nova de Gaia, from J..., within the scope of insolvency proceeding no. .../12... TBVLP;

  • Assessment notified by document no. ..., in the amount of € 966.40, on the acquisition of urban property ...-Q of the urban property register of the parish of ... (...), municipality of Maia, from K... and L..., within the scope of insolvency proceeding no. ... ... TBMAI;

  • Assessment notified by document no. ..., in the amount of € 356.80, on the acquisition of urban property U-...-E of the urban property register of the parish of ..., municipality of Amadora, from M..., within the scope of insolvency proceeding no. .../12... T2SNT;

  • Assessment notified by document no. ..., in the amount of € 480.00, on the acquisition of 1/2 of urban property U-...-N of the urban property register of the parish of ..., municipality of Valongo, from N..., within the scope of insolvency proceeding no. .../12... TBVLG;

  • Assessment notified by document no. ..., in the amount of € 480.00, on the acquisition of the undivided half of urban property U-...-N of the urban property register of the parish of ..., municipality of Valongo, from N..., within the scope of insolvency proceeding no. .../12... TBVLG.

2nd Finding: The Claimant paid the tax relating to all the challenged assessments.

The findings of fact were established on the basis of documents attached to the case file.

The following are the findings of fact not established:

1st Finding Not Established: The real property on which the challenged stamp duty tax assessments fall were dedicated to business activity of the insolvents.

There are no other findings of fact established or not established with relevance for the decision of the case.

VI – REASONING

Applicability of the Stamp Duty Tax exemption provided for in subparagraph e) of article 269 of the IBRC to the acquisition of urban property not integrated into business assets

Article 121 of the Code for Special Procedures for Business Recovery and Bankruptcy, approved by Decree-Law no. 132/93, of 23 April, provided, regarding tax exemptions:

(...)

2 - Are also exempted from municipal property transfer tax the transmissions of real property, integrated into any of the business recovery procedures, resulting from:

(...)

c) Legal autonomization of commercial or industrial establishments, the sale, barter or assignment of elements of the business assets, as well as long-term leases, provided, respectively, in subparagraphs e), f) and g) of article 101(1).

In 2004 the said code was replaced by the current Insolvency and Business Recovery Code, approved by Decree-Law no. 53/2004, of 18 March.

In the preamble to this diploma, it is read:

49 - The existing regimes in the Code for Special Procedures for Business Recovery and Bankruptcy are essentially maintained regarding the exemption of fees and tax benefits, as well as regarding the indication of criminal offense.

This diploma was approved under a legislative authorization law (Law no. 39/2003, of 22 August) which stated:

Article 9

(...)

2 — The Government is further authorized to exempt from stamp duty tax, when subject to it, the following acts, provided they are provided for in an insolvency plan or payment plan or practiced within the scope of the liquidation of the insolvent estate:

(...)

f) The performance of financing operations, the transfer or assignment of exploitation of business establishments, the constitution of companies and the transfer of commercial establishments, the sale, barter or assignment of elements of the business assets, as well as the lease of property.

In the original version of the diploma, article 269 stated the following:

Article 269

Benefit relating to stamp duty tax

Are exempted from stamp duty tax, when subject to it, the following acts, provided they are provided for in insolvency plans or payment plans or practiced within the scope of the liquidation of the insolvent estate:

(...)

e) The performance of financing operations, the transfer or assignment of exploitation of business establishments, the constitution of companies and the transfer of commercial establishments, the sale, barter or assignment of elements of the business assets, as well as the lease of property;

Currently, after amendment introduced by Law no. 66-B/2012, of 31/12, article 270 of the IBRC states the following:

Article 269

Benefit relating to stamp duty tax

Are exempted from stamp duty tax, when subject to it, the following acts, provided they are provided for in insolvency plans, payment plans or recovery plans or practiced within the scope of the liquidation of the insolvent estate:

(...)

e) The performance of financing operations, the transfer or assignment of exploitation of business establishments, the constitution of companies and the transfer of commercial establishments, the sale, barter or assignment of elements of the business assets, as well as the lease of property;

Given the wording of the norm, there can be no doubt that the exemption established in subparagraph e) of article 269 of the IBRC is not applicable to the acquisition of real property integrated into the insolvent estate derived from the personal, non-business assets of an insolvent natural person, as is the case.

This has already been confirmed in the judgment of the Supreme Administrative Court of 25-09-2013 (case no. 866/13), in whose summary it is stated: "I. In accordance with the provisions of article 269, subparagraph e), of the IBRC, sales of 'elements of the business assets' are exempted from Stamp Duty Tax. II – Accordingly, the said exemption does not cover the sale of urban property intended for housing belonging to a natural person, the fact that it concerns acts of sale performed within the scope of the liquidation of the insolvent estate not being sufficient to benefit from that exemption; rather, it must be demonstrated that the property sold is part of the assets of a business."

The Claimant states at a given point of the initial petition (article 56) that "in the case sub judice we are dealing with the acquisition of real property carried out within the scope of the liquidation of the insolvent estate of natural persons, who acted or who still act in the capacity of individual traders."

The truth, however, is that the Claimant does not present the necessary factual elements from which it can be concluded that the insolvents were, effectively, individual traders or that the real property in question was dedicated to a business activity.

Now the allegation of facts as well as the proof thereof constitutes the burden of the party that wishes to invoke them, according to the general rule of article 342 of the Civil Code.

The Claimant neither alleges nor proves the facts that would allow concluding that the real property in question formed part of business assets.

It is not the Tribunal's role to make that argument and corresponding proof.

However, examining the documentary evidence available, it is seen that several real property units have the classification of residential property, so it must be excluded a priori that they were dedicated to a business activity.

However, as we have already stated, it was the Claimant's burden to allege and prove the facts on which its claim is based.

Not having done so, it cannot be established that the real property in question was dedicated to any business activity.

Not proving such fact, the requirements for the application of the tax exemption established in subparagraph e) of article 269 of the IBRC are likewise not met, and the challenged assessments thus do not suffer from invalidity due to error in the legal or factual requirements.

Existence of Duplicate Assessment

The Claimant alleges that there is duplicate assessment in the case of the assessments notified by documents ... and ... .

Article 205 of the Tax Code of Procedure and Process defines duplicate assessment as existing "when, being a tax wholly paid, another of the same nature is required of the same or different person, relating to the same tax fact and the same time period."

In the specific case, the acquisition by the Claimant was made of an undivided share of urban property registered as no. ...-N of the parish of ... .

It happens that the share in question belonged to two persons: N... and O..., married under a regime of separation of property, but co-owners of the aforementioned share, each with a 50% quota of the total.

The Tax Authority issued two stamp duty tax assessments on the acquisition of this share: the assessments notified by documents ... and ... .

In both documents it is clearly indicated that the tax assessment refers only to the acquisition of an undivided half of the share in question.

Based on these data, we would be easily tempted to conclude that the two assessments refer to the two halves of the share, one belonging to N... and the other to O... .

What is a fact, however, is that, from the perspective of the Claimant, which is what matters, no element exists in either of the two assessments that would allow identification of which the transferor of the half in question is in each assessment. And without that element, it is indeed impossible for the Claimant to be certain that it is not being taxed twice for the same fact.

Now, confronted with the allegation of duplicate assessment, the Respondent, which could have adduced elements to demonstrate that the two assessments refer to halves belonging to different subjects, did not do so.

It is true that the two assessments have as antecedents, in terms of tax procedure, two letters with different numbers, by which the Claimant was notified to exercise the right of prior hearing: the assessment notified by document ... has its basis in letter no. 2016 ...; the assessment notified by document ... has its basis in letter no. 2016... .

Through these letters, and based on the mention made of them in the respective assessments, it could, with leniency toward the Tax Authority, be considered proven that the two assessments refer to acquisition of halves belonging to different subjects.

It is certain that it was the Respondent's responsibility to demonstrate that this is so, which it did not do.

But furthermore, in the administrative file, the letter relating to the assessment notified by document no. ... is not found.

And without that element it is not, strictly speaking, possible to state that one is not faced with a duplicate assessment.

It is thus considered that the available elements indicate that one is faced with duplicate assessment.

Duplicate assessment, beyond being a ground for opposition to enforcement, is a ground for challenge under article 99 of the Tax Code of Procedure and Process, and a cause of invalidity capable of determining the annulment of the act (see judgment of the Supreme Administrative Court of 08-07-2009, case no. 530/09).

Thus, it must be considered that the second assessment, i.e., the later of the two assessments issued on the half of the share ...-N of the parish of ... is invalid due to violation of law and consequently must be annulled.

The assessment issued later and which must be annulled is the assessment notified by document no. ... .

VI. DECISION

For the reasons set out, it is judged:

  1. The petition for annulment of the Stamp Duty Tax assessment notified by document no. ..., in which tax was assessed in the amount of 480.00 euros, is upheld;

  2. The petition for condemnation of the Respondent to effect reimbursement of the amount of 480.00 euros, corresponding to the tax paid relating to the Stamp Duty Tax assessment notified by document no. ..., is upheld;

  3. The petition for condemnation of the Respondent to pay to the Claimant indemnity interest on the amount of tax paid relating to the Stamp Duty Tax assessment notified by document no. ..., until its full restitution, in accordance with article 43 of the General Tax Law, is upheld.

  4. The petition for annulment of the remaining challenged assessment acts is dismissed.

Economic Utility Value of the Proceedings

The economic utility value of the proceedings is fixed at 7,940.33 euros.

Costs

Pursuant to article 22(4) of the RFTA, the costs are fixed at 612.00 euros, in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings.

The costs are divided into the following amounts, taking into account the provisions of article 527(1) and (2) of the Code of Civil Procedure:

  • 293.15 euros borne by the Claimant;
  • 18.85 euros borne by the Respondent.

Let this arbitral decision be registered and notified to the Parties.

Lisbon, Administrative Arbitration Center, 6 November 2017

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Are asset sales within insolvency proceedings exempt from Stamp Tax under Portuguese law?
Under Article 269(e) of the CIRE, Stamp Tax exemptions apply specifically to sales, exchanges, or assignments of 'elements of the business assets' when incorporated into insolvency plans, payment plans, recovery plans, or practiced within the insolvent estate. The exemption does not automatically cover all asset sales in insolvency proceedings; rather, it requires the assets to constitute part of a business enterprise, excluding residential properties owned by natural persons for non-business purposes.
What does Article 269(e) of the CIRE establish regarding tax exemptions in insolvency?
Article 269(e) of the CIRE establishes a Stamp Tax exemption for the sale, barter, or assignment of business asset elements when incorporated into insolvency plans, payment plans, or recovery plans, or when practiced within the scope of the insolvent estate. The provision aims to facilitate business recovery and creditor satisfaction by reducing transaction costs, but its scope is limited to assets that form part of a business enterprise as defined by CIRE Article 5.
Does the Stamp Tax exemption apply to real estate sales during the liquidation phase of insolvency?
The Stamp Tax exemption's applicability to real estate sales during insolvency liquidation depends on whether the property constitutes a 'business asset element.' According to the Tax Authority's position, supported by Supreme Administrative Court case 866/13, residential properties owned by natural persons for housing purposes are not covered by the exemption, even when sold during insolvency liquidation. The exemption applies only to real estate that forms part of a business's assets or is used for economic activity.
Can a taxpayer request annulment of Stamp Tax assessments and claim compensatory interest through tax arbitration?
Yes, taxpayers can request annulment of Stamp Tax assessments through tax arbitration under the Regulatory Framework for Tax Arbitration (RFTA), as established by Decree-Law 10/2011. Process 92/2017-T demonstrates this right, where the claimant challenged ten separate assessments and sought reimbursement of amounts paid plus compensatory interest calculated until full reimbursement. Tax arbitration provides an alternative dispute resolution mechanism for challenging tax assessment acts based on legal violations.
What is the scope of the Stamp Tax exemption for transactions under insolvency recovery and payment plans?
The scope of the Stamp Tax exemption under Article 269(e) CIRE for insolvency transactions is limited to 'elements of the business assets' incorporated into formal plans or practiced within the insolvent estate. This requires demonstrating that sold assets form part of a business enterprise's asset base. The exemption encompasses both complete and partial business acquisitions and isolated business asset sales, but excludes personal assets of natural persons not engaged in business activity, even when liquidated through insolvency proceedings.