Process: 99/2015-T

Date: October 27, 2015

Tax Type: IMT

Source: Original CAAD Decision

Summary

This arbitral decision addresses whether IMT (Municipal Tax on Onerous Real Estate Transfers) is due on real property acquired from an insolvency estate. The claimant purchased an urban residential property from the liquidation of an insolvent company's assets and was charged IMT of €15,640.68, despite believing the transaction qualified for exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE). The claimant filed an administrative complaint which was rejected by the Lisbon Tax Directorate, prompting arbitration proceedings before CAAD. The Tax and Customs Authority raised two preliminary exceptions: first, impropriety of procedural means, arguing that recognition of tax exemptions should be sought through Special Administrative Action rather than tax arbitration; second, lack of material jurisdiction, contending that arbitral tribunals cannot decide on tax exemption recognition matters as this exceeds their competence under Article 2(1) of the Tax Arbitration Framework. On the merits, the core dispute centers on interpreting Article 270(2) of CIRE. The tax authority argues the IMT exemption applies exclusively to transfers of a business or establishment as a going concern (universality of assets), not to individual asset sales from the insolvent estate. The claimant counters that the exemption covers all asset sales within insolvency liquidation proceedings, citing Supreme Administrative Court jurisprudence supporting this broader interpretation. Notably, Stamp Duty on the same transaction was refunded following acceptance of the administrative complaint under Article 269(e) of CIRE, creating an inconsistency in treatment. This case raises fundamental questions about the scope of insolvency-related tax exemptions and whether the benefits extend to individual asset disposals or only to transfers of operational business units during insolvency proceedings.

Full Decision

ARBITRAL DECISION

I – REPORT

A... ("Claimant"), taxpayer no. ..., resident at Rua ..., no. ..., ..., Lisbon, requested the establishment of a Single Arbitral Tribunal, pursuant to Articles 5, paragraph 2 and 10 of the Legal Framework for Tax Arbitration.

The Respondent is the Tax and Customs Authority (hereinafter referred to as "TCA").

The Claimant seeks a ruling from the Arbitral Tribunal with a view to annulling the rejection of the administrative complaint no. ... 2014 ... (attached as Doc. 1) as well as the corresponding levy of Municipal Tax on Onerous Real Estate Transfers ("IMT") under document no. ..., in the amount of € 15,640.68 (attached as Doc. 2), and the reimbursement of the amounts unduly paid, together with compensatory interest and other legal consequences.

The Claimant alleges, in summary, the following:

Within the framework of the insolvency proceedings no. .../..., which took place in the Second Court of the Commercial Court of Lisbon, the Claimant acquired an urban property, intended for residential use, located at ..., number ..., fronting Rua ..., number ..., parish of ..., Municipality of Lisbon, registered in the matrix under number ... and described in the competent Land Registry Office under number .../...;

The Property was part of the assets of the insolvent company B..., Lda, ("B..."), represented in the sale by the Insolvency Administrator, Mr. C....

Although the Property was acquired within the framework of the liquidation of the insolvent estate, Municipal Tax on Onerous Real Estate Transfers was unduly levied against the Claimant, in the amount of € 15,640.68.

Several urban properties were part of the insolvent estate, which were alienated within the framework of the liquidation of the insolvent estate.

All properties were acquired by the insolvent company for the amount of €1,000,100.00, as per deed of 14 June 2011.

Disagreeing with such levy, the Claimant filed an administrative complaint, and was notified on 7 January 2015 of its rejection.

At the time of the levy of IMT in question, Stamp Duty was also levied which, after filing an administrative complaint, was approved by the Lisbon Tax Authority, will be properly refunded, as it is deemed applicable the provisions of Article 269, paragraph e) of the Corporate Insolvency and Company Recovery Code ("CIRE").

The rejection of the IMT complaint was justified by the understanding of the Lisbon Tax Directorate, according to which only the onerous transfer of real property integrated in the universality of the establishment or business is covered by the IMT exemption provided in Article 270, paragraph 2 of CIRE.

The Respondent's understanding contradicts the jurisprudence of the Supreme Administrative Court (SAC) on this matter.

It is the Claimant's understanding that such levy is unlawful since the acquisition of the Property benefits from an IMT exemption and therefore the Claimant is entitled to be reimbursed of the amounts unduly levied and paid, together with the appropriate interest.

The Claimant opted not to appoint an arbitrator.

Pursuant to Article 6, paragraph 2, letter a) and Article 11, paragraph 1, letter b) of the LFTA, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the arbitrator of the arbitral tribunal, who communicated acceptance of the appointment within the applicable timeframe.

The parties were notified of this appointment and did not express any intention to challenge the arbitrator's appointment, in accordance with Article 11, paragraph 1, letters a) and b) of the LFTA and Articles 6 and 7 of the Code of Deontology of CAAD.

Thus, in accordance with Article 11, paragraph 1, letter c) of the LFTA, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the single arbitral tribunal was established on 28-04-2015.

The TCA filed a response in which it raised the exceptions of impropriety of the procedural means employed and lack of material jurisdiction of the Arbitral Tribunal and, without prejudice, challenged the grounds of the request for arbitral ruling.

The TCA alleges, essentially, the following:

A – Exception of Impropriety of the Procedural Means Employed

a) The Claimant submitted a request for arbitral ruling aimed at challenging the above-identified IMT levy; however, the matter to be decided concerns the granting of a tax benefit provided in Article 270/2 of CIRE;

b) In other words, the Claimant intends for the Single Arbitral Tribunal to issue a decision recognizing the IMT exemption;

c) In light of this claim, it is the Special Administrative Action that constitutes the adequate procedural means for assessing this matter (since it is the means of challenge intended to assess acts in tax matters – Article 97/2 of CPPT), and not the request for arbitral ruling (since this is one of the means of challenge intended to assess tax acts – Article 2/1 of LFTA);

d) The Claimant intends to graft a Special Administrative Action onto the present request for arbitral ruling;

e) However, this is not legally possible, whereby the Single Arbitral Tribunal must refrain from hearing the request, since the procedural means used by the Claimant does not permit the assessment thereof;

f) The impropriety of the procedural means constitutes a dilatory exception that bars the continuation of the proceedings, leading to the dismissal of the instance as to the claim in question, in accordance with Articles 577 and 278/1 both of the Code of Civil Procedure ("CCP"), applicable pursuant to Article 29/1-e) of the LFTA.

B – Exception of Lack of Material Jurisdiction of the Arbitral Tribunal

a) The assessment of such matter relating to the recognition of tax benefits exceeds the legal competence of the Single Arbitral Tribunal;

b) In fact, the competence of arbitral tribunals is limited to the matters listed in Article 2/1 of the LFTA, namely: "(…) the assessment of the following claims: a) The declaration of illegality of acts of levy of taxes, self-assessment, withholding at source and payment on account; b) The declaration of illegality of acts determining the taxable matter when it does not give rise to the levy of any tax, acts determining the assessable matter and acts fixing patrimonial values";

c) In light of that article, it is clearly outside the jurisdiction of tax arbitration the assessment of any questions relating to the recognition of tax exemptions, under penalty of violation of law;

d) The question of recognition of tax exemptions is a matter reserved to the jurisdiction of administrative and tax courts;

e) The lack of material jurisdiction of the Single Arbitral Tribunal for the assessment of the tax exemption question constitutes a dilatory exception that bars the continuation of the proceedings, leading to the dismissal of the instance as to the claim in question, in accordance with Article 576/1 and 2 and Article 577-a) of the CCP, applicable pursuant to Article 29/1-e) of the LFTA;

f) Furthermore, the lack of jurisdiction of the Single Arbitral Tribunal to assess the recognition of a tax exemption related to the transfer of immovable property integrated in an insolvency proceeding is raised;

g) The tax exemption provided in Article 270/2 of CIRE is based on the verification of two prerequisites: 1st - That the transfer of immovable property is effected by (i) sale, (ii) exchange or (iii) transfer of the business or of its establishments; and 2nd - That the (i) transfer of immovable property is integrated in an insolvency plan or a payment plan or (ii) the transfer is effected within the framework of the liquidation of the insolvent estate;

h) However, the verification of those legal prerequisites falls exclusively within the competence of the judicial body where the insolvency proceedings took place;

i) And this is because only the judge of the insolvency proceedings is in a position to verify the legal prerequisites required in Article 270/2 of CIRE;

j) Now, the present Single Arbitral Tribunal was not the judicial body where the insolvency proceedings took place;

k) Furthermore, the present Single Arbitral Tribunal does not even have the minimum elements to assess the verification of the legal prerequisites required in Article 270/2 of CIRE;

l) This means that, both in light of Article 270/2 of CIRE and by virtue of the elements (not) brought to the request for arbitral ruling, it is clearly outside the sphere of the Single Arbitral Tribunal the assessment of any questions relating to the recognition of a tax exemption related to the transfer of immovable property integrated in an insolvency proceeding;

m) The lack of material jurisdiction of the Single Arbitral Tribunal for the assessment of the tax exemption question constitutes a dilatory exception that bars the continuation of the proceedings, leading to the dismissal of the instance as to the claim in question, in accordance with Article 576/1 and 2 and Article 577-a) of the CCP, applicable pursuant to Article 29/1-e) of the LFTA.

C – Defense by Challenge to the Merits

a) The Claimant makes an erroneous interpretation and application of the legal norms applicable to the case at hand, manifestly erroneous;

b) The IMT exemption contained in Article 270/2 of CIRE covers acts of sale, exchange or transfer integrated within the scope of insolvency plans, payment plans, recovery plans or effected within the framework of the liquidation of the insolvent estate; however (now) with a reservation as to what the (then) Article 121/2-c) of CPEREF provided: that the object of the transfer be the business or its establishment(s), and not merely elements of the assets of the business;

c) As to the argument/circumstance that the preamble of CIRE indicates that it maintained, in essence, the tax benefits provided in CPEREF, the same is not, by itself, a decisive element in favor of the Claimant;

d) What the legislator intended to say was that the majority of the tax benefits enshrined in CPEREF was maintained by CIRE and not that all tax benefits of CPEREF were maintained by CIRE;

e) As to the argument of violation of the principle of legality, namely of Law 39/2003, of 22 August, by which the Government was authorized to legislate on the insolvency of natural and legal persons, the understanding conveyed by the Claimant is also not correct;

f) The authorized Decree-Law that approved CIRE respected the sense that was conferred upon it (i.e., the attribution of tax benefits within the framework of the insolvency proceeding), but to a lesser extent than that attributed to it by the ordinary legislator;

g) In other words, the Government fell short of what it was legally authorized to do;

h) Thus, no unconstitutionality exists, since no limit was exceeded by the Government in the use of the legislative authorization that was granted to it;

i) But more: the obligation of the ordinary legislator to the legislative authorization granted by the Assembly of the Republic is not absolute, in the sense of restricting the ordinary legislator any freedom of implementation;

j) The obligation of the ordinary legislator to the legislative authorization covers only its temporal limit of duration, and consequently the Government cannot proceed with the use of the legislative authorization after its expiration, and the sense and scope of the authorizing legal norm, which the Government cannot respectively alter or exceed;

k) The legislator may choose to use or not to use the legislative authorization;

l) On the other hand, the use of the legislative authorization may be integral or partial;

m) As long as the partial authorization does not collide with the sense of the authorization law, it is entirely permissible;

n) If the legislative authorization grants the Government the power to approve a set of tax benefits, the Government may choose the approval of only some of them and not all of them, without, by this fact, violating the sense and scope of the legislative authorization;

o) The Assembly of the Republic merely enumerated the tax benefits that the Government may grant within the framework of insolvency plans or payment plans or the liquidation of the insolvent business, without imposing on the Government the obligation to approve all of those benefits, as an alternative to the pure and simple non-use of the legislative authorization;

p) In view of the scarce elements brought to the proceedings, which point to the fact that the Claimant only acquired elements of the assets of the insolvent business, and not the insolvent business itself or even its establishments, it must be concluded that the Claimant is not in a position to enjoy the tax exemption established in Article 270/2 of CIMT, and there is therefore nothing to be said against the levy challenged by means of the request for arbitral ruling filed by the Claimant.

  1. By order of 25-09-2015, the Tribunal decided to dispense with the meeting provided for in Article 18 of the LFTA, grant the Claimant a period of 10 days to, if it so wishes, submit a written response to the exception raised by the Respondent, and dispense with the submission of final arguments.

  2. The Claimant submitted a written response to the exceptions raised by the TCA, where it sustains their lack of merit, with the following arguments:

a) A tax levy that stems from disregarding an exemption remains a tax act of levy, whereby the assessment of its legality falls within Article 2, paragraph 1, letter a) of the Legal Framework for Tax Arbitration;

b) Recourse to a special administrative action with a view to the recognition of an exemption can only occur in situations where the recognition of the exemption is not automatic, but is instead dependent on an administrative act susceptible to independent challenge;

c) The exemption in question is of automatic recognition, as provided in Article 10, paragraph 8, letter d) of the IMT Code and Article 5, paragraph 1 of the Tax Benefits Statute, with it being the sole responsibility of the tax authority to verify and declare it;

d) Since the levy act in question is the only act undertaken by the tax administration, harmful to the rights of the Claimant, its contentious challengeability must be guaranteed, in honor of the principle of effective judicial protection (Articles 20, paragraph 1 and 268, paragraph 4 of the Constitution of the Portuguese Republic);

e) The exception of lack of jurisdiction argued by the Respondent is equally without merit, on the ground that it is the court where the insolvency proceeding takes place that is competent to recognize the exemption;

f) In fact, and the Claimant making an effort to note that the jurisprudence cited by the Respondent would not even apply to the current version of Article 8 of the IMT Code at the date of the facts,

g) The truth is that, on the one hand, it is reiterated, the benefit in question is of automatic recognition, unlike the situations referred to by the jurisprudence cited by the Respondent regarding the application of Article 8 of the IMT Code;

h) And, secondly, there is no rule in the Corporate Insolvency and Company Recovery Code that grants competence to judicial courts to recognize the IMT exemption in the case at hand;

i) It is, therefore, at the moment of levy that the Tax Administration decides whether or not it considers the prerequisites for the application of the tax benefit to be met, and may and must carry out the necessary investigative acts to obtain the elements that attest to the verification of the material requirements for the application of the exemption;

j) It is therefore not understood how the allegation that the Tax Administration is not in a position to decide on the exemption in question when (i) it took a decision as to the application of the Stamp Duty exemption and (ii) it has all the means to obtain the necessary elements to correctly identify the facts generating the tax benefit in question;

k) It should be added that, even in cases where recognition is not automatic, it is the responsibility of the Tax Administration to recognize it (Article 5, paragraphs 2 and 3 of the Tax Benefits Statute and Article 54, paragraph 1, letter d) of the General Tax Law and Article 65 of the Code of Tax Procedure and Process);

l) Finally, the matter relating to the recognition of tax benefits is reserved to tax courts, in accordance with Article 212, paragraph 3 of the Constitution of the Portuguese Republic, Article 144, paragraph 1 of LOSJ, Article 29, paragraph 1, letter c) of ETAF, Article 101, letter b) of the GTL and Article 97, paragraph 1, letter h) and Article 145 of the Code of Tax Procedure and Process;

m) The question under analysis was already decided in arbitral proceedings no. 123/2015-T, of 1 September 2015, (appropriately attached to the proceedings by the Claimant) where it was decided that the arbitral tribunal has jurisdiction to annul IMT levies where the tax benefit provided in Article 270, paragraph 2 of CIRE is disregarded.

II – RULING ON PRELIMINARY ISSUES

Deciding on the Exceptions

Contrary to what the TCA alleges, the subject matter of the proceedings is not a question of recognition of an exemption (article 10 of the Response), but rather a tax levy act arising from the disregarding of an exemption, whereby the assessment of its legality falls within Article 2, paragraph 1, letter a) of the LFTA.

In fact, the exemption in question is of automatic recognition, as provided in Article 10, paragraph 8, letter d) of the IMT Code and Article 5, paragraph 1 of the Tax Benefits Statute, with it being the sole responsibility of the tax authority to verify and declare it.

Just as is affirmed in arbitral proceedings no. 123/2015-T, of 1 September 2015, in which it was decided that the arbitral tribunal has jurisdiction to annul IMT levies where the tax benefit provided in Article 270, paragraph 2 of CIRE is disregarded, "we are faced with an exemption of automatic recognition, as results from letter d) of paragraph 8 of Article 10 of the CIMT, whereby there did not need to be any independent act recognizing the exemption, it being at the appropriate moment for the practice of a levy act that the Tax and Customs Authority will have to assess whether the interested party enjoys a tax benefit. For this reason, since the levy act is harmful to the interests of the Claimant and being the sole act undertaken by the tax administration regarding the situation, its contentious challengeability must be guaranteed on the ground of any illegality, as derives from the principle of effective judicial protection, enshrined in Articles 20, paragraph 1, and 268, paragraph 4, of the CRP. On the other hand, the question of whether the levy act is legal, when there is no independent act, is the question of whether there must or must not be a recognition of the exemption (by the Judicial Court or by the Tax and Customs Authority) are questions that relate to the legality of the levy, which must be assessed in tax courts in judicial challenge proceedings, as results from letter a) of paragraph 1 of Article 97 of the CPPT".

It is also to be rejected the thesis sustained by the TCA that only the judge of the insolvency proceedings is in a position to verify the legal prerequisites required in Article 270/2 of CIRE.

What was said about this argument in the arbitral decision of arbitral proceedings no. 123/2015-T is endorsed:

"As regards the thesis defended by the Tax and Customs Authority that it would be exclusively competent for the Judicial Court where the insolvency proceedings took place, it is manifest that it has no legal foundation. In fact, there is no special rule of insolvency proceedings that grants competence to judicial courts to recognize tax exemptions and the general system of tax benefits clearly contradicts that hypothesis."

Thus being, not only does the present tribunal have material jurisdiction to hear the request, but the procedural means used by the Claimant proves to be adequate for challenging the levy act in question.

Therefore, the exceptions raised by the TCA are entirely without merit.

The Tribunal is regularly constituted, in accordance with Articles 2, paragraph 1, letter a), 5 and 6, paragraph 1, of the LFTA.

The parties have legal personality and capacity, are entitled to participate and are legally represented, in accordance with Articles 4 and 10 of the LFTA and Article 1 of Ordinance no. 112-A/2011, of 22 March.

It is necessary to assess and decide on the merits of the request.

III – FACTS

Proven Facts

The Tribunal considers the following facts as proven:

Within the framework of the insolvency proceedings no. .../..., which took place in the Second Court of the Commercial Court of Lisbon, the Claimant acquired an urban property, intended for residential use, located at ..., number ..., fronting Rua ..., number 2, parish of ..., Municipality of Lisbon, registered in the matrix under number ... and described in the competent Land Registry Office under number .../... (Doc. 3).

The Property was part of the assets of the insolvent company B..., Lda, ("B..."), represented in the sale by the Insolvency Administrator, Mr. C....

Although the Property was acquired within the framework of the liquidation of the insolvent estate (Docs. 4 and 5), Municipal Tax on Onerous Real Estate Transfers was levied against the Claimant, in the amount of € 15,640.68.

Disagreeing with such levy, the Claimant filed an administrative complaint (Doc. 6), and was notified on 7 January 2015 of its rejection (Doc. 1).

On 17 July 2014, the levied tax was paid in the amount of € 15,640.68 (Doc. 3).

Unproven Facts

With relevance to the decision, there are no essential unproven facts.

Reasoning of the Decision on Matters of Fact

The facts were established as proven on the basis of documentary evidence.

IV – LAW

The issue at hand is to determine whether the levy is vitiated by illegality due to violation of the provisions of Article 270, paragraph 2, of CIRE (Corporate Insolvency and Company Recovery Code approved by Decree-Law no. 53/2004 and subsequent amendments), which provides the following:

"Equally exempt from municipal tax on onerous transfers of real property are acts of sale, exchange or transfer of a business or of its establishments integrated within the scope of an insolvency plan or payment plan or effected within the framework of the liquidation of the insolvent estate".

The literal element of Article 270, paragraph 2 of CIRE determines that the IMT exemption applies to both sale and exchange, and only as to the latter is the transfer of a business or universality required.

As is stated by the Supreme Administrative Court, in a judgment of 17 December 2014 (Case no. 01085/13; Reporting Judge: Ana Paula Lobo):

"We believe that paragraph 2 of Article 270 of the Corporate Insolvency and Company Recovery Code should be interpreted, taking into account what has just been set forth, without need for any extensive interpretation, respecting its text, the end it aims to achieve, the various variants of the insolvency proceeding contained in the Corporate Insolvency and Company Recovery Code and the systematic logic of this statute, as granting IMT exemption to the following acts:

  1. Sale

  2. Exchange

  3. Transfer

. of a business

. or of establishments of that business".

The provision of CIRE in question succeeds Article 121, paragraph 2/c), of CPEREF and, just as occurred under that regime, also under the current one the cited exemption is granted taking into account the acts considered in themselves, independently of the status of the person or entity subject to the payment of the tax (See Luís Carvalho Fernandes and João Labareda, Annotated Code of Corporate Recovery Processes and Bankruptcy, 3rd Edition, p. 329).

In accordance with the preamble of Decree-Law no. 53/04, of 18 March, which approved CIRE, "the regimes existing in CPEREF are maintained, in essence, as to the exemption of fees and tax benefits, as well as to the indication of penal infractions" (§49).

Under the statute that approved CPEREF (Decree-Law no. 123/93, of 23 April), "in addition to quite favorable treatment of the two proceedings covered by the statute in the field of court costs, a set of incentives of a fiscal nature are also adopted in this decree-law, through which one seeks in particular to avoid undue penalties or serious inconveniences to the legal, economic or financial operations in which the recovery proceeding may be broken down".

Still according to this statute, "[w]ith that intention, some burdens of a fiscal or parafiscal character related to the legal transactions susceptible of constituting the means of recovery approved by the creditors were removed, having particularly in mind stamp duty, municipal contribution, municipal tax on transfers and the very fees due for the acts".

Thus, it is contrary to the end intended by the legislator – maintenance in essence of the regimes existing in CPEREF as to the exemption of fees and tax benefits – the understanding that would be excluded from IMT exemption the sales of elements of the assets of the business, even if integrated within the scope of the insolvency plan or payment plan or effected within the framework of the liquidation of the insolvent estate.

In the words of the Supreme Administrative Court, in a Judgment issued on 30 May 2012 (Case no. 0949/11; Reporting Judge: Isabel Marques da Silva):

"This interpretation [followed by the Tax Authority in the present case] collides, however - as well observed in the judgment appealed from -, with that which the legislator recorded in paragraph 49 of the preamble of CIRE regarding tax benefits, where it is stated that: 'the regimes existing in CPEREF are maintained, in essence, as to the exemption of fees and tax benefits' and it is certain that letter c) of paragraph 2 of Article 121 of CPEREF exempted from municipal tax on transfers the transfers of immovable property".

The systemic coherence also points in the direction of the admissibility of the IMT exemption in the case at hand.

In fact, it would not be understood that the legislator wanted to exempt from Stamp Duty the transfer of an immovable property that is part of assets and, however, considered that this same transfer is subject to IMT.

The understanding expressed by the Supreme Administrative Court is endorsed, in the Judgment of 17 December 2014 (Case no. 01085/14; Reporting Judge: Ana Paula Lobo), according to which:

"Taking into account the end that the legislator intends to achieve with the granting of such exemption, - to foster and support the rapid sale of the property that comprises the insolvent estate for obvious reasons of interest of the creditors, but also of public interest in resuming the normal functioning of the business world in which each insolvency proceeding appears as a disturbing element, giving 'a bonus' to whoever acquires the immovable property that comprises the insolvent estate – buy these properties that buy cheaper because they do not have to pay the IMT that would be due in the acquisition of a similar property outside the insolvency process – and which will be sold in the liquidation phase, the ambiguous text of paragraph 2 of Article 270 can be the object of a clearer and more unambiguous reading without recourse to any extensive interpretation. It is enough that we ask ourselves whether, to achieve the end previously defined, it makes any difference that one is selling globally the business with all its assets and liabilities, that one is selling one or more of the commercial establishments that comprised it, that one is selling property that comprised its assets but was not used in its business operations – for example an immovable property received in payment of a debt of which the insolvent business was a creditor – for one to be faced with a sale that is effected within the framework of the liquidation of the insolvent estate? And, if in the same situations it is a matter not of sales but of exchanges or transfers – the latter word must have been used in an improper sense inasmuch as associated with the business world it is usually reported to the transfer of operation, transfer of the commercial establishment, similar to lease and not to alienation, and in the Corporate Insolvency and Company Recovery Code it also shows itself to be used as to the acquisition of property by creditors? We believe that the answer cannot but be negative".

An interpretation of the provisions of Article 270, paragraph 2 of CIRE in accordance with the Constitution of the Portuguese Republic points in the same direction.

As is stated in the Judgment of the Supreme Administrative Court, of 30 May 2012 (Case no. 0949/11; Reporting Judge: Isabel Marques da Silva):

"Paragraph 2 of Article 270 of CIRE, whose wording is not clear as to the scope of the IMT exemption therein provided, must be interpreted in accordance with letter c) of paragraph 3 of Article 9 of Law no. 39/2003, of 22 August, for between two meanings of the law, both with support – at least minimal – in its respective letter, the interpreter must opt for that which makes it compatible with the constitutional text (interpretation in accordance with the constitution) [thus] should be understood to be exempt from IMT not only the sales of the business or its establishments, as universalities of property, but also the sales of elements of its assets, as long as they are integrated within the scope of the insolvency plan or payment plan or effected within the framework of the liquidation of the insolvent estate".

Still in the same sense, the Supreme Administrative Court pronounced itself, in the Judgment of 3 July 2013 (Case no. 0765/13; Reporting Judge: Fernanda Maçãs) in which it decided that:

"Paragraph 2 of Article 270 of CIRE, whose wording is not clear as to the scope of the IMT exemption therein provided, may, at most, be interpreted as covering not only the sales of the business or its establishments, as universality of property, but also the sales of elements of its assets, as long as they are integrated within an insolvency plan or payment plan or effected within the framework of the liquidation of the insolvent estate".

It is concluded, thus, in favor of the admissibility of the request for annulment of the IMT levy act in question, with all legal consequences.

Compensatory Interest

The Claimant requests the reimbursement of the tax unduly paid, plus compensatory interest.

The Claimant paid the levied amount of € 15,640.68, as referenced in the facts established above.

Article 43, paragraph 1, of the GTL provides 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 the payment of the tax debt in an amount greater than legally due".

In the case at hand, the error affecting the levy is attributable to the Tax and Customs Authority, which levied the tax despite the Claimant being exempt from IMT.

For this reason, the Claimant is entitled to be fully reimbursed of the amount paid (Articles 100 of the GTL and 24, paragraph 1, of the LFTA) and to compensatory interest from the date of payment of the amount, 17-07-2014, until reimbursement, at the legal default rate, in accordance with Articles 43, paragraphs 1 and 4, and 35, paragraph 10, of the GTL, Article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April.

V – DECISION

In accordance with the above, this Arbitral Tribunal decides:

a) To declare the request for arbitral ruling well-founded;

b) To annul the rejection of the administrative complaint no. ... 2014 ..., filed by the Claimant;

c) To annul the IMT levy in question;

d) To declare well-founded the request for a judgment condemning the Tax and Customs Authority to reimburse the amount paid by the Claimant plus interest, at the legal rate, from the date of payment until reimbursement of the amount paid.

Value of the Case

In accordance with Article 306, paragraph 2, of the CCP and Article 97-A, paragraph 1, letter a), of the CPPT and Article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of € 15,640.88.

Costs

Pursuant to Article 22, paragraph 4, of the LFTA, the amount of costs is fixed at € 918.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the payment of which shall be borne by the respondent, the Tax and Customs Authority.

Lisbon, 27-10-2015

The Arbitrator

(Paulo Nogueira da Costa)

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) exempt on real estate purchased from an insolvency estate in Portugal?
Under Article 270(2) of the Portuguese Insolvency Code (CIRE), IMT exemption for real estate purchased from an insolvency estate is subject to interpretation dispute. While the provision grants exemption for property transfers within insolvency liquidation or payment plans, tax authorities argue this applies only to transfers of a business or establishment as a going concern (universality of assets). However, taxpayers and some Supreme Administrative Court jurisprudence support a broader interpretation that the exemption covers individual asset sales from the insolvent estate when part of the liquidation process, not just transfers of entire business operations.
What does Article 270(2) of the Portuguese Insolvency Code (CIRE) say about IMT exemption for asset sales?
Article 270(2) of CIRE provides IMT exemption for onerous transfers of immovable property when: (1) the transfer occurs through sale, exchange, or transfer of a business or its establishments; and (2) the transfer is either integrated in an insolvency plan or payment plan, or is carried out within the framework of liquidating the insolvent estate. The provision aims to facilitate asset realization in insolvency proceedings. However, interpretation differs on whether 'transfer of business or establishments' is a mandatory requirement for all exemptions or whether individual asset sales during estate liquidation also qualify independently under the second condition.
Can a taxpayer challenge an IMT assessment through tax arbitration (CAAD) after a denied administrative claim?
Yes, taxpayers can challenge IMT assessments through tax arbitration (CAAD) after a denied administrative complaint, as demonstrated in this case. However, the Tax and Customs Authority may contest the arbitral tribunal's jurisdiction, arguing that matters involving recognition of tax exemptions fall outside the scope of Article 2(1) of the Tax Arbitration Framework, which covers illegality of tax levies and assessments. The authority may argue that exemption recognition requires Special Administrative Action in administrative courts rather than tax arbitration, raising preliminary exceptions of improper procedural means and lack of material jurisdiction that the tribunal must address before deciding the merits.
Does the IMT exemption under CIRE apply only to transfers of a business as a going concern or also to individual insolvency assets?
This is the central legal dispute in the case. The Tax and Customs Authority interprets Article 270(2) of CIRE restrictively, arguing the IMT exemption applies exclusively when immovable property is transferred as part of a business or establishment as a going concern (universality of assets). Conversely, the claimant argues for a broader interpretation supported by Supreme Administrative Court precedents, contending the exemption covers individual asset sales from the insolvent estate when conducted within the liquidation framework, not solely transfers of operational business units. The inconsistent treatment—Stamp Duty was refunded under Article 269(e) CIRE while IMT was maintained—suggests administrative practice may not be uniform.
What is the Supreme Administrative Court (STA) jurisprudence on IMT exemption for property sales within insolvency proceedings?
The claimant references Supreme Administrative Court (STA) jurisprudence supporting a broader interpretation of Article 270(2) of CIRE that extends IMT exemption to individual insolvency asset sales, not exclusively to transfers of businesses as going concerns. The decision notes that the tax authority's restrictive interpretation contradicts this jurisprudence. While the excerpt does not provide specific case citations or detailed analysis of the STA rulings, the claimant relies on this higher court guidance to argue that property sales within insolvency liquidation proceedings qualify for exemption regardless of whether they constitute transfer of an entire business establishment, emphasizing the policy objective of facilitating creditor satisfaction through unencumbered asset realization.