Process: 105/2014-T

Date: December 15, 2014

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 105/2014-T addressed a dispute regarding IMT (Municipal Tax on Onerous Transfers of Immovable Property) exemption under Article 20(1) of Decree-Law 423/83 for tourism utility investments. Taxpayers A and B challenged an additional IMT assessment of €20,150.00 related to their acquisition of a property fraction in a tourist development in Vilamoura, Quarteira. The Tax Authority (AT) denied the exemption, arguing that since tourist utility was granted to the construction company, subsequent purchasers of individual units acquired completed properties and could not benefit from the IMT exemption, citing Supreme Administrative Court precedent. The taxpayers contended that the exemption is objective, not limited to developers, and applies to all acquisitions forming part of the installation process of a tourist enterprise. They argued that installation completes only when the enterprise becomes fully operational for tourist exploitation, not merely upon construction completion. Key arguments included: (1) the exemption targets the investment process itself, not specific actors; (2) individual unit purchasers bear the investment burden and should receive the same fiscal benefit; (3) each autonomous fraction constitutes a functional element of the tourist enterprise; and (4) first acquisitions of these units remain part of the installation process when devoted to tourist exploitation. The arbitral tribunal was constituted on April 14, 2014, with proceedings including submission of documentation and legal arguments from both parties regarding the proper interpretation of the tourism utility exemption scope.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 105/2014 – T

Subject Matter: IMT – Exemption of article 20, no. 1, of Decree-Law no. 423/83, of 5 December

The arbitrator Guilherme W. d'Oliveira Martins, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to constitute the single arbitral tribunal established on 14 April 2014, decides as follows:

I - REPORT

  1. On 10.02.2014, the taxpayer "A" and the taxpayer "B" filed a petition for constitution of a single arbitral tribunal, in accordance with and for the purposes of the provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter "RJAT"), requesting that the Tax and Customs Authority (AT) be made party thereto.

  2. The petition for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 11.02.2014 and automatically notified to the AT on 12.02.2014.

  3. In accordance with the provisions of no. 1 of article 6 and of subparagraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrator of the single arbitral tribunal the undersigned, who communicated acceptance of the respective appointment within the applicable deadline.

  4. On 27.03.2014, the parties were duly notified of this appointment and manifested no intention to challenge the arbitrator's appointment in accordance with the combined provisions of article 11, no. 1, subparagraphs a) and b) of the RJAT and of articles 6 and 7 of the Deontological Code.

  5. Therefore, in accordance with the provisions of subparagraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 14.04.2014.

  6. On 01.07.2014, the first meeting of the Tribunal took place, in accordance with and for the purposes of article 18 of the RJAT, and minutes thereof were drawn up, which are also attached to the case file.

  7. The representative of the Petitioner declared waiver of witness testimony and both parties declared waiver of the presentation of submissions.

  8. In accordance with the provisions of article 18, no. 2, of the RJAT, the Tribunal set 20.09.2014 as the date for pronouncement of the arbitral decision.

  9. However, it was found that the Petitioner had undertaken to submit a document (document 4) with relevance to the decision of the case, and had not yet done so by the date set for pronouncement of the decision, so it was notified, on 01.10.2014, to do so within 5 days.

  10. By order of 01.10.2014, the Petitioner was notified to submit the document which it had undertaken to submit as document 4.

  11. Having failed to do so by 29.10.2014, the Tribunal extended the deadline for decision by 2 months, granting a further five days to the Petitioner to submit document 4.

  12. By order of 10.11.2014, the Tribunal admitted the submission of the document in question and granted a deadline to the AT to comment on it.

  13. In the present arbitral proceedings, the Petitioners request that the Arbitral Tribunal declare the illegality of the act of additional assessment of municipal tax on onerous transfers of immovable property (IMT), in the amount of €20,150.00, issued by the Tax Office of Loulé … (Quarteira) with reference to the acquisition, by the Petitioners, from company "C", S.A., on 27.01.2006, of fraction AN of the urban property registered in the property register of the parish of …, in Vilamoura, parish of Quarteira, municipality of Loulé.

13.A. The Petitioner supports its petition, in summary, on the following grounds:

  1. The act of additional IMT assessment in question is based on the improper application to the transfer which gave rise to it of the exemption provided for in article 20 of Decree-Law no. 423/83, of 5 December. The AT takes the view that, since the tourist utility referred to in that provision was requested and granted to the company which constructed the development, the taxpayers who acquired the properties from the said company acquired them in a development already constructed and installed, and therefore could not benefit from the said IMT exemption.

  2. The AT invokes in its favour the decision in the Judgment of the Supreme Administrative Court of 23.01.2013, in the context of case no. 968/12, in which it can be read that "where the acquisition of property or autonomous units intended for construction/installation of tourist enterprises is not in question, but rather the acquisition of accommodation units by final consumers, albeit because they are integrated in the enterprise in question and are devoted to tourist exploitation, such acquisitions cannot benefit from the exemptions enshrined in article 20, no. 1, of Decree-Law no. 423/83, of 5 December".

  3. The correct interpretation of article 20, no. 1, of Decree-Law no. 423/83, of 5 December, dictates that transfers made to the acquirers of fractions should be included within its scope, such acquirers benefiting from the same privileged status which the legislator intended to confer on the real estate promoter, with the benefit in question not being limited to the latter.

  4. It is the acquirers who bear the burden of the investment and, therefore, if the legislator's intention was to promote tourist activity, it makes sense that the said fiscal benefit should extend to them.

  5. In the case in question, where a tourist complex is involved in which each autonomous fraction constitutes a functional element (accommodation unit) forming part of the organizational unit established for the provision of tourist exploitation services (the tourist enterprise) – it is to be concluded that the first acquisition of each of those functional elements, because intended to enable each of them to begin operations and, at the same time, the enterprise as a whole, was still part of the process of installation of the enterprise, falling therefore within the scope of application of article 20 of Decree-Law no. 423/83, of 5 December, given the recognized and granted tourist utility of the enterprise in question and which covers all the functional elements that compose it.

  6. Article 20 of Decree-Law no. 423/83, of 5 December, does not grant the exemption to the constructor of the enterprise, to the real estate promoter or to the entity which licenses and/or operates the enterprise; it is an objective exemption, intended to benefit the realization of the process of installation of enterprises of tourist utility.

  7. It is sufficient, therefore, that it be verified that the immovable property acquired was integrated into the process of installation of an enterprise of tourist utility or was legally and economically devoted to that enterprise with a view to its complete installation.

  8. Installation is only completed when not only the procedure relating to licensing and authorization for the carrying out of urban development operations relating to construction is concluded, but also the procedure intended to permit or enable the operation of the enterprise, making it apt for the carrying out of tourist exploitation. Consequently, the process of installation of an immovable property enterprise of tourist utility, as an organizational unit intended for the provision of tourism services, only ceases when, after the immovable complex is constructed and licensed, it proves apt to operate on terms which enabled it to achieve the status of tourist utility, that is, when it is apt to be devoted to the activity of tourist exploitation with the quality required by the ministerial order which granted it that status.

  9. In the cases of tourist enterprises with plural ownership, this presupposes not only the construction and licensing of the accommodation units which form part of the immovable complex and the establishment as an organizational unit, in particular the obtaining of the respective Tourist Use License, but also that those accommodation units are in a condition to operate as such, which requires prior marketing by the real estate promoter, with the acquirers being those who enter into, necessarily, exploitation contracts with a view to achieving the tourist purpose.

  10. In sum, whoever acquires a fraction in a tourist complex with plural ownership, becoming a co-owner of the resort, still participates in its installation, insofar as the same cannot be considered fully installed while its respective accommodation units are not apt to function and be exploited due to lack of prior acquisition under such a property regime.

  11. Thus, the acquisition in question in the present case should benefit from the exemption provided for in article 20 of Decree-Law no. 423/83, of 5 December, because it was intended for the installation of enterprises qualified as of tourist utility.

13.B. In its Reply, the AT invoked, in summary, the following:

  1. What matters for assessing the application of the exemption in question is whether the acquisition of the fraction was intended for the installation of a tourist enterprise or rather for its exploitation.

  2. In exceptionally extending the exemption provided for in no. 1 to acquisitions in favour of the operating company, no. 2 of article 20 is clear in excluding all remaining transfers from that benefit.

  3. The acquisition made by the Petitioners, already at a moment after the license for use, and therefore after the phase of installation of the tourist enterprise, is intended for commercial exploitation.

  4. The AT further invokes several excerpts from the Judgment delivered by the STA on 23.02.2013, in particular the following:

"any possible sales of accommodation units realized even during the construction/installation phase of the enterprise are already part of its exploitation."

"thus, two distinct procedures are highlighted, although they may occur simultaneously: one relating to the practice of operations necessary to install the enterprise; another, relating to operations necessary to place it in operation and to exploit it, with the sale of the projected or constructed units necessarily forming part of the second moment."

"in sum, the promoters of the enterprises are the sole parties responsible for the real estate investment, bearing the risk thereof, as well as for obtaining the necessary licenses to make them apt for operation and exploitation."

"the benefit has justification only in relation to those who proceed to install the enterprise and place it on the market and not in relation to all those who use and exploit it, albeit through the purchase of its units."

13.C. Subsequent procedural actions

On 03.11.2014, the Petitioner filed a document entitled "contract for tourist exploitation," executed on 03.11.2006 between "D" – Hotel Construction and Management, S.A. (entity operating the hotel and tourist apartments forming part of the tourist complex called "…") and "A", through which the latter granted to the former the right to tourist exploitation of the apartment, in particular through short-term tourist lettings, with "D" having the right to 25% of the income produced by the tourist exploitation of the said apartment and "A" having the remaining 75% net of expenses.

II. SANEAMENTO (CASE MANAGEMENT)

  1. The Tribunal is competent and is regularly constituted, in accordance with articles 2, no. 1, subparagraph a), 5 and 6, all of the RJAT.

  2. The parties have legal personality and capacity, are legitimately constituted and are legally represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

  3. There are no prior questions which need to be considered, nor defects which invalidate the proceedings.

III. THEMA DECIDENDUM

The substantive issue in the present case consists in determining the scope of application of the exemption provided for in article 20, no. 1, of Decree-Law no. 423/83, of 5 December, which requires determining the meaning and scope of the provision contained therein regarding the phrase "acquisitions of property or autonomous fractions intended for the installation of enterprises qualified as of tourist utility."

IV. MATTERS OF FACT

IV.1. Proven facts

i. The Petitioners acquired, on 27/01/2006, by public deed of purchase and sale, fraction BE of the urban property registered in the urban property register of the parish of Quarteira under no. …, integrated in the tourist enterprise … located on Avenue .., in Vilamoura, parish of Quarteira, municipality of Loulé (cf. statement of the Petitioner in the petition for arbitral determination, confirmed by the draft amendments to the inspection report, filed as document 3).

ii. The said property was acquired from company "C" S.A. (cf. statement of the Petitioner in the petition for arbitral determination, confirmed by the draft amendments to the inspection report, filed as document 3).

iii. The property was acquired for the amount of €310,000.00 (cf. the draft amendments to the inspection report, filed as document 3).

iv. In the public deed of purchase and sale, the notary made reference to the IMT exemption provided for in article 20, no. 1, of Decree-Law no. 423/83, of 5 December. (cf. statement of the Petitioner in the petition for arbitral determination, confirmed by the draft amendments to the inspection report, filed as document 3 with the petition for arbitral determination).

v. In accordance with Notice …./2007, of ….06.2007, of the Office of the Secretary of State for Tourism:

"By order of the Secretary of State of ….05.2007, confirmation was given of the tourist utility, granted on a provisional basis, to the Tourist Complex …, located on Avenue …, municipality of Loulé, district of Faro, of which "C", S.A. is the applicant.

The said tourist utility shall be granted in accordance with articles 2, nos. 1 and 2, 3, no. 1, subparagraph c), (as amended by article 1 of Decree-Law no. 38/94, of 8 February), 5, no. 1, subparagraph a), 7, nos. 1 and 3, and 11, no. 1, all of Decree-Law no. 423/83, of 5 December, valid for the period of 7 years, counted from the date of issuance of the tourist use license by the Municipal Chamber of Loulé on … September 2005 (…)".

vi. On 03.11.2006, a contract for tourist exploitation was executed between "D"– Hotel Construction and Management, S.A. and "A", through which the latter granted to the former the right to tourist exploitation of the apartment, in particular through short-term tourist lettings, with "D" having the right to 25% of the income produced by the tourist exploitation of the said apartment and "A" having the remaining 75% net of expenses.

vii. By order no. … of the Tax Office of Loulé … (Quarteira), dated 10.10.2013, the petitioner was notified of the additional IMT assessment in the amount of €20,150.00, based on the acquisition of fraction AN of the urban property .., of the parish of Quarteira, on 27.01.2006 (cf. document no. 1 filed with the petition for arbitral determination).

IV.2. Facts not proven

There are no facts with relevance to the decision of the case which have not been considered proven.

IV.3. Grounds for the decision on the matters of fact

The determination of the matters of fact was based on the administrative file, on the documents filed with the initial petition and on statements of the Petitioner which are not contested by the Tax and Customs Authority.

V. APPLICATION OF LAW TO FACTS

In the present arbitral proceedings, the Tribunal was called upon to rule on the question of whether the illegality of the act of additional IMT assessment, in the amount of €20,150.00, issued by the Tax Office of Loulé … (Quarteira) with reference to the acquisition, by the Petitioners, from company "C", S.A., on 27.01.2006, of fraction AN of the urban property registered in the property register of the parish of Quarteira under article …, integrated in the tourist enterprise …, located on Avenue …, in Vilamoura, parish of Quarteira, municipality of Loulé, should be declared.

To form its conviction, the Tribunal must determine the scope of application of the exemption provided for in article 20, no. 1, of Decree-Law no. 423/83, of 5 December, which requires determining the meaning and scope of the provision contained therein regarding the phrase "acquisitions of property or autonomous fractions intended for the installation of enterprises qualified as of tourist utility."

The concept of tourist utility is contained in Decree-Law no. 423/83, of 5 December, which defines it as "the qualification granted to enterprises of a tourist nature which satisfy the principles and requirements defined in the present decree-law and its regulatory provisions". Article 3, no. 1, of the said decree-law provides that tourist utility may be granted to various enterprises, with such qualification being granted, in accordance with article 2, by order of the member of the Government responsible for the tourism sector, on the proposal of the Director-General of Tourism, supported by the opinion of the Commission for Tourist Utility. Article 4 defines the requirements which should be evaluated in order for tourist utility to be granted and article 5 defines the conditions to which enterprises seeking to benefit from tourist utility must comply.

Article 16 of Decree-Law no. 423/83 establishes the exemptions applicable as a function of the granting of tourist utility, establishing that "the companies owning and operating enterprises to which tourist utility has been granted shall enjoy, with respect to the ownership and operation thereof, the fiscal benefits set out below, in accordance with the terms established in the present decree-law (…)".

In accordance with article 20, no. 1, of the same decree-law, exempt from transfer tax and from inheritance and gift tax, with stamp duty reduced to one-fifth, are acquisitions of property or of autonomous fractions intended for the installation of enterprises qualified as of tourist utility, even if such qualification is granted on a provisional basis, provided that such qualification remains valid and the deadline set for the opening to the public of the enterprise is observed.

In accordance with the provision of no. 2 of article 28 of Decree-Law no. 287/2003, of 12 November (which reformed the taxation of property), "All legal texts which mention Code of Municipal Transfer Tax and Inheritance and Gift Tax, municipal transfer tax (…) shall be considered to refer to the Code of Municipal Tax on Onerous Transfers of Immovable Property (CIMT), (…), to the municipal tax on onerous transfers of immovable property (IMT) (…), respectively." Thus, the exemption in question has applied since then to IMT.

In the present case, the AT takes the view that, since the tourist utility referred to in article 20, no. 1, was requested and granted to the company which constructed the enterprise, the taxpayers who acquired the properties from the said company acquired them in an enterprise already constructed and installed, and therefore could not benefit from the said IMT exemption. In support of its thesis, the AT invokes the decision in the Judgment of the Supreme Administrative Court of 23.01.2013, in the context of case no. 968/12, in which it can be read that "where the acquisition of property or autonomous fractions intended for construction/installation of tourist enterprises is not in question, but rather the acquisition of accommodation units by final consumers, albeit because they are integrated in the enterprise in question and are devoted to tourist exploitation, such acquisitions cannot benefit from the exemptions enshrined in article 20, no. 1, of Decree-Law no. 423/83, of 5 December". In the grounds of this judgment establishing jurisprudence, the following can also be read:

"The provision thus enshrines an exemption from transfer tax and from stamp duty (reduced to one-fifth), in acquisitions of property or autonomous fractions intended for the 'installation' of enterprises qualified as of tourist utility.

Thus, the question which arises is to determine which acquisitions should benefit from the IMT and Stamp Duty exemptions there enshrined: acquisitions of property or autonomous fractions by promoters with a view to constructing and installing the tourist enterprises, or acquisitions of autonomous fractions (accommodation units) belonging to or integrated in enterprises already constructed and installed, with a view to their exploitation?

The answer to this question directs us to the problem of determining what should be understood by 'installation' of tourist enterprises.

  1. Beginning with the literal wording of article 20, no. 1, of Decree-Law no. 423/83, it is important to emphasize that the legislator clearly refers to only those acquisitions being exempt from transfer tax and stamp duty which are "acquisitions of property or autonomous fractions intended for the installation of enterprises qualified as of tourist utility".

Which means that this is not a subjective exemption intended to benefit companies, whether as owners or operators of the enterprises, but rather objective, since it is aimed at benefiting the activity of installation, with only those companies dedicate to 'installing' tourist enterprises being able to request and benefit from the exemption and not also those which intend to dedicate themselves to the activity of operation of the same.

In fact, the legislator is very clear when it intends to benefit companies owning and/or operating the enterprises. This is what occurs when in article 16 of the same decree-law it refers to companies owning and/or operating the enterprises enjoying with respect to ownership and operation the benefits indicated in subparagraphs a) to c) of no. 1 of the provision. Or when in no. 2 of article 20 of Decree-Law no. 423/83 it extends the exemption established in no. 1 of the provision to "transfers in favour of the operating company, in the case where the owner is a financial leasing company and the transfer takes place under and in accordance with the terms of the leasing contract".

What has just been set out serves to demonstrate that there is no doubt that, to the contrary of what is stated, in the case of the exemption of no. 1 of article 20 of Decree-Law no. 423/83, the legislator intended to encompass only acquisitions intended for the 'installation' of enterprises.

As Decree-Law no. 423/83 does not contain a definition for the concept of 'installation', article 11, no. 2, of the General Tax Law (LGT) directs us to turn to the technical legal meaning given to us by the legal regime of tourist enterprises.

(…)

Thus, in article 9 of Decree-Law no. 167/97, under the heading "Installation", it can be read that "For the purposes of this decree-law, installation of tourist enterprises is considered to be the licensing of construction and or the use of buildings intended for the operation of those enterprises."

For its part, article 9 of Decree-Law no. 55/2002 defines installation as follows: "(…) Installation of tourist enterprises is considered to be the process of licensing, or authorization for the carrying out of urban development operations relating to the construction of buildings or their fractions intended for the operation of those enterprises".

(…)

Another point of importance which is to be drawn from the mentioned decrees is that the operations which form part of the concept of 'installation' are not to be confused with those which correspond to the concepts of 'operation' and 'exploitation'.

Finally, the most recent decree, Decree-Law no. 39/2008, of 7 March (JusNet 474/2008), which established the new legal regime for the installation, operation and exploitation of tourist enterprises, "proceeding to the repeal of the various decrees which currently regulate this matter and bringing together in a single decree-law the provisions common to all enterprises", also does not contain a notion of 'installation', but clearly distinguishes between the procedure relating to the installation of tourist enterprises (articles 5 and 6 and Chapter IV) and the operation and exploitation thereof (Chapter VII).

In particular, article 5, under the heading "General requirements for installation" (The procedure for installation of tourist enterprises is subject to a common regime, that is, to a set of common requirements, as results from this article 5, no. 1, and article 23 of Decree-Law no. 39/2008, consequently, in the installation of tourist enterprises there stands out a common procedural regime which is that defined in the Legal Regime for Urban Development and Building, with the particularities or specificities which result from Decree-Law no. 39/2008. For a detailed analysis of the general requirements of the instruction of prior information requests, licensing and the presentation of prior notification and of the specific requirements for installation of tourist enterprises, see LICÍNIO LOPES MARTINS, "The procedure for installation of tourist enterprises", Tourist Enterprises, CEDOUA/FDUC, Almedina, 2010, pp.121 ss.) , establishes:

"1- The installation of tourist enterprises which involve the carrying out of urban development operations as defined in the legal regime for urban development and building must comply with the norms contained in that regime, as well as with the applicable technical construction standards for buildings in general, in particular regarding fire safety, health, hygiene, noise and energy efficiency, without prejudice to the provisions of the present decree-law and its respective regulation.

2- The location chosen for the installation of tourist enterprises must necessarily take into account the legally defined locational restrictions, with a view to safeguarding the safety of persons and property against possible natural and technological risks".

(...)".

The technical legal meaning which is drawn from the legislation is that the concept of installation encompasses all operations and procedures ranging from the request for licensing or prior notification of urban development operations, passing through the opinions and approvals of the various competent official entities, request for authorization or notification of use for tourist purposes, and obtaining the respective license (article 30) or public opening title (article 32). In this sequence, article 12, no. 2, of Decree-Law no. 423/83 provides that "the date of opening or reopening to the public is that on which the enterprise was authorized to operate by the competent authority". With the date of notification of the public opening and operation title being the relevant date to mark the beginning of the validity period of the status of tourist utility of the tourist enterprise in question, as results in the case in question (cf. the order no. …/2011).

In other words, 'installation' emerges as a procedure comprising the legal acts and formalities directed at licensing (in a broad sense, encompassing prior notifications or authorizations, as the case may be) of the urban development operations necessary for the construction of a tourist enterprise, as well as the obtaining of the titles which make it apt to operate and be exploited for tourist purposes.

After being constructed and after the promoters of the investment have obtained the necessary licenses making the enterprise apt to the exercise of tourist activity, each tourist enterprise "must be operated by a single entity, responsible for its complete operation and level of service and for compliance with the applicable legal and regulatory provisions" (no. 1 of article 44 of Decree-Law no. 39/2008), with such entity being designated by the holder of the respective authorization license for use for tourist purposes (no. 2 of article 44), that is, by the promoter (cf. Chapter VII and articles 41 et seq. of Decree-Law no. 39/2008, which establishes the rules relating to exploitation and operation).

And even though the accommodation units are occupied by their respective owners, it is incumbent on the operating entity to assume the continuous operation of the same, and must maintain them permanently in tourist exploitation regime (article 45 of Decree-Law no. 39/2008).

This distinction between the concepts of 'installation', on the one hand, and 'operation' and 'exploitation', on the other, is well evident in the preamble itself of Decree-Law no. 39/2008, where one can read, first, the concerns and innovations regarding aspects relating to the licensing of enterprises, with a view to its simplification. In the same sense, DULCE LOPES (See "Legal aspects of the installation of tourist enterprises", I Luso-Spanish Urban Planning Conferences, Almedina, Coimbra, 2009, pp. 225 et seq., in particular, p. 227.), in characterizing the procedure for installation of tourist enterprises, under Decree-Law no. 39/2008 and complementary legislation, expressly states that with the said decree it was intended "(…) an adjustment of the procedure for installation of tourist enterprises to the requirements of simplification and procedural deregulation which underlies the legislative package of the Administrative and Legislative Simplification Programme (SIMPLEX)". And the said Author continues by saying that "In these terms, it is incumbent on the municipality to license or admit prior notifications of operations necessary for the installation of hotel establishments, tourist resorts, tourist apartments and tourist complexes, and to do so, it must request the opinion of Portugal Tourism I.P. on the architecture and location of tourist enterprises not preceded by a detailed plan".

In sum, from the reading of the regime contained in articles 5 to 6 and 23 to 40 of Decree-Law no. 39/2008, it is verified that the concept of 'installation' has nothing to do with 'operation' and 'exploitation' and that the former encompasses only, as the Public Finance states, the acts, operations and procedures directed at construction/creation of tourist enterprises.

It follows, thus, clearly that any possible sales of accommodation units realized even during the construction/installation phase of the enterprise are already part of its exploitation. Thus two distinct procedures are highlighted, although they may occur simultaneously: one relating to the practice of operations necessary to install the enterprise; another, relating to operations necessary to place it in operation and to exploit it, with the sale of the projected or constructed units necessarily forming part of the second moment.

What has just been set out leads us to conclude that when the legislator, in no. 1 of article 20, uses the expression acquisitions of property or autonomous fractions intended for 'installation' (Whether new or existing, but which are subject to remodeling, improvement or re-equipping, or which increase their capacity (article 5 of Decree-Law no. 423/83).) , this concept cannot but be understood as referring precisely to the acquisition of property (or autonomous fractions) for construction (when it concerns new enterprises (The law also encompasses, as was said, the acquisition of mere autonomous fractions with a view to remodeling/installation of tourist enterprises.)) of tourist enterprises, after the respective urban development operations are duly licensed, aimed at benefiting companies which dedicate themselves to the activity of promotion/creation of the same.

This same conclusion is what results from the reading of what is contained in the report of the Working Group created to re-evaluate the fiscal benefits which, with respect to the fiscal benefits to tourist utility in the context of IMT, Stamp Duty and IMI, recommend their suppression, because, among other things, "the promoters of investments in the tourism sector maintain, beyond the financial support framed in the policies of the Portuguese State and the European Union, access to general investment incentives and benefits to interior regions. On the other hand, minimizing the impact of the measure in the context of IRC, directly or through the increase in write-offs and depreciation, the costs arising from IMT and IMI on investments which remain subject to these taxes" (See Re-evaluation of Fiscal Benefits, Notebooks on Science and Tax Technique, no. 198, p.294. ).

It is clear from the considerations of the Working Group that the legislator intended to promote tourist activity by providing for the exemption/reduction of payment of Transfer Tax/Stamp Duty for promoters who intend to construct/create establishments (Many promoters before acquiring the property where the tourist enterprise will in the future be installed, prepare the project and apply for the granting of tourist utility on a provisional basis (article 7 of Decree-Law no. 423/83), which will allow them to benefit from the exemption of IMT and reduction of stamp duty with respect to the acquisition of the property. On the other hand, promoters who pay tax on the acquisition of property intended for the installation of tourist establishments may, subsequently, request a refund when tourist utility is recognized to them.) (or readapt and remodel existing fractions) and not when this concerns the mere acquisition of fractions (or accommodation units) integrated in the enterprises and intended for exploitation, even if acquired on a date prior to the very installation/licensing of the enterprise (As we have seen, in fact, nothing prevents the promoter of the investment from beginning to sell the future fractions or units even before the construction of the enterprise and its installation.)

In fact, when individuals acquire fractions, they do so, as appears obvious, as consumers of a tourist product which was placed on the market by the promoter with a view to exploitation, as, we have seen, the execution of purchase and sale agreements is accompanied by the execution of an exploitation contract. The objective which motivates the individuals is the realization of their own investment, and they may even choose to be users of the enterprise or to cede its operation, participating in its results (cf. no. 4 of article 45 of Decree-Law no. 39/2008). For although it is considered that the fractions are devoted to exploitation, nothing prevents them from being occupied exclusively by their respective owners and for an indefinite period, as clearly results from legal provisions, such as those contained in articles 45, no. 1, of Decree-Law no. 39/2008, when it explicitly refers to "(…) the operating entity must assume the continuous operation of the entirety of the (…)" accommodation units "(…) even if occupied by their respective owners", and in no. 4 of the same provision, when it refers to the conditions of use of the accommodation units by their respective owners. In the words of DULCE LOPES (See "The Realization of Enterprises"...cit., p. 170.), the decree thus seems to "embrace the concept of residential tourism, since it expressly admits that the owners of accommodation units may occupy the same or execute contracts relating to them, provided that they do not compromise their tourist use, enjoy the mandatory services of the enterprise and pay the periodic payment to which they are bound.

In sum, the promoters of the enterprises are the sole parties responsible for the real estate investment, bearing the risk thereof, as well as for obtaining the necessary licenses making them apt to operation and exploitation.

It appears, thus, that the argument of the respondent to the effect that the benefit enshrined in no. 1 of article 20 of Decree-Law no. 423/83 is aimed at tourist exploitation and that the beneficiaries are the acquirers of the fractions or accommodation units, has no foundation whatsoever either in the letter or in the rationale of the provision.

The benefit has justification only in relation to those who proceed to install the enterprise and place it on the market and not in relation to all those who use and exploit it, albeit through the purchase of its units.

We cannot, thus, fail to conclude that the respondent is correct when it argues that "(…) The legislator intended to promote this sector of activity by providing exemption/reduction of payment of Transfer Tax/Stamp Duty, under certain conditions, to those who will create tourist establishments, and not to those who merely acquire fractions belonging to enterprises already installed", and that this understanding or interpretation is what results from "the historical, rational/teleological element, but also the literal interpretation of the legal norms in question"."

The Petitioner argues that the correct interpretation of article 20, no. 1, of Decree-Law no. 423/83, of 5 December, dictates that transfers made to the acquirers of fractions should be included within its scope, such acquirers benefiting from the same privileged status which the legislator intended to confer on the real estate promoter, with the benefit in question not being limited to the latter. However, as results from the crystalline grounds of the STA Judgment transcribed above, to which we refer, this argument is incorrect, as it is only in relation to the promoters of the enterprises – the sole parties responsible for the real estate investment and who are responsible for obtaining the necessary licenses making the enterprises apt to operate and carry out their tourist function – that it makes sense to grant the benefit of IMT exemption, which is therefore not extensible to those who subsequently use or exploit it, even if through the purchase of the respective accommodation units. Furthermore, the said legal provision makes the application of the benefit of IMT exemption dependent on the circumstance that the acquisitions of property or autonomous fractions in question have as their purpose the "installation of enterprises qualified as of tourist utility", which is not verified in the acquisition made by the Petitioner, which falls within the phase of exploitation of the enterprise.

VI. DECISION

In light of all that has been set out above, it is decided to declare the petition for arbitral determination inadmissible in its entirety.

The value of the case is fixed at €20,150.00 in accordance with article 97-A, no. 1, a), of the Code of Administrative Procedure and Procedure in Tax Matters (CPPT), applicable by force of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulations of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at €1,224.00 in accordance with Table I of the Regulations for Costs in Tax Arbitration Proceedings, fully charged to the Petitioner, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the said Regulations.

Let notice be given.

Lisbon, 15 December 2014

The Arbitrator

Guilherme W. d'Oliveira Martins

Text prepared by computer, in accordance with no. 5 of article 131 of the Code of Civil Procedure (CPC), applicable by reference of subparagraph e) of no. 1 of article 29 of Decree-Law no. 10/2011, of 20/01.

The drafting of this decision follows the old spelling rules.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 20(1) of Decreto-Lei 423/83 for tourism investments?
The IMT tax exemption under Article 20(1) of Decreto-Lei 423/83 provides relief from Municipal Tax on Onerous Transfers of Immovable Property for acquisitions related to the installation of enterprises with recognized tourist utility. The exemption is designed to promote tourism investment in Portugal by reducing the tax burden on property transfers necessary for establishing tourist facilities. According to taxpayer arguments in CAAD case 105/2014-T, this is an objective exemption tied to the installation process of tourist enterprises, not limited to specific parties like developers or promoters. The key requirement is that the property acquisition must be integrated into the installation process of an enterprise with officially granted tourist utility status. Installation encompasses not only construction and licensing but also making the enterprise operationally ready for tourist exploitation activities, ensuring it meets the quality standards required by the ministerial order granting tourist utility status.
How does the CAAD arbitration process work for disputing IMT tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for disputing IMT assessments begins when taxpayers file a petition for constitution of an arbitral tribunal under the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). The process involves: (1) submission of the arbitration petition, which is reviewed by the CAAD President; (2) automatic notification to the Tax Authority (AT); (3) appointment of an arbitrator by the Deontological Council; (4) parties' opportunity to challenge the arbitrator; (5) constitution of the tribunal; (6) first tribunal meeting where procedural matters are addressed; (7) submission of evidence and legal arguments; and (8) issuance of the arbitral decision within established deadlines. In case 105/2014-T, the tribunal was constituted on April 14, 2014, and the decision deadline was initially set for September 20, 2014, though extensions were granted for document submission. This alternative dispute resolution mechanism provides taxpayers with a faster, specialized forum for resolving tax disputes outside traditional court litigation.
What conditions must be met to qualify for IMT exemption on property transfers related to tourism projects?
To qualify for IMT exemption on property transfers related to tourism projects under Article 20(1) of DL 423/83, several conditions must be met according to the legal interpretation presented in CAAD case 105/2014-T: (1) the property must be integrated into an enterprise with officially recognized and granted tourist utility status; (2) the acquisition must form part of the installation process of the tourist enterprise, not merely post-construction transfers; (3) the property must be legally and economically devoted to the tourist enterprise for its complete installation; (4) installation is only complete when the enterprise is fully operational and apt for tourist exploitation, meeting quality standards required by the ministerial order granting tourist utility; (5) in multi-ownership tourist developments, this includes not only construction and licensing of accommodation units but also establishment of the organizational structure necessary for providing tourism services; and (6) the transfer must enable the functional elements (individual units) to begin operations as part of the overall tourist enterprise. The exemption focuses on facilitating the investment and installation process rather than being limited to specific types of purchasers.
Can taxpayers challenge the denial of IMT exemption through tax arbitration at the CAAD?
Yes, taxpayers can challenge the denial of IMT exemption through tax arbitration at CAAD (Centro de Arbitragem Administrativa). CAAD Process 105/2014-T exemplifies this right, where taxpayers A and B successfully initiated arbitration proceedings to contest the Tax Authority's additional IMT assessment and denial of the Article 20(1) exemption for their tourism utility property acquisition. The arbitration process is established under Decree-Law 10/2011 (RJAT - Legal Regime for Tax Arbitration) and provides an alternative to traditional court litigation. Taxpayers can file a petition for constitution of an arbitral tribunal specifically to challenge tax assessments, including IMT calculations and exemption denials. This mechanism offers several advantages: specialized arbitrators with tax law expertise, faster resolution compared to administrative courts, and binding decisions on the Tax Authority. The process is particularly suitable for disputes involving legal interpretation of tax exemptions, such as the scope and application of tourism-related IMT benefits under DL 423/83.
What was the outcome of CAAD Process 105/2014-T regarding the IMT exemption for tourism utility investments?
The provided text excerpt from CAAD Process 105/2014-T does not include the final arbitral decision or outcome. The document presents the procedural history (tribunal constitution on April 14, 2014, first meeting on July 1, 2014, extensions granted for document submission through November 2014) and the taxpayers' detailed legal arguments challenging the €20,150.00 IMT additional assessment. The petitioners argued that the IMT exemption under Article 20(1) of DL 423/83 should apply to their acquisition of a property fraction in a Vilamoura tourist development, contending that the exemption is objective and covers all acquisitions forming part of the tourist enterprise installation process, not just the original developer. They opposed the Tax Authority's position (supported by a 2013 Supreme Administrative Court precedent) that the exemption applies only to initial developers, not subsequent purchasers of completed units. The arbitral decision pronouncement and final ruling on whether the exemption applies to individual unit purchasers in multi-ownership tourist developments are not included in the excerpt provided.