IMT Exemption for Tourism Developments Under DL 423/83 – CAAD Arbitration 109/2014-T

Case No. 109/2014-T

Claimants: A and B
Respondent: Tax and Customs Authority

ARBITRAL DECISION

I. Report

1. A and B, registered under the Tax Identification Numbers ... and ..., with residence at ... (hereinafter, "Claimants"), within the territorial scope of the Tax Office of ..., filed, on 11/02/2014, under paragraph a) of Article 2, paragraph 1, and Articles 10 et seq. of Decree-Law No. 10/2011, of 20 January, in conjunction with paragraph a) of Article 99 and paragraph d) of Article 102, paragraph 1, both of the Code of Tax Procedure and Process (CPPT), applicable pursuant to paragraph a) of Article 10, paragraph 1, of that Decree-Law, a request for constitution of an arbitral tribunal.

2. The request seeks a declaration of illegality of the additional assessment of IMT [Tax on Onerous Transfers of Real Estate], in the amount of €27,686.49, issued by the Tax Office of ... – hereinafter, merely, "TO" –, by reference to the real property identified below.

3. The assessment in question relates to the purchase made by the Claimants from company C – registered under the Corporate Tax Identification Number ... –, on 28/12/2005, by deed executed in the Notarial Office under the charge of Licenciada ... (book 28 – page 105) of fraction ... of the urban property, registered in the urban property registry of the parish of ... under no. ..., integrated in the ..., located at ..., parish of ... of the municipality of ....

4. The assessment was carried out on the basis of the price attributed to the right acquired, in the amount of €425,946.00 at the rate of 6.5% (cf. paragraph d) of Article 17 of the IMT Code).

5. The assessment in question is based on the conclusions reached in the course of the tax inspection, carried out by the services of the Finance Directorate of Faro, between 19/07/2013 and 12/09/2013, based on Service Order OI....

6. Pursuant to paragraph a) of Article 6, paragraph 2, and paragraph b) of Article 11, paragraph 1, of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council of the Administrative Arbitration Centre appointed as arbitrator Ana Teixeira de Sousa, and the parties, after being properly notified, manifested no opposition to such appointment.

7. Accordingly, in conformity with the provisions of paragraph c) of Article 11, paragraph 1, of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 14/04/2014.

8. Notified the top director of the service of the Tax and Customs Authority (hereinafter designated "Respondent") to, if so wished, within the period of 30 days, present a response and request production of additional evidence, a response was presented on 29/05/2014, signed by the legal advisors ... and ... in the name and representation of the Respondent.

9. On 23/09/2014 the tribunal issued an order proposing the waiver of the meeting provided for in Article 18 of the RJAT [Regime for Tax Arbitration] as well as the hearing of witnesses, considering that the issue to be decided is a matter of law, establishing a period for successive written arguments.

10. The parties agreed with the waiver of the meeting and presented written arguments, the Claimants on 22/10 and the Respondent on 18/11.

11. The Claimants filed on 23/09 a petition requesting that, given the identity of the facts, the evidence produced at the hearing in case no. 102/2014-T and in case 110/2014-T be used for these proceedings, a petition that was accepted by the tribunal.

12. The tribunal proposed that the decision be rendered on 14 October, with the same subsequently being extended until 14 December.

II. The Request for Arbitral Pronouncement

1. In summary, the grounds presented by the Claimant are as follows:

The concept of "installation"

• The Claimants acquired, on 28/12/2005, the fraction indicated above (fraction ... of the urban property, registered in the urban property registry of the parish of ... under no. ..., integrated in the ..., located at ..., in Vilamoura, parish of ... and municipality of ...).

• The public deed was executed with express mention of the IMT exemption by the notary who executed it.

• The Conservator of the Land Registry accepted the IMT exemption in the said acquisition.

• The Claimants' fraction is one of the individualized and autonomous housing units that form part of the tourist complex ..., and whose definitive installation depended on the complete installation of the entire tourist enterprise in its full scope.

• With a view to the commercial exploitation of the fraction, the claimants entered into a tourism exploitation contract with D, under which they ceded to the latter the exclusive right of exploitation of the fraction.

• By virtue of the said contract, the Claimants, in the capacity of cedent, assumed vis-à-vis D a set of duties that condition the free enjoyment of the property.

• Duties that begin by delivering the autonomous fraction to D with all conditions for tourist use, including furnishing the property, ensuring certain types of insurance, communicating any intended sale to D and keeping the autonomous fraction permanently in conditions to be used as a tourist unit of a 5-star enterprise, receiving a share of the total income resulting from the tourist exploitation of the apartment.

• The Claimants base the IMT exemption on Article 20, paragraph 1, of Decree-Law No. 423/83, which provides: "Acquisitions of real properties or autonomous fractions intended for the installation of enterprises qualified as of tourist utility are exempt from sisa [sales tax] and the tax on successions and donations, the stamp tax being reduced to one fifth, even if such qualification is attributed on a provisional basis, provided that it remains valid and the period fixed for the opening to the public of the enterprise is observed."

• The Claimants closely follow the doctrine defended in the dissenting opinion of the Distinguished Counselor Dulce Neto in the Court of Appeal of the Supreme Administrative Court judgment cited by the AT (Judgment in Case 968/2012) which argues that: "The correct interpretation of Article 20, paragraph 1, of the cited Decree-Law No. 423/83 dictates that it should include within its scope the transfers effected for the acquirers of the fractions, with these benefiting from the same status that the legislator intended to confer on the real estate developer – the coherence of the system dictates that such benefit should not be restricted to the latter.

• Being the intention of the legislator to foster tourist activity, in furtherance of such aim, the said benefit is only understood as applicable, both to the developer and to the acquirers of the fractions, who, moreover, bear the burden of the investment.

In the case at hand, being a tourist complex in which each autonomous fraction constitutes a functional element (housing unit) forming part of the organizational unit established for the provision of tourist exploitation services (the tourist enterprise) –, it must be concluded that the first acquisition of each of these functional elements, because intended to make possible the commencement of operation of each of them and, concomitantly, of the enterprise in its entirety, still fell within the process of installation of the enterprise, thus encompassing the scope of application of Article 20 of Decree-Law No. 423/83, given the recognized and attributed tourist utility of the enterprise in question and which extends to all functional elements that compose it."

• This tax benefit, provided for in Article 20 of Decree-Law No. 423/83, remains in force – although currently applied to IMT and Stamp Tax, on the terms and for the purposes provided in Article 28 of Decree-Law No. 287/2003, of 12 November.

• The tax benefit in question aims to benefit those who promote the process of installation of enterprises of public utility in view of the vital importance of this activity in the Portuguese economy, that is, those who invest in the installation of the said quality Portuguese tourist offering, not those who merely develop the activity of exploitation of the same.

• This is, effectively, an objective exemption, directed at benefiting the implementation of the process of installation of enterprises of public utility.

• The said Article 20 does not grant the exemption to the constructor of the enterprise, to the real estate developer, or to the entity that licenses and/or operates the enterprise.

• For which reason it is fundamental to know what it means to "install" an enterprise of tourist utility and, above all, when should this process of installation be considered concluded in a situation, as in the present case, in which a tourist complex is involved, composed of autonomous housing units and whose operating and exploitation paradigm, quite different from that provided for hotel establishments, may be reflected in the operations necessary for its process of installation.

• Now, in enterprises composed of housing units in plural property – as occurs herein – there is no single property right, but a plurality of properties, as many as there are individualized and autonomous housing units that, in their entirety, constitute the enterprise.

• Being the compulsory dedication to permanent tourist exploitation of all housing units that compose and form part of the establishment – which is ensured, from the outset, by the duty to ensure that they are always in conditions to be rented for accommodation to tourists and in which the mandatory services of the category attributed to the tourist enterprise are provided.

• What means, from the outset, that the first phase (construction and installation) can only be considered terminated when the following phase begins or can begin, that is, when the enterprise becomes fit to operate and to be exploited for tourist purposes.

• The RJIEFET (Legal Regime for the Installation, Exploitation and Operation of Tourist Enterprises), approved by Decree-Law 39/2008, of 7 March, does not present a notion of "installation", distinguishing however the phase of "installation" (ch. IV) and the phase of "exploitation and operation" (ch. VI).

• Installation terminates only when not only the procedure relating to licensing and authorization for the performance of urban operations relating to construction is completed, but also the procedure intended to permit or make possible the operation of the enterprise, rendering it apt for the performance of tourist exploitation.

• What necessarily implies that they have been marketed by the real estate developer, because only its owner/acquirer has the power-duty to enter into the mandatory tourist exploitation contract (Article 45 et seq. of the RJIEFET) to make possible the opening of the housing unit to the tourist activity for which it is intended as part of the enterprise in which it is integrated.

• In this manner, and since whoever acquires a housing unit in a tourist enterprise established under the plural property regime provided for in the RJIEFET does not have housing as an objective but rather the provision of tourist exploitation services, that is, such acquisition does not represent a real estate transaction or an investment in a residential product,

• The Claimants conclude that the first acquisition of each autonomous fraction, as a housing unit of the ..., still falls within the process of installation of this enterprise, meeting the legal conditions to benefit from the reduction of stamp tax and the IMT exemption provided for in Article 20 of Decree-Law No. 423/83, of 5 December, given the tourist utility recognized to this enterprise by the Secretary of State for Tourism and which extends to all units that compose it.

The deduction of Sisa [sales tax] borne by developers

• The Claimants note that, in the context of Sisa taxation, developers could already deduct the tax borne, so it should be understood that this norm has a scope more innovative and extensive than the norm that historically precedes it.

• Thus, in the logic of the system, the said Article 20 of Decree-Law No. 423/83 exists as a complement to that norm of the CIMSISSD, its scope being, by parity of reasoning, extensible to the acquirers of the fractions who, thereby, participated in the installation of the enterprise and, thus, in the fostering of tourist activity.

The exemption from IMI [Municipal Property Tax] for owners

• The Claimants understand that, given the existence in the EBF of an IMI exemption for real properties integrated in enterprises to which tourist utility has been attributed, and the ratio of this benefit being identical to that of the IMT exemption in the acquisition of autonomous fractions, the coherence of the system requires that the benefit of Article 20, paragraph 1, of Decree-Law No. 423/83 be interpreted broadly.

Principle of legal security and certainty and double control of legality by the Notary and the Land Registry

• Pursuant to Article 49, paragraph 1, of the CIMT [Code of IMT], "When IMT is due, notaries and other civil servants or entities performing notarial functions, as well as entities and professionals with competence to authenticate private documents that title acts or contracts subject to land registry registration, may not execute deeds, any other notarial instruments or private documents or authenticate private documents that effect transfers of real property nor proceed to the recognition of signatures in the contracts provided in paragraphs a) and b) of Article 2, paragraph 3, without presentation of the extract of the declaration referred to in Article 19 [declaration of official form, at the initiative of the interested parties] accompanied by the corresponding evidence of collection, which they shall file, making mention thereof in the document to which they relate, whenever the assessment must precede the transfer [the emphasis is ours]."

Complementing Article 49, paragraph 3, of the same provision: "Where an exemption applies, the entities referred to in paragraph 1 must note the exemption and require the evidentiary document which they shall file."

• The Claimants contend that, if the assessment in question is not considered illegal, the principles of certainty and legal security are manifestly violated, given that in the case at hand it is manifest that both of the said legality controls were validly carried out and that, notwithstanding, the transfer was effected with recognition of the exemption provided for in Article 20 of Decree-Law No. 423/83.

The illegal revocation of a valid act

• The Claimants understand that, pursuant to Article 140 of the CPA [Code of Administrative Procedure], relating to the revocation of valid acts, a contrario, the revocation of the benefit granted to the Claimants is not permitted, because, on the terms set forth, we are faced with an act constitutive of rights or of legally protected interests that became consolidated in their legal sphere.

1. The response of the AT [Tax Authority]

The Respondent alleged, in sum, the following:

• The provision in question provides as follows:

"1 - Acquisitions of real properties or autonomous fractions intended for the installation of enterprises qualified as of tourist utility are exempt from sisa and the tax on successions and donations, the stamp tax being reduced to one fifth, even if such qualification is attributed on a provisional basis, provided that it remains valid and the period fixed for the opening to the public of the enterprise is observed.

2 - The exemption and reduction established in the preceding number shall also apply to the transfer in favor of the operating company, in the case where the owner is a financial leasing company and the transfer is made in accordance with and on the terms of the financial leasing contract that determined the acquisition of the enterprise by the transferring company."

• The issue in the present case consists in knowing whether from that provision only the acquisitions of real properties or autonomous fractions by developers with a view to building and installing tourist enterprises benefit, or also acquisitions of autonomous fractions (housing units) belonging to or integrated in already built and installed enterprises, with a view to their exploitation.

• Resorting to Decree-Law No. 39/2008, of 7 March (RJIEFET – Legal Regime for the Installation, Exploitation and Operation of Tourist Enterprises), the Respondent considers that the concept of "installation" becomes clear in the legislation, which distinguishes this, on the one hand, and "operation" and "exploitation" on the other.

• For purposes of this distinction the Respondent resorts to the reasoning and legal framework grounded in the Judgments of the Supreme Administrative Court of 30/01/2013, in case 01193/12 and of 11/09/2013 in case 01409/13.

• With respect to the concept of "installation" in contrast with the concept of "exploitation", and with respect to the figure of the developer, the following is transcribed from the summary of the judgment of 23/01/2013, in case no. 0968/12:

• "III - When the legislator uses the expression 'acquisition of real properties or autonomous fractions intended for the «installation»', for purposes of the benefit to which Article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December, relates, it cannot fail to be understood as precisely referring to the acquisition of real properties (or autonomous fractions) for the construction of tourist enterprises, after the respective urban operations have been duly licensed, aimed at benefiting the companies that engage in the activity of promotion/creation of the same.

This concept of 'installation' is the one that proves to be adequate to all types of tourist enterprises and is not brought into question by the fact that enterprises may be built/installed in a plural property regime, since this has to do with 'exploitation' and not with 'installation'.

In tourist enterprises established in plural property (which comprise lots and/or autonomous fractions of one or more buildings, pursuant to the provisions of Article 52, paragraph 1, of Decree-Law No. 39/2008, of 7 March), two distinct procedures stand out, although they may occur simultaneously: one relating to the practice of the operations necessary to install the enterprise; another relating to the operations necessary to put it into operation and exploit it, and the sale of the projected or constructed units necessarily forms part of the second.

The legislator intended to boost tourist activity by providing for the exemption/reduction of payment of Sisa/Stamp Tax, for developers who intend to build/create establishments (or adapt and remodel existing fractions) and not when it is a matter of mere acquisition of fractions (or housing units) integrated in enterprises and intended for exploitation, even if they are acquired before the very installation/licensing of the enterprise.

VII - Whoever acquires the fractions does not become a co-financier of the enterprise, with responsibility for its installation, since they are acquiring a tourist product that was placed on the market by the developer, whether the acquisition is made from the drawings or after the enterprise is installed, like any final consumer, all the more so since the fractions may be acquired for their exclusive use and without any time limit (in the case of tourist enterprises established in plural property)."

• Precisely, the acquisition effected by the Claimants, already at a moment subsequent to the issuance of the occupation license and, consequently, after the phase of installation of the tourist enterprise, is intended for commercial exploitation.

• The restrictions and obligations associated with the acquisition of the autonomous fraction, to which the Claimants refer, correspond thus to a new paradigm of exploitation of tourist enterprises in plural property, with express consecration in law.

• Thus, in accordance with this new paradigm of exploitation, and not of installation as the Claimants intend, although the housing units that compose the tourist enterprise may constitute themselves as autonomous fractions, these housing units are always considered in tourist exploitation, hence their acquisition is intended for exploitation and not for establishment.

The IMI exemption

• The Respondent understands that the systematic interpretation advocated by the Claimants in Articles 121 to 128 of the PI [written arguments] lacks any legal support since IMI and IMT are taxes that aim to tax distinct realities.

The intervention of owners as developers of the enterprise

• The Respondent considers that this intervention has not been proven, all the more so since the acquisition of the said fraction came to occur at a moment subsequent to the granting of the tourist use license no. 17/05 of 30/09/2005, by the Municipal Council of ....

Principles of legal security and certainty

• The AT [Tax Authority], Respondent, understands that the Claimants could have bound the AT to the understanding upheld, and followed by the Notary and Registry, through the mechanism of the binding information request.

• And not through the understanding of the Notary or Registry concerning the application of an exemption, since these entities are subject to a general duty of supervision but not to the duty of granting or recognition of tax benefits, so the fulfillment of the duty of supervision does not create, for taxpayers, a right or a legitimate expectation to a tax exemption.

Revocation of the granting of the tax benefit

• The Respondent alleges that the tax benefit of IMT exemption provided for in Article 20, paragraph 1, of Decree-Law No. 423/83 is a benefit of an automatic nature and not granted through any administrative act, so the provisions of Articles 140 and 141 of the CPA are not at all applicable to the situation at hand.

1. The Claimants presented written arguments on 22/10 through which they sustained:

• that the situation that is the object of the present case is unique and distinct from the situation that is the object of the Judgment of the Supreme Court of Appeal of 23/01/2013

• attaching a copy of the judgment of the CAAD in case 122/2014-T where the tribunal, in a situation similar to that in the present case, decided in favor of the success of the Claimant's action by considering that it was demonstrated that the acquisition in question contributed decisively to the installation of the ...

1. The Respondent presented written arguments on 18/11.

• Deeming fully reproduced all the factual and legal arguments contained in the response.

• Cites cases no. 102/2014-T, 103/2014-T, 104/2014-T and 110/2014-T, where the same issue is discussed and where the tribunal applied the same understanding that appears in the Judgment of Jurisprudence Uniformization of 23/01/2013, of the Supreme Administrative Court, having been systematically denied the Claimants' request.

1. Object of the request

The issues to be decided in the present case consist of the following:

· knowing whether the first acquisition of an autonomous fraction intended for tourist exploitation and integrated in a tourist enterprise of plural property to which the status of tourist utility has been attributed is part of, or not, the phase of installation of that enterprise, which translates, in the determination of the field of application of the tax benefit provided for in Article 20 of Decree-Law 423/83 of 05.12

· to decide whether the act of additional assessment of IMT, in the amount of €27,686.49, issued by the Tax Office of ... (...) on the real property identified below is illegal for being an act that revokes a tax benefit in nonconformity with the applicable legal provisions, namely Articles 140 and 141 of the CPA.

1. Preliminary Determination

The arbitral tribunal is materially competent, pursuant to the provisions of Articles 2, paragraph 1, sub-paragraph a) of the Legal Regime for Arbitration in Tax Matters.

The parties have legal personality and capacity and have standing pursuant to Article 4 and paragraph 2 of Article 10 of the Legal Regime for Arbitration in Tax Matters (RJAT), and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The case does not suffer from any nullity and no exceptions were raised by the parties that would obstruct the examination of the merits of the case, so the conditions are met for the rendering of the arbitral decision.

II. GROUNDS

1. Proven Facts

Based on the documents submitted by the Claimant (request for arbitral pronouncement, Response of the A.T.), the following facts are established:

• On 2005/12/28 the s.p. [unnamed person] A Tax Identification Number ... intervened in the deed of sale executed in the Notarial Office of ... (deed 28/…), in the capacity of buyer of the autonomous fraction designated by the letter ..., of the urban property registered in the property register under Article ..., located in the ... located at Avenida de Cerro da Vila, parish of ... and municipality of ..., for which the notary recognized the exemption from Municipal Tax on Onerous Transfers (IMT), pursuant to Article 20 of Decree-Law 423/83 of 5 December (Tourist Utility).

• The seller of the said resort was the s.p. [unnamed person] C Corporate Tax Identification Number ....

• By order of 02 June 2005, of the Secretary of State for Tourism published in the Official Journal, 3rd series no. 135 of 15 June 2005, the status of tourist utility was attributed on a provisional basis and by order of 07 May 2007, of the Secretary of State published in the Official Journal, 2nd series no. 111 of 11 June 2007, the status of tourist utility was confirmed to the tourist complex ... pursuant to the provisions of Article 2, paragraph 1, and Article 7, paragraph 3, of Decree-Law No. 423/83.

• Pursuant to Article 11, paragraph 1, of Decree-Law 423/83 of 5 December, tourist utility shall be valid for the period and on the terms fixed in the respective order of attribution.

• Within the scope of the tax inspection action carried out pursuant to Order OI..., the Claimants were notified to exercise their right to prior hearing on the inspection report draft, which the Claimants exercised, invoking an understanding of the law that serves as the basis for their request for arbitral pronouncement;

• The tax inspection maintained its understanding of the law, converting the draft report into a final report.

• The corrections sanctioned by the tax inspection and notified to the Claimants gave rise to the IMT assessment contested.

• The tourist use license was issued by the Municipal Council of ... on 30/09/2005, as appears from the final inspection report as well as from the deed of acquisition of the property.

1. Unproven Facts

The tribunal does not consider that there are relevant facts that are not considered proven in the case.

The Applicable Law

1. It results from the positions of the Parties that the essential issue in the present case consists in knowing whether from the IMT exemption provided for in Article 20 of Decree-Law No. 423/83 only the acquisitions of real properties or autonomous fractions with a view to building and installing tourist enterprises benefit, or also the acquisitions of autonomous fractions (housing units) belonging to or integrated in already built enterprises, with a view to their exploitation, these latter also being understood within the concept of "installation" used in the said legal instrument.

2. Effectively, both parties agree that the tax benefit attributed by Article 20, paragraph 1, of Decree-Law No. 423/83 applies to the installation of enterprises declared to be of tourist utility, although they disagree about the breadth of that concept of "installation".

3. According to the Claimants, this concept also includes the first acquisition of real properties or autonomous fractions in a plural property regime; the position of the Respondent is that such acquisition, already after construction and licensing, is understood within the concept of "exploitation" and not of "installation".

4. On this issue, the Tax Contentious Section of the Supreme Administrative Court recently decided, in an expanded judgment, with a majority suffrage position (6 votes in favor, 4 against) in the judgment of 23 January 2013 - case no. 969/12 that the first acquisition of a fraction intended for tourist exploitation does not already form part of the phase of installation of the enterprise.

5. Also in the same sense, the Supreme Administrative Court decided in cases nos. 969/12, 1001/12 and 1005/12 rendered in the same session and nos. 971/12, 972/12, 999/12, 1003/12 and 1193/12, rendered in the following session, on 30 January 2013 and still in case no. 01909/13, of 26/02/2014.

6. The same issue was also examined in various cases, nos. 102/2014-T, 103/2014-T, 104/2014-T and 110/2014-T, within the scope of Tax Arbitration, with an almost unanimity being verified (with the exception of case no. 122/2014-T) achieved in the decisions rendered.

The ratio legis of Article 20 of Decree-Law No. 423/83

1. Decree-Law No. 423/83, of 5 December, came to update the institute of tourist utility which, according to its preamble, had proved to be "one of the most effective instruments for the development of the sector, in particular with respect to hotel equipment and similar, which it was initially directed at", but which, after 30 years of effect, no longer corresponded to the actual needs of the tourism sector.

2. According to its Article 1: "Tourist utility consists of the qualification attributed to tourist enterprises that satisfy the principles and requirements defined in this instrument and its regulatory provisions", being attributed - Article 2, paragraph 1 - "by order of the member of government with responsibility for the tourism sector".

3. As a rule - Article 3, paragraph 5 -, "Tourist utility encompasses the totality of the component or constituent elements of the enterprises", being able - Article 7 - "to be attributed on a provisional or definitive basis", being (paragraph 2) "on a provisional basis when it is attributed before the commencement of operation of new enterprises and in cases provided in sub-paragraphs b) and c) of Article 5, paragraph 1" and (paragraph 3) "on a definitive basis when it is attributed to enterprises already in operation or results from the confirmation of tourist utility granted on a provisional basis".

4. Pursuant to Article 20 of the same Instrument:

1 - Acquisitions of real properties or autonomous fractions intended for the installation of enterprises qualified as of tourist utility are exempt from sisa and the tax on successions and donations, the stamp tax being reduced to one fifth, even if such qualification is attributed on a provisional basis, provided that it remains valid and the period fixed for the opening to the public of the enterprise is observed.

2 - The exemption and reduction established in the preceding number shall also apply to the transfer in favor of the operating company, in the case where the owner is a financial leasing company and the transfer is made in accordance with and on the terms of the financial leasing contract that determined the acquisition of the enterprise by the transferring company."

1. Decree-Law No. 423/83 constituted a legal instrument for the promotion and encouragement of investment in the tourism sector, which it seeks to be of quality. This impetus that was intended to be given to the sector is evident from the outset in Article 5. Effectively, the law only recognizes the possibility of attribution of tourist utility to enterprises that result from direct investment, translated either in the construction of new enterprises, or in the total or partial remodeling, improvement or re-equipment, or in the carrying out of works leading to an increase in capacity of at least 50%.

2. For that reason, the legislator intended to attribute tax benefits in the context of sales tax and stamp tax, to the owning companies that make the investment effort.

3. The legislator intended to boost this sector of activity, providing for exemption/reduction of payment of sales tax/stamp tax, under certain conditions, to those who will create tourist establishments, and, as is understood, not to those who merely acquire fractions belonging to already installed enterprises.

4. Effectively, it is the developers who are responsible for the real estate investment, under whom falls the risk of creation and installation of the tourist enterprise, responsible for the planning, conception and licensing of the same.

5. The sale of the units of the tourist enterprise, accompanied by an exploitation contract with a management or administration entity, is intended for the commercial exploitation of the fraction, seeking to obtain a return from this contract but without assuming risks or contributing to licensing.

6. The understanding defended by the Claimants to the effect that this acquisition, followed by the execution of the exploitation contract integrates "installation" and is therefore deserving of tax benefits, specifically that provided for in Article 20, paragraph 1, of Decree-Law No. 423/83, has no place in the letter or in the spirit of the law.

7. Indeed, if this were the case, why not consider that this benefit would equally apply to subsequent acquisitions of autonomous fractions integrated in tourist enterprises in plural property, for example, while tourist utility had not been attributed on a definitive basis, since the subsequent acquirers are subject to the same obligations as the original acquirers?

8. The understanding that this benefit aims to incentivize those who proceed with the installation of the tourist enterprise and place it on the market to be exploited, after that installation, corresponds to the interpretation upheld and which follows from the historical, rational/teleological, but also literal element of the legal norms in question and affirmed in the jurisprudence of the Supreme Administrative Court duly cited.

The concept of "installation" provided for in Article 20 of Decree-Law No. 423/83

1. The concept of "installation" used by Article 20, paragraph 1, of Decree-Law No. 423/83 is not expressly defined within the scope of that same instrument or in specific fiscal legislation.

2. The requirements for the IMT exemption and the reduction of Stamp Tax are as follows:

1 - The real property or autonomous fraction acquired must form part of the phase of installation of an enterprise qualified as of tourist utility;

2 - The status of tourist utility must be valid;

3 - The period fixed for the opening to the public of the enterprise must be observed.

1. As to the first requirement, the cited judgment of the Supreme Administrative Court of 23/01/2013 states that:

I - In the determination of the meaning and scope of fiscal norms and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed, and that "Whenever, in fiscal norms, terms proper to other branches of law are employed, these should be interpreted in the same sense that they have there, unless otherwise directly results from law" (Article 11, paragraphs 1 and 2, of the General Tax Law).

1. The legal regime for installation, exploitation and operation of tourist enterprises was established in Decree-Law No. 167/97 of 04/07.

2. This instrument, effective at the time of the acquisition of the autonomous fraction by the Claimants, included a Chapter III under the heading "Installation".

3. Pursuant to Article 9 of Decree-Law No. 167/97: "For purposes of this instrument, installation of tourist enterprises is considered to be the licensing of the construction and/or use of buildings intended for the operation of those enterprises."

4. Articles 11 to 40, included in the chapter on "Installation", regulate matters related to the licensing of construction, licensing of use, obtaining the tourist use license, obtaining classification for the enterprise.

5. Chapter IV refers to "Exploitation and Operation", involving activities and operations related to exploitation, conservation, enjoyment, administration, use and common areas.

6. Decree-Law No. 55/2002, which amends Decree-Law No. 167/97, maintains a notion of "installation" differentiated from that of "exploitation", considering "installation of tourist enterprises the process of licensing, or authorization for the performance of urban operations relating to the construction of buildings or their fractions, intended for the operation of those enterprises."

7. It seems from the outset to be clarified, within the scope of the legislation applicable at the time of acquisition of the autonomous fraction, the existence of a functional and operational differentiation between "installation" and "exploitation", as well as the activities that form part of each of these phases.

8. As well as that the "installation" operations precede those of "exploitation".

9. Decree-Law No. 39/2008, of 7 March, which revoked Decree-Law No. 167/97, did not come to alter the substance of this matter, namely by introducing changes or innovations in what is considered "installation" and "exploitation", instead creating the obligation (previously a faculty) of permanent dedication to tourist exploitation of all housing units that compose the enterprise, regardless of the property regime on which they are based.

10. The concept of "installation" was extensively analyzed and delimited by the jurisprudence uniformizing judgment of the Supreme Administrative Court of 23/01/2013, a definition to which the tribunal adheres and which is cited briefly.

"In other words, «installation» emerges as a procedure that comprises the legal acts and formalities tending toward licensing (in a broad sense, comprising prior communications or authorizations, as applicable) of the urban operations necessary for the construction of a tourist enterprise, as well as the obtaining of the titles that make it apt to function and to be exploited for tourist purposes.

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

And although the housing units are occupied by their respective owners, it falls to the operating entity to assume the continued operation of the same, being required to keep them permanently in a tourist exploitation regime (Article 45 of Decree-Law No. 39/2008)."

The cited judgment concludes: "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 in it only fall, as the Public Treasury notes, the acts, operations and procedures tending toward the construction/creation of tourist enterprises."

In any event, even if it were considered that the acquisition in question occurred still during the phase of construction/installation of the enterprise, which is not at all the case, it would be necessary to consider, as that judgment does, that "any sales of housing units made still during the phase of construction/installation of the enterprise already form part of the exploitation thereof."

Continuing with the transcription:

"Two distinct procedures stand out, therefore, although they may occur simultaneously: one relating to the practice of the operations necessary to install the enterprise; another relating to the operations necessary to put it into operation and exploit it, and the sale of the projected or constructed units necessarily forms part of the second moment.

Although it is recognized that in the case of tourist enterprises in plural property there is an evident compression of the content of the property right (since although they may inhabit the housing unit on a permanent basis it is not intended for habitation), the truth is that such restrictions are established in function of the form of exploitation and operation of the enterprise and not by virtue of its installation."

Moreover, the raison d'être and purpose of Article 20, paragraph 1, of the cited Decree-Law No. 423/83 of 05/01 is to benefit those developers who intend to build/create establishments or adapt and remodel existing fractions with the IMT exemption, "and not when it is a matter of mere acquisition of fractions (or housing units) integrated in enterprises and intended for exploitation, even if they are acquired before the very installation/licensing of the enterprise (As we have seen, in truth, nothing prevents the investment developer from beginning by selling the future fractions or units even before the construction of the enterprise and its installation.)", as transcribed from that judgment.

The judgment continues: "In truth, when individuals acquire the fractions they do so, as it appears obvious, as consumers of a tourist product that was placed on the market by the developer with a view to exploitation, because, as we have seen, the execution of the promise of sale and purchase contracts is accompanied by the execution of the exploitation contract."

1. Likewise the arbitral tribunal, in case no. 102/2014-T, adds the following:

Regarding another of the requirements to benefit from exemption, the claimant would have to develop the function of promoter or creator of urban and tourist activities.

As to this requirement, the now claimant alleges that it deliberately waived the free enjoyment of its property to the benefit of the tourist and commercial exploitation of the same, through the execution of a tourist exploitation contract under which it ceded the exclusive right of exploitation of the fraction through the execution of a contract of exploitation with the operating entity of the tourist enterprise, in exchange for remuneration, and on those terms would have the right to the said exemption.

On the importance of this argument invoked, and of the evidence given at hearing, for the issue at hand, on the same it is said that the Claimant's choice of freely transferring the enjoyment of its property in exchange for remuneration, even if the same is to the operating entity of the tourist enterprise where the property is inserted, has no effect for the benefit of the exemption, because it does not fall within the concept of installation, which is a necessary requirement to benefit from the exemption.

Having the Claimant acquired the property already duly installed in a tourist enterprise, the claimant did not exercise a function that was encompassed by the concept of installation, as has already been verified, including in situations where there exists on the part of the claimant, alterations or improvements to the property whether in its interior or exterior, the same do not occur within the scope of the concept of installation, in the sense of the interpretation conferred.

Even if such alterations or improvements are made by the claimant or by a third party within the scope of an exploitation contract.

In light of the foregoing, the transfer of the right of enjoyment through an exploitation contract does not alter the situation before this tribunal within the scope of application of the exemption and according.

1. In all other respects it is deferred to the doctrine advocated in the said judgment of 23 January 2013, specifically to its respective conclusions cited above, doctrine to which it adheres.

2. Effectively, it does not seem possible to discern in Decree-Law No. 423/83, contextualized and framed by extensive jurisprudence, any elements of interpretation that would permit the identification and legitimation of a purpose (extra-fiscal) of incentivizing the acquisition of autonomous fractions integrated in tourist enterprises by owners who do not assume nor finance the various activities and operations that, pursuant to applicable legislation, form part of the "installation" of these enterprises.

3. It has been affirmed by the Supreme Administrative Court in subsequent judgments in which the same question was posed, «taking into account the supreme importance of the uniformity of jurisprudence within the internal scope of the courts, above all in the face of the security and stability of legal relations which law should aim for and achieve, and which finds consecration in Article 8, paragraph 3 of the Civil Code - imposing on the judge the duty to consider all cases that merit analogous treatment, in order to obtain a uniform interpretation and application of law - it behooves us to adhere to that jurisprudential orientation and to the grounds in which the said judgment is based, set forth, in a brief but elucidative manner, in its respective summary».

4. The Claimants do not bring new reasons, distinct from those that have already been presented in various cases decided by the Supreme Administrative Court or by the arbitral tribunals, alleging, in synthesis, on the one hand, that the judge should have followed the objectives contained in the introduction of Decree-Law No. 423/83 and make a more updated interpretation of its principles which would lead to a decision of opposite sense to that which was reached and, on the other hand, alleging "confusion" conceptual between the concepts of exploitation and installation, for the decision-makers not having had the care and concern of understanding the economic reality underlying the installation of a tourist enterprise. The essential of the thesis they defend coincides with the thesis that appears in the dissenting opinions issued in the said judgment.

5. Being that, instead, it appears to this tribunal not convincing, the decision in the judgment presented by the Claimants in its arguments – case no. 122/2014-T –, in beginning by expressly ignoring the concept of "installation" set forth in the applicable legal instruments (Decree-Law No. 167/97 and Decree-Law No. 39/2008), then taking the same without drawing the due consequences and not presenting grounds that can contradict, in consistent or innovative terms, the extensive jurisprudence of the Supreme Administrative Court and the arbitral tribunals on this matter.

6. Thus, in light of Article 8, paragraph 3, of the Civil Code, and considering that, since the rendering of that judgment, the question has been examined and decided in a practically uniform manner and with the same decisional sense, in various other judgments of the judicial and arbitral tribunals, it behooves us, in respect for the cited jurisprudential orientation, to render judgment finding the Claimants' request not well-founded.

7. The Claimants further allege that the act of assessment is illegal in so far as it presupposes the revocation of an administrative act of granting a tax benefit, violating the provisions of Articles 140 and 141 of the CPA.

8. Also with respect to this argument, the Claimants cannot be given right. Effectively, it is undisputed in jurisprudence and doctrine that the benefit in question has an automatic character, flowing directly and automatically from law, without the need for any administrative recognition.

9. And being susceptible to being judicially reviewed and revoked by the AT on the terms and time limits provided for in law, namely Article 35, paragraph 1 of the IMT Code, in conjunction with Article 45 of the General Tax Law.

10. In light of all that has been said, it is concluded that the acquisition of the autonomous fraction in the tourist enterprise, "...", although forming part of the enterprise in question and even though dedicated to tourist exploitation, and including the fact that such tourist exploitation is conducted by the operating entity of the remaining tourist enterprise, the acquisition by the Claimants does not fulfill one of the fundamental requirements of the concept of installation, so it cannot benefit from the exemptions established in Article 20, paragraph 1, of Decree-Law No. 423/83.

DECISION

For these reasons and in all other respects as a matter of law, the decision is rendered that the tax assessment act for Municipal Tax on Onerous Transfers of Real Property is legal, in the amount of €27,686.49 (twenty-seven thousand and six hundred and eighty-six euros and forty-nine cents).

Value of the Case

In accordance with the provisions of Article 315, paragraph 2 of the Code of Civil Procedure, Article 97-A, paragraph 1, sub-paragraph a) of the Code of Tax Procedure and Process, and also Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €27,686.49 (twenty-seven thousand and six hundred and eighty-six euros and forty-nine cents.).

Costs

For purposes of the provisions in Article 12, paragraph 2 and Article 22, paragraph 4 of the Legal Regime for Tax Arbitration and Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,224.00, to be borne entirely by the Claimants.

Let notice be given.

Lisbon, 14 December 2014

The Arbitrator

(Ana Teixeira de Sousa)

[Text prepared by computer, in accordance with Article 131, paragraph 5 of the Code of Civil Procedure (CPC), applicable by reference from Article 29, paragraph 1, sub-paragraph e) of the Legal Regime for Tax Arbitration. The drafting of this decision follows the old spelling convention.]