IMT Exemption for Tourism Enterprises: Arbitral Tribunal Competence and Tax Assessment Validity

ARBITRAL DECISION

Claimant: A…, Lda (hereinafter "Claimant")

Respondent: TAX AND CUSTOMS AUTHORITY (hereinafter "TA" and "Respondent")

1. STATEMENT OF FACTS

A…, Lda, with corporate identification number …, with registered office at Street…, no.…, …, …-… Lisbon, hereinafter referred to as Claimant, submitted to the Centre for Administrative Arbitration (CAAD) a request for arbitral decision seeking the annulment of the tax assessment act for official assessment of IMT, contained in official communication no. …, of 25 August 2014.

The Claimant bases the illegality of the IMT assessment and consequent annulment of the tax act on the following defects:

A) Expiry of the right to assess;

B) Lack of substantiation of official communication no. … and of the Inspection Report;

C) Right to exemption from IMT pursuant to the provisions of no. 1 of article 20 of Decree-Law no. 423/83, of 05.10;

The Tax and Customs Authority, in turn, argued that there is no illegality whatsoever, contending that with respect to expiry, the period for assessment is eight years pursuant to article 35 of the IMT Code, and therefore the assessment was notified within that period; that the substantiation of the assessment makes known the reason why the prerequisites for exemption are not met, reiterating in this matter of non-entitlement to exemption the position already assumed by several arbitral decisions in similar cases, thereby concluding for the rejection of the Claimant's request for annulment of the tax act.

The sole arbitrator was appointed and designated on 27.02.2015.

In conformity with the provisions of article 11, no. 1, paragraph c) of the Legal Regime for Tax Arbitration (RJAT), the sole arbitral tribunal was constituted on 16.03.2015.

Written and simultaneous pleadings were submitted by the Claimant and Respondent, in which the positions already established in the Request for Arbitral Decision and Response were reiterated, respectively.

2. PRELIMINARY ISSUES

2.1. Exceptions Raised:

i) On the tribunal's lack of jurisdiction:

Regarding exceptions, the Respondent raised the lack of jurisdiction of this tribunal to examine the alleged lack of substantiation of official communication no. … and of the Inspection Report, in that such invocation amounts to an impugning of that same official communication and inspection report, whereas pursuant to article 2 of RJAT, only the illegality of the tax act—in this case, the IMT assessment—is subject to examination.

On this matter, the Claimant contended in opposition, arguing for the rejection of such exception of lack of jurisdiction, alleging that the matter relating to the lack of substantiation directed at both the official communication and the inspection report constitutes an illegality of the tax act, capable of being framed pursuant to article 99, paragraph c) of the Code of Tax Procedure and Process (CPPT).

Let us examine this.

The Respondent conducted an inspection procedure, which culminated in the issuance of an IMT assessment, as to the illegality of which the Claimant raised the matter through the Request for Arbitral Decision now under examination.

The Claimant alleges, among other grounds, the existence of lack of substantiation with respect to the IMT assessment conveyed through official communication no. …, of 25.08.2014, as well as to the inspection report.

Now, if with respect to the IMT assessment in question we are dealing with the tax act subject to the present proceedings, it would be difficult to understand how such a potentially harmful act in the sphere of the respective subject to tax could not fall within the scope of jurisdiction of this tribunal for purposes of examining the defects attributed to it.

Pursuant to article 2 of the Legal Regime for Tax Arbitration:

"1 – The jurisdiction of arbitral tribunals comprises the examination of the following claims:

a) the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) the declaration of illegality of acts of determination of taxable matter when not resulting in the assessment of any tax, of acts of determination of taxable material and of acts of determination of property values;"

From the reading of the aforementioned provision, namely from paragraph a) of its no. 1, it is thus verified that the request for illegality based on the alleged lack of substantiation of the IMT assessment falls within and is undoubtedly subsumed within the scope of jurisdiction of this tribunal.

The Respondent equally argues for an identical lack of jurisdiction of this tribunal to examine the lack of substantiation relating to the inspection report of which the Claimant was notified.

Within tax contention, the principle of unitary impugning applies, and in tax procedures leading to a tax assessment act, as in the present case, the legal sphere of the taxpayer subject is only affected by the assessment act, from which this is the final act susceptible to impugning, and therefore the inspection report preceding that same tax assessment is not, in itself, an act immediately harmful to the interests and rights of the taxpayer, since it does not produce any autonomous legal effects distinct from the legal effects produced by the final assessment act.

This assertion is evidenced by article 54 of the CPPT, pursuant to which: "Except where they are immediately harmful to the taxpayer's rights or there is express provision to the contrary, interlocutory acts of the procedure are not susceptible to contentious impugning, without prejudice to any illegality previously committed being able to be invoked in impugning the final decision."

This signifies that it was not permitted for the Claimant, prior to the IMT assessment, to initiate contentious impugning with respect to any act of the tax procedure upstream of that same final tax act, the IMT assessment.

Thus, following the IMT assessment, this is the first procedural opportunity that the Claimant has, as subject to tax, to bring into question through contentious impugning any act of the tax procedure that preceded it.

In this sense, the inspection report not being a severable act and susceptible to autonomous impugning within the scope of the tax procedure in which it is inserted, the alleged lack of substantiation of the inspection report could only be brought into question (through a Request for Arbitral Decision or impugning to the tax tribunal) after the conclusion of that same procedure, and therefore this is the procedurally appropriate forum for raising, with respect to the aforementioned cause of action, the alleged legal non-conformity.

Such alleged non-conformity which, if proven, would call into question the legality in concrete of the tax assessment act whose examination falls within the scope of jurisdiction of the present arbitral tribunal, in conformity with the provision resulting from paragraph a) of article 2 of Decree-Law no. 10/2011, of 20 January, amended by Law no. 66-B/2012, of 31 December.

Therefore, the exception of lack of jurisdiction of this tribunal to examine the lack of substantiation of official communication no. … and likewise that relating to the inspection report cannot be granted.

The sole arbitral tribunal is materially competent, pursuant to the provisions of articles 2, no. 1, paragraph a) of the Legal Regime for Tax Arbitration.

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

The process does not suffer from any voidness, there are no exceptions preventing examination of the merits of the case, the claim is timely, and therefore the conditions are met for issuing the arbitral decision.

3. FACTUAL MATTERS

3.1. Proven Facts:

Having examined the documentary evidence produced and the positions of the parties, the following facts are considered proven and relevant to the decision of the case:

1. On 11 August 2010, following submission by the Claimant of Form 1 declaration, document no. … was issued by the Lisbon Finance Service—… without any amount payable as IMT, in accordance with benefit 33 – tourist utility – article 20 of DL 423/83, of 5 December.

2. By public deed executed on 19 August 2010, through public deed of sale and purchase, the Claimant acquired, for the price of €235,372.00, to which was added VAT in the amount of €49,426.02 from company B…, S.A., the autonomous fraction designated by the letters BP of the urban property registered in the urban property register of the parish of …, under provisional article …, integrated in the tourist enterprise "…".

3. Considering that the said enterprise was attributed tourist utility provisionally, pursuant to decision no. …/2010, issued by the Cabinet of the Secretary of State for Tourism and published in the official journal, 2nd Series, no. …, of … of … 2010, it was provided in the said deed that the transmission was exempt from Municipal Tax on Onerous Property Transfers, under article 20 of Decree-Law no. 423/83, of 5 December.

4. On the same date as the said public deed, a contract for tourist exploitation was executed between "B…, S.A" and the Claimant relating to the real estate fraction acquired by the Claimant, in which it ceded to that company the right to exploit the fraction touristically on an exclusive basis.

5. Through publication in the Official Journal, 2nd series, the Cabinet of the Secretary of State for Tourism confirmed the tourist utility previously attributed provisionally to the Hotel …, for a period of seven years, counted from the date of the tourist use authorization certificate no. …/2010, issued by the Municipal Council of … on 19 April 2010.

6. By way of inspection action conducted by the Finance Directorate of …, the tax inspection services concluded that that transmission did not meet the legal prerequisites of the aforementioned exemption, based on the following:

"1. A…, Ld.ª, taxpayer no. …, represented in the act by …, TIN …, acquired by deed executed on 19/08/2010, in the Notary's Office … , in Lisbon, executed from pp. 13 to p. 15 verso of book no. 34, from company B…, SA, taxpayer no. …, represented in the act by …, TIN …, for the price of 235,362.00 €, plus VAT at the rate of 21%, in the amount of 49,426.02, to be paid by the purchaser, the autonomous fraction designated by the letters "BP", of the urban property in horizontal property scheme registered in the respective property register of the parish and municipality of … (…) under article no. … .

Among the documents that the said deed refers to as being filed are: - Declaration for assessment of Municipal Tax on Onerous Property Transfers no. …, assessed on 11.08.2010, in the amount of 0.00 € (Benefit 33 - Tourist Utility, Art. 20 of D.L. 423/83). – Declaration for assessment of Stamp Tax – item 1.1., assessed on 11.08.2010, in the amount of 0.00 € (Benefit 25 – Non-subjection to Stamp Tax – Act subject to VAT – Article 1, no. 2 of the Stamp Tax Code).

1. With respect to Stamp Tax, the provision of article 1, no. 2, of its respective code establishes that operations subject to value added tax and not exempted from it are not subject to tax, and therefore there shall be no adjustment.

2. With respect to the Municipal Tax on Onerous Property Transfers the following should be considered:

a) In the O.J., 2nd Series – No. …, of …/…/2010, Decision no. …/2010 was published, from the Cabinet of the Secretary of State for Tourism, which attributes tourist utility, provisionally, to the Hotel …, requested by company B…, SA.

b) In the O.J., 2nd Series – No. …, of …/…/2011, from the Cabinet of the Secretary of State for Tourism, the tourist utility attributed provisionally to the Hotel … was confirmed, valid for a period of seven years, counted from the date of the authorization certificate for tourist use no. …/2010, issued by the Municipal Council of … on 19 April, that is, until 19 April 2017.

1. In the above-identified deed, exemption from IMT was recognized by the notary, based on no. 1 of article 20 of DL 423/83, of 5 December, which states: "Acquisitions of properties or autonomous fractions intended for the installation of enterprises qualified as having tourist utility are exempt from sisa tax and inheritance and gift tax, with stamp tax reduced to one-fifth, even if such qualification is attributed provisionally…"

2. In the legal provision mentioned above, enterprises qualified as having tourist utility already installed, which are not the subject of remodeling or expansion, are excluded. The intent in granting such benefits for these acquisitions is solely to foster investment and boost tourist activity for promoters who intend to construct/create establishments, and not when it is merely the acquisition of fractions integrated in the enterprises and intended for exploitation. This understanding is in accordance with the decision in the Supreme Administrative Court (STA) Judgment no. 3/2013, case no. 968/12 - 2nd Section (published in the O.J., 1st Series, no. 44 of 4 March 2013), delivered in enlarged proceedings, pursuant to article 148 of the Code of Procedure in Administrative Courts (CPTA), in which it can be read: "…The legislator intended to boost tourist activity by providing for the exemption/reduction of payment of Sisa/Stamp Tax for promoters who intend to construct/initiate establishments (or readapt and remodel existing fractions) and not when it is merely the acquisition of fractions (or accommodation units) integrated in the enterprises and intended for exploitation, even if acquired in a date prior to the actual installation/licensing of the enterprise." (…) "…He who acquires the fractions does not become a co-financier of the enterprise, with responsibility for its installation, since he is acquiring a tourist product that was placed on the market by the promoter, whether the acquisition is made off-plan or after the enterprise is installed, as any final consumer would,…" (…) "Not being in issue the acquisition of properties or autonomous fractions intended for the construction/installation of tourist enterprises, but rather the acquisition of accommodation units by final consumers, even though because they are integrated in the enterprise in question they are allocated to tourist exploitation, the same cannot benefit from the exemptions provided for in no. 1 of article 20 of Decree-Law no. 423/83"

3. From what was mentioned, we conclude that the exemption from IMT in the present case was improperly recognized by the notary because the acquisition of the property by "A…" was not intended for the installation of the enterprise in which it is located, since at the time of acquisition it was already installed.

4. Thus, from the improper recognition of the exemption, the failure to pay IMT resulted, as demonstrated in the following table.

"

1. By official communication no. …, of 25.08.2015, the Finance Service of …, proceeded with notification of the IMT assessment, through which €15,298.53 is stated as payable within 30 days as IMT and €2,385.73 relating to compensatory interest.

2. On 05.01.2015, the request for arbitral decision and constitution of arbitral tribunal was submitted, via computer platform, by the Claimant.

3. The Claimant proceeded to pay the initial court fee;

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

3.2. Substantiation of the Proven Factual Matters:

With respect to the proven facts, the arbitrator's conviction was based on the documentary evidence submitted to the proceedings, as well as on the acceptance by the Claimant and Respondent as to the factual matter brought to these proceedings and the position taken by each of them.

3.3. Unproven Facts

The matter established as proven proves sufficient for examination of the questions raised in these proceedings, which reduce to questions of law, with no unproven facts relevant to the resolution of the present dispute.

4. LEGAL MATTERS

4.1. Object and Scope of the Present Proceedings

The request for arbitral decision has as its object the declaration of illegality of the IMT assessment act, notified to the Claimant through official communication no. … of the year 2013, and has as its cause of action the expiry of the right to assess, the lack of substantiation of such tax act and the illegality of the interpretation (adopted by the Tax Authority) according to which the Claimant is not entitled to exemption from IMT for the acquisition of the above-identified fraction.

In view of the above, bearing in mind the provision of article 24 of the CPPT, applicable by force of paragraph a) of no. 1 of article 29 of RJAT, it is necessary to examine the defects attributed to the IMT assessment act subject to these arbitral proceedings, in accordance with such criterion.

4.2. Of the Alleged Expiry of the Tax Authority's Right to Issue an IMT Assessment

The Claimant argues that, considering the application of articles 78 of the General Tax Law and 31 of the IMT Code, the period for the Tax Authority to determine the IMT owed on such real estate acquisition is four years and not eight, and therefore the assessment, which it regards as additional, notified beyond the aforementioned four years, through official communication no. … of the Lisbon Finance Service—…, is illegal.

Let us examine this.

Pursuant to no. 1 of article 35 of the IMT Code "Tax can only be assessed within the eight years following the transmission or the date on which the exemption ceased to have effect, without prejudice to the provision of the following number and, as to the rest, article 46 of the General Tax Law."

In turn, article 31 of the aforementioned legal compendium provides:

"1 - In the event of omission of goods or values subject to taxation or where there are well-founded indications that acts or contracts were executed or celebrated with the objective of reducing the tax debt or obtaining other undue advantages, the correction powers attributed to the tax administration by this Code or other tax laws are applicable.

2 - When it is found that in the assessments an error of fact or law was committed, which resulted in harm to the State, as well as in cases where valuation is called for, the head of the finance service where the assessment was made or where the declaration was submitted for purposes of the provision of no. 3 of article 19, promotes the corresponding additional assessment.

3 - The assessment can only be made until four years have elapsed from the assessment being corrected, except if it is due to omission of goods or values, in which case it may still be made later, being reserved, in all cases, the provision of article 35.

4 - The additional assessment must be notified to the taxpayer, pursuant to the terms provided for in the Code of Tax Procedure and Process, in order to effect payment and, if applicable, to be able to use the means of defense provided for there."

It results therefore from the concatenated interpretation of the aforementioned rules the existence of two distinct periods for purposes of issuing IMT assessments, namely: four and eight years.

A period of four years, this one applicable when dealing with an additional assessment and always considering the exceptions provided for in no. 3 of article 35 of the IMT Code, in the event of omission of goods or values.

And a period of eight years applicable to situations in which there is not in issue the correction of prior assessments, that is, which do not constitute additional assessments for purposes of article 31 of the IMT Code.

Thus, the question to be decided necessarily involves understanding whether the assessment issued and notified to the Claimant by the Respondent through official communication no. …, constitutes or does not constitute an additional assessment, so that from such qualification it is possible to extract the applicable framework for this tax act as to the period of expiry of the right to assess the IMT in question.

For such purpose—qualification of the assessment subject to these arbitral proceedings—it is first necessary, as set out above, to understand whether the document extracted by the Lisbon Finance Service—… on 11.08.2011 and referred to in point 1 of the proven facts constitutes or does not constitute a tax assessment, in this case IMT.

We understand that it does not.

In fact, any characterization of the tax assessment cannot fail to reveal an arithmetic operation of application of the tax rate to the previously determined taxable matter.

That is, the concept of assessment necessarily involves an operation of quantitative determination regarding the fiscal charge to be borne by the subject to the tax legal relationship.

This does not mean that from such determination regarding the amount, there must necessarily result a final amount payable by the taxpayer, since the rules for determining the tax itself may provide that the result of such assessment is null in terms of the fiscal charge for the subject to tax, a situation easily illustrated, for example, in the context of Personal Income Tax, where, either by way of the concrete income earned, or by way of the amounts already paid to the tax creditor through withholding at source, the final result of the arithmetic operation for determining the tax is null or zero in terms of tax payable upon assessment of the tax in question.

Now, as is easily understood, the circumstance that the final result of such determination is "zero" tax payable (or to be reimbursed) does not eliminate or nullify the essential element and the characteristic of that same assessment which is the existence of the quantitative determination itself through arithmetic operations aimed at determining whether or not there is tax payable or to be reimbursed.

Thus, the argument of the Respondent to the effect that, the assessment resulting in "zero" tax payable, such would preclude the characterization of such document as an assessment, does not hold.

But equal disagreement does not occur with respect to the argument of the non-existence of the arithmetic/quantitative determination, in that, as is demonstrated through reading the aforementioned document, the same does not result in the execution of any arithmetic determination aimed at determining the IMT, that is, at no point is the IMT rate applied, for example, to the taxable matter.

And this did not occur by virtue of the operation of the exemption under which the Claimant submitted the Form 1 declaration: Transaction exempt from IMT pursuant to no. 1 of article 20 of 423/83, of 5/12.

That is, the Lisbon Finance Service—… did not even proceed to any determination of the tax that would be due by way of such transmission, because the activation (correct or incorrect) of the exemption under which the Claimant submitted that same declaration ended up preventing the possibility of the Tax Authority proceeding to any determination as to the IMT possibly due by way of such transmission of the autonomous fraction.

In view of the circumstances set out above, it is therefore not possible or viable to characterize the IMT assessment sub judice as an additional assessment, since this was not preceded by any other tax assessment which this latter aimed to correct, because and as was established above, the operation of the exemption prevented and made inviable any arithmetic determination through application of the rate to the previously determined taxable matter.

In this sense, we cannot fail to partially reproduce here earlier jurisprudence from superior courts, which, despite still addressing the now-revoked Sisa Code, takes a position on identical substantive subject matter.

Thus, the Supreme Administrative Court, in case no. 0153/11, of 18.05.2011, pronounced: "As appears from the evidence, the appellant acquired the property referred to in the proceedings on 4/6/2001, having been exempt from sisa, by virtue of the provision of article 7 of DL 540/76, of 9 July.

By virtue of having been subject to an internal inspection procedure, it was established that, in fact, the actual value of the transaction was higher than that declared, and sisa was therefore owed, which was thus assessed and notified to the appellant on 7/7/2005.

The appellant alleges that the fact that the transmission was exempt from sisa necessarily implies that there was an assessment, since the recognition of the exemption implies that a taxable fact exists and consequent assessment of the tax which only did not result in payment of tax by virtue of that same exemption.

And, if that were the case, the assessment being challenged is not an assessment "ex novo", as was considered in the appealed decision, but rather an additional assessment. However, the appellant is not correct.

In fact, the additional assessment is nothing more than the correction of a deficient assessment as a result of errors or omissions, which may be the responsibility of either the services or the taxpayers.

Its objective is solely to determine the difference in tax so that the taxpayer is charged, in total, an amount equal to that which would result from assessment made all at once – cfr., in this sense, Francisco Pinto Fernandes and José Cardoso dos Santos, in Code of Sisa and Tax on Inheritance and Gifts, volume II, p. 992.

Now, in this case, when the deed of sale and purchase was executed, no assessment was made since the appellant benefited from exemption from sisa under article 7 of DL 540/76 (savings - emigrant account).

It is true that the taxable fact occurred but from that cannot be inferred, without more, that there was an assessment from which no tax would result payable because the appellant was exempt from it; on the contrary, by virtue of that exemption, no sisa assessment was proceeded with at that time.

The assessment which subsequently came to be made as a result of the inspection conducted on the appellant is not, therefore, an additional assessment since the same was not intended to correct a prior assessment defective by error of fact or law or by omissions or inaccuracies made in the declarations submitted for purposes of assessment.

Hence, as was understood in the appealed decision, article 111, § 3 of the CIMSISSD does not apply here and, the period of expiry being that provided for in article 92 of the same Code—eight years, the alleged expiry of the right to assess does not occur, since at the date on which the appellant was notified of the assessment, on 7/7/2005, eight years had not yet elapsed since the date of the transmission (4/6/2001)."

Thus, without losing sight of the case at hand, we have that, in like manner to the situation recounted in the appeal of which the excerpt has just been cited, there was not, by virtue of an exemption (correct or incorrect) from the tax, any assessment was not carried out.

Not having carried out any assessment operations aimed at determining the IMT payable, by virtue of the operationalization of a supposed cause of exemption from IMT on such transmission, it cannot fail to be concluded that the assessment subject to the present arbitral proceedings is not susceptible of being characterized as an additional assessment, and therefore the Tax Authority had a period of eight years for issuance of the IMT assessment at issue, in conformity and respect with the provision of no. 1 of article 35 of the IMT Code.

Whereupon, considering the aforementioned applicable period and regardless of the two possible initial points contained in the rule at issue, the assessment in question was issued and notified within the period of expiry of the right to assess of which the Tax Authority had, and therefore the ground relating to expiry of the right to assess invoked by the Claimant cannot be granted.

4.3. Of Lack of Substantiation:

The Claimant argues that the IMT assessment issued and notified by the Tax Authority is defective for the vice of lack of substantiation, namely by violation of the provisions of paragraphs d) and e) of no. 1 of article 123 of the Administrative Procedure Code (CPA), voidable pursuant to article 135 of the CPA, because the assessment does not make known, with sufficient clarity, the essential elements that support the assessment, thus not allowing the Claimant to safeguard its rights of appeal and impugning. Let us examine this.

The law imposes the duty of substantiation, as a right enshrined and constitutionally guaranteed to citizens (article 268, no. 3, of the Constitution of the Portuguese Republic), and an act defining the position of the Tax Authority before private parties, so that the taxpayer, from the tax legal relationship, is able to ascertain the reasoning followed by the Tax Authority to decide in a certain manner and not in another.

The duty of substantiation aims, in this manner, to enable a normal recipient to perceive the cognitive and evaluative path followed by the author of the act to issue the decision, so that such recipient is able to know the reasons why the author of the act decided as it decided and, from that perception, be able to set in motion the administrative or contentious mechanisms for impugning that decision issued by the Tax Authority.

Thus it is justified that article 77, no. 2 of the General Tax Law imposes that the decision of the procedure contain "the applicable legal provisions, the qualification and quantification of the taxable facts and the operations for determining the taxable matter and the tax", since only in this manner can the subject to tax apprehend the raison d'être of the tax act and weigh possible reaction to such decision of the administration.

Now, in view of the tenor of the assessment notified to the Claimant, it is verified that the same contains, not only the applicable legal provisions and qualification of the taxable facts, but also the quantification of the taxable facts and the operations for determining the taxable matter and the tax.

Although the assessment placed in question contains all the elements imposed by article 77, no. 2 of the General Tax Law, it is necessary to ascertain whether those elements are sufficient to affirm that the duties of substantiation of the act are, in this case, properly fulfilled.

That is, and as the Claimant rightly notes, the duty of substantiation is a relative concept that varies depending on the legal type of the administrative act and the circumstances in which the same was practiced.

In this sense, it has been held that the requirements for substantiation of the tax act are not rigid, varying in accordance with the type of act and the concrete circumstances in which it was issued.

Although the Claimant alleges lack of substantiation, the truth is that, given the substantiation of the request for arbitral decision effected by the Claimant regarding its right to exemption, it results that it understood exactly which path was followed by the Tax Authority leading to the IMT assessment, and therefore we do not perceive the existence of the noted formal vice.

This is because, as is accepted pacifically by jurisprudence, "there is no formal vice of lack of substantiation if the impugning party itself expressly reveals having understood perfectly the logical and legal process that led to the decision of taxation, acknowledging having perceived the prerequisites concretely considered by the author of the act and the reasons why the taxed values were reached, denouncing the cognitive and evaluative path traveled (…)"[1].

In the case under examination, it is verified that the Respondent Tax Authority made known, through the inspection report, the substantiation as to why, in its view, the Claimant could not benefit from the exemption from IMT.

And such substantiation consisted of the fact that the Claimant did not, through the acquisition of the autonomous fraction, create or construct a tourist establishment, but rather proceeded to acquire it for the purpose of exploitation of an already existing enterprise.

The Tax Authority concluding that, in view of such factuality, the prerequisite would not be met that the acquisition had to aim at the installation of a tourist enterprise.

Now, from the tenor of the inspection report underlying the IMT assessment, the reasons of fact and law on which this position of the Tax Authority is based result in an express, sufficient and congruent manner.

Whether these prerequisites and reasons put forward by the Tax Authority for the inspection report are or are not substantively valid is a question that has to do with merit and not with form and which, therefore, is placed in another dimension of which it does not behoove us, at this point, to examine.

Indeed, given the tenor of the argument put forward by the Claimant in this particular, it is perceived that the question is, rather, within the domain of interpretation of the substantive legal framework applicable and not so much the omission of any essential elements for understanding the decision that led to the IMT assessment sub judice.

In this case, the criterion (rightly or wrongly) followed by the Tax Authority is made evident, which is based on the fact that, by way of the acquisition, a tourist enterprise was not created or constructed, since it already existed, thus considering that the same was already installed.

And, as is emphasized in the STA judgment of 02.02.2006, in case no. 1114/05, "this legal duty of substantiation has, alongside an external function—giving notice to the administered party of the reasons for the decision, allowing them to choose between acceptance of the act or its impugning—an internal function consisting in the careful, serious and unbiased consideration by the administrative entity itself."

As such, substantiation must be contextual and integrated in the act itself (even if it can be by way of cross-reference), expressed and accessible (through a succinct exposition of the factual and legal grounds of the decision), clear (in order to allow, through its terms, a precise apprehension of the facts and law on which the decision is based), sufficient (allowing the recipient of the act concrete knowledge of the motivation of the act) and congruent (the decision should constitute the logical and necessary conclusion of the reasons invoked as its justification), being equivalent to lack of substantiation the adoption of grounds that, by obscurity, contradiction or insufficiency, do not concretely clarify the motivation of the act.

Resorting to jurisprudential language, the act is only substantiated if a normally diligent or reasonable recipient—a normal person—placed in the concrete situation expressed by the substantiating statement and before the concrete administrative act (which will determine, according to its diverse nature or type, a greater or lesser requirement as to the density of substantiation elements) is in a position to know the functional cognitive and evaluative path of the author of the act.

Being thus essential that the contextual discourse make known to him the path of apprehension and evaluation of the prerequisites of fact and law that support the decision or the reasons why the decision was made in a certain manner and not in any other. It aims to "concretely clarify the reasons that determined the decision taken and not find the substantive basis that perhaps legitimates it, since the formal duty of substantiation is fulfilled 'through the presentation of possible prerequisites or coherent and credible reasons, while substantive substantiation requires the existence of real prerequisites and correct reasons capable of supporting a legitimate decision on the merits'."

In the case at hand, we have that the Tax Authority set out expressly the grounds by which it considers that the prerequisites are not met for the Claimant to benefit from exemption from IMT upon acquisition of the autonomous fraction in the already above-identified enterprise, and the combination of points 1 to 5 of the inspection report exceed the threshold of requirements as to sufficiency, clarity and formal congruence of the argument invoked by the Tax Authority to conclude as it did.

In these terms, it is understood that, in this case, it results sufficiently perceptible to a median recipient, placed in the position of the concrete recipient, what is the substantiation of the tax act now placed in question, and the Claimant's allegation should therefore be rejected in this respect.

4.4. On the Right to Exemption from IMT by Application of Article 20 of DL no. 423/83, of 05.10:

Finally, the Claimant argues that the IMT assessment at issue is equally illegal, because the installation phase is only concluded when tourist exploitation can be initiated, which occurred, in its view, with the acquisition by the Claimant of the autonomous fraction in question.

Let us examine this.

Article 20, no. 1, of Decree-Law no. 423/83, of 5 December, provides:

"1 - Acquisitions of properties or autonomous fractions intended for the installation of enterprises qualified as having tourist utility are exempt from IMT (…) even if such qualification is attributed provisionally, provided that the same remains valid and the period fixed for opening to the public of the enterprise is observed.

2 - The exemption and reduction established in the preceding number shall also apply to the transmission in favor of the operating company, in the event that the proprietor is a financial leasing company and the transmission occurs under and in accordance with the financial leasing contract that determined the acquisition of the enterprise by the transmitting company."

First and foremost, given the literal tenor of the aforementioned provision, it appears that we are dealing with an objective tax exemption, in that it intends to benefit the activity of installing the enterprise, in that only companies engaged in installing tourist enterprises can benefit from the exemption and not also entities intending to devote themselves to the activity of exploiting the same.

Considering what has been set out, it is necessary, for a correct analysis and examination regarding the Claimant's right to benefit from such exemption, to clarify the concept of installation used by the legislator in no. 1 of article 20 of DL 423/83, of 05.10.

Thus, for such purpose, we cannot fail to take into consideration the significant number of judgments already delivered by superior courts, namely by the Supreme Administrative Court, with particular relevance to the existence of a decision delivered in enlarged proceedings, pursuant to the provision of article 148 of the CPTA, on 23 January 2013, in case no. 968/12, which gave rise to jurisprudence-standardizing judgment no. 3/2013, published in the Official Journal, 1st Series, of 4 March 2013.

In the context of the aforementioned judgment, a literal interpretation was conducted of article 20, no. 1, of DL 423/83, in conjunction with other provisions of the same instrument (articles 16, no. 2, and 20, no. 2), as well as prior and subsequent legislation to DL 423/83 was considered, with the intent of clarifying the concept of "installation".

Given such an exhaustive examination, not only from the perspective of literal interpretation of the rule, but also from the historical and teleological element, we cannot fail to follow the position and understanding set out in the aforementioned jurisprudence-standardizing judgment, to which number 3 of 2013 was assigned.

Given the adherence now being effectuated to the position set out therein, it is necessary here to cite the summary of the aforementioned judgment:

"I – In determining the meaning and scope of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed, and "Whenever, in tax rules, terms proper to other branches of law are used, the same shall be interpreted in the same sense as they have there, unless otherwise directly results from the law" (article 11, nos. 1 and 2, of the General Tax Law).

II – Within the legal regime for the installation, exploitation and operation of tourist enterprises, established in Decree-Law no. 39/2008, of 7 March, the concept of installation of a tourist enterprise comprises the set of legal acts and the procedures necessary for licensing (in a broad sense, comprising prior notifications or authorizations, as the case may be) of the urban operations necessary for construction of a tourist enterprise, as well as obtaining the titles that render it capable of functioning and being exploited for tourist purposes (cfr. Chapter IV, articles 23 et seq.).

III – When the legislator uses the expression acquisition of properties or autonomous fractions intended for "installation", for purposes of the benefit to which no. 1 of article 20 of Decree-Law no. 423/83, of 5 December, refers, it cannot fail to be understood as referring precisely to the acquisition of properties (or autonomous fractions) for construction of tourist enterprises, after the respective urban operations have been properly licensed, aiming to benefit companies engaged in the activity of promoting/creating the same.

IV – This concept of "installation" is that which proves suitable for all types of tourist enterprises and is not called into question by the fact that the enterprises may be constructed/installed under plural ownership, since this has to do with "exploitation" and not with "installation".

V – In tourist enterprises constituted under plural ownership (which comprise lots and or autonomous fractions of one or more buildings, pursuant to the provision of article 52, no. 1, of Decree-Law no. 39/2008, of 7 March), two distinct procedures are distinguished, although they may occur simultaneously: one relating to the practice of operations necessary to install the enterprise; another, relating to the operations necessary to put it into operation and to exploit it, and the sale of the projected or constructed units necessarily forms part of the second.

VI – The legislator intended to boost tourist activity by providing for exemption/reduction of payment of Sisa/Stamp Tax for promoters intending to construct/create establishments (or readapt and remodel existing fractions) and not when it is merely the acquisition of fractions (or accommodation units) integrated in the enterprises and intended for exploitation, even if acquired at a date prior to the actual installation/licensing of the enterprise.

VII – He who acquires the fractions does not become a co-financier of the enterprise, with responsibility for its installation, since he is acquiring a tourist product that was placed on the market by the promoter, whether the acquisition is made off-plan or after the enterprise is installed, as any final consumer would, all the more so since the fractions may be acquired for exclusive use and without any temporal limitation (in the case of tourist enterprises constituted under plural ownership).

VIII – Not being in issue the acquisition of properties or autonomous fractions intended for the construction/installation of tourist enterprises, but rather the acquisition of accommodation units by final consumers, even though because they are integrated in the enterprise in question they are allocated to tourist exploitation, the same cannot benefit from the exemptions provided for in article 20, no. 1, of Decree-Law no. 423/83.

IX – This interpretive result is that which results from the historical, rational/teleological and also literal element of the legal rules in question.

X – Tax benefits are measures of an exceptional nature instituted for the protection of relevant non-fiscal public interests that exceed those of the taxation itself that they prevent (article 2/1 of the Tax Benefits Statute) (…)" and while admitting extensive interpretation (article 10 of the Tax Benefits Statute), it cannot be considered by the interpreter the legislative thought that does not have in the letter of the law a minimum of correspondence, even if imperfectly expressed (article 9/2 of the Civil Code), furthermore because as they represent a derogation from the rule of equality and the principle of contributory capacity that materially grounds taxes, tax benefits must be justified by a relevant public interest".

Given the argument put forward by the Claimant as to its right to exemption, there is not verification, nor is any factual matter invoked that would permit subsuming its action within the concept of "installing" for purposes of article 20 of DL 423/83, of 05.10, which concept is given to us through Decree-Law no. 39/2008, of 7 March, a legal instrument which regulates the legal regime for the installation, exploitation and operation of tourist enterprises.

This is because, in fact, the Claimant merely refers to the fact that the installation of the enterprise in question should be considered concluded upon acquisition by it of the aforementioned fraction, because only then did such fraction become capable of being exploited touristically.

Now, we do not agree, as set out in the points summarized in the jurisprudence-standardizing judgment no. 3 of 2013, with the assertion made by the Claimant, because this does not allege any factuality that would permit incorporating its concrete action within the scope and the range of activities subsumable to the concept of installation, as legally defined in Decree-Law no. 39/2008, of 7 March, and it is certain that at the date of acquisition of the fraction, the tourist use authorization certificate of the enterprise had already been granted, which leads to the conclusion that nothing would prevent the enterprise already from being in operation on 19 April 2010, which, moreover, the Claimant does not even contradict.

It is important to note, in this regard, that being the case, as it is, of tax benefits, the burden of proof as to the verification of the prerequisites leading to such non-taxation by way of exemption constitutes a burden of proof imputable to the taxpayer benefiting from such non-taxation, in accordance with the terms and in conformity with the provision of no. 1 of article 74 of the General Tax Law.

On this matter, we equally follow the sense of the jurisprudence that has pronounced itself on such question, according to which:

"Even at a date prior to the entry into force of the General Tax Law, the burden of proof of the facts constituting a right to exemption from the tax or another right intended to be exercised before the Tax Authority was vested in the taxpayer subject to the tax and not in the latter, with the case to be judged against the party burdened with such burden when the reality of the facts, by another route, is also not obtained.[2]"

In identical sense, "Given the provision of article 74, no. 1, of the G.T.L., it is the taxpayer subject to tax who is responsible for proving the prerequisites for subjection to the regime of a given tax benefit, as an imperative fact of the default taxation.[3]"

In view of the above, it cannot fail to be concluded that the Claimant brought nothing in terms of evidence that would permit framing its action within the concept of installation referred to in article 20 of DL 423/83, of 05.10, a concept that should always have been drawn from the provision of Decree-Law 39/2008, of 07.03, instead resulting from the evidence carried out in these proceedings an intervention by the Claimant only at the level of exploitation and after the licensing of the enterprise, and therefore after the installation thereof, which, in itself, in light of the jurisprudence that was aligned above, does not permit the Claimant to benefit from the tax benefit contained in article 20 of DL 423/83, of 05.10.

As set out above, the IMT assessment now under examination deserves no censure.

5. DECISION:

In these terms and with the substantiation set out above, this arbitral tribunal decides:

1. To judge completely unfounded the request for declaration of illegality of the tax assessment act for IMT, due to the non-verification of any of the defects attributed to it by the Claimant.

2. To condemn the Claimant to payment of costs in accordance with Table I of the Rules of Procedure in Tax Arbitration Cases (RCPTA), calculated according to the value of the case - articles 4-1 of RCPTA and 6, no. 2, paragraph a) and 22, no. 4, of RJAT.

Value of the case: €17,684.26 – articles 97-A of CPPT, 12 of RJAT (DL 10/2011), 3-2 of the Rules of Costs in Tax Arbitration Cases (RCPAT).

Let this arbitral decision be notified to the parties and, in due course, the case shall be filed away.

Lisbon, 16 November 2015.

The Sole Arbitrator

(Luís Ricardo Farinha Sequeira)

Text produced by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by cross-reference of article 29, no. 1, paragraph e) of the Legal Regime for Tax Arbitration, with blank lines and reviewed by me.

[1] STA Judgment of 30/01/2013, case 0105/12

[2] Judgment no. 05079/11 of the Administrative Court of the South, of 24.01.2012

[3] Case no. 6629/13, of 02.07.2013, delivered by the Administrative Court of the South