Process: 110/2014-T

Date: October 2, 2014

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Case 110/2014-T, the CAAD arbitral tribunal addressed whether a property purchaser could claim IMT (Municipal Tax on Onerous Property Transfers) exemption under Article 20 of Decree-Law 423/83 when acquiring a unit within an existing certified tourist development. The claimant purchased a fraction of the C... Tourist Development in Quarteira for €440,000 in December 2005, believing the transaction qualified for IMT exemption. However, in 2013, following a tax inspection, the Tax Authority issued an additional IMT assessment of €28,600, arguing the exemption did not apply. The claimant contested this, asserting the property was integrated into a qualified tourist development installation process and that legal certainty principles were violated since notaries and registry officials had previously accepted the exemption. The AT countered that the statutory exemption requirements were not met. The tribunal's analysis focused on interpreting 'installation' within Article 20's exemption provision. Citing Supreme Administrative Court jurisprudential standardization judgment 3/2013, the tribunal emphasized that the exemption applies exclusively to acquisitions intended for constructing or creating new tourist developments, benefiting companies engaged in promotional and developmental activities. The critical distinction centered on whether the claimant was installing a new development versus acquiring an already-existing unit. Evidence showed the claimant purchased from B..., S.A., then subsequently entered an operation contract with I... in March 2006. The tribunal found unproven that the acquisition was intended for tourist development installation, as the property already existed within an established complex. This case establishes important precedent that IMT exemptions for tourist developments apply narrowly to construction and creation phases, not to secondary market acquisitions of completed units, regardless of the property's ongoing tourist classification.

Full Decision

CLAIMANT/APPLICANT: A...

RESPONDENT: Tax and Customs Authority (hereinafter AT)

1. REPORT

On 11-02-2014, A..., taxpayer no. …, resident in Rua …, Matosinhos, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the additional tax assessment act for Municipal Tax on Onerous Property Transfers (IMT) no. ..., in the amount of 28,600 €. Said assessment related to the purchase made from company B..., S.A., on 05-12-2005, of fraction BS of the urban property registered in the urban property register of the parish of Quarteira under article ..., located in Avenida …, municipality of Loulé, integrated in the Tourist Development C.... The assessment was made based on the price attributed to the right acquired, in the amount of 440,000 euros.

The Claimant requests the annulment of the said IMT assessment act on the grounds that it constitutes a manifestly illegal tax act. The Claimant contends that the acquisition is entitled to the IMT exemption provided for in article 20 of Decree-Law no. 423/83 of 5 December, as amended by Decree-Law no. 38/94 of 8 February, since the acquired property was integrated into the process of installing a tourist utility development.

The Claimant further alleges that the principles of legal certainty and legal security were violated by disregarding the prior legality control review to which the notary and the land registry conservator were obligated and by the AT, only now, requiring the restoration of taxation that it claims was omitted.

The Tax and Customs Authority submitted a reply on 26-05-2014, defending the maintenance of the tax act being challenged, requesting dismissal of the claim, alleging that the Claimant has no entitlement to the IMT exemption.

A sole arbitrator was appointed on 28-03-2014, Suzana Fernandes da Costa. In accordance with the provisions of article 11, no. 1, subparagraph c) of the RJAT, the sole arbitral tribunal was constituted on 14-04-2014.

The arbitral tribunal hearing took place on 02-07-2014 at 4:00 p.m. In the course thereof, the representative of the Claimant declared not to waive witness evidence production, while the representative of the Respondent declared to consider that witness evidence production should be dispensed with. The Tribunal decided to grant the Claimant a period of 5 days to specify the facts on which she intended to examine the witnesses listed. The date for delivery of the decision was also set for 02-10-2014.

On 07-07-2014, the Claimant indicated that the facts she intended to prove with the witnesses listed would be the facts contained in articles 12, 13, 17, 21, 33, 34, 35, 36, 37, 38 of the request for arbitral ruling. The Claimant dispensed with witnesses D..., E... and F... at that time, and further requested the use of evidence produced in proceedings no. 102/2014-T, namely the testimony given by witness G.... She also requested examination via Skype of witness H..., who would be residing in Brazil.

On 18-07-2014, the tribunal decided to allow the use of witness evidence produced in proceedings no. 102/2014-T, namely the testimony given by G..., and also authorized examination via Skype of H..., to take place on 19-09-2014 at 2:30 p.m.

On 19-09-2014 at 2:30 p.m., the examination via Skype of witness H... took place, who testified on the matters contained in articles 12, 13, 14, 17, 20 to 22 and 33 to 38 of the request for arbitral ruling.

The tribunal then notified the parties to submit their written submissions within a simultaneous period of 5 days. Both parties submitted their submissions on 24-09-2014.

The parties have legal personality and legal capacity, and are legitimate (articles 4 and 10, nos. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March) and the claim is timely.

2. FACTUAL MATTERS

2.1. Proven Facts:

Having analyzed the documentary and witness evidence produced, the following facts are considered proven and relevant for deciding the case:

  1. The Claimant acquired by public deed on 05-12-2005, from company B..., S.A., legal entity no. …, fraction … of the urban property registered in the urban property register of the parish of Quarteira under article ..., located in Avenida …, parish of Quarteira, municipality of …, integrated in the Tourist Development C..., for the price of 440,000 €.

  2. Through the inspection action carried out by the Finance Directorate of Faro, which took place between 22-07-2013 and 25-07-2013, the tax inspection services concluded that that transfer did not meet the legal requirements of the exemption referred to above.

  3. Based on the said inspection report and after the Claimant exercised the right to a hearing, the competent services proceeded to the additional IMT assessment, based on the declared price and at the rate of 6.5%, provided for in subparagraph d) of article 17 of the IMT Code, calculating the tax debt in the amount of 28,600 €, with a payment deadline of 25-11-2013.

  4. The assessment was notified to the Claimant through official letter no. ... of 10-10-2013, from the Finance Office of Loulé ….

  5. The Claimant entered into a contract for tourist operation with I... on 21-03-2006 under which she ceded to that company the exclusive right to operate the fraction, with that company being responsible for the operation of the hotel and tourist apartments that make up the tourist complex C....

No other facts with relevance for deciding the case were proven.

2.2. Facts Not Considered Proven:

It was not proven that the acquisition was intended for the installation of Tourist Development C....

2.3. Rationale of Proven Factual Matters:

With regard to the proven facts, the arbitrator's conviction was based on the documentary evidence produced and the facts admitted by agreement of the parties. The testimony of the witnesses heard, although it dealt with restrictions on the operation of the properties by the owners, failed to prove facts capable of influencing the decision in the case.

3. LEGAL MATTERS:

The essential question to be determined in the present case is whether the purchase made by the Claimant would be entitled to benefit from the exemption provided for in no. 1 of article 20 of Decree-Law no. 423/83, of 05-12.

According to this provision in the wording in force at the time of the transfer "acquisitions of properties or autonomous fractions intended for the installation of qualified tourist developments are exempt from sisa (...), even if such qualification is awarded on a provisional basis."

As proven, the Claimant, in a first phase, purchased the property from B..., S.A..

In a second phase, on 21-03-2006, she signed an operation contract with another entity, I....

What is relevant for taxation in the IMT context is the first transaction, which constitutes the acquisition of a lodging unit/fraction by the Claimant.

It is clear from the literal element of interpretation that the legislator intended only to cover with that provision acquisitions intended for the "installation" of developments, in the sense established by the Administrative Supreme Court in the judgment of 23-01-2013, delivered in proceedings no. 968/12, in extended proceedings, under the terms of article 148 of the CPTA, which gave rise to the jurisprudential standardization judgment no. 3/2013, published in the Official Journal, 1st Series, of 04-11-2013.

Indeed, the Supreme Court standardized the jurisprudence in the following terms:

"The concept of 'installation', for purposes of the benefits referred to in no. 1 of art. 20 of Decree-Law no. 423/83, of 5 December, refers to the acquisition of properties (or autonomous fractions) for construction of tourist developments, after the respective urban planning operations have been duly licensed, aiming to benefit companies engaged in the activity of promotion/creation of the same and not the acquirers of autonomous fractions in developments built/installed under plural property regime, since this concerns 'operation' and not 'installation'."

We conclude in the same sense as the said judgment, a sense that is also expressed in the following judgments of the Supreme Court: Jdgts. of 23.1.2013, Procs. 01001/12, 01005/12 and 01069/12, of 30.1.2013, Procs. 0970/12, 0971/12, 0972/12, 0999/12, 01003/12 and 01193/12, of 6.2.2013, Proc. 01000/12, of 8.2.2013, Proc. 01004/12, of 17.4.2013, Procs. 01023/12 and 01002/12, of 23.4.2013, Proc. 01195/12, of 11.9.2013, Proc. 01049/13, of 25.9.2013, Proc. 01038/13, of 9.10.2013, Procs. 01050/13, 1040/13 and 01015/13, of 18.10.2013, Proc. 01048/13, of 30.10.2013, Proc. 01052/13, of 13.11.2013, Proc. 01054/13, of 4.12.2013, Proc. 0824/13, of 29.1.2014, Proc. 01043/13, of 5.2.2014, Procs. 01041/13, 01047/13 and 01917/13, of 26.2.2014, Procs. 0860/13 and 08763, of 2.4.2014, Proc. 01914/13, of 9.4.2014, Proc. 0859/13, of 28.5.2014, Proc. 0291/14 and of 18.6.2014, Proc. 01527/13.

In the same way and for situations with facts identical to those underlying the present case, the CAAD decided in the decision delivered in proceedings no. 104/2014-T.

This jurisprudential line is solidly grounded in the said Supreme Court judgment, from which we transcribe below the respective "summary", whose content is as follows:

"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, these must be interpreted in the same sense that they have there, unless something else follows directly from the law" (art. 11, nos. 1 and 2, of the LGT).

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

III – When the legislator uses the expression acquisition of properties or autonomous fractions with a view to "installation", for purposes of the benefit referred to in no. 1 of art. 20 of Decree-Law no. 423/83, of 5 December, it can only be understood as referring precisely to the acquisition of properties (or autonomous fractions) for construction of tourist developments, after the respective urban planning operations have been duly licensed, aiming to benefit companies engaged in the activity of promotion/creation of the same.

IV – This concept of "installation" is the one that proves adequate for all types of tourist developments and is not put in question by the fact that developments may be built/installed under plural property regime, since this concerns "operation" and not "installation".

V – In tourist developments constituted in plural property (which comprise lots and/or autonomous fractions of one or more buildings, under the terms of art. 52, no. 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 operations necessary to install the development; another, relating to operations necessary to put it into operation and operate it, with the sale of projected or constructed units being necessarily part of the second.

VI – The legislator intended to promote tourist activity by providing for the exemption/reduction of Sisa/Stamp Tax for promoters who intend to build/create establishments (or readapt and remodel existing fractions) and not when it is merely the acquisition of fractions (or lodging units) integrated in developments and intended for operation, even if they are acquired at a date prior to the installation/licensing of the development itself.

VII – Whoever acquires the fractions does not become a co-financier of the development, with responsibility for its installation, since he is acquiring a tourist product put on the market by the promoter, whether the acquisition is made off-plan or after the development is installed, as any final consumer would, all the more so since the fractions may be acquired for their exclusive use and without any time limit (in the case of tourist developments constituted in plural property).

VIII – Not being a matter of the acquisition of properties or autonomous fractions intended for construction/installation of tourist developments, but rather the acquisition of lodging units by final consumers, even though because they are integrated in the development in question they are subject to tourist operation, the same cannot benefit from the exemptions enshrined in art. 20, no. 1, of Decree-Law no. 423/83.

IX – This interpretative result is what follows from the historical, rational/teleological and also literal element of the legal provisions in question.

X – Tax benefits are measures of an exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to the taxation they prevent (article 2/1 of the Tax Benefits Statute) (...)" and although admitting extensive interpretation (article 10 of the Tax Benefits Statute), the legislator's thinking cannot be considered by the interpreter if it does not have in the letter of the law a minimum of correspondence, even if imperfectly expressed (article 9/2 of the Civil Code), and because they represent a derogation from the rule of equality and the principle of contributive capacity that materially grounds taxes, tax benefits must be justified by a relevant public interest".

On the concept of "installation", it is clear from the legislation a clear distinction between the concepts of "installation", on the one hand, and "functioning" and "operation", on the other, a distinction that is also referred to in the preamble of Decree-Law no. 39/2008.

If the legislator intended to cover both the activity of installation and operation of tourist developments, he would have used the same terms he used in art. 16 of the same statute.

With regard to no. 2 of article 20 of the said statute, the letter of the law leaves no room for doubt in exceptionally extending the exemption in no. 1 to acquisitions in favor of an operating company, in the restrictive circumstances it describes, with the legislator being clear in excluding from that benefit all other transfers.

Tax benefits are covered by the principle of legality, as stipulated in art. 103, no. 2 of the Constitution. It is therefore not permissible that by analogy or by extensive application the benefit be attributed to entities or facts not expressly provided for in the law.

On this principle see, among all, CASALTA NABAIS, Tax Law, Almedina, 6th edition, 2010, p. 137 and ANA PAULA DOURADO, The Principle of Tax Legality, Almedina, 2007, p. 125 to 143. According to the first author: the law must cover the matters of art. 103, no. 2 CRP "whether it is the creation or increase of taxes or their extinction or reduction, since, as the Constitutional Court affirmed, the reserve of competence of the Assembly of the Republic in tax matters cannot be interpreted restrictively in such a way as not to consider covered by it the rules that benefit taxpayers". For Ana Paula Dourado "the parliamentary law reserve is the instrument that formally legitimates the deviation from the principles of contributive capacity and, possibly, progressivity. In summary, the reference to the tax benefits of art. 103, no. 2 of the CRP reflects the conviction that the parliamentary law reserve is one of the instruments to ensure, simultaneously, the legitimate departure from the material fiscal principles of the Tax State and the observance of the principles to which tax benefits are subject" – p. 131.

Regarding the prescription of the assessment, the IMT enjoys the special period provided for in art. 35, no. 1 of the IMT Code, combined with the provisions in nos. 1 and 4 of article 45 of the LGT, a period of 8 years, counted from the date on which the tax event occurs. In the case under analysis, it is verified that the assessment was made and validly notified to the taxpayer within the said period.

As for the possible illegality of the assessment act because it presupposes the revocation of an administrative act granting a tax benefit, alleged by the Claimant, it is understood, as concluded in CAAD decision no. 104/2014-T, that "the benefit in question has an automatic nature. Following directly and immediately from the law, its effectiveness is not dependent on an administrative act of recognition, susceptible to revocation under the terms and period provided for in the said legal rule".

Likewise, the fact that the notary, first, and the land registry conservator, later, referred to the IMT exemption is not opposable to the Tax Authority, in light of notably art. 36, no. 4 of the LGT, according to which "the qualification of the legal transaction effected by the parties, even in an authentic document, does not bind the tax administration".

On these grounds and on all other legal grounds, it is decided in favor of the legality of the tax assessment act for Municipal Tax on Onerous Property Transfers, in the amount of 28,600.00 €.

4. DECISION

In light of the foregoing, it is decided to dismiss the claim filed by the Claimant in the present tax arbitral proceedings, regarding the illegality of the additional assessment of Municipal Tax on Onerous Property Transfers (IMT) no. ..., in the amount of 28,600 €.

5. VALUE OF THE CASE:

In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, subparagraph a) of the CPPT and 3, no. 2 of the Regulations for Costs in Tax Arbitration Proceedings, the value of the action is set at 28,600.00 €.

6. COSTS:

Under article 22, no. 4, of the RJAT, and Table I attached to the Regulations for Costs in Tax Arbitration Proceedings, the amount of costs is set at 1,530.00 €, to be borne by the Claimant.

Notify.

Lisbon, 2 October 2014.

Text drawn up by computer, under the terms of article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference from article 29, no. 1, subparagraph e) of the Tax Arbitration Regime, with blank lines and revised by me.

The Sole Arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 20 of Decree-Law 423/83 for tourist utility developments?
The IMT tax exemption under Article 20 of Decree-Law 423/83 applies specifically to acquisitions of properties or autonomous fractions intended for the 'installation' of qualified tourist developments. According to Supreme Administrative Court jurisprudential standardization judgment 3/2013, 'installation' refers narrowly to the acquisition of properties for construction of new tourist developments after urban planning operations have been duly licensed. The exemption aims to benefit companies engaged in the promotional and developmental activity of creating tourist infrastructure, not subsequent purchasers of already-completed units within existing tourist complexes, even when those complexes hold valid tourist qualification certifications.
Can a property buyer claim IMT exemption when acquiring a unit integrated in a certified tourist development?
No, a property buyer generally cannot claim IMT exemption when acquiring an already-existing unit integrated in a certified tourist development. The exemption under Article 20 of Decree-Law 423/83 is limited to the 'installation' phase—meaning the construction and creation of new tourist developments. In Case 110/2014-T, the tribunal clarified that purchasing a fraction within an existing, operational tourist complex does not qualify for exemption, even if the complex maintains official tourist qualification. The exemption targets initial developers and builders creating new tourism infrastructure, not secondary market purchasers. Entering into subsequent tourist operation contracts after acquisition does not retroactively qualify the original purchase for exemption purposes.
What role do legal certainty and prior legality controls play in challenging additional IMT tax assessments?
Legal certainty and prior legality controls play a limited role in challenging additional IMT assessments. In Case 110/2014-T, the claimant argued that notaries and land registry conservators had performed legality reviews that accepted the exemption, and that the Tax Authority's 2013 assessment (eight years after the 2005 transaction) violated legal certainty principles. However, the tribunal's decision focused on substantive law—whether the statutory exemption requirements were objectively met—rather than on procedural reliance arguments. While these principles are recognized in Portuguese administrative law, they do not override incorrect application of tax exemptions. The Tax Authority retains authority to correct improperly granted exemptions within statutory limitation periods, regardless of prior administrative approvals by other officials.
How does the CAAD arbitration process work for disputes over IMT additional tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for IMT disputes follows a structured procedure under RJAT (Legal Regime for Tax Arbitration). In Case 110/2014-T, the claimant filed a request for arbitral tribunal constitution on 11-02-2014 to annul an IMT additional assessment. A sole arbitrator was appointed on 28-03-2014, with the tribunal formally constituted on 14-04-2014. The process included: submission of the Tax Authority's reply (26-05-2014), an arbitral hearing (02-07-2014) where evidence matters were addressed, witness testimony via Skype for international witnesses, allowance for cross-case evidence use from related proceedings, and simultaneous written submissions from both parties. The decision deadline was set for 02-10-2014, approximately eight months from initial filing, demonstrating CAAD's relatively expedited timeline compared to traditional court litigation.
What conditions must be met to qualify for IMT exemption on real estate transfers involving tourism enterprises?
To qualify for IMT exemption on real estate transfers involving tourism enterprises under Article 20 of Decree-Law 423/83, several strict conditions must be met: (1) The acquisition must be intended for 'installation' of a tourist development, meaning construction or creation of new tourism infrastructure, not purchase of existing units; (2) Urban planning operations for the development must be duly licensed before acquisition; (3) The tourist development must obtain official qualification (utilidade turística), even if awarded provisionally; (4) The purchaser must be engaged in promotional/developmental activity of creating the tourism enterprise, not merely operating or investing in existing facilities; (5) The exemption applies at the moment of acquisition based on the buyer's intent and project status, not based on subsequent operational arrangements. Secondary purchasers, individual investors, or buyers acquiring completed units within existing developments do not qualify, regardless of subsequent tourist operation contracts.