Process: 122/2014-T

Date: October 2, 2014

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Case 122/2014-T addresses a critical dispute over IMT (Municipal Property Transfer Tax) exemptions for tourist real estate developments under Decree-Law 423/83. Company A purchased a fraction of a tourist complex in 2005, with the notary recognizing an IMT exemption pursuant to Article 20(1) of DL 423/83. However, the Portuguese Tax Authority subsequently revoked this exemption and issued an additional assessment of €27,050.34, sparking this arbitration challenge. The central legal question concerns whether the IMT exemption granted to real estate developers extends to subsequent purchasers of individual fractions within tourist enterprises. Company A argued that its acquisition constituted part of the tourist development's 'installation' and that it actively participated in tourism activity by entering an exclusive exploitation contract with the hotel operator. The company further contended that revoking a tax benefit previously recognized by a notary violates Article 141 of the Administrative Procedure Code and undermines principles of legal certainty and administrative stability. The Tax Authority countered that the exemption applies exclusively to the original real estate developer, not secondary purchasers, and that Company A lacked developer status. This case highlights fundamental tensions in Portuguese tax law between literal statutory interpretation and systemic coherence, the binding nature of notarial tax determinations versus administrative oversight powers, and the scope of tourism-related tax incentives. The arbitration proceeding followed standard CAAD procedures, with the tribunal constituted on April 16, 2014, under sole arbitrator Arlindo José Francisco. Both parties waived testimonial evidence due to no factual disputes, focusing arguments purely on legal interpretation. The decision carries significant implications for investors in Portuguese tourist real estate developments regarding IMT liability and the reliability of initial tax exemption certifications.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration
Case No. 122/2014 – T
Subject: IMT – DL 423/83 – Article 20, para. 1

I – REPORT

1 – A. Company A., with the NIPC[1] …, with registered office in … submitted on 14/02/2014 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph (a) of para. 1 of Article 2, para. 1 of Article 3 and paragraph (a) of para. 1 of Article 10, all of RJAT[2], with the AT[3] being requested, with a view to assessing the legality of the tax acts of additional assessment of IMT[4], relating to the purchase that the applicant made from Company B., SA with the NIPC … on 02/12/2005 of fraction AV of the urban property, registered in the urban property matrix of the parish of … under number …, integrated into the Tourist Enterprise …, located … in said parish and municipality of … .

2 – The request for constitution of the arbitral tribunal was made without exercising the option of appointing an arbitrator, and was accepted by the Most Excellent Mr. President of CAAD[5] and automatically notified to the AT on 17/02/2014.

3 – In accordance with and for the purposes of the provisions of para. 2 of Article 6 of RJAT, by decision of the Most Excellent Mr. President of the Deontological Council, duly communicated to the parties within the legally applicable periods, the sole arbitrator Arlindo José Francisco was appointed, who communicated to the Deontological Council and to the Center for Administrative Arbitration his acceptance of the assignment within the regularly established period.

4 - The tribunal was constituted on 16/04/2014 in accordance with the provisions contained in paragraph (c) of para. 1 of Article 11 of RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December.

5 – With its request, the applicant seeks the declaration of illegality of the aforementioned assessment and consequent annulment of the tax in question in the amount of € 27,050.34, because it violates para. 1 of Article 20 of Decree-Law 423/83 of 05 January.

6- It considers that the rule in question, correctly interpreted, includes not only the exemption of IMT to the real estate developer but also the transfers made to the acquirers of the fractions, as the consistency of the system would require, while at the same time the revocation by the AT of the IMT exemption recognized by the Notary and Conservatory, jeopardizes the principles of legal certainty and security.

7 – It also considers that the act of revocation of the exemption carried out by the AT cannot proceed, as Article 141 of the CPA[6] opposes this, concluding that the additional assessment is illegal and should be annulled.

8 – In its response, the AT considers that, with the grounds set out in the inspection report, the exemption provided for in para. 1 of Article 20 of Decree-Law 423/83 is not applicable to the concrete situation, while for the reasons stated therein Articles 140 and 141 of the CPA do not apply to the case in question, arguing for the legality of the contested assessment.

II - SANCTION

The tribunal was regularly constituted and is competent ratione materiae in accordance with Article 2 of RJAT.

The parties have legal standing and capacity, show themselves to be legitimate and are regularly represented in accordance with Articles 4 and 10, para. 2 of RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

On 07/07/2014, the tribunal meeting took place, in accordance with Article 18 of RJAT, in which the applicant declared the waiver of testimonial evidence, as there was no divergence or challenge of the disputed matter of fact, to which the respondent agreed and had already proposed in its response to the petition.

Regarding the production of oral or written submissions, upon hearing the parties, their production was dispensed with.

A period of 10 days was granted for the applicant to attach to the case files documents 2 and 5 which it had protested attaching in the request for arbitral ruling, which attachment occurred on 06/07/2014.

The proceedings do not suffer from nullities and no questions were raised that prevent the merits of the case from being assessed, the conditions being met for a final decision to be rendered.

III - GROUNDS

1 – The issues to be decided, with relevance to the case, are as follows:

  • Whether the IMT assessment challenged here violates the provision of para. 1 of Article 20 of Decree-Law 423/83 of 5 January.

  • And, if it does not violate, whether the revocation of the tax benefit recognized by the notary in the deed of purchase and sale, contravenes the provisions of Article 141 of the CPA, which would require maintaining the tax benefit recognized.

2 – Matter of Fact

The relevant matter of fact proven based on the elements attached to the case files is as follows:

  • The corporate purpose of the applicant is the management and administration of real estate assets, buying and selling of properties, as well as the provision of related services;

  • In the exercise of its activity, the applicant acquired fraction AV of the urban property registered in the respective matrix under article … of the parish of …, municipality of Loulé, intended for services and integrated into the Tourist Enterprise … ;

  • The acquisition, which took place on 02/12/2005 by public deed of purchase and sale, executed at the Notarial Office of …, aimed at commercial exploitation after installation as a component of the tourist enterprise, having for this purpose concluded a tourism exploitation contract under which it ceded the exclusive right of exploitation to company C., SA;

  • Company C., SA is the operator of the Hotel and the tourist apartments … and by force of the contract the applicant obligated itself to deliver the fraction, free, in operation and apt for tourist use, with furniture and equipment appropriate to the level of the enterprise classified as 5-star and its maintenance inherent to this classification;

  • The applicant further obligated itself to establish and maintain in force insurance on the fraction covering risks of collapse, fire, earthquake, lightning, explosions and civil liability, authorized replacements and/or repairs of furniture and equipment, its maintenance and elimination of defects;

  • It was also stipulated that in case of sale the applicant shall have to notify company C., and must ensure that any eventual buyer would be bound by the contract, that the obligation to pay taxes, contributions and fees are the responsibility of the applicant;

  • The recognition of tourist utility was granted provisionally by dispatch of the Mr. Secretary of State for Tourism of 02 June 2005, which was confirmed on 07 May 2007 by dispatch of the same entity, in favor of B., SA, for the period of seven years from the issue of the license for use of 30 September 2005;

  • The fraction in question is one of the individualized and autonomous accommodation units that make up the tourist complex …, whose final installation depended on the complete installation of the enterprise;

  • In the deed of purchase and sale of the fraction in question, executed on 02/12/2005, it was recognized by the notary that "this transmission is exempt from the payment of Municipal Tax on Onerous Transfers of Real Estate, in accordance with the provisions of Article 20 of Decree-Law number 423/83 of 5 December"

  • Matter of Law

  • The applicant, in its request for arbitral ruling, argues, in summary, to be covered by the tax benefit granted by para. 1 Article 20 of Decree-Law 423/83, insofar as its acquisition falls within the concept of installation to which the aforementioned rule alludes and at the same time that it was a driving force in tourism activity, considering its revocation illegal, having regard to the provisions of Article 141 of the CPA;

  • For its part, the respondent considers that the assessment is legal, insofar as the applicant was not the developer of the enterprise and that the revocation of the tax benefit does not violate the principles of legal certainty and security, not being applicable to the case in question the provisions of Articles 140 and 141 of the CPA, as the applicant intends;

  • Having summarized the positions of the applicant and the respondent, we shall proceed below to an analysis of the rule contained in para. 1 of Article 20 of DL 423/83;

  • The provision of the cited rule tells us: "acquisitions of properties or autonomous fractions intended for the installation of enterprises qualified as of tourist utility are exempt from sisa and tax on successions and donations, with stamp tax reduced to one-fifth, even if such qualification is granted provisionally, provided that it remains valid and the period set for opening to the public of the enterprise is observed";

  • At first glance there seems to be no great difficulty, the legislator intends through this tax benefit to provide an incentive for investment in the tourism area for enterprises that obtain recognition of utility in this area, maintain it and the period for opening to the public is observed;

  • The problem will be in determining whether or not we are faced with an acquisition intended for the installation of the tourism enterprise in question, regardless of who makes it;

  • DL 423/83 does not give us a concept of what "installation" is and the legislation applicable at the time of the transmission, the RJIFET[7], approved by DL 167/97, namely in its Article 9, tells us that: "for the purposes of this decree-law, installation of tourism enterprises is considered the licensing of construction and/or use of buildings intended for the functioning of those enterprises". This notion, as the rule itself clarifies, is only for purposes of this decree-law;

  • The RJIEFET[8] itself, approved by DL 39/2008 of 7 March, not applicable to the concrete case as it entered the legal order after the transmission, also does not give us the notion of "installation", it does distinguish, however, the installation phase and the operation and functioning phase;

  • The proven matter of fact allows us to affirm that the applicant does not operate its apartment and that it was integrated into the set of the enterprise;

  • Being so the acquisition of the fraction in question was part of the process of installation of the enterprise, and its non-inclusion would not only distort it, but could jeopardize its recognition of tourist utility, previously granted;

  • It should also be noted that the REJIFET, approved by DL[9] 167/97 in its Article 45, para. 3 provided for the possibility of withdrawal of accommodation units from the operation of tourism enterprises;

  • The exemption provided for in the rule (Article 20, para. 1 of DL 423/83) is not addressed to either the builder or the real estate developer, nor does it make any other requirement than that the acquisition be intended for the installation of the tourism enterprise;

  • The IMT assessment challenged in the present proceedings resulted from an inspection action carried out by the Tax Inspection Division III of the Finance Directorate of Faro which, from reading para. 1 of Article 20 of DL 423/83 of 5 December, concluded "that the intention in granting such benefits to these acquisitions aims solely at promoting investment and boosting tourism activity for developers who intend to build/create establishments, and not when it is mere acquisition of fractions integrated into the enterprises and intended for exploitation", basing this reading on the decision rendered in the Ruling of the STA[10] No. 3/2013, case 968/12 – 2nd Section, published in the DR[11] 1st series No. 44 of 4 March 2013;

  • It should be said that the cited ruling decides on a transmission that occurred on 3 August 2009, at a time when the legal framework for these tourism enterprises was the RJIEFET, approved by DL 39/2008 of 7 March, while the concrete situation in the present proceedings is situated on 02 December 2005, at a time when the RJIFET, approved by DL 167/97 of 04 July was in force;

  • In the preamble of DL 39/2008 appears the establishment of a new legal regime for the installation, operation and functioning of tourism enterprises, it revokes the previous decrees, at the same time that it aims to facilitate access to the rules that regulate the activity and also frame this activity in the SIMPLEX 2007 program;

  • The tribunal considers that the interpretation and scope to be given to para. 1 of Article 20 of DL 423/83, with the uniformization established by the aforementioned ruling, can only be accepted for transmissions occurring after the entry into force of DL 39/2008, in accordance with what is established on the application of tax law in time, provided for in Article 12 of the LGT[12];

  • As already stated, DL 167/97 provided for the possibility of accommodation units being withdrawn from the tourism enterprise, but the acquiree through a contract concluded with the operating entity not only prepared it in terms of furniture structure but integrated it into the tourism enterprise … , whose final installation also depended on this integration;

  • The tax benefits granted, provisionally, by dispatch of the Mr. Secretary of State for Tourism of 2 June 2005, to the company owning and operating the establishment are: "…is exempt, regarding the ownership and operation of the same, from the fees due to the Civil Government and to the General Inspectorate of Cultural Activities, from the date of opening of the enterprise to the public, for a period corresponding to what is legally established for purposes of exemption from municipal contribution – seven years in accordance with Article 43 of the EBF, approved by DL No. 215/89, of 1 July, as amended by DL No. 198/2001 of 3 July, combined with para. 6 of Article 31 of DL 287/2003 of 12 November, should the tourist utility be confirmed in accordance with the law".

  • The recognition of tourist utility was granted provisionally by dispatch of the Mr. Secretary of State for Tourism of 02 June 2005, which was confirmed on 07 May 2007 by dispatch of the same entity, in favor of B, SA, for the period of seven years from the issue of the license for use of 30 September 2005, the applicant having acquired the fraction on 02/12/2005 well before the definitive confirmation of the tourist utility;

  • The concept of installation of para. 1 of Article 20 of DL 423/83, for the concrete case, must be found in light of the legal order in force at the time, namely the aforementioned DL 167/97, which in its preamble tells us about the developer the following: "…the developer is the first responsible for compliance with the rules concerning the enterprises, as such compliance will only be evaluated for purposes of classification and not for the entry into operation of the enterprise. This means that the enterprise enters into operation at the responsibility of the developer, as should there be modification of the provisional classification that had been assigned to the enterprise, such will result only from non-compliance with the rules that he knows…";

  • If the applicant had opted for the autonomy of its apartment in relation to the enterprise, as at that time the legal regime in force permitted it (DL 167/97 RJIFET), the conditions of this would be different and, certainly, would jeopardize the confirmation of the tourist utility in the manner in which it was made;

  • The exemption of para. 1 of Article 20 of DL 423/83 is directed to acquisitions of properties or autonomous fractions intended for the installation of enterprises classified as of tourist utility, and the proven facts demonstrate that the acquisition in question here contributed decisively to the installation of the tourism enterprise … ;

  • The installation process is phased and progressive and is only completed when the enterprise is apt for use including the fractions intended for accommodation;

  • The tribunal considers that the notary, close to the facts, upon executing the deed, granting the automatic exemption of IMT in the transmission of the fraction, did so in the exercise of its own competence and convinced that the concrete case was covered by the provision of para. 1 of Article 20 of DL 423/83, without prejudice to the same being subject to judicial review by the AT, to which it has the obligation to remit a list of all acts or contracts subject to IMT or exempt from it, as Article 49 of IMT imposes on it;

  • The legitimate review carried out by the AT through its inspection services invokes that tourism enterprises already installed that are not subject to remodeling or expansion are excluded from the exemption of para. 1 of Article 20 of DL 423/83, supporting this understanding in the ruling of the STA 3/2013, already referred to, except that this ruling, as also already stated, pronounces itself on a transmission that occurred in 2009 with a legal framework different from the existing at the time of the transmission here in question, so the tribunal considers that such reasoning cannot be accepted for the concrete case;

  • It would not be possible on 02 December 2005 for the notary to apply the concept of installation advocated in the aforementioned ruling, that is, once more, concretized within the scope of a legal regime different from the one in force at the time of the acquisition;

  • Furthermore, the acquisition occurred, as already stated before, the fraction having conditions to enter into operation, it was the applicant that furnished it and gave it the necessary conditions for its integration into the enterprise through the contract it concluded with the operating entity and only much later (07/05/2007) was the tourist utility confirmed;

  • By this means the tribunal considers that the IMT assessment challenged here violates the provisions of para. 1 of Article 20 of DL 423/83 and as such should be annulled with all legal consequences arising therefrom.

  • Finally, the tribunal dispenses itself from the analysis of whether the revocation of the tax benefit recognized by the notary in the deed of purchase and sale violates or not Article 141 of the CPA.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

  • To declare the request for arbitral ruling well-founded, with the consequent annulment of the IMT assessment in the amount of € 27,050.34 issued by the Finance Office …;

  • Value of the case € 27,050.34 in accordance with the provisions contained in Article 299, para. 1, of the CPC[13], Article 97-A of the CPPT[14], and Article 3, para. 2, of the RCPAT[15].

  • Costs to be borne by the respondent, under para. 4 of Article 22 of RJAT, fixing the respective amount at € 1,530.00, in accordance with the provisions in Table I referred to in Article 4 of the RCPAT.

Notify.

Lisbon, 02 October 2014

Document drawn up by computer, in accordance with Article 131, para. 5 of the CPC, applicable by referral of Article 29, para. 1, paragraph (e) of RJAT, with blank lines and reviewed by the tribunal.

The wording of this decision is governed by the spelling prior to the orthographic agreement.

The sole arbitrator,

Arlindo Francisco

[1] Acronym for Tax Identification Number of a Legal Entity
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Tax Authority and Customs Authority
[4] Acronym for Municipal Tax on Onerous Transfers of Real Estate
[5] Acronym for Center for Administrative Arbitration
[6] Acronym for Code of Administrative Procedure
[7] Acronym for Legal Regime for Installation and Functioning of Tourism Enterprises
[8] Acronym for Legal Regime for Installation, Operation and Functioning of Tourism Enterprises
[9] Acronym for Decree-Law
[10] Acronym for Supreme Administrative Court
[11] Acronym for Official Journal
[12] Acronym for General Tax Law
[13] Acronym for Civil Procedure Code
[14] Acronym for Tax Procedure and Process Code
[15] Acronym for Rules on Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption for real estate developers under Decree-Law 423/83 Article 20?
The IMT tax exemption for real estate developers under Article 20, paragraph 1 of Decree-Law 423/83 of January 5 was designed to incentivize tourist real estate development in Portugal. This provision grants exemption from Municipal Property Transfer Tax (IMT) for acquisitions related to tourist enterprises that receive provisional or definitive recognition of tourist utility. The exemption's scope and beneficiaries remain subject to interpretation, particularly whether it applies exclusively to the original developer or extends to subsequent purchasers who contribute to the tourist enterprise's installation and operation. The Tax Authority typically interprets this provision narrowly, limiting the benefit to entities formally recognized as developers, while taxpayers argue for a broader interpretation that considers functional roles in tourism development.
Does the IMT exemption under DL 423/83 extend to buyers of property fractions in tourist developments?
The extension of IMT exemption under DL 423/83 to buyers of property fractions in tourist developments is the core dispute in this case. Company A argued that the exemption should apply because its acquisition formed part of the tourist complex's 'installation' and it actively contributed to tourism activity through an exclusive exploitation contract with the hotel operator. However, the Portuguese Tax Authority contested this interpretation, maintaining that Article 20(1) of DL 423/83 grants exemption exclusively to the real estate developer, not to subsequent purchasers of individual units. The Tax Authority emphasized that Company A was not the developer of the tourist enterprise but merely an investor purchasing a completed fraction. This interpretive conflict reflects broader questions about whether tax benefits should follow functional economic roles or formal legal classifications in tourism development.
Can the Portuguese Tax Authority revoke an IMT exemption previously recognized by a Notary?
The Portuguese Tax Authority's power to revoke IMT exemptions previously recognized by notaries involves complex administrative law principles. Company A invoked Article 141 of the Administrative Procedure Code (CPA), which establishes conditions for revoking favorable administrative acts, arguing that the notarial recognition of exemption created legitimate expectations that cannot be unilaterally reversed. The company contended this revocation violates legal certainty and administrative stability principles. The Tax Authority responded that Articles 140 and 141 CPA do not apply to tax exemption determinations made by notaries, suggesting that notarial certifications do not create binding administrative acts immune from subsequent review. This dispute raises fundamental questions about the legal weight of notarial tax determinations, whether they constitute definitive administrative decisions, and the balance between taxpayer protection and the Tax Authority's oversight responsibilities in correcting potentially erroneous benefit recognitions.
How does CAAD arbitration work for challenging additional IMT tax assessments in Portugal?
CAAD (Centro de Arbitragem Administrativa) arbitration provides an alternative dispute resolution mechanism for challenging Portuguese tax assessments, including IMT disputes. The process begins with a request for tribunal constitution under the Tax Arbitration Legal Framework (RJAT), as Company A did on February 14, 2014. Taxpayers can either appoint their own arbitrator or accept automatic appointment by the CAAD President. In this case, sole arbitrator Arlindo José Francisco was appointed, and the tribunal was constituted on April 16, 2014. The procedure includes written submissions (initial request and response), optional tribunal hearings, and evidence presentation. Here, both parties waived testimonial evidence due to undisputed facts, focusing on legal interpretation. CAAD arbitration offers advantages over traditional court appeals: faster resolution, specialized arbitrators with tax expertise, and binding decisions subject to limited judicial review. The arbitration must address both procedural legality and substantive tax law interpretation, issuing a reasoned decision that can declare assessments illegal and order refunds.
What role do legal certainty and administrative stability principles play in IMT exemption disputes?
Legal certainty and administrative stability principles play pivotal roles in IMT exemption disputes, particularly when tax benefits are initially recognized then later revoked. Company A invoked these constitutional and administrative law principles to argue that the notary's recognition of IMT exemption in the December 2, 2005 deed created legitimate expectations that the Tax Authority cannot unilaterally overturn. Legal certainty (segurança jurídica) protects taxpayers from arbitrary changes in tax treatment after relying on official determinations. Administrative stability principles, codified in Article 141 of the Administrative Procedure Code, require that favorable administrative acts can only be revoked under specific conditions and within defined timeframes, safeguarding citizens' trust in government decisions. These principles must be balanced against the Tax Authority's duty to correct erroneous tax benefits and ensure equal treatment. In tourism development contexts, these principles are particularly significant because investment decisions involve substantial capital commitments based on expected tax treatment. The tension between administrative review powers and protection of legitimate expectations represents a core administrative law challenge in Portuguese tax disputes.