Process: 130/2018-T

Date: October 20, 2018

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 130/2018-T) addresses whether real estate investment funds remain exempt from IMT (Municipal Tax on Onerous Transfers of Real Property) when acquiring properties in Portugal. The claimant, an open real estate investment fund, challenged IMT assessments on three property acquisitions made in 2017-2018, arguing that the exemption under Article 1 of Decree-Law 1/87 remained valid. This provision originally exempted real estate investment fund acquisitions from 'sisa' (the predecessor to IMT). The central legal issue was whether this exemption survived legislative reforms, particularly the transition from sisa to IMT under Decree-Law 287/2003 and subsequent amendments by Law 53-A/2006. The tribunal examined the regime of cessation of validity under Article 7 of the Civil Code, which requires express or tacit revocation for laws to cease effect. Article 28(2) and Article 31(6) of Decree-Law 287/2003 transitioned sisa exemptions to IMT, maintaining benefits established outside the original tax code. The Tax Authority failed to submit a defense despite proper notification under Article 17 of RJAT. The tribunal analyzed whether tacit revocation occurred through incompatibility with subsequent legislation. The claimant also sought reimbursement of amounts paid plus compensatory interest. This case illustrates critical issues regarding the continuity of tax benefits through legislative reforms and the interpretation of transitional provisions in Portuguese tax law affecting collective investment vehicles.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president) (in substitution of Dr. Alexandra Coelho Martins), Prof. Dr. Francisco José Nicolau Domingos and Prof. Dr. Paulo Jorge Nogueira da Costa (arbitrator members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 01-06-2018, agree as follows:

1. Report

OPEN REAL ESTATE INVESTMENT FUND A..., taxpayer number..., hereinafter referred to as the Claimant, represented by its managing company B...- Managing Company for Collective Investment Funds, S.A., with registered office at..., no.... - ..., ...-... Lisbon, with the single registration number and legal entity number... (hereinafter referred to as "Claimant"), came, in accordance with Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Tribunal.

The Claimant requests the annulment of the following IMT assessment acts:

The Claimant further requests the reimbursement of the amount paid plus compensatory interest.

The Respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 21-03-2018.

In accordance with the provisions of paragraph a) of article 6(2) and paragraph b) of article 11(1) of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Arbitrators initially designated by the Deontological Council communicated their acceptance of the appointment within the applicable period.

On 11-05-2018 the parties were duly notified of this appointment, and did not manifest a wish to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11(1), paragraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of paragraph c) of article 11(1) of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 01-06-2018.

Subsequently, on 14-09-2018, Cons. Jorge Lopes de Sousa was appointed President Arbitrator and accepted the appointment.

The Tax and Customs Authority was notified in accordance with article 17 of RJAT, but made no submissions.

By order of 12-10-2018, the meeting provided for in article 18 of RJAT was dispensed with and a date for the decision was indicated.

The arbitral tribunal was properly constituted, in accordance with the provisions of articles 2(1), paragraph a), and 10(1) of DL no. 10/2011, of 20 January, and is competent.

The Parties are properly represented, possess legal personality and capacity, are legitimate and are represented (articles 4 and 10(2) of the same decree and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case does not suffer from nullities.

2. Factual Matter

2.1. Proven Facts

The following facts are considered proven:

  • The Claimant is an Open Real Estate Investment Fund operating in accordance with the provisions of articles 204 and following of the General Regime of Collective Investment Bodies approved by Law no. 16/2015, of 24 February;

  • IMT was assessed in accordance with the following table:

  • The assessed IMT was paid by the Claimant as a result of the acquisition of full ownership of the following real properties:

    i. of the urban property located at Rua do..., no...., parish of ..., Municipality of ..., described in the First Land Registry Office of the... under no.... of the same parish, registered in the urban land register under article ... (public deed of purchase and sale executed on 21 December 2017, attached to the arbitration request copy under the designation of Document no. 10, whose content is given as reproduced);

    ii. of 10 autonomous units of the urban property located at ..., Rua..., no...., parish of ... and ..., municipality of ..., described in the First Land Registry Office of the... under no.... of the same parish, registered in the urban land register of the union of parishes of ... and..., ... and ... under article ... (public deed of purchase and sale executed on 2 February 2018, attached to the arbitration request copy under the designation of Document no. 11, whose content is given as reproduced); and

    iii. of 131 autonomous units of the urban property called "Lot 1", located at..., Avenue of..., numbers..., ..., ..., ... and ..., and Rua..., numbers..., ..., ..., ..., ..., ..., ..., ..., ... and..., parish of ..., municipality of Porto, described in the Land Registry Office of Porto under no.... of the same parish, registered in the urban land register of the union of parishes of..., ..., ..., ..., ... and ... under article ... (public deed of purchase and sale executed on 12 March 2018, attached to the arbitration request copy under the designation of Document no. 12, whose content is given as reproduced);

  • On 20-03-2018, the Claimant filed the arbitration request that gave rise to the present proceedings.

2.2. Unproven Facts and Grounds for Decision on Factual Matter

There are no facts relevant to the decision in the case that have not been proven.

The proven facts are based on documents submitted by the Claimant whose correspondence to reality is not contested by the Tax and Customs Authority.

No administrative case file was submitted.

3. Legal Matter

The Claimant is a real estate investment fund that acquired real properties in the years 2017 and 2018, with IMT being assessed by the Tax Administration.

Article 1 of Decree-Law no. 1/87, of 3 January, establishes that "acquisitions of real property made for a real estate investment fund by its respective managing company are exempt from sisa".

The Claimant argues that the acquisitions of the properties made are exempt from IMT, as this exemption is applicable to it, and it was not repealed on the dates on which it made the acquisitions of the properties referred to in the assessments being challenged.

Decree-Law no. 1/87 refers to sisa and not to IMT, but Decree-Law no. 287/2003, of 12 November, which carried out the reform of taxation on property, revoked by its article 31(3) the Code of the Municipal Tax on Sisa and the Tax on Successions or Donations, but established in article 28(2) that "all legal texts that mention the Code of the Municipal Tax on Sisa and the Tax on Successions and Donations, municipal tax on sisa or tax on successions and donations shall be considered as referring to the Code of the Municipal Tax on Onerous Transfers of Real Property (CIMT), the Stamp Duty Code, the municipal tax on onerous transfers of real property (IMT) and stamp duty, respectively".

Article 31(6) of Decree-Law no. 287/2003 establishes that "tax benefits relating to municipal contribution, now referred to IMI, as well as those relating to the municipal tax on sisa established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, shall remain in force, to be referred to IMT".

The acquisitions referred to fall within the provision of the said article 1 of Decree-Law no. 1/87, so that, if this provision remains in force, the exemption, referred to IMT, shall be applicable by virtue of these provisions of Decree-Law no. 287/2003.

The essential issue to be decided is thus whether article 1 of Decree-Law no. 1/87 was or was not repealed, in particular by Law no. 53-A/2006, of 29 December.

3.1. Regime of Cessation of Validity of Law

The general regime for cessation of the validity of law is provided for in article 7 of the Civil Code, which establishes the following:

Article 7
Cessation of Validity of Law

  1. Unless it is intended to have temporary validity, a law ceases to be in force only if it is repealed by another law.

  2. Repeal may result from express declaration, from incompatibility between the new provisions and the preceding rules, or from the circumstance that the new law regulates all the subject matter of the previous law.

  3. A general law does not repeal a special law, except if the legislator's unequivocal intention is otherwise.

  4. The repeal of the repealing law does not bring about the revival of the law that it had repealed.

Temporary validity was not provided for article 1 of Decree-Law no. 1/87, so any cessation of its validity can only result from repeal (express or tacit) by another law, as follows from article 7(1) of the Civil Code.

3.1.1. Express Repeal

Express repeal did not occur, in particular before or with the approval of the TBF, by Decree-Law no. 215/89, of 1 July.

In fact, the approval of the TBF was preceded by a comprehensive reassessment of tax benefits, which was initiated by Law no. 2/88, of 26 January (State Budget for 1989), which in its article 49 repealed various tax benefits, including that provided for in article 7 of Decree-Law no. 1/87, but not that provided for in article 1, which is at issue here.

The list of tax benefits expressly repealed was subsequently completed by Decree-Law no. 485/88, of 30 December, in which the tax benefit provided for in article 1 of Decree-Law no. 1/87 is also not included.

After the approval of the TBF, there is also no law that expressly repeals article 1 of Decree-Law no. 1/87.

In particular, express repeal was proposed by the Government in article 81(3) of the Proposal for the State Budget for 2007 (Bill no. 99/X), in a list of tax benefits to be repealed, but was not included in the approved Budget law (Law no. 53-A/2006, of 29 December), although the express repeal of other tax benefits was maintained (in article 87).

It is thus unequivocal that article 1 of Decree-Law no. 1/87 was not expressly repealed.

3.2. Tacit Repeal

In the absence of express repeal, any possible repeal of article 1 of Decree-Law no. 1/87 could only result from tacit repeal, resulting from "incompatibility between the new provisions and the preceding rules or from the circumstance that the new law regulates all the subject matter of the previous law".

The TBF, in its initial wording (Decree-Law no. 215/89, of 1 July), does not include any provision on taxes on property relating to real estate investment funds, so it cannot be understood that it has regulated all the subject matter of the previous law.

Moreover, the fact that the TBF was preceded by the express repeal of tax benefits, which included one of those provided for in Decree-Law no. 1/87, but not that provided for in its article 1, requires the conclusion that it was not intended to repeal this tax benefit.

Decree-Law no. 189/90, of 8 June, added to the TBF article 56 relating to "Real estate investment funds", establishing that "properties integrated in real estate investment funds are exempt from municipal contribution". Law no. 39-B/94, of 27 December, amended the wording of this article to "properties integrated in real estate investment funds and equivalent, pension funds constituted in accordance with national legislation and savings-pension funds are exempt from municipal contribution".

With the renumbering carried out by Decree-Law no. 198/2001, of 3 July, this article 56 became article 46.

Law no. 32-B/2002, of 30 December, gave article 46 the following wording: "Properties integrated in real estate investment funds and equivalent, pension funds and savings-pension funds that are constituted and operate in accordance with national legislation are exempt from municipal contribution".

With Law no. 53-A/2006, of 29 December, article 46 of the TBF came to cover tax benefits in respect of IMT relating to properties integrated in real estate investment funds.

This article 46 came to have the following wording:

1 - Properties integrated in real estate investment funds, pension funds and savings-pension funds that are constituted and operate in accordance with national legislation are exempt from municipal property tax (IMI) and from municipal tax on onerous transfers of real property (IMT).

2 - Real property integrated in mixed or closed real estate investment funds with private subscription by non-qualified investors or by financial institutions on their behalf do not benefit from the exemptions referred to in the preceding number, with IMI and IMT rates reduced by half.

With Decree-Law no. 108/2008, of 26 June, article 46 became article 49 of the TBF.

This article 49 was successively amended by Law no. 3-B/2010, of 28 April, by Law no. 55-A/2010, of 31 December, by Law no. 83-C/2013, of 31 December, and was repealed by Law no. 7-A/2016, of 30 March.

In any of the aforementioned wordings, article 49 only refers to properties integrated in real estate investment funds, not referring to IMT relating to their acquisition.

In this context, it cannot be understood that tacit repeal of article 1 of Decree-Law no. 1/87 has occurred, since all the subject matter provided for in it, in particular that relating to benefits for acquisition of real property by real estate investment funds, was not regulated by any subsequent law.

On the other hand, no provision is found that is incompatible with that tax benefit, as the Claimant argues, "while the IMT exemption provided for in article 1 of DL 1/87 applies to situations in which the Fund is in the capacity of acquirer, i.e., when it acquires real property to integrate its assets, the exemption in article 46 of the TBF applies to situations in which the Fund is in the position of alienator, i.e., when it proceeds to the sale of real property that already integrates its assets".

In fact, the acquisitions of real property made for a real estate investment fund referred to in article 1 of Decree-Law no. 1/87 are not covered by article 46 of the TBF.

Furthermore, as the Claimant states, the existence of benefits relating to the acquisition of real property concurrently with benefits relating to their transfer is expressly provided for in the regime of incentives for urban rehabilitation, in paragraphs b) and c) of article 45 of the TBF in the wording introduced by Law no. 114/2017, of 29 December (and was previously provided for in article 45(2) and article 71(8)), which demonstrates that, from the legislative perspective, there is no obstacle to the cumulation of benefits relating to acquisition with benefits concerning the transfer of real property.

Thus, in the absence of incompatibility of benefits for acquisition of real property with benefits for their transfer, the regime of article 46 (later article 49) is not incompatible with the maintenance of the exemption for acquisition of real property by real estate investment funds.

For this reason, it cannot be concluded that article 46 of the TBF regulates all the subject matter of exemptions for real estate investment funds, and it is entirely acceptable that it has introduced a new exemption, with the previously existing one subsisting.

Thus, as was understood in the arbitral judgment delivered in case no. 544/2016-T, "the exemptions under analysis are substantially and structurally different and independent of each other, and cannot, in any way, be considered contrary, contradictory or logically irreconcilable. And even less could they be deemed to be legally and economically incompatible. One retains its own utility independently of what may happen to the other".

Furthermore, and decisively, the fact already mentioned that the express repeal of Decree-Law no. 1/87 was included in the proposal for the State Budget for 2007, and the proposal was not approved, corroborates the conclusion that it was not intended to repeal its article 1. In fact, being presumed that the legislator knew how to express its thinking in adequate terms (article 9(3) of the Civil Code), the omission in Law no. 53-A/2006 of the express repeal that had been proposed has, objectively, the effect of expressing that it was not intended to repeal that provision, since the appropriate way to express a hypothetical intention of repeal was to refer to it expressly, by approving the proposal, and not to obscure it with silence, which, in this context, is appropriate to express an intention to reject the proposed repeal.

For this reason, it must be concluded that article 1 of Decree-Law no. 1/87, of 3 January, was not tacitly repealed, nor was it repealed in 2017 and 2018, when the acquisitions in question were made. [1]

Consequently, the assessments being challenged are affected by the defect of violation of law that justifies their annulment, in accordance with article 163(1) of the Administrative Procedure Code subsidiarily applicable in accordance with article 2, paragraph c), of the LGT.

4. Reimbursement of Amounts Paid and Compensatory Interest

The Claimant requests reimbursement of the tax incorrectly paid, plus compensatory interest.

The Claimant paid the assessed amounts:

  • on 21-12-2017, in relation to assessment no...., in the amount of €299,000.00 (document no. 10, page 6);

  • on 01-02-2018, in relation to assessment no...., in the amount of €4,123.60 (document no. 11, page 10);

  • on 09-03-2018, in relation to assessments with the following numbers:

..., ..., ..., ..., ..., ... and ..., respectively, in the amounts of €422,344.00, €8,222.50, €5,765.50, €13,650.00, €13,650.00, €12,252.50 and €11,615.50 (document no. 12, page 8).

In accordance with the provision of paragraph b) of article 24 of RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge may be brought binds the Tax Administration from the end of the deadline provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favour of the taxpayer and until the end of the deadline provided for voluntary execution of decisions of tax court judgments, "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been carried out, by adopting the necessary acts and operations for this purpose", which is in keeping with the provision of article 100 of the LGT [applicable by virtue of the provision of paragraph a) of article 29(1) of RJAT] which establishes that "the tax administration is obliged, in the event of total or partial success of a gracious claim, judicial challenge or appeal in favour of the taxpayer, to the immediate and complete restoration of the legality of the act or situation that is the subject of the dispute, comprising the payment of compensatory interest, if applicable, from the end of the deadline for execution of the decision".

Although article 2(1), paragraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in CAAD, making no reference to condemnatory decisions, it should be understood that the powers that, in the process of judicial challenge, are attributed to tax courts are included in its competences, and this is the interpretation that is in keeping with the meaning of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as the first directive, that "the tax arbitration process must constitute an alternative procedural means to the process of judicial challenge and to the action for recognition of a right or legitimate interest in tax matters".

The process of judicial challenge, although it is essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as is apparent from article 43(1) of the LGT, in which it is established that "compensatory interest is due when it is determined, in gracious reclamation or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due" and article 61(4) of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds article 61(2) in the initial wording), which "if the decision recognizing the right to compensatory interest is judicial, the deadline for payment is counted from the start of the deadline for its voluntary execution".

Thus, article 24(5) of RJAT, when it states that "payment of interest of whatever nature is due in accordance with the terms provided in the general tax law and in the Code of Tax Procedure and Process", should be understood as permitting the recognition of the right to compensatory interest in the arbitration process.

On the other hand, as the right to compensatory interest depends on the existence of the right to reimbursement of an amount, from this competence to decide on the right to compensatory interest it follows that it extends to the examination of the right to reimbursement.

The assessments were challenged within the legal deadline of 90 days provided for in paragraph a) of article 10(1) of RJAT.

In the case at hand, the assessments being challenged are affected by the defect of violation of law attributable to the Tax and Customs Authority, which carried out the assessments.

Thus, the Claimant is entitled to compensatory interest, in accordance with article 43(1) of the LGT and article 61 of the CPPT.

Compensatory interest is due at the legal supplementary rate, in accordance with articles 43(4) and 35(10) of the LGT, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April, from the date of each of the payments until reimbursement of the amounts paid.

5. Decision

In accordance with the foregoing, this Arbitral Tribunal agrees to:

  • Judge the arbitration request well-founded;

  • Annul the IMT assessments nos.:

    – ...;

    – ...;

    – ...;

    – ...;

    – ...;

    – ...;

    – ...;

    – ...; and

    – ...;

  • Judge the request for restitution well-founded and order the Claimant to be reimbursed the amounts paid, in the total amount of €790,623.60, and condemn the Tax and Customs Authority to make this payment;

  • Judge the request for compensatory interest well-founded and condemn the Tax and Customs Authority to pay to the Claimant such interest calculated on each of the amounts paid, from the date of the respective payment until reimbursement thereof.

6. Value of the Case

In accordance with the provisions of articles 296(1) of the CPC and 97-A(1), paragraph a), of the CPPT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €790,623.60.

7. Costs

In accordance with article 22(4) of RJAT, the amount of costs is fixed at €11,322.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 20-10-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Francisco José Nicolau Domingos)

(Paulo Jorge Nogueira da Costa)

[1] Moreover, this is an understanding that was already expressly adopted in 2009, in the Report of the Group for the Study of Fiscal Policy Competitiveness, Efficiency and Justice of the Fiscal System, prepared within the framework of the Secretariat of State for Fiscal Affairs, in which Decree-Law no. 1/87, of 3 January, is listed among the legislation that is considered to be in force at that time (page 412).

Frequently Asked Questions

Automatically Created

Are real estate investment funds exempt from IMT (property transfer tax) when acquiring properties in Portugal?
Historically, real estate investment funds were exempt from IMT when acquiring properties under Article 1 of Decree-Law 1/87, which originally provided exemption from sisa. When IMT replaced sisa through Decree-Law 287/2003, Article 31(6) maintained that tax benefits relating to sisa established in legislation outside the original code would remain in force, referred to IMT. However, the applicability of this exemption depends on whether the underlying provision was tacitly or expressly revoked by subsequent legislation, particularly Law 53-A/2006. The exemption applies only if the legal provision creating it remains in force and has not been incompatible with later tax reforms.
What happens to an IMT exemption when the underlying law ceases to be in force or is tacitly revoked?
When an IMT exemption law ceases to be in force or is tacitly revoked, the exemption no longer applies from the effective date of revocation. Under Article 7 of the Portuguese Civil Code, laws cease to be valid only through express repeal or tacit revocation resulting from incompatibility between new provisions and previous ones, or when the new law regulates the entire matter previously governed by the old law. Tacit revocation can occur when subsequent legislation creates incompatible provisions or comprehensively regulates the same subject matter. In tax matters, this is particularly significant as it affects the validity of benefits granted under older legislation, requiring careful analysis of transitional provisions and legislative intent.
How does tacit revocation of tax exemption laws affect real estate investment fund transactions in Portugal?
Tacit revocation of tax exemption laws significantly impacts real estate investment fund transactions by potentially subjecting previously exempt acquisitions to IMT. When the legal basis for an exemption is tacitly revoked through incompatible subsequent legislation, funds must pay IMT on property acquisitions from the effective date of revocation. This creates legal uncertainty for fund managers who must determine whether historical exemptions remain valid following tax reforms. The transition from sisa to IMT under Decree-Law 287/2003 created particular complexity, as Article 31(6) maintained certain exemptions but subsequent laws may have eliminated them. Funds that paid IMT believing exemptions were revoked may seek refunds if courts or arbitral tribunals determine the exemption remained valid, while those claiming exemption risk assessments if tribunals find tacit revocation occurred.
Can taxpayers claim a refund with compensatory interest for IMT paid on exempt real estate fund acquisitions?
Taxpayers can claim refunds with compensatory interest for IMT paid on exempt real estate fund acquisitions if they successfully demonstrate the exemption remained valid when the tax was paid. The refund claim must establish that the legal provision creating the exemption was in force at the acquisition date and had not been revoked expressly or tacitly. Compensatory interest is governed by Article 43 of the General Tax Law (LGT), which provides for interest on amounts unduly paid to the tax administration from the date of payment until reimbursement. The interest rate and calculation method are established by ministerial order. However, the right to reimbursement depends on proving the illegality of the tax assessment, requiring demonstration that the exemption provision survived legislative reforms and applied to the specific transaction.
What is the CAAD arbitral tribunal procedure when the Tax Authority fails to respond to an arbitration request?
When the Tax Authority fails to respond to an arbitration request in CAAD proceedings, the arbitral tribunal proceeds with the case based on the claimant's submissions and available evidence. Under Article 17 of RJAT (Regime Jurídico da Arbitragem Tributária), the Tax Authority is notified and given opportunity to submit a defense, but failure to do so does not prevent the tribunal from deciding. The tribunal evaluates the legal and factual merits based on documents submitted by the claimant, applicable law, and legal principles. The Authority's silence does not constitute admission of facts or automatic acceptance of claims; the tribunal must still determine whether the legal requirements for relief are met. Article 18 of RJAT allows the tribunal to dispense with hearings when appropriate, as occurred in this case where no oral testimony was necessary and the matter involved primarily legal interpretation of legislative provisions.