Summary
Full Decision
ARBITRAL DECISION
The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Nuno Oliveira Garcia and Dr. A. Sérgio de Matos, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 29-03-2016, hereby agree as follows:
1. Report
A…, S.A., a public limited company with registered office at Rua …, No. …, …-… …, with the single registration number and collective person number …, hereinafter designated as "Applicant", which incorporated by merger the company B… - …, …, S.A., came, in accordance with the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law No. 10/2011 of 20 January (hereinafter RJAT) to present a request for the constitution of a collective arbitral tribunal, in which the Tax and Customs Authority is the Respondent.
The Applicant seeks to have annulled the assessment of Municipal Tax on Onerous Transfers of Real Property (IMT) relating to the acquisition, on 29-11-2007, of the urban property registered in the property matrix of the now extinct parish of … under article …, in the amount of €65,756.60, and respective compensatory interest, in the amount of €20,508.83.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 28-01-2016.
In accordance with the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT, the Deontological Council appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.
On 11-03-2016, the parties were duly notified of this appointment and did not express their intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.
In accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT, the collective arbitral tribunal was constituted on 29-03-2016.
The Tax and Customs Authority responded, arguing for the dismissal of the request for arbitral pronouncement.
By order of 09-05-2016, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings would continue with successive written submissions.
The parties did not present submissions.
The parties possess legal personality and capacity, are legitimate and are duly represented (articles 4 and 10, paragraph 2, of the same instrument and article 1 of Order No. 112-A/2011, of 22 March).
The proceedings do not suffer from any defects and no obstacle exists to the appreciation of the merits of the case.
No exceptions are raised and no obstacle exists to the appreciation of the merits of the case.
Matters of Fact
2.1. Proven Facts
The following facts are considered proven:
a) The Applicant incorporated by merger the company B… - …; …, S.A., succeeding it in all its rights and obligations (document enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
b) C… - … S.A. (hereinafter referred to only as C…) is a public limited company whose corporate purpose consists, among other activities, in the management and hotel operations (permanent certificate with electronic access code …-…-…, enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
c) The said company C… was the owner of an urban property registered in the property matrix of the now extinct parish of …, municipality of Matosinhos, under article …, which corresponds to a plot of land for construction, located on Rua …;
d) By order of 9 November 2006, from the Secretary of State for Tourism, the prior declaration of tourist usefulness was declared for the D…, with the provisional category of 4 stars, which C… intended to build on the plot identified above, an order that was published in the Diário da República, 2nd Series, No. … of …/…/2006, pages … and … (Document No. 1 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
e) On 14 November 2007, the Building Permit No. …/07 was issued by the Municipal Chamber of … in favour of C… (Document No. 2 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
f) On 29 November 2007, the company B… - … which was incorporated by merger into the Applicant acquired by public deed from company C… the said plot of land (Document No. 3 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
g) The sale price amounted to €1,000,000.00, and the property had a tax patrimonial value of €1,011,640.00 (deed contained in document No. 3);
h) It is stated in the deed that the property was acquired by company B… - … from C…, intended "to be given in financial lease to the seller company" and that on the land acquired "the D… with the provisional category of four stars will be built, which the seller company [and also lessee company C…] will carry out thereon and to which prior declaration of tourist usefulness was granted" (document No. 3);
i) The said transfer of the property benefited from IMT exemption, under the provisions of article 20.i of Decree-Law No. 423/83, of 5 December;
j) On the same date - 29 November 2007 - a promise to lease contract for the financial lease of the aforementioned plot of land was concluded between company B… - … and C… (Document No. 4 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
k) On 11 May 2008, through order No. …/2008, from the Secretary of State for Tourism, published in the Diário da República, 2nd Series, No. … of …/…/2008, the validity period of the prior tourist usefulness declaration granted to the D… was extended by a further six months, being valid until 12 May 2009 (Document No. 5 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
l) On 9 March 2009, the License for Authorization of Use No. …/09 was issued by the Municipal Chamber of … with respect to the D…, and on 6 November 2009 the Secretary of State for Tourism issued Order No. …/2009, published in the Diário da República, 2nd Series, No. … of …/…/2009, confirming the tourist usefulness of the hotel (Document No. 6 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
m) On 2 April 2009, the promised financial lease contract between company B… - … and C… was concluded, which provides that, upon termination and performance of the contract, the property will pass to the ownership of C… (Document No. 7 enclosed with the request for arbitral pronouncement, whose content is reproduced herein);
n) On 8 June 2015, an internal partial tax inspection was initiated by AT on the now Applicant, in the scope of IMT, with the objective of verifying the legitimacy of the exemption that benefited the said acquisition;
o) In that inspection, the Tax Inspection Report was prepared, attached with the Response, whose content is reproduced herein, which states, among other things, the following:
III. Legal Framework for IMT Exemption under the Tourist Usefulness Tax Benefit
Legal framework of the facts, the legislative framework on which rests the legal regime of the Institute of Tourist Usefulness, specifically the assumptions upon which the recognition of tax benefits at the level of IMT exemption is based.
According to the legal regime in force, Tourist Usefulness consists of the qualification attributed to tourism undertakings that satisfy the principles and requirements defined for this purpose in the said regime. This regime provided for a specific set of tax benefits. One of the tax benefits contemplated in the Tourist Usefulness regime is enshrined in paragraph 1 of article 20 of Decree-Law No. 423/83 of 5 December, according to which:
"Acquisitions of properties or autonomous fractions intended for the installation of tourism undertakings qualified as tourist useful are exempt from sisa and tax on successions and donations, with the stamp duty reduced to 1/5, even if such qualification is attributed on a provisional basis, provided that it remains valid and the deadline set for the opening of the undertaking to the public is observed."
And it adds in paragraph 2:
"The exemption and reduction established in the preceding number shall also apply to the transfer in favour of the operating company, in the case where the owner is a financial leasing company and the transfer is made under and in accordance with the financial lease contract that determined the acquisition of the undertaking by the transferring company."
In the same sense, although in the present proceedings the question of IMI – Municipal Tax on Real Property is not analysed, it should be noted that article 47 of the EBF, under the heading "Properties integrated into undertakings to which tourist usefulness has been attributed", establishes a set of exemptions for properties integrated into undertakings to which Tourist Usefulness has been attributed.
In order to delimit, clarifying the concept of Tourist Usefulness, in its invocation as a precondition for purposes of awarding the "recognition" of the IMT exemption, we invoke the provisions of article 1 of Decree-Law No. 423/83, of 5 December.
The legislator states that:
"Tourist Usefulness consists of the qualification attributed to tourism undertakings that satisfy the principles and requirements defined in this decree..."
Establishing in paragraph 1 of article 3 of the said Decree-Law, that Tourist Usefulness may only be attributed to undertakings that are hotel establishments and similar, tourism complexes, camping parks, facilities, thermal installations and houses devoted to residential tourism, duly assessed by the competent authorities.
III.2. – IMT exemption, by tourist usefulness, in acquisitions effected by companies, whether owners or operators of the undertakings
In this section, we will follow closely, taking into consideration the guidance established in the jurisprudential uniformization judgment No. 3/2013 (Case No. 968/12, 2nd Section), delivered by the Supreme Administrative Court (STA) on 23 January 2013.
As examined in the erudite judgment referred to, the question at issue is to determine which acquisitions, in accordance with the legal framework referred to above (Decree-Law 423/83), should benefit from the IMT exemption:
a) acquisitions of properties or autonomous fractions by developers with a view to building and installing tourism undertakings;
b) or acquisitions of autonomous fractions (accommodation units) belonging to or integrated into already built and installed undertakings, with a view to their operation?
From the literal wording of article 20, paragraph 1, of Decree-Law No. 423/83, it is important to note that the legislator clearly refers to the fact that only, in the wording at the time, "acquisitions of properties or autonomous fractions intended for the installation of tourism undertakings qualified as tourist useful are exempt from sisa".
Which means, in the words of the reporting judge, that it is not a subjective exemption intended to benefit companies, whether owners or operators of the undertakings, but rather an objective one, since it aims to benefit the activity of installation, and only companies engaged in "installing" tourism undertakings and not also those intending to engage in the activity of operating the same can request and benefit from the exemption.
There is no doubt that in the case of the exemption of paragraph 1 of article 20 of Decree-Law No. 423/83, the legislator intended to cover only acquisitions intended for the "installation" of undertakings. For purposes of the benefits referred to in paragraph 1 of article 20 of Decree-Law No. 423/83, of 5 December, the concept of installation refers to the acquisition of properties (or autonomous fractions) for the construction of tourism undertakings, after the respective urban development 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 built/installed undertakings under a plural ownership regime, since this has to do with "operation" and not with "installation".
Continuing to follow the jurisprudential position contained in the uniformization judgment (paragraph 5 of the operative part), the meaning to be extracted from paragraph 1 of article 20 of Decree-Law No. 423/83 is that the benefit is only justified for those who proceed to the installation of the undertaking and places it on the market and not for all those who use and operate it, even through the purchase of its units (...)
As stated in the understanding adopted by Judgment No. 971/12, of 2013-01-30 of the Supreme Administrative Court,
"Now, a question identical to that which is the subject of the present case was already decided in an enlarged judgment, in accordance with the provisions of article 148 of the Code of Procedure in Administrative Courts, in this STA judgment, of 23/1/2013, case No. 968/12", which we subscribe to and to which we adhere. Thus, referring to the reasoning of that judgment and accepting it, we conclude that, for purposes of the tax benefit provided for in paragraph 1 of article 20 of Decree-Law No. 423/83, of 5/12, the first acquisition of a fraction intended for tourism operation no longer integrates the installation phase of the undertaking (...)".
Note, also, in the STA judgment delivered in the context of case No. 968/12, delivered on 23 January 2013, in which the illustrious magistrates state that:
"It is clear from the considerations of the Working Group that the legislator intended to boost tourism activity by providing for exemption/reduction of the payment of Sisa/Stamp duty for developers who intend to build/create establishments (or readapt and remodel existing fractions) and not when it is merely the acquisition of fractions (or accommodation units) integrated in undertakings and intended for operation, even if they are acquired on a date prior to the installation/licensing of the undertaking itself.
[T]he promoters of the undertakings are the sole responsible for the real property investment, bearing upon them the risk thereof, as well as for obtaining the licenses necessary to make them fit for operation and use.
[I]n the concept of installation cannot be included the acquisition of accommodation units that are part of the undertaking, because that acquisition is made with a view to their operation which can only occur after the final act of the installation procedure".
Decree-Law No. 423/83, of 5 December constitutes a legal instrument for promoting incentives to investment in the tourism sector, in which the legislator understood to grant tax benefits in the scope of sisa tax (current IMT) and stamp duty, to owning companies that make the investment effort, those who will create tourism establishments and not to those who merely sell fractions/already installed undertakings.
"(...) The benefit is only justified for those who proceed to the installation of the undertaking and place it on the market and not for all those who use and operate it, even through the purchase of its units (...)".
Tax benefits, in accordance with paragraph 1 of article 2 of the EBF, are exceptional measures instituted for the protection of relevant extrafiscal public interests and which are superior to those of taxation itself which prevent,
Paragraph 2 of article 20 of the said Decree-Law further establishes, beyond what has already been stated, the only situation in which sisa exemption (current IMT) and stamp duty reduction occur, when the owning company is a financial leasing company and, within the scope of this lease contract that provided for the acquisition of the undertaking, transfers the properties/fractions to the operating company. In this paragraph 2 there is an extension of the sisa (current IMT)/stamp duty exemption, which occurs in the transfer in favour of the operating company, but only in the case where the owner is a financial leasing company.
Having arrived here, we conclude, due to lack of legal typicality, for the application of the tax benefit of IMT exemption, under Decree-Law No. 423/83 of 5 December, to the acquisition effected by the Taxpayer in the deed analyzed below.
III.3. – The acquisition of the property, effected by the taxpayer, in the year 2007 and exempt from IMT, covered by the Institute of Tourist Usefulness
On the twenty-ninth of November of two thousand and seven, in accordance with the copy of the deed, provided by the taxpayer, executed at the Notarial Office of E… - Rua … No. …, in …, the taxpayer acquired the property indicated below, which benefited from IMT exemption under Decree-Law No. 423/83 of 5 December.
From the deed (Annex 1) it is extracted that the seller:
C… - …, SA, Tax ID …
Tax Domicile: Rua …, No. … Office …, … - … …. Is the owner and legitimate owner of the said property, in accordance with the deed:
Urban property, consisting of a plot of land for construction, located on Rua … (boundary to the South), parish of …, Municipality of Matosinhos. Registered in the matrix under article …. On which "D…" with the provisional category of four stars will be built, which the seller company will carry out thereon and to which prior declaration of tourist usefulness was granted.
To which is attributed the value of €1,000,000.00. Which has the tax patrimonial value of €1,011,640.00.
And by the said deed, the seller company transferred the identified property to the taxpayer B… - …, …, SA,
In 2015 the said property presented the following details in the Tax and Customs Authority database:
Regarding the Tax
Given the content of the deed, the transfer is exempt from municipal tax (on the onerous transfer of real property in accordance with the declaration of Tourist Usefulness granted by order of the Secretary of State for Tourism of 2006-…-… (Annex 2), by which the prior declaration of tourist usefulness was granted for the said hotel, which remains valid, being within the deadline for the opening of the undertaking.
In accordance with the said order, the prior Tourist Usefulness was attributed to the undertaking D…, with the provisional category of 4 stars that C…, …, SA intends to carry out on Rua …, parish of …, municipality of Matosinhos and district of Porto.
On the date 2008-…-…, through order No. …/2008 of the Office of the Secretary of State for Tourism (Annex 3), the validity period of the prior tourist usefulness declaration granted to the D… was extended by a further six months, being valid until 12 May 2009.
On 2009-11-06, at the request of C…, …, SA, through order No. …/2009 of the Office of the Secretary of State for Tourism (Annex 4), it was decided to confirm the prior tourist usefulness attributed to the F… of 4 stars, the validity of tourist usefulness having been fixed at 7 years from the date of the license for authorization of use (9 March 2009), that is until 9 March 2016.
It was C…, …, SA that promoted, requesting in time to the Office of the Secretary of State for Tourism, the request for the attribution of tourist usefulness to the Hotel undertaking.
From the reading of the legal framework set out in the above paragraphs III.1, III.2, acquisitions of properties or autonomous fractions intended for the installation of undertakings qualified as tourist useful are exempt from IMT.
The granting of this benefit aims solely at promoting investment and boosting tourism activity for promoters who intend to build/create establishments, not being applicable to the mere acquisition of fractions integrated in already built and installed undertakings.
In this way, supported by the position of the erudite judgment of the STA, case No. 968/12, from which the following passage is transcribed,
"The benefit is only justified for those who proceed to the installation of the undertaking and place it on the market and not for all those who use and operate it, even through the purchase of its units."
it is therefore important to conclude that given that it was C…, …, SA that proceeded to the installation of the undertaking and to whom the benefit of Tourist Usefulness was granted, B… - … … SA cannot enjoy this benefit, so that the exemption recognized in the deed under analysis is shown to be undue.
III.4. – Proposed Correction
In accordance with what has been stated, the following correction is proposed, of a purely arithmetic nature, resulting from legal obligation:
- That the respective IMT be assessed, by applying the rates provided for in article 17, paragraph 1, depending on the nature of the property, due for the acquisition identified below
The basis of incidence was determined, in accordance with the provisions of paragraph 1 of article 12 of the CIMT - IMT shall apply to the value contained in the deed or contract or to the tax patrimonial value of the properties, whichever is greater
As to the Rate
In accordance with article 17, paragraph 1 of the CIMT;
subparagraph d) acquisition of other urban properties, ....: 6.5%.
(...)
And the jurisprudential uniformization judgment that the Tax and Customs Authority followed considered and decided on the question of the concept of installation for purposes of the tax benefit referred to in this article. When reference is made in paragraph 1 of article 20 of the said Decree-law with a view to installation, it is intended to cover only acquisitions intended for the installation of undertakings. [By its turn the concept of installation refers to the acquisition of properties (or autonomous fractions) for the construction of tourism undertakings, after the respective urban development operations have been duly licensed, aiming to benefit companies engaged in the activity of promotion/creation of the same. The benefit of article 20 of Decree-Law No. 423/83, of 5 December is only justified for those who proceed to the installation of the undertaking and place it on the market.
On the other hand, and in accordance with Decree-Law No. 423/83, of 5 December, as amended by Decree-Law No. 38/94, of 8 February, the taxpayer needs to meet certain prerequisites, comply with certain obligations in order to be covered by this regime.
The company owning the promotion of the investment, in addition to having the Tourist Usefulness of the undertaking it has built, expanded or improved recognized, must also comply with the deadline set for its opening to the public.
The inspected taxpayer, owner of the urban property on which "D…" with the provisional category of four stars will be built, where company C… - …, SA will carry out and to which prior declaration of Tourist Usefulness was granted, is not bound by the legal obligations required for the establishment, given that it was not this one that made any such request.
In fact, in accordance with the order of the Secretary of State for Tourism, of … of … of 2006, published by Notice in the Diário da República, 2nd Series, No. .., of … of … of 2006 (Special Part), the prior declaration of Tourist Usefulness was declared for "D…", with the provisional category of 4 stars, which C… - …, SA intends to carry out on Rua …, parish of .., municipality of Matosinhos and district of Porto.
Subsequently, the Secretary of State for Tourism, by order No. …/2008, published in the Diário da República, 2nd Series, No. …, of … of … of 2008, "Given the request for extension of the validity period of the prior tourist usefulness declared for the D…, located on Rua …, in the parish of …, municipality of Matosinhos, of which the applicant is C… -…, S.A.; (.,.)",
And, at the request of C… - … SA, the Office of State for Tourism, through order No. …/2009, published in the Diário da República, 2nd Series, No. …, of … of … of 2009, confirmed the prior Tourist Usefulness attributed to the F…, of 4 stars.
Therefore, and as for purposes of the benefit referred to in paragraph 1 of article 20 of Decree-Law No. 428/83, of 5 December, it cannot but be understood as referring precisely to the acquisition of properties for the construction of tourism undertakings, after the respective urban development operations have been duly licensed, aiming to benefit companies engaged in the activity of creation of the same, in this case, C… - … SA, a reality that the taxpayer recognizes in the exercise of its right to be heard "(...) C…, which was the one who installed the undertaking ( )".
And, contrary to what is stated in the right to be heard, and the reasoning set out above confirms this, the Tax and Customs Authority did not make an incorrect interpretation of the judgment, since the benefit of article 20 of Decree-Law No. 423/83, of 5 December is only justified for those who proceed to the installation of the undertaking and place it on the market, and the taxpayer does not fit this situation so cannot benefit from the Sisa/IMT exemption.
"[I]t is therefore important to conclude that given that it was C…, …, SA that proceeded to the installation of the undertaking and to whom the benefit of Tourist Usefulness was granted, B… - … … SA cannot enjoy this benefit, so that the exemption recognized in the deed under analysis is shown to be undue".
As regards what is alleged in paragraphs 18 to 25, also here the Tax and Customs Authority does not agree with the position of the taxpayer as will be demonstrated below.
The legal regime of the financial lease contract is established in Decree-Law No. 149/95, of 24 June, successively updated by Decree-Law No. 265/97, of 2 October, Decree-Law 285/2001, of 3 November, and most recently by Decree-Law 30/2008, of 25 February.
In accordance with article 1 of Decree-Law No. 149/95, of 24 June: "Financial lease is the contract by which one party undertakes, by way of consideration, to cede to the other the temporary enjoyment of a thing, movable or immovable, acquired or built by indication, and which the lessee may purchase, after the agreed period, at a determined or determinable price, by simple application of the criteria set therein"
In this type of contract there is the obligation to cede the enjoyment of a thing, the lessor is and remains the owner of the thing, the other party has the right to require that ceding, of the enjoyment, in addition to being temporary is remunerated, the object of the contract is acquired or built by indication of the lessee, the lessee may acquire the thing after the agreed period, that price must be determined or determinable by simple application of the criteria set therein.
Although financial lease is one of the instruments that companies have available to finance the acquisition of assets, it cannot be reduced to a financing function. The purpose of the financial lease contract is the ceding of the use of the thing, a ceding that is only possible with the prior acquisition of the thing by the lessor. The initial financing linked to this operation takes place in the sphere of the lessor who only obtains external results through the ceding of the use of the asset acquired with that financing.
And as is relevant to the situation, the acquisition of a property by the lessor, by indication of the lessee, to then lease it to these, is subject to IMT under the general rules, the basis for assessment being constituted by the agreed price or by the tax patrimonial value (TPV) of the properties, whichever is greater, in accordance with paragraph 1 of article 12 of the CIMT.
In the exercise of its right to be heard, the taxpayer makes further reference to the preamble of Decree-Law No. 311/82, of 4 August, which establishes rules on the tax regime of financial lease.
The financial lease regime, contained in Decree-Law No. 311/82, of 4 August, aimed at a regulation of the contract that would ensure the following objectives:
• Elimination of any obstacles of a fiscal nature to the use of this type of contract;
• Prevention of the use of the lease contract for purposes of tax evasion;
• Tax neutrality, so that the lessee would not bear, in the purchase of the leased property, a tax burden superior to that which would result from its direct acquisition (cf. preamble to the instrument)
And as regards tax neutrality, contrary to what is stated by the taxpayer in its right to be heard, the same occurs in accordance with article 3 of Decree-Law No. 311/82, 4 August:
"The transfer by sale and purchase in favour of the lessee, at the end of the term of the financial lease contract and effected in the conditions established therein, of the ownership or the superficies right constituted over the leased properties is exempt from sisa."
It should also be noted that the principle of tax neutrality is also embodied in paragraph 2 of article 20 of Decree-Law No. 423/83, of 5 December:
"2 – The exemption and reduction established in the preceding number shall also apply to the transfer in favour of the operating company, in the case where the owner is a financial leasing company and the transfer is effected under and in accordance with the financial lease contract that determined the acquisition of the undertaking by the transferring company."
The taxpayer further comes in its right to be heard to transcribe a passage from the preamble of Decree-Law No. 311/82, of 4 August, but also here its position cannot prevail. Let us see, in accordance with article 5 of the said Decree-Law (wording at the time of the facts), there is the possibility of:
"1 – To financial leasing companies subject to tax on income of collective persons shall be applied the sisa rate of 4% for the acquisition of properties or plots of land for construction, or for the constitution or acquisition of the superficies right for this purpose, when those properties, through financial lease, are intended for the installation of industries of interest for the economic development of the Country or for the convenient expansion of companies with a view to new manufacturing, cost reduction or improvement of product quality, a benefit which shall be without effect if, by fact attributable to the lessor company, the property is given a different use in the seven-year period following its acquisition."
However, this rate reduction "(...) depends on an order of the Minister of Finance, at the request of the interested parties, on information from the General Directorate of Contributions and Taxes, after hearing the competent services of the ministry or ministries that oversee the respective activities,", as established in paragraph 2 of article 5 of the said Decree-Law, as amended by Law No. 10B/96, of 23 March.
This request "(...) shall be presented within the period referred to in paragraph 1 of article 15 of the Code of Municipal Tax on Onerous Transfers of Real Property and Tax on Successions and Donations,", paragraph 3 of article 5 of the said Decree-Law, as amended by Law No. 10B/96, of 23 March.
Thus, in light of what has previously been stated, it is maintained, since the taxpayer did not exercise the right to be heard, the proposed corrections remain unchanged.
p) On 19-10-2015, the Tax and Customs Authority issued the assessment whose copy was enclosed with the request for arbitral pronouncement, whose content is reproduced herein, which states, among other things, the following:
DEMONSTRATION OF IMT AND COMPENSATORY INTEREST CALCULATION
Relating to the deed of purchase and sale of 2007-11-29, for the acquisition of the urban property … of the extinct parish of …, (plot of land for construction), from C… …, S. A., with Tax ID: …, for the price of 1,000,000.00
The said acquisition was effected with recognition of IMT exemption, related to the benefit of Tourist Usefulness provided for in article 20 of Decree-Law No. 423/83, which was found not to be applicable, in accordance with the report of Tax Inspection - Finance Department of …, already notified to the taxpayer.
– IMT
Property … of …
Value of Transaction = €1,000,000.00
Tax Patrimonial Value = €1,011,640.00
€1,011,640.00 X 6.5% = €65,756.60
IMT Due = €65,756.60
Stamp Duty, paid at the time of the deed.
– COMPENSATORY INTEREST IS DUE (ARTICLE 33 CIMT / 35 LGT)
Base Value of Tax: €65,756.60 Date of Deed: 2007-11-29 Date of Assessment: 2015-09-16
q) The assessment and respective calculation were notified to the Applicant by registered mail with acknowledgment of receipt sent on 16-09-2015;
r) On 19-10-2015, the Applicant proceeded to the payment of the assessed amount (document No. 8 enclosed with the request for arbitral pronouncement, whose content is reproduced herein)
s) On 18-01-2016, the Applicant submitted the request for constitution of the arbitral tribunal that gave rise to the present proceedings.
2.2. Facts Not Proven
There are no facts relevant to the decision of the case that have not been proven.
2.3. Grounds for Establishing the Facts
The facts were proven on the basis of documents enclosed with the request for arbitral pronouncement and the response of the Tax and Customs Authority.
3. Matters of Law
3.1. Positions of the Parties
C… includes in its corporate purpose, among other activities, the management and hotel operations and obtained the attribution of prior tourist usefulness of the D…, which it intended to build on land of its own.
Company B… - …, which later was incorporated into the Applicant, acquired from C… the said plot of land with the purpose of it being "given in financial lease to the seller company", referring in the deed that on the land acquired "the D… with the provisional category of four stars will be built, which the seller company [and also lessee company C…] will carry out thereon and to which prior declaration of tourist usefulness was attributed"
The Tax and Customs Authority understood that, having been C… that requested the attribution of tourist usefulness for "D…" and that promoted the construction and installation of the hotel undertaking, the Applicant (or B… - … which was incorporated into the Applicant by merger) cannot benefit from the objective exemption contained in article 20, paragraph 1 of Decree-Law No. 423/83, of 5 December, which establishes the following:
Article 20
1 – Acquisitions of properties or autonomous fractions intended for the installation of tourism undertakings qualified as tourist useful are exempt from sisa and tax on successions and donations, with stamp duty reduced to one-fifth, even if such qualification is attributed on a provisional basis, provided that it remains valid and the deadline set for the opening of the undertaking to the public is observed.
2 – The exemption and reduction established in the preceding number shall also apply to the transfer in favour of the operating company, in the case where the owner is a financial leasing company and the transfer is effected under and in accordance with the financial lease contract that determined the acquisition of the undertaking by the transferring company.
The Applicant argues the following, in summary:
– in order to assess whether the acquisition of the property by the Applicant falls within the transcribed provision, it must be analyzed whether the acquisition is or is not intended for the installation of a tourism undertaking qualified as tourist useful;
– it is not relevant whether the acquirer of the property is or is not the real property developer, but only whether the acquisition is or is not part of the process of installing the tourism undertaking;
– since Decree-Law No. 423/83, of 5 December, does not define the concept of installation enshrined in paragraph 1 of article 20, reference should be made to the legal regime provided for in Decree-Law No. 167/97, of 4 July, which regulated, at the time of the facts, the installation and operation of tourism undertakings and which considered that the installation of tourism undertakings was "the licensing of the construction and/or use of buildings intended for the operation of those undertakings";
– the acquisition of the property by the Applicant occurred after the issuance of the building permit, and before the issuance of the use permit, which means that the acquisition was intended for installation, which only terminated in March 2009;
– it is concluded, therefore, based on the literal wording of the provision, that the exemption of article 20 of Decree-Law No. 423/83, of 5 December, is applicable to the acquisition of the plot by the now Applicant;
– this is also the solution that is most certainly in accordance with the ratio of the benefit, which aims to promote the process of installing tourism undertakings of tourist usefulness, not being directed at those who merely operate those undertakings;
– it is not a subjective exemption, but an objective one, aimed at encouraging the installation process;
– it is precisely the installation that is at issue in the situation under analysis, in which company C… was the holder of a plot on which it intended to install a hotel (D…) and, to finance such construction, carried out a sale and lease back operation, that is, sold the property to the here Applicant, which then concluded a lease contract for the plot, on which the said hotel was built;
– the Applicant (owner) intervened directly in the installation, through financing via the lease;
– the use license was obtained after the acquisition, which demonstrates that the installation occurred after the purchase;
– in this same sense, in the Jurisprudential Uniformization Judgment No. 3/2013, of 23 January 2013, published in the 1st Series of the Diário da República, of 4 March 2013, pages 1197 to 1217, it is concluded that the concept of installation "cannot but be understood as referring precisely to the acquisition of properties (or autonomous fractions) for construction (when it is new undertakings) of tourism undertakings, after the respective urban development operations have been duly licensed, aiming to benefit companies engaged in the activity of promotion/creation of the same".
– it is precisely the case of the Applicant.
– consequently, neither from the letter of the law, nor from its spirit, can the inapplicability of the IMT exemption provided for in article 20 of Decree-Law No. 423/83, of 5 December, to the acquisition of the plot in question result, on which the lessee, C… - …, S.A., installed an undertaking to which tourist usefulness was recognized.
The Tax and Customs Authority argues in the present proceedings the following, in summary:
– the tax benefit in reference aims at "those who proceed to the installation of the undertaking and place it on the market and not for all those who use and operate it, even through the purchase of its units", invoking the concept of installation embodied in the Jurisprudential Uniformization Judgment No. 3/2013, of 23/01/2013, (case No. 968/12) delivered by the STA;
– based on the evidence produced, the Inspection Report concluded that having been C… that requested the attribution of tourist usefulness for "D…" and that promoted the construction and installation of the hotel undertaking, the Applicant could not benefit from the objective exemption contained in article 20, paragraph 1 of Decree-Law No. 423/83, of 5 December;
– with the acquisition of the said property, the Applicant became legally its owner, irrespective of having concluded with the former property owner a promise contract of financial lease;
– from the wording of the said financial lease promise contract it is extracted that the powers corresponding to the exercise of the right of ownership with respect to the property in question remain in the legal sphere of the Applicant and Financial Lessor;
– thus, the subjection to IMT occurs when the Applicant and Financial Lessor acquires the property, being this, as acquirer, that must pay the tax;
– the fact that the Applicant acquired the property from C… to, then, lease it to the same C…, through the perfection of the financial lease promise contract, does not negate that such acquisition is subject to IMT under the general rules;
– by its turn, the Financial Lessee will only be subject to IMT when exercising the purchase option over the property before the end of the financial lease contract, being only exempt from IMT, if such acquisition occurs at the end of the term of the financial lease contract, in accordance with article 3 of Decree-Law No. 311/82, of 4 August;
– the acquisition of the immovable property in question does not benefit from the exemption provided for in article 20 of Decree-Law No. 423/83, because the acquirer is not the entity that proposed to build and install the hotel undertaking, but rather a third entity, merely in precarious possession of the property, in the capacity of financial lessee of immovable property.
3.2. Appreciation of the Issue
The Applicant argues, first, that its situation falls within the literal wording of article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December, and that it is not relevant whether the acquirer of the property is or is not the real property developer, but only whether the acquisition is or is not part of the process of installing the tourism undertaking.
In fact, article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December, attributes the exemption to "acquisitions of properties or autonomous fractions intended for the installation of tourism undertakings qualified as tourist useful", so it is an exemption of an objective nature, which does not depend on the nature of the acquiring entity.
The jurisprudence of the uniformization judgment No. 3/2013, of 23-01-2013, published in the Diário da República, 1st Series, of 04-03-2013, cited by the Tax and Customs Authority, does not also preclude the application of the exemption.
In fact, it is stated there that the concept of installation refers "to the acquisition of properties (or autonomous fractions) for construction of tourism undertakings, after the respective urban development 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 built/installed undertakings under a plural ownership regime, since this has to do with 'operation' and not with 'installation'".
In fact, B… - … does not fall within the situation that in that judgment is referred to as not being covered by the exemption, as it is not an acquirer of property on which a tourism undertaking already existed built or already installed, nor did it aim to proceed to its operation, but rather to make available to the company promoting the undertaking the availability of financial means to realize it.
On the other hand, the acquisition took place on 29-11-2007, after the respective urban development operations were duly licensed through the permit of 14-11-2007, so the situation of the Applicant, as to this point, satisfies the requirement that in that uniformization judgment is made that the acquisition be made "after the respective urban development operations have been duly licensed".
Thus, no factual basis is seen for the Tax and Customs Authority to understand dismissing the exemption on the grounds of the jurisprudence of the referred uniformization judgment, which pronounced itself on the non-application to those who acquire properties with tourism undertakings already installed, with the purpose of proceeding to their operation.
On the other hand, if it is true that the exemption is intended to benefit companies engaged in the activity of promotion and creation of tourism undertakings, it is also true that B… - …, through the acquisition followed by lease, participated in that activity of promotion and creation, through financing via the lease, an activity that only terminated after the acquisition, on 09-03-2009, when the use permit was issued.
Paragraph 2 of article 20 of Decree-Law No. 423/83, in establishing that "the exemption and reduction established in the preceding number shall also apply to the transfer in favour of the operating company, in the case where the owner is a financial leasing company and the transfer is effected under and in accordance with the financial lease contract that determined the acquisition of the undertaking by the transferring company", inculcates the interpretation that the financial leasing company that acquired the property intended for the undertaking benefits from the exemption referred to in paragraph 1, this being the explanation for the inclusion of the word "also" which presupposes that, in the situation described, there is a second exemption relating to the same tourism undertaking.
Indeed, it is this interpretation – i.e., that both the transfer to the company that acquires the property intended for a tourism undertaking within the scope of a financial lease contract, as well as the subsequent transfer to those who promoted it and will operate are exempt from IMT – that is compatible with the objective of encouraging the creation of tourism undertakings of tourist usefulness, which would cease to exist if any of those transfers were burdened with taxation. In the same way it must be said that, no element – literal or systematic – of paragraphs 1 and 2 of article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December, allows to conclude that an operation such as the one at issue (sale lease back) – and, moreover, any assignment/transfer similar to that without the undertaking or hotel being already installed on the date of the assignment/transfer – cannot benefit from that benefit, quite the contrary as we have seen. In fact, it cannot be doubted that, if the financial leasing company that acquires a property to transfer it to the company that promoted and will operate the tourism undertaking has to bear IMT, that burden will be passed on to that company.
By the foregoing, both the letter of the law and its reason for being lead to the conclusion that the IMT exemption applies to the acquisition effected by B… - ….
Consequently, the impugned assessment suffers from a defect of violation of law, by error regarding the assumptions of law, which justifies its annulment [article 163, paragraph 1, of the Code of Administrative Procedure of 2015, subsidiarily applicable by virtue of the provisions of article 2, subparagraph c), of the LGT].
Since the assessment of IMT is illegal, the assessment of compensatory interest suffers from the same defect, as "compensatory interest is integrated into the very debt of the tax, with which it is jointly assessed" (article 35, paragraph 8, of the LGT).
4. Indemnitary Interest
The Applicant further requests that the amount paid be reimbursed with the addition of indemnitary interest calculated from the date of payment of the tax until the date of reimbursement.
In accordance with the provisions of subparagraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim, from which no recourse or challenge is available, binds the tax administration from the end of the period provided for recourse or challenge, and this should, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of the decisions of the judicial courts for tax matters, "restore the situation that would exist if the tax act subject of the arbitral decision had not been made, adopting the acts and operations necessary for that purpose", which is in keeping with the provision of article 100 of the LGT [applicable by virtue of the provisions of subparagraph a) of paragraph 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of a claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject of the dispute, including the payment of indemnitary interest, if applicable, from the end of the period for execution of the decision".
Although article 2, paragraph 1, subparagraphs a) and b), of the 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 competence of those tribunals includes the powers that in a process of judicial challenge are attributed to the tax courts, this being the interpretation that is in keeping with the meaning of the legislative authorization on which the Government based itself to approve the RJAT, in which it is proclaimed, as the first guiding principle, that "the arbitral tax process must be an alternative procedural means to the process of judicial challenge and to the action for the recognition of a right or legitimate interest in tax matters".
The process of judicial challenge, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration in the payment of indemnitary interest, as is apparent from article 43, paragraph 1, of the LGT, in which it is established that "indemnitary interest is due when it is determined, in a claim or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount superior to that legally due" and article 61, paragraph 4 of the CPPT (in the wording given by Law No. 55-A/2010, of 31 December, to which corresponds paragraph 2 in the original wording), which "if the decision recognizing the right to indemnitary interest is judicial, the period for payment is counted from the beginning of the period for its spontaneous execution".
Thus, paragraph 5 of article 24 of the RJAT in stating that "payment of interest, regardless of its nature, is due, in accordance with the provisions of the General Tax Law and the Code of Procedure and Tax Process" should be understood as allowing the recognition of the right to indemnitary interest in the arbitral process.
It is thus incumbent to appreciate the request for reimbursement of the amount improperly paid, with the addition of indemnitary interest.
In the case at issue, it is manifest that, as a consequence of the illegality of the assessment acts, there is place for reimbursement of the tax paid, by virtue of the said articles 24, paragraph 1, subparagraph b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act subject of the arbitral decision had not been made".
As regards indemnitary interest, it is also clear that, as a consequence of the declaration of illegality of the assessment, there is place for the payment of indemnitary interest, as that illegality is attributable to the Tax Administration, which, on its own initiative, made the assessment.
Consequently, the Applicant is entitled to indemnitary interest, in accordance with article 43, paragraph 1, of the LGT and article 61 of the CPPT, calculated on the amount it improperly paid, at the rate of the legal interest provided for in article 559 of the Civil Code and, currently, in Order No. 291/2003, of 8 April (articles 43, paragraph 4, and 35, paragraph 10, of the LGT), from the date on which it made the payment, 19-10-2015, until the reimbursement of the amount paid.
5. Decision
In accordance with the foregoing, this Arbitral Tribunal agrees:
In these terms, this Arbitral Tribunal agrees to:
a) Grant the request for arbitral pronouncement;
b) Annul the assessment of IMT relating to the acquisition of the urban property registered in the property matrix of the now extinct parish of …, under article …, on 29/11/2007, in the amount of €65,756.60, and the respective assessment of compensatory interest, in the amount of €20,508.83, as impugned, on the grounds of its illegality by violation of law;
c) Condemn the Tax and Customs Authority to reimburse the Applicant in the amount of €86,265.43, with the addition of indemnitary interest, at the rate of legal interest provided for in article 559 of the Civil Code and, currently, in Order No. 291/2003, of 8 April (articles 43, paragraph 4, and 35, paragraph 10, of the LGT), from 19-10-2015, until the reimbursement of the amount paid.
6. Value of the Case
In accordance with the provisions of article 306, paragraph 2, of the CPC and article 97-A, paragraph 1, subparagraph a), of the CPPT and article 3, paragraph 2, of the Regulation of Costs in Arbitration Proceedings in Tax Matters, the value of the case is fixed at €86,265.43.
7. Costs
In accordance with article 22, paragraph 4, of the RJAT, the amount of costs is fixed at €2,754.00, in accordance with Table I annexed to the Regulation of Costs in Arbitration Proceedings in Tax Matters, to be borne by the Respondent.
Lisbon, 05-07-2016
The Arbitrators
(Jorge Manuel Lopes de Sousa)
(Nuno Oliveira Garcia)
(A. Sérgio de Matos)
Frequently Asked Questions
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