Process: 190/2017-T

Date: October 28, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 190/2017-T) addresses whether the Tax Authority can revoke IMT exemptions previously granted for tourist development properties and the temporal limits on such review powers. Six taxpayers acquired autonomous fractions in a Tourist Village in December 2008, with IMT exemption recognized by the Notary under Article 20(1) of Decree-Law 423/83 of 5 December. In 2016, following tax inspection, the Tax Authority issued assessments totaling €55,175.52, concluding the exemption was improperly granted because the acquisitions were for investment and exploitation purposes rather than for installation of the tourism enterprise itself. The Tax Authority argued that Article 20(1) exemption aims to stimulate investment in installing new tourism enterprises by developers, not merely acquiring existing properties for exploitation. The claimants raised three principal defenses: First, the Notary's recognition of the exemption in 2008 constituted a formal tax assessment at zero rate, making any subsequent assessment supplementary and time-barred under Article 78 of the General Tax Law (LGT) and Article 31 of the IMT Code, which impose a 4-year limitation period. Second, even if not classified as an assessment, the exemption recognition constitutes a tax act reviewable only within 4 years under Article 78 LGT, which had expired by 2016. Third, alternatively, the act constitutes an administrative act constitutive of rights that could not be revoked in 2016 under Articles 167-168 of the Administrative Procedure Code. This case raises critical issues regarding the distinction between property acquisition for installation versus exploitation of tourist developments for exemption purposes, the legal nature of notarial exemption recognition acts, and the Tax Authority's temporal limits for reviewing previously granted tax benefits. The decision has significant implications for taxpayers holding tourist development properties acquired with recognized exemptions.

Full Decision

ARBITRAL DECISION

PARTIES

Claimants

1st - A…, NF…; 2nd -B…, NF…; 3rd - C…, NF…; 4th – D…, NF …; 5th - E…, NF…; 6th – F… NF… .

Respondent

Tax and Customs Authority (AT).

I - REPORT

On 21 March 2017, A…, NF…; B…, NF…; C…, NF…; D…, NF…; E…, NF … and F…, NF…, filed an application for constitution of a singular arbitral tribunal (TAS), in accordance with the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is the Respondent.

THE APPLICATION

The Claimants, acting jointly, challenge the following tax acts for the assessment of IMT:

Taxpayer Finance Department Notification Order Assessment Document Amount Assessed
A…, NF … No. … of 25.11.2016 … of 08.06.2017 9,664.20 euros
B…, NF … No… of 17.11.2016 … of 08.06.2017 9,664.20 euros
C…, NF … No. … of 30.11.2016 … of 08.06.2017 8,259.36 euros
D…, NF … No. … of 30.11.2016 … of 08.06.2017 8,259.36 euros
E…, NF … No. … of 30.11.2016 … of 08.06.2017 9,664.20 euros
F…, NF … No. … of 30.11.2016 … of 08.06.2017 9,664.20 euros

totalling 55,175.52 euros.

They conclude their application for a ruling by stating that "the illegality of the payment orders contained in orders Nos…, …, …, …, … and …, issued by the Head of the Finance Department of…" should be declared.

THE CAUSE OF ACTION

In December 2008, the Claimants acquired, in a Tourist Village designated as "…", located in the parish of …, municipality of …, district of Leiria, autonomous fractions of real estate in horizontal property, corresponding to a tourism enterprise, in plural ownership. In the acquisition deeds, the exemption from IMT was recognised by the respective Notary, in accordance with No. 1 of Article 20 of Decree-Law No. 423/83 of 5 December.

They were subject to inspection actions, which concluded in their respective reports "... it is considered that the IMT exemption was unduly recognised, since the acquisition of the fraction in question was not intended for the installation of the said enterprise, but rather constitutes a transfer which, in the broadest interpretation, would only relate to exploitation". "It is noted that the acquisition of this fraction constitutes, for the Taxpayer (IMT), a real estate investment and, even though the tourist exploitation of the acquired fraction is assured, the transfer of this property departs from the guiding principle of granting this tax benefit – to contribute to the development of the sector, particularly with respect to hotel facilities and similar, through the stimulus to investment in the installation of tourism enterprises by developers. This will be the reason for being and purpose of the exemptions enshrined in Article 20 of Decree-Law No. 423/83, as emphasised in the preamble to the legal diploma, as well as in the jurisprudence already cited". And it adds "... the undue recognition of this exemption resulted in the failure to assess IMT, which should be assessed in accordance with the rules set out in Articles 12 and 17, No. 1, paragraph d) of the IMT Code. In accordance with No. 1 of Article 12 of the IMT Code, the IMT shall be levied on the value stated in the act or contract or on the patrimonial value of the real estate, whichever is greater".

In disagreement with this understanding and with the assessments indicated above, the Claimants argue that the operation of recognising the exemption provided for in Article 20 of Decree-Law No. 423/83 of 5 December, performed by the Notary and recorded in the deed, falls within the assessment procedure, having been determined whether there was tax to pay, without which the deed would not be executed.

For the reason that "... under current law, the finance departments are the competent entity to recognise the exemption, issuing a zero-value document, in accordance with Article 10 of the IMT Code", "the taxpayer requests from the finance department the recognition of the exemption, and it is then determined whether the tax is or is not due and in what amount". "Only with the document issued, at zero or with a value, is it possible to perform the acts subject to tax". "This operation of recognising the exemption and issuing a zero-value document is the assessment".

Concluding that: "it would violate the principle of equality and legality to consider that, in 2008, the tax was not assessed and that, in 2013, in an identical situation, it would already be considered assessed due to the issuance of a document by the services".

Because they executed the deeds in December 2008 with recognition of the exemption by the Notary, it should be considered that an IMT assessment occurred, even though at a zero rate, so the assessments now challenged should be considered "supplementary" for the purposes of No. 1 of Article 78 of the General Tax Law (LGT) and No. 3 of Article 31 of the IMT Code, concluding that there was "expiration of the right to revise the tax acts and the possibility of making the supplementary assessment, in accordance with Articles 78 of the LGT and 31 of the IMT Code".

Even if it is considered that the acts of recognising the exemptions are not an "assessment", they argue that it is a tax act that can only be reviewed within a period of 4 years, in accordance with Article 78 of the LGT, or an administrative act constitutive of rights whose conditions applicable to revocation are set out in No. 2 of Article 167 of the CPA (new), concluding that "... in no circumstances could the act performed by the Notary be revoked in 2016", since the period of Nos. 1 and 4 of Article 168 of the CPA (new) had long since elapsed.

THE SINGULAR ARBITRAL TRIBUNAL (TAS)

The application for constitution of the TAS was accepted by the President of CAAD and automatically notified to AT on 30-03-2017.

By the Ethics Committee of CAAD, the undersigned was appointed as arbitrator, and the parties were notified of this on 17.05.2017. The parties did not express any intention to decline the appointment, in accordance with Article 11 No. 1 paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Ethics Code.

The Singular Arbitral Tribunal (TAS) has been properly constituted, since 07.06.2017, to consider and decide on the subject matter of this dispute (Articles 2 No. 1 paragraph a) and 30 No. 1 of the RJAT).

All of these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 07.06.2017, which is hereby reproduced.

On 07-06-2017, AT was notified in accordance with and for the purposes of Article 17-1 of the RJAT. It responded on 13.07.2017 and attached the Administrative Process (PA).

The meeting of parties was not held in accordance with and for the purposes of Article 18 of the RJAT, taking into account the concordant position (implicitly) of the parties.

The Claimants presented written pleadings on 29.09.2017 arguing for the position already assumed in the application for a ruling and the Respondent presented counter-pleadings on 13.10.2017 arguing for the point of view expressed in its response.

PROCEDURAL REQUIREMENTS

Legitimacy, capacity and representation – The parties are legitimate, have legal personality, procedural capacity and are represented (Articles 4 and 10 No. 2 of the RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March).

Principle of contradiction – AT was notified in accordance with paragraph o) of this Report. All procedural documents and all documents attached to the process were made available to the respective counterparty in the CAAD Case Management System. Both parties were always notified of their attachment.

Dilatory exceptions – The arbitral procedure does not suffer from nullities and the application for an arbitral ruling is timely since it was presented within the period prescribed in paragraph a) of No. 1 of Article 10 of the RJAT. Moreover, AT did not question the timeliness of the present application for an arbitral ruling.

SUMMARY OF THE POSITION OF THE CLAIMANTS

The Claimants argue that the acts challenged are not in accordance with the law, based on a comparison between the operating regime of automatic tax benefits that was in force until December 2008 and the regime that came into force after the amendment to paragraph d) of No. 8 of Article 10 of the IMT Code, by Article 97 of Law 64-A/2008 of 31.12, by which this type of exemptions became subject to "automatic recognition".

They state that there is a violation of the principle of tax equality, comparing the intervention of the Notary (in December 2008) with the issuance of a zero-value DUC issued by the Finance Department (which came into force as of 01.01.2009) through submission of Form 1 of the IMT, for assessment.

And that, under the regime in force until 31.12.2008, the intervention of the Notary corresponded to a process identical to the intervention of AT under the regime in force as of 2009 and therefore should be considered as having resulted in an IMT assessment.

They maintain that, in December 2008, original assessments occurred and that, now, the ones challenged here can only be considered "supplementary", so there was expiration of the right to assess, since they could only have been made within four years following the first assessment in accordance with Article 31 No. 3 of the IMT Code and Article 78 of the LGT.

The Claimants further argue that Article 35 of the IMT Code cannot be applied to this case, insofar as it concerns the cessation of the effects of the exemption, since the failure to verify an accessory fact to the maintenance of the exemption was not alleged.

And that, if it is considered that the act of recognising the exemption by the Notary in the acquisition deed does not constitute an IMT assessment, then it should be considered as a tax act that can only be reviewed within a period of 4 years, in accordance with Article 78 of the LGT, or an administrative act constitutive of rights and apply the regime for revocation of administrative acts set out in the CPA.

They understand that with respect to the revocation of the administrative act, none of the situations provided for in the paragraphs of No. 2 of Article 167 of the CPA are present, so it would not be legally permissible and in any case the respective period would have already elapsed.

They conclude by requesting as already referred to in paragraph c) of this Report.

SUMMARY OF THE POSITION OF THE RESPONDENT

The Respondent has a different reading of the facts and the law and argues for the dismissal of the application for an arbitral ruling.

With regard to the alleged violation of the principle of tax equality, comparing the intervention of the Notary (in 2008) with the issuance of a zero-value DUC issued by the Finance Department (regime that came into force as of 01.01.2009) through submission of Form 1 of the IMT, for assessment, it states, citing part of the arbitral decision CAAD 648/2014 of 22.05.2017: "There is, in particular, no violation of the principle of equality. The existence of distinct recognition regimes, applicable to different situations, expressly provided for in the law, does not constitute (contrary to what is claimed by the Claimant in citing the Court of Constitutional Opinion No. 306/2010 of 14 July 2010) an affront to the principle of generality, because it neither results in unequal treatment of equal situations, nor implies discrimination devoid of rationality. The alteration of the procedure concerning the automatic recognition benefit in no way undermines the principle of equality".

With regard to the non-existence of an original act of assessment and of a tax act of recognition of the tax benefit or of an administrative act of recognition, it states: "... in the case in question, there was no act of recognition of tax benefit, since the right operates by the mere application of the law to the facts, facts that the taxpayer declares to AT through Form 1 of the IMT, and a document is issued, so that the Claimant can execute the deed of transfer of the property with IMT exemption" and adds "the document to which they refer: 'assessment at 0.00€' when issued, does not constitute an assessment in the true sense of the term", "... it is rather a document whose purpose is to provide the taxpayer with the necessary document that allows them to execute the acquisition contract (public deed or other)". "It is issued based on the Statement Form 1 submitted by the taxpayers, and there is, therefore, no act of recognition of exemption, but rather an automatic effect of the benefit, based solely on that statement by the taxpayer". And concludes:

"Therefore, since there is no place for assessment at the time of execution of the public deed, we are, in the case in question ... before the original exercise of an assessment", invoking the arbitral decision CAAD 648/2014-T of 22.05.2017 and the judgment of the Supreme Administrative Court (STA), case 0294/11 of 14.09.2011 regarding the initial term for calculating the expiration period for the right to assess the tax.

Disagreeing with the Claimants as to the qualification of the assessments as supplementary, it states that "... in accordance with Article 35 No. 1 of the IMT Code, read in conjunction with Nos. 1 and 4 of Article 45 of the LGT, the period for performing the tax act, on pain of expiration of the respective right, is fixed at 8 years, counted from the date on which the tax event occurs", concluding that, in the case under analysis, the assessment was made and notified validly, within the legal period.

Specifically regarding the application of the regime for revocation of administrative acts of the CPA, it expresses the following: "... in the case at hand, neither was any exemption act performed - since we are dealing with automatic exemption - nor was there any assessment act before or at the time of the execution of the public deeds of purchase and sale", concluding that "for this reason, it cannot be argued that there was an act of granting the exemption, nor that any act constitutive of rights was performed", invoking in support of this point of view the arbitral decisions CAAD Nos. 512/2016-T, 514/2016-T, 518/2016T, 521/2016-T, 522/2016-T and 523/2016-T.

It considers that "... the tax assessments now in question cannot be considered a revocation of exemption, as was also considered in the decision of 21/08/2015, in Case 834/2014-T, a thesis to which we adhere, and where, where an automatic benefit was also at issue, it was concluded: 'that the procedure that occurred after the actual inspection of the assumptions indicated in the statement as the basis for the benefit is configured as assessment and not as an administrative act revoking a previous act granting a tax benefit.'"

It concludes that the present application for an arbitral ruling should be judged as dismissed, the tax acts of assessment now challenged being maintained in the legal order and the Respondent being absolved accordingly of the claim.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

It should be recalled here that fiscal arbitral tribunals can only decide in accordance with "established law".

In accordance with Articles 123 and 124 of the Code of Tax Procedure and Process (CPPT), the TAS shall consider the defects pointed out by the Claimants in the following order:

First, it is necessary to determine whether the verification, by the Notary, in the deeds executed in December 2008, of the requirements for IMT exemption of No. 1 of Article 20 of Decree-Law No. 423/83 of 5 December (and its notation on the acquisition title) corresponds to an original IMT assessment, similar to what occurs as of January 2009 (amendments to the IMT Code resulting from Article 97 of Law No. 64-A/2008 of 31.12).

Then it shall be determined whether the assessments here in question should be classified as "supplementary" and whether the regime of No. 3 of Article 31 of the IMT Code (expiration period of 4 years) is applicable to them.

It shall then be necessary to ascertain whether the verification of the requirements for exemption by the Notary (and its notation on the title transferring ownership) at the time and under the conditions referred to above, corresponds to a tax act or an administrative act constitutive of rights, with application of the respective regimes for revocation under the Tax Benefits Act (EBF) or the CPA, examining whether there is illegality in the revocation or annulment of acts.

Finally, it shall be determined whether there is a violation of the principle of tax equality and legality or of some constitutional principles.

III. PROVEN AND UNPROVEN MATTERS OF FACT

REASONING

With regard to matters of fact, the Tribunal does not have to rule on everything alleged by the parties; rather, it has the duty to select the facts that are relevant to the decision and to distinguish proven from unproven matters (as per Article 123 No. 2 of the CPPT and Article 607 No. 3 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29 No. 1, paragraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and defined according to their legal relevance, which is established in view of the various plausible solutions to the question(s) of law (as per former Article 511 No. 1 of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29 No. 1 paragraph e) of the RJAT).

Therefore, taking into account the positions assumed by the parties and the documentary evidence submitted, the following facts were considered proven, with relevance to the decision, the facts listed below being indicated, along with the respective documents (evidence by documents), as reasoning.

Proven Facts

On 5 December 2008, A… and B…, married under the English separate property regime, executed a public deed of purchase and sale at the Notarial Office of …, acquiring for the price of €297,360.00, the autonomous fraction designated by the letter "B", of the urban property registered in the real estate matrix under article …, named "…–…" (Tourist Village …), located in the parish of …, in the municipality of…, district of Leiria – as per Article 5 of the application for an arbitral ruling (ppa); Article 3 of the response and document No. 7 attached with the ppa.

On 18 December 2008, E… and F…, married under the English separate property regime, executed a public deed of purchase and sale at the Notarial Office of …, acquiring for the price of €297,360.00, the autonomous fraction designated by the letter "L", of the urban property registered in the real estate matrix under article …, named "…–…" (Tourist Village …), located in the parish of …, in the municipality of …, district of Leiria – as per Article 5 of the application for an arbitral ruling (ppa); Article 4 of the response and document No. 8 attached with the ppa.

On 29 December 2008, C… and D…, married under the English separate property regime, executed a public deed of purchase and sale at the Notarial Office of …, acquiring for the price of €245,134.00, the autonomous fraction designated by the letter "W", of the urban property registered in the real estate matrix under article …, named "…–…" (Tourist Village…), located in the parish of …, in the municipality of …, district of Leiria – as per Article 5 of the application for an arbitral ruling (ppa); Article 5 of the response and document No. 9 attached with the ppa.

The following appears in the final part of the deeds: "I have verified the existence of a constitutive title of the composition of the 'Tourist Village…' deposited with the Directorate-General of Tourism, by display of a document evidencing this, issued by it" and "records: publication in the 'Official Journal' on 9 June 2008, of the order No. …/2008 of the Secretary of State for Tourism, dated 30 April 2008, granting provisional prior tourist utility status to the 'Tourist Village…', for a period of three years" and also: "this purchase and sale is exempt from payment of Tax on Onerous Transfers of Real Estate in accordance with Article 20, No. 1, of Decree-Law No. 423/83 of 05/12 in accordance with No. 6 of Article 31, of Decree-Law No. 287/2003 of 12/11" – Articles 6 and 13 of the ppa and documents Nos. 7 to 9 attached with the ppa.

In the year 2015, AT carried out inspection actions entered under activity code 1212210214 (control of IMT tax suspension), with partial scope in the context of IMT, regarding the tax year 2008, in order to analyse the tax situation of the Claimants here, regarding the IMT benefit for the acquisition of real estate that benefited from the exemption from Tax on Onerous Transfers of Real Estate (IMT), provided for in Article 20 of Decree-Law 423/83 of 5 December – as per Article 8 of the response and content of the PA.

The inspection reports were notified to the Claimants in prior hearing proceedings, a right which they did not exercise and subsequently in their final version, containing, in particular, the following: "... the taxpayer was not recognised as having the capacity of installer/promoter of any tourism enterprise, so that the transaction in question could not benefit from the IMT exemption provided for in Article 20 of Decree-Law No. 423/83 of 5 December, as this applies to acquisitions of real estate or autonomous fractions intended for the installation of enterprises qualified as of tourism utility. Thus, the undue recognition of this exemption resulted in the failure to assess IMT, which must be assessed in accordance with the rules set out in Articles 12 and 17 No. 1 paragraph d) of the IMT Code. In accordance with No. 1 of Article 12 of the IMT Code, IMT shall be levied on the value stated in the act or contract or on the patrimonial value of the real estate, whichever is greater" - as per Article 9 of the response and inspection reports (specifically page 8/10) contained in the PA.

The information contained in the deeds referred to in 1, 2 and 3, in particular that relating to the exemption recognised and noted in the deed, were duly communicated to AT by the Notary, through Form 11 (No. 4 of Article 49 of the IMT Code) – as per inspection reports (specifically page 5/10) and annex 5 in

On 29 November 2016 and on 21 November 2016, A… and B… were notified, respectively, to proceed with the payment of IMT in the amount of €9,664.20 (nine thousand six hundred and sixty-four euros and twenty cents) each and to request from the Finance Department of … the respective payment documents - as per Article 15 of the ppa and documents Nos. 1 and 2 attached with the ppa.

On 5 December 2016, C… and D… were notified to proceed with the payment of IMT in the amount of €8,259.36 (eight thousand two hundred and fifty-nine euros and thirty-six cents) each and to request from the Finance Department of … the respective payment documents - as per Article 16 of the ppa and documents Nos. 3 and 4 attached with the ppa.

On 2 December 2016, E… and F… were notified to proceed with the payment of IMT in the amount of €9,664.20 (nine thousand six hundred and sixty-four euros and twenty cents) each and to request from the Finance Department of … the respective payment documents - as per Article 17 of the ppa and documents Nos. 5 and 6 attached with the ppa.

The payment documents issued by the Finance Department of…, identified in paragraph b) of the Report of this decision, have as the payment deadline date 2017-06-09 – as per PA.

On 21 March 2017, the Claimants submitted the present application for an arbitral ruling (ppa) to CAAD – recorded as entry in the CAAD Case Management System of the application for an arbitral ruling (ppa).

Unproven Facts

There is no other factuality alleged that was not considered proven and that is relevant to the composition of the procedural dispute.

IV. CONSIDERATION OF THE QUESTIONS FOR THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO RESOLVE

Automatic tax benefits versus tax benefits dependent on recognition (prior, automatic, ex officio, etc.)

Articles 1 and 2 of No. 5 of the Tax Benefits Act (EBF) state the following:

"1 - Tax benefits are automatic or dependent on recognition; the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition"

...

"3 - The procedure for recognising tax benefits is governed by the provisions of the general tax law and the Code of Tax Procedure and Process".

In turn, No. 8 of Article 14 of the EBF states the following:

"8 - The renunciation of automatic tax benefits and those dependent on ex officio recognition is prohibited, being, however, permitted for those dependent on application by the interested party, as well as those contained in agreements, provided they are accepted by the tax authority".

An example of an automatic tax benefit would be the case we are dealing with in this proceeding (regime in force in 2008 – verification of the IMT exemption by the Notary in the deed transferring ownership).

A case of a tax benefit subject to ex officio recognition would be the IMI exemption (Real Estate Tax Exemption) for Institutions of Solidarity and Public Utility set out in paragraphs e) and f) of No. 1 of Article 44 of the EBF, by virtue of Article 4 thereof.

A simple reading of the legal provisions cited is sufficient to draw a clear conclusion, given the non-renunciation of automatic tax benefits and those subject to ex officio recognition: it is as relevant, from the perspective of the hierarchy of implicit values at stake, that they be granted, as taxation itself would be. Their beneficiaries do not have the power to renounce them, just as with the right to life, the right to holidays within the scope of a dependent employment contract, among other inalienable rights.

This hierarchy appears to be expressed in the preamble to Decree-Law No. 215/89 of 1 July, which approved the EBF in its original version:

"... having been introduced in the Income Tax Code, Corporate Income Tax Code and Capital Gains Tax Code the reliefs characterised by maximum permanence and stability, those included in the Tax Benefits Act are characterised by a less structural character, but which nevertheless possess relative stability. Tax benefits with markedly cyclical purposes or requiring relatively frequent regulation shall, in turn, be included in future State Budgets".

It seems lawful to draw from this preamble indication of the EBF, in view of the implicit hierarchy that results from the combined reading of Article 5 of the EBF and No. 8 of Article 14 of the EBF, that:

automatic tax benefits and those dependent on ex officio recognition should be in the tax codes themselves, since only these will have "maximum permanence and stability" given the extra-fiscal values implicit that underlie them;

in the EBF should be "those characterised by a less structural character, but which nevertheless possess relative stability";

and in legislation outside the codes and the EBF, "those with markedly cyclical purposes or requiring relatively frequent regulation".

Now, it is immediately apparent that, given that the tax benefit in question in this proceeding is "automatic", hence non-renunciable, until December 2008 – and thus characterised by both parties – and being, by virtue of that characterisation, of "maximum permanence and stability", there is an incongruence in the law that configures itself as being the crux of this jurisdictional conflict.

In fact, it cannot but be incongruous that, even today, it should be contained in legislation outside the IMT Code and be characterised, as of 01.01.2009, as being of "automatic recognition" (No. 8 of Article 10 of the IMT Code). That is, it ceased to be a benefit "automatic" in the proper sense that the term has by virtue of Article 5 No. 1 of the EBF (non-renunciable), and came to be qualified as being subject to "recognition", in the meaning this term has in the EBF (renunciable).

Does the verification, by the Notary, in the deeds executed in December 2008, of the requirements for IMT exemption of No. 1 of Article 20 of Decree-Law No. 423/83 of 5 December (and its notation on the acquisition title) correspond to an original IMT assessment, similar to what occurs as of January 2009 (amendments to the IMT Code resulting from Article 97 of Law No. 64-A/2008 of 31.12)?

In CAAD Case No. 425/2017-T, with regard to a situation in all respects similar, we wrote the following:

"The tax exemption in question ... is contained in legislation outside the IMT Code (paragraph d) of No. 8 of Article 10 of the IMT Code).

With the amendment of paragraph d) of No. 8 of Article 10 of the IMT Code, by Article 97 of Law 64-A/2008 of 31.12, the exemption became dependent on automatic recognition, consisting in the obligation to submit Form 1 of the IMT declaration, even in situations of exemption (Article 19 Nos. 1 and 3 of the IMT Code), with the content defined in Article 20 of the IMT Code and the assessment being the responsibility of the Finance Department where it is submitted (paragraph a) of No. 1 of Article 21 of the IMT Code).

Thus, it appears to us that, when in the Form 1 declaration of the IMT (for assessment) the declarant invokes an exemption (as was the case) two procedures coexist simultaneously: one of assessment of IMT (which may be at 0.00 euros if the entity responsible for the assessment verifies that a fact interrupting taxation occurs, in this case, an exemption), another of verification of the requirements of the tax benefit, and therefore, issued by the Finance Department, a single collection document (DUC) for 0.00 euros of IMT, such document contains, in addition to the act of assessment, another act which concluded a procedure for recognition of the tax benefit requested, in the meaning of the first part of paragraph d) of No. 1 of Article 54 of the LGT and Article 65 of the CPPT.

Such an act of implicit recognition of the exemption (which in the case we verified was unduly granted) is, unless we are mistaken, constitutive of rights, hence subject to the discipline of the final part of No. 4 of Article 14 of the EBF and No. 1 of Article 141 of the CPA (old) and the judgment of the STA of 15.05.2013 (case 0566/12, at www.dgsi.pt). And given that it was granted through a procedure generically provided for in paragraph d) of No. 1 of Article 54 of the LGT (first part) it should be removed by the inverse tax procedure (termination of the benefit) and autonomous, provided for in the second part of this rule, since there is no procedural coexistence between the date of the act of supplementary assessment of IMT (in 2015) and the date of application of the exemption rule (in 2010) at the time of verification of the tax event (the acquisition of the real estate).

In fact, the exemption in question is not configured as being automatic (as for example is the case of the tax exemption enshrined in Article 6 of the Tax Stamp Code which operates ope legis in accordance with Article 8 of the Tax Stamp Code) but rather of automatic recognition, in accordance with the second part of the aforementioned No. 1 of Article 5 of the EBF. Hence it is subject to a recognition procedure where it is invoked and culminates in the issuance of an assessment document, with or without implicit recognition of the exemption, generating an act (administrative) in accordance with the first part of No. 2 of Article 5 of the EBF, if the assessment reflects recognition of the tax benefit".

There is no doubt to this TAS that if the acquisition deeds executed by the Claimants here had been granted in the validity of the amendments introduced in the IMT Code, by Article 97 of Law 64-A/2008 of 31.12 (Budget Law for 2009), an original IMT assessment would have occurred, even if a zero-rate DUC were issued, as has already been decided in CAAD Case 379/2015-T.

However, this is not what occurred. The deeds were executed in 2008.

In this regard, and because, as referred to above, fiscal arbitral tribunals can only judge in accordance with established law, on pain of their decisions being subject to appeal under No. 2 of Article 25 of the RJAT, it is proper to respect what is stated by the STA in the judgment delivered in Case 0294/11 of 14.09.2011, 2nd Section, which addresses this specific question, in a situation entirely similar:

"In fact, the application of the four-year period could only find justification under No. 3 of Article 31 of the IMT Code, which provides: 'Assessment may only be made within four years from the date of the assessment to be corrected, except if it is by omission of assets or values, in which case it may still be made subsequently, being reserved, in all cases, the provision of Article 35'. That is, the four-year expiration period could only apply if the assessment constituted a supplementary assessment (a hypothesis that the Judge of the Court a quo expressly ruled out), and then the period would be calculated from the assessment to be corrected (And always respecting the eight-year period fixed in Article 35 of the IMT Code).

In any event, nothing permits qualifying as a supplementary assessment the tax act ... In fact, supplementary assessment presupposes that there has been a prior assessment (regarding the same tax event, the same taxpayer and the same period of time), which it aims to correct or rectify because, due to error of fact or law or by an omission or inaccuracy committed in the declarations made for the purposes of assessment, the levying of a lower tax than due was determined. That is, supplementary assessment is nothing more than the correction of a deficient assessment as a consequence of errors or omissions, which may be the responsibility of either the services or the taxpayers (In this sense, the following judgments of the Section for Tax Litigation of the Supreme Administrative Court: – of 17 January 2007, delivered in the case No. 909/06, published in the Appendix to the Official Journal of 14 February 2008 (http://www.dre.pt/pdfgratisac/2007/32210.pdf), pages 96 to 102, also available at http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/da11decbc3b9dabd8025726d003b7579?OpenDocument); – of 18 May 2011, delivered in the case No. 153/11, not yet published in the official journal, but available at (http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/94e29e68a39ec0468025789a0039e45a?OpenDocument).

Now, the assessment ... was not made in order to correct or rectify a prior assessment vitiated by error of fact or law or by omissions or inaccuracies committed in the declarations made for the purposes of assessment. This is because, ... the transfer of the real estate which constitutes the tax event did not give rise to the assessment of the tax because, in view of the value and intended use declared, it was exempt from it."

The STA considered in the case in question an automatic IMT exemption, since in the statement of facts it states "in the case sub judice the respondent was exempt from tax given the value declared", clearly referring to the exemption in Article 9 of the IMT Code.

In respect of the understanding expressed by the STA above, it is not possible to accept the point of view of the Claimants, so, in this respect, the application for a ruling must fail.

The verification, by the Notary, in the deeds executed in December 2008, of the requirements for IMT exemption of No. 1 of Article 20 of Decree-Law No. 423/83 of 5 December (and its notation on the acquisition title) does not, therefore, correspond to an original IMT assessment.

Should the assessments here in question be classified as "supplementary" and subject to the regime of No. 3 of Article 31 of the IMT Code (expiration period of 4 years)?

Naturally, considering, as has been considered above, that the recognition of the tax benefit by the Notary, noted in the deed, did not correspond to an original IMT assessment, it cannot then be considered that the assessments here in question are "supplementary" and subject to the discipline of No. 3 of Article 31 of the IMT Code, for the reasons contained in the judgment of the STA which, partly, has been reproduced above, so also in this respect, the application for a ruling must fail.

Does the verification of the requirements for exemption by the Notary (and its notation on the title transferring ownership) at the time and under the conditions referred to above, correspond to a tax act or an administrative act constitutive of rights, with application of the respective regimes for revocation under the EBF and/or the CPA?

Also in this respect, we must avail ourselves of the judgment of the STA cited above (Judgment of the STA of 15-05-2013, P. 0566712, at www.dgsi.pt, Judge Rapporteur Dulce Neto).

What was there decided was on the basis of a tax benefit in the context of Income Tax (granted on 03.07.2006 and revoked on 20.07.2007) of recognition by the Minister of Finance and not on the basis of an automatic benefit.

We have already referred to the notorious incongruence of the tax system in establishing for automatic tax benefits (non-renunciable) a regime much less protective and more uncertain than that of tax benefits subject to recognition (renunciable), which is not consistent with their greater relevance and hierarchy, given the implicit extra-fiscal reasons that determine their attribution, without apparent direct and immediate control by AT in the act of verification of requirements.

Being that, in this case, as was proven in 7 of the proven facts "... the information contained in the deeds ..., in particular that relating to the exemption recognised and noted in the deed, was duly communicated to AT by the Notary, through Form 11 (No. 4 of Article 49 of the IMT Code)" which demonstrates that AT had, since 2009, all the means to control – directly and mediately – the requirements for the exemption as it would have if it were a tax benefit subject to recognition generating an administrative act in tax matters, in view of Form 1 declaration for assessment of the tax.

As results from the position of the Public Prosecutor expressed in the judgment of the STA, we are before an administrative act in tax matters and not a tax act stricto sensu, that is, an act of assessment of tax obligations.

What results from the judgment of the STA in question is that in order to speak of revocation of an administrative act in tax matters that has granted a tax benefit, it is necessary that the revoked act have been formed. And naturally this does not occur with the activity of the Notary of verifying the requirements of the tax benefit here in question, which is automatic, because it results directly from the law, or it was so on the date the deeds were executed.

By the very nature of the operation of automatic tax benefits – which result directly from the law, as is the case we are dealing with here – the verification of their requirements does not entail the formation of an administrative act in tax matters, and the regime of Article 14-4 of the EBF and Articles 136 and 141 of the CPA (old) cannot be applied.

It is not without being shocking the uncertainty and insecurity that weighs on taxpayers to whom automatic IMT tax benefits were/are granted – without even being able to renounce them – which in practice can be removed – if wrongly granted – within a period of 8 years (Article 35-1 of the IMT Code and Nos. 1 and 4 of Article 45 of the LGT) in contrast to the same tax benefit of the same tax, which is of recognition (expressed in administrative act), which in practice can only be removed – if wrongly granted – within a period of 1 year (Article 141 of the old CPA). Even more so when one considers that these are renunciable tax benefits.

Not being possible to subsume the activity of verifying the requirements for the exemption by the Notary (and its notation on the title transferring ownership) at the time and under the conditions referred to above, to a tax act or an administrative act in tax matters, constitutive of rights, it cannot then be argued that there is illegality in its revocation or annulment, because, simply, they do not exist in the legal order.

So, also in this respect, it is not possible to accept the point of view of the Claimants, the application for a ruling failing.

Violation of the principle of tax equality, legality or other constitutional principles.

In this regard, the Claimants state:

In Articles 37 and 38 of the ppa: "The treatment of equal situations in different ways, without any legal basis, flagrantly violates the basic principle of Tax Law, which is the principle of tax equality. Such treatment would be unconstitutional"

In Article 43 of the ppa: "The same must be said with respect to the statement made by the Notary, in which the recognition of the exemption was verified, assessing the tax to be paid at zero, on pain of violation of the principle of tax legality and of the Constitution of the Portuguese Republic".

In Article 53 of the ppa: "... in the present case, it is evident that AT flagrantly violates the basic principle of Tax Law, which is the principle of tax equality, and the Constitution of the Portuguese Republic, in considering that, on the date of execution of the purchase and sale deed, no assessment of the tax due occurred".

Based on Article 8 of the LGT, it is verified that the matters in No. 1 are within the legislative competence of the Assembly of the Republic or the Government, authorised by the Assembly of the Republic.

As for the matters of No. 2 of Article 8 of the LGT, the Government may validly legislate.

As to the violation of the principle of legality (No. 2 of Article 8 of the LGT), it is not apparent that the establishment of different regimes – by Government law – for tax benefits that a priori are contained in the definitions contained in a statute approved in 1989, which was not put in question, can be considered to violate this principle.

As to the dissonance of the assessments with the principle of tax equality, one can always argue that the tax regime is different (benefits verified until 31.12.2008/automatic versus those granted after this date/dependent on automatic recognition) and in both cases will be applicable in a general and abstract manner to all taxpayers, by reason of the date on which the acquisitions occurred.

In any event, the terms in which the non-conformities with the CRP are raised are not susceptible of placing the TAS under an obligation to consider these questions, beyond what is expressed above, without prejudice to being able to resort to the right contained in No. 1 of Article 25 of the RJAT.

There are, accordingly, no non-conformities with the constitutional principles, particularly because the assessments were made based on legal norms duly indicated in the inspection reports and in the orders notifying the taxpayers of the assessments.

Therefore, in the terms described, the application for a ruling fails in this respect.

V - RULING

Based on the grounds stated above, it is decided to judge the application for a ruling to be dismissed and to absolve the Respondent of the claim.

Value of the proceeding: in accordance with the provision of Article 3 No. 2 of the Rules of Costs in Tax Arbitration Proceedings (and paragraph a) of No. 1 of Article 97A of the CPPT), the proceeding is assigned the value of 55,175.52 euros.

Costs: in accordance with the provision of Article 22 No. 4 of the RJAT, the amount of costs is fixed at €2,142.00 in accordance with Table I annexed to the Rules of Costs in Tax Arbitration Proceedings, to be borne by the Claimants.

Notify.

Lisbon, 28 October 2017

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared on computer in accordance with the provision of Article 131 No. 5 of the CPC, applicable by virtue of the reference in Article 29 of the RJAT.

The text of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption for qualified tourist utility developments under Article 20(1) of Decree-Law 423/83?
Article 20(1) of Decree-Law 423/83 provides IMT exemption for acquisitions related to qualified tourist utility developments. However, the Tax Authority interprets this exemption narrowly, arguing it applies only to acquisitions for installation of new tourism enterprises by developers, not for exploitation or investment in existing properties. The exemption's purpose, as stated in the decree's preamble, is to contribute to tourism sector development by incentivizing investment in installing tourism enterprises and hotel facilities. The controversy centers on whether acquiring autonomous fractions in an existing Tourist Village for exploitation purposes qualifies for exemption, or whether the benefit is limited to developers creating new tourism infrastructure. The Tax Authority concluded that acquisitions constituting real estate investment with tourist exploitation depart from the exemption's guiding principle of stimulating installation investments.
Can the Tax Authority revoke an IMT exemption previously granted for the acquisition of tourist development properties?
The Tax Authority's power to revoke IMT exemptions depends on the legal characterization of the original exemption recognition and applicable time limits. Taxpayers in this case argued three alternative defenses: (1) If the Notary's exemption recognition constitutes a formal tax assessment at zero rate, any subsequent assessment is supplementary under Article 78 LGT and Article 31 IMT Code, subject to a 4-year limitation period; (2) If characterized as a tax act, Article 78 LGT imposes a 4-year review period; (3) If it constitutes an administrative act constitutive of rights, revocation is governed by Articles 167-168 of the Administrative Procedure Code with temporal limits. In this case, the Tax Authority attempted to assess IMT in 2016 for December 2008 transactions, with taxpayers arguing that the 8-year gap exceeded all applicable limitation periods. The temporal dimension is crucial for determining whether the Tax Authority retains review powers or whether taxpayers can rely on previously recognized exemptions.
What is the difference between property acquisition for installation versus exploitation of a tourist development for IMT exemption purposes?
The Tax Authority distinguishes between acquiring property for installation of a tourism enterprise versus exploitation of existing facilities. Installation refers to developers investing in creating new tourism infrastructure, which Article 20(1) of Decree-Law 423/83 aims to incentivize through IMT exemption. Exploitation refers to acquiring existing tourist properties for operational or investment purposes. The Tax Authority argued that the claimants' acquisitions constituted real estate investment with assured tourist exploitation, departing from the exemption's guiding principle of contributing to sector development through stimulus to investment in installing tourism enterprises by developers. The preamble to Decree-Law 423/83 emphasizes stimulating investment in hotel facilities and similar developments through installation. Therefore, acquiring autonomous fractions in an existing Tourist Village for exploitation purposes, rather than installing the enterprise itself, may fall outside the exemption's intended scope, even though tourist exploitation is assured.
How can taxpayers challenge IMT liquidation assessments through the CAAD tax arbitration process in Portugal?
Taxpayers can challenge IMT assessments through the CAAD (Centro de Arbitragem Administrativa) tax arbitration system under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011 of 20 January). The process involves filing an application for constitution of a singular arbitral tribunal within statutory deadlines, which can be done jointly by multiple taxpayers challenging related assessments. The CAAD President accepts the application and notifies the Tax Authority, which must respond and submit the administrative file. An arbitrator is appointed by CAAD's Ethics Committee, and parties may challenge the appointment under the Ethics Code. Once constituted, the tribunal follows RJAT procedures: parties may present written pleadings and counter-pleadings; a meeting of parties may be held if needed; and the tribunal issues a binding arbitral decision. This process provides an alternative to judicial courts, offering specialized tax expertise, potentially faster resolution, and single-instance decisions. The CAAD system has become increasingly popular for resolving Portuguese tax disputes efficiently.
What are the legal consequences when an IMT exemption is deemed improperly recognized by the Tax Authority?
When the Tax Authority deems an IMT exemption improperly recognized, it may issue assessments for the unpaid tax calculated under Articles 12 and 17(1)(d) of the IMT Code, based on the higher of the stated value or patrimonial value of the property. In this case, six taxpayers faced assessments totaling €55,175.52 plus potential late payment interest. However, taxpayers have several defenses based on temporal limitations: if the original exemption recognition constituted an assessment, supplementary assessment is time-barred after 4 years under Articles 78 LGT and 31 IMT Code; if characterized as a reviewable tax act, Article 78 LGT imposes a 4-year review period; if an administrative act constitutive of rights, revocation requires compliance with Articles 167-168 of the Administrative Procedure Code, including temporal limits. The critical issue is whether the Tax Authority can retroactively challenge exemptions recognized years earlier (here, 8 years), potentially creating legal uncertainty for taxpayers who relied on notarially recognized exemptions when acquiring tourist development properties.