Process: 238/2018-T

Date: March 13, 2019

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 238/2018-T) addresses the application of IMT (Municipal Tax on Onerous Property Transfers) and Stamp Tax exemptions under Article 58-D of the Portuguese Tax Benefits Statute (EBF) for rural properties located within Forest Intervention Zones (ZIF). The applicant company, A... LDA, acquired two rural properties in June 2016 for agro-forestry activities and paid IMT (€66,283.84) and Stamp Tax (€11,360.00). Two months later, the company discovered the properties were situated in a ZIF, which entitled them to tax exemptions under Article 58-D EBF. The company requested recognition of these exemptions retroactively, but the Tax Authority dismissed the application. The applicant challenged this decision through tax arbitration, arguing: (1) violation of Article 58-D EBF; (2) breach of constitutional principles of good faith, cooperation, and material truth under Articles 266 CRP and 55, 59 LGT; and (3) material unconstitutionality of Article 58-D EBF for violating equality principles under Article 13 CRP. The case demonstrates the strict interpretation of tax benefit provisions and the procedural requirements for claiming exemptions. The collective arbitral tribunal was properly constituted under RJAT rules, with three arbitrators designated by the CAAD Deontological Board. This decision provides important guidance on timing requirements for tax exemption claims and the application of forestry-related tax benefits in Portuguese tax law.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Nuno Pombo and Paulo Ferreira Alves, designated by the Deontological Board of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

  1. On 8 May 2018, A..., LDA., Tax Identification Number..., with registered office at Rua ..., Porto, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the act of assessment of Stamp Tax ("IS") identified by document No..., in the amount of €11,360.00 and of the act of assessment of Municipal Tax on Onerous Property Transfers ("IMT") identified by document No..., in the amount of €66,283.84, as well as of the act of tacit dismissal of the request for official revision which had those assessments as its subject matter.

  2. To substantiate its request, the Applicant alleges, in summary:

i. Defect of breach of law, resulting from violation of Article 58-D of the Tax Benefits Statute;

ii. Violation of the principles of good faith, cooperation, justice, reasonableness, pursuit of public interest and material truth, inherent in Article 266 of the Constitution of the Portuguese Republic ("CRP"), in Articles 4, 8 and 10 of the Code of Administrative Procedure (CPA) and in Articles 55 and 59, No. 1, No. 2 and No. 3, paragraphs i) and m) of the General Tax Law ("LGT");

iii. Material unconstitutionality of Article 58-D, No. 1 and No. 4 of the Tax Benefits Statute ("EBF"), for breach of Article 13 and Article 266, No. 1 and 2 of the CRP.

  1. On 9-5-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax and Customs Authority ("AT").

  2. The Applicant did not proceed with the appointment of an arbitrator, and therefore, pursuant to the provisions of paragraph a) of No. 2 of Article 6 and paragraph a) of No. 1 of Article 11 of the RJAT, the President of the Deontological Board of the Centre for Administrative Arbitration ("CAAD") designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of their mandate within the applicable period.

  3. On 28-6-2018, the parties were notified of these designations and expressed no intention to refuse any of them.

  4. In accordance with the provision of paragraph c) of No. 1 of Article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 18-7-2018.

  5. On 1-10-2018, the Respondent, duly notified for that purpose, filed its reply defending itself by way of opposition.

  6. On 30-11-2018, the hearing referred to in Article 18 of the RJAT took place, where the witness presented by the Applicant was examined.

  7. The period referred to in Article 21, No. 1 of the RJAT was extended, in accordance with No. 2 of the same article.

  8. Having been granted a period for submission of written submissions, these were presented by the Applicant, commenting on the evidence produced and reiterating and developing its legal positions.

  9. It was indicated that the final decision would be notified by the end of the period provided for in Article 21/1 of the RJAT, as extended.

  10. The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, No. 1, paragraph a), 5 and 6, No. 2, paragraph a), of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings do not suffer from any nullities.

Therefore, there is no obstacle to the examination of the merits of the case.

Having considered all matters, it is appropriate to issue

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

  1. The Applicant is a limited liability company, constituted on 20-8-2015, whose business object consists of "rental, purchase for resale, sale and construction of rural and/or urban properties or autonomous units, including the constitution and negotiation of properties under horizontal property arrangements, management of own properties, promotion and negotiation of real estate projects, property administration, real estate consulting activities, provision of consulting services in various business areas, holding of shareholdings in other companies, tourism in rural areas and related services and also hunting and game restocking, as well as services and activities related thereto, namely tourist hunting activities".

  2. The managing partner of the Applicant – B... – is, and was in 2016, a French national who acquired the status of fiscal resident in Portugal in March 2016.

  3. The managing partner of the Applicant has been residing in the city of Porto since March 2016.

  4. The managing partner of the Applicant has always fulfilled his tax obligations in Portugal.

  5. On 29-6-2016, the Applicant, represented by the aforesaid managing partner, acquired by public deed of sale and purchase the following properties:

• Rural property registered in the matrix under matricular article..., Section..., of the parish of..., municipality of...;

• Rural property registered in the matrix under matricular article..., Section..., of the parish of..., Municipality of....

  1. The aforementioned properties were acquired for the practice of agro-forestry and pastoral activity.

  2. On 28-6-2016, the Applicant requested from the Tax Service the assessments of IMT and IS, and the said taxes were assessed, respectively, by documents No. ... and No. ....

  3. The Applicant proceeded to pay the IMT assessment, in the amount of €66,283.34, and the IS assessment, in the amount of €11,360.00.

  4. In mid-August 2016, in negotiations for the acquisition of another rural property located in the parish of..., it was conveyed to the managing partner of the Applicant, by the respective seller, that the property which was the subject of negotiation was situated within a Forest Intervention Zone (hereinafter, "ZIF").

  5. On the same date, the managing partner of the Applicant became aware that, by virtue of inclusion in a ZIF, acquisitions of properties in that zone could benefit from exemption from IS, IMT and IMI.

  6. The rural properties registered in the matrix under matricular article..., Section... and matricular article..., Section..., both of the parish of..., municipality of... were, at the time of acquisition by the Applicant, integrated in the ZIF of.../....

  7. On 15-11-2016, the Applicant requested from the Head of the Tax Service of... the recognition of the IMT and IS exemption, pursuant to Article 58-D of the EBF, referring to the rural properties identified above.

  8. Together with the application, the Applicant presented proof of inclusion of the property in the ZIF, as well as proof of approval of the forest management plan.

  9. On 28-11-2016, such application was the subject of a draft dismissal.

  10. The draft dismissal contains the following:

[Content not provided in original]

  1. On 27-12-2016, the Applicant exercised the right of hearing, in accordance with Article 60 of the LGT.

  2. By decision dated 5-1-2017, a decision was issued dismissing the application for recognition of the exemptions in the following terms:

[Content not provided in original]

  1. On 10-2-2017, the Applicant filed a hierarchical appeal against the decision dismissing the application for recognition of the tax benefits.

  2. The hierarchical appeal was forwarded by the Directorate of Finance of... to the Directorate of IMT Services on 27-2-2017, for decision, and, up to the time of submission of the arbitral request, had not been examined.

  3. On 9-10-2017, the Applicant filed a request for official revision in accordance with No. 4 of Article 78 of the LGT.

  4. Up to the time of submission of the arbitral request, the Applicant had not been notified of the decision on the request for official revision.

A.2. Facts Established as Not Proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of the Proven and Not Proven Factual Matters

Regarding the factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish the proven from the not proven matters (cf. Article 123, No. 2, of the Code of Procedure and Tax Process ("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 pertinent to the judgment of the case are selected and defined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of Law (cf. 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, in light of Article 110/7 of the CPPT, the documentary evidence and the Administrative Process attached to the proceedings, the facts listed above were considered proven, with relevance to the decision, taking into account that, as was written in the Decision of the TCA-South of 26-6-2014, issued in proceedings 07148/13, "the evidential value of the tax inspection report (...) may have probative force if the assertions contained therein are not contested".

Allegations made by the parties and presented as facts, consisting of strictly conclusive assertions, incapable of proof and whose veracity must be assessed in relation to the concrete factual matters consolidated above, were neither established as proven nor as not proven.

B. ON THE LAW

At issue in this arbitral action is the application of the exemption provided for in No. 2 of Article 59-D of the EBF applicable (2016 version), the content of which is as follows:

"The following are exempt from municipal tax on onerous property transfers and from stamp tax, as regards item 1.1 of the general table of stamp tax, onerous acquisitions of rural properties or parts of rural properties corresponding to forest areas covered by a forest intervention zone (ZIF), pursuant to the provisions of Decree-Law No. 127/2005, of 5 August, as amended by Decree-Laws No. 15/2009, of 14 January, 2/2011, of 6 January, and 27/2014, of 18 February, or of properties contiguous thereto, provided that the latter are covered by a ZIF within a three-year period counted from the date of acquisition."

The properties in question in the proceedings, whose acquisition by the Applicant was subject to taxation for IMT and IS purposes, are situated within the ZIF of.../... (ZIF No..., proceedings No. 62/06-DGRF), which was published in the Official Gazette, 1st series, No. 91 of 12-5-2008.

The Respondent acknowledges that the Applicant met the necessary requirements for the granting of the said tax benefit (cf. point 17 of the established facts and paragraph 33 of the reply).

However, the Respondent took the view that such benefit could not be recognized to the Applicant, by virtue of the provisions of No. 4 of the aforementioned Article 59-D of the EBF which provides that:

"The exemptions provided for in Nos. 2 and 3 are recognized by the head of the tax service of the location of the properties, upon application presented by the taxpayers in that service, accompanied by proof of inclusion of the property in the ZIF or that the property is contiguous to a property covered by a ZIF, in the situations provided for in No. 2, and proof of approval of the forest management plan and of the contiguity of the property, in the situations provided for in the preceding number, to be presented, in any case, before the act or contract that gave rise to the transfer."

Indeed, and as acknowledged by the Applicant, the tax benefit in question was not requested prior to the assessments which are the subject matter of this arbitral action, nor before the act or contract which gave rise to the transfer which was subjected to taxation by those assessments.

What needs to be established, then, is the legality of those assessments.

Let us consider this.

As referred to, for example, in the Decision of the TCA-South of 2-7-2013, issued in proceedings 06629/13:

"1. In accordance with the law, tax benefits must be considered as measures of an exceptional character, instituted for the protection of relevant extra-fiscal public interests and which are superior to those of the taxation which they prevent (cf. Article 2, No. 1, of the Tax Benefits Statute, approved by Decree-Law 215/89, of 1/7).

  1. From a legal point of view, and from the perspective of the tax legal relationship, tax benefits essentially embody facts which, being subject to taxation, are preventive of the birth of the tax obligation or, at least, of its arising in full. In fact, as a preventing fact, the tax benefit always translates into situations that are subject to taxation, that is, that are subsumable to the legal rules that define the objective and subjective incidence of the tax. And, precisely because the tax benefit constitutes a preventing fact of standard taxation, its extinction or lack of application prerequisites has the immediate effect of automatic restoration of that same taxation, as established by Article 12, No. 1, of the Tax Benefits Statute."

And, as referred to in Article 5, No. 1, of the EBF, "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."

In the present case, and this is not disputed by the Applicant, we are dealing with a tax benefit dependent on recognition, as follows from No. 4 of Article 59-D of the EBF, transcribed above, which states that the exemptions in question "are recognized by the head of the tax service of the location of the properties, upon application presented by the taxpayers".

In this scenario, one can only conclude that the assessments against which the Applicant rebels are legal.

Indeed, at the date when the assessments in question were issued, the tax benefit which the Applicant seeks to rely upon was neither recognized nor even requested.

Thus, it is clear that the assessments in question complied with the legal norms applicable at the time they were formed, in light of the factual situation then existing, and as was already stated in the Decision of the Supreme Administrative Court of 3-4-2003, issued in proceedings 02046/02, "The principle 'tempus regit actum' requires that the legality of an administrative act be assessed on the basis of the factual and legal situation existing at the date of its issuance."

It is true that the Applicant asserts that it meets the substantive requirements for the granting of the tax benefit which it seeks, which, as stated, is not disputed by the Respondent.

However, since a tax benefit dependent on recognition is at issue, the question of the legality or otherwise of the dismissal of such benefit cannot be examined in the context of proceedings to challenge tax assessments.

Indeed, as explained in the Decision of the Supreme Administrative Court of 18-11-2015, issued in proceedings 0459/14, "In the case of tax benefits dependent on recognition, the challenge of the act which decides on the application for recognition is autonomous in relation to the challenge of the assessment act, and the issue of entitlement to the benefit cannot be discussed in the proceedings to challenge the assessment."

In the same sense, the decision of the same Supreme Court of 22-3-2018, issued in proceedings 01263/16, states that "in the case of tax benefits dependent on recognition, the challenge of the act which decides on the application for recognition is autonomous in relation to the challenge of the assessment act, and the issue of entitlement to the benefit cannot be discussed in the challenge proceedings."

That is to say, in the case of tax benefits dependent on recognition, the act of recognition or non-recognition of the benefit is autonomous from the assessment acts related to it, and must be the subject of autonomous proceedings where its legality is examined, and it is certain that, since the act of (non-)granting of tax benefits is an act which does not in itself involve the assessment of any tax, or the examination of the legality of any assessment act, the proper procedural form is not the challenge proceedings.

As stated in the first of the Supreme Court decisions referred to above, citing the Honourable Counsellor Jorge Lopes de Sousa, "«[…] the decision on the application for recognition, as an administrative act with repercussions in the legal sphere of the interested party, is capable of being challenged immediately through contentious proceedings, pursuant to the provisions of Article 95, Nos. 1 and 2, paragraph f), of the LGT. The contentious challenge, to be undertaken through a special administrative action [Article 97, Nos. 1, paragraph p), and 2 of the CPPT], must be undertaken within three months, if it is a challenge to an express act [Article 58, No. 1, paragraph b), of the Code of Administrative Procedure], or within one year, if it is a situation of administrative inertia in deciding on the application for recognition [in this case through a request for condemnation to the performance of a due act [Article 69, No. 1, of the same Code]. In these cases of tax benefits dependent on recognition, the challenge of the act which decides on the application for recognition is autonomous in relation to the challenge of the assessment act, and the issue of entitlement to the benefit cannot be discussed in the challenge proceedings»."

Now, the arbitral process, as is well known, is configured as an alternative means to judicial challenge proceedings in the tax courts, and therefore the arbitral tribunals constituted under the aegis of the CAAD are absolutely incompetent to know of any matter whose proper procedural form does not fall within that process, in particular and as far as the matter at hand is concerned, of any matter that is to be known in the context of administrative actions in tax matters.

Thus, this Arbitral Tribunal is prevented from having any possibility of converting the present arbitral action, or of consolidating the application for examination of the legality of the assessment with the examination of the legality of the dismissal of the recognition of the tax benefit sought by the Applicant.

In this framework, that is to say, since it must be established that the Applicant was not recognized by the AT as having the right to the tax benefit in question, and since it is not lawful for this Arbitral Tribunal to question the legality or otherwise of such non-recognition, one cannot, as has already been stated, conclude in any other way than by finding the legality of the assessments sub iudice.

In other words, there is no defect of breach of law, resulting from violation of Article 58-D of the Tax Benefits Statute, inasmuch as the benefit provided for therein is not of an automatic nature, was not the subject of recognition, and it is not lawful for this Arbitral Tribunal to know of the defects of the act dismissing the application for recognition of the benefit presented by the Applicant, which should have been the subject of autonomous proceedings and which is not within the jurisdiction of the Arbitral Tribunals functioning under the aegis of the CAAD, as clearly follows from the provisions of Article 2, No. 1, of the RJAT, among other things.

From this, there results no violation of constitutional norms, in particular of Articles 13 and 266 of the CRP, or of legal norms, in particular of Articles 4, 8 and 10 of the CPA, and 55 and 59, No. 1, No. 2 and No. 3, paragraphs i) and m) of the LGT, or of any others, inasmuch as the Applicant is guaranteed by the legal system the proper, proportionate and adequate means to assert its rights, in particular the challenge of the request for granting of the tax benefit which it seeks, and it is incumbent upon it to use them properly.

Specifically, having opted to file a hierarchical appeal against the act dismissing the tax benefit in question, it is entitled, within the applicable procedural requirements, to react both against the dismissal of that hierarchical appeal and against the inertia of the AT in deciding it.

However, this Tribunal cannot replace itself, not least because it is bound by the application of the law as established (cf. Article 2/2 of the RJAT), in the proper means provided by the legal system for the Applicant to assert the rights which it considers to be due to it.

In light of all the foregoing, there is nothing left but to conclude that the arbitral application is entirely without merit.

C. DECISION

The Tribunal Arbitral hereby decides to find the arbitral application filed entirely without merit and, in consequence, to acquit the Respondent of the application, condemning the Applicant to pay the costs of the proceedings, as fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at €77,643.84, pursuant to Article 97-A, No. 1, a), of the Code of Procedure and Tax Process, applicable by virtue of paragraphs a) and b) of No. 1 of Article 29 of the RJAT and No. 3 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,448.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Applicant, since the application was entirely without merit, pursuant to Articles 12, No. 2, and 22, No. 4, both of the RJAT, and Article 4, No. 5, of the cited Regulation.

Notify.

Lisbon, 13 March 2019

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Nuno Pombo)

The Arbitrator Member

(Paulo Ferreira Alves)

Frequently Asked Questions

Automatically Created

What is the IMT and Stamp Tax exemption under Article 58-D of the Portuguese Tax Benefits Statute (EBF)?
Article 58-D of the Portuguese Tax Benefits Statute (EBF) provides an exemption from IMT, Stamp Tax, and IMI (Municipal Property Tax) for acquisitions of rural properties located within Forest Intervention Zones (Zonas de Intervenção Florestal - ZIF). This benefit aims to promote sustainable forest management and applies to properties integrated in ZIFs with approved forest management plans. To qualify, taxpayers must meet specific requirements including proof of the property's inclusion in a ZIF and compliance with the approved forest management plan. The exemption must typically be claimed at the time of acquisition, and the Tax Authority interprets the provision strictly regarding timing and procedural requirements for recognition of the benefit.
Can a taxpayer challenge IMT and Stamp Tax assessments through tax arbitration at CAAD?
Yes, taxpayers can challenge IMT and Stamp Tax assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Under the RJAT (Legal Framework for Arbitration in Tax Matters - Decree-Law 10/2011), taxpayers have standing to request the constitution of an arbitral tribunal to contest tax liquidations, including those related to IMT and Stamp Tax. The process involves filing a request for arbitration, which triggers the formation of either a singular or collective arbitral tribunal. In this case, a collective tribunal of three arbitrators was constituted under Articles 2, 5, 6, and 11 of the RJAT. Tax arbitration provides an alternative dispute resolution mechanism that is often faster than traditional administrative courts, with decisions having binding effect equivalent to judicial rulings on tax matters.
What are the grounds for requesting ex officio review (revisão oficiosa) of IMT and Stamp Tax liquidations in Portugal?
Under Portuguese tax law, taxpayers can request ex officio review (revisão oficiosa) of IMT and Stamp Tax liquidations pursuant to Article 78 of the LGT (General Tax Law). Grounds for ex officio review include: (1) manifest illegality of the assessment; (2) errors in the legal classification of facts; (3) errors in calculation or arithmetic; (4) duplicate taxation; and (5) failure to apply legally prescribed tax benefits or exemptions. The request must be filed within the applicable statute of limitations period and must be decided by the Tax Authority within a specific timeframe. If the Tax Authority fails to decide within the legal deadline, tacit dismissal (indeferimento tácito) occurs, which can then be challenged through hierarchical appeal or tax arbitration. In this case, the applicant requested ex officio review under Article 78 LGT after discovering the properties qualified for exemption under Article 58-D EBF.
Does Article 58-D of the EBF raise constitutional issues under the principle of equality (Article 13 of the Portuguese Constitution)?
Yes, Article 58-D of the EBF raises potential constitutional issues under the principle of equality enshrined in Article 13 of the Portuguese Constitution. The applicant argued that the provision's strict interpretation creates unconstitutional discrimination between taxpayers who are aware of ZIF status at the time of acquisition versus those who discover it afterwards. The constitutional challenge asserts that denying exemptions to taxpayers who pay taxes in good faith before learning of their eligibility violates principles of equality, proportionality, and protection of legitimate expectations under Article 13 and Article 266 (principles of good administration) of the Constitution. The argument centers on whether the temporal requirements for claiming the benefit create arbitrary distinctions between similarly situated taxpayers, particularly when the Tax Authority maintains information about ZIF boundaries that may not be readily accessible to all purchasers of rural properties.
What procedural steps are involved in forming a collective arbitral tribunal under the RJAT for tax disputes in Portugal?
The procedural steps for forming a collective arbitral tribunal under the RJAT involve: (1) Filing a request for constitution of the arbitral tribunal with CAAD pursuant to Articles 2 and 10 RJAT; (2) Automatic notification to the Tax Authority within one business day under Article 10 RJAT; (3) If the applicant does not appoint an arbitrator, the President of the CAAD Deontological Board designates arbitrators under Article 6(2)(a) and Article 11(1)(a) RJAT; (4) Designated arbitrators communicate acceptance of their mandate; (5) Parties are notified of arbitrator designations and may exercise their right to refuse under Article 11(1)(b) RJAT; (6) The tribunal is formally constituted pursuant to Article 11(1)(c) RJAT; (7) The respondent Tax Authority files its reply; (8) Hearings are held under Article 18 RJAT if necessary; (9) The tribunal issues its decision within the timeframe established in Article 21 RJAT, which may be extended. This process ensures due process, impartiality, and proper representation of both parties in tax arbitration proceedings.