Process: 242/2017-T

Date: December 12, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Case 242/2017-T examines whether IMT (Municipal Tax on Onerous Real Estate Transfers) exemption applies to property acquisitions for tourism developments under Article 20 of Decree-Law 423/83. The petitioner, a financial leasing company, acquired properties in Viseu for €1,500,000 intended for a tourist enterprise that received provisional public utility status in March 2007. The tax authority partially rejected the IMT exemption claim, assessing €97,500.00 in tax. The core legal issue centers on whether a financial leasing company acquiring property at the lessee's proposal for a tourism development qualifies for the IMT exemption designed for public utility tourist enterprises. The case involves a complex financial leasing arrangement where the lessor financed both land acquisition and construction, with the tourism operator as lessee having substantial control over property selection, construction planning, and project execution. The arbitral tribunal must determine if the exemption's legislative purpose—promoting tourism infrastructure investment—extends to financial leasing structures where the formal acquirer differs from the operational tourism entity. Critical factors include the provisional nature of the tourism utility status at acquisition time, the economic substance of the financial leasing arrangement, and whether the exemption requires direct operational control by the acquiring entity. This decision has significant implications for structuring real estate financing in Portugal's tourism sector and clarifying IMT exemption eligibility under public-private tourism development models.

Full Decision

ARBITRAL DECISION

I - REPORT

On 05/04/2017, A…, S.A., with Tax Identification Number (NIPC) … and registered office in Lisbon, requested the constitution of an arbitral tribunal for the declaration of illegality and consequent annulment of the order of 30/12/2016, issued in the exercise of delegated powers, by the Head of the Division of Tax Management and Assistance of the Large Taxpayers Unit, which partially upheld the assessment of Municipal Tax on Onerous Real Estate Transfers (IMT) No. 2016…, dated 11/07/2016, in the amount of €97,500.00, relating to the onerous transfer of properties registered in the urban property rolls under articles …, … and …, of the parish of …, municipality of Viseu, the annulment of which the petitioner also requests, on the grounds of violation of the provisions of paragraph 1 of Article 20 of Decree-Law No. 423/83, of 05/12, as the petitioner believes that the conditions for benefiting from the exemption provided therein are met.

The request for the constitution of the arbitral tribunal was accepted on 06/04/2017.

As the petitioner did not exercise the right to appoint an arbitrator, the arbitrators were appointed by the Deontological Council and, having accepted the office, the tribunal was constituted on 21/06/2017.

Notified to reply on 21/06/2017, the Tax Authorities did so on 25/08/2017, submitting the relevant administrative file.

On 25/08/2017, the meeting referred to in Article 18 of the Legal Regime for Tax Arbitration (RJAT) was dispensed with, as it was deemed to lack utility, and the parties were invited to submit written arguments, which they did not do.

On 21/11/2017, the tribunal announced its decision for 21/12/2017.

II – PRELIMINARY RULING

The arbitral tribunal is materially competent and is regularly constituted, in accordance with Articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are properly represented, in accordance with Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22/3.

The proceedings do not suffer from nullities, and there are no nullities, exceptions or preliminary questions that should be considered and which would prevent the examination and decision of the case.

III – THE FACTS

III – 1 - Proven Facts

a) On 07/12/2005, the Petitioner, as lessor, entered into a financial real estate lease agreement with the lessee, company B… S.A., relating to the urban property registered in the property roll under article…, and described in the… Registry of Real Property of Viseu under number…, at pages…-verso of Book…, of the parish of…, situated in…, parish of…, municipality of Viseu, acquired by the lessor, at the proposal of the lessee, for the amount of €1,253,473.02, with a view to obtaining financing for construction to be erected on the respective land, in the amount of €4,420,000.

b) The following clauses are contained in that agreement:

"1st - Purpose

  1. This agreement concerns the real property which comprises the land and the building(s) which may be constructed thereon, described in the Special Conditions, acquired by the Lessor at the proposal of the Lessee, which the former grants and the latter accepts in financial lease on the terms stipulated.

  2. The Lessor undertakes to finance the construction of the building(s) indicated in the Descriptive Statement, in the Projects and in the Specification of Requirements presented by the Lessee and previously accepted by the Lessor.

  3. The purchase of the real property (land) was negotiated by the Lessee, so that the risks arising from the acquisition, the registrations and the deeds are its exclusive responsibility.

2nd - Construction:

(…)

  1. The administrative and municipal licenses necessary for construction are likewise the responsibility of the Lessee and shall be issued prior to the commencement of construction.(…)

  2. The Lessor may require the Lessee that the coordination of the construction works and their supervision be carried out by an entity designated by it, but at the expense of the Lessee.

(…)

  1. The Lessor may advertise at the construction site, by such means as it deems fit, its capacity as financier of the construction.

  2. The works shall be executed in accordance with the Descriptive Statement, projects and Specification of Requirements, and any alteration must be previously and expressly authorized by the Lessor.

  3. The Lessor may advertise at the construction site, by such means as it deems fit, its capacity as financier of the construction.

3rd - Construction Financing:

"(…) 2. In the financing of the building(s) to be constructed, the following procedures shall be observed:

a) The Lessor shall finance the construction of the building(s) on the acquired land up to the maximum amount provided for in the Special Conditions and after presentation by the Lessee of the respective building permit.

b) Financing shall be granted through the payment of invoices to be submitted by the contractor chosen by the Lessee, provided that they are included in the planned construction project.

(…)

f) The commitment to finance construction undertaken by the Lessor shall be void if the invoices submitted do not correspond to constructions actually carried out or which are not in accordance with the Descriptive Statement, the Projects and the Specification of Requirements and shall automatically expire at the end of the period fixed in the Special Conditions for the use of the financing".

c) The Petitioner acquired from company B…, S.A., by means of a public deed dated 17/03/2008, the properties registered under articles …º, …º and …º of the urban property roll of the parish of…, municipality of Viseu, (which, with the filing of form 1 declaration, on 31/03/2008, resulted in the urban article… - land for construction), for the total amount of €1,500,000.00.

d) The said deed states:

"This act is exempt from payment of IMT, pursuant to Article 20 of Decree-Law No. 423/83, of 5 December, by virtue of the aforesaid undertaking having been granted tourism utility status, on a provisional basis, by order of the Secretary of State for Tourism dated sixteen March two thousand and seven, as confirmed by the notice of the General Directorate of Tourism, published in the Official Journal II Series, on twelve June two thousand and seven".

e) Therein was made an addendum to the financial real estate lease agreement which includes the following clauses:

"Second - By proposal of the Lessee, accepted by the lessor, the acquisition of more than three plots of land, contiguous thereto and to be incorporated into this agreement, was approved.

Thus, and for that purpose, on this date the lessor acquired the urban properties designated by the lessee, for the total amount of 1,5000.000,00 Eur (one million…), described in the following clause:

Third – As a consequence of the above-mentioned acquisition, the purpose of the financial lease agreement is expanded, which now includes also the following properties: 1.a) land for construction with 234 m2, registered in the roll under article P… of the Parish of… and described in the… Registry of Real Property of Viseu under card No. … of the same parish; b) land for construction with 91 m2, registered in the roll under article P… of the Parish of… and described in the… Registry of Real Property of Viseu under card No. … of the same parish; and c) land for construction with 3,650m2, registered in the roll under article … of the Parish of… and described in the… Registry of Real Property of Viseu under card No. … of the same parish;

Fourth - Following the acquisition of the properties identified in the third clause, and consequent incorporation thereof into the lease agreement No. ..., the lessee proceeds on this date to the extraordinary redemption of the amount of 207.930,08 Eur (…)".

f) By order of the Secretary of State for Tourism of 16/03/2007, published in the Official Journal, under Notice No. 10 612/2007, of 14/05/2007, "tourism utility status on a provisional basis was granted to the undertaking…, located at…, plot…, in…, municipality of Viseu", of which the company B… was the Petitioner, and which states that "c) The company may not undertake without prior authorization from the General Directorate of Tourism and knowledge of the Tourism Utility Commission any works that imply alteration of the approved project or the characteristics of the undertaking."

g) By order No. 1323/2010 of the Office of the Secretary of State for Tourism, of 11/12/2009, it was decided that "the conditions for the confirmation of the tourism utility status granted on a provisional basis to the undertaking are met".

h) A partial inspection was carried out by the Tax Authorities of the Petitioner, directed to IMT, for the year 2008, the report of which was notified by letter No. ..., of 09/09/2015, and the Petitioner filed a complaint on 05/07/2016, which was partially upheld on 30/12/2016.

i) The inspection concluded "that the exemption from IMT recognized in the deed now under analysis is improper", because "(...) the benefit would be justified with respect to the requesting entity in its capacity as owner (the one that proceeds with the installation of the undertaking, which promotes it) and not to the subsequent acquirer (in this case A...), regardless of whether the latter, by the aforesaid notarial act, acquires the whole of the undertaking or a parcel (unit) thereof, on the ground that the benefit, implicit in Article 20 of Decree-Law No. 423/94, does not follow the subsequent transfers of the property/properties)".

j) In the decision on the complaint it may be read that "(...) at the date of the transfer of the said hotel undertaking, it was qualified with tourism utility status, and as such the undertaking was already installed", so that "(...) the exemption from IMT was improperly recognized, since the acquisition of the undertaking by the taxpayer makes it a mere owner and the exemption is only recognized to the entity that promotes and operates the undertaking".

And further that "(…) cannot be included in the concept of installation, the mere acquisition of an undertaking by a banking entity, whose object of activity is not that of promoting tourism undertakings", it being only "(…) to recognize tax benefits for onerous acquisitions intended for the installation and opening to the public of new undertakings and in the cases provided for in subparagraphs b) and c) of paragraph 1 of Article 5 of Decree-Law No. 423/83 by the holder appearing in the order granting tourism utility status published in the Official Journal, as provided in paragraph 2 of Article 7 of Decree-Law No. 423/83".

Thus, "(...) since the acquisition of the undertaking by the taxpayer makes it a mere owner and the exemption is only recognized to the entity that promotes and operates the undertaking, since the transformation of real estate owners into investors/promoters of undertakings qualified with tourism utility status is not covered by the tax benefits provided in paragraph 1 of Article 20 of Decree-Law 423/83".

k) On 10/04/2008, the Viseu City Council issued the use permit No. .../2008, relating to the building constructed on the plot... of..., omitted from the property roll and registered in the land register of Viseu under No. ....

III – 2 - Unproven Facts

Nothing material to the decision on the merits remained unproven.

III - 3 - Reasons for the Proven Facts

The facts as proven result from the critical examination of the documents submitted, which are here deemed to be fully reproduced.

IV – THE LAW

The question to be decided is whether, as the Petitioner contends, the acquisition it made of the land for construction is capable of being encompassed within the exemption from IMT provided for in paragraph 1 of Article 20 of Decree-Law No. 423/83, of 05/12, or whether, conversely, as the Respondent contends, such exemption only applies to acquisitions of properties or autonomous units by promoters with a view to constructing and installing tourism undertakings.

The parties do not dispute that the lands in question came to form part of the tourism undertaking called "...", whose public utility was previously recognized, on 16/03/2007, and confirmed on 17/12/2009.

The Respondent asserts that the Petitioner acquired a tourism undertaking already installed, from which it would follow that the acquisition was not part of the process of implementing that installation and, therefore, does not benefit from the exemption provided in Article 20, paragraph 1, of Decree-Law No. 423/83, of 05/12, which provides that "Acquisitions of properties or autonomous units intended for the installation of undertakings qualified with tourism utility status are exempt from sisa and tax on successions and gifts, with stamp duty reduced to one-fifth, even if such qualification is granted on a provisional basis, provided that it remains valid and the deadline for opening the undertaking to the public is observed."

This is an exemption which, now referred to as IMT, derives from Law No. 2073, of 23/12/1954, the 13th article of which provided that "Acquisitions of properties intended for the construction and installation of hotel establishments or similar establishments previously declared to be of public utility are exempt from sisa and tax on successions and gifts, subject only to one-fifth of the stamp duty due, and the companies benefiting therefrom shall also benefit from the exemptions established in the body of the preceding article, from the acquisition of the properties until the opening of the establishments for operation, if the deadline fixed by the President of the Council is observed for this."

The Code for the Municipal Tax on Sisa and the Tax on Successions and Gifts, of 24/11/1958, also provided, in paragraph 8 of its Article 13, that acquisitions of properties intended for the construction and installation of hotel establishments or similar establishments, previously declared to be of public utility, were exempt from sisa, in accordance with Article 13 of Law No. 2073, of 23/12/1964.

Each of these exemptions covered only acquisitions of properties for the purpose of constructing and installing therein hotel establishments considered to be of tourism utility.

Hence the relevance of the concept of installation, which the Supreme Administrative Court, based in particular on the analysis of Decree-Laws Nos. 167/97, of 04/07, 55/2002, of 11/03, and 39/2008, of 07/03, defined as "(...) a procedure which comprises the legal acts and the steps tending towards the licensing (...) of the urban operations necessary for the construction of a tourism undertaking, as well as the obtaining of the titles which make it capable of functioning and being operated for tourism purposes".

The installation of one of these establishments ends when, the respective property being constructed and licensed, it is in a condition to be devoted to tourism operation activity recognized as being of public utility, and to function as such.

In this way, installation, operation and exploitation are distinct concepts and successive phases, which are not to be confused, and for the case of the benefit we are concerned with, what is relevant is the concept of installation. As long as there is no construction and installation, there can be no operation and exploitation. When there is already installation, there is no exemption.

The said benefit is intended to stimulate the promoting activity of the process of installation of quality tourism undertakings, which are therefore recognized as being of public utility, the legislator considering that this is vital for the Portuguese economy, which justifies the reduction in tax revenue. It is not directed at those who operate the same establishments, after installation, but at those who contribute to the phase before operation and exploitation.

As is generally understood, we are dealing with an objective exemption, not granted to the promoter of the establishment, nor to the one who requested the declaration of public utility, nor to its constructor, nor to the one who licenses or operates it. The exemption relates to the acquisition of properties intended for the complete installation of such establishments, and is directed at the acquisition without regard to the quality of the acquirer.

Now, in view of this, it is immediately apparent that, contrary to what the Respondent asserts, the Petitioner did not acquire, through the agreement of 17/03/2008, any tourism undertaking already installed, but only land for its construction, an acquisition which, in the abstract, would have made possible the complete installation of the undertaking, the operating permit for which would only be issued on 17/03/2008.

And we say "in the abstract" because, in the concrete case, it is not so.

In fact, the Petitioner acquired the properties in question from company B…, which was the promoter of the undertaking. This means that the acquisition made by the Petitioner contributed nothing to the installation of the undertaking, because the land, being the property of the promoter, was, before the acquisition by the Petitioner, in a condition to be used for the installation of the undertaking, as can be seen from the interval between the agreement and the issuance of the permit - 17/03/2008 to 10/04/2008.

The useful intervention of the Petitioner was, in this way, as a financier; its action as an acquirer of properties did not contribute to the installation of the undertaking, it was only a way of structuring the financing agreement, which did not necessarily have to involve the acquisition of land.

Now, the purpose of the exemption is, as has been seen, to facilitate the installation of tourism undertakings considered to be of public utility. Those who benefit from it are acquirers who, through the acquisition, place the properties in a position to be capable of being integrated into the undertaking.

Here, as the properties were already held by the promoter, which could use them to build the undertaking thereon, the acquisition by the Petitioner did not contribute to that effect, but only to financing its installation.

For these reasons, the impugned act does not deserve censure.

V – DECISION

Therefore, in consequence, this Tribunal decides

a) To dismiss the challenge;

b) To uphold the assessment of IMT No. 2016…, of 11/07/2016, in the amount of €97,500.00, as well as the order that partially rejected the complaint filed by the Petitioner;

c) To condemn the Petitioner to pay the costs of the proceedings.

VI – VALUE OF THE CASE

In accordance with the provisions of Article 306, paragraph 2, of the Code of Civil Procedure, Article 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Article 3, paragraph 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is fixed at €97,500.00.

VII – COSTS

Under the provisions of Article 22, paragraph 4, of the RJAT and Article 4, paragraph 4, of the Regulation on Costs in Tax Arbitration Proceedings and attached Table I, the costs are computed at €2,754.00.

Lisbon, 12/12/2017.

The Arbitrators

(José Baeta de Queiroz)

(Alberto Amorim Pereira)

(Francisco José Nicolau Domingos)

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption for tourist utility real estate acquisitions under Decree-Law 423/83?
Article 20 of Decree-Law 423/83 provides IMT exemption for acquisitions of real estate destined for tourist enterprises classified as public utility. The exemption aims to incentivize investment in tourism infrastructure by eliminating transfer taxes on property acquisitions for approved tourism developments that serve public interest objectives.
Can a financial leasing company claim IMT exemption on property transfers for tourism developments?
The key issue in Case 242/2017-T is whether financial leasing companies can claim IMT exemption when acquiring property for tourism developments. While the lessee operates the tourism enterprise with public utility status, the lessor holds legal title. Courts must determine if the exemption extends to such financing structures or requires direct ownership by the tourism operator.
What are the legal requirements for IMT exemption on public utility tourist enterprises in Portugal?
To qualify for IMT exemption under DL 423/83, the property must be acquired for a tourist enterprise with public utility classification, either provisional or definitive. The acquisition must demonstrate clear destination for tourism purposes, and the utility status must align temporally with the transfer. Questions arise when financial intermediaries acquire property on behalf of tourism operators.
How does CAAD arbitration work for challenging IMT tax assessments in Portugal?
CAAD (Centro de Arbitragem Administrativa) provides alternative dispute resolution for tax matters in Portugal. Taxpayers can request arbitration to challenge tax assessments like IMT. The process involves tribunal constitution, submission of claims and defenses with administrative files, optional hearings, and binding arbitral decisions that can be appealed on limited grounds to administrative courts.
What was the outcome of CAAD Case 242/2017-T regarding IMT exemption on property in Viseu?
Case 242/2017-T involved a €97,500 IMT assessment on properties in Viseu acquired through financial leasing for a tourism development with provisional public utility status. The taxpayer challenged the partial denial of IMT exemption, arguing Article 20 of DL 423/83 applied. The complete outcome requires reviewing the tribunal's final decision on whether financial leasing structures qualify for tourism-related IMT exemptions.