Process: 276/2018-T

Date: January 8, 2019

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 276/2018-T) addresses whether real estate investment funds qualify for IMT (Municipal Property Transfer Tax) exemption under Portuguese tax law. A real estate fund management company, representing two investment funds, challenged IMT assessments totaling €1,309,577.99, claiming exemption under Article 1 of Decree-Law 1/87. The core legal dispute centered on whether this decree remained in force after Law 53-A/2006 amended Article 46 of the Tax Benefits Statute (EBF) to include IMT exemptions for real estate investment funds. The Tax Authority argued that Article 46 EBF implicitly repealed Decree-Law 1/87 when it comprehensively regulated IMT benefits for investment funds, introducing limitations for mixed or closed funds with private subscription by unqualified investors. The Authority contended that the 2006 amendment applied only to property acquisitions made after November 1, 2006, not to previously integrated assets. The claimant management company sought official review (revisão oficiosa) of the assessments and restitution of overpaid tax plus compensatory interest. The tribunal had to determine whether Decree-Law 1/87's blanket exemption survived the more nuanced regime introduced in 2006, and whether the transitional provisions affected the funds' exemption rights. This decision has significant implications for fund managers structuring real estate acquisitions and understanding the evolution of IMT exemptions for collective investment vehicles under Portuguese tax law.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Judge José Poças Falcão (arbitrator president), Dr. António Alberto Franco and Dr. Hélder Faustino (arbitrators members), appointed by the Deontological Board of the Centre for Administrative Arbitration to form the Arbitral Tribunal, agree as follows:

I. REPORT

  1. On 1 June 2018, A... – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A., Tax ID..., with registered office at ... no. ..., ...-... Lisbon (hereinafter Claimant), in its capacity as management company and in representation of FUND B..., Tax ID..., and FUND C..., Tax ID..., submitted a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2, no. 1, paragraph a), and 10, no. 1, paragraph a), and no. 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters (hereinafter, abbreviated as LRAT), as amended by Article 228 of Law no. 66-B/2012, of 31 December, with a view to this tribunal's ruling on:

  • Assessment of the legality of the ex officio review requests submitted with a view to annulment of the tax acts for assessment of Municipal Tax on Onerous Transfers of Immovable Property (IMT) as well as the tax acts for assessment of IMT;

  • Restitution of IMT overpaid, in the amount of € 1,309,577.99, plus compensatory interest at the legal rate, from the date of payment of the tax until the date of its full reimbursement.

The Claimant attached 54 (fifty-four) documents and did not request the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

  1. Essentially, the Claimant alleges a defect of violation of law, on the grounds that the acquisitions of the immovable properties in question are exempted from IMT under Article 1 of Decree-Law no. 1/87, of 3 January, and the consequent voidability of the said IMT assessment.

  2. The request for constitution of an arbitral tribunal was accepted by the President of CAAD and followed its normal procedure with notification to the AT on 11 June 2018.

  3. The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to Article 6, no. 2, paragraph a) and Article 11, no. 1, paragraph a) of the LRAT, the President of the Deontological Board of CAAD appointed as arbitrators of the collective Arbitral Tribunal the signatories, who communicated acceptance of the appointment within the applicable time limit.

4.1. On 24 July 2018, the Parties were notified of this appointment and expressed no intention to refuse the appointment of the arbitrators, in accordance with the combined terms of Article 11, no. 1, paragraphs b) and c), of the LRAT and Articles 6 and 7 of the CAAD Code of Conduct.

4.2. Thus, in compliance with Article 11, no. 1, paragraph c) of the LRAT, the collective Arbitral Tribunal was constituted on 13 August 2018.

  1. On 14 August 2018, the Respondent, duly notified for this purpose, submitted its Reply in which it specifically contested the arguments raised by the Claimant, concluding that this action should be dismissed.

5.1. Essentially and also briefly, it is important to identify the most relevant arguments on which the Respondent based its Reply, namely:

With the amendment introduced by Law no. Law no. 53-A/2006 of 29 December, no. 1 of Article 46 of the Tax Benefits Statute (TBS) came to provide for the exemption from IMT, in addition to IMI, which it had already previously provided.

The constitution of the right to exemption, for both taxes, depended on three prerequisites typified in law – the integration of the properties into the assets of real estate investment funds; that those funds were constituted in accordance with national legislation and that those funds operated in accordance with the same legislation.

No. 2 of Article 46 of the TBS came to provide, following this amendment, that immovable property integrated into mixed or closed real estate investment funds with private subscription by unqualified investors or by financial institutions on their behalf did not benefit from this exemption.

Paragraphs a) and j) of Article 88 of the same law that amended Article 46 of the TBS (Law no. 53-A/2006, of 29 December) established the applicable transitional regime, that is,

Paragraph a) maintained, in its respective terms, the rights to tax benefits constituted prior to the date of entry into force of the amendment, and

Paragraph j) established that those amendments applied to funds that would come to be constituted after 1 November 2006.

The same paragraph also establishes that the limitation of the exemption also applies to properties that are integrated into the assets of previously constituted real estate investment funds, which on 1 November 2006, their participation units were held exclusively by unqualified investors or by financial institutions on their behalf.

This means that the new regime applies only to properties integrated after the date of entry into force of the new law, even if the funds had been constituted before its entry into force.

From this it follows that, with respect to IMT, the legislator uses the prerequisite of integration of the properties into the fund, referring to their future integration, and not to properties already integrated prior to the date of entry into force of the law.

This also means that the legislator intended to exempt the acquisitions of immovable property that would come to be carried out, to be integrated into the assets of those funds, provided that such integration occurs.

Now, the legislator added to no. 1 of Article 46 of the TBS the provision of the IMT exemption in those cases, to then eliminate that exemption when it comes to mixed or closed real estate investment funds with private subscription by unqualified investors or by financial institutions on their behalf. In those cases, reduced IMI and IMT rates of 50% apply.

Article 1 of Decree-Law no. 1/87, of 3 January, already exempted from IMT the acquisitions of immovable property by real estate investment funds.

Therefore, the addition of the provision of IMT to no. 1 of Article 46 of the TBS, carried out by Law no. 53-A/2006, of 29 December, does not imply any expansion of tax benefits.

Article 46 of the TBS came to regulate the tax benefits of IMT in acquisitions of immovable property by investment funds, and since it regulated the same matter, it implicitly repealed Article 1 of Decree-Law no. 1/87, of 3 January.

Having Article 49 of the TBS, which succeeded Article 46 of the TBS, been repealed by Law no. 7-A/2016, of 30 March, none of those provisions are currently in force.

5.2. The Respondent did not request the production of evidence and attached the administrative file (hereinafter, AF) to the case.

  1. By order of 12 October 2018, the Parties were notified of the decision of the collective Arbitral Tribunal to dispense with the meeting referred to in Article 18 of the LRAT, with 14 January 2019 being set as the deadline for delivery of the arbitral decision.

  2. The Respondent waived the submission of written pleadings. The Claimant submitted written pleadings, in which it reiterated the position previously assumed in its respective pleadings.

II. CASE MANAGEMENT

The Arbitral Tribunal was regularly constituted and is competent ratione materiae, given the nature of the case (cf. Articles 2, no. 1, paragraph a) and 5 of the LRAT).

The request for arbitral ruling is timely, as it was submitted within the time limit provided for in Article 10, no. 1, paragraph a), of the LRAT, combined with Article 102, no. 1, paragraph d) of the Code of Tax Procedure and Process (CTPP).

The parties have legal personality and capacity, have standing and are regularly represented (cf. Articles 4 and 10, no. 2 of the LRAT and Article 1 of Regulatory Order no. 112-A/2011, of 22 March).

The joinder of parties and cumulation of claims is legal (Article 3, no. 1 of the LRAT).

The case does not suffer from defects, and no exceptions or preliminary issues have been raised that would prevent examination of the merits and which should be addressed.

III. GROUNDS FOR DECISION

III.1. FACTS

§1. PROVEN FACTS

The following facts are considered proven:

a) FUND B..., Tax ID..., and FUND C..., Tax ID..., represented by the Claimant, constitute open real estate funds, constituted under Decree-Law no. 316/93, of 21 September, their activity being regulated by the General Regime for Collective Investment Undertakings (RGOIC), approved by Law no. 16/2015, of 24 February.

b) The investment objectives of these Funds, pursuant to their Management Regulations, essentially rest on the acquisition of immovable property, with a view to subsequent sale or lease.

c) The Claimant, in its capacity as management company and in representation of the represented Funds, acquires multiple immovable properties, which are intended to form part of the assets of those Funds.

d) The Funds represented by the Claimant acquired, by public deed of purchase and sale, the immovable properties that are detailed below [cf. documents nos. 37 to 54 attached to C.I.]:

e) In the context of the acquisition of the above-identified immovable properties, the corresponding tax acts for assessment of IMT were issued, as detailed below [cf. documents nos. 19 to 36 attached to C.I.]:

f) The IMT assessments described above were paid [cf. documents nos. 37 to 54 attached to C.I.].

g) The Claimant submitted, on 9 November 2017, requests for ex officio review of the IMT assessment acts effected on the basis of Model 1 declarations regarding the acquisition of the urban properties identified above.

h) Presuming the implicit dismissal of the ex officio review requests submitted, the Claimant submitted, on 6 June 2018, the present arbitral request.

i) Until the date of submission of the present arbitral request, the Claimant had not been notified of any decision relating to the aforementioned ex officio review requests.

§2. UNPROVEN FACTS

With relevance for the assessment and decision of the case, there are no facts that have not been proven.

§3. STATEMENT OF REASONS FOR THE FACTS

The pertinent facts for the judgment of the case were selected and determined based on their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of Articles 123, no. 2, of the CTPP, 596, no. 1 and 607, no. 3, of the Code of Civil Procedure (CCP), applicable by virtue of Article 29, no. 1, paragraphs a) and e), of the LRAT.

With respect to the proven facts, the Tribunal's conviction was based on the facts alleged by the Parties, whose adherence to reality was not challenged and therefore were admitted by agreement, on the critical analysis of the documentary evidence in the case file, including the administrative file.

III.2. LAW

§1. DELIMITATION OF THE OBJECT

The substantive issue submitted to the assessment of this Tribunal concerns whether Article 1 of Decree-Law no. 1/87, of 3 January, is in force or not, which determines whether Real Estate Investment Funds, regardless of their type, are or are not exempted from IMT in the acquisition of immovable property.

Finally, the Tribunal must rule on the requests for reimbursement of the amount of IMT improperly paid and for payment of compensatory interest.

§2. ON THE MERITS

As referred to above, the Claimant comes forward in the present arbitral request expressing its disagreement with the disputed assessment acts, understanding, in essence, that the acquisitions of immovable property, which the Funds it represents effected, benefit from the exemption contemplated in Article 1 of Decree-Law no. 1/87, of 3 January, arguing that the Respondent does not consider it to be in force.

It is established that the Claimant's represented entities are Open Real Estate Investment Funds, legally constituted and whose activity is today regulated by the General Regime for Collective Investment Undertakings, approved by Law no. 16/2015, of 24 February.

With a view to creating conditions for the establishment of investment funds, the legislator, through Decree-Law no. 1/87, of 3 January, stipulated in Article 1 that "acquisitions of immovable property effected for a real estate investment fund by the respective management company are exempt from sisa tax".

A provision that raises no interpretative doubts, from which it literally follows that it was intended that the acquisition of immovable property destined to form part of any type of real estate investment fund should benefit from an exemption from sisa tax.

However, following the reform of property taxation carried out by Decree-Law no. 287/2003, of 12 November and which, in that context, repealed the Municipal Sisa Tax Code, that decree came to establish in no. 2 of Article 28 that:

  • "all legal texts that refer to the Municipal Sisa Tax Code and the Tax on Successions and Donations, municipal sisa tax or tax on successions and donations are considered to refer to the Code of Municipal Tax on Onerous Transfers of Immovable Property (CTIT), the Stamp Duty Code, the municipal tax on onerous transfers of immovable property (IMT) and stamp duty, respectively".

It further established, through no. 6 of Article 31 that:

  • "the tax benefits relating to local authority tax, now applicable to IMI, are maintained in force, as well as those relating to municipal sisa tax established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958 and in the Tax Benefits Statute, which now apply to IMT".

It thus follows unequivocally that the acquisitions of immovable property destined to form part of any type of real estate investment fund, which until then benefited from exemption from sisa tax, came to enjoy the same exemption, now under IMT.

However, the State Budget Law of 2007 – Law no. 53-A/2006, of 29 December, through Article 82, came to amend Article 46 of the TBS, which came to stipulate:

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

2 – Immovable property integrated into mixed or closed real estate investment funds with private subscription by unqualified investors or by financial institutions on their behalf do not benefit from the exemptions referred to in the preceding paragraph, the rates of municipal tax on immovable property and municipal tax on onerous transfers of immovable property being reduced by half".

It is on the basis of this new wording of Article 46 of the TBS (subsequently renumbered as 49) and the subsequent legislative evolution to which it was subjected that the Respondent argues that the exemption provided for in Article 1 of Decree-Law no. 1/87 is not in force. Indeed, it understands that Article 46 "came to regulate the tax benefits of IMT in acquisitions of immovable property by investment funds, and since it regulated the same matter, it implicitly repealed Article 1 of Decree-Law no. 1/87, of 3 January".

Everything thus hinges on determining whether such exemption was or was not repealed – albeit implicitly, as the Respondent argues.

The answer to such a question must be resolved, in the first instance, by what Article 7 of the Civil Code provides, which, on the matter of cessation of legal force, stipulates that "when it is not intended to have temporary force, a law ceases to have effect only if it is repealed by another law".

This matter has already been the subject of decisions issued within the scope of CAAD, specifically in case numbers 544/2016-T, of 28-04-2017 and 677/2016-T, of 26-06-2017 (one of the current arbitrators was a signatory to the latter), which in turn referred to the former.

Finding no reason to depart from what was decided there, we proceed to transcribe what it states:

  • "As to the possible temporary force of DL 1/87, of 3 January, it is indisputable that the same contains no provision in that sense, and therefore, if it has not been repealed by any other statute, it remains fully in force today.

It may be said, from the outset, that no provision in the legal-tax system can be seen that has expressly repealed it.

The only clear reference to such repeal appears in the Government's Bill submitted to the National Assembly, within the scope of the State Budget – Bill 478/2006, of 13 October 2006 – to the effect that the said DL 1/87, of 3 January, should be repealed, a proposal which was not approved".

Thus, we say, it may be said that the presentation of that legislative proposal would result in an understanding that the said legal provision is in force and, moreover, that the TBS, in its current Article 49 – as referred to above – would coexist with it without being redundant.

In any case, given that it is established that the exemption contemplated in DL 1/87 was not expressly repealed, it must be ascertained whether it may have been implicitly repealed – as the Respondent argues – which would result from incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates all the matter of the preceding law (Article 7, no. 2 of the C. Civil).

As stated in the aforementioned arbitral decision no. 677/2016-T, "...nor by this route can it be seen that such repeal occurred, fully endorsing what was decided in arbitral decision no. 544/2016, of 28-04-2017: 'quite the contrary, a joint reading of the new provision of Article 46 of the TBS and the preceding rule of Article 1 of Decree-Law no. 1/87, of 3 January, allows for the reasonable conclusion that from the date of entry into force of the new wording of Article 46 of the TBS would come to be exempt from IMT, not only the acquisitions of immovable property carried out by management companies of real estate investment funds with the intent that they would come to form part of those funds – as had been established in the preceding rule – but also the properties integrated into real estate investment funds – as established in that Article 46 of the TBS. In other words, the IMT exemption would henceforth apply both to immovable property acquired to come to form part of real estate investment funds, as had been established until then, and to such immovable property if and while integrated into real estate investment funds, pursuant to Article 46 of the TBS. In the first case, the exemption would be applicable whenever the fund was in the position of purchaser of the immovable property. In the second case, the exemption would be applicable whenever the fund was in the position of seller of the immovable property. Thus, it is inescapable to conclude that there is no incompatibility between the new provisions and the preceding rules'".

It is further stated in arbitral decision no. 544/2016-T that "the exemption of the current Article 49 of the TBS, even in its attenuated version of reduction of IMT rates by half, constitutes a supplement that is not insignificant and not redundant in relation to the exemption established by Article 1 of Decree-Law no. 1/87, of 3 January. It is a structural and teleologically distinct exemption from the latter, whose introduction and maintenance in the legal order rests on a different assessment of tax policy".

To conclude that "also taking into account the last of the criteria of Article 7, no. 2 of the Civil Code, it would be said that the simple introduction of the exemption of Article 46 of the TBS could hardly be interpreted as a measure of repeal and replacement of the exemption created by Article 1 of Decree-Law no. 1/87, of 3 January. On the one hand, it results from the preceding considerations that Article 46 of the TBS did not come to regulate all the matter contained in Article 1 of Decree-Law no. 1/87. Strictly speaking, a new exemption is introduced in addition to the already existing one, which remains untouched. On the other hand, the TBS does not have the monopoly on tax benefits, which may be consecrated and subsist in separate legislation. Consider, for example, the tax benefits contained in the Tax Code on Investment".

All arguments remaining valid, it follows that the exemption provided for in Article 1 of Decree-Law no. 1/87, in the context of sisa tax and today of IMT (given what Decree-Law no. 287/2003, of 12 November establishes, as referred to), is in force, from which it follows that acquisitions of immovable property for a real estate investment fund by the respective management company are exempt from IMT, as is the case with those now in question.

Thus, the Claimant's claim is well-founded, and it is necessary to declare the illegality of the disputed assessment acts.

COMPENSATORY INTEREST

In addition to the restitution of tax improperly paid, the Claimant requests that the right to payment of compensatory interest be declared.

Such right is consecrated in Article 43 of the General Tax Law, which has as its prerequisite that it be established, in an administrative reclaim or judicial challenge – or in tax arbitration – that there was error attributable to the services from which it results that the debt was paid in an amount greater than what was legally due.

The recognition of the right to compensatory interest in the arbitral process results from what is stipulated in Article 24, no. 5 of the LRAT, when it establishes that "interest payment is due, regardless of its nature, under the terms provided for in the general tax law and in the Code of Tax Procedure and Process".

In the case in question, error attributable to the AT in the disputed assessment did in fact occur, which it perpetrated on its own initiative without legal support.

Therefore, the Claimant is entitled to the requested payment of compensatory interest.

IV. DECISION

Therefore, this Arbitral Tribunal decides:

a) To judge the arbitral claim filed to be well-founded and, in consequence, to declare the illegality of the implicit dismissals of the review requests submitted by the Claimant, annulling the IMT assessment acts identified in the arbitral claim.

b) To order the AT to reimburse the Claimant the amount of tax paid, plus the respective compensatory interest.

c) To order the Respondent to bear the costs of the proceedings.

CASE VALUE

In compliance with Articles 306, no. 2, of the CCP ex vi Article 29, no. 1, paragraph e), of the LRAT, 97-A, no. 1, paragraph a), of the CTPP ex vi Article 29, no. 1, paragraph a), of the LRAT and 3, no. 2, of the Regulations on Costs in Tax Arbitration Proceedings, the case is assigned the value of € 1,309,577.99 (one million, three hundred and nine thousand, five hundred and seventy-seven euros and ninety-nine cents).

COSTS

Pursuant to Articles 12, no. 2, and 22, no. 4, of the LRAT, 4, no. 4, and Table I annexed to the Regulations on Costs in Tax Arbitration Proceedings and Article 527, nos. 1 and 2, of the CCP ex vi Article 29, no. 1, paragraph e), of the LRAT, the amount of costs is fixed at € 17,748.00 (seventeen thousand, seven hundred and forty-eight euros).

Lisbon, 8 January 2019.

The Arbitrators,

(José Poças Falcão)
(António Alberto Franco)
(Hélder Faustino)

Frequently Asked Questions

Automatically Created

Are real estate investment funds exempt from IMT (Municipal Property Transfer Tax) under Portuguese law?
Under Portuguese law, real estate investment funds may be exempt from IMT depending on their structure and the applicable legal regime. Article 1 of Decree-Law 1/87 originally established a blanket exemption for property acquisitions by real estate investment funds. However, Law 53-A/2006 amended Article 46 of the Tax Benefits Statute to introduce a more nuanced regime, maintaining IMT exemption for certain funds while excluding mixed or closed funds with private subscription by unqualified investors, which became subject to reduced 50% rates instead. The key issue is whether Decree-Law 1/87 was implicitly repealed by the 2006 amendment.
What is the legal basis for IMT exemption for real estate investment funds under Decree-Law 1/87?
Decree-Law 1/87 of January 3 provides the legal basis for IMT exemption for real estate investment funds in Article 1. This provision originally established a general exemption for acquisitions of immovable property by real estate investment funds without the distinctions later introduced by the Tax Benefits Statute. The decree created a straightforward exemption regime based solely on the acquirer being a real estate investment fund constituted and operating under Portuguese law. However, the continued applicability of this decree became contested after Law 53-A/2006 comprehensively regulated IMT benefits for investment funds in Article 46 EBF, potentially creating an implicit repeal situation.
Can a fund management company request official review (revisão oficiosa) of IMT tax assessments on behalf of investment funds?
Yes, a fund management company has legal standing to request official review (revisão oficiosa) of IMT assessments on behalf of the investment funds it manages. In this case, the management company acted in representation of two separate funds when submitting the arbitral request to CAAD. The tribunal accepted this representation as proper under Article 10(2) of the Legal Regime for Arbitration in Tax Matters (RJAT). Fund management companies are recognized as having the legal capacity and standing to represent the funds in tax proceedings, including challenging assessments through official review procedures and arbitration, as they manage the funds' assets and legal affairs.
How are indemnity interest (juros indemnizatórios) calculated on excess IMT payments in Portugal?
Compensatory interest (juros indemnizatórios) on excess IMT payments in Portugal is calculated at the legal rate from the date of payment until full reimbursement. The claimant in this case specifically requested restitution of €1,309,577.99 plus compensatory interest calculated from the payment date of each IMT assessment until complete repayment. Compensatory interest serves to compensate taxpayers for the Treasury's use of funds that were improperly collected. The legal rate is established by ministerial order and varies over time. Interest accrues automatically when the Tax Authority is ordered to refund overpaid taxes, without requiring separate substantiation of damages by the taxpayer.
What is the CAAD arbitral tribunal procedure for challenging IMT tax assessments in Portugal?
The CAAD arbitral tribunal procedure for challenging IMT assessments involves filing a request for constitution of an arbitral tribunal under Articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT). The request must be filed within the time limits of Article 102(1)(d) of the Tax Procedure Code. After acceptance, the Tax Authority is notified and submits a reply. The tribunal is constituted by three arbitrators appointed by CAAD's Deontological Board if parties don't designate their own. Both parties may submit evidence and written pleadings. The tribunal may dispense with oral hearings. The procedure offers a faster alternative to judicial courts for resolving tax disputes, with decisions typically rendered within six months of tribunal constitution.