Process: 330/2018-T

Date: December 14, 2018

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 330/2018-T) addresses whether real estate investment funds in Portugal are entitled to IMT (Property Transfer Tax) exemption when acquiring properties. Three participants of a closed-end real estate investment fund challenged five IMT assessments totaling €11,238.67, arguing that acquisitions by the managing company for the fund's assets should be exempt under Decree-Law 1/87 of January 3, 1987. The claimants contended this historic exemption from the former Municipal Sisa Tax remained in force and was not repealed by the subsequent IMT exemption regime introduced in the Tax Benefits Statute (EBF). They argued that both exemption regimes coexist: the original exemption for acquisitions by managing companies for fund assets, and the later EBF exemption covering transfers by funds. The Tax Authority disputed this interpretation, suggesting the older exemption was superseded by Law 53-A/2006. The case demonstrates the procedural pathway for fund participants to challenge IMT assessments through CAAD arbitration, including the possibility of consolidating multiple related assessments in a single proceeding. The claimants sought annulment of the tax assessments and reimbursement with compensatory interest under articles 43 and 100 of the General Tax Code (LGT). This decision is significant for determining the applicable exemption framework for real estate investment fund property acquisitions in Portugal.

Full Decision

ARBITRAL DECISION

I - Report

  1. A..., tax identification number ..., resident at Street ... no. ..., ...-... ..., B..., tax identification number ..., resident at Street ... no. ..., ...-... Mindelo, and C..., tax identification number ..., resident at Street of ... no. ..., ...-... Vilar do Pinheiro, (hereinafter referred to as "Claimants"), in their capacity as participants and representatives of D... – Special Closed Real Estate Investment Fund, tax identification number ... (hereinafter referred to as "Fund"), filed on 12-07-2018, a petition for arbitral pronouncement, pursuant to article 2, paragraph 1, subparagraph a) and article 10, paragraphs 1 and 2 of the Legal Regime for Tax Arbitration, provided for in Decree-Law no. 10/2011 of 20 January, as amended by article 228 of Law no. 66-B/2012 of 31 December (hereinafter abbreviated as "LRTA") and articles 1 and 2 of Ordinance no. 112-A/2011 of 22 March.

  2. The Claimants seek the pronouncement of the Arbitral Court with a view to declaring the annulment of the tax assessment acts for Property Acquisition Tax (IMT) nos. ..., of 02-06-2015, ..., of 25-06-2015, ..., of 02-09-2016, ..., of 16-12-2016 and ..., of 27-01-2017, and consequently the reimbursement of the amount unduly paid in the total amount of € 11,238.67 (eleven thousand two hundred and thirty-eight euros and sixty-seven cents) plus compensatory interest calculated at the legal rate in force.

  3. The Respondent is the Tax and Customs Authority (hereinafter referred to as "Respondent").

  4. The petition for the constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 12-07-2018.

  5. Pursuant to subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the LRTA, as amended by article 228 of Law no. 66-B/2012 of 31 December, the Deontological Council of CAAD appointed as arbitrator of the single arbitral tribunal His Excellency Dr. Olívio Mota Amador, who, within the applicable deadline, communicated his acceptance of the appointment.

  6. The Claimants were notified on 30-08-2018 of the designation of the arbitrator and did not manifest any intention to refuse the designation, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of the LRTA and articles 6 and 7 of the CAAD Code of Ethics.

  7. In accordance with the provisions of article 11, paragraph 1, subparagraph c) of the LRTA, as amended by article 228 of Law no. 66-B/2012 of 31 December, the Arbitral Court was constituted on 19-09-2018.

  8. The Respondent, duly notified through the arbitral order of 21-09-2018, filed its Response on 24-10-2018.

  9. The Arbitral Court, by order of 29-10-2018, determined: (i) to dispense with the holding of the meeting provided for in article 18 of the LRTA, in accordance with the general principles of procedural efficiency and prohibition of unnecessary acts and to promote swiftness, simplification and informality of the arbitral proceedings, in accordance with the provisions of subparagraphs c) and e) of article 16 and paragraph 2 of article 29 of the LRTA, given that no plea in objection was raised nor any issues raised that prevent the examination of the merits of the claim; (iii) should the parties wish to submit written arguments, these must be produced within 10 days of notification of this order, granting the Respondent the right to file its written arguments successively in relation to those submitted by the Claimant; (iv) to set 17 December 2018 as the final deadline for the delivery of the arbitral decision.

  10. The Claimants submitted their arguments on 13-11-2018.

  11. The Respondent did not submit arguments.

  12. The position of the Claimants, in accordance with the provisions of the petition for the constitution of the Arbitral Court and in the arguments, is, in summary, as follows:

12.1. There being no indication that article 1 of Decree-Law no. 1/87 of 3 January should have a temporary duration and concluding that it was not repealed by any other rule or statute, it results that the exemption therein established remains, currently and for all purposes, in force.

12.2. From this it follows that the exemptions applicable to the extinct Municipal Sisa Tax and enshrined in separate legislation (such as Decree-Law no. 1/87 of 3 January) continued to be in effect in the sphere of IMT. Thus, the aforementioned Sisa exemption, provided for in article 1 of Decree-Law no. 1/87 of 3 January, then came to refer to the Municipal Tax on Onerous Transfers of Real Property (IMT).

12.3. On the other hand, article 46 of the Tax Benefits Statute (EBF) (later article 49) provided for an IMT exemption applicable to real estate investment funds which is configured as a complement to the exemption rule already existing aimed at conferring greater coherence on the tax regime applicable to these entities. Thus, the legislator, alongside the IMT exemption applicable in the acquisition of real property by real estate investment funds, also enshrined the IMT exemption in the transfer of real property by those funds.

12.4. The new article 46 of the EBF did not expressly or tacitly repeal the regime set out in article 1 of Decree-Law no. 1/87 of 3 January.

12.5. The exemption rule established in article 1 of Decree-Law no. 1/87 of 3 January is in force and must be applied to the factual situation covered by it, that is, in the operations of acquisition of real property carried out by a managing company with a view to their respective integration into the assets of the real estate investment funds managed and administered by it.

12.6. It is necessarily concluded that operations for the acquisition of real property carried out by a managing company for the assets of real estate investment funds managed and administered by it are exempt from IMT.

12.7. The operations for the acquisition of real property described in the case file, carried out by the managing company, in representation of the Fund managed and administered by it until its liquidation, should have benefited from the IMT exemption established in article 1 of Decree-Law no. 1/87 of 3 January.

12.8. In accordance with applicable legislation, no IMT should have been assessed in connection with the acquisitions of the real property in question. Consequently, the tax assessment acts for IMT are manifestly illegal as they result from the erroneous interpretation and application of applicable law.

12.9. The aforementioned IMT assessments must be declared illegal as they suffer from serious error in the factual and legal presuppositions, and consequently must be annulled with all legal effects.

12.10. Since the tax assessment acts for IMT in question are manifestly illegal, the Claimants must be compensated for the amounts of tax assessed, which were not due. Thus, in accordance with subparagraph b) of paragraph 1 of article 24 of the LRTA and article 100 of the General Tax Code (LGT), it is requested that the Tax Authority be ordered to reimburse the tax assessed on the basis of the acts in question.

12.11. Furthermore, the Claimants request that, should the arbitral decision be found to be well-founded, they be paid, in accordance with article 24, paragraph 1, subparagraph b) and paragraph 5 of the LRTA and articles 43 and 100 of the LGT, the respective compensatory interest for the unduly paid amounts in respect of the tax assessment acts in question.

  1. The position of the Respondent, expressed in the response, may be summarized as follows:

13.1. It does not appear defensible to maintain in force article 1 of Decree-Law no. 1/87 of 3 January, which states that acquisitions of real property made for a real estate investment fund by its managing company are exempt from sisa. With the amendment introduced by Law no. 53-A/2006 of 29 December, paragraph 1 of article 46 of the EBF came to provide for the exemption from IMT, in addition to IMI, which it had previously provided for.

13.2. The constitution of the right to exemption for both taxes depended on three presuppositions specified by law – the integration of real property into the assets of real estate investment funds; that these funds be constituted in accordance with national legislation and that these funds operate in accordance with the same legislation.

13.3. Paragraph 2 of article 46 of the EBF came to provide, following that amendment, that real property integrated into mixed or closed real estate investment funds for private subscription by unqualified investors or by financial institutions on account of the latter do not benefit from the exemptions referred to in the preceding paragraph, with the rates of IMI and IMT being reduced by half.

13.4. Subparagraphs a) and j) of article 88 of the same law that amended article 46 of the EBF (Law no. 53-A/2006 of 29 December) established the applicable transitional regime. Subparagraph a) maintained, in the respective terms, the tax benefits constituted prior to 31 December 2006, and subparagraph j) established that these amendments applied to funds that are to be constituted after 1 November 2006.

13.5. The same subparagraph further establishes that the limitation of the exemption also applies to real property that is integrated into the assets of real estate investment funds previously constituted, which on 1 November 2006 had their participation units held exclusively by unqualified investors or by financial institutions on account of the latter. This means that the new regime applies only to real property integrated after the date of entry into force of the new law, even if the funds had been constituted before its entry into force.

13.6. It follows that, with regard to IMT, the legislator uses the presupposition of the integration of real property into the fund, referring to its future integration, and not to real property already integrated prior to the date of entry into force of the law. This also means that the legislator intended to exempt acquisitions of real property that are to be realized, to be integrated into the assets of these funds, provided that such interaction occurs.

13.7. The legislator added to paragraph 1 of article 46 of the EBF the provision for the IMT exemption in these cases, subsequently to eliminate that exemption when it concerns mixed or closed real estate investment funds for private subscription by unqualified investors or by financial institutions on account of the latter. In these cases, reduced rates of IMI and IMT of 50% are to apply.

13.8. Article 1 of Decree-Law no. 1/87 of 3 January already exempted from IMT acquisitions of real property by real estate investment funds. It follows that the addition of the provision for IMT to paragraph 1 of article 46 of the EBF, carried out by Law no. 53-A/2006 of 29 December, does not imply any expansion of tax benefits. On the contrary, it is a measure intended to limit the tax benefit for the funds previously referred to. That limitation was intended to eliminate the abusive use of tax benefits.

13.9. Article 46 of the EBF came to regulate the tax benefits of IMT in acquisitions of real property by real estate investment funds. Therefore, in regulating the same matter, it tacitly repealed article 1 of Decree-Law no. 1/87 of 3 January. Having article 49 of the EBF, which succeeded article 46, been repealed by Law no. 7-A/2016 of 30 March, none of those rules is currently in force.

13.10. It follows from all the foregoing that the IMT assessments in question are based on an interpretation of tax exemption rules that attends to the letter and to the historical, systematic and teleological elements of interpretation according to the principles enshrined in article 9 of the Civil Code, applicable in accordance with article 11 of the LGT.

13.11. The petition for official review was submitted beyond the period of 120 days from the date of knowledge of the assessments provided for administrative complaint in paragraph 1 of article 70 combined with subparagraph f) of paragraph 1 of article 102, both of the General Tax Procedure Code (CPPT). To that extent, compensatory interest, if any is due, should be calculated from one year after the petition for review, in accordance with subparagraph c) of paragraph 3 of article 43 of the LGT, and not from the date of payment of the amount assessed.

13.12. Therefore, in the present case, no compensatory interest is owed either from the date of payment or because one year has not elapsed since the petition for official review (22.12.2017), in accordance with the provisions of subparagraph c) of paragraph 3 of article 43 of the LGT.

II - Preliminary Examination

  1. The parties have legal capacity and standing, appear as properly represented (articles 4 and 10, paragraph 2 of the LRTA and article 1 of Ordinance no. 112-A/2011 of 22 March).

The tribunal is competent and properly constituted.

The proceedings contain no nullities.

No pleas in objection were raised.

There are no other circumstances that prevent the examination of the merits of the case.

Under these terms, the Arbitral Court is properly constituted to examine and decide on the subject matter of the proceedings.

III - Merits

III.1. Matters of Fact

  1. Established Facts

15.1. With relevance for the examination and decision of the issues raised, the following facts are established as proven:

  • D... – Special Closed Real Estate Investment Fund began operations on 14-12-2007, being managed by E... – Real Estate Investment Fund Management Company, S.A. (hereinafter abbreviated as "E..."), tax identification number ....

  • The Fund identified in the preceding subparagraph proceeded to distribute the proceeds of liquidation to participants on 28-12-2017.

  • E..., in representation of the Fund, acquired the following real property:

    • By public deed of 03-06-2015, the real property registered in the matrix under article U-...-F of the union of parishes of ..., ..., ..., ..., ... and ..., municipality of Porto, located at Street of ... no. ... and ... No. ..., ..., being acquired for €62,500.00 from F... – Closed Real Estate Investment Fund for Housing Rental (as per Document no. 3, fls. 1 to 8, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes);

    • By public deed of 26-06-2015, the real property registered in the matrix under article U-...-BB of the union of parishes of ... and ..., municipality of Matosinhos, located at Street ... no. ..., being acquired for €190,000.00 from G... S.A. (as per Document no. 3, fls. 9 to 16, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes);

    • By public deed of 05-09-2016, the real property registered in the matrix under article U-...-T of the union of parishes of ..., ..., ..., ..., ... and ..., municipality of Porto, located at Street ... no. ... and ..., ..., being acquired for €65,000.00 from H... S.A. (as per Document no. 3, fls. 17 to 23, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes);

    • By public deed of 19-12-2016, the real property registered in the matrix under article U-...-D of the union of parishes of ..., ..., ..., ..., ... and ..., municipality of Porto, located at Street ... no. ... and ... No. ..., ..., being acquired for €160,000.00 from I... (as per Document no. 3, fls. 24 to 29, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes);

    • By public deed of 30-01-2017, the real property registered in the matrix under article U-...-I of the union of parishes of ..., ..., ..., ..., ... and ..., municipality of Porto, located at Street ... no. ... and ... No. ..., ..., being acquired for €100,000.00 from J... and K... (as per Document no. 3, fls. 30 to 35, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • With regard to the acquisition of the real property identified in subparagraph C) i), an IMT assessment no. ... was issued on 02-06-2015 in the amount of €625.00 (as per Document no. 2, fls. 4 and 5, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes), which was paid on 03-06-2015 (as per Document no. 4, fls. 2, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • With regard to the acquisition of the real property identified in subparagraph C) ii), an IMT assessment no. ... was issued on 25-06-2015 in the amount of €5,603.90 (as per Document no. 2, fls. 4 and 5, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes), which was paid on 26-06-2015 (as per Document no. 4, fls. 3, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • With regard to the acquisition of the real property identified in subparagraph C) iii), an IMT assessment no. ... was issued on 02-09-2016 in the amount of €650.00 (as per Document no. 2, fls. 6 and 7, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes), which was paid on 05-09-2016 (as per Document no. 4, fls. 4, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • With regard to the acquisition of the real property identified in subparagraph C) iv), an IMT assessment no. ... was issued on 16-12-2016 in the amount of €3,283.84 (as per Document no. 2, fls. 8 and 9, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes), which was paid on 16-12-2016 (as per Document no. 4, fls. 5, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • With regard to the acquisition of the real property identified in subparagraph C) v), an IMT assessment no. ... was issued on 27-01-2017 in the amount of €1,075.93 (as per Document no. 2, fls. 10 and 11, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes), which was paid on 27-01-2017 (as per Document no. 4, fls. 6, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • The Fund, represented by E..., requested on 12-12-2017 the official review of the tax assessment acts for IMT identified above, in accordance with articles 78 of the LGT and 41 and 42 of the IMT Code (as per Document no. 1, attached to the petition for arbitral pronouncement and which is hereby fully reproduced for all legal purposes).

  • Until the date of filing of the present arbitral petition, the Claimants had not yet been notified of any decision regarding the petition for official review filed.

15.2. Unproven Facts

There are no other facts with relevance for the examination of the merits of the case that have not been proven.

15.3. Substantiation of Factual Matters

The proven factuality was based on the documents attached to the case file by the Claimants as well as the positions assumed by the parties, in the light of article 110, paragraph 7 of the General Tax Procedure Code, and the facts listed above have been considered proven as having relevance for the decision.

15.4. Cumulation of Claims

The present petition for arbitral pronouncement relates to five tax assessment acts for IMT and the respective compensatory interest.

Given the provisions of articles 3 of the LRTA and 104 of the General Tax Procedure Code and considering the identity of the tax facts and the identical factual and legal grounds invoked, the tribunal considers that nothing prevents the cumulation of the present claims.

III.2. Matters of Law

  1. The issue in the present arbitral proceedings consists of determining whether article 1 of Decree-Law no. 1/87 of 3 January is in force and, consequently, whether Real Estate Investment Funds will or will not be exempt from IMT in the acquisition of real property.

It is necessary to examine this matter.

  1. In the legal framework of this issue, the following should be considered:

17.1. Decree-Law no. 1/87 of 3 January defined the tax framework applicable to real estate investment funds. The preamble to the statute emphasized the important contribution that this type of financial institution would give to the formation of savings and their mobilization for investments in the real estate sector. Article 1 had the following wording:

"Acquisitions of real property made by a real estate investment fund through their respective managing companies are exempt from sisa."

17.2. Decree-Law no. 287/2003 of 12 November carried out the reform of property taxation, approving the Municipal Real Property Tax Code and the Municipal Tax on Onerous Transfers of Real Property Code. Article 28 provided as follows:

"1- All legal texts mentioning Municipal Contribution Code or municipal contribution are deemed to refer to the Municipal Tax Code on Real Property (CIMI) or to the municipal tax on real property (IMI).

2- All legal texts mentioning Municipal Sisa Tax Code and the Tax Code on Successions and Donations, municipal sisa tax or tax on successions and donations are deemed to refer to the Municipal Tax Code on Onerous Transfers of Real Property (CIMT), the Stamp Duty Code, the municipal tax on onerous transfers of real property (IMT) and the stamp duty, respectively."

17.3. Paragraph 6 of article 31 of Decree-Law no. 287/2003 of 12 November established as follows:

"The tax benefits relating to municipal contribution, now referring to IMI, as well as those relating to the municipal sisa tax established in separate legislation to the Code approved by Decree-Law no. 41969 of 24 November 1958, and in the Tax Benefits Statute, which now refer to IMT, remain in force."

17.4. Law no. 53-A/2006 of 29 December, through article 82, amended article 46 of the Tax Benefits Statute as follows:

"Article 46

Real estate investment funds, pension funds and pension-savings funds

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

Real property integrated into mixed or closed real estate investment funds for private subscription by unqualified investors or by financial institutions on account of the latter do not benefit from the exemptions referred to in the preceding paragraph, with the rates of IMI and IMT being reduced by half."

17.5. Article 88 of Law no. 53-A/2006 of 29 December established the transitional provisions within the scope of tax benefits resulting from the amendments introduced in the Tax Benefits Statute. In accordance with subparagraph a) of article 88:

"The tax benefits in Parts II and III the right to which has been acquired up to 31 December 2006 are maintained, in the terms in which they were granted;"

In accordance with the provisions of subparagraph j) of article 88:

"The provision of paragraph 2 of article 46 of the Tax Benefits Statute applies, from the entry into force of the present law, to real property integrated into mixed or closed real estate investment funds for private subscription by unqualified investors or by financial institutions on account of the latter constituted after 1 November 2006 or that carry out capital increases after this date and also to real property integrated into funds with identical characteristics whose participation units were, on 1 November 2006, held exclusively by unqualified investors or by financial institutions on account of the latter;"

17.6. Through article 109 of Law no. 3-B/2010 of 28 April, State Budget Law for 2010, article 46 of the Tax Benefits Statute was renumbered and became article 49, with paragraph 1 being amended and paragraph 2 being repealed:

"1- Real property integrated into open real estate investment funds, pension funds and pension-savings funds that are constituted and operate in accordance with national legislation are exempt from municipal property tax and from municipal tax on onerous transfers of real property.

2- (Repealed)"

17.7. With article 119 of Law no. 53-A/2006 of 31 December, the exemption from IMT was extended to closed public subscription funds, and paragraph 1 of article 49 of the Tax Benefits Statute was amended:

"1- Real property integrated into open or closed public subscription real estate investment funds, pension funds and pension-savings funds that are constituted and operate in accordance with national legislation are exempt from municipal property tax and from municipal tax on onerous transfers of real property."

17.8. Article 206 of Law no. 83-C/2013 of 31 December, State Budget Law for 2014, replaced the exemption from IMT for real property integrated into open or closed public subscription real estate investment funds with a reduction of IMT rates by half, establishing:

"1- The rates of municipal property tax and municipal tax on onerous transfers of real property applicable to real property integrated into open or closed public subscription real estate investment funds, pension funds and pension-savings funds that are constituted and operate in accordance with national legislation are reduced by half."

17.9. Article 209 of Law no. 83-C/2013 of 31 December established the following transitional regime:

"The tax regime resulting from the new wording given to paragraph 1 of article 49 of the Tax Benefits Statute, approved by Decree-Law no. 215/89 of 1 July, applies to real property that, at the moment of entry into force of the present law, form part of open or closed public subscription real estate investment funds, pension funds and pension-savings funds that are constituted and operate in accordance with national legislation, as well as to real property that come to form part of these entities"

17.10. Law no. 7-A/2016 of 30 March, State Budget Law for 2016, in article 215, paragraph 1, subparagraph g), repealed article 49 of the Tax Benefits Statute.

  1. From the factuality forming the subject matter of the present arbitral proceedings, it is proven that the Fund was a real estate investment fund managed by a managing company. The said managing company, E..., acquired five real properties with the intention that these would form part of the Fund itself (D... – Special Closed Real Estate Investment Fund) (see subparagraphs A), B) and C) i), ii), iii), iv) and v) of 15.1 above).

  2. The acquisitions described in subparagraphs C) i), ii), iii), iv) and v) of 15.1 above fall within the provision of article 1 of Decree-Law no. 1/87 of 3 January, so that, if this rule remains in force, the exemption will be applicable, referred to IMT, by virtue of the rules of Decree-Law no. 287/2003 of 12 November (see paragraph 17.2 above).

  3. In this regard, Arbitral Decision no. 580/2017-T, to whose contents we hereby refer, states:

"No temporary duration was provided for article 1 of Decree-Law no. 1/87, so that any cessation of its duration can only result from repeal by another law, as follows from paragraph 1 of article 7 of the Civil Code.

3.1. Express Repeal

Express repeal did not occur, in particular before or with the Tax Benefits Statute, approved by Decree-Law no. 215/89 of 1 July.

In fact, the approval of the Tax Benefits Statute was preceded by a global reconsideration of tax benefits, which was initiated by Law no. 2/88 of 26 January (State Budget for 1989), which in article 49 repealed various tax benefits, including that provided for in article 7 of Decree-Law no. 1/87, but not that provided for in article 1, which is at issue here.

The list of tax benefits expressly repealed came to be completed by Decree-Law no. 485/88 of 30 December, in which the tax benefit provided for in article 1 of Decree-Law no. 1/87 is also not included.

After approval of the Tax Benefits Statute, there is also no law that expressly repeals article 1 of Decree-Law no. 1/87.

In particular, express repeal was proposed by the Government in article 81, paragraph 3 of the Proposal for the State Budget for 2007 (Bill no. 99/X), in a list of tax benefits to be repealed, but was not included in the approved budget law (Law no. 53-A/2006 of 29 December), even though express repeal of other tax benefits was maintained in article 87. It is thus unequivocal that express repeal of article 1 of Decree-Law no. 1/87 was not intended.

3.2. Tacit Repeal

There being no express repeal, the repeal of article 1 of Decree-Law no. 1/87 can only result from tacit repeal, resulting from 'incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the previous law.'

The Tax Benefits Statute, in its initial wording, does not include any rule on taxes on assets relating to real estate investment funds, so it cannot be understood that it regulated the entire subject matter of the previous law.

Moreover, the said fact that the Tax Benefits Statute was preceded by express repeal of tax benefits, including one provided for in Decree-Law no. 1/87, but not that provided for in its article 1, requires that it be concluded that repeal of this tax benefit was not intended.

Decree-Law no. 189/90 of 8 June added to the Tax Benefits Statute article 56 relating to 'Real estate investment funds,' establishing that 'real property integrated into real estate investment funds are exempt from municipal contribution.' Law no. 39-B/94 of 27 December altered the wording of this article to 'real property integrated into real estate investment funds and equivalent entities, pension funds constituted in accordance with national legislation and pension-savings funds are exempt from municipal contribution.'

With the renumbering carried out by Decree-Law no. 198/2001 of 3 July, this article 56 came to correspond to article 46.

Law no. 32-B/2002 of 30 December gave article 46 the following wording: 'Real property integrated into real estate investment funds and equivalent entities, pension funds and pension-savings funds that are constituted and operate in accordance with national legislation are exempt from municipal contribution.'

With Law no. 53-A/2006 of 29 December, article 46 of the Tax Benefits Statute came to encompass tax benefits in the sphere of IMT relating to real property integrated into real estate investment funds.

This article 46 came to have the following wording:

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

2 - Real property integrated into mixed or closed real estate investment funds for private subscription by unqualified investors or by financial institutions on account of the latter do not benefit from the exemptions referred to in the preceding paragraph, with the rates of IMI and IMT being reduced by half.

With Decree-Law no. 108/2008 of 26 June, this article 46 came to correspond to article 49 of the Tax Benefits Statute.

This article 49 was successively amended by Law no. 3-B/2010 of 28 April, by Law no. 55-A/2010 of 31 December, by Law no. 83-C/2013 of 31 December, and came to be repealed by Law no. 7-A/2016 of 30 March.

In any of the referred wordings, article 49 refers only to real property integrated into real estate investment funds, and does not refer to IMT relating to its acquisition.

In this context, it cannot be understood that tacit repeal of article 1 of Decree-Law no. 1/87 occurred, since the entire subject matter provided for in it, in particular that relating to benefits relating to acquisition of real property by real estate investment funds, was not regulated by any subsequent law.

Moreover, there is no rule that is incompatible with that tax benefit.

Furthermore, the already mentioned fact that express repeal of Decree-Law no. 1/87 was proposed, and the proposal was not approved, corroborates the conclusion that repeal of its article 1 was not intended."

  1. The position contained in the Arbitral Decision cited above merits our agreement, and further substantiation is dispensed with as being unnecessary in the present proceedings. Thus, in summary, Decree-Law no. 1/87 of 3 January contains no indication that article 1 should have a temporary duration, and since it was not repealed by another law, the exemption contained therein remained in force on the date of the facts contained in the present arbitral proceedings. Taking into account the provisions of article 7, paragraph 2 of the Civil Code, the introduction of the exemption in article 46 of the Tax Benefits Statute cannot be interpreted as a repeal and replacement of the exemption contained in article 1 of Decree-Law no. 1/87. Firstly, because tax benefits are not only provided for in the Tax Benefits Statute but may be contained in separate legislation. Thus, we must conclude that the two exemptions are different, compatible and complementary.

  2. In light of the foregoing, E... acquired five real properties with the intention that these would form part of the Fund itself. In this manner, the IMT exemption provided for in article 1 of Decree-Law no. 1/87 of 3 January applies to the said transactions, and the tax should not be levied upon the execution of the corresponding public deeds. Therefore, we conclude that article 1 of Decree-Law no. 1/87 of 3 January was not repealed in 2015 and 2016 when the acquisitions contained in the case file were carried out, and therefore the challenged assessments suffer from the vice of violation of law which justifies their annulment, in accordance with article 163, paragraph 1 of the Administrative Procedure Code subsidiarily applicable in accordance with article 2, subparagraph c) of the LGT.

Thus, and in conclusion, the Claimants are correct, and the declaration of illegality of the challenged assessments is determined in the terms in which the claim is well-founded with the consequent annulment of the IMT assessments with all legal consequences.

  1. It now falls to examine the claim of the Claimants filed in the Petition for Arbitral Pronouncement for payment of compensatory interest.

On the basis of article 24, paragraph 5 of the Legal Regime for Tax Arbitration, it has been understood that recognition of the right to compensatory interest is possible in arbitral proceedings.

In accordance with article 43, paragraph 1 of the LGT, compensatory interest is owed when it is determined, in administrative complaint or judicial challenge, that there has been error attributable to the Tax Administration services from which results payment of the tax debt in an amount higher than legally owed.

The necessary condition for the attribution of compensatory interest consists of demonstrating the existence of error concerning the factual or legal presuppositions attributable to the services of the Tax Administration.

In the present case, the challenged assessments suffer from the vice of violation of law attributable to the Tax and Customs Authority.

The Claimants did not file an administrative complaint or judicial challenge to the assessments, but instead filed a petition for official review in accordance with article 78 of the LGT (see subparagraph I) of paragraph 15.1 above).

A petition for official review filed within the deadline for administrative complaint provided for in paragraph 1 of article 78 of the LGT is equivalent to such a complaint in accordance with the case law of the Supreme Administrative Court (see decision of 12-07-2006 in case no. 0402/06, and decision of 15-04-2009 in case no. 065/09).

The Claimants only filed the petition for official review on 12-12-2017, that is, beyond the 120-day period from the date of knowledge of the assessments (see subparagraphs D), E), F), G) and H) of 15.1 above). In this situation, the right to compensatory interest is only provided for in accordance with subparagraph c) of paragraph 3 of article 43 of the LGT, that is, "when the revision of the tax act on the initiative of the taxpayer is made more than one year after the request therefor". Thus, compensatory interest should be calculated from one year after the petition for review and not from the date of payment of the assessed amount.

  1. Under these terms, the claim for recognition of the right to compensatory interest in favor of the Claimants from the date of payment of the tax is denied, such interest being calculated after 12-12-2018 (one year after the petition for revision of the tax act which was filed on 12-12-2017 – see subparagraph I) of 15.1 above) until its reimbursement.

  2. In this sense, the CAAD decision in case no. 188/2018-T has already ruled.

IV - Decision

Under these terms, this Arbitral Court decides as follows:

  1. Judgement is rendered in favor of the claim for arbitral pronouncement regarding the annulment of IMT assessments;

  2. The IMT assessments no. ..., in the amount of €625.00; no. ..., in the amount of €5,603.90; no. ..., in the amount of €650.00; no. ..., in the amount of €3,283.84 and no. ..., in the amount of €1,075.93 are annulled;

  3. The claim for restitution to the Claimants of the amounts paid in the total amount of €11,238.67 is rendered well-founded, and the Tax and Customs Authority is ordered to make this payment;

  4. The claim for compensatory interest in favor of the Claimants is rendered well-founded, and the Tax and Customs Authority is ordered to pay to the Claimants interest on the amounts unduly paid, calculated from 12-12-2018 until their full reimbursement;

  5. The Respondent is ordered to pay the costs of the present proceedings.

V - Value of the Proceedings

Given the provisions of articles 32 of the Administrative Court Procedure Code, 306, paragraph 2 of the Civil Procedure Code and 97-A of the General Tax Procedure Code, applicable by virtue of the provisions of article 29, paragraph 1, subparagraphs a) and b) of the LRTA and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceedings is set at €11,238.67 (eleven thousand two hundred and thirty-eight euros and sixty-seven cents).

VI - Costs

The amount of the costs is set at €918.00 (nine hundred and eighteen euros) to be borne by the Respondent, in accordance with Table I of the RCPAT, in compliance with the provisions of articles 12, paragraph 2 and 22, paragraph 4, both of the LRTA, as well as the provision of article 4, paragraph 4 of the RCPAT.

Let it be notified.

Lisbon, Administrative Arbitration Centre, 14 December 2018

The Arbitrator

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

Are real estate investment funds (Fundos de Investimento Imobiliário) exempt from IMT in Portugal?
Yes, real estate investment funds in Portugal can benefit from IMT exemption, though the applicable legal framework is subject to interpretation. Article 46 (later 49) of the Tax Benefits Statute provides an IMT exemption for certain real estate fund transactions. However, dispute exists regarding whether the historic exemption under Decree-Law 1/87 of January 3, 1987, which covered acquisitions by managing companies for fund assets, remains in force alongside the statutory exemption regime. The specific application depends on the nature of the transaction and the legal interpretation adopted.
What is the legal basis for IMT exemption for closed-end real estate investment funds under Portuguese tax law?
The primary legal basis for IMT exemption for closed-end real estate investment funds is found in the Tax Benefits Statute (Estatuto dos Benefícios Fiscais - EBF), specifically article 46 (renumbered to article 49). However, claimants may also invoke Decree-Law 1/87 of January 3, 1987, which originally exempted acquisitions made by managing companies for real estate investment fund assets from the Municipal Sisa Tax. The key legal question is whether this older exemption survived the introduction of IMT and the subsequent EBF regime, or whether it was tacitly repealed by Law 53-A/2006 of December 29, which reformed the EBF provisions.
How can participants of a real estate investment fund challenge IMT tax assessments through CAAD arbitration?
Participants of a real estate investment fund can challenge IMT tax assessments through CAAD (Administrative Arbitration Centre) by filing a petition for arbitral pronouncement under articles 2(1)(a) and 10(1)(2) of the Legal Regime for Tax Arbitration (LRTA - Decree-Law 10/2011 of January 20). The petition must identify the contested assessments, specify the grounds for annulment, and request specific relief. As demonstrated in this case, participants act as representatives of the fund, can consolidate multiple related IMT assessments in a single proceeding, and may seek both annulment of the assessments and reimbursement of amounts paid plus compensatory interest calculated at the legal rate under article 100 of the General Tax Code.
What is the procedure for requesting reimbursement of unduly paid IMT plus compensatory interest in Portugal?
To request reimbursement of unduly paid IMT plus compensatory interest in Portugal, taxpayers must: (1) successfully challenge the underlying tax assessment through administrative complaint or arbitration/judicial proceedings; (2) invoke article 100 of the General Tax Code (LGT) which governs reimbursement of undue payments; (3) request compensatory interest under article 43 of the LGT and article 24(1)(b) and (5) of the LRTA for arbitration proceedings; (4) specify the total amount paid and the applicable legal interest rate; and (5) demonstrate that payment was made pursuant to illegal assessments. The compensatory interest runs from the date of payment until reimbursement, calculated at the legal rate in force during each period.
Can multiple IMT tax assessments be contested in a single arbitration proceeding at CAAD?
Yes, multiple IMT tax assessments can be contested in a single arbitration proceeding at CAAD when they relate to the same taxpayer and involve the same legal question or factual circumstances. In Process 330/2018-T, the claimants successfully consolidated five separate IMT assessments issued on different dates (June 2, 2015; June 25, 2015; September 2, 2016; December 16, 2016; and January 27, 2017) into one arbitration petition. This procedural consolidation promotes efficiency, avoids contradictory decisions, and reduces costs. The key requirement is that the assessments share common legal or factual grounds that justify unified treatment, which in this case was the applicability of the IMT exemption regime to real estate investment fund acquisitions.