Process: 414/2016-T

Date: January 27, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral case (Process 414/2016-T) addresses the complex intersection of IMT exemption lapses, tax prescription periods, and tribunal competence. A company acquired property plots in March 2007 with IMT exemption under Article 7 CIMT, conditioned on resale obligations. When these obligations weren't met within three years, the exemption lapsed under Article 11(5) CIMT. The Tax Authority issued IMT assessments in May 2016, nine years after the original acquisition. The taxpayer challenged on two grounds: first, that the debt was prescribed under Article 48 LGT's 8-year limitation period, arguing prescription runs from the 2007 deed date, making 2016 assessments time-barred; second, that AT failed to grant the mandatory right to prior hearing before issuing assessments. The Tax Authority raised a preliminary objection claiming CAAD lacks material competence to rule on prescription matters, which it argues fall within the exclusive jurisdiction of tax courts as prescription is a ground for opposition to enforcement rather than a basis for judicial challenge of tax acts. AT further contended prescription should run from the exemption lapse date (2010) rather than the deed date (2007), and that Article 60(2) LGT exempts this situation from prior hearing requirements. The case highlights critical procedural questions: whether arbitral tribunals can adjudicate prescription claims, when limitation periods commence for conditional exemptions that later lapse, and the scope of taxpayers' right to be heard before tax assessments. The ruling would clarify CAAD's jurisdictional boundaries and establish important precedent for calculating prescription periods in cases involving deferred tax obligations arising from failed exemption conditions.

Full Decision

ARBITRAL DECISION

I – REPORT

1 A..., SA NIPC[1]..., with registered office at Street... – ...-... ..., area of the... Tax Authority Service of..., filed a request for arbitral pronouncement, under the provisions of subsection a) of no. 1 of Article 2, of no. 1 of Article 3 and of subsection a) of no. 1 of Article 10, all of the RJAT[2], being the AT[3] required to respond, with a view to reviewing the legality of the tax acts of assessment of IMT[4], identified in the petition, concerning the acquisition of various plots of Article... of the extinct parish of..., current Article... of the parish of... and..., area of the Tax Authority Service of the municipality of... in accordance with deeds executed on 23/03/07 before Notary B..., with office at ... no.... – ... floor, room ... of the city of Porto, acquisitions which, at that time, enjoyed IMT exemption, under the provisions of no. 1 and 3 of Article 7 of CIMT[5], the exemptions granted having lapsed under the terms of no. 5 of Article 11 of the same Code and giving rise to the IMT assessments now challenged.

2 That the request was filed without exercising the option of appointment of arbitrator, and was accepted by His Excellency the President of CAAD[6] and automatically notified to AT on 21/07/2016.

3 Under the terms and for the purposes of the provisions of no. 2 of Article 6 of RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties, within the legally applicable time limits, on 29/09/2016, Arlindo José Francisco was appointed arbitrator of the tribunal, who communicated acceptance of the assignment within the legally stipulated time limit.

4 The tribunal was constituted on 24/10/2016 in accordance with the provisions contained in subsection c) of no. 1 of Article 11 of RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December.

5 With its request, the claimant seeks the examination of the question of the prescription of the debt arising from the assessments made and also the voidability of the same, by reason of failure to observe the right to prior hearing of the claimant before the assessments were made.

6 It supports its position, in summary, in that the tax facts, underlying the assessments, are situated on the date of execution of the deeds of purchase and sale of the properties (23/03/07) and when it was notified in May 2016, the tax had already prescribed, since the period of 8 years provided for in Article 48 of LGT[7] had already been exceeded.

7 It states that current jurisprudence considers that the prescription period begins on the date of execution of the deed of acquisition and not on the date of breach of the obligation to resell within 3 years, since, while in civil obligations the prescription period does not run while the right cannot be exercised, in tax obligations arising from taxes, prescription begins to run from the end of the year in which the tax fact occurred, this for periodic taxes, or from the date on which the tax fact occurred, in taxes of single obligation, as is the case here.

8 As to the failure to observe the formality of prior hearing of the claimant, it considers that there is a procedural defect whose omission leads to the voidability of the assessments.

9 To the effect that the request for pronouncement should be declared well-founded, declaring the prescription of the debt that resulted from the IMT assessments, that the tax acts are affected by a defect of violation of law by failure to observe essential formalities and the consequent annulment of the assessments with all inherent effects.

10 For its part, the AT, also in summary, argues, firstly, the material incompetence of the tribunal, supporting its position on the fact that prescription is not a ground for judicial challenge, occurring after a supposedly valid tax act, respecting the subsequent non-exercise of the right of collection which is extinguished in case of non-use by its holder, being recognized by the Chief of Finance or ex officio by the tax tribunal.

11 It considers that the competence of arbitral tribunals is not as broad as that of tax tribunals, nor does it comprise the entirety of the claims that can be raised by taxpayers before tax tribunals, with prescription in this case falling within the reserve of those tribunals.

12 As to the failure to observe the right of prior hearing, the AT understands that in the case at hand there is no place for such a procedure in accordance with the provisions of no. 2 of Article 60 of LGT, so the failure to comply with the duty of right to prior hearing raised by the claimant is without merit.

13 Regarding prescription, what is at issue here is whether the prescription period should be counted from the date on which the tax fact occurred, or from the date on which the exemption lapsed and recognizes that there is divergent jurisprudence of the STA[8], following, however, the doctrine set forth in the Judgment rendered in Process 0174/2011 of 8 June, concluding that the exception invoked by AT should be adjudged well-founded or, if not so understood, the request for pronouncement should be adjudged without merit, keeping in the legal order the tax acts of assessment challenged, absolving the respondent of the claim with the inherent legal consequences.

II - PRELIMINARY MATTERS

The tribunal was regularly constituted, the parties have legal personality and capacity, appear legitimate and are regularly represented in accordance with Articles 4 and 10, no. 2 of RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March.

In its response, AT invoked the material incompetence of the tribunal, which ordered by ruling of 30/11/2016 the meeting referred to in Article 18 of RJAT, which due to unavailability of CAAD, was rescheduled for 05/01/2017, at 10:30 hours.

At the said meeting, the claimant stated its position on the lack of merit of the exception invoked by AT, with the latter maintaining its position regarding the same.

The parties waived producing oral or written arguments, and the tribunal considered the conditions met to render a decision.

Thus, the proceedings being free of nullities, it is necessary to decide.

III - GROUNDS

1 – The issues to be resolved, with interest in the case, are as follows:

a) Assess the exception of material incompetence of the tribunal raised by AT.

b) In case of lack of merit of the same, declare whether the debt resulting from the acts of assessment of IMT is or is not prescribed.

c) Whether the impugned tax acts are or are not affected by a defect of violation of law by failure to observe an essential formality.

2 - Facts

a) The claimant acquired by public deeds of 23/03/2017 the plots listed in the request for pronouncement and which gave rise to the acts of assessment of IMT challenged here.

b) The said acquisitions benefited from IMT exemption, recognized by the notary under Article 7 of CIMT.

c) AT, by notifications dated 04 May 2016 (two) and 05 May 2016 (four), communicated to the claimant the tax acts of assessment of IMT that gave rise to the debt challenged here.

d) The said notifications were made by registered mail with AR[9] and were delivered to the claimant on 06/05/2016 (one) and on 09/05/2016 (five).

e) The facts described are proven by documents attached to the case file and we consider them to be relevant for the examination of the merits of the case.

3 – Law

3.1 – Of the material incompetence of the tribunal, exception raised by AT

The infringement of the rules of competence, in respect of subject matter, determines the absolute incompetence of the tribunal, which is of public order and its examination precedes that of any other matter, whereby in the first place we shall proceed to its examination.

The respondent argues that prescription is a cause of non-enforceability and not of invalidity of the debt, not being a ground for judicial challenge, but of opposition to enforcement, where it will be known ex officio by the tribunal when the chief of finance has not done so. It considers that prescription occurs after the supposedly valid tax act and respects the subsequent non-exercise of the right to collect the debt, a right that will be extinguished by non-use by its holder. Taking into account that the competence of arbitral tribunals is not as broad as that of tax tribunals, nor does it comprise all the claims that taxpayers can raise before them. The issues related to the tax enforcement process, such as for example prescription which is a cause of opposition, are excluded from the competence of arbitral tribunals.

At the meeting of Article 18 of RJAT, the claimant invited to state its position on the exception raised, declared that it does not apply and that the request should be declared without merit.

Having regard to the positions of the parties on the matter, the tribunal, taking into account the provisions contained in subsection a) of no. 1 of Article 2 of RJAT and Article 2 of Ordinance 112-A/2011, of 22 March, understands that the competence of arbitral tribunals comprises the examination of claims concerning the declaration of illegality of acts of assessment of taxes, in the case in hand the IMT, whose administration belongs to the respondent.

It is verified that, in its request, the claimant invokes the illegality of the debt, although it bases it on prescription, with the latter not constituting the object of the request, but rather the illegality of the assessments, the defects pointed out being an integral part of the same, considering, in this perspective, the tribunal materially competent, under the legal terms already referred to, thus the exception raised is without merit.

3.2 – Of the prescription of the debt

From the claimant's point of view, contrary to what occurs in civil obligations, in which the prescription period does not begin to run while the right cannot be exercised, in accordance with no. 1 of Article 306 of CC[10], in tax obligations, prescription begins to run from the end of the year in which the tax fact occurred, in periodic taxes, or from the date on which the tax fact occurred in taxes of single obligation as is the case with IMT.

The assessment and collection of taxes, including the periods of lapse and prescription, are subject to the principle of legality, subsection a) of no. 2 of Article 8 of LGT, and the tax laws have established that the counting of the beginning of the prescription period starts on the date of occurrence of the tax fact, unless a special law provides otherwise, which in the case in hand does not occur.

Now the acquisitions of the plots, on 23/03/2007, benefited from the exemption from payment of IMT under the terms of Article 7 of CIMT, the date on which the tax fact occurred and it is from that date that the counting of the prescription period begins, regardless of the date on which the lapse of the exemption occurs. With the law providing no suspension of the prescription period, contrary to what occurs with the lapse period, subsection c) of no. 2 of Article 46 of LGT, the prescription of the debt challenged here occurred on 23/03/2015, enumerating various Judgments of the STA which go in the direction sought, namely the declaration of prescription.

In its response, AT considers that the question is whether the prescription period should begin to be counted from the occurrence of the tax fact or from the date on which the lapse of the IMT exemption recognized in the respective acquisition deeds (22/03/2007) occurred, it refers to the divergences of jurisprudence of the STA and accepts the doctrine set out in the Judgment of the STA of 08/06/2011 - Pº 0174/2011, in which it was decided that the prescription period can only begin to run when the right can be exercised, in accordance with Article 306 of CC. It results from no. 1 of Article 36 of LGT that the formation of the tax act is simultaneous with the constitution of the tax obligation and that in the case of tax benefits subject to a resolutive condition, the tax obligation is only constituted at the end of the period for compliance with that same condition, in the concrete case only after the verification of the conditions referred to in no. 5 of Article 11 of CIMT, concluding the legal conformity of the acts of assessment of IMT challenged here, which should be maintained in the legal order, declaring the present request for arbitral pronouncement without merit.

Having summarized the positions of the parties, it is for the tribunal to decide whether the prescription period begins to run from the tax fact which corresponds to the date of the deeds of onerous acquisition of the properties or from the date of occurrence of the lapse of the IMT exemption that the acquisitions enjoyed. In civil law the institute of prescription aims to penalize the inertia of the creditor in obtaining the performance of the obligation by the debtor and the period only begins to run from the moment the right can be exercised, no. 1 of Article 306 of CC. But we are in the presence of a tax-legal relationship in which there is unavailability of the credit, basing here the institute of prescription, essentially in pure considerations of certainty and legal security, as referred to by the STA in its judgment 0287/15 – 2nd section of 27/01/2016 which we follow closely and, with the institute of prescription being regulated in Article 48 of LGT, the application of civil law in this matter is excluded.

Now the cited Article 48 of LGT, in its no. 1, establishes: "Tax debts prescribe, unless provided otherwise in special law, within a period of eight years counted, in periodic taxes, from the end of the year in which the tax fact occurred and, in taxes of single obligation, from the date on which the tax fact occurred…"

Being IMT a tax of single performance, the lapse period began to run on the date of execution of the deeds of onerous acquisition of the properties, at which time the tax fact occurred, namely from 23/03/2007, with prescription occurring on 23/03/2015, given that none of the situations provided for in Article 49 of LGT that would lead to the suspension or interruption of its period occurred.

In this perspective and having the acts of assessment of IMT in question been notified to the claimant in May 2016, they are affected by illegality, since their notification occurred beyond the 8-year period provided for in Article 48, no. 1 of LGT, at which time the right of the tax creditor to demand payment of the debt was already extinguished by prescription.

3.3 – Failure to observe an essential formality

The claimant also alleged the lack of prior hearing in the formation of the decision to which AT was obligated by force of Article 60 of LGT, however, taking into account the position taken in the preceding item, the tribunal considers unnecessary the examination of this matter.

IV DECISION

In light of the foregoing, the tribunal decides as follows:

a) Declare the exception of material incompetence of the tribunal, raised by AT, without merit.

b) Declare the request for arbitral pronouncement well-founded and the prescription of the debt resulting from the assessments of IMT challenged here, which shall be annulled with all legal consequences.

c) Set the value of the case € 21,565.77 in accordance with the provisions contained in Article 299, no. 1, of CPC[11], Article 97-A of CPPT[12], and Article 3, no. 2, of RCPAT[13].

d) Set the costs, under no. 4 of Article 22 of RJAT, in the amount of € 1,224.00 in accordance with the provisions of Table I referred to in Article 4 of RCPAT, which shall be borne by the respondent AT.

Notify

Lisbon, 27 January 2017

Text prepared by computer, under the terms of Article 131, no. 5 of CPC, applicable by reference from Article 29, no. 1, subsection e) of RJAT, with blank lines and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for Tax Identification Number of a Legal Entity
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Municipal Tax on Onerous Transfers of Real Property
[5] Acronym for Code of Municipal Tax on Onerous Transfers of Real Property
[6] Acronym for Administrative Arbitration Centre
[7] Acronym for General Tax Law
[8] Acronym for Supreme Administrative Court
[9] Acronym for Receipt Notification
[10] Acronym for Civil Code
[11] Acronym for Code of Civil Procedure
[12] Acronym for Code of Tax Procedure and Process
[13] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What happens when an IMT exemption for property resale expires under Article 7 of the CIMT?
When an IMT exemption under Article 7 CIMT expires due to non-compliance with resale conditions, the exemption lapses under Article 11(5) CIMT and the Tax Authority may issue IMT assessments for the originally exempted transaction. This triggers the tax obligation that was initially suspended by the exemption, with the key dispute being whether the prescription period runs from the original deed date or from when the exemption condition was breached.
When does the 8-year prescription period for IMT tax debt begin under Article 48 of the LGT?
Under Article 48 LGT, the 8-year prescription period for IMT tax debt presents a critical timing question in exemption lapse cases. The taxpayer argued prescription runs from the deed execution date (the original taxable event), while the Tax Authority contended it begins when the exemption lapses due to breach of conditions. The case reveals divergent Supreme Administrative Court jurisprudence on this issue, making the starting point determination crucial for whether assessments made years after acquisition remain within the limitation period.
Can the CAAD arbitral tribunal rule on IMT prescription claims?
The CAAD's material competence to rule on prescription claims is contested. The Tax Authority argued that prescription is not a ground for judicial challenge of tax acts but rather a cause of non-enforceability addressed through opposition to enforcement proceedings or recognized by tax courts or the Chief of Finance. This position asserts that arbitral tribunals have more limited competence than tax courts and cannot adjudicate prescription matters, which would fall outside RJAT's scope of reviewable acts.
Is failure to grant the right to prior hearing grounds for annulment of IMT assessments?
The failure to grant prior hearing rights before IMT assessments raises grounds for annulment based on violation of essential procedural formalities. The taxpayer invoked this as causing voidability of the assessments. However, the Tax Authority countered that Article 60(2) LGT exempts certain situations from prior hearing requirements, arguing this case falls within those exceptions and therefore no procedural defect occurred.
How does the resale deadline affect IMT exemption and subsequent tax liquidation?
The resale deadline fundamentally affects IMT exemption by creating conditional tax relief that becomes retrospectively invalid upon non-compliance. Under Article 7 CIMT, exemptions granted for acquisitions requiring resale within three years lapse under Article 11(5) when that condition fails. This lapse triggers the Tax Authority's right to issue assessments for the originally exempted transactions, with the critical legal question being when the prescription clock starts ticking for such deferred obligations.