Process: 414/2017-T

Date: January 30, 2018

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD arbitral decision 414/2017-T addresses whether contributions in kind of real estate to a closed-end real estate investment fund were subject to IMT in 2011-2012. The fund management company paid €121,648.67 in IMT on property transfers exchanged for fund participation units. In 2014, the taxpayer requested official review based on AT binding information confirming such operations were not taxable under the IMT Code regime then in force. AT dismissed the requests as untimely under Article 78(1) LGT. The claimant argues an error attributable to tax services occurred, invoking Article 48(1) of the Tax Procedure Code requiring AT to verify declarations and identify obvious errors. The core legal issue concerns whether Article 2(5)(e) of the IMT Code, as worded before Law 66-B/2012 amendments, subjected real estate contributions to closed private subscription funds to IMT. The tribunal must determine if AT's failure to identify the non-taxable nature of the operations during assessment constitutes an error attributable to services, potentially overcoming the 120-day limitation period for official review and warranting annulment of the assessments with reimbursement plus compensatory interest.

Full Decision

ARBITRAL DECISION

The arbitrators Counselor Fernanda Maçãs (arbitrator president), Dr. Augusto Vieira and Prof. Dr. Francisco Nicolau Domingos (arbitrators members), appointed by the Deontological Council of CAAD to constitute the Arbitral Tribunal, constituted on 14-09-2017, agree on the following:

REPORT

  1. On 06-07-2017, A…-Real Estate Investment Fund Management Company, SA., with Tax Identification Number (NIF)…, management company of the Special Real Estate Investment Fund Closed in Urban Rehabilitation B… (Fund), filed at CAAD a request for arbitral ruling (PAR) requesting, under the Legal Regime of Tax Arbitration (RJAT), the constitution of a collective arbitral tribunal (TAC).

The Claimant requests the collective Tribunal to declare the illegality and annul the orders for dismissal of 21.04.2017, of the requests for official review issued by the Finance Department of Lisbon and notified through Official Letters nos… and …, respectively, and consequently to rule on the illegality of the tax acts for assessment of Municipal Tax on Onerous Transfers of Real Estate ("IMT") underlying the same with numbers…, …, …, …, …, …, …, relating to the year 2011, and of the tax acts for assessment of IMT nos…, … and …, relating to the year 2012, in the global amount of €121,648.67".

  1. The request for constitution of the Tribunal was accepted by the President of CAAD and automatically notified to AT on 17-07-2017.

2.1. By the Deontological Council of CAAD, arbitrators were appointed the signatories of this decision, having been notified to the parties on 30-08-2017. The parties did not manifest willingness to refuse the appointment, in accordance with article 11.º n.º 1 letters a) and b) of RJAT and articles 6.º and 7.º of the Deontological Code.

2.2. The Collective Arbitral Tribunal (TAC) has been, since 14-09-2017, regularly constituted to examine and decide the object of this dispute (articles 2.º, n.º 1, letter a) and 30.º, n.º 1, of RJAT), an act that is documented in the communication of constitution of TAC dated 14-09-2017 which is hereby reproduced.

  1. The Claimant argues, to substantiate the request, among other things, that:

  • Between 02.05.2011 and 16.03.2012, it celebrated, with diverse participants, two deeds of contribution in kind of a group of 17 and 3 properties which came to integrate its assets, in exchange for units of participation at the total value corresponding to the total APV of the same properties.

  • In the IMT Model 1 declarations, submitted on 01.05.2011, and two on 02.05.2011, it appears as the taxable event the "acquisition of the right of full ownership of real estate", and in the field destined for observations it states "exchange of real estate for units of participation in the Special Real Estate Investment Fund".

  • In the IMT Model 1 declarations submitted on 16.03.2012 it appears as the taxable event the "acquisition of the right of full ownership of real estate", and in the field destined for observations it states "exchange of real estate for units of participation in the Special Real Estate Investment Fund".

  • It paid the IMT assessed in the amount of €112,889.00, on 02.05.2011, and €8,759.61, on 16.03.2012.

  • On 05.12.2014, the Claimant filed a request for official review of the IMT assessments of the years 2011, based on Binding Information from AT which it considers does not subject that factuality to IMT, requesting the reimbursement of the amounts paid and the payment of indemnity interest.

  • On 09.12.2014, the Claimant filed a request for official review of the IMT assessments of the year 2012 identified above, based on binding information from AT which it considers does not subject that factuality to CIT, requesting the reimbursement of the amounts paid and the payment of indemnity interest.

  • On 21.04.2017, the aforementioned requests for official review were summarily dismissed, by orders of the Manager of Services of IMT, in the use of subdelegated competencies, on the grounds of untimeliness for not meeting the requirements established in article 78.º, n.º 1 of the General Tax Law (LGT);

  • The Claimant disagrees with the grounds invoked in the dismissal of the requests for official review when it is stated that "(...) the requests for official review of the tax acts in question are untimely for having been filed beyond the 120-day period provided in the first part of n.º 1 of article 78º of the General Tax Law ("LGT")" and in the part where it states that "... the creation of the IMT assessments in dispute arose from the initiative of the taxpayer, "with no intervention whatsoever by the services", such that any vicissitudes and errors of which those acts might be affected cannot be attributed to them".

  • And states that "In the case ... an error attributable to the services occurred, and AT cannot escape from the responsibility that falls on its sphere".

  • Acknowledging that it was the taxpayer [in this case, the Fund] who was responsible for completing and filing the IMT Model I, it concludes "(...) AT can never fail to proceed in a diligent and rigorous manner in analyzing the declaration received, being incumbent upon it scrupulously to verify if the elements therein recorded are effectively in conformity with reality, so as to guarantee the issuance of a tax act free from any errors", since "it is important, in this context, to invoke n.º 1 of article 48º of the Code of Tax Procedure and Process which clearly prescribes that "the tax administration shall clarify taxpayers and other tax obligated parties about the need for submission of declarations, claims and petitions and the practice of any other acts necessary to the exercise of their rights, including the correction of obvious errors or omissions that are observed"".

  • Concluding that "... the argument invoked by AT to support the decisions to dismiss the requests for official review must be entirely rejected".

  • Further states that AT acknowledged "... that, "at the date of the IMT assessment reflected in the collection documents, the delivery of real estate as contribution in kind for the constitution of a Real Estate Investment Fund, did not constitute a taxable event, which is why when IMT assessments were issued, on the assumption that that factuality translated the onerous transfer of those real estate from participants to the Fund, there was an erroneous subsumption of the factuality to the incidence norm"" and adds that AT concludes that "... from the reading of the IMT Model 1 assessment declarations, it appears that that factuality was entered as corresponding to the fact (taxable) 1 — Acquisition of the right of full ownership of real estate, when in reality it was a fact not subject"", such that "... in this context, it becomes evident that AT did not merely dismiss the requests for official review directed to it by the Claimant on the grounds of its untimeliness or the non-verification of certain formal requirements".

  • Regarding the tax law applicable to the facts (2011 and 2012) it states that "... the IMT Code did not provide, at the date of the facts under analysis, for the taxation of the operations underlying the IMT assessments here disputed, i.e. the contributions in kind of real estate to closed real estate investment funds constituted by private subscription, such as the Fund here in question", such that, considering the wording of n.º 1 of article 2º and letter e) of n.º 5 of article 2º of CIMT, in force until the amendments introduced by Law 66-B/2012 of 31.12 (Budget Law for 2013), these norms "... made no mention of this type of operation or, even, of any operation developed by funds of this nature".

  • "(...) it is evident that, at that time, as regards closed real estate investment funds of private subscription, the legislator chose to subject to IMT only the operations of "adjudication of real estate" in the context of liquidations and the operations of "transfer of real estate" in the context of mergers". "And, in this manner, it chose not to subject this tax to other types of operations that also involve these funds, such as, as here concerns, the operations of "contributions with real estate"".

  • Invokes in its favor the Opinion of the Center for Fiscal and Customs Studies where it was concluded: "it is not, in our view, qualifiable as an onerous transfer of the right of ownership referred to in n.º 1 of article 2º of the IMT Code, nor is it equally subsumible in any of the legal assimilations to that concept, particularly in that provided in letter e) of n.º 5 of article 2º of the IMT Code".

  • Concluding: "(...) it is incumbent to conclude that, with the "contribution in kind with real estate" in the Fund not being subject to IMT at the date of the practice of the facts, the tax assessments object of the present request lack legal foundation, for the absence of any normative provision that determined this type of operation as a taxable fact subsumible to the norms of objective incidence provided in the Code that regulates this tax", such that, in this manner "... the orders dismissing the official review proceedings sub judice should be promptly annulled, promoting, consequently, the annulment of the IMT tax acts underlying them for suffering from manifest error in the factual and legal presuppositions, an error attributable to AT".

The Claimant concludes by requesting the following:

  • "Let the illegality be declared of the acts of dismissal of the Tax and Customs Authority regarding the requests for official review submitted by the Claimant;

  • Let the illegality be declared of the tax acts that constitute their object, relating to the IMT assessments identified above, because contrary to law, for suffering from error in the factual and legal presuppositions;

  • Let the Tax and Customs Authority be condemned to reimburse the Fund the amount of the tax paid, in the amount of €121,648.67, regarding the assessments sub judice;

  • Let the Tax and Customs Authority be condemned to pay indemnity interest, at the legal rate, until full reimbursement of the amount owed and calculated on the tax".

  1. The Respondent submitted a reply and attached the instructional file arguing, in summary:

  • "at issue in the proceedings is only the untimeliness of the requests for official review submitted by the Claimant on 05.12.2014 and on 09.12.2014, insofar as the possibility of review within the period and manner contained in the final part of n.º 1 of art. 78º of LGT presupposes the existence of error attributable to the services, which does not occur in the case of the proceedings" and that "... as stated in the Information nos… and …, regardless of whether at the date of the assessments in question, the delivery of real estate for contribution in kind of private subscription of units of participation in the Fund, now Claimant, did not constitute a taxable event subject to IMT, such assessments were issued based on Model 1 declarations completed and filed by the Claimant".

  • Such that "... the taxable event entered in the Model 1 declarations as being the "acquisition of the right of full ownership of real estate" is what gave rise to the issuance of the disputed assessments". "For that reason there did not occur, nor did the Claimant even demonstrate, the existence of any error attributable to the services in the issuance of those assessments".

  • And concludes: "in sum, in accordance with the grounds of the Information nos… and …, which support the orders dismissing the requests, which are hereby fully reproduced, none of the presuppositions of n.º 1 of article 78º of LGT are verified"

  • For the same reasons, it understands that indemnity interest is not owed, arguing for the dismissal of the requests.

  1. By order of 02.11.2017, with no evidence to be produced and having given the opportunity to the Claimant to exercise contradiction regarding the matter of exception raised in the reply by the Respondent entity, the Tribunal dispensed with the holding of the meeting of article 18.º of RJAT. In that order the date limit for the pronouncement of arbitral decision was set as 14 March 2018.

  2. In the aforementioned order the Tribunal invited the parties to produce successive written arguments, within a period of 15 days, neither of them exercising this right.

II - PRELIMINARY RULING

7.1. The parties are legitimate, have legal personality and legal capacity and are represented (articles 4.º and 10.º, n.º 2, of RJAT and article 1.º of Ordinance n.º 112-A/2011, of 22 March).

7.1.2. The Respondent raised the exception of untimeliness of the requests for official review, whose analysis will be made after establishment of the factual matter.

7.1.3. The proceedings do not suffer from nullities.

III - MERITS

III.1 - Factual Matter

Regarding the factual matter, the Tribunal need not pronounce on everything that was alleged by the parties, it being incumbent on it, rather, the duty to select the facts that matter for the decision and to discriminate the matter proven from the not proven (in accordance with article 123.º, n.º 2, of CPPT and article 607.º, n.º 3 of CPC, applicable ex vi article 29.º, n.º 1, letters a) and e), of RJAT).

In this manner, the relevant facts for the judgment of the case are chosen and outlined according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of law (in accordance with the previous article 511.º, n.º 1, of CPC, corresponding to the current article 596.º, applicable ex vi of article 29.º, n.º 1, letter e), of RJAT).

§1.º Facts Proven

With relevance for the examination and decision of the questions raised, the following facts are taken as certain and proven:

  1. On 2 May 2011, the Claimant, in its capacity as management company of the Fund, executed a deed of contribution in kind, by which a group of real properties located in the (extinct) parish of … (…), municipality and district of Coimbra, all inserted in the urban rehabilitation area designated "…", were integrated in the Fund's assets, real properties whose property registry articles and respective APVs are as follows:
  • in accordance with articles 31º and 32º of the request for arbitral ruling (PAR), document no. 3 attached to the PAR and second paragraph of article 3º of AT's reply.
  1. On 6 March 2012, the Claimant executed another deed of contribution in kind, by which a new group of real properties was integrated in the Fund's assets, whose property registry articles and respective APVs are as follows:
  • in accordance with articles 37º and 38º of the PAR, document no. 4 attached to the PAR and second paragraph of article 3º of AT's reply.

  1. The owners of the properties described, in exchange for the contribution in kind of their properties in the Fund, received units of participation thereof, with a unit value of ten euros, totaling their respective APVs – in accordance with articles 33º, 34º and 39º of the PAR and documents nos 3 and 4 attached to the PAR.

  2. It appears from the final part of the deed referred to in 1) that the Notary filed the following:

[Note: The document contains specific property and transaction details that would be redacted in the original]

appearing as the taxable event "acquisition of the right of full ownership of real estate" and in the field destined for observations "exchange of real estate for units of participation in the Special Real Estate Investment Fund" - in accordance with document no. 3 attached to the PAR, third paragraph of article 3º of AT's reply and content of the PAR;

  1. It appears from the final part of the deed referred to in 2) that the Notary filed the following:

appearing as the taxable event "acquisition of the right of full ownership of real estate" and in the field destined for observations "exchange of real estate for units of participation in the Special Real Estate Investment Fund" - in accordance with document no. 4 attached to the PAR, fourth paragraph of article 3º of AT's reply and content of the PAR;

  1. The Fund represented by the Claimant paid the IMT assessed in the amount of €112,889.00, on 02.05.2011, and €8,759.61, on 16.03.2012 – in accordance with articles 35º, 36º and 40º of the PAR, document no. 2 attached to the PAR and fifth paragraph of article 3º of AT's reply.

  2. On 05 December 2014 and on 09 December 2014, the Claimant filed requests for official review of the IMT assessments, of the years 2011 and 2012, respectively, based on Binding Information from AT which it considers does not subject that factuality to IMT, requesting the reimbursement of the amounts paid and the payment of indemnity interest, requests which by official letters of 30 May 2017 and 01 June 2017, containing the grounds, were summarily rejected to it – in accordance with articles 42º and 43º of the PAR, paragraphs 7º and 8º of article 3º of AT's reply and Document no. 1 attached to the PAR;

  3. It appears from the grounds of the decision of summary dismissal, of the request for official review submitted on 05 December 2014 (real estate operation of n.º 1 and 4 of the facts proven), the following:

"At the genesis of the request for review is the conviction (grounded in binding information provided on an analogous situation), that the delivery of real estate by participants, as contribution in kind for the constitution of a real estate investment fund, does not constitute a taxable event, and as such is not subject to tax.

In accordance with the provisions of articles 1º and 2º of the IMT Code (CIMT), relating to incidence, the tax incides on the onerous transfer of real estate, listing in the different numbers and letters of art. 2º, situations subsumible for that purpose, to the concept of transfer.

It is urgent, therefore, to determine whether the performance of the contributions in the manner effected, constitutes or does not constitute a transfer, and if the answer proves affirmative, whether the same has legal provision.

In accordance with the provision in letter e) of n.º 5, of art.º 2º of CIMT, in the wording in force on 2011-05-02 (date of performance of the contributions), and which is transcribed below for better understanding, are subject «The contributions of shareholders with real estate for the achievement of the capital of commercial or civil companies in commercial form or of civil companies which has been legally recognized legal personality and, as well, the adjudication of real estate to shareholders, in the liquidation of those companies»,

The position assumed by AT in binding information (covering an analogous situation), provided to the same management entity, consists of Opinion no. 52/2013, of 31/10, issued by the Center for Fiscal and Customs Studies (CEFA), on the basis of which it was provided.

From the aforementioned Opinion is drawn regarding the qualification of the act of contribution in kind with delivery of real estate, that the same does not constitute a transfer, given that, «Real estate investment funds are autonomous depersonalized assets, with legal title of the property vested, ultimately by the participants themselves»

In points 21 and 22 of that Opinion, relating to the conclusion, one can read:

«21. The contribution in kind of the act of subscription of units of participation of a real estate investment fund, by means of the delivery of real estate of the participant, is not, in our view, qualifiable as an onerous transfer of the right of ownership referred to in n.º 1 of article 2º of the IMT Code, nor is it equally subsumible in any of the legal assimilations to that concept, particularly in that provided in letter e) of n.º 5 of article 2.º of the IMT Code.

  1. In these terms, it is considered, in accordance with the understanding that has been defended by the entity requesting the binding information, that the factual situation described does not meet the presuppositions of objective incidence of IMT. In view of the foregoing, it is incumbent to conclude that the delivery of real estate as contributions in kind in the capital of closed real estate investment funds of private subscription does not constitute an operation subject to IMT.»

Although that Opinion was issued in 2013, and the budget law for that year altered the wording of letter e), of n.º 5, now contemplating the adjudication of real estate to participants, as reimbursement in kind of units of participation (at the time of liquidation of that type of fund), the conclusion reached is forcibly the same, because in 2011, at the time of the contributions in kind, that norm made no allusion to Real Estate Investment Funds.

From the foregoing, at the date of the IMT assessment reflected in the collection documents, the delivery of real estate as contribution in kind for the constitution of a Real Estate Investment Fund, did not constitute a taxable event, which is why when IMT assessments were issued, on the assumption that that factuality translated the onerous transfer of those real estate from participants to the Fund, there was an erroneous subsumption of the factuality to the incidence norm.

From the reading of the IMT Model 1 assessment declarations, it appears that that factuality was entered as corresponding to the fact (taxable) 1 - Acquisition of the right of full ownership of real estate, when in reality it was a fact not subject.

It is now necessary to determine the possibility of performing the official review of the assessment act, under the provisions of n.º 1, of art.º 78º, limiting that assessment to n.º 1 and not to the other review possibilities contained in that article, since it is not a situation of duplication of collection, nor relating to taxable matter, given that what is scrutinized is not the value that served as the basis for the IMT assessment, but rather the very existence or propriety of the tax assessment.

The review of tax acts is permitted in periods and with diverse grounds, depending on whether the initiative is of the taxpayer or the tax administration cf. article 42º of the Code of Municipal Tax on Onerous Transfers of Real Estate (CIMT) and article 78º of the General Tax Law (LGT).

In accordance with n.º 1 of article 78.º the review of the tax act may be effected by initiative of the taxpayer, within the period of administrative claim, on the basis of any illegality, or by initiative of the Tax Administration, on the grounds of error attributable to the services, within the period of "... 4 years after the assessment, or at any time if the tax has not yet been paid", with error attributable to the services being considered the error in self-assessment.

In accordance with the provisions of articles 70º, n.º 1 and 102º, n.º 1, letter a), both of the Code of Tax Procedure and Process (CPPT), the period for submitting an (administrative) gracious claim is 120 days, counted from the end of the voluntary payment period, such that it appears that the present request does not fall within the provisions of the 1st part of n.º 1, of art.º 78º of the General Tax Law (LGT), because at the date of the formulation of the request, that period had long since elapsed.

With reference to the possibility of review in the manner contained in the final part of n.º 1, that presupposes the existence of an error attributable to the services, that is, one not arising from information provided by the taxpayer.

From the analysis of the declarations relating to the documents referred to in the petition, it is verified that of the seven declarations:

  • Five declarations were submitted on 2011-05-01 and two (one of which by the Finance Service of Lisbon …) on 2 May.

  • The notation "exchange of real estate for units of participation in the Special Real Estate Investment Fund Closed in Urban Rehabilitation B…", affixed in the field destined for observations, appears in all declarations.

  • Only one (the one corresponding to the DUC …) was issued (at the request and in accordance with the elements and information provided by the taxpayer) by a finance service, the others having been completed and submitted by different taxpayers.

Given the factuality analyzed, not being a situation of self-assessment of tax, the error underlying the undue assessment of tax, arising from declarations completed and submitted by taxpayers, cannot be considered as attributable to the services.

Regarding those assessments, not being equally official assessments, or additional assessments (of initiative and responsibility of AT), nor of a situation of non-conformity between the information provided by the taxpayer in on-site attendance and the facts reflected in the assessment, the vicissitudes and errors of which they may be affected are not the responsibility of the services, but rather of the taxpayers in whose name the declarations are completed and submitted and the assessments requested.

Regarding the declaration with registration number …, whose assessment was effected by the Lisbon finance service …, the existence of error attributable to the services is also excluded, because that assessment was made at request, and by means of information provided by the taxpayer.

For this purpose, the provision in the decision of the SAC, rendered on 2013-01-09, in process no. 01077/12, is set forth (but there, considering the possible right to indemnity interest):

«The IMT assessment was effected by initiative of the Claimant, on the basis of the declaration presented by her for that purpose (cfr. arts. 19º n.º 1 and 21º, n.º 1 of the IMT Code) and the Claimant only paid the assessed amount because she wished to. If, subsequently, whether because the taxable event did not occur, or because the tax, after all, was not owed, the assessment was annulled, the fact is that it cannot be affirmed that there was error attributable to the services of AT. The error would have been, rather, that of the Claimant herself, who submitted the declaration on the basis of which AT proceeded with the assessment of the tax.

Contrary to what appears to be assumed by the Claimant in appeal, when someone presents themselves at the AT services requesting the assessment of IMT in order to the conclusion of a transaction, the Administration is not obliged to an exhaustive analysis of the factual circumstances and the legal rules in order to ascertain whether the tax is or is not owed, being satisfied with a judgment of first appearance.»"

  1. It appears from the grounds of the decision of summary dismissal, of the request for official review submitted on 09 December 2014 (real estate operation of n.º 2 and 5 of the facts proven), the following:

"At the genesis of the request for review is the conviction (grounded in binding information provided on an analogous situation), that the delivery of real estate by participants, as contribution in kind for the constitution of a real estate investment fund, does not constitute a taxable event, and as such is not subject to tax.

In accordance with the provisions of articles 1º and 2º of the IMT Code (CIMT), relating to incidence, the tax incides on the onerous transfer of real estate, listing in the different numbers and letters of art. 2º, situations subsumible for that purpose, to the concept of transfer.

It is urgent, therefore, to determine whether the performance of the contributions in the manner effected, constitutes or does not constitute a transfer, and if the answer proves affirmative, whether the same has legal provision.

In accordance with the provision in letter e) of n.º 5, of art.º 2º of CIMT, in the wording in force on 2011-05-02 (date of performance of the contributions), and which is transcribed below for better understanding, are subject «The contributions of shareholders with real estate for the achievement of the capital of commercial or civil companies in commercial form or of civil companies which has been legally recognized legal personality and, as well, the adjudication of real estate to shareholders, in the liquidation of those companies»,

The position assumed by AT in binding information (covering an analogous situation), provided to the same management entity, consists of Opinion no. 52/2013, of 31/10, issued by the Center for Fiscal and Customs Studies (CEFA), on the basis of which it was provided.

From the aforementioned Opinion is drawn regarding the qualification of the act of contribution in kind with delivery of real estate, that the same does not constitute a transfer, given that, «Real estate investment funds are autonomous depersonalized assets, with legal title of the property vested, ultimately by the participants themselves.»

In points 21 and 22 of that Opinion, relating to the conclusion, one can read:

«21. The contribution in kind of the act of subscription of units of participation of a real estate investment fund, by means of the delivery of real estate of the participant, is not, in our view, qualifiable as an onerous transfer of the right of ownership referred to in n.º 1 of article 2º of the IMT Code, nor is it equally subsumible in any of the legal assimilations to that concept, particularly in that provided in letter e) of n.º 5 of article 2º of the IMT Code.

  1. In these terms, it is considered, in accordance with the understanding that has been defended by the entity requesting the binding information, that the factual situation described does not meet the presuppositions of objective incidence of IMT. In view of the foregoing, it is incumbent to conclude that the delivery of real estate as contributions in kind in the capital of closed real estate investment funds of private subscription does not constitute an operation subject to IMT.»

Although that Opinion was issued in 2013, and the budget law for that year altered the wording of letter e), of n.º 5, now contemplating the adjudication of real estate to participants, as reimbursement in kind of units of participation (at the time of liquidation of that type of fund), the conclusion reached is forcibly the same, because in 2011, at the time of the contributions in kind, that norm made no allusion to Real Estate Investment Funds.

From the foregoing, at the date of the IMT assessment reflected in the collection documents, the delivery of real estate as contribution in kind for the constitution of a Real Estate Investment Fund, did not constitute a taxable event, which is why when IMT assessments were issued, on the assumption that that factuality translated the onerous transfer of those real estate from participants to the Fund, there was an erroneous subsumption of the factuality to the incidence norm.

From the reading of the IMT Model 1 assessment declarations, it appears that that factuality was entered as corresponding to the fact (taxable) 1- Acquisition of the right of full ownership of real estate, when in reality it was a fact not subject.

It is now necessary to determine the possibility of performing the official review of the assessment act, under the provisions of n.º 1, of art.º 78º, limiting that assessment to n.º 1, and not to the other review possibilities contained in that article, since it is not a situation of duplication of collection, nor relating to taxable matter, given that what is scrutinized is not the value that served as the basis for the IMT assessment, but rather the very existence or propriety of the tax assessment.

The review of tax acts is permitted in periods and with diverse grounds depending on whether the initiative is of the taxpayer or the tax administration - cf. article 42º - 2º of CIMT and article 78º of the General Tax Law (LGT).

In accordance with n.º 1 of article 78º the review of the tax act may be effected by initiative of the taxpayer, within the period of administrative claim, on the basis of any illegality, or by initiative of the Tax Administration, on the grounds of error attributable to the services, within the period of "... 4 years after the assessment, or at any time if the tax has not yet been paid", with error attributable to the services being considered the error in self-assessment.

With reference to the possibility of review in the manner contained in the final part of n.º 1, that presupposes the existence of an error attributable to the services, that is, one not arising from information provided by the taxpayer.

From the analysis of the declarations relating to the documents referred to in the petition, it is verified that those declarations:

Were submitted by the same taxpayer on 2012-03-16.

The notation "exchange of real estate for units of participation in the Special Real Estate Investment Fund Closed in Urban Rehabilitation B…", affixed in the field destined for observations, appears in all declarations.

In accordance with the provisions of articles 70º, n.º 1 and 102º, n.º 1, letter a), both of the Code of Tax Procedure and Process (CPPT), the period for submitting an (administrative) gracious claim is 120 days, counted from the end of the voluntary payment period, such that it appears that the present request does not fall within the provisions of the 1st part of n.º 1, of art.º 78º of the General Tax Law (LGT), because at the date of the request, that period had long since elapsed, during which it could have argued any illegality of the assessment.

From the analysis of the factuality underlying it is verified that the disputed assessments, of taxpayer initiative, arose from the submission of the IMT Model 1 declaration, by electronic means with no intervention whatsoever by the services.

In these terms, not being a situation of self-assessment of tax, the error underlying the undue assessment of tax, arising from declarations completed and submitted by taxpayers, cannot be considered attributable to the services, since these had no intervention in those proceedings.

Regarding those assessments not being equally official assessments, or additional assessments, of initiative and responsibility of AT, the vicissitudes and errors of which they may eventually be affected are not the responsibility of the services, but rather of the taxpayers in whose name the declarations were completed and, submitted which gave rise to them".

  1. On 21.04.2017 the requests for official review were summarily dismissed by orders of the Manager of Services of IMT.

  2. On 06 July 2017 the Claimant filed at CAAD the present request for arbitral ruling (PAR) – registration of entry in CAAD's SGP of the request for arbitral ruling.

§2.º Facts Not Proven

There is no other factuality alleged that has not been considered proven and that is relevant to the composition of the procedural dispute.

§3.º Grounds

Regarding the factual matter proven, the conviction of the Arbitral Tribunal was based on the position assumed by the parties and on the documentary evidence submitted, including the PAR.

III.2 - Legal Matter

The first question that the tribunal must address consists in determining whether error attributable to the services persists in the case at hand, since from this follows the determination of the challenge period.

For this, it is necessary to identify, from the outset, the applicable norm, that is, art. 78.º of LGT, which provides as follows:

«1. The review of tax acts by the entity that performed them may be effected by initiative of the taxpayer, within the period of administrative claim and on the grounds of any illegality, or, by initiative of the tax administration, within the period of four years after the assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the services.

  1. Repealed

  2. The review of tax acts in accordance with n.º 1, regardless of whether it is a matter of material or substantive error, implies the respective acknowledgment properly justified in accordance with n.º 1 of the previous article.

  3. The chief officer of the service may authorize, exceptionally, within three years after the date of the tax act, the review of the taxable matter ascertained on the grounds of grave or notorious injustice, provided that the error is not attributable to negligent behavior of the taxpayer.

  4. For the purposes of the preceding number, only ostensive and unequivocal notorious injustice and grave injustice resulting from manifestly excessive and disproportionate taxation with reality or which has resulted in high prejudice to the National Treasury is considered.

  5. The review of the tax act on the grounds of duplication of collection may be effected, regardless of the grounds, within a period of four years.

  6. The filing of a request by the taxpayer directed to the competent body of the tax administration for its performance interrupts the period for official review of the tax act or the taxable matter».

The institution of review constitutes a realization of the duty to revoke illegal acts and, as such, AT (Tax and Customs Authority) must proceed in this manner in hypotheses where errors occur in assessments that materialize in the collection of taxes in an amount greater than that legally provided. The principles of justice, equality and legality that inform AT's activity impose this official correction.

Thus, while on the one hand the review of the act by initiative of the taxpayer within the period of administrative challenge is admissible, on the other, AT, at the instigation of the taxpayer, may also promote the so-called «official review».

In this sense jurisprudence affirms that: «It follows from the law and constitutes established jurisprudence of this Supreme Tribunal that the official review of tax acts to which the final part of n.º 1, of art. 78.º of LGT alludes "by initiative of tax administration" may be carried out at the request of the taxpayer (art. 78.º, n.º 7 of LGT), and the dismissal, express or tacit, of that review request is susceptible of contentious challenge, in accordance with art. 95.º, n.º 1 and 2, letter d) of LGT and art. 97.º, n.º 1, letter d) of CPPT, when what is at issue is the examination of the legality of the assessment act and this possibility is not prejudiced by the circumstance that the request for official review was submitted long after the periods of administrative challenge have elapsed, but within the four-year period for review of the assessment act "by initiative of tax administration"».

The request for review must also be grounded in «error attributable to the services» and be filed within the four-year period. Now, this error encompasses the lapse, the material or factual error, as well as the error of law.

Supporting the latter conclusion jurisprudence also states: «…for a long time this Supreme Tribunal has understood in established manner that, there being an error of law in an assessment effected by the services of the tax administration, and this erred application of the law not arising from any information or declaration of the taxpayer, the error in question is attributable to the services, since both n.º 2 of art. 266.º of the Constitution and article 55.º of the General Tax Law establish the generic obligation of the tax administration to act in full conformity with the law,…».

«Official review» requires that, cumulatively, the following requirements are met: i) the request be formulated within the four-year period counted from the act whose review is requested or at any time when the tax is not yet paid; ii) it has origin in «error attributable to the services» and iii) it proceeds from the initiative of the taxpayer or is carried out officially by AT.

Thus, after the period for judicial challenge or gracious claim has elapsed, art. 78.º, numbers 1, 3 and 4 of LGT establishes as an essential requirement of «official review» that the error be attributable to the services.

«Error attributable to the services» admits the pathology of fact and law, however the illegality cannot be attributable to the taxpayer by negligent conduct, but to AT.

This is the position of the Supreme Administrative Tribunal when it affirms that: «… any illegality not resulting from an action of the taxpayer will be attributable to the Administration itself, and this imputability to the services is independent of the demonstration of fault of any of the officials involved in the issuance of the act affected by the error,…» [1]. And, in the same sense: «…it is the tax administration to which this error is attributable, whenever the erred application of the law has no basis in any information of the taxpayer»[2].

Reverting this interpretation to the concrete case, it is verified that the IMT assessments object of the proceedings were practiced on the basis of the submission of model 1 declarations. Or, stated otherwise, based on the taxpayer's own declaration.

For which reason, the essential requirement for review is not met, that the error be attributable to the services.

Doctrine[3], in addition to agreeing with the aforementioned jurisprudential position, teaches that error attributable to the services will also exist, when despite the assessment having been effected on the basis of the taxpayer's declaration, the latter has adopted a generic orientation of AT duly published, by deficient fulfillment of AT's duty of collaboration.

It happens that, it is manifestly not what is verified in the present hypothesis, insofar as, the IMT model 1 declarations were not presented with support in any generic information, a matter that is not even alleged.

As results from the factual matter given as proven, the Claimant filed on 05.12.2014 and 09.12.2014 requests for official review of the IMT assessments relating to the years 2011 and 2014, respectively.

Thus being, the Respondent Entity is correct when it argues for the untimeliness of the requests for official review, insofar as the possibility of review within the period and manner of article 78.º, n.º 1, of LGT presupposes the existence of error attributable to the services, which is not verified in the case of the proceedings.

Consequently, the period for recourse to the arbitral route regarding the assessments in question was also already exhausted on 06.07.2017, the date of filing of the present request, generating the peremptory exception of extemporaneousness and the consequent dismissal of the request, in accordance with art. 576.º of CPC applicable ex vi art. 29.º of RJAT.

In these terms, the questions of the right to reimbursement and of the condemnation to pay indemnity interest are prejudiced.

IV - DECISION

In these terms, it is agreed in the present Arbitral Tribunal:

  1. To judge well-founded the exception of extemporaneousness of the arbitral request regarding the tax acts of assessment of Municipal Tax on Onerous Transfers of Real Estate ("IMT") underlying the same with numbers…, …, …, …, …, …, …, relating to the year 2011, and of the tax acts of assessment of IMT nos…, … and …, relating to the year 2012, in the global amount of €121,648.67, absolving the Respondent of the request;

  2. To condemn the Claimant to the payment of costs.

V - VALUE OF THE CASE

The value of the case is fixed at €121,648.67, in accordance with art. 97.º - A of CPPT, applicable by virtue of the provision in art. 29.º, n.º 1, letter a) of RJAT and art. 3.º, n.º 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

VI. COSTS

Costs to be borne entirely by the Claimant, in the amount of €3,060, in accordance with article 22.º, n.º 4, of RJAT and Table I attached to RCPAT.

Notify.

Lisbon, 30 January 2018

Collective Arbitral Tribunal,

Fernanda Maçãs - President

Augusto Vieira – Member, dissenting as per attached declaration

Francisco Nicolau Domingos - Member

DECLARATION OF VOTE

I voted in dissent in the decision adopted for the reasons which I briefly hereinafter set forth.

It should be noted beforehand that the discipline of the decision of the SAC, rendered on 2013-01-09, in process no. 01077/12, cited in the grounds of one of the decisions here disputed (point 8 of the facts proven), will not have application here, because the facts that serve as its foundation occurred in 2004, a year in which the current law was not yet in force, in the wording of n.º 1 of article 19º of CIMT given by article 97.º of Law 64-A/2008, of 31 December. That is, the mechanism for submission of the IMT Model 1 declaration by electronic means, with automatic issuance of the DUC for payment, did not exist, in all similar to what occurs in the context of CIT and VAT. In the case here under discussion, it is assessments and payments of IMT occurring in 2011 and 2012, already in force with the new law.

It seems to us that what should be ascertained, in the first place, is what type of assessment or assessments we are dealing with here, a matter, moreover, that is addressed by AT in the grounds of the decisions here disputed (points 8 and 9 of the facts given as proven), with AT considering that here it is not a matter of self-assessments nor of official assessments (of initiative and responsibility of AT), a qualification which we do not accept, as we shall verify hereafter.

This course of reasoning would have been that which the Venerable SAC had underlying in the pronouncement of the decision cited in this arbitral decision (although implicitly) - decision of SAC – 2nd section of 19-11-2014, process 0886/14 in www.dgsi.pt – because there it refers, in the facts given as proven, that it was an "additional assessment of CIT" carried out by AT, certainly resulting from the prior submission by the taxpayer, of the Declaration of Model 22 of CIT and consequent self-assessment of CIT, in such a manner that AT understood to be insufficient, hence the additional assessment.

For the qualification of the IMT assessments here disputed, recourse must be had to what appears textually in their grounds, a factual matter that should here be relevant.

For this purpose, it is noted:

  • "Five declarations were submitted on 2011-05-01 and two (one of which by the Finance Service of Lisbon …) on 2 May.

  • The notation "exchange of real estate for units of participation in the Special Real Estate Investment Fund Closed in Urban Rehabilitation B…", affixed in the field destined for observations, appears in all declarations.

  • Only one (the one corresponding to the DUC …) was issued (at the request and in accordance with the elements and information provided by the taxpayer) by a finance service, the others having been completed and submitted by different taxpayers".

...

"Regarding the declaration with registration number …, whose assessment was effected by the Lisbon finance service …, the existence of error attributable to the services is also excluded, because that assessment was made at request, and by means of information provided by the taxpayer".

...

"From the analysis of the factuality underlying it is verified that the disputed assessments, of taxpayer initiative, arose from the submission of the IMT Model 1 declaration, by electronic means with no intervention whatsoever by the services".

With relevance for the qualification of the type of IMT assessments here in question, it is noted:

  • n.º 1 of article 21º of CIMT: "IMT is assessed by the central services of the Tax Authority Directorate-General, on the basis of the taxpayer's declaration or officially, being considered, for all legal purposes, the tax act practiced in the competent finance service" and

  • letter a) of n.º 2 of article 21º of CIMT which "when the assessment is effected on the basis of the taxpayer's declaration, the finance service where the declaration is presented is considered competent for the assessment of IMT".

Upon reading the instructions for completion of Model 1 of IMT, it is stated textually: "declaration for official assessment".

It shall thus be concluded, in light of the law and what appears in the instructions for completion of Model 1 of IMT, that the IMT assessment of 02.05.2011, which corresponds to the DUC …, is

  • an official assessment;

  • a tax act practiced in Finance Service of Lisbon-…

  • practiced by the competent finance service (the Finance Service of Lisbon-…).

On the other hand, for example in the decision of TCASUL of 06.04.2017, process 817/11, in www.dgsi.pt, it is stated: "Doctrine and jurisprudence refer to self-assessment to allude to the act whose initiative belongs to the taxpayer, by legal provision, consisting of the submission of a declaration, which presupposes the necessary operations of qualification (identification of the "an debeatur") and quantification (assessment of the "quantum debeatur") necessary to evaluate the amount of tax to be paid or refunded, normally accompanied by the respective means of payment (cfr.art.º 89, letter a), of C.I.R.C.; art.º 22, n.º 2, of C.I.V.A.)".

Now, in the case, as all assessments here in question resulted from the submission, by the taxpayer (or by the Notary on his behalf), of Model 1 of IMT, by electronic means, except for that of 2 May 2011 from which resulted the DUC … which was submitted in paper support in person, we will have to conclude that these are "self-assessments".

AT states that in these assessments it had no intervention, that is, the taxpayer (or the Notary for him) submitted the declaration of Model 1 of IMT by electronic means, a payment DUC was automatically generated and on the basis of this document, the payment of IMT was effected.

Something similar would have occurred as what occurs in self-assessments of CIT and in self-assessments of VAT referred to in the decision of TCA Sul cited above, which provides us with a definition of "self-assessment" of taxes.

Only in cases where there are tax debts of the alienators of real estate subject to IMT, will the "self-assessment" of IMT not be immediately permitted, since the acquirers are previously warned of the existence of these debts, before the issuance of the DUC, being able, even so, the acquirer to opt for the payment of IMT.

Having arrived here, the norm applicable to the assessments in question in this process, seems to us to be that contained in n.º 2 of article 78º of LGT, regarding the aforementioned "self-assessments" and n.º 1 of article 78º of LGT, regarding the assessment that resulted from the submission of Model 1 of IMT, on 2 May 2011 from which resulted the DUC….

In the part of the IMT assessments disputed that we consider to be true "self-assessments", n.º 2 of article 78º of LGT considers attributable to the services the error in self-assessment.

What is at issue in this process, are requests for official review deduced on 05 December 2014 and on 09 December 2014, dates on which n.º 2 of article 78º of LGT was in force, which was only repealed by letter h) of n.º 1 of article 215.º of Law n.º 7-A/2016 of 30 March.

This norm is not configured to be of adjective nature. Not being provided that the repeal, in March 2016, of n.º 2 of article 78º of LGT, applies to pending review procedures, since the theory of past fact prevails in Portuguese law, which our Civil Code adopts in article 12.º ("tempus regit factum") the law applicable here will be that in force at the time the fact (and its effects) occurred, that is, n.º 2 of article 78º of LGT in force in 2014, the date of deduction of the requests for official review.

With the summary grounds set forth, we understand that the request for arbitral ruling should have proceeded partially (as to the assessments which we consider corresponding to true self-assessments) applying the regime of n.º 2 of article 78º of LGT, in force in 2014.

We further believe that, the decision adopted, by being, albeit implicitly, in dissonance with the concept of "self-assessment" that is expressed for example in the decision of TCA SUL above indicated, may permit the filing of the appeal provided for in n.º 2 of article 25º of RJAT.

Augusto Vieira

Text prepared by computer in accordance with the provisions of article 131.º, n.º 5, of CPC, applicable by remission of article 29.º of RJAT.

The drafting of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Decision of the Supreme Administrative Tribunal rendered within process n.º 0886/14, of 19/11/2014, reported by Counselor ISABEL MARQUES DA SILVA.

[2] Decision of the Supreme Administrative Tribunal rendered within process n.º 0886/14, of 19/11/2014, reported by Counselor ISABEL MARQUES DA SILVA.

[3] Decision of the Supreme Administrative Tribunal rendered within process n.º 0886/14, of 19/11/2014, reported by Counselor ISABEL MARQUES DA SILVA.

[4] Decision of the Supreme Administrative Tribunal rendered within process n.º 0771/08, of 21/01/2009, reported by Counselor LÚCIO BARBOSA.

[5] PAULO MARQUES, The Review of the Tax Act. From mea culpa to the Restoration of Legality, 2nd edition, IDEFF Notebooks, no. 19, Almedina, 2017, p. 219.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption applicable to closed-end real estate investment funds under Article 2(5)(e) of the IMT Code?
Under Article 2(5)(e) of the IMT Code in its 2011 version, contributions in kind of real estate to closed-end private subscription real estate investment funds were NOT subject to IMT. The provision only subjected to IMT the adjudication or transfer of real estate in liquidation contexts of such funds. This changed with Law 66-B/2012 (2013 Budget Law), which amended the IMT regime applicable to real estate investment fund operations.
Can a taxpayer request an official review (revisão oficiosa) to recover IMT paid on property acquisitions by real estate funds?
Yes, taxpayers can request official review (revisão oficiosa) under Article 78 LGT to recover improperly paid IMT, but normally within 120 days of payment. However, when an error is attributable to tax services (erro imputável aos serviços), different time limits may apply. The taxpayer must demonstrate that AT failed in its legal duty under Article 48(1) of the Tax Procedure Code to verify declarations and identify obvious errors, even when the taxpayer initiated the assessment by filing the IMT Model 1 declaration.
What constitutes an error attributable to tax services (erro imputável aos serviços) in IMT liquidation proceedings?
An error attributable to tax services in IMT proceedings occurs when AT fails to fulfill its legal duty to verify the accuracy of taxpayer-submitted declarations and identify obvious mismatches between declared facts and applicable law. Under Article 48(1) of the Tax Procedure Code, tax administration must clarify taxpayers and correct obvious errors or omissions. In this case, AT acknowledged that contribution operations were not subject to IMT under the 2011 legal framework, yet issued assessments based on erroneous subsumption of facts to the taxable event, constituting a service error despite taxpayer-initiated declarations.
How does the CAAD arbitral tribunal assess the illegality of IMT tax assessments on property transfers to investment funds?
CAAD arbitral tribunals assess IMT assessment illegality by examining: (1) whether the factual operation falls within IMT incidence norms under the applicable legal framework; (2) whether AT correctly applied Article 2(5)(e) CIMT to real estate fund operations; (3) whether errors in assessment are attributable to tax services under Article 48(1) Tax Procedure Code; (4) the validity of procedural dismissals based on time limits under Article 78 LGT; and (5) AT's own binding information and acknowledgments regarding the non-taxable nature of operations. The tribunal determines if assessments warrant annulment with consequent reimbursement and compensatory interest.
What are the legal consequences of an unlawful IMT assessment on property swaps for fund participation units in Portugal?
If an IMT assessment on property swaps for fund participation units is declared unlawful, the legal consequences include: (1) annulment of the tax assessment acts; (2) annulment of dismissal orders of official review requests; (3) mandatory reimbursement of all IMT amounts improperly paid (€121,648.67 in this case); (4) payment of compensatory interest (juros indemnizatórios) from payment date until reimbursement; and (5) potential recognition that the 120-day limitation period under Article 78(1) LGT does not apply when errors are attributable to tax services, enabling review of assessments beyond standard deadlines.