Process: 415/2017-T

Date: December 4, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision addresses whether Stamp Tax (Imposto de Selo) is due on the transfer of real estate to a closed-end real estate investment fund in exchange for participation units. The applicant fund contributed real estate properties to its assets in 2011 and 2012 through contribution in kind operations, paying Stamp Tax totaling €22,958.00 based on Model 1 IMT declarations that incorrectly stated 'acquisition of full property rights over real estate.' In December 2014, the fund requested ex officio review (revisão oficiosa) under Article 78 of the LGT, arguing these operations were not subject to Stamp Tax under Verba 1.1 of the TGIS. The Tax Authority dismissed both review requests in May 2017, contending there was no error attributable to the administration since the assessments were based on declarations submitted by the taxpayer itself. The fund challenged this dismissal through CAAD arbitration. The central legal issue is whether the contribution of real estate in exchange for fund participation units constitutes a taxable transmission under Verba 1.1 of the TGIS, which applies to real estate transfers subject to IMT. The Tax Authority acknowledged that such contributions were not subject to IMT at the time of the operations, which would exclude them from Stamp Tax under Verba 1.1. The fund argued that the Tax Authority has a duty to rigorously analyze declarations and issue assessments free from errors, regardless of what the taxpayer declared. The case involves important questions about the scope of ex officio review procedures, whether errors in taxpayer declarations can constitute errors attributable to the tax administration, and the applicability of indemnity interest (juros indemnizatórios) when tax is unlawfully assessed on investment fund operations.

Full Decision

ARBITRAL DECISION

I – REPORT

1 – Special Closed Real Estate Investment Fund A… with Tax ID [1] …, represented by Management Company B… – Real Estate Investment Fund Management Company, SA, with Tax ID … and registered office at …, …, …, …, …-… Lisbon, submitted on 07/07/2017 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of Article 2(1), Article 3(1) and paragraph a) of Article 10(1), all of the RJAT[2], requesting the ATA[3], with a view to examining the illegality of the dismissal orders of the ex officio review proceedings issued by the Lisbon Tax Directorate and, consequently, the illegality of the Stamp Duty [4] assessments with the numbers …, …, …, …, …, …, … for 2011 and …, … and … for 2012, relating to the transfer of real estate in favour of the applicant Fund, in exchange for units of participation in the same Fund, all as better appears from the deeds executed on 02 May 2011 and 16 March 2012, by Notary C… of the Notary Office of …, located at Street … no. …– …, in Lisbon, contained in the Administrative proceedings attached to these records and which is hereby reproduced.

2 – The request for constitution of the arbitral tribunal was made without exercising the option of designation of arbitrator, having been accepted by His Excellency the President of the CAAD[5] and automatically notified to the ATA on 07/07/2017.

3 – Pursuant to the provisions of Article 6(1) of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, Arlindo José Francisco was designated as arbitrator, who communicated to the Deontological Council and to the Administrative Arbitration Centre the acceptance of the mandate within the regularly established time limit.

4 – The tribunal was constituted on 14/09/2017 in accordance with the provisions contained in paragraph c) of Article 11(1) of the RJAT, as amended by Article 228 of Law No. 66-B/2012 of 31 December.

5 – By means of its request, the applicant seeks the declaration of illegality of the dismissal decisions issued by the ATA, with respect to the ex officio review requests which it submitted against the identified assessments and, consequently, that these be declared illegal with the reimbursement of the improperly paid tax plus the corresponding indemnity interest.

6 – It invokes for this purpose, in summary, the following:

6.1 – The Fund made the payment of the Stamp Duty in question, but considers that there was no transfer of real estate, but merely an allocation thereof to the Fund's assets in exchange for units of participation in the same Fund, an operation which, at the time of the facts, was not subject to Stamp Duty.

6.2 – In December 2014 it submitted two ex officio review requests to the ATA against the aforementioned assessments which were dismissed, as notified on 30 May 2017, on the grounds that there was no error attributable to the tax authority, and therefore the requirements provided for in Article 78(1) of the LGT[6] were not met.

6.3 – That, at the time of the operations, they were not subject to taxation under IMT[7] and consequently excluded from the application provided for in item 1.1 of the TGIS[8], as moreover the ATA acknowledged.

6.4 – The contested Stamp Duty was determined following the submission of the corresponding Model 1 IMT declarations by the Fund, but the ATA is under an obligation to rigorously analyse the declarations and determine whether there is grounds for issuing assessments free from errors.

7 – On its part, the ATA, also in summary, understands:

7.1 – That the applicant has no grounds, since the request is manifestly untimely, given that the time limit for the taxpayer's claim, as provided for in Articles 70(1) and 102(1)(a) of the CPPT[9], is 120 days, counted from the end of the voluntary payment period, a period which, on 05 and 09 December 2014, had already been exceeded.

7.2 – The Stamp Duty assessments in question here were made on the basis of declarations submitted by the applicant stating the tax fact of "acquisition of full property rights over real estate" and result from that fact.

7.3 – The dismissal of the review requests results from the fact that the requirements established in Article 78(1) of the LGT were not met, that is, there is no error attributable to the tax authority.

7.4 – Despite acknowledging that the delivery of real estate as contribution in kind for private subscription of units of participation in the Fund, at the time, did not constitute a tax fact subject to Stamp Duty, the fact remains that such assessments were issued on the basis of Model 1 declarations filled in and submitted by the applicant.

I – PRELIMINARY MATTERS

The tribunal has been duly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal personality and capacity, show standing and are regularly represented in accordance with Articles 4 and 10(2) of the RJAT and Article 1 of Regulation No. 112-A/2011, of 22 March.

In its reply, the ATA, considering that there are no preliminary objections and that the position of the parties is perfectly defined, requested the waiver of the hearing provided for in Article 18 of the RJAT, which the tribunal, by order of 18 October last, granted the applicant 10 days to comment, which it did, adhering to the ATA's position on 27 of the same month.

The ATA attached the Administrative proceedings on 30/10/2017.

By order of 03/11/2017, the tribunal considered the conditions met to deliver a decision and fixed the date of 04/12/2017 for this purpose.

Thus, the proceedings being free from defects, it is necessary to decide.

III – REASONING

1 – The issues to be resolved with relevance for the proceedings are as follows:

a) Whether or not the decisions dismissing the ex officio review requests brought by the applicant are illegal.

b) If so, to declare the illegality of the Stamp Duty assessments in question here, with the consequent return of the amount improperly paid.

c) Whether or not there is grounds for payment of indemnity interest to the applicant.

2 – Factual Matters

The factual matters relevant and proved based on the evidence attached to the proceedings are as follows:

a) The applicant was notified of the orders dismissing the ex officio review proceedings nos. … and … of 2015 issued by the Lisbon Tax Directorate, as per official letters … and … of 29 May 2017, from that entity.

b) The ex officio review requests had been directed against the assessments …, …, …, …, …, … and …, relating to 2011, submitted on 05/12/2014 and …, … and … relating to 2012, submitted on 09/12/2014, in the total amount of € 22,958.00.

c) The Fund is a real estate investment fund for urban rehabilitation, closed and established through private subscription which on 02 May 2011 and on 16 March 2012, executed deeds of contribution in kind, through its management company with the integration into its assets of various real estate properties in the area designated "…" duly identified in Articles 32 and 37 of the petition which are hereby reproduced.

d) The assessments in question were based on Model 1 IMT declarations submitted by the applicant, in which it stated "Acquisition of full property rights over real estate", when in fact it was a matter of delivery of real estate as contribution in kind for the establishment of a real estate fund.

e) The applicant made payment of the Stamp Duty demanded in the aforementioned assessments on 02/05/2011 and 16/03/2012, in the total amount of € 22,958.00.

The facts described are proved by documents attached to the proceedings or contained in the administrative proceedings, were not disputed by the parties, and are considered relevant for the decision of the case.

3 – On the Law

3.1 – Decisions Dismissing the Ex Officio Review Requests

The ex officio review requests submitted by the applicant were dismissed by the ATA on the grounds of their untimeliness and on the ground that there was no error attributable to the tax authority, relying on Article 78(1) of the LGT, which is hereby reproduced: "The review of tax acts by the entity that issued them may be effected at the initiative of the taxpayer, within the time limit for administrative claim and on the grounds of any illegality, or, at the initiative of the tax authority, within four years after assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the tax authority".

Now, having the review requests been submitted by the applicant, taxpayer, on 05 and 09 December 2014, and the time limit for filing the administrative claim being 120 days, as prescribed in Article 70(1) of the CPPT, it seems, and in the understanding of the ATA, there remain no doubts as to their untimeliness.

However, the case law of the STA[10] has been unanimous that the ATA may, on its own initiative, within four years after the assessment, proceed with the ex officio review of the tax act, even in the circumstances where it is the taxpayer who raises the issue within that period, assessing and declaring the illegality of the acts if appropriate. We cite, by way of example, the judgment of the STA 011007/11 of 03/04, from which we reproduce, with due respect, only the summary: "The review of the tax act at the initiative of the tax authority may be effected at the request of the taxpayer, as results from Article 78, No. 7, of the LGT and Article 86, No. 4, paragraph a), of the CPPT, within four years counted from the assessment (or, in the case the tax has not been paid, at any time), thereby investing the taxpayer with a right to a decision on the request made.

II – And the "error attributable to the tax authority" to which Article 78, No. 1, at the end, of the LGT refers comprises not only the lapse, the material error or the error of fact, but also the error of law, and this attribution to the tax authority is independent of proof of fault of the officials involved in the issuance of the assessment affected by the error."

At the time of the tax facts, Article 78(2) of the LGT (today repealed by Law No. 7-A of 2016 of 30 March) considered error attributable to the tax authority the error in self-assessment. In the present case, we have assessments at the initiative of the ATA, but supported by declarations of the taxpayer which enjoy the presumption of truthfulness as per Article 75(1) of the LGT, but which, within its powers, the ATA is obliged to correct errors or omissions made in the declarations presented by taxpayers, taking into account the principle of tax legality enshrined in Article 8 of the LGT and the principles of tax procedure enshrined in Article 55 of the same statute, in order that it may issue tax acts in conformity with what is legally stipulated.

From this perspective, the tribunal considers that the dismissal orders are illegal, since there was error on the part of the tax authority at the same time that the ATA still had time to examine them, as indeed it did, but without drawing the consequences of its examination.

3.2 – Illegality of the Assessments

The ATA, not limiting itself to dismissing the ex officio review requests, ended up examining them in substance and concluded that the operations of contribution in kind with real estate for the sphere of a closed real estate investment fund of private subscription were not subject to Stamp Duty, supporting its conclusion on Opinion 52/2013 of 31 October, issued by CEFA[11], which establishes that the tax facts in question (the act of contribution in kind with delivery of real estate for the sphere of a closed real estate investment fund of private subscription) did not constitute a transfer of real estate for purposes of taxation under IMT and consequently there was also no grounds for the taxation provided for in item 1.1 of the TGIS.

In fact, at the time of the tax facts, there was no rule of application for purposes of taxation under IMT and consequently under Stamp Duty, on the delivery of real estate as contribution in kind for the sphere of a closed real estate investment fund of private subscription, given that such facts were not classifiable as an onerous transfer of property rights as provided for in Article 2(1) of the CIMT[12]. The issuance of the assessments in question by the ATA, although supported by declarations presented by the applicant which, erroneously, declared a tax fact which did not correspond to reality, violates the principle of tax legality enshrined in Article 8 of the LGT which requires the existence of a law containing the essential elements of taxes – scope, exemptions and rates – which, in the situation at hand, did not occur and which the ATA, as has been seen, acknowledged in its orders dismissing the ex officio review requests, a reason which leads us to conclude that the assessments issued are illegal.

3.3 – Indemnity Interest

Being the assessments illegal and having been paid, the ATA is not only obliged to their annulment but also to restore the situation that would have existed if the same had not been issued and paid, in accordance with the provisions contained in Article 100 of the LGT.

In this manner, in light of the proven payment of the tax, the applicant is entitled to payment of indemnity interest, in the precise terms of Article 43(1) of the LGT and Article 61 of the CPPT, applicable by virtue of Article 29(1)(a), (b) and (c) of the RJAT.

IV – OPERATIVE PART

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

a) To declare the request for arbitral pronouncement well-founded with the consequent illegality of the orders dismissing the ex officio review requests called into question in the present proceedings.

b) To declare the illegality of the assessments to which the same were directed, with the consequent annulment and reimbursement to the applicant in the amount of € 22,958.00, plus the appropriate indemnity interest, calculated at the legal rate, from the date on which the tax payment occurred until the date on which the reimbursement occurs.

c) To fix the value of the case at € 22,958.00, having regard to the provisions contained in Article 299(1) of the CPC[13], Article 97-A of the CPPT and Article 3(2) of the RCPAT[14].

d) Costs to be borne by the respondent, pursuant to Article 22(4) of the RJAT, fixing their amount at € 1,224.00 in accordance with the provisions of Table I referred to in Article 4 of the RCPAT.

Notify.

Lisbon, 04 December 2017

Text prepared by computer, in accordance with Article 131(5) of the CPC, applicable by reference from Article 29(1)(e) of the RJAT, with blank lines and reviewed by myself.

The Sole Arbitrator,

Arlindo José Francisco

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Regime for Tax Arbitration
[3] Acronym for Tax and Customs Authority
[4] Acronym for Stamp Duty
[5] Acronym for Administrative Arbitration Centre
[6] Acronym for General Tax Law
[7] Acronym for Municipal Tax on Onerous Real Estate Transfers
[8] Acronym for General Table of Stamp Duty
[9] Acronym for Code of Tax Procedure and Process
[10] Acronym for Supreme Administrative Court
[11] Acronym for Tax and Customs Studies Centre
[12] Acronym for Municipal Tax Code on Onerous Real Estate Transfers
[13] Acronym for Code of Civil Procedure
[14] Acronym for Costs Regulation for Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto de Selo) due on the transfer of real estate to a closed-end real estate investment fund in exchange for participation units?
No, Stamp Tax under Verba 1.1 of the TGIS is not due on the transfer of real estate to a closed-end real estate investment fund in exchange for participation units. Verba 1.1 applies only to real estate transfers subject to IMT (Real Estate Transfer Tax). The contribution of real estate as payment in kind for fund participation units does not constitute an acquisition subject to IMT, and therefore falls outside the scope of Stamp Tax under this provision. The Tax Authority acknowledged that such fund contributions were not subject to IMT at the time of the operations in question.
Can a taxpayer request an official review (revisão oficiosa) to challenge Stamp Tax assessments under Verba 1.1 of the General Stamp Tax Table?
Yes, a taxpayer can request an official review (revisão oficiosa) under Article 78 of the LGT to challenge Stamp Tax assessments, including those under Verba 1.1 of the TGIS. However, such requests require demonstrating an error attributable to the tax services. The key issue in this case was whether assessments based on incorrect taxpayer declarations constitute errors attributable to the Tax Authority, particularly when the administration has a duty to analyze declarations and ensure assessments are legally correct. The timeliness of such requests may also be contested, as general claim deadlines under Articles 70 and 102 of the CPPT establish a 120-day period from the end of the voluntary payment period.
What is the CAAD arbitral tribunal procedure for disputing Stamp Tax liquidations by the Portuguese Tax Authority (AT)?
The CAAD arbitral tribunal procedure for disputing Stamp Tax liquidations involves: (1) submitting a request for constitution of an arbitral tribunal under Article 2(1) and Article 10(1) of the RJAT; (2) the tribunal is constituted with a designated arbitrator accepted by the President of CAAD; (3) the Tax Authority submits its reply and the administrative proceedings; (4) parties may waive the hearing if positions are clearly defined; (5) the tribunal examines the legality of the contested acts and issues a decision within the established timeframe. This case demonstrates the process where the tribunal was constituted in September 2017 following a July 2017 request, with decision scheduled for December 2017 after waiver of hearing by both parties.
Does the exchange of real estate for participation units in an investment fund constitute a taxable transmission for Stamp Tax purposes?
No, the exchange of real estate for participation units in an investment fund does not constitute a taxable transmission for Stamp Tax purposes under Verba 1.1 of the TGIS. This provision requires that the real estate transfer be subject to IMT, which does not apply to contributions in kind made in exchange for fund participation units. Such operations represent the initial integration of assets into the fund's patrimony rather than an onerous acquisition of property rights. Even though the taxpayer may have incorrectly declared the operation as an 'acquisition of full property rights' in Model 1 IMT declarations, the legal nature of the operation determines tax treatment, not the form of the declaration.
Are compensatory interest (juros indemnizatórios) applicable when Stamp Tax is found to be unlawfully assessed on fund asset contributions?
Yes, compensatory interest (juros indemnizatórios) are generally applicable when Stamp Tax is found to be unlawfully assessed on fund asset contributions. When a taxpayer pays tax that was not legally due and subsequently obtains a favorable decision declaring the assessment illegal, Portuguese tax law provides for payment of indemnity interest on the amount improperly collected from the date of payment until reimbursement. This compensates the taxpayer for the financial loss caused by the unlawful deprivation of funds. The rate and calculation of such interest are determined by applicable legal provisions, and they constitute an accessory right to the principal claim for tax reimbursement when assessments are annulled.