Process: 440/2017-T

Date: January 15, 2018

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD arbitration process 440/2017-T examined whether an Open Real Estate Investment Fund should be exempt from IMT (Municipal Property Transfer Tax) on two property acquisitions totaling €2,122,250. The fund was assessed IMT at 6.5% on properties acquired in Lisbon (November 2016) and Porto (February 2017). The claimant argued for full IMT exemption based on Decree-Law 1/87, which originally exempted real estate acquisitions by investment funds. However, the legislative framework underwent significant changes: the 2007 State Budget (Law 53-A/2006) introduced article 46º of the Tax Benefits Statute providing IMT exemption for open funds; the 2010 Budget restricted this to open funds only; the 2011 Budget extended it to closed funds of public subscription; and critically, the 2014 State Budget (Law 83-C/2013) replaced the full exemption with a 50% rate reduction for all qualifying funds. The case illustrates the complex evolution of Portuguese real estate investment fund taxation and the importance of determining which legal regime applies based on acquisition timing and fund characteristics. The Tax Authority notably failed to submit a defense, proceeding without contesting the claimant's arguments in the arbitration.

Full Decision

ARBITRAL DECISION

1. Report

On 24-07-2017, the OPEN REAL ESTATE INVESTMENT FUND A…, taxpayer number…, represented by its management company B… – Real Estate Investment Funds Management Company, S.A., legal entity number…, with registered office at…, n.º…,…, Lisbon, registered at the Commercial Registry Office of Lisbon under number…, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal in order, immediately, to annul the express negative decision of the administrative appeals, and mediately, to annul the tax acts establishing liability for Municipal Tax on Real Estate Transfers (IMT) n.º…, of 29-11-2016, in the amount of 2,015,000.00 €, and n.º…, of 07-02-2017, in the amount of 107,250.00 €.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 24-07-2017 and notified to the Respondent on the same date.

The Claimant did not proceed to appoint arbitrators, whereby, pursuant to article 6º n.º 2 subparagraph a) of the RJAT, the signatories were designated as arbitrators by the President of the Deontological Council of CAAD on 12-09-2017, with the appointment having been accepted within the legally prescribed deadline and terms.

On the same date the parties were duly notified of this appointment and did not express their will to refuse the designation of the arbitrators, in accordance with article 11º, n.º 1, subparagraphs a) and b) of the RJAT, read together with articles 6º and 7º of the Deontological Code.

Thus, in accordance with the provision of subparagraph c), n.º 1, of article 11º of the RJAT, the Arbitral Tribunal was constituted on 29-09-2017, and on the same date an arbitral order was issued directing the Respondent to, "(…) within 30 days, submit its answer and, should it wish, request the production of additional evidence (…)" and to remit "(…) to the arbitral tribunal a copy of the administrative file within the deadline for submission of the answer (…)".

On 02-11-2017, the Respondent attached a copy of the administrative file to the record and elected not to submit an answer.

On 24-11-2017, an order was issued dispensing with the hearing provided for in article 18º of the RJAT, as well as the submission of arguments, given that no additional evidence beyond documentary evidence is listed, there are no exceptions to be examined, and in accordance with the general procedural principles of procedural economy and prohibition of performance of useless acts.

In the same order it was further decided that the final decision would be rendered within 45 days, with the Claimant being alerted to proceed with payment of the subsequent arbitration fee, up to 10 days before the expiration of the deadline for rendering the decision.

The Claimant submitted proof of payment of the subsequent arbitration fee on 04-12-2017.

2. Cause of Action

The Claimant sustains its request in the following manner:

The Claimant begins by noting that it is an Open Real Estate Investment Fund, as provided in articles 3º n.º 1 and 36º and following of the Legal Regime for Real Estate Investment Funds, approved by Decree-Law n.º 60/2002 of 20 March.

It further notes that the IMT resulting from the assessments that are the subject of the present arbitral request was paid by virtue of:

a) as regards the IMT assessment n.º…: the acquisition of ownership of the urban property with matriculation article…, located on Rua…, n.º…, parish of…, municipality of Lisbon, intended for services, pursuant to a deed of sale and purchase executed on 29-11-2016;

b) as regards the IMT assessment n.º…: the acquisition of ownership of the urban property with matriculation article…, located on Rua…, parish of…, municipality of Porto, intended for services, pursuant to a deed of sale and purchase executed on 28-02-2017.

According to the Claimant, the IMT rate applied in the assessments was 6.5%, in accordance with article 17º n.º 1 subparagraph d) of the IMT Code.

The Claimant alleges that the acquisitions of real estate described above should have been exempt from IMT, in accordance with article 1º of Decree-Law n.º 1/87, according to which "acquisitions of real estate made for a real estate investment fund by its respective management company are exempt from stamp duty."

The Claimant presents in its arbitral request the following summary of legislative amendments to Decree-Law n.º 1/87:

Law n.º 53-A/2006 of 29-12 (State Budget Law for 2007) amended the wording of article 46º of the Statute of Tax Benefits (EBF), which previously established an exemption from Municipal Property Contribution for, among others, real estate investment funds and equivalent entities, and which now provided as follows:

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

2 – Real estate integrated in real estate investment funds, mixed or closed funds of private subscription, by non-qualified investors or by financial institutions on their account, do not benefit from the exemptions referred to in the preceding number, and the rates of municipal property tax and municipal tax on onerous real estate transfers are reduced to half."

In the same State Budget Law for 2007 the following transitional provision appeared in article 88º:

"To the amendments introduced by this law to the Statute of Tax Benefits the following transitional regime applies:

j) the provision of n.º 2 of article 46º of the Statute of Tax Benefits is applicable, as of the entry into force of this law, to real estate integrated in mixed or closed real estate investment funds of private subscription by non-qualified investors or by financial institutions on their account established after 1 November 2006 or that carry out capital increases after that date, and likewise to real estate integrated in funds with identical characteristics whose participation units were, as of 1 November 2006, held exclusively by non-qualified investors or by financial institutions on their account (…)".

Law n.º 3-B/2010 of 28-04 (State Budget Law for 2010) renumbered the previous article 46º, which became article 49º of the EBF, amending n.º 1 and repealing n.º 2 as follows:

"1 – Real estate integrated in open real estate investment funds, pension funds and pension savings funds that are established and operated in accordance with national legislation are exempt from municipal property tax and municipal tax on onerous real estate transfers.

2 – (Repealed)."

Law n.º 55-A/2010 of 31-12 (State Budget Law for 2011) amended the wording of n.º 1 of article 49º of the EBF:

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

Law n.º 83-C/2013 of 31-12 (State Budget Law for 2014) also amended n.º 1 of article 49º of the EBF:

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

This State Budget Law for 2014 also established a transitional regime in its article 209º:

"The tax regime resulting from the new wording given to n.º 1 of article 49º of the EBF, approved by Decree-Law n.º 215/89 of 1 July, is applicable to real estate that, at the moment of entry into force of this law, are integrated in open or closed real estate investment funds of public subscription, pension funds and pension savings funds that are established and operated in accordance with national legislation, as well as real estate that come to be integrated in these entities."

Law n.º 7-A/2016, of 30-03 (State Budget Law for 2016), in its article 215º n.º 1 subparagraph g), repealed article 49º of the EBF.

For the Claimant, the exemptions and rate reductions of IMT established in articles 46º and 49º of the EBF had as their object real estate integrated in all or some real estate investment funds. Thus, the exemptions and rate reductions of IMT are applicable not to real estate acquired by real estate investment funds but rather to real estate acquired from them.

The Claimant understands that, as IMT is a tax on onerous acquisitions of real estate and similar operations, the same can only be levied on real estate integrated in real estate investment funds when such real estate is acquired from those funds by other entities. The Claimant submits that the reason for this is easy to grasp, since article 5º n.º 2 of the IMT Code establishes that "the tax obligation is constituted at the moment when the transfer occurs," and therefore tax is due for the transfer of real estate integrated in real estate investment funds to third parties.

It concludes by asserting that the exemptions and rate reductions of IMT established in articles 46º and 49º of the EBF are attributed to real estate alienated and not to real estate acquired by certain real estate investment funds. And to support its position, the Claimant refers to the article by João Espanha, published in Fisco n.º 124-125, titled "On the new wording of art.º 46º of the EBF Or how strange tax law is in Portugal." It also refers to the arbitral decision rendered on 28-04-2017 in case n.º 544/2016-T.

In the Claimant's view, the exemption from IMT provided for in n.º 1 of Decree-Law n.º 1/87 has not lapsed, since that article does not provide for any fact whose occurrence would imply the cessation of its validity. On the other hand, the aforementioned article 1º of Decree-Law n.º 1/87 has not been repealed, unlike what occurred with article 49º of the EBF.

Indeed, for the Claimant "while article 1º of Decree-Law n.º 1/87 establishes an exemption from IMT for all acquisitions of real estate by real estate investment funds ("on entry"), the various wordings of articles 46 and 49º of the EBF always established exemptions or rate reductions of IMT for acquisitions of real estate from some real estate investment funds by third parties ("on exit")".

The Claimant further notes that the position according to which the sisa/IMT exemption contained in article 1º of Decree-Law n.º 1/87 continued to be in force after the amendments introduced to article 46º of the EBF by Law n.º 53-A/2006 of 29-12 was also adopted by the Group for the Study of Tax Policy, Competitiveness, Efficiency and Justice of the Tax System – Subgroup on Property Taxation. The Claimant cites that this circumstance points to the validity of its conclusions.

The Claimant concludes that even if it were concluded that the exemptions and rate reductions of IMT successively established in articles 46º and 49º of the EBF are applicable to acquisitions of real estate by certain real estate investment funds ("on entry"), it would still have to be concluded that the full current validity of the sisa/IMT exemption established in article 1º of Decree-Law n.º 1/87 is maintained.

For the Claimant, the provisions successively provided for in articles 46º and 49º of the EBF did not repeal article 1º of Decree-Law n.º 1/87, since the aforementioned provisions regulate distinct situations.

The Claimant further makes reference to the arbitral decision rendered on 26-06-2017 in case n.º 677/2016-T.

In conclusion, the Claimant alleges that the assessments that are the subject of the arbitral request are illegal because the exemption established in article 1º of Decree-Law n.º 1/87 was not applied to the acquisitions of two properties.

Finally, the Claimant states that it proceeded with payment of the IMT and requests that the Tax Authority be condemned to reimburse the tax unduly paid plus compensatory interest, pursuant to article 43º of the LGT and article 61º of the CPPT.

3. Answer of the Respondent

The Respondent elected not to submit an answer in the present proceedings.

4. Preliminary Examination

The present request for arbitral pronouncement was submitted in a timely manner, in accordance with article 10º n.º 1 subparagraph a) of Decree-Law n.º 10/2011 of 20 January.

The Tribunal is competent regarding the examination of the request for arbitral pronouncement formulated by the Claimant.

The parties possess judicial personality and capacity and are entitled to participate (articles 4º and 10º n.º 1 and 2 of the RJAT and article 1º of Order n.º 112-A/2011 of 22 March).

The proceedings do not suffer from any nullities and no preliminary questions have been raised, with the exception of the joinder of claims, which shall now be decided.

The Claimant seeks to have the legality of two IMT assessments examined. And it requests joinder of claims alleging that the illegality of the assessments derives, on one hand, from the same facts – acquisition of real estate by a real estate investment fund on which IMT was assessed at the rate of 6.5%, and on the other hand, from the same ground of law – the non-application of the IMT exemption provided for in article 1º of Decree-Law n.º 1/87.

In this case the joinder of claims is admissible, pursuant to articles 104º of the CPPT and 3º of the RJAT, whereby it is admitted.

5. Facts

5.1. Established Facts:

Having examined the documentary evidence produced, the following facts are considered established and relevant for the decision of the case:

  • The Claimant is an Open Real Estate Investment Fund, established and operating in accordance with the provisions of the Legal Regime for Real Estate Investment Funds, approved by Decree-Law n.º 60/2002 of 20 March.

  • The Claimant Open Real Estate Investment Fund A…, represented by its management company B… – Real Estate Investment Funds Management Company, S.A., acquired by public deed executed on 29-11-2016, the urban property registered in the matrix under article…, of the parish of…, municipality of Lisbon, located on Rua…, n.º…, Lisbon, in accordance with a copy of the deed attached to the arbitral request as document 1.

  • On 29-11-2016, the Respondent issued, at the request of the Claimant, the IMT assessment n.º…, relating to the acquisition referred to in the preceding point, in the amount of 2,015,000.00 €, with payment due date on 30-11-2016, in accordance with a copy of the assessment attached to the arbitral request as document 2.

  • The Claimant Open Real Estate Investment Fund A…, represented by its management company B… – Real Estate Investment Funds Management Company, S.A., further acquired by public deed executed on 28-02-2017, the urban property registered in the matrix under article…, of the parish of…, municipality of Porto, located on Rua…, Porto, in accordance with a copy of the deed attached to the arbitral request as document 2.

  • On 07-02-2017 the Respondent issued, at the request of the Claimant, the IMT assessment n.º…, relating to the acquisition referred to in the preceding point, in the amount of 107,250.00 €, with payment due date on 30-11-2016, in accordance with a copy of the assessment attached to the arbitral request as document 2.

  • The Claimant filed on 13-02-2017 an administrative appeal of the IMT assessment n.º…, in the amount of 2,015,000.00 €, in accordance with document 3 attached to the arbitral request.

  • The Claimant filed on 13-02-2017 an administrative appeal of the IMT assessment n.º…, in the amount of 107,250.00 €, in accordance with document 4 attached to the arbitral request.

  • Until the date of submission of the present arbitral request, 24-07-2017, the Claimant had not yet been notified of any decision on the administrative appeals filed.

  • The Claimant proceeded with payment of the two IMT assessments referred to above, in accordance with proof of payment attached to the arbitral request as documents 1 and 2.

No other facts with relevance for the decision of the case were established.

5.2. Reasoning of Established Facts:

The factual record was based on the documents attached to the record by the Claimant, the instructing file, as well as the procedural position of the Respondent, insofar as it did not submit an answer, in accordance with article 110º n.º 6 and 7 of the CPPT.

5.3. Unestablished Facts

There are no other facts with relevance for examination of the merits of the case that were not established.

6. Legal Matters:

6.1. Object and Scope of the Present Proceedings

The question to be decided in the present proceedings is whether the IMT assessments that are the subject of the present arbitral request are or are not illegal, taking into account the wording of article 1º of Decree-Law n.º 1/87 of 03-01.

Furthermore, it is important to decide whether the IMT exemption introduced in article 46º of the EBF by the State Budget Law for 2007 repealed – and if so, expressly or tacitly – the sisa (IMT) exemption contained in article 1º of Decree-Law n.º 1/87.

On this question the CAAD decisions in cases n.º 544/2016-T and n.º 677/2016-T have already pronounced themselves.

It is important from the outset to set forth the legal norms relevant at the time the facts occurred.

In accordance with article 5º, n.º 1 of the IMT Code, the scope of IMT is governed by the legislation in force at the time the tax obligation is constituted, with n.º 2 establishing that this occurs at the moment when the transfer takes place.

Now, as established in the factual record, the Claimant is an open real estate investment fund, established and operating in accordance with the provisions of the Legal Regime for Real Estate Investment Funds, approved by Decree-Law n.º 60/2002 of 20 March.

The Claimant acquired, by public deeds, on 29-11-2016 and on 28-02-2017, two properties, one located on Rua…, n.º…, parish of…, municipality of Lisbon, and another located on Rua…, parish of…, municipality of Porto.

We believe it is relevant to provide a framework of the legal regime applicable to investment funds.

The legal regime applicable to investment funds was created by Decree-Law n.º 246/85 of 12-07.

Furthermore, Decree-Law n.º 1/87 of 03-01 proceeded to create tax incentives for the establishment of real estate investment funds.

And in the preamble of Decree-Law n.º 1/87 it is expressly recognized the important contribution that this new type of financial institution could bring to savings formation and their mobilization for investments in the real estate sector, in addition to the positive effects that would thereby be induced in the construction industries and in the market for rental of property for housing and offices.

Article 1º of the aforementioned Decree-Law n.º 1/87 of 03-01 determined that "acquisitions of real estate made for a real estate investment fund by its respective management company are exempt from stamp duty."

Thus, in accordance with this legal norm, acquisitions of real estate effected with the objective of being integrated in a real estate investment fund would be exempt from stamp duty.

Later, Decree-Law n.º 287/2003, of 12 November, carried out a reform of property taxation, approving the IMI Code and the IMT Code, published respectively in its Annexes I and II.

Regarding cross-references, article 28º of Decree-Law n.º 287/2003 of 12-11 determined that:

"1 – All legal texts that mention Municipal Property Contribution Code or municipal property contribution are deemed to refer to the Municipal Property Tax Code (CIMI) or municipal property tax (IMI).

2 – All legal texts that mention Municipal Stamp Tax Code and Tax on Inheritances and Donations Code, municipal stamp tax or tax on inheritances and donations are deemed to refer to the Code of Municipal Tax on Onerous Real Estate Transfers (CIMT), the Stamp Tax Code, the municipal tax on onerous real estate transfers (IMT) and the stamp tax, respectively."

The aforementioned Decree-Law n.º 287/2003 further included a repeal provision in its article 31º, whose n.º 6 provided:

"Tax benefits relating to municipal property contribution, now reported to IMI, as well as those relating to municipal stamp tax established in legislation outside the Code approved by Decree-Law n.º 41969, of 24 November 1958, and in the Statute of Tax Benefits, which shall now be reported to IMT, remain in force."

Indeed, in accordance with articles 28º and 31º n.º 6 of Decree-Law n.º 287/2003, and as mentioned in the CAAD decision in case n.º 544/2016-T, "the stamp tax exemptions should be deemed to be reported to IMT, whereby acquisitions of real estate carried out by a management company of a real estate investment fund with the intention that they become integrated in that fund would continue to be exempt from IMT (that exemption from stamp duty provided for in article 1º of Decree-Law n.º 1/87 of 3 January). The exemption would exist whenever the fund was in the position of acquirer of the property."

It should be noted, as is noted in the CAAD decision in case n.º 544/2016-T, "that this exemption had a clear purpose and fully assumed by the tax legislator. At issue was the objective, of a social and economic nature, of defining a tax framework capable of encouraging the creation of investment funds with the capacity to mobilize savings for the carrying out of investments in the real estate sector, thereby stimulating the construction industries and the market for rental of property for housing and offices."

The State Budget Law for 2007, in its article 82º, amended the wording of article 46º of the EBF, which came to provide, in addition to the exemption from Municipal Property Contribution (IMI) for properties integrated in open real estate funds, an exemption from IMT for the aforementioned properties. Thus, properties integrated in mixed or closed funds, provided certain conditions were met, would be entitled to a 50% reduction in the IMT rate.

This article 82º made no reference to the sisa (IMT) exemption that was provided for in article 1º of Decree-Law n.º 1/87 of 03-01.

As alluded to in the CAAD decision in case n.º 544/2016-T, the question that arises concerns the issue of whether the IMT exemption introduced in article 46º of the EBF by the State Budget Law for 2007 repealed – and if so, expressly or tacitly – the Sisa (IMT) exemption contained in article 1º of Decree-Law n.º 1/87 of 03-01 – which, until then, nobody doubted remained in force. This question is pertinent insofar as, in accordance with article 7º, n.º 1 of the Civil Code, the general rule regarding the cessation of the validity of law is that "when it is not intended to have temporary validity, a law only ceases to be in force if it is repealed by another law."

Decree-Law n.º 1/87 contains no indication that article 1º would have temporary validity, whereby, admitting its non-repeal by another law, the exemption contained therein will – still today – remain in force, as concluded in the CAAD decision in case n.º 544/2016-T.

Indeed, the answer to this question will answer the question of whether the acts of IMT assessment at issue in these proceedings are or are not illegal.

Article 7º n.º 2 of the Civil Code provides that "repeal can result from express declaration, from incompatibility between the new provisions and the preceding rules, or from the circumstance that the new law regulates the entire subject matter of the prior law."

In accordance with the CAAD decision in case n.º 544/2016-T, "the existence of rules of recognition, oriented towards the clear and precise identification of the norms that are in force in the legal system and of those that have already been expressly or tacitly repealed, is of the greatest significance, first and foremost from the standpoint of the principle of legality, particularly in its dimension of tax legality, asserting the requirement of legal certainty and protection of confidence inherent in the constitutionally structuring principle of the rule of law. Citizens, economic agents and legal operators must be able to know with certainty which norms are and which are not in force in the legal system. Article 7º of the Civil Code thus establishes three alternative criteria for repeal, whose fulfillment or non-fulfillment has significant implications in the concrete case."

Let us examine whether any of the three alternatives that, according to article 7º, n.º 2 of the Civil Code, lead to repeal of article 1º of Decree-Law n.º 1/87 of 03-01 occurred.

The three alternatives of article 7º n.º 2 of the Civil Code are:

a) express declaration of repeal;

b) incompatibility between the new provisions and the preceding rules; or

c) the circumstance that the new law regulates the entire subject matter of the prior law.

As to the first one, there is no provision for express repeal in article 46º of the EBF, in the wording given to it by article 82º of the State Budget Law for 2007, of the aforementioned article 1º of Decree-Law n.º 1/87.

As to the second alternative, the IMT exemption contained in the new wording of article 46º would apply whenever the fund was the acquirer of the property, whereas the IMT exemption contained in article 1º of Decree-Law n.º 1/87 would apply when the fund was in the position of alienator of the property. Indeed, there is no incompatibility between the new provisions (new article 46º of the EBF) and the preceding rules (article 1º of Decree-Law n.º 1/87). Let us see that the new provisions and the preceding rules are not only compatible but create a tax regime especially appealing for management companies of real estate funds.

It should also be noted that the halving of IMT rates contained in the current article 49º of the EBF constitutes a significant and non-redundant supplement to the exemption established by article 1º of Decree-Law n.º 1/87. It is an exemption that is structurally and teleologically distinct from the latter, whose introduction and maintenance in the legal order rests on a distinct assessment of tax policy.

As stated in the CAAD decision in case n.º 544/2016-T, "the possibility of legal and normative coexistence of IMT exemptions at the moments of acquisition and alienation of a property is far from constituting an anomalous or systemically dysfunctional solution. Such coexistence can be found today in the EBF itself, with regard to urban properties intended for rehabilitation, verified certain prerequisites. Indeed, article 45º, n.º 2 provides that 'Acquisitions of urban properties intended for urban rehabilitation are exempt from municipal tax on onerous real estate transfers, provided that, within three years from the date of acquisition, the acquirer initiates the respective works.' In parallel, article 71º, n.º 8 of the EBF provides that 'Acquisitions of urban property or autonomous fraction of urban property intended exclusively for own permanent housing, in the first onerous transfer of the rehabilitated property, when located in the 'urban rehabilitation area' are exempt from IMT.' Here too an exemption to IMT at the moment of acquisition of the property to be rehabilitated coexists with the exemption at the moment of alienation of the rehabilitated property, in a framework of legal complementarity full of economic and social rationality.

A structurally identical solution can also be found in article 8º, n.º 7 of the Special Regime applicable to real estate investment funds for rental housing (FIIAH) and real estate investment companies for rental housing (SIIAH), approved by article 102º of Law n.º 64-A/2008 of 31 December – Chapter X, which provides that they are exempt from IMT 'a) Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent housing by the investment funds referred to in n.º 1; b) Acquisitions of urban properties or autonomous fractions of urban properties intended for own permanent housing, as a result of the exercise of the purchase option referred to in n.º 3 of article 5º by the tenants of the properties that are part of the assets of the investment funds referred to in n.º 1.'"

Regarding the third alternative of article 7º, n.º 2 of the Civil Code, the introduction of the exemption in article 46º of the EBF cannot be interpreted as a repeal and replacement of the exemption contained in article 1º of Decree-Law n.º 1/87. First and foremost, because tax benefits are not only provided for in the EBF, and can be contained in separate legislation.

Thus, we must conclude that the two exemptions are different, compatible and complement each other.

Let us now examine the various amendments that were made, over time, to the aforementioned article 46º of the EBF:

  • the provision in article 88º of Law n.º 53-A/2006, of 31 December (State Budget Law for 2007), of a transitional regime for mixed or closed funds in certain circumstances;

  • the renumbering of article 46º of the EBF, which became 49º, carried out by article 109º of Law n.º 2-B/2010, of 28 April (State Budget Law for 2010), which reserves the IMT exemption for open real estate investment funds;

  • the extension of the IMT exemption to closed funds of public subscription carried out by article 119º of Law n.º 55-A/2010 of 31 December (State Budget Law for 2011);

  • the substitution of the IMT exemption for properties integrated in open or closed real estate investment funds of public subscription by a halving of IMT rates, operated by article 206º of Law n.º 83-C/2013, of 31 December (State Budget Law for 2014), accompanied by a transitional regime in article 209º.

The aforementioned amendments had as their object the IMT exemption relating to property integrated in real estate investment funds. Nothing exists that could lead to the conclusion that the same referred to the exemption contained in article 1º of Decree-Law n.º 1/87.

Indeed, we must conclude, as was concluded in the CAAD decision in case n.º 544/2016-T, that the Sisa exemption provided for in article 1º of Decree-Law n.º 1/87 of 3 January, which came to be reported to IMT, in accordance with articles 28º and 31º of Decree-Law n.º 287/2003 of 12-11, remains in force. Whereby, acquisitions of real estate made for a real estate investment fund by its respective management company are exempt from IMT.

Now, the Claimant acquired two properties with the intention that they be integrated in the fund itself. In this manner, the IMT exemption provided for in article 1º of Decree-Law n.º 1/87 of 03-01 is applicable to the acquisitions in question, and there should be no IMT due in connection with the aforementioned acquisitions.

Thus, and in conclusion, the Claimant's position is correct, determining the declaration of illegality of the impugned assessments, whereby the request is well-founded with the consequent annulment of the aforementioned IMT assessments, with the resulting legal consequences.

7. Compensatory Interest

The Claimant further requests that the Respondent be condemned to reimburse the tax unduly paid, plus compensatory interest, pursuant to article 43º, n.º 1 of the LGT.

In accordance with the provision in subparagraph b) of article 24º of the Legal Regime of Tax Arbitration, the arbitral decision on the merits of the claim which is not subject to appeal or impugnation binds the Tax Administration as of the end of the deadline provided for appeal or impugnation, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for voluntary execution of judgments of tax courts, "restore the situation that would exist if the tax act that is the object of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose," which is in harmony with the provision in article 100º of the LGT, applicable by virtue of the provision in subparagraph a) of n.º 1 of article 29º of the Legal Regime of Tax Arbitration.

Now, in accordance with n.º 5 of article 24º of the Legal Regime of Tax Arbitration when stating that "payment of interest, regardless of its nature, is due in accordance with the terms provided for in the General Tax Law and in the Tax Procedure and Process Code" it is merely a recognition of the right to compensatory interest in tax arbitration proceedings.

In the case at hand, having declared the illegality of the IMT assessment acts, there is entitlement to payment of compensatory interest, pursuant to article 43º, n.º 1 of the LGT and article 61º of the CPPT, calculated on the amount that the Claimant unduly paid.

Such interest shall be considered due as of the formation of the express negative decision on the administrative appeal filed by the Claimant.

Indeed, article 43º/1 of the LGT provides that:

"Compensatory interest is due when it is determined, in an administrative appeal or judicial impugnation, that there was an error attributable to the services from which resulted payment of the tax debt in an amount higher than legally due."

In the case at hand, it is established (points 3 and 5 of the evidence record) that the assessments were issued at the request of the Claimant, whereby, only after the lapse of the period that the Respondent had to pronounce itself on the matter, not having done so, can the error from which the aforementioned assessments suffer be deemed attributable to the latter.

8. Decision

In light of the foregoing, it is determined:

  • To hold well-founded the request formulated by the Claimant in the present tax arbitration proceedings, as to the illegality of the IMT assessments n.º…, of 29-11-2016, in the amount of 2,015,000.00 €, and n.º…, of 07-02-2017, in the amount of 107,250.00 €;

  • To hold well-founded the request for condemnation of the Tax and Customs Authority to reimburse to the Claimant the amount of tax paid, plus compensatory interest, calculated as of the end of the legal deadline for decision on the administrative appeal, in the terms set forth above.

9. Value of the Action:

In accordance with the provision in article 315º, n.º 2 of the CPC and 97º-A, n.º 1 subparagraph a) of the CPPT and 3º, n.º 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 2,122,250.00 €.

10. Costs:

Pursuant to article 22º, n.º 4 of the RJAT and Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 27,540.00 €, payable by the Respondent.

Notify.

Lisbon, 15 January 2018.

Text produced by computer, in accordance with article 138º, n.º 5 of the Code of Civil Procedure (CPC), applicable by cross-reference to article 29º, n.º 1 subparagraph e) of the Tax Arbitration Legal Regime, reviewed by me.

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Jorge Bacelar Gouveia)

The Arbitrator Member

(Suzana Fernandes da Costa)

Frequently Asked Questions

Automatically Created

Are open-end real estate investment funds exempt from IMT (Municipal Property Transfer Tax) in Portugal?
The exemption status of open-end real estate investment funds from IMT has evolved significantly through Portuguese legislation. Originally, Decree-Law 1/87 provided exemption for real estate acquisitions by investment funds. The 2007-2011 State Budgets (Laws 53-A/2006, 3-B/2010, and 55-A/2010) maintained full IMT exemption for open real estate investment funds and certain closed funds of public subscription under article 46º (later 49º) of the Tax Benefits Statute. However, Law 83-C/2013 (2014 State Budget) fundamentally changed this regime, replacing the full exemption with a 50% rate reduction. Therefore, since January 2014, open real estate investment funds are not fully exempt from IMT but benefit from a reduced rate of 50% of the standard IMT rates applicable to the property acquisition.
What was the outcome of CAAD arbitration process 440/2017-T regarding IMT exemption for investment funds?
In CAAD process 440/2017-T, an Open Real Estate Investment Fund challenged two IMT assessments totaling €2,122,250 levied on property acquisitions in 2016 and 2017. The fund argued it should be exempt from IMT under Decree-Law 1/87 and the successive provisions of the Tax Benefits Statute. The arbitral tribunal was constituted on September 29, 2017, following the standard CAAD procedure. Notably, the Tax Authority (Respondent) submitted the administrative file but elected not to submit a formal answer or defense. The tribunal dispensed with an oral hearing under article 18º of RJAT, applying principles of procedural economy since only documentary evidence was involved and no exceptions required examination. The case proceeded to decision based solely on the claimant's arguments and the administrative file, highlighting a procedural scenario where the tax authority's silence allowed the case to advance without contested facts.
How can a real estate investment fund challenge an IMT tax assessment through arbitration in Portugal?
A real estate investment fund can challenge an IMT assessment through Portuguese tax arbitration by filing a request with CAAD (Centro de Arbitragem Administrativa) after exhausting or receiving negative decisions on administrative appeals (reclamação graciosa). The process follows the RJAT (Regime Jurídico da Arbitragem em Matéria Tributária). Key steps include: (1) submitting the arbitration request within the legal deadline after the administrative appeal decision; (2) paying the initial arbitration fee; (3) optionally appointing arbitrators or allowing CAAD's President to designate them; (4) allowing 30 days for the Tax Authority to submit its answer and administrative file; (5) proceeding with or without an oral hearing depending on evidence needs; and (6) paying the subsequent arbitration fee before final decision. In process 440/2017-T, the fund did not appoint arbitrators, so CAAD designated them, the tribunal was constituted within legal timeframes, and the hearing was dispensed with since only documentary evidence was presented and no factual disputes existed requiring oral testimony.
What is the legal basis for IMT exemption applicable to Portuguese real estate investment funds?
The legal basis for IMT exemption applicable to Portuguese real estate investment funds has evolved through multiple legislative amendments. The foundation was Decree-Law 1/87, which exempted real estate acquisitions by investment funds from stamp duty. Subsequently, article 46º of the Tax Benefits Statute (Estatuto dos Benefícios Fiscais - EBF), as amended by Law 53-A/2006 (2007 State Budget), established IMT and IMI exemption for real estate integrated in investment funds, with limitations for certain closed or mixed funds. Law 3-B/2010 (2010 Budget) renumbered this provision to article 49º and restricted full exemption to open real estate investment funds. Law 55-A/2010 (2011 Budget) extended the exemption to closed funds of public subscription. Critically, Law 83-C/2013 (2014 State Budget) transformed the regime from full exemption to a 50% rate reduction for qualifying funds. Each legislative change included transitional provisions determining applicability to existing fund holdings, making the temporal element crucial for determining which regime governs specific property acquisitions.
What happens when the Portuguese tax authority does not respond to a gracious complaint (reclamação graciosa) regarding IMT?
When the Portuguese Tax Authority (Autoridade Tributária e Aduaneira) does not respond to a gracious complaint (reclamação graciosa) regarding IMT, the silence has specific legal consequences. If the tax authority fails to issue an express decision within the legal deadline (currently 4 months under article 57º of the Tax Procedure Code - CPPT), the law deems this silence as an implicit rejection (indeferimento tácito) of the complaint. This tacit denial provides the taxpayer with standing to escalate the dispute to the next level of administrative or judicial review. In the context of tax arbitration, as demonstrated in process 440/2017-T, the taxpayer can then file a request with CAAD to annul both the tacit or express denial of the gracious complaint and the underlying tax assessment. Importantly, even in the arbitration phase, if the Tax Authority chooses not to submit a formal answer (as occurred in this case), the proceedings continue without the authority's defense, and the arbitral tribunal decides based on available evidence and the claimant's arguments, though this does not automatically guarantee success for the taxpayer.