Process: 474/2018-T

Date: January 22, 2019

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 474/2018-T) addresses whether real estate investment funds remain exempt from IMT (Municipal Tax on Onerous Property Transfers) when acquiring properties. A closed real estate investment fund, represented by its management company, challenged an IMT assessment of €650,797.20 issued in July 2018 for property acquisitions. The fund claimed exemption under Article 1 of Decree-Law No. 1/87, which originally exempted real estate investment funds from transfer tax (sisa). The central legal question was whether this exemption survived subsequent legislative reforms, particularly the 2003 replacement of sisa with IMT under Decree-Law No. 287/2003 and potential tacit repeal by Law No. 53-A/2006. The arbitral tribunal examined the legal framework governing cessation of legal validity under Article 7 of the Portuguese Civil Code, which establishes that laws only cease through express or tacit repeal. Decree-Law No. 287/2003 explicitly preserved tax benefits from pre-existing legislation, converting sisa exemptions to IMT exemptions. The tribunal analyzed whether the exemption regime was tacitly repealed through incompatibility with subsequent legislation or comprehensive regulation of the subject matter. This decision is significant for real estate fund managers and tax advisors, as it clarifies the continuity of historical tax exemptions through legislative transitions and establishes precedent for interpreting tacit repeal of tax benefits in Portuguese tax law.

Full Decision

ARBITRAL DECISION (consult full version in PDF)

The arbitrators Counsel Jorge Lopes de Sousa (arbitrator-president), Dr. Alexandre Andrade and Dr. Jorge Carita (arbitrators members), appointed by the Deontological Council of the Administrative Arbitration Centre to constitute the Arbitral Tribunal, constituted on 05-12-2018, agree as follows:

1. Report

A...- REAL ESTATE INVESTMENT FUND MANAGEMENT, S.A., with tax identification number ... and registered office at ..., ..., ..., ..., ...-... (hereinafter referred to as "Claimant"), in its capacity as fund manager and on behalf of the CLOSED REAL ESTATE INVESTMENT FUND B..., with tax identification number ... (hereinafter referred to as "Fund") has, pursuant to Decree-Law No. 10/2011 of 20 January (hereinafter "RJAT"), requested the constitution of an Arbitral Tribunal.

The Claimant seeks the review of the legality of the tax assessment act for Municipal Tax on Onerous Property Transfers ("IMT") No. ..., issued by the Tax and Customs Authority ("AT") on 26-07-2018, in the amount of €650,797.20.

The Claimant further requests the reimbursement of the amount paid plus compensatory interest.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 25-09-2018.

Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Arbitrators initially appointed by the Deontological Council communicated their acceptance of the appointment within the applicable period.

On 15-11-2018 the parties were duly notified of this appointment and did not express an intention to decline the appointment of the arbitrators, in accordance with the combined provisions of article 11 paragraph 1 subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of subparagraph c) of paragraph 1 of article 11 of RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the collective arbitral tribunal was constituted on 05-12-2018.

The Tax and Customs Administration was notified pursuant to article 17 of RJAT, but stated that it submits no Reply.

By order of 21-01-2019, the meeting provided for in article 18 of RJAT and written submissions were dispensed with and a date for decision was set.

The arbitral tribunal was regularly constituted in accordance with the provisions of articles 2 paragraph 1 subparagraph a) and 10 paragraph 1 of Decree-Law No. 10/2011 of 20 January, and is competent.

The Parties are duly represented, enjoy legal personality and capacity and have standing (articles 4 and 10 paragraph 2 of the same instrument and article 1 of Order No. 112-A/2011 of 22 March).

The process is not affected by nullities.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

A) The Fund, represented by the Claimant, constitutes a closed real estate investment fund, constituted under Decree-Law No. 60/2002 of 20 March, currently being subject to the provisions of paragraph 2 of article 214 of the General Regime of Collective Investment Bodies (Law No. 16/2015 of 24 February);

B) The Claimant, in its capacity as fund manager, acquires, through the legal mechanism of agency, real properties on behalf of real estate investment funds, which are intended to form part of the assets of these funds;

C) The Claimant, on behalf of the Fund, acquired, by public deed of sale and purchase, the following properties, indicated in document No. 2 attached with the request for arbitral opinion, the content of which is given as reproduced:

D) With respect to the acquisition of said properties, a tax assessment act for IMT identification number ..., was issued on 26 July 2018, with the total amount of tax to be paid of €650,797.20, which is contained in document No. 1 attached with the request for arbitral opinion, the content of which is given as reproduced;

E) The amount assessed was paid by the Fund on 26-07-2018 (document No. 3 attached with the request for arbitral opinion, the content of which is given as reproduced);

F) On 25-09-2018, the Claimant submitted the request for arbitral opinion that gave rise to the present proceedings.

2.2. Unproven Facts and Rationale of the Factual Decision

There are no facts relevant to the decision of the case that have not been proven.

The proven facts are based on the documents submitted by the Claimant whose correspondence to reality is not disputed by the Tax and Customs Authority.

No administrative file was submitted.

3. Legal Matters

The Claimant represents a closed real estate investment fund that acquired properties in 2018, with IMT having been assessed by the Tax Administration in relation to the acquisitions.

Article 1 of Decree-Law No. 1/87 of 3 January establishes that "acquisitions of real property made for a real estate investment fund by its respective fund manager are exempt from transfer tax (sisa)".

The Claimant argues that the acquisitions of the properties made are exempt from IMT, as this exemption is applicable to it, and was not repealed on the date on which it effected the acquisitions of the properties to which the assessment in question refers.

Decree-Law No. 1/87 refers to transfer tax (sisa) and not to IMT, but Decree-Law No. 287/2003 of 12 November, which reformed the taxation of property, repealed by its article 31 paragraph 3, the Code of Municipal Transfer Tax and the Tax on Successions or Gifts, but established, in article 28 paragraph 2, that "all legal texts that mention Code of Municipal Transfer Tax and Tax on Successions and Gifts, municipal transfer tax or tax on successions and gifts are deemed to refer to the Code of Municipal Tax on Onerous Property Transfers (CIMT), the Stamp Tax Code, the municipal tax on onerous property transfers (IMT) and stamp tax, respectively".

Paragraph 6 of article 31 of Decree-Law No. 287/2003 establishes that "tax benefits relating to local property tax, now reportable to IMI, as well as those relating to municipal transfer tax established in legislation outside the Code approved by Decree-Law No. 41969 of 24 November 1958, and in the Tax Incentives Statute, which shall now be reported to IMT, remain in force".

The acquisitions referred to fall within the scope of said article 1 of Decree-Law No. 1/87, so that, if this rule remains in force, the exemption shall be applicable, reported to IMT, by virtue of these provisions of Decree-Law No. 287/2003.

The essential question to be decided is, therefore, whether article 1 of Decree-Law No. 1/87 was or was not repealed, in particular by Law No. 53-A/2006 of 29 December.

3.1. Regime of Cessation of Legal Validity

The general regime for cessation of legal validity is provided for in article 7 of the Civil Code, which establishes the following:

Article 7

Cessation of legal validity

  1. Unless it is intended to have temporary validity, a law ceases to be valid only if it is repealed by another law.

  2. Repeal may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the previous law.

  3. General law does not repeal special law, except if such is the unequivocal intention of the legislator.

  4. The repeal of the repealing law does not bring about the revival of the law which it had repealed.

No temporary validity was provided for article 1 of Decree-Law No. 1/87, so that any cessation of its validity can only result from repeal (express or tacit) by another law, as follows from paragraph 1 of this article 7 of the Civil Code.

3.1.1. Express Repeal

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

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

The list of tax benefits expressly repealed was subsequently completed by Decree-Law No. 485/88 of 30 December, which also does not include the tax benefit provided for in that article 1 of Decree-Law No. 1/87.

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

In particular, express repeal was proposed by the Government in article 81 paragraph 3 of the Draft State Budget for 2007 (Bill No. 99/X), in a list of tax benefits to be repealed, but was not included in the approved Budget Law (Law No. 53-A/2006 of 29 December), although express repeal of other tax benefits was maintained (in article 87).

It is thus clear that article 1 of Decree-Law No. 1/87 was not expressly repealed.

3.2. Tacit Repeal

In the absence of express repeal, any repeal of that article 1 of Decree-Law No. 1/87 could only result from tacit repeal, resulting from "incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the previous law".

The Tax Incentives Statute, in its original wording (Decree-Law No. 215/89 of 1 July), does not include any provision on taxes on property relating to real estate investment funds, so it cannot be understood that it has regulated the entire subject matter of the previous law.

Moreover, the fact already mentioned that the Tax Incentives Statute was preceded by express repeal of tax benefits, which included one of those provided for in Decree-Law No. 1/87, but not that provided for in its article 1, requires the conclusion that it was not intended to repeal this tax benefit.

Decree-Law No. 189/90 of 8 June added article 56 to the Tax Incentives Statute relating to "Real Estate Investment Funds", establishing that "properties forming part of real estate investment funds are exempt from local property tax". Law No. 39-B/94 of 27 December amended the wording of this article to "properties forming part of real estate investment funds and equivalent funds, pension funds constituted in accordance with national legislation and retirement savings funds are exempt from local property tax".

With the renumbering carried out by Decree-Law No. 198/2001 of 3 July, article 56 became article 46.

Law No. 32-B/2002 of 30 December gave article 46 the following wording: "Properties forming part of real estate investment funds and equivalent funds, pension funds and retirement savings funds that are constituted and operate in accordance with national legislation are exempt from local property tax".

With Law No. 53-A/2006 of 29 December, article 46 of the Tax Incentives Statute came to include tax benefits in relation to IMT concerning properties forming part of real estate investment funds.

This article 46 came to have the following wording:

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

2 - Properties forming part of mixed or closed real estate investment funds with private subscription by non-qualified investors or by financial institutions on behalf of such investors do not benefit from the exemptions referred to in the preceding paragraph, with IMI and IMT rates reduced by half.

With Decree-Law No. 108/2008 of 26 June, article 46 became article 49 of the Tax Incentives Statute.

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

In any of the versions mentioned, article 49 only refers to properties forming part of real estate investment funds, not referring to IMT relating to their acquisition.

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

On the other hand, no rule is found that is incompatible with that tax benefit, since, as the Claimant argues, "whereas the IMT exemption provided for in paragraph 1 of Decree-Law 1/87 applies to situations in which the Fund is in the capacity of purchaser, i.e., when it acquires properties to form part of its assets, the exemption in article 46 of the Tax Incentives Statute applies to situations in which the Fund is in the position of seller, i.e., when it proceeds to sell the properties that already form part of its assets".

In fact, acquisitions of properties made for a real estate investment fund to which article 1 of Decree-Law No. 1/87 refers are not covered by article 46 of the Tax Incentives Statute.

Furthermore, the existence of benefits relating to acquisition of properties concurrently with benefits relating to their transfer is expressly provided for in the regime of incentives for urban rehabilitation, in subparagraphs b) and c) of article 45 of the Tax Incentives Statute as amended by Law No. 114/2017 of 29 December (and was previously provided for in paragraph 2 of article 45 and paragraph 8 of article 71), which demonstrates that, from the legislative perspective, there is no obstacle to the cumulation of benefits relating to acquisition with benefits relating to transfer of properties.

Thus, as there is no incompatibility of benefits for acquisition of properties with benefits for their transfer, the regime of said article 46 (later article 49) is not incompatible with the maintenance of the exemption for acquisition of properties by real estate investment funds.

For this reason, it cannot be concluded that article 46 of the Tax Incentives Statute regulates the entire subject matter of exemptions for real estate investment funds, being perfectly acceptable that it has introduced a new exemption, with the previously existing one subsisting.

Thus, as was understood in the arbitral award rendered in case No. 544/2016-T, "the exemptions under analysis are substantively and structurally different and independent from one another, and cannot in any way be considered contrary, contradictory or logically irreconcilable. And even less could they be regarded as legally and economically incompatible. One retains its own utility independently of what comes to happen to the other".

Furthermore, and decisively, the fact already mentioned that express repeal of Decree-Law No. 1/87 was included in the proposal for the State Budget for 2007, and the proposal was not approved, corroborates the conclusion that its article 1 was not intended to be repealed. In fact, having to presume that the legislator knew how to express its thought in adequate terms (article 9 paragraph 3 of the Civil Code), the omission in Law No. 53-A/2006 of the express repeal that had been proposed has, objectively, the effect of expressing that it was not intended to repeal that rule, since the appropriate way to express a hypothetical intention of repeal was to refer to it expressly, by approving the proposal, and not to obscure it with silence, which, in this context, is appropriate to express the intention of rejection of the proposed repeal.

For this reason, it must be concluded that article 1 of Decree-Law No. 1/87 of 3 January was not tacitly repealed, nor was it repealed in 2018, when the acquisitions in question were made. ( )

Confirming the non-repeal of Decree-Law No. 1/87 until the year 2018, Law No. 71/2018 of 31 December (State Budget for 2019) expressly repealed that Decree-Law in its article 319.

Consequently, the assessment in question is affected by a defect of violation of law that justifies its annulment, pursuant to article 163 paragraph 1 of the Administrative Procedure Code applied subsidiarily pursuant to article 2 subparagraph c) of the General Tax Code.

4. Reimbursement of Amounts Paid and Compensatory Interest

The amount assessed was paid by the Fund on 26-07-2018.

The Claimant requests reimbursement of the tax induly paid, plus compensatory interest.

4.1. Reimbursement of Amounts Paid

In accordance with the provision of subparagraph b) of article 24 of RJAT, the arbitral decision on the merits of the claim which admits no appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the grounded arbitral decision in favour of the taxpayer and until the end of the period provided for spontaneous execution of decisions of judicial tax courts, "re-establish the situation that would exist if the tax act object of the arbitral decision had not been done, adopting the necessary acts and operations to this end", which is in line with the provision of article 100 of the General Tax Code [applicable by virtue of the provision of subparagraph a) of paragraph 1 of article 29 of RJAT] which establishes that "the tax administration is obliged, in case of full or partial grounding of objection, judicial challenge or appeal in favour of the taxpayer, to the immediate and complete reconstitution of the legality of the act or situation object of the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although article 2 paragraph 1 subparagraphs a) and b) of RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals functioning in CAAD, not making reference to condemnatory decisions, it should be understood that the powers which, in judicial review proceedings, are attributed to tax courts are included in its competence, being this the interpretation that is in harmony with the meaning of the legislative authorization on which the Government based itself to approve RJAT, in which it is proclaimed, as the first guideline, that "the tax arbitration process must constitute an alternative procedural means to the judicial review process and the action for recognition of a right or legitimate interest in tax matters".

The judicial review process, although it is essentially a process of annulment of tax acts, admits condemnation of the Tax Administration to payment of compensatory interest, as is inferred from article 43 paragraph 1 of the General Tax Code, which establishes that "compensatory interest is due when it is determined, in administrative objection or judicial review, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due" and from article 61 paragraph 4 of the Code of Tax Procedure and Process (as amended by Law No. 55-A/2010 of 31 December, to which corresponds paragraph 2 in the original wording), which states that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Thus, paragraph 5 of article 24 of RJAT, when it says that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as allowing recognition of the right to compensatory interest in arbitration proceedings.

On the other hand, since the right to compensatory interest depends on the existence of right to a sum to be reimbursed, from this competence to decide on the right to compensatory interest follows that it extends to the review of the right to reimbursement.

The assessment being annulled, the Fund represented by the Claimant is entitled to be reimbursed the amount of €650,797.20, induly paid.

4.2. Compensatory Interest

Article 43 of the General Tax Code establishes the regime for compensatory interest, in the following terms, to the extent relevant here:

Article 43

Undue Payment of Tax Obligation

  1. Compensatory interest is due when it is determined, in administrative objection or judicial review, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due.

  2. It is also considered that there is error attributable to the services in cases where, despite the assessment being made on the basis of the taxpayer's return, the latter has followed, in its completion, the generic guidance of the tax administration, duly published.

  3. Compensatory interest is also due in the following circumstances:

a) When the legal period for official reimbursement of taxes is not complied with;

b) In case of annulment of the tax act on the initiative of the tax administration, from the 30th day after the decision, provided that the credit note has not been processed;

c) When the review of the tax act on the initiative of the taxpayer is carried out more than one year after the taxpayer's request, unless the delay is not attributable to the tax administration.

The assessment was challenged within the legal period for challenge, in particular within the period provided for in article 10 paragraph 1 subparagraph a) of RJAT.

The error affecting the assessment is attributable to the Tax and Customs Authority that made it.

Consequently, the Fund represented by the Claimant is entitled to compensatory interest, pursuant to article 43 paragraph 1 of the General Tax Code and article 61 of the Code of Tax Procedure and Process from the date of undue payment (26-07-2018), until being reimbursed.

Compensatory interest is due at the statutory default rate, pursuant to articles 43 paragraphs 1 and 35 paragraph 10 of the General Tax Code, article 24 paragraph 1 of RJAT, article 61 paragraphs 3 and 4 of the Code of Tax Procedure and Process, article 559 of the Civil Code and Order No. 291/2003 of 8 April (or other order or orders that amend the statutory rate), from the date of payment until complete reimbursement.

5. Decision

In accordance with the foregoing, this Arbitral Tribunal agrees to:

a) Grant the request for arbitral opinion;

b) Annul the assessment of IMT No. ..., of 26-07-2018, in the amount of €650,797.20;

c) Grant the request for reimbursement of the amount of €650,797.20 and condemn the Tax and Customs Authority to pay it to the Claimant;

d) Grant the request for compensatory interest and condemn the Tax and Customs Authority to pay it to the Claimant, calculated on the amount of €650,797.20, in the terms referred to in section 4.2 of this award.

6. Value of Proceedings

In accordance with the provisions of articles 296 paragraph 1 of the Code of Civil Procedure and 97-A paragraph 1 subparagraph a) of the Code of Tax Procedure and Process and 3 paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €650,797.20.

7. Costs

Pursuant to article 22 paragraph 4 of RJAT, the amount of costs is set at €9,792.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 22-01-2019

The Arbitrators

(Jorge Lopes de Sousa)

(Alexandre Andrade)

(Jorge Carita)

Frequently Asked Questions

Automatically Created

Are real estate investment funds (Fundos de Investimento Imobiliário) exempt from IMT on property acquisitions in Portugal?
Yes, real estate investment funds historically enjoyed IMT exemption on property acquisitions under Article 1 of Decree-Law No. 1/87. This exemption originally applied to sisa (transfer tax) but was transitioned to IMT through Decree-Law No. 287/2003, which explicitly preserved tax benefits from previous legislation. However, the continued validity of this exemption depends on whether subsequent laws tacitly repealed it, which is the core issue in this arbitration case.
What happens to IMT exemptions when the underlying law ceases to be in force or is tacitly repealed?
When a law granting tax exemptions ceases or is tacitly repealed, the exemption generally becomes inapplicable unless transitional provisions preserve it. Under Article 7 of the Portuguese Civil Code, tacit repeal occurs through incompatibility with new provisions or comprehensive regulation of the subject matter by new legislation. Decree-Law No. 287/2003 Article 31(6) specifically maintained tax benefits from previous legislation when transitioning from sisa to IMT, but subsequent laws like Law No. 53-A/2006 may have altered this framework through tacit repeal if they comprehensively regulated real estate fund taxation.
Can a fund management company challenge an IMT tax assessment through CAAD arbitration proceedings?
Yes, fund management companies can challenge IMT assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings when acting as legal representatives of real estate investment funds. In this case, the management company had standing under Article 10 of Decree-Law No. 10/2011 (RJAT) to request arbitration on behalf of the fund. The CAAD tribunal was properly constituted with three arbitrators and had jurisdiction to review the legality of the IMT assessment, demonstrating that administrative arbitration is an available remedy for contesting property tax assessments affecting investment funds.
What is the legal framework governing IMT exemptions for closed-end real estate investment funds in Portugal?
The legal framework governing IMT exemptions for closed-end real estate investment funds involves several legislative layers. Decree-Law No. 60/2002 originally regulated real estate investment funds, now superseded by Law No. 16/2015 (General Regime of Collective Investment Bodies, Article 214(2)). The exemption regime originated in Decree-Law No. 1/87 Article 1 for sisa, which Decree-Law No. 287/2003 transitioned to IMT through Article 28(2) and preserved via Article 31(6). The question of whether Law No. 53-A/2006 tacitly repealed this exemption creates uncertainty in the current framework, requiring case-by-case analysis of whether the historical exemption remains valid.
How does the concept of tacit repeal (revogação tácita) affect tax exemptions under Portuguese tax law?
Tacit repeal (revogação tácita) under Portuguese tax law significantly affects tax exemptions by potentially eliminating benefits without explicit legislative statement. Article 7(2) of the Civil Code establishes tacit repeal occurs through incompatibility between new and old provisions or when new legislation comprehensively regulates the subject matter. For tax exemptions, this creates uncertainty as courts must determine whether newer tax legislation intended to eliminate previous benefits. Article 7(3) provides that general law does not repeal special law unless clearly intended, offering some protection to specific exemptions like those for real estate funds. Tax advisors must analyze each legislative change to determine if exemptions survive, as demonstrated by this case's examination of whether Law No. 53-A/2006 tacitly repealed the 1987 exemption despite preservation language in the 2003 reform.