Process: 478/2018-T

Date: February 26, 2019

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 478/2018-T) addresses whether real estate investment funds are exempt from IMT (Municipal Tax on Onerous Property Transfers) when acquiring property. The claimant, a management company representing a closed special real estate investment fund, challenged an IMT assessment of €99,718.47 on a property acquisition worth €1,252,950.50. The central legal issue concerned the validity of Decree-Law 1/87 of 3 January, which originally exempted real estate investment funds from Transfer Tax (Sisa). The claimant argued this exemption remained in force for IMT purposes and was not tacitly revoked by Article 46 of the Tax Benefits Statute (EBF). The Tax Authority did not submit a response, implicitly maintaining its position that the exemption had been tacitly revoked when EBF Article 46 replaced acquisition exemptions with disposal exemptions for such funds. The tribunal analyzed the legal framework governing repeal of legislation under Article 7 of the Civil Code, examining whether express or tacit revocation had occurred. The decision follows established CAAD jurisprudence on this matter, with the tribunal ultimately finding in favor of the taxpayer. The tribunal ordered restitution of the illegally assessed amount plus compensatory interest calculated from the payment date, establishing important precedent for real estate investment fund taxation in Portugal and confirming taxpayers' rights to challenge IMT assessments through tax arbitration when exemptions are wrongly denied.

Full Decision

ARBITRAL DECISION

I - REPORT

A... REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A. with tax identification number (TIN) ... and registered office in Lisbon, in its capacity as fund manager and in representation of B... - CLOSED SPECIAL REAL ESTATE INVESTMENT FUND, with TIN..., came, on 26/09/2018, pursuant to subparagraph a) of no. 1 of article 2 and nos. 1 and 2 of article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration - LFTA) and articles 1 and 2 of Regulation no. 112-A/2011, of 22 March, to request the constitution of a collective arbitral tribunal with a view to the declaration of nullity and consequent annulment of the Municipal Tax on Onerous Property Transfers (IMT) assessment act no. ..., of 31/08/2018, in the amount of € 99,718.47, with restitution of the assessed amount, which it paid, plus indemnity interest calculated from such payment.

The respondent is the Tax and Customs Authority (AT), author of the tax act challenged.

The request for constitution of the collective arbitral tribunal was accepted by the President of the Administrative Arbitration Centre (CAAD) and notified to the respondent on 26/09/2018.

Pursuant to and for the purposes of subparagraph a) of no. 2 of article 6 of the LFTA, by decision of the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed periods, the undersigned were designated as arbitrators, who communicated to that Council their acceptance of the appointment within the period stipulated in article 4 of the Deontological Code of the Administrative Arbitration Centre.

On 16/11/2018 the parties were notified of this designation and did not manifest any intention to refuse it, pursuant to the combined provisions of articles 11, no. 1 subparagraphs a) and b) of the LFTA and 6 and 7 of the Deontological Code.

The collective arbitral tribunal was constituted on 06/12/2018, in accordance with the provision of subparagraph c) of no. 1 of article 11 of the LFTA, in the wording given to it by article 22 of Law no. 66-B/2012, of 31 December.

Notified to respond, on 06/12/2018, the respondent came to the proceedings on 18/01/2019 to inform that it would not be presenting a response.

By arbitral order of 31/01/2019 the holding of the meeting referred to in article 18 of the LFTA was dispensed with, as well as the production of submissions, and the rendering of the decision was announced for 28/02/2019.

II – PROCEDURAL SANITATION

The arbitral tribunal is regularly constituted and is competent to decide the claimant's claim.

The parties have legal personality and capacity, are legitimate and are properly represented.

No nullities were invoked nor were exceptions or preliminary questions raised that would preclude consideration of the merits.

III – FACTUAL MATTER

The following facts are considered proven:

a) B... - CLOSED SPECIAL REAL ESTATE INVESTMENT FUND is a closed real estate investment fund, constituted and governed according to national law, being managed and represented by the claimant.

b) By public deed of 03/09/2018 the claimant acquired for the above-identified Fund, and in its representation, for the amount of € 1,252,950.50, the property (land for construction), located in the place of ..., parish of ..., corresponding to article U-... of that parish, registered under number ... .

c) The respondent proceeded, with respect to that transaction, on 31/08/2018, to assess IMT no. ..., in the amount of € 99,718.47, which the claimant paid on the same date.

The facts given as proven result from the examination of documents submitted to the proceedings by the claimant.

With relevance for the decision of the case nothing remained to be proven.

IV – LEGAL MATTER

The claimant contends that the property transaction which it carried out benefits from the IMT exemption established in article 1 of Decree-Law no. 1/87, of 3 January, which provides that "acquisitions of real property made for a real estate investment fund by its respective management company are exempt from Transfer Tax (Sisa)".

In its view, the legislator intended to maintain, in the context of IMT, the exemptions applicable to Transfer Tax; and the exemption was not revoked by express law, nor tacitly; in particular, it was not revoked by article 46 of the Tax Benefits Statute (TBS).

And, therefore, the assessed amount challenged is illegal, for not having taken account of the aforementioned exemption.

It invokes, in support of this understanding, jurisprudence of this Administrative Arbitration Centre.

Finally, finding that there was erroneous interpretation of the law on the part of the AT, the claimant requests that it be paid indemnity interest accruing on the amount illegally assessed, which it paid in due time.

The AT, having not exercised the right to respond, did not set forth its position.

But, that it is contrary to that of the claimant, immediately results from the fact that it effected the assessment challenged. That is, for the respondent, the exemption which the claimant claims to enjoy does not exist. And it does not exist - we know it from what it has argued in other cases before arbitral tribunals - because it was tacitly revoked by article 46 of the TBS, which would have replaced the exemption benefiting acquisitions made by Real Estate Investment Funds with an exemption relating to disposals made by those same Funds.

Therefore, it may be assumed that, for the AT, there is no error attributable to it, and the claimant's claim concerning indemnity interest would lack foundation.

What follows is a transcription, with the necessary modifications, of passages from the decision rendered in case no. 308/2018 of this CAAD, whose panel was presided over by the arbitrator who exercises that same function here.

We know, from what was established regarding the factual matter, the nature of the taxable person, the verification of the taxable event and the date of its occurrence, and that of the tax act questioned.

It is factuality which, in addition to not being disputed, in the absence of a response from the AT, is demonstrated by the documents submitted to the proceedings.

The question posed to us is, therefore, that of the (non)existence of a norm precluding taxation: the claimant contends that there is no place for taxation because it benefits from a norm granting it an exemption; the AT, having proceeded to effect the identified assessment, will understand that the exemption norm is not in force.

The norm in question is that of article 1 of Decree-Law no. 1/87, of 3 January.

Article 7 of the Civil Code provides:

"1. When it is not intended to have temporary force, a law only ceases to be in force if it is repealed by another law.

  1. Repeal may 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 former law".

Already in the light of the regime prior to the current Civil Code (that of 1867, in its singular systematics, did not address the matter), Professors Pires de Lima and Antunes Varela taught, in Fundamental Notions of Civil Law (5th edition, Coimbra, 1961, p. 109 et seq.), that "A law may cease to be in force either because it has been repealed or because it has lapsed. (...) One speaks of lapse of a law when it ceases to be in force as a result of any circumstance inherent to the law itself, independently, therefore, of a new manifestation of will by the legislator".

The lapse of a law results, most frequently, from the law itself establishing its period of force (when that period is exhausted), or from it aiming to achieve a specific purpose (when this is achieved), or from it being a transitional law (when the state of affairs serving as its premise ends).

As for repeal, the aforementioned authors say that "(…) it results from a new manifestation of will by the legislator, contrary to that which served as the basis for the force of the law".

Repeal may be express – the new law points out the provisions it wishes to repeal – or tacit – the old law is incompatible with the new, with the most recent legislative choice prevailing.

They clarify, finally, that "Incompatibility between two laws may result from a direct and substantial conflict existing between their respective precepts or from the circumstance that the new law establishes a new, complete regime of the relations in question".

Much earlier, in 1922, Professor José Tavares – The Fundamental Principles of Civil Law, Coimbra, 1922, volume I, p. 167 – wrote that "Incompatibility of two or more legal provisions exists when they are so antinomous, opposed, or contrary that it becomes impossible to execute them simultaneously. In these circumstances, the latter must prevail, because it is that which represents the will of the legislator".

However remote these teachings may be, they remain current today.

In the case at hand, there are no signs that Decree-Law no. 1/87 has lapsed. It matters, therefore, to ascertain whether it was repealed.

Here too a distinction must be made, as there is no known norm which at the time of the taxable event and the assessment expressly placed an end to the force of Decree-Law no. 1/87.

Thus, what matters to decide is whether tacit repeal occurred.

In article 1 of Decree-Law no. 1/87, of 3 January, it was established that "acquisitions of real property made for a real estate investment fund by its respective management company are exempt from Transfer Tax (Sisa)".

The Code on Transfer Tax and the Tax on Successions and Gifts (CSISSG), approved by Decree-Law no. 41969, of 24 November 1958, was then in force. In the wording given by Decree-Law no. 223/82, of 7 June, transfer tax applied "to onerous transfers of the right of ownership or of partial figures of that right, over real property".

Using the legislative authorization given by Law no. 26/2003, of 30 July, Decree-Law no. 287/2003, of 12 November, was published, which approved the IMT Code.

The previous legal texts which referred to transfer tax came to be considered referred to IMT, pursuant to article 28 no. 2 of Decree-Law no. 287/2003; and article 31, repealing the CSISSG, kept in force "(…) the tax benefits (…) concerning the municipal transfer tax established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, which came to be reported to IMT".

Up to this point it seems certain that real estate investment funds enjoyed exemption from IMT on acquisitions of property.

In 2006, Law 53-A/2006, of 29 December, amended article 46 no. 1 of the TBS, which came to provide that the following were exempt from IMT "onerous transfers of real property included in real estate investment funds (…)".

Property included in a fund are none other than those which that fund has already acquired – which leads to the conclusion that, this time, the exemption referred to disposal and not acquisition.

Article 81 no. 3 subparagraph e) of Bill no. 478/2006, of 13 October – Bill on the Budget for 2007 –, expressly repealed Decree-Law no. 1/87, of 3 January, but such repeal was not upheld in the Budget Law for 2007 – Law no. 53-A/2006, of 29 December.

It is true that the non-adoption, by the Budget Law for 2007, of that proposal does not constitute a definitive argument, since it can have two meanings.

One is that the legislator did not wish to repeal Decree-Law no. 1/87, of 3 January, because it intended to keep it in force.

Another is that the legislator understood that it would not expressly repeal said Decree-Law no. 1/87 because he considered that it was no longer then in force, which would make redundant (and even erroneous, as a legislative technique) the repeal.

But this second hypothesis is not plausible and does not favour the AT's thesis: for it was in the Budget Law for 2007 that the legislator amended article 46 no. 1 of the TBS, establishing the (new) exemption from IMT for real estate investment funds "constituted and operating in accordance with national legislation".

That is: if the legislator, in establishing the new tax benefit, wished to extinguish the former, by substitution, it was the appropriate moment to say that Decree-Law no. 1/87 was repealed.

For the two benefits are distinct from one another, so that it is inconceivable that the one from the 2006 Law would replace, without more, that from the 1987 Decree-Law.

The legislator of 1987 exempted (in a modernizing reading) from IMT "(…) acquisitions of real property made for a real estate investment fund by its respective management company".

That of 2006 exempted from IMT "onerous transfers of real property included in real estate investment funds (…)".

Whereas in 1987 one spoke of acquisitions, clearly not covering disposals, in 2006 one speaks of transfers (which can be either acquisitions or disposals), it being by the insertion of the term "included in" that one concludes that the reference is limited to disposals. That which is already "included in" cannot be acquired further, but only disposed of by the "includer"; conversely, that which is not yet "included in" cannot be disposed of by one who does not include it, it can only be acquired so as to come to be "included in".

It seems, therefore, clear not only that the legislator of 1987 benefited acquisitions by real estate investment funds, but also that the legislator of 2006 favoured disposals by those same funds.

Each benefit, distinct as they are, do not mutually exclude one another, do not contradict each other, are not antinomous, can both be applied without any incoherence.

And it cannot be contended that the legislator of 2006, in establishing a benefit relating to disposals, established a complete regime of tax benefits in favour of real estate investment funds and repealed, with that integral treatment of the matter, the benefit in force since 1987.

In summary, the legislator of Law no. 53-A/2006, in rejecting the Government's proposal to expressly repeal Decree-Law no. 1/87, knew that

  • that Decree-Law was in force;

  • the benefit which, by article 82, it introduced into article 46 of the TBS, was cumulative with that of article 1 of Decree-Law no. 1/87;

  • Law no. 53-A/2006 did not contain an integral regime of tax benefits granted to real estate investment funds;

Therefore, from that rejection of the Government's proposal, one can only conclude that it wished to maintain the benefit granted by Decree-Law no. 1/87.

On the other hand, nothing exists in the legislative evolution occurring since the approval of the TBS by Decree-Law 215/89, of 1 July, and in the successive Budget Laws, which can be qualified as a systematization of the regime of tax benefits in the context of taxes on the assets of real estate investment funds, in such a way that it could be contended that at some point the legislator created a new, complete regime, incompatible with the subsistence of Decree-Law no. 1/87. Nor is there any specific norm which shows itself irreconcilable with this diploma. As seen, article 46 (later 49) of the TBS, in the wording given to it by the 2003 Budget Law, is harmonizable with article 1 of Decree-Law no. 1/87.

What has been said is sufficient to support the decision which will be rendered below.

But it is important also to add that the question posed to this tribunal has been posed to arbitral tribunals within the CAAD on other occasions, and decided by them at least seven times.

All these decisions were in the sense advocated by the claimant.

There is, therefore, formed in the arbitral tribunals a strong current of jurisprudence, convergent and without dissensions, which flows in the sense of the maintenance in the legal order of article 1 of Decree-Law no. 1/87, of 3 January after Law no. 53-A/2006, of 29 December.

Which is not without significance, and must be taken into account, in reinforcement of the grounds adduced, in light of the command of article 8 no. of the Civil Code, which determines that "(…) the judge shall take into account all cases which merit analogous treatment, in order to obtain a uniform interpretation and application of law".

Meanwhile, Law no. 71/2018, of 31 December, came into force, which approved the State Budget for 2019.

It provides, in its article 319:

"The following are repealed (…) articles 1 and 8 of Decree-Law no. 1/87, of 3 January, which creates tax incentives for the constitution of real estate investment funds".

Now, this provision leaves no doubt about the accuracy of what has been expounded hereto.

The aforementioned article 1 of Decree-Law no. 1/87 remained in force until its repeal by Law no. 71/2018, that is, had not, until then been expressly or tacitly repealed.

Consequently, it was in full force when the acquisition of property occurred that led to the assessment challenged which, for that reason, is illegal.

To admit otherwise would be to attribute to the legislator of 2018 a manifest error, expressly repealing a norm already then non-existent in the legal order.

Having been proven that the assessed tax was paid, pursuant to subparagraph b) of article 24 of the LFTA, article 35 no. 10 and 43 no. 1 of the General Tax Law and article 61 no. 5 of the Code of Tax Procedure and Process, the respondent, which incurred an error attributable to it in proceeding to effect the assessment, must pay to the claimant indemnity interest on the amount paid, calculated at the legal rate, from that payment until the restitution of the tax.

V - DECISION

Pursuant to and for the reasons set forth, it is decided:

  • To judge the claimant's claims well-founded, consequently annulling the tax act challenged;

  • To condemn the AT to reimburse the amount paid by the claimant, plus indemnity interest, calculated from payment until actual reimbursement;

  • To condemn the AT in the costs of the proceedings, which are computed at € 2,754.00;

  • To fix the value of the case at € 99,718.47.

Let it be notified.

Lisbon, 26 February 2019.

The arbitrators

(José Baeta de Queiroz)

(André Festas da Silva)

(Maria do Rosário Anjos)

Text prepared by computer, pursuant to the provisions of article 131 of the Code of Civil Procedure, applicable by reference of article 29, no. 1, subparagraph e) of the Legal Framework for Tax Arbitration, with blank lines, and revised by the arbitrators.

The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except with respect to transcriptions made.

Frequently Asked Questions

Automatically Created

Is a real estate investment fund exempt from IMT when acquiring property under Decree-Law 1/87?
Yes, real estate investment funds are exempt from IMT when acquiring property under Decree-Law 1/87 of 3 January. The CAAD tribunal confirmed that Article 1 of this decree, which originally exempted acquisitions by real estate investment funds from Transfer Tax (Sisa), remains in force for IMT purposes. The exemption was not expressly revoked, nor was it tacitly repealed by Article 46 of the Tax Benefits Statute, which addresses disposals rather than acquisitions. This interpretation is supported by consistent CAAD jurisprudence protecting fund acquisitions from IMT.
What is the scope of Decree-Law 1/87 regarding IMT exemption for closed-end real estate investment funds?
Decree-Law 1/87 provides a comprehensive IMT exemption for acquisitions of real property made by real estate investment fund management companies on behalf of their funds, including closed-end special real estate investment funds. The scope covers the acquisition itself when made for the fund's benefit by its legal representative. The exemption applies regardless of property type (including land for construction) or transaction value. The tribunal confirmed this exemption survives legislative changes and applies to funds constituted under Portuguese law, provided the acquisition is made by the management company in its representative capacity for the fund.
Can taxpayers request arbitral tribunal review of IMT liquidation acts issued by the Portuguese Tax Authority?
Yes, taxpayers can request arbitral tribunal review of IMT liquidation acts through the Administrative Arbitration Centre (CAAD) under Decree-Law 10/2011 (Legal Framework for Tax Arbitration). The request must be filed pursuant to Article 2(1)(a) and Article 10 of the RJAT. Taxpayers can challenge the legality of IMT assessments, seek declarations of nullity, and request restitution of amounts paid plus compensatory interest. The arbitral tribunal has full jurisdiction to review tax assessments, even when the Tax Authority chooses not to respond, as occurred in this case where AT did not submit a defense.
What are the conditions for obtaining a refund of IMT paid plus compensatory interest after a successful arbitral challenge?
To obtain an IMT refund plus compensatory interest after a successful arbitral challenge, taxpayers must: (1) have paid the contested IMT amount; (2) successfully challenge the assessment's legality before the CAAD tribunal; (3) obtain a favorable arbitral decision declaring the assessment null or annulling it; and (4) demonstrate the payment date for interest calculation purposes. Compensatory interest accrues from the payment date until restitution. The tribunal's decision ordering restitution creates an enforceable obligation on the Tax Authority to refund the illegally collected tax with interest, compensating the taxpayer for loss of funds during the period.
How does the CAAD arbitral tribunal handle cases where the Tax Authority does not submit a response?
When the Tax Authority does not submit a response to an arbitral claim, the CAAD tribunal proceeds with the case based on the claimant's submissions and documentary evidence. The tribunal cannot assume the AT agrees with the claimant's position; rather, it infers the AT's contrary position from the contested tax act itself. The tribunal independently analyzes the legal issues, examines applicable law and jurisprudence, evaluates submitted evidence, and renders a decision on the merits. Absence of response does not result in automatic judgment for the claimant but simplifies proceedings. The tribunal may dispense with hearings and issue decisions based on written submissions, as occurred here when the tribunal waived the Article 18 RJAT meeting.