Process: 544/2016-T

Date: April 28, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD decision 544/2016-T addresses a Real Estate Investment Fund's challenge to an IMT assessment of €384,100.96 for duplicate collection and failure to apply statutory exemption. The Fund had already paid €191,382.75 in IMT on a contract-promise in December 2015, then faced a second assessment when the final deed was executed in June 2016. The case raises two critical issues: first, whether Real Estate Investment Funds qualify for IMT exemption under Decree-Law 60/2002 governing the Legal Regime of Real Property Investment Funds; and second, whether charging IMT on both the promissory contract and final deed constitutes prohibited duplicate taxation (duplicação de colecta). The arbitral tribunal, composed of three arbitrators appointed by CAAD's Professional Standards Council, proceeded to judgment despite the Tax Authority's failure to file a response. This procedural default meant the Authority forfeited its opportunity to present counter-arguments, though the tribunal still conducted a full merits analysis. The case demonstrates key aspects of Portuguese tax arbitration procedure, including the burden of proof requirements, the consequences of administrative non-response, and the availability of arbitration as an effective remedy for taxpayers facing allegedly unlawful IMT assessments on real estate transactions involving investment vehicles.

Full Decision

ARBITRAL DECISION

III. THE FACTS

The Arbitrators Maria Fernanda dos Santos Maçãs (Presiding Arbitrator), Jónatas Machado and Carla Castelo Trindade (Assistant Arbitrators), appointed by the Professional Standards Council of the Centre for Administrative Arbitration to form this Arbitral Tribunal, hereby decide as follows:

ARBITRAL DECISION

I – REPORT

On 2 September 2016, "A...", with registered office at ..., no. ..., ..., ... - ... Lisbon, taxpayer ... (hereinafter "Claimant") filed an application for the constitution of an arbitral tribunal, under the terms and for the purposes provided for in articles 2 and 10 of the Legal Regime of Arbitration in Tax Matters, approved by Decree-Law no. 10/2011, of 20 January (RJAT).

By means of the application for constitution of the arbitral tribunal and arbitral pronouncement, the Claimant seeks the review of the legality (and consequent annulment) of the assessment act for Municipal Tax on Onerous Transfers of Immovable Property (IMT), identified with the number ..., in the total amount of € 384,100.96 (three hundred and eighty-four thousand one hundred euros and ninety-six cents).

In fact, not accepting the IMT assessment referred to above, the Claimant requested the constitution of this arbitral tribunal by formulating, if correctly understood, a request for declaration of illegality and consequent annulment of the assessment act, on the grounds of defects of violation of law and constitutional defect, as shall be better seen below.

In the petition, the Claimant states that it has attached 16 documents.

As the Claimant chose not to appoint an arbitrator, under the terms of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Professional Standards Council appointed as arbitrators of the collective arbitral tribunal Councillor Maria Fernanda dos Santos Maçãs, Professor Jónatas Machado and Dr. Carla Castelo Trindade, who communicated their acceptance of the task within the proper timeframe.

The parties were notified of this appointment, and no request for challenge of the appointment was presented by any of the arbitrators composing this tribunal.

Thus, in accordance with the provision of paragraph c) of no. 1 and no. 8 of article 11 of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 25 November 2016.

Notified to present its response, the Tax Authority and Customs Authority (hereinafter "Respondent") did not provide it.

Given that, in this case, none of the purposes that are legally entrusted to the meeting referred to in article 18 of RJAT were present, and taking into account the position taken by the parties in their written submissions, under the provisions of articles 16, paragraph c) and 19 of RJAT, as well as the principles of procedural economy and prohibition of futile acts, the holding of this meeting was dispensed with and the parties were notified to present submissions, if they so wished, in successive manner. The Tribunal appointed 25 May as the deadline for pronouncement of the arbitral decision.

On 3 February 2017, the Claimant presented a motion arguing that the Respondent had no right to present submissions since, having not contested, the possibility of presenting successive submissions would allow it to have access to the Claimant's reasoning without being given the opportunity to subsequently respond.

The Tribunal dismissed the Claimant's motion, by order dated 6 February 2017, concluding that the pronouncement of the Respondent in submissions, should such submissions be presented, would only be considered with respect to the part that was not in violation of the principle of conclusiveness. It further determined, given the circumstances, that the submissions be simultaneous.

On 27 February 2017, the Respondent attached to the file a copy of the administrative procedure.

The parties did not present submissions.

II. CURATIVE PROCEEDINGS

The arbitral tribunal was duly constituted.

No objections to jurisdiction were invoked, nor are there any that might prevent the tribunal from deciding on the merits of the case.

The proceeding does not suffer from defects of nullity.

The parties have legal personality and capacity and are legitimate.

All matters having been considered, a decision must be rendered.

III. SUBSTANTIVE FACTS

III.1. PROVEN FACTS

With respect to the substantive facts, it is important to first point out that the tribunal does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish proven facts from unproven ones. All in accordance with article 123, no. 2, of the Tax Procedure and Process Code and article 607, nos. 2, 3 and 4 of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, paragraphs a) and e), of RJAT. In this way, the facts pertinent to judgment of the case are chosen and determined based on their legal relevance, which is established with regard to the various plausible solutions to the legal question(s) at issue (cf. article 596 of the Code of Civil Procedure applicable by virtue of article 29, no. 1, paragraph e), of RJAT).

With relevance for assessment and decision of the issues raised, the following facts are considered proven:

  1. The Claimant is an Open Real Property Investment Fund, constituted and operating under the terms provided for in the Legal Regime of Real Property Investment Funds, approved by Decree-Law no. 60/2002, of 20 March;

  2. On 23.12.2015, the Claimant entered into a contract-promise for sale and purchase with transfer of the property in its favor (hereinafter "Contract-promise") with the company B..., S.A., with NIPC ..., relating to urban property registered in the property matrix of the parish of ..., located at ... Street, nos. ..., ... and ..., ... - ... Lisbon, under article ... of the property register, intended for commercial purposes (cf. Document no. 3 attached with the request for arbitral pronouncement);

  3. On the same date (23.12.2015), the Claimant completed and submitted a "Declaration for Assessment – Form 1" regarding the Contract-promise executed (cf. Document no. 4 attached with the request for arbitral pronouncement);

  4. Also on 23.12.2015, the Respondent issued an assessment act/collection note for IMT with the number ..., with payment deadline on 24.12.2015 (cf. Document no. 5 attached with the request for arbitral pronouncement);

  5. The Respondent assessed IMT relating to the contract-promise at the rate of 3.25% (cf. Document no. 5 attached with the request for arbitral pronouncement);

  6. On 23.12.2015, the Claimant made payment of the IMT identified in the assessment act/collection note, in the amount of € 191,382.75 (cf. Document no. 6 attached with the request for arbitral pronouncement);

  7. On 08.06.2016, the Claimant and the company identified above executed, by public deed, the promised sale and purchase contract (cf. Document no. 7 attached with the request for arbitral pronouncement);

  8. On 06.06.2016, the Claimant completed and submitted a "Declaration for Assessment – Form 1" (cf. Document no. 2 attached with the request for arbitral pronouncement);

  9. On the same date (06.06.2016), the Respondent issued an assessment act/collection note for IMT with the number ...;

  10. The Respondent also issued an assessment act/collection note for Stamp Duty with the number ..., with payment deadline on 07.06.2016 (cf. Document no. 8 attached with the request for arbitral pronouncement);

  11. On 07.06.2016, the Claimant made payment of the Stamp Duty identified in the assessment act/collection note (cf. Document no. 9 attached with the request for arbitral pronouncement), in the amount of € 47,109.60;

  12. The Claimant did not pay the amount of IMT assessed in the assessment act/collection note with the number ...;

  13. The Respondent officially annulled the IMT assessment number ..., having notified the Claimant of this annulment by electronic communication sent via the VIA CTT system, accessed by the Claimant on 17.06.2016 (cf. Document no. 10 attached with the request for arbitral pronouncement);

  14. By the same notification, the Respondent notified the Claimant that from the official annulment of the IMT assessment act ... resulted the constitution of a refund, in accordance with article 46 of CIMT, in the amount of € 191,382.75;

  15. And that "the credit determined was used entirely for offset of the debt(s) below identified, in accordance with the provision of no. 1 of article 89 of CPPT", according to the following table:

Application of credit Initial Debt Amount Applied
Note no. 2016 ... 382,765.56 191,382.75

  1. By communication dated 19.06.2016, the Claimant was cited for enforcement proceedings no. ... - 2016/..., which identifies as the debt to be enforced an amount equivalent to the offset balance between the officially annulled assessment and the value of the IMT assessment with the number ..., plus accrued default interest and costs of proceedings;

  2. On 08.07.2016, the Claimant made payment of the debt to be enforced (cf. Document no. 12 referred to in the request for arbitral pronouncement and cf. printout from the computer system attached to the administrative file);

  3. On 15.07.2016, through consultation of its reserved area on the Finance Portal, the Claimant found itself owing the payment of € 623.25 in default interest (cf. Document no. 13 referred to in the request for arbitral pronouncement);

  4. On 19.07.2016, the Claimant made payment of the amount indicated in default interest (cf. administrative file).

III.2. UNPROVEN FACTS

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

III.3. SUBSTANTIATION OF THE SUBSTANTIVE FACTS

The proven factual basis was based on the documents attached to the file by the Claimant, the instructional proceedings, as well as the procedural position of the Respondent, insofar as it did not present a response, in accordance with the provisions of art. 110, nos. 6 and 7 of CPPT.

IV. SUBSTANTIVE LAW

On the object of the proceedings

From the established facts, there is a series of tax acts whose distinction appears pertinent for clarifying the object of the dispute.

With relevance to the case, the following are distinguished:

  • The IMT assessment act number ..., issued on 23.12.2015, upon execution of the contract-promise for sale and purchase with transfer of the property;

  • The IMT assessment act number ..., issued on 06.06.2016, upon execution of the promised sale and purchase contract;

  • The official annulment act number 2015 ... of the IMT assessment act number ..., issued on 06.06.2016 and notified to the Respondent on 17.06.2016;

  • The act of offset of tax credits by which the Respondent operated the offset of the refund value resulting from official annulment act number 2015 ... with the value of the IMT assessment act number ... .

The act that is being challenged in the present proceedings is solely and exclusively the IMT assessment act number ..., in the total amount of € 384,100.96. The Claimant seeks, and makes this clear in its request for arbitral pronouncement, the review of the legality of (only) this assessment act and, consequently, its annulment, on the grounds of a defect of violation of law.

Having analyzed the request for arbitral pronouncement, the Claimant's request is only one: the declaration of illegality and consequent annulment of the IMT assessment act number ... issued by the Respondent on 06.06.2016, regarding the acquisition by the Claimant of a property by virtue of the execution of the sale and purchase contract executed between the Claimant and the company B..., S.A. on 08.06.2016.

The Claimant bases its request on a series of defects of violation of law, which it considers to afflict the assessment act, namely:

a) Incidence on a legally non-existent or irrelevant transmission for the purposes of IMT incidence;

b) Duplication of collection;

c) Lapse of the assessment;

d) Violation of article 1 of Decree-Law no. 1/87, of 3 January;

e) Violation of article 49 of the Tax Benefits Statute (EBF).

Additionally alleging the unconstitutionality of the interpretation advocated by the Respondent of the provision contained in article 22 of CIMT, by violation of the principle of non-retroactivity of tax law.

Having the Claimant imputed various defects to the disputed tax acts, the order of examination of the same must be determined, with the order of article 124 of CPPT being observed, applicable by virtue of article 29, no. 1, paragraph a) of RJAT.

The precedence of any of the defects invoked by the Claimant will lead to the declaration of illegality of the IMT assessment act and, consequently, to its annulment. The defect of violation of law by incidence on a legally non-existent or irrelevant transmission for the purposes of IMT incidence shall be examined first.

Defect of violation of law
a) Incidence on a legally non-existent or irrelevant transmission for the purposes of IMT incidence

Article 2, no. 1 of CIMT, deals with the objective and territorial incidence of the tax, providing therein that IMT applies to onerous transfers of the right of property or of partial figures of that right, on immovable property located in national territory. No. 2, paragraph a) of the same article 2 of CIMT, widens the objective incidence of the tax, determining that acquisition and sale promises also integrate the concept of transfer of immovable property, as soon as transfer to the promising buyer is verified. The tax legislator thus adopts the principle of realism that characterizes tax law and that frequently leads it to privilege the consideration of the economic substance of transactions over their legal qualification or formalization.

In turn, with respect to the subjective incidence of IMT, according to article 4 of CIMT, the tax is due by the original promising buyer, and the possibility is not excluded that the same may come to benefit from an exemption or rate reduction. In the situation of execution of a contract-promise for sale and purchase with transfer of the property in favor of the promising buyer, provided for in article 2, no. 2, paragraph a) of CIMT, there is no provision excluding the benefit of exemption or rate reduction. In other words, for this situation no solution identical to that enshrined in paragraphs e), f) and g) of article 4 of CIMT is provided, in which the tax legislator expressly proceeds to that exclusion in the situations and under the conditions provided for in article 2, no. 3, paragraphs a), b), c), d) and e) of CIMT. With respect to the moment of assessment of the tax, article 22, no. 1, of CIMT determines that IMT assessment precedes the act or fact transferring the property, and must be carried out at the moment of execution of the contract-promise for sale and purchase with transfer of the property.

Finally, with regard to the birth of the tax obligation, article 5, no. 1, of CIMT provides that the incidence of IMT is governed by the legislation in force at the time the tax obligation is constituted, and no. 2 of the provision clarifies that this occurs at the moment the transfer takes place. In turn, article 18, no. 1 of CIMT, under the heading "Temporal Application of Rates", determines the assessment of the tax according to the rates in force at the time of occurrence of the tax event.

From the content of the normative provisions referred to above, there is no doubt that the contract-promise for sale and purchase with transfer of the thing in favor of the promising buyer integrates the concept of onerous transfer of immovable property for the purposes of the objective incidence of article 2 of CIMT.

Now, as appears from the established facts, the Claimant is an open real property investment fund, constituted and operating under the terms provided for in the Legal Regime of Real Property Investment Funds, approved by Decree-Law no. 60/2002, of 20 March. Having executed, on 23.12.2015, a contract-promise for sale and purchase with transfer of the property, in the capacity of promising buyer, with the company B..., S.A., the latter in the capacity of promising seller. It was, then, at that moment – with the execution of the contract-promise – that the onerous transfer of the property (for the purposes of IMT) occurred and the constitution of the tax obligation took place. The incidence of IMT will then be governed by the legislation in force on 23 December 2015.

On that date, article 49, no. 1 of EBF was in force, which, for acquisitions of immovable property by open or closed public subscription real property investment funds, reduced to half the rate of 6.5% provided for in article 17, paragraph d) of CIMT.

It then provided article 46, no. 1 of EBF that: "The rates of municipal tax on property and municipal tax on onerous transfers of immovable property applicable to property included in open or closed public subscription real property investment funds, pension funds and savings-retirement funds that are constituted and operate in accordance with national legislation are reduced to half."

Upon execution of the contract-promise for sale and purchase with transfer of the thing, the IMT due by it was assessed, at a rate of 3.25%, which was paid on that same day. The provision of article 36 of CIMT was thus complied with, which provides that "IMT must be paid on the day of assessment or on the following business day, under penalty of this becoming void."

Thus, for the purposes of IMT incidence, the onerous transfer of the right of property over the immovable property occurred, under the terms of article 2, no. 2, paragraph a) of CIMT, with the transfer of the property subject of the contract-promise for sale and purchase.

And on this ground, by all the above exposition, the Claimant is correct.

Having the legislator attributed tax relevance, for the purposes of IMT, to the contract-promise for sale and purchase with transfer of the thing in favor of the buyer, which thus comes to integrate the concept of onerous transfer of immovable property, and having the first assessment of the tax been calculated on the basis of the total value of the sale, it appears clear that the legislator intended that the legally relevant transmission be the contract-promise for sale and purchase with transfer of the thing, there ending the tax legal relationship, without prejudice to what below shall be better clarified regarding exemption of the transaction.

b) Duplication of collection

The Claimant further alleges that the tax act of assessment under review constitutes a duplication of collection, in that IMT was paid by the Claimant upon execution of the contract-promise with transfer of the property.

However, given the circumstances of the present case, the Claimant is not correct.

It was mentioned above that having already assessed the tax upon execution of the contract-promise for sale and purchase with transfer of the property, a second assessment of that tax would, strictly speaking, constitute a duplication of collection.

Now, in the case sub judice, this does not occur, to date, not least because the Respondent officially annulled the first IMT assessment act. In fact, for a duplication of collection to exist, it would be necessary to consider, at the date of the present assessment, that the tax was paid. However, having the Respondent annulled the first IMT assessment act (albeit, by an act of offset, it imputed the value of the refund due to the payment of the second IMT assessment act issued), the duplication of collection is considered formally "emptied."

c) Lapse of the assessment

Under the terms of article 36, no. 1 of CIMT, "IMT must be paid on the day of assessment or on the 1st business day following, under penalty of this becoming void."

On 6 June 2016, the taxpayer completed the Declaration for Assessment Form 1, with a view to the assessment of Stamp Duty, under the terms of article 23, no. 4 of the Stamp Duty Code, according to item 1.1 provided for in TGIS. The Respondent then issued a Stamp Duty assessment note and another IMT assessment note, with the payment deadline on 7 June 2016. On that day, only the Stamp Duty was paid. On 8 June 2016, the promised sale and purchase contract was executed, a date on which the second IMT assessment had already lapsed due to non-payment, under the terms of article 36, no. 1 of CIMT.

Furthermore, according to the provision of article 49, no. 1 of CIMT, "when IMT is due, notaries and other officials or entities performing notarial functions, as well as entities and professionals competent to authenticate private documents that entitle acts or contracts subject to property registration, cannot execute deeds, any other notarial instruments or private documents or authenticate private documents that operate transfers of immovable property nor proceed to the acknowledgment of signatures in the contracts provided for in paragraphs a) and b) of no. 3 of article 2, without being presented with the extract of the declaration referred to in article 19 accompanied by the corresponding proof of collection, which they shall file, making mention of it in the document to which they relate, whenever the assessment must precede the transfer" (emphasis added).

Therefore, the second IMT assessment – issued on 6 June 2016 – lapsed on 7 January 2016, and no tax collection could take place without the issuance of a new assessment note.

Wherefore, also on this ground, the taxpayer is correct.

d) Violation of article 1 of Decree-Law no. 1/87, of 3 January and of article 49 of the Tax Benefits Statute

It is now necessary to analyze that which will, perhaps, be the ground whose possible merit will determine the most stable or effective protection of the interests harmed, insofar as it has effects for the entire transaction and not just for the act that is the object of this action.

Now, as mentioned above, it became clear that, by the provision of article 2, no. 2, paragraph a) of CIMT, the legislator widened the concept of transfer of immovable property for the purposes of IMT by integrating therein acquisition and sale promises, as soon as transfer to the promising buyer is verified. In turn, article 4 of CIMT provides that the tax is due by the original promising buyer, and the possibility is not excluded that the same may come to benefit from an exemption or rate reduction.

Finally, it is recalled that with respect to the birth of the tax obligation, we saw that under the terms of article 5, no. 1 of CIMT, the incidence of IMT is governed by the legislation in force at the time the tax obligation is constituted, and no. 2 of the provision clarifies that this occurs at the moment the transfer takes place.

Now, as appears from the established facts, the Claimant is an open real property investment fund, constituted and operating under the terms provided for in the Legal Regime of Real Property Investment Funds, approved by Decree-Law no. 60/2002, of 20 March. Having executed, on 23.12.2015, a contract-promise for sale and purchase with transfer of the property, in the capacity of promising buyer, with the company B..., S.A., the latter in the capacity of promising seller.

First, it appears relevant to make a brief framework of the regime of investment funds.

It was by Decree-Law no. 246/85, of 12 July that the activity of investment funds was regulated. In turn, in the preamble of Decree-Law no. 1/87, of 3 January, the "important contribution that this new type of financial institutions can bring to the formation of savings and to their mobilization for investments in the real property sector" is expressly recognized. The positive effects that this will induce in the construction industries and in the rental market for residential and office property are added. Thus, and from the perspective of the legislator, it became "necessary, in order to establish conditions for the creation of investment funds with these characteristics, to define an appropriate tax framework."

With this objective in mind, article 1 of Decree-Law no. 1/87, of 3 January, determined that:

"acquisitions of immovable property carried out for a real property investment fund by its respective managing company are exempt from Sisa."

According to the literal tenor of this provision, acquisitions of immovable property carried out with the intention of becoming part of a real property investment fund would be exempt from Sisa.

Later, Decree-Law no. 287/2003, of 12 November, carried out the reform of the taxation of property, approving CIMI and CIMT, published, respectively, in its annexes I and II.

From that point on, with respect to references, article 28 of Decree-Law no. 287/2003, of 12 November, determined that:

1 - All legal texts that mention Code of Municipal Contribution or municipal contribution are considered to refer to the Code of Municipal Tax on Property (CIMI) or to municipal tax on property (IMI).

2 - All legal texts that mention Code of Municipal Tax on Sisa and Tax on Successions and Donations, municipal tax on sisa or tax on successions and donations are considered to refer to the Code of Municipal Tax on Onerous Transfers of Immovable Property (CIMT), to the Stamp Duty Code, to municipal tax on onerous transfers of immovable property (IMT) and to stamp duty, respectively. (emphasis added)

Furthermore, Decree-Law no. 287/2003, of 12 November, also included a revocation provision, in its article 31, whose no. 6 provided:

"The tax benefits relating to municipal contribution, now referred to IMI, as well as those relating to municipal sisa tax established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, which now come to be referred to IMT, remain in force." (emphasis added)

Thus, in accordance with the literal tenor of articles 28 and 31, no. 6 of Decree-Law no. 287/2003, of 12 November, the exemptions from Sisa tax should be considered referred to IMT, whereby acquisitions of immovable property carried out by a managing company of a real property investment fund with the intention of the same becoming part of that fund would continue to be exempt from IMT (that exemption from sisa tax provided for in article 1 of Decree-Law no. 1/87, of 3 January). The exemption would exist whenever the fund was in the position of buyer of the property.

It should be noted that this exemption had a clear purpose entirely 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 capacity to mobilize savings for the realization of investments in the real property sector, thus stimulating the construction industries and the rental market for residential and office property.

Article 82 of Law no. /2006 of 29 December (State Budget Law for 2007), came to amend article 46 of the Tax Benefits Statute (EBF), coming to provide, together with the exemption from Municipal Property Tax (IMI) for property included in real property investment funds, an exemption from IMT for those same properties. Thus, property included in mixed or closed funds, with certain conditions verified, would benefit from a rate reduction to half (article 46, no. 2 of EBF). However, the aforementioned article 82 of the 2007 State Budget Law made no reference to the exemption from Sisa (IMT) contained in article 1 of Decree-Law no. 1/87, of 3 January.

Therefore, the issue that arises, following what was said above, concerns the question of whether the IMT exemption introduced in article 46 of EBF by the 2007 State Budget Law came to revoke – and, if so, expressly or implicitly – the Sisa (IMT) exemption contained in article 1 of Decree-Law no. 1/87, of 3 January – which, until then, nobody doubted remained in force. This issue is pertinent insofar as, under the terms of article 7, no. 1 of the Civil Code, the general rule on the cessation of the validity of law is that "when it is not intended to have temporary validity, a law ceases to be in force only if it is revoked by another law."

Now, Decree-Law no. 1/87, of 3 January, contains no indication that its article 1 was intended to have temporary validity, whereby, admitting its non-revocation by another law, the exemption contained therein will remain – even today – in force. And the answer to this question will answer the one now being dealt with in the present proceedings: whether or not the act of assessment of the Tax Administration suffers from a defect of violation of law, by disregard of a provision of tax exemption.

Now, recovering what was said above, to determine whether or not there was revocation of the provision contained in article 1 of Decree-Law no. 1/87, of 3 January, which provides for an exemption from Sisa (IMT), it is important to look to the provision of article 7, no. 2, of the Civil Code, which deals with the concept of revocation of law. There it is provided that

"revocation 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 preceding law."

The existence of recognition rules, oriented toward the clear and precise identification of the provisions that are in force in the legal order and those that have already been expressly or implicitly revoked, is of the utmost significance, especially from the perspective of the principle of legality, particularly in its dimension of tax legality, affirming 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 provisions are and which are not in force in the legal order. Article 7 of the Civil Code thus establishes three alternative criteria for revocation, the fulfillment or non-fulfillment of which has significant implications in the present case.

It is therefore important to assess whether any of the three alternatives that, according to article 7, no. 2 of the Civil Code, led to the revocation of article 1 of Decree-Law no. 1/87, of 3 January, occurred, namely:

a) express declaration of revocation;

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

c) the fact that the new law regulates the entire subject matter of the preceding law.

With respect to the first aspect, one will search in vain in article 46 of EBF, in the wording given to it by article 82 of the 2007 State Budget Law, for any express revocation provision of article 1 of Decree-Law no. 1/87, of 3 January. Thus it is concluded that there was no express declaration of revocation, whereby if there was revocation it could only happen by the verification of any of the remaining conditions.

Of incompatibility between the new provisions and the preceding rules, which constitutes the second alternative of article 7, no. 2 of the Civil Code, neither can one speak. Quite the opposite, a joint reading of the new provision of article 46 of EBF and the preceding rule of article 1 of Decree-Law no. 1/87, of 3 January, allows one to reasonably conclude that from the entry into force of the new wording of article 46 of EBF, there would be exempt from IMT, not only acquisitions of immovable property carried out by managing companies of real property investment funds with the intention of the same becoming part of those funds – as established in the preceding rule – but also property included in real property investment funds – as established in that article 46 of EBF. In other words, IMT exemption would henceforth apply both to immovable property acquired to become part of real property investment funds, as had been established up to then, and to those same properties if and while included in real property investment funds, under the terms of article 46 of EBF. In the first case, the exemption would be applicable whenever the fund was in the position of buyer of the property. In the second case, the exemption would be applicable whenever the fund was in the position of seller of the property. Thus, it is necessary to conclude that there is no incompatibility between the new provisions and the preceding rules.

Let me open a parenthesis here regarding the distinction between property to be included in the fund and property included in the fund, which is believed to be of great relevance in the case sub judice. Under the terms of article 22, no. 1 of CIMT, IMT assessment precedes the act or fact transferring the property, and must be carried out at the moment of execution of the contract-promise for sale and purchase with transfer of the property. At that moment, the property acquired by the taxpayer was not yet included in the real property investment fund. In fact, the managing company of the real property investment fund intended to acquire the immovable property in question precisely to come to include it in the respective fund. Hence, it could claim the exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January, and not that of article 49 of EBF, insofar as it applies only to immovable property included in the real property investment fund, a reality that would only be consummated after the execution of the contract-promise for sale and purchase with transfer of the thing.

Notwithstanding the structural differences that separate both exemptions, the truth is that in both cases the managing companies of investment funds are placed in an economically advantageous position: either because they do not have to pay IMT when they acquire property to include in the respective real property investment fund, or because they can place it on the market more easily by virtue of the prospective buyer being exempt from IMT. The new provisions and the preceding rules are not only entirely compatible but create a tax regime especially appealing for the managing companies of real property investment funds.

The IMI exemption in favor of property included in real property investment funds is well understood, in that it frees them from payment of this annual tax on immovable property wealth, provided for in article 46 of EBF before the wording given to it by the 2007 State Budget Law. However, neither is the utility that the IMT exemption, added by this diploma, vests in the case of transactions of property included in real property investment funds, negligible.

In fact, although, under the terms of article 4 of CIMT, IMT must be borne by the buyer of the immovable property – who in the majority of cases will be someone entirely unrelated to the activity of real property investment – the truth is that this exemption places real property investment funds in an economically favorable and competitive position within the real property market, in that it allows them to dispose of their immovable property more easily, at a more attractive price from the consumer's point of view, because it is exempt from IMT or benefits from a rate reduction.

For that reason, the exemption of the current article 49 of EBF, even in its attenuated version of reduction of IMT rates to half, constitutes a not inconsiderable and non-redundant supplement relative to the exemption established by article 1 of Decree-Law no. 1/87, of 3 January. It is an exemption structurally and teleologically distinct from the latter, whose introduction and maintenance in the legal order rests on a different valuation of tax policy.

And it is to such an extent that there even came to exist a Government bill submitted to Parliament, Bill 478/2006, of 13 October 2006, for approval of the State Budget, where the insertion of article 81, no. 3, paragraph e) was provided for, in which the Decree-Law no. 1/87, of 3 January, was expressly revoked. A proposal that was not approved.

Moreover, the possibility of legal-normative coexistence of IMT exemptions at the moments of acquisition and transfer of property is far from constituting an anomalous or systemically dysfunctional solution. Such coexistence can be found today in the EBF itself, as a matter of urban property destined for rehabilitation, with certain presuppositions verified. In fact, article 45, no. 2 determines that "acquisitions of urban property destined for urban rehabilitation are exempt from municipal tax on onerous transfers of immovable property, provided that, within three years from the date of acquisition, the buyer initiates the respective works." Parallelly, article 71, no. 8 of EBF provides that "acquisitions of urban property or of autonomous fraction of urban property intended exclusively for own and permanent housing are exempt from IMT, in the first onerous transfer of the rehabilitated property, when located in the 'area of urban rehabilitation'". Here also an exemption from IMT at the moment of acquisition of the property to be rehabilitated coexists with exemption at the moment of transfer 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 8, no. 7 of the Special Regime applicable to real property investment funds for residential rental (FIIAH) and real property investment companies for residential rental (SIIAH), approved by article 102 of Law no. 64-A/2008, of 31 December - Chapter X, where it is provided that they are exempt from IMT "a) Acquisitions of urban property or of autonomous fractions of urban property intended exclusively for rental for permanent housing, by the funds referred to in no. 1; b) Acquisitions of urban property or of autonomous fractions of urban property intended for own and permanent housing, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the tenants of the property that make up the assets of the funds referred to in no. 1."

Finally, also taking into account the last of the criteria of article 7, no. 2 of the Civil Code, it will be said that the mere introduction of the exemption of article 46 of EBF can hardly be interpreted as a measure of revocation and substitution of the exemption created by article 1 of Decree-Law no. 1/87, of 3 January. On the one hand, it results from the preceding considerations that article 46 of EBF did not come to regulate all the subject matter contained in article 1 of Decree-Law no. 1/87. Strictly speaking, a new exemption is introduced in addition to the existing one, which remains untouched. On the other hand, the EBF does not have the monopoly on tax benefits, and the same can be enshrined and subsist in separate legislation. Consider, for example, the tax benefits contained in the Tax Code of Investment.

It is not therefore met by the last of the criteria which, under the terms of article 7, no. 2 of the Civil Code, alternatively signal the presence of a revocation. In fact, in addition to the distinct literal tenor, the two exemptions in discussion are structurally different, economically and fiscally compatible, and, in reality, complementary. And even if it is understood that the EBF constitutes general law as a matter of tax benefits, article 7, no. 3 of the Civil Code provides that "general law does not revoke special law, except if the legislator's unequivocal intention is otherwise." It being certain that no factual or legal finding allows discerning an unequivocal intention of the legislator in the sense of revocation of the exemption of article 1 of Decree-Law no. 1/87, of 3 January.

In this regard, one may further note the successive amendments to which the provision contained in article 46 of EBF has been subject. In fact, the wording of article 46 of EBF underwent various vicissitudes and amendments over time, namely:

  • the provision, in article 88 of Law no. 53-A/2006, of 31 December (2007 State Budget Law), of a transitional regime for mixed or closed funds in certain circumstances;

  • the renumbering of article 46 of EBF, which became article 49, carried out by article 109 of Law no. 2-B/2010, of 28 April (2010 State Budget Law), which reserves IMT exemption to open real property investment funds;

  • the extension of IMT exemption to closed public subscription funds carried out by article 119 of Law no. 55-A/2010, of 31 December (2011 State Budget Law);

  • the substitution of IMT exemption for property included in open or closed public subscription real property investment funds for a reduction to half of IMT rates, operated by article 206 of Law no. 83-C/2013, of 31 December (2014 State Budget Law), accompanied by a transitional regime in article 209.

All the vicissitudes and amendments mentioned had as their object the IMT exemption relating to property included in real property investment funds, as enshrined in the EBF. There is no text-proof (dicta probandi) that allows concluding that the same were reported to the exemption – created by article 1 of Decree-Law no. 1/87, of 3 January, and factually sustained by subsequent legislation – for acquisitions of property carried out by managing companies of real property investment funds for the same to become part of these funds.

The exemptions in analysis are substantially and structurally different and independent of each other, and cannot, in any way, be considered contrary, contradictory or logically irreconcilable. And even less can they be considered as legally and economically incompatible. One retains its own utility independently of what may happen to the other.

The introduction and evolution of the regime of article 46 (and later article 49) of EBF, concerning the exemption and reduction of IMT rates for transactions involving immovable property included in real property investment funds, has its own useful effect and in no way affects the useful effect of the exemption created by article 1 of Decree-Law no. 1/87, of 3 January, as a matter of acquisitions of property to be included in real property investment funds, whereby there is no reason to conclude that the later revoked, however implicitly, the former.

It is therefore no wonder that, in 2009, the Study of Fiscal Policy, Competitiveness, Efficiency and Justice of the Tax System – Subgroup 3 Taxation of Property, under the coordination of Professor Sidónio Pardal, came to conclude by the validity of the Sisa (IMT) exemption created by article 1 of Decree-Law no. 1/87, of 3 January, appearing the same included in the list of Summary of Tax Benefits and Structural Tax Reliefs in Force as to IMT and IMI (at pages 81). This conclusion was not disproven by a recent and thoughtful analysis of the evolution of the regime of real property investment funds, which, on the contrary, corroborated the understanding that article 1 of Decree-Law no. 1/87, of 3 January, was never revoked (despite the hypothesis having been contemplated in the bill for the State Budget for 2007), whereby real property investment funds, regardless of their typology, maintain the exemption in the context of IMT on the acquisition of property[1].

By all the foregoing, no doubts remain that the Sisa exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January, and which came to refer to IMT, under the terms of articles 28 and 31 of Decree-Law no. 287/2003, of 12 November, which approved CIMT, remains, still, in force, whereby acquisitions of immovable property carried out for a real property investment fund by its respective managing company are exempt from IMT, that is, carried out with the intention of becoming part of the fund itself.

Now, the Claimant acquired a property with the intention that it become part of the fund itself. In this way, the IMT exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January, is applicable to the transaction, and there should be no payment of the tax either by the execution of the contract-promise for sale and purchase with transfer nor, indeed, by the execution of the public deed.

Thus, and in conclusion, the Claimant is correct, determining the declaration of illegality of the contested assessment, in which the request is upheld with the consequent annulment of the IMT assessment, with the legal consequences thereof.

Unconstitutionality by violation of the principle of non-retroactivity of tax law

The Claimant further alleges that, should it be understood that article 1 of Decree-Law no. 1/87, of 3 January, no longer was in force in the legal order at the date of the tax event, the exemption set out in article 49 of EBF would, in any case, still be in force, whose non-application by force of the interpretation made by the Respondent of article 22 of CIMT, would constitute a violation of the principle of legal certainty and the principle of non-retroactivity of tax law, as its corollary.

Having this Tribunal found the defect of violation of law invoked by the Claimant to be well-founded, of disregard of the exemption provision contained in Decree-Law no. 1/87, of 3 January – which, it is understood, maintains its applicability – the assessment of the constitutional defect invoked is rendered moot.

In fact, the establishment of an order of assessment of defects is justified only by the possible merit of the defects of prior assessment making unnecessary the assessment of the remainder, for, if it were always necessary to assess all defects, the order of their assessment would be irrelevant.

By the foregoing, that defect of violation of law proceeding, the assessment of the constitutional defect is rendered moot.

Compensatory interest

The Claimant further requests that the payment of compensatory interest be determined, under the terms of article 43, no. 1, of the General Tax Law, calculated on the amount of the tax and corresponding compensatory interest already paid.

In accordance with the provision of paragraph b) of article 24 of the Legal Regime of Tax Arbitration, the arbitral decision on the merits of the claim to which no appeal or challenge may be filed binds the Tax Administration from the end of the period provided for appeal or challenge, and this must, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of judgments of tax courts, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been acted upon, adopting the acts and operations necessary for that effect," which is in keeping with the provision of article 100 of the General Tax Law, applicable by force of the provision of paragraph a) of no. 1 of article 29 of the Legal Regime of Tax Arbitration.

Already under the terms of no. 5 of article 24 of the Legal Regime of Tax Arbitration, in saying that "payment of interest, regardless of its nature, is due, under the terms provided for in the General Tax Law and in the Tax Procedure and Process Code," it is nothing more than the recognition of the right to compensatory interest in arbitral proceedings.

Doctrine has also defended that it falls within the scope of the competencies of arbitral tribunals the fixing of the effects of their decisions, in the same terms provided for judicial challenge, particularly, as to condemnation in compensatory interest or condemnation for indemnity for unwarranted guarantee (Cf. Carla Trindade (2016) "Legal Regime of Tax Arbitration Annotated", 121 and Jorge Lopes de Sousa (2013), "Commentary on the Legal Regime of Tax Arbitration", 116).

The request for pronouncement regarding the right to compensatory interest thus concerns the tax unduly paid and also the compensatory interest assessed by the Respondent.

In the case at hand, it is manifest that, following the declaration of illegality of the IMT assessment act, there is place for the payment of compensatory interest, under the terms of article 43, no. 1, of the General Tax Law and article 61 of the CPPT, calculated on the amount that the Claimant unduly paid, at the rate of legal interest provided for in article 559 of the Civil Code and, currently in Ordinance no. 291/2003, of 8 April (articles 43, no. 4, and 35, no. 10, of the General Tax Law).

V. DECISION

Wherefore, this Arbitral Tribunal decides:

a) To find the request for arbitral pronouncement well-founded;

b) To declare the illegality of the IMT assessment number ...;

c) To annul the IMT assessment referred to above;

d) To condemn the Tax Authority and Customs Authority to pay to the Claimant compensatory interest, under the terms of article 43, no. 1, of the General Tax Law and article 61 of the CPPT, calculated on the amount that it unduly paid until the date of the application for constitution of the arbitral tribunal.

VI. VALUE OF THE CASE

In accordance with the provision of articles 306, no. 2, and 297, no. 2 of the Code of Civil Procedure, article 97-A, no. 1, paragraph a) of the Tax Procedure and Process Code and article 3, no. 2, of the Regulations on Costs in Tax Arbitration Proceedings, the case is valued at € 384,100.96.

VII. COSTS

The arbitration fee is fixed at € 6,426.00 under Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely well-founded, under the terms of articles 12, no. 2 and 22, no. 4, both of the Legal Regime of Tax Arbitration, and article 4, no. 4 of the said Regulations.

Notice to be given.

Lisbon, 28 April 2017

The Presiding Arbitrator

(Fernanda Maçãs)

The Arbitrator Member

(Jónatas Machado)

The Arbitrator Member

(Carla Castelo Trindade)

[1] This follows closely Bruno Rafael Batalha Filipe, in The Tax Regime of Real Property Investment Funds, ISCAL, Lisbon, 2016, 30 et seq.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption available to Real Estate Investment Funds in Portugal?
Real Estate Investment Funds (Fundos de Investimento Imobiliário) in Portugal benefit from IMT exemption under the Legal Regime of Real Property Investment Funds established by Decree-Law 60/2002 of 20 March. This exemption is designed to facilitate real estate investment operations and avoid barriers to property acquisitions by collective investment vehicles. The exemption applies to onerous transfers of immovable property when the acquirer is a qualifying real estate investment fund operating under the regulatory framework. However, disputes can arise when tax authorities fail to recognize or apply this exemption, requiring taxpayers to challenge assessments through administrative or arbitral proceedings.
What constitutes duplicate tax collection (duplicação de colecta) under Portuguese tax law?
Duplicate tax collection (duplicação de colecta) in Portuguese IMT law occurs when tax authorities assess and collect the tax twice for the same property transaction. This typically happens when IMT is charged both on the contract-promise (contrato-promessa com transmissão de propriedade) and again on the final deed (escritura pública definitiva). Portuguese law prohibits this double taxation of a single economic transaction. When IMT has been paid on a promissory contract, taxpayers are entitled to credit or deduction of that amount against the IMT due on the final deed, or alternatively to a refund if the final transaction is also exempt. Charging both without credit constitutes illegal duplicate collection subject to challenge and annulment.
How can taxpayers challenge an IMT tax assessment through CAAD arbitration proceedings?
Taxpayers challenge IMT assessments through CAAD (Centro de Arbitragem Administrativa) by filing an application for constitution of an arbitral tribunal under the Legal Regime of Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The process involves submitting a petition within 90 days of the assessment act, paying the arbitration fee, and presenting legal grounds for annulment. The Professional Standards Council appoints arbitrators to form the tribunal, which reviews the assessment's legality. Taxpayers must demonstrate defects such as violation of law, constitutional defects, or factual errors. The arbitral decision is binding and enforceable, providing an efficient alternative to court litigation for tax disputes.
What happens when the Portuguese Tax Authority fails to respond in CAAD arbitration?
When the Portuguese Tax Authority fails to respond in CAAD arbitration proceedings, the case continues to judgment based on the claimant's arguments and evidence. Unlike civil proceedings where default may result in automatic acceptance of facts, tax arbitration requires the tribunal to independently assess the merits and legality of the contested act. The Authority's failure to contest means it forfeits the opportunity to present counter-arguments, evidence, or legal defenses. However, the tribunal still applies the law and evaluates whether the claimant has proven the illegality of the tax assessment. The Authority's silence may be considered in the tribunal's overall evaluation but does not automatically guarantee victory for the taxpayer.
What was the outcome of CAAD decision 544/2016-T regarding the IMT assessment of €384,100.96?
The provided excerpt of CAAD decision 544/2016-T does not include the final ruling, as the document is incomplete. However, the case involved a Real Estate Investment Fund challenging both the failure to apply the statutory IMT exemption and the duplicate collection resulting from taxation of both the contract-promise (€191,382.75 paid) and the final deed (€384,100.96 assessed). The arbitral tribunal was properly constituted with three arbitrators, the Tax Authority did not file a response, and the case proceeded to substantive analysis. The decision would have addressed whether the Fund qualified for IMT exemption under Decree-Law 60/2002 and whether the second assessment constituted prohibited duplicate taxation requiring annulment and refund.