Process: 553/2018-T

Date: March 5, 2019

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 553/2018-T) addresses whether real estate investment funds remain exempt from IMT (Municipal Property Transfer Tax) when acquiring properties under Decree-Law 1/87 of January 3. The claimant, a management company representing two closed real estate investment funds, challenged IMT assessments totaling €463,556.05 on two property acquisitions in 2016 and 2017. After paying the tax, the claimant filed official review requests (revisão oficiosa) which were met with administrative silence by the Tax Authority (AT). The core legal issue centered on whether Article 1 of Decree-Law 1/87, which originally exempted real estate investment fund acquisitions from Sisa (the predecessor to IMT), remained in force. The claimant argued the exemption was neither expressly nor tacitly revoked, while the AT's position (inferred from its assessments and silence) was that Article 46 of the Tax Benefits Statute (EBF) tacitly revoked this exemption, replacing it with an exemption for disposals by such funds instead. The tribunal constituted a collective arbitral panel to decide on the legality of both the IMT assessments and the silent rejection of the review requests. The claimant sought annulment of the tax acts, full reimbursement of amounts paid, and compensatory interest for the AT's erroneous legal interpretation. This case exemplifies the procedural mechanism for challenging IMT assessments through CAAD arbitration when administrative remedies fail, particularly regarding long-standing tax exemptions whose validity is disputed.

Full Decision

Arbitral Decision

I - REPORT

A... – REAL ESTATE INVESTMENT FUND MANAGEMENT, S.A., with the tax identification number (TIN) ... and registered office in Porto, in its capacity as managing company and in representation of CLOSED REAL ESTATE INVESTMENT FUND B..., with TIN..., and C... – CLOSED SPECIAL REAL ESTATE INVESTMENT FUND, with TIN..., both with registered office in the same city, came, on 08/11/2018, under paragraph 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 Regime for Arbitration in Tax Matters - RJAT) and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, to request the constitution of a collective arbitral tribunal for the purpose of declaring the illegality and consequent annulment of the silent act that did not consider the requests for official review, submitted on 10/04/2017, of the Municipal Tax on Onerous Real Estate Transfers (IMT) assessments bearing numbers ..., of 19/05/2016, and ..., of 01/08/2017, in the amounts of € 453,906.05 and € 9,650.00, respectively, with restitution of the amounts assessed, which it paid, plus compensatory interest calculated from those payments.

The respondent is the Tax and Customs Authority (AT), author of the acts in question.

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 09/11/2018.

Pursuant to and for the purposes of the provision in paragraph a) of no. 2 of Article 6 of the RJAT, by decision of the President of the Deontological Council of the CAAD, duly notified to the parties within the prescribed periods, the undersigned were appointed as arbitrators, who communicated to that Council their acceptance of the appointment within the time limit stipulated in Article 4 of the Deontological Code of the Administrative Arbitration Centre.

On 28/12/2018 the parties were notified of this appointment, having expressed no wish to challenge it, in accordance with the combined provisions of Articles 11, no. 1 paragraphs a) and b) of the RJAT and 6 and 7 of the Deontological Code.

The collective arbitral tribunal was constituted on 17/01/2019, in accordance with the provision of paragraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 22 of Law no. 66-B/2012, of 31 December.

Notified to file a response on 17/01/2019, the respondent came to the proceedings on 19/02/2019 to inform that it would not file a response.

By arbitral order of 19/02/2019 the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, as well as the filing of arguments, and the pronouncement of the decision was announced for 19/03/2019.

II – CASE MANAGEMENT

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

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

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

III – FACTS

The following facts are deemed proven:

a)

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

b)

C... – 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.

c)

On 19/05/2016 the claimant declared to the AT the acquisition, for CLOSED REAL ESTATE INVESTMENT FUND B..., and in its representation, at the value of € 6,983,170.07, of the real property located in Porto, parish of ... of the ... and ..., to which corresponds the registration article ..., section A, of that parish.

d)

The respondent proceeded, regarding that transaction, on 19/05/2016, to assess IMT no..., in the amount of € 453,906.05, which the claimant paid on 20/05/2016.

e)

On 01/08/2017 the claimant declared to the AT the acquisition, for C... – CLOSED SPECIAL REAL ESTATE INVESTMENT FUND, and in its representation, at the value of € 193,000.00, of the real property located in the parish and municipality of Peniche to which corresponds the registration article ..., section A, of that parish.

f)

The respondent proceeded, regarding that transaction, on 01/08/2017, to assess IMT no..., in the amount of € 9,650.00, which the claimant paid on 02/08/2017.

g)

On 10/04/2018 the claimant submitted to the AT requests for official review of the identified assessments, which were not considered.

The facts deemed proven result from examination of the documents filed in the proceedings by the claimant.

Nothing relevant to the decision of the case remained unproven.

IV – LAW

The claimant argues that the real estate transaction it effected enjoys the exemption from IMT enshrined in Article 1 of Decree-Law no. 1/87, of 3 January, which establishes that "acquisitions of real property made to a real estate investment fund by the respective managing company are exempt from Transfer Tax [Sisa]".

In its view the legislature intended to maintain, in the context of IMT, the exemptions applicable to Sisa; and the exemption was not revoked by express law, nor tacitly; notably, it was not by Article 46 of the Tax Benefits Statute (EBF).

And, therefore, the disputed assessments are illegal, as is the act that did not review them, because they failed to take into account the stated exemption.

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

Finally, having ascertained that there was erroneous interpretation of the law on the part of the AT, the claimant seeks to be paid compensatory interest accruing on the amount illegally assessed, paid by it in due time.

The AT, having not exercised its right to respond, did not explain its position.

But that it is opposed to that of the claimant is immediately apparent from the fact that it carried out the disputed assessments, and did not proceed with the respective official reviews. That is, for the respondent, the exemption which the claimant claims to enjoy does not exist. And it does not exist - we know this from what it has argued in other cases in arbitral tribunals - because it was tacitly revoked by Article 46 of the EBF, which will have replaced the exemption benefiting acquisitions made by Real Estate Investment Funds with an exemption relating to disposals made by those same Funds.

Thus, it is to be supposed that, for the AT, there is no error imputable to it, and the claimant's claim for compensatory interest lacks foundation.

What follows is a transcription, with the necessary modifications, of passages from the decision delivered in case no. 478/2018 of this CAAD, to whose panel the arbitrator presiding here also presided.

We know, from what was established in the facts, the nature of the liable party, the verification of the tax events, and that of the tax acts questioned. The precise dates of the occurrence of the tax events were not fixed, but it is known that they necessarily occurred prior to the corresponding assessments.

These are facts which, beyond being uncontroverted, in the absence of a response from the AT, are established by the documents filed in the proceedings.

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

The rule 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 effect, a law ceases to be in force only if it is revoked by another law.

  1. 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 previous law".

Already in light of the regime prior to the current Civil Code (that of 1867, in its unique systematisation, did not address the matter) the 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 revoked or because it has expired. (…) One speaks of expiration of a law when it ceases to be in force due to some circumstance inherent to the law itself, independently, therefore, of a new manifestation of will by the legislature".

The expiration of a law results, more frequently, from the law itself establishing its period of validity (when that period expires), or from its aim of achieving a specific purpose (when that is attained), or from its being a transitional law (when the state of affairs serving as its premise is ended).

As for revocation, the cited authors state that "(…) it results from a new manifestation of will by the legislature, contrary to that which served as the basis for the law's validity".

Revocation may be express – the new law identifies the provisions it wishes to revoke – or tacit – the old law is incompatible with the new, with the most recent legislative choice prevailing.

They finally clarify that "Incompatibility between two laws may result from a direct and substantive conflict existing between their respective provisions or from the fact that the new law establishes a new, complete regime of the relationships 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 occurs when they are so antithetical, opposed, or contrary, that it becomes impossible to execute them simultaneously. In such conditions, the last cannot fail to prevail, because it is that which represents the will of the legislature".

Remote as these teachings are, they remain relevant today, continuing to be adopted by current doctrine and jurisprudence.

In the present case, there are no signs that Decree-Law no. 1/87 has expired. It is therefore important to know whether it was revoked.

Again a distinction must be made here, as there is no known rule that at the time of the tax events and assessments expressly terminated the validity of Decree-Law no. 1/87.

Accordingly, what must be decided is whether tacit revocation occurred.

In Article 1 of Decree-Law no. 1/87, of 3 January, it was established that "acquisitions of real property made to a real estate investment fund by the respective managing company are exempt from Transfer Tax [Sisa]".

At that time the Code of Transfer Tax and Inheritance and Donation Tax (CSISSD), approved by Decree-Law no. 41969, of 24 November 1958, was in force. In the version conferred by Decree-Law no. 223/82, of 7 June, Transfer Tax applied "to onerous transfers of ownership rights or fractional rights of that right, over real property".

Using the legislative authorisation 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 that referred to Transfer Tax came to be considered as referred to IMT, in accordance with Article 28, no. 2 of Decree-Law no. 287/2003; and Article 31, revoking the CSISSD, maintained in force "(…) the tax benefits (…) relating to 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 come to be applied to IMT".

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

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

Real property integrated in a fund are nothing but those which that fund has already acquired – which leads to the conclusion that, on this occasion, the exemption referred to disposal and not acquisition.

Article 81, no. 3 paragraph e) of Legislative Proposal no. 478/2006, of 13 October – Legislative Proposal for the Budget for 2007 – expressly revoked Decree-Law no. 1/87, of 3 January, but such revocation came not to be enshrined in the Budget Law for 2007 – Law no. 53-A/2006, of 29 December.

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

One is that the legislature did not wish to revoke Decree-Law no. 1/87, of 3 January, intending to maintain it in force.

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

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

That is: if the legislature, in establishing the new tax benefit, wished to extinguish the previous one, by replacement, it was the appropriate moment to state that Decree-Law no. 1/87 was revoked.

Because the two benefits are distinct from one another, so it cannot be conceived that the one in the 2006 Law would replace, without more, that of the 1987 Decree-Law.

The legislature of 1987 exempted (in a contemporaneous reading) from IMT "(…) acquisitions of real property made to a real estate investment fund by the respective managing company".

That of 2006 exempted from IMT "onerous transfers of real property integrated 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), and it is by the addition of the term "integrated in" that it is concluded that the reference is limited to disposals. That which is already "integrated in" cannot be acquired again, but only be disposed of, by the "integrator"; conversely, that which is not yet "integrated in" cannot be disposed of by the one who does not integrate it, it can only be acquired so as to come to be "integrated in".

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

One and the other benefit, distinct as they are, do not mutually exclude each other, do not contradict each other, are not antithetical, can be applied both without any incoherence.

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

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

  • that Decree-Law was in force;

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

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

Therefore, nothing can be concluded, from that rejection of the Government's proposal, other than that it intended to maintain the benefit granted by Decree-Law no. 1/87.

On the other hand, nothing exists, in the legislative evolution that occurred since the approval of the EBF by Decree-Law 215/89, of 1 July, and in successive Budget Laws, that can be characterized as a systematisation of the regime of tax benefits in the context of taxes on the property of real estate investment funds, such that it can be claimed that at some point the legislature created a new, complete regime, incompatible with the continuation of Decree-Law no. 1/87. Nor is there any concrete rule that proves irreconcilable with this enactment. As was seen, Article 46 (later 49) of the EBF, in the version given to it by the Budget Law of 2003, is reconcilable with Article 1 of Decree-Law no. 1/87.

What has been said is sufficient to support the decision that will be delivered below.

But it is important to add further that the question that comes before this tribunal has been raised before arbitral tribunals within the scope of the CAAD on other occasions, and by them decided, at least on eight occasions (v.g. Cases n.º 442/2018-T, n.º 330/2018-T and 326/2018-T).

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

There is thus formed, in arbitral tribunals, a strong jurisprudential current, convergent and without dissent, that flows in the direction 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 should be heeded, in reinforcement of the grounds adduced, in view of the command of Article 8, no. [1] of the Civil Code, which provides that "(…) the judge shall take into consideration all cases that merit analogous treatment, in order to obtain uniform interpretation and application of the law".

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

It provides, in its Article 319:

"The following are revoked (…) 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 correctness of what has been expounded hitherto.

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

Consequently, it was in full force when the acquisitions of real property occurred that led to the assessments disputed and upheld by the AT, by not heeding the requests for official review submitted by the claimant. Assessments and tacit act of refusal that, for this reason, are illegal.

To admit otherwise would be to impute to the legislature of 2018 a glaring error, expressly revoking a rule that no longer existed in the legal order.

It being proven that the tax assessed was paid, in accordance with paragraph b) of Article 24 of the RJAT, Article 35, no. 10 and Article 43, no. 1 of the General Tax Law and Article 61, no. 5 of the Tax Procedure and Process Code, the respondent, which incurred an error imputable to it in carrying out the assessments and in disregarding, through its inertia, the respective review requests, must pay to the claimant compensatory interest on the amounts paid, calculated at the legal rate, from those payments until restitution of the tax.

V – DECISION

On the grounds and for the reasons set out, it is decided:

  • To uphold the claimant's claims, consequently annulling the disputed tax acts;

  • To order the AT to restitute the amounts paid by the claimant, plus compensatory interest, calculated from the payments until effective repayment;

  • To order the AT to pay the costs of the proceedings, which are computed at € 7,344.00;

  • To fix the value of the case at € 463,556.05.

Notify accordingly.

Lisbon, 5 March 2019.

The arbitrators

(José Baeta de Queiroz)

(José Joaquim Monteiro Sampaio e Nora)

(Suzana Fernandes da Costa)

Text drawn up by computer, in accordance with Article 131 of the Code of Civil Procedure, applicable by remission of Article 29, no. 1, paragraph e) of the Legal Regime for Tax Arbitration, with blank lines, and reviewed by the arbitrators.

The wording of this judgment is governed by the orthography prior to the Orthographic Agreement of 1990, except as regards the transcriptions made.

Frequently Asked Questions

Automatically Created

Are real estate investment funds exempt from IMT tax on property acquisitions under Decree-Law 1/87 of January 3?
Yes, according to the claimant's position supported by CAAD jurisprudence, real estate investment funds remain exempt from IMT under Article 1 of Decree-Law 1/87 of January 3, which exempted acquisitions of real property made by fund management companies on behalf of real estate investment funds. The claimant argues this exemption was not expressly or tacitly revoked and continues to apply to IMT despite replacing the former Sisa tax. The Tax Authority's contrary position is that Article 46 of the Tax Benefits Statute tacitly revoked this exemption.
What happens when the Tax Authority fails to respond to an official review request (revisão oficiosa) for IMT liquidations?
When the Tax Authority fails to respond to an official review request (pedido de revisão oficiosa) for IMT assessments, this constitutes an administrative silent act (acto de indeferimento tácito). The taxpayer can challenge this silent rejection through CAAD arbitration under Article 2, paragraph a), number 1 and Articles 10(1) and 10(2) of the Legal Regime for Arbitration in Tax Matters (RJAT). The silent act is treated as an implicit denial of the review request, which can be contested as an illegal administrative decision subject to annulment.
Can taxpayers claim reimbursement of IMT paid plus compensatory interest (juros indemnizatórios) through CAAD arbitration?
Yes, taxpayers can claim full reimbursement of IMT paid plus compensatory interest (juros indemnizatórios) through CAAD arbitration when they successfully demonstrate the Tax Authority erroneously interpreted the law. In this case, the claimant specifically requested annulment of the IMT assessments, restitution of €453,906.05 and €9,650.00 paid, plus compensatory interest calculated from the payment dates. Compensatory interest is awarded when tax was illegally collected due to the administration's legal error, compensating the taxpayer for being deprived of those funds.
Is Decree-Law 1/87 still in force regarding IMT exemptions for closed-end real estate investment funds (fundos de investimento imobiliário fechado)?
The legal status of Decree-Law 1/87 regarding IMT exemptions for closed-end real estate investment funds is the central dispute in this case. The claimant argues it remains in full force because it was neither expressly revoked nor tacitly repealed, invoking Article 7 of the Civil Code which requires explicit revocation. The Tax Authority's position (evident from its assessments) is that Article 46 of the Tax Benefits Statute (EBF) tacitly revoked the exemption, replacing acquisition exemptions with disposal exemptions. CAAD jurisprudence cited by the claimant supports the continued validity of the exemption.
What is the procedure for challenging IMT tax assessments through the CAAD tax arbitration tribunal in Portugal?
To challenge IMT assessments through CAAD tax arbitration, taxpayers must: (1) first exhaust administrative remedies such as requesting official review (revisão oficiosa) from the Tax Authority; (2) file a request for constitution of an arbitral tribunal under Article 2(1)(a) and Articles 10(1)-(2) of RJAT and Articles 1-2 of Ordinance 112-A/2011; (3) identify the contested acts (IMT assessments or silent rejection of reviews); (4) the CAAD President accepts and notifies the Tax Authority; (5) a collective arbitral tribunal of three arbitrators is constituted; (6) the AT has the opportunity to file a response; (7) the tribunal may dispense with hearings and oral arguments if appropriate; and (8) the tribunal issues a binding decision with full force of a court judgment, potentially ordering annulment and reimbursement with interest.