Process: 579/2016-T

Date: April 17, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 579/2016-T addresses the retroactive revocation of an IMT (Municipal Tax on Onerous Transfers of Real Property) exemption initially granted for a tourist establishment acquisition. In 2007, A… S.A., a banking institution, acquired a hotel property through dation in payment, and the notary applied an IMT exemption under Article 20(1) of Decree-Law 423/83 for tourism utility. Eight years later, in 2015, the Portuguese Tax Authority conducted an inspection and determined the exemption was improperly granted, assessing €209,927.26 in IMT plus compensatory interest. The taxpayer challenged this assessment through CAAD arbitration, raising five principal arguments: (1) the prerequisites for IMT exemption due to tourism utility were satisfied; (2) retroactive tax collection violates constitutional principles; (3) the dual legality control by notary and property registrar was violated; (4) the cessation of the tax benefit was illegal; and (5) the taxpayer's legitimate expectations were violated. The case highlights critical issues in Portuguese tax law regarding the stability of tax benefits, the limits of tax authority discretion in reviewing past transactions, and the protection of taxpayers who relied on professional certifications by notaries and registrars. The administrative review was partially granted, annulling compensatory interest while maintaining the IMT assessment. This arbitration decision establishes important precedents regarding when tourism-related IMT exemptions apply, particularly in secondary acquisitions of already-operating tourist establishments, and the extent to which tax authorities can retroactively challenge exemptions granted through formal legal procedures years after the transaction.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), A. Sérgio de Matos and Suzana Costa, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree:

I – REPORT

On 26 September 2016, A…, S.A, NIPC…, with headquarters at Praça …, in Oporto, filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, with the wording introduced by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviatedly designated as RJAT), seeking the declaration of illegality of the assessment act for Municipal Tax on Onerous Transfers of Real Property ("IMT"), dated 22 October 2015, concerning the urban property composed of a building intended for hotel and services with outbuildings, located at …, …, in the Parish of …, described in the First Registry of Real Property of … under the number …, belonging to the parish of …, registered in the respective property register under article…, in the amount of EUR 209,927.26 (two hundred and nine thousand, nine hundred and twenty-seven euros and twenty-six cents).

To substantiate its claim, the Petitioner alleges, in summary, that:

i. The prerequisites for IMT exemption due to tourism utility are satisfied;

ii. There is a violation of the principle prohibiting retroactive tax collection;

iii. There is a violation of the principle of dual degree of legality control by the notary and the property registrar;

iv. There is illegality in the cessation of the tax benefit;

v. There is a violation of the Petitioner's legitimate expectations.

On 27-09-2016, the petition for constitution of the arbitral tribunal was accepted and automatically notified to AT.

The Petitioner did not nominate an arbitrator, and therefore, in accordance with the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph a) of paragraph 1 of article 11 of the RJAT, the President of the Deontological Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 23-11-2016, the parties were notified of these appointments and did not express any intention to refuse any of them.

In accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT, the collective Arbitral Tribunal was constituted on 12-12-2016.

On 31-01-2017, the Respondent, duly notified for this purpose, filed its reply defending itself solely by way of challenge.

Considering that:

In accordance with the provisions of subparagraphs c) and e) of article 16, and paragraph 2 of article 29, both of the RJAT, the holding of the meeting referred to in article 18 of the RJAT was dispensed with.

Having been granted a period for the submission of written submissions, these were submitted by the Petitioner, commenting on the evidence produced and reiterating and developing its respective legal positions.

The Respondent did not submit submissions.

A period of 30 days was set for the rendering of the final decision, after the expiry of the period for the submission of submissions by the Respondent.

The Arbitral Tribunal has material competence and is duly constituted, in accordance with articles 2, paragraph 1, subparagraph a), 5 and 6, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are duly represented, in accordance with articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

The case is not affected by any nullities.

Thus, there is no obstacle to the consideration of the case.

Everything considered, it is appropriate to render the following

II. DECISION

A. FACTUAL MATTER

A.1. Facts deemed proven

  1. The Petitioner is a banking institution based in Portugal whose object includes, among others, the granting of credit, through its own resources and resources of its depositors.

  2. On 24 October 2007, the Petitioner acquired, by way of dation in payment, from Society B…, S.A. the urban property, composed of a building intended for hotel and services with outbuildings, located at …, …, in the Parish of …, described in the First Registry of Real Property of … under the number …, of the said parish, registered in the respective property register under article….

  3. The Deed of dation in payment states that a Property Certificate issued on 17-10-2007 by the Real Property Registry, the Property Record Book of the property, and the Permit for Tourism Use License No. …/2004, issued by the Municipal Chamber of … on 19-07-2004, proving its licensing, were exhibited.

  4. Such act was carried out with exemption from IMT by the Notary, pursuant to paragraph 1 of article 20 of Decree-Law No. 423/83, of 5 December.

  5. In the context of an inspection action by the Directorate of Finances of Lisbon, of partial scope, for the year 2007, concerning IMT, in compliance with Service Order No. OI2015…, pursuant to project 2014/… /…, based on information collected from AT's database, resulting from the cross-checking between declaration model 11 and the IMT database, to verify the legal requirements for IMT exemption, the Tax Inspection Services ("SIT") understood that the tax benefit concerning tourism utility was unduly recognized.

  6. Thus, the failure to pay the IMT concerning that same acquisition, in the amount of EUR 209,927.26, increased by the amount of compensatory interest, was considered.

  7. On 23 October 2015, the Petitioner proceeded to pay the amount of EUR 276,229.77 (two hundred and seventy-six thousand, two hundred and twenty-nine euros and seventy-seven cents), corresponding to the amount of the tax assessed, plus the amount of compensatory interest.

  8. The Petitioner filed, on 11 March 2016, an administrative review against the said assessment, to which the number …2016… was assigned.

  9. The administrative review was partially granted, containing, among other things, that: "(...) the request of the Claimant should be partially granted (...) and therefore, we conclude for the legality of the IMT assessment and as to the respective compensatory interest, in question here, the same should be annulled for failure to meet one of the prerequisites enshrined in article 35 of the TGL".

  10. The Petitioner acquired the tourism enterprise referred to at a stage when it was already installed and operating.

  11. The transferor of the said enterprise entered into insolvency 5 years after the beginning of its operation.

  12. The Petitioner acquired the property in question because it had granted financing to the seller of that property, and this party failed to make the payments to which it was obliged.

  13. As a rule, in the acquisition of real property, the Petitioner uses the IMT exemption provided for in subparagraph b) of paragraph 2 of article 8 of the CIMT for credit institutions.

  14. At the time of the said public deed of dation in payment, the Petitioner did not use the exemption referred to in the preceding point, because the exemption referred to above in point 2 was recognized by the notary.

A.2. Facts deemed not proven

With relevance for the decision, there are no facts that should be considered as not proven.

A.3. Substantiation of the proven and not proven factual matter

With regard to factual matters, the Tribunal does not have to pronounce on everything that was alleged by the parties, but rather it is its duty to select the facts that matter for the decision and to distinguish proven from not proven matters (see article 123, paragraph 2, of the CPPT and article 607, paragraph 3 of the CPC, applicable by virtue of article 29, paragraph 1, subparagraphs a) and e), of the RJAT).

In this way, the facts relevant for the judgment of the case are chosen and delineated according to their legal relevance, which is established in light of the various plausible solutions of the question(s) of Law (see previous article 511, paragraph 1, of the CPC, corresponding to current article 596, applicable by virtue of article 29, paragraph 1, subparagraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the proceedings file attached to the case, the above-listed facts were deemed proven, with relevance for the decision.

In particular, the fact referred to in point 10 of the proven facts was admitted by the Petitioner in point 32 of its Initial Application.

B. ON THE LAW

The Petitioner presents the following issues for decision:

i. Verification of the prerequisites for IMT exemption due to tourism utility;

ii. Violation of the principle prohibiting retroactive tax collection;

iii. Violation of the principle of dual degree of legality control by the notary and the property registrar;

iv. Illegality of the cessation of the tax benefit;

v. Violation of good faith and the Petitioner's legitimate expectations.

Let us examine each of them.

i.

The first main issue presented for decision by the Petitioner in the present arbitral proceedings consists in determining the scope of application of the exemption provided for in article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December, which is reduced to determining the meaning and scope of this rule, as to the segment "acquisitions of real property or autonomous fractions intended for the installation of enterprises qualified as of tourism utility."

The Petitioner argues that, notwithstanding admitting that it acquired the tourism enterprise in question at a stage when it was already installed and operating (see point 10 of the facts deemed proven), such acquisition should be considered as covered by the said exemption, insofar as, in its view, it would be a matter of preventing the closure of the same.

The concept of tourism utility is set out in Decree-Law No. 423/83, of 5 December, which defines it as "the qualification attributed to tourism enterprises that satisfy the principles and requirements defined in this legislation and its regulatory provisions". Article 3, paragraph 1, of the said legislation provides that tourism utility may be attributed to various enterprises, and is granted, in accordance with article 2, by decree of the member of Government responsible for the tourism sector, under the proposal of the Director-General of Tourism, instructed with the opinion of the Tourism Utility Commission. Article 4 defines the prerequisites that should be evaluated in order for tourism utility to be attributed, and article 5 defines the conditions that enterprises must meet in order to benefit from tourism utility.

Article 16 of Decree-Law No. 423/83 establishes the exemptions applicable depending on the attribution of tourism utility, establishing that "the companies owning and operating enterprises to which tourism utility has been attributed shall, with respect to the ownership and operation of the same, enjoy the following tax benefits, in accordance with the terms established in this legislation (…)".

According to article 20, paragraph 1, of the same legislation, acquisitions of real property or autonomous fractions intended for the installation of enterprises qualified as of tourism utility are exempt from stamp duty and tax on succession and gifts, with stamp duty reduced to one fifth, provided that such qualification is attributed even on a provisional basis, as long as it remains valid and the period set for the opening to the public of the enterprise is observed.

In accordance with the provisions of paragraph 2 of article 28 of Decree-Law No. 287/2003, of 12 November (which carried out the reform of heritage taxation), "All legal texts mentioning the Code for the Municipal Tax on Onerous Transfers and the Tax on Succession and Gifts, municipal tax on onerous transfers (…) shall be considered as referring to the Code for the Municipal Tax on Onerous Transfers of Real Property (CIMT), (…), to the municipal tax on onerous transfers of real property (IMT) (…), respectively." Thus, the exemption in question has applied since then to IMT.

In the present case, AT argues that, since the tourism utility to which article 20, paragraph 1 alludes, was requested and attributed to the company that built the enterprise, the taxable person who acquired the property from the said company acquired an already built and installed enterprise, and therefore could not benefit from the said IMT exemption. In defense of its thesis, AT invokes the decision in the Judgment of the Supreme Administrative Court of 23.01.2013, in the context of proceedings No. 968/12[1], in which it can be read that "not being in question the acquisition of real property or autonomous fractions intended for the construction/installation of tourism enterprises, but rather the acquisition of accommodation units by final consumers, even though because integrated in the enterprise in question they are engaged in tourism exploitation, the same cannot benefit from the exemptions enshrined in article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December".

In the substantiation of this judgment establishing case law, the following can further be read:

"The provision thus establishes, in this manner, exemption from stamp duty and stamp tax (reduced to one fifth), in acquisitions of real property or autonomous fractions intended for the «installation» of enterprises qualified as of tourism utility.

Thus, the question that arises is translated into knowing which acquisitions should benefit from the exemptions of IMT and Stamp Tax established there: acquisitions of real property or autonomous fractions by promoters with a view to building and installing tourism enterprises, or acquisitions of autonomous fractions (accommodation units) belonging to or integrated in already built and installed enterprises, with a view to their exploitation?

The answer to this question refers us to the problem of knowing what should be understood by «installation» of tourism enterprises.(…)

  1. Beginning with the literal content of art. 20, no. 1, of Decree-Law no. 423/83, it is important to highlight that the legislator clearly states that only acquisitions of real property or autonomous fractions intended for the installation of enterprises qualified as of tourism utility are exempt from stamp duty and stamp tax.

Which is to say that it is not a subjective exemption directed to benefit companies, whether owners or operators of enterprises, but rather an objective one, since it aims to benefit the activity of installation, and can only request and benefit from the exemption companies that dedicate themselves to «installing» tourism enterprises and not also those that intend to dedicate themselves to the activity of exploitation of the same.

In fact, the legislator is very clear when it intends to benefit companies owning and/or operating enterprises. This is what happens when in art. 16 of the same legislation it states that companies owning and/or operating enterprises shall enjoy, with respect to ownership and operation, the benefits indicated in subparagraphs a) to c) of paragraph 1 of the provision. Or when in paragraph 2 of art. 20 of Decree-Law no. 423/83 it extends the exemption established in paragraph 1 of the provision in "transmission to the operating company, in case the owner is a financial leasing company and the transmission operates pursuant to and in the terms of the leasing contract".

What has just been stated serves to demonstrate that there is no doubt that, to the contrary of what is stated above, in the case of the exemption of paragraph 1 of art. 20 of Decree-Law no. 423/83, the legislator intended to encompass only acquisitions intended for the «installation» of enterprises.

As Decree-Law no. 423/83 does not contain a definition for the concept of «installation», article 11, paragraph 2, of the TGL orders that we resort to the technical legal meaning given to us by the legal regime of tourism enterprises.(…)

Thus, in art. 9 of Decree-Law no. 167/97, under the heading "Installation", it can be read that "For the purposes of this legislation, installation of tourism enterprises is considered to be the licensing of the construction and/or the use of buildings intended for the operation of such enterprises."

In turn, art. 9 of Decree-Law no. 55/2002 defines installation as follows: "(…) Installation of tourism enterprises is considered to be the process of licensing, or authorization for the performance of urban development operations relating to the construction of buildings or their fractions intended for the operation of such enterprises".(…)

Another fact that is important to highlight and which is extracted from the aforementioned legislation is that the operations that are part of the concept of «installation» are not confused with those that correspond to the concept of «operation» and «exploitation».(…)

Finally, the most recent legislation, Decree-Law no. 39/2008, of 7 March (JusNet 474/2008), which established the new legal regime for the installation, operation and functioning of tourism enterprises, "proceeding to the repeal of the various legislation that currently regulates this matter and gathering in a single decree-law the provisions common to all enterprises", also does not contain a notion of «installation», but clearly distinguishes between the procedure concerning the installation of tourism enterprises (arts. 5 and 6 and Chapter IV) and their operation and exploitation (Chapter VII).

In particular, art. 5, under the heading "General installation requirements" (The procedure for the installation of tourism enterprises is subject to a common regime, that is, a set of common requirements, as results from this art. 5, no. 1, and art. 23 of Decree-Law no. 39/2008, consequently, in the installation of tourism enterprises a common procedural regime stands out which is the one defined in the Legal Regime of Urbanization and Building, with the particularities or specificities that result from Decree-Law no. 39/2008. For detailed analysis of the general requirements of the instruction of prior information requests, of licensing and of the presentation of prior communication and of the specific requirements of the installation of tourism enterprises, see LICÍNIO LOPES MARTINS, "The procedure for the installation of tourism enterprises", Tourism Enterprises, CEDOUA/FDUC, Almedina, 2010, pp. 121 et seq.), establishes:

"1- The installation of tourism enterprises involving the performance of urban development operations as defined in the legal regime of urbanization and building must comply with the norms contained in that regime, as well as with the technical construction standards applicable to buildings in general, namely in matters of fire safety, health, hygiene, noise and energy efficiency, without prejudice to the provisions of this decree-law and its respective regulations.

2- The location chosen for the installation of tourism enterprises must necessarily take into account the location restrictions legally defined, with a view to safeguarding the safety of persons and property against possible natural and technological risks".(...)".

The technical legal meaning that is extracted from the legislation is that the concept of installation comprises all operations and procedures ranging from the request for licensing or prior notification of urban development operations, passing through the opinions and approvals of the various competent official entities, request for authorization or notification of use for tourism purposes, and obtaining the respective permit (art. 30) or title of opening to the public (art. 32). In this sequence, paragraph 2 of art. 12 of Decree-Law no. 423/83 states that "the date of opening or reopening to the public is the one on which the enterprise was authorized to operate by the competent authority". Given that the date of notification of the title of opening and operation is the relevant one to mark the beginning of the period of validity of the status of tourism utility of the tourism enterprise in question, as results in the case in question (see dispatch no. …/2011).

In other words, «installation» emerges as a procedure that comprises the legal acts and formalities tending toward the licensing (in a broad sense, including prior notifications or authorizations, as the case may be) of the urban development operations necessary for the construction of a tourism enterprise, as well as the obtaining of titles that make it fit to function and to be exploited for tourism purposes.

After being built and obtained by the investment promoters the necessary licenses to render the enterprise fit for the exercise of tourism activity, each tourism enterprise "must be operated by a single entity, responsible for its integral operation and level of service and for compliance with applicable legal and regulatory provisions" (paragraph 1 of art. 44 of Decree-Law no. 39/2008), such entity being designated by the holder of the respective permit for authorization of use for tourism purposes (paragraph 2 of art. 44), that is, by the promoter (see Chapter VII and arts. 41 et seq. of Decree-Law no. 39/2008, which establishes the rules relating to operation and functioning).

And even if the accommodation units are occupied by their respective owners, it is incumbent upon the operating entity to assume the continuous operation of the same, and must keep them permanently in a regime of tourism operation (art. 45 of Decree-Law no. 39/2008).

This distinction between the concepts of «installation», on the one hand, and of «operation» and «exploitation», on the other, is evident in the preamble of Decree-Law no. 39/2008 itself, where the concerns and innovations regarding aspects related to the licensing of enterprises can be read, in the sense of its simplification. In the same sense, DULCE LOPES (See "Legal aspects of the installation of tourism enterprises", I Luso-Spanish Days of Urbanism, Almedina, Coimbra, 2009, pp. 225 et seq., in particular, p. 227.), when characterizing the procedure for the installation of tourism enterprises, under Decree-Law no. 39/2008 and supplementary legislation, expressly states that with the said legislation it was intended "(...) an adjustment of the procedure for the installation of tourism enterprises to the requirements of simplification and procedural de-bureaucratization that animates the legislative package of the Administrative and Legislative Simplification Program (SIMPLEX)". And the referred Author continues by saying that "In these terms, it falls to the municipality to license or accept prior notifications of the operations necessary for the installation of hotel establishments, tourism villages, tourism apartments and tourism complexes, being required to request, for that purpose, an opinion from Portugal Tourism I.P. on the architecture and location of tourism enterprises not preceded by a detailed plan".

In summary, from the reading of the regime contained in arts. 5 to 6 and 23 to 40 of Decree-Law no. 39/2008, it is verified that the concept of «installation» has nothing to do with «operation» and «exploitation» and that it includes only, as the Public Treasury states, the acts, operations and procedures tending toward the construction/creation of tourism enterprises.(…)

It follows, in this manner, that eventual sales of accommodation units carried out even during the construction/installation phase of the enterprise already form part of the exploitation of the same. Two distinct procedures thus stand out, even if they can occur simultaneously: one relating to the practice of operations necessary to install the enterprise; another, relating to operations necessary to put it into operation and to exploit it, being that the sale of the projected or constructed units necessarily forms part of the second moment.(…)

What has just been stated leads us to conclude that when the legislator, in paragraph 1 of art. 20, uses the expression acquisitions of real property or autonomous fractions intended for «installation» (Whether they are new, or existing, but that are subject to remodeling, improvement or re-equipment, or that increase their capacity (art. 5 of Decree-Law no. 423/83), this concept cannot but be understood as referring precisely to the acquisition of real property (or autonomous fractions) for construction (when it is a question of new enterprises (The law also encompasses, as has been stated, the acquisition of mere autonomous fractions with a view to the remodeling/installation of tourism enterprises.)) of tourism enterprises, after the respective urban development operations have been duly licensed, aiming to benefit companies that dedicate themselves to the activity of promotion/creation of the same.(…)

This same conclusion is the one that results from the reading of what is established by the Working Group created to re-evaluate tax benefits which, regarding tax benefits for tourism utility in the context of IMT, Stamp Tax and Municipal Property Tax, recommend their suppression, because, among other things, "the investment promoters in the tourism sector maintain, in addition to financial support framed in the economic policies of the Portuguese State and the European Union, access to general investment incentives and benefits for inland development. On the other hand, minimizing the impact of the measure in the context of Corporate Income Tax, directly or through increased deductions and amortizations, the costs arising from IMT and Municipal Property Tax on investments that remain subject to these taxes" (See Re-evaluation of Tax Benefits, Notebooks of Science and Technical Tax, No. 198, p. 294.).

It is apparent from the considerations of the Working Group that the legislator intended to boost tourism activity by providing for the exemption/reduction of payment of Stamp Tax/Seal Tax, for promoters who intend to build/create establishments (Many promoters before acquiring the real property where the tourism enterprise will eventually be installed, prepare the project and apply for the attribution of tourism utility on a provisional basis (art. 7 of Decree-Law no. 423/83), which will allow them to benefit from the exemption of IMT and reduction of stamp duty with regard to the acquisition of the property. On the other hand, promoters who pay tax on the acquisition of properties intended for the installation of tourism establishments can, later, request restitution when tourism utility is recognized for them.) (or readapt and remodel existing fractions) and not when it is merely the acquisition of fractions (or accommodation units) integrated in enterprises and intended for exploitation, even if they are acquired at a date prior to the installation/licensing of the enterprise itself (As we have seen, in fact, nothing prevents the investment promoter from starting by selling the future fractions or units even before the construction of the enterprise and its installation.)(…)

In fact, when individuals acquire the fractions they do so, as it appears obvious, as consumers of a tourism product that was placed on the market by the promoter with a view to exploitation, because, as we have seen, the celebration of promise to buy and sell contracts is accompanied by the celebration of the exploitation contract. The objective that moves individuals is the realization of their own investment, and they can still choose to be users of the enterprise or cede the exploitation, participating in the results of the same (see paragraph 4 of art. 45 of Decree-Law no. 39/2008). For although it is considered that the fractions remain engaged in exploitation, nothing prevents them from being occupied exclusively by their respective owners and for an indefinite period, as derives, clearly, from legal provisions, such as those contained in arts. 45, paragraph 1, of Decree-Law no. 39/2008, when it expressly states "(...) the operating entity must assume the continuous exploitation of all (...)" accommodation units "(...) even if occupied by their respective owners", and in paragraph 4 of the same provision, when it refers to the conditions of use of accommodation units by their respective owners. In the words of DULCE LOPES (See "The Implementation of Enterprises"...cit., p. 170.), the legislation appears, thus, "to embrace the concept of residential tourism, since it expressly admits that the owners of accommodation units can occupy them or enter into contracts concerning them, provided they do not compromise their tourism use, enjoy the compulsory services of the enterprise and pay the periodic payment to which they are bound.

In summary, the promoters of enterprises are solely responsible for the real estate investment, and the risk of the same falls upon them, as well as the obtaining of the necessary licenses to render them fit for operation and exploitation.

It appears, in this manner, that the argument of the respondent in the sense that the benefit enshrined in paragraph 1 of art. 20 of Decree-Law no. 423/83 is aimed at tourism exploitation and that the beneficiaries are the acquirers of fractions or accommodation units, has no basis whatsoever either in the letter or in the reason for being of the provision.

The benefit only has justification with respect to those who proceed with the installation of the enterprise and place it on the market and not with respect to all those who use and exploit it, even if through the purchase of its units.

We cannot, in this manner, fail to conclude that the recurrent is correct when it argues that "(...) The legislator intended to boost this activity sector, providing for exemption/reduction of payment of Stamp Tax/Seal Tax, under certain conditions, to those going to create tourism establishments, and not to those who merely acquire fractions belonging to already installed enterprises", and that this understanding or interpretation is what results "from the historical, rational/teleological, but also literal element of the legal rules in question"."

In the present proceedings, although it is not a question of the acquisition of autonomous fractions of the enterprise, but rather its acquisition in full, it appears that what results from the judgment of the Supreme Administrative Court that has just been cited should be applied in the parts that are deemed most relevant.

As referred to above, it is proven that the property that formed part of the dation in payment in question in the present proceedings already contained an operating and exploited tourism enterprise.

We are thus faced with an operation subsequent to the "installation" of the enterprise that will already have to do with the "exploitation" or "operation" and it is manifest that the property in question was not acquired by the Petitioner for it to install a tourism enterprise therein.

The allegation of the Petitioner that the acquisition in question aimed to ensure the continuity of the exploitation of the tourism enterprise, which would otherwise be closed, does not oppose the conclusion drawn.

Indeed, it is considered that, notwithstanding there may be some intersection at the level of public interest, between the situations of installation of tourism enterprises and their maintenance in operation, there are also substantial differences between one and another situation that will justify that the legislative restriction of the exemption in question to the installation phase of the enterprise be kept within its literal limits.

In fact, on the one hand, the installation process, as detailed in the Judgment of the Supreme Administrative Court previously transcribed, implies a series of phases, including the intervention of administrative entities, aimed at ensuring control of aspects considered, from the point of view of public interest, as relevant, which does not occur in a situation of subsequent acquisition, as is the case in the proceedings.

On the other hand, a tourism enterprise in the installation phase has an undeniable potential or expectation of success, underlying the interest of the promoter (from the point of view of normality, no one would proceed with the installation of an enterprise, there being significant signs that it might not be successful), while an acquisition in a situation like that in the present proceedings takes place already in a context likely to generate well-founded doubts about the success of the enterprise in question, in that such operation has already led to a situation of insolvency.

This aspect leads to another, which is the circumstance that the activity of installation of a tourism enterprise constitutes a productive, industrial operation, aimed at creating a structure of making available to the market a tourism product intended to be consumed, while the operation of acquisition in question in the present arbitral proceedings is essentially reduced to a financial operation, aimed at safeguarding, to the extent possible, a credit that the Respondent, in the exercise of its normal activity, granted, and which proved to be of deficient solvency.

In this context, and based on the foregoing, it is considered that there is no well-founded analogy between the situations of installation of a tourism enterprise, to which the letter of the law in question refers, and the situation presented, in the present proceedings, by the Petitioner, not being thus justified an expansion, by way of extensive or analogical interpretation, of the scope of the rule under interpretation.

Based on the foregoing, this part of the arbitral request should be dismissed.

ii.

Next, the Petitioner alleges that, in the case, there would be a violation of the principle prohibiting retroactive tax collection, because "it could never be surprised by an assessment of a tax that was based on case law established six years after the occurrence of the taxable event".

This argument, with due respect, would be based, from the outset, on a wrong assumption, which is that the assessed tax is based on case law, when, in reality, its basis is, as it could not but be, the Law, law that already existed on the date of the taxable event.

Now, as the Constitutional Court has already stated, "The retroactivity prohibited in paragraph 3 of article 103 of the Constitution is retroactivity proper or authentic. That is, it prohibits retroactivity that is translated into the application of new law to old facts (in the case, taxable facts) (prior, therefore, to the entry into force of the new law)."[2].

Now, in the case, it is not a question of the application of new law to old facts, in the sense given by the Constitutional Court, and therefore it must be concluded that there is no alleged violation of the principle prohibiting retroactive tax collection, and this part of the arbitral request should also be dismissed.

iii.

The Petitioner also alleges that the tax assessment now at issue occurred in violation of the principle of dual degree of legality control by the notary and the property registrar, stating that "In the case in question, such controls were exercised and the transfer was made with the recognition, by the entities intervening, of the exemption provided for in article 20° of Decree-Law No. 423/83. Finally, AT, upon learning that the aforementioned entities had recognized the tax exemption, did nothing to change the situation according to its interpretation of the law, allowing the Petitioner to consolidate the conviction that it was covered by the scope of the exemption.".

Saving, once more, the respect due to other opinions, it is considered, from the outset, that the aforementioned principle is an organizational or administrative principle, extracted from the concrete structure of the tax system designed by the legislator, and not a substantial principle, inherent to the protection of fundamental legal values, capable of colliding with the validity of tax acts.

Furthermore, in the case, there is no violation of the said principle, since the control in question was indeed exercised, having occurred intervention of the entities in question.

What the Petitioner seeks is to extract from the principle in question a consequence that has no legal basis whatsoever, that is, that, once such control is exercised, the AT would be barred from any intervention in the matter.

Now, such consequence does not follow from any rule, combination of rules or from the legal system in general, and it is therefore not possible to affirm that it was intended by the legislator.

Thus, and based on the foregoing, this part of the arbitral request should also be dismissed.

iv.

Next, the Petitioner argues that the assessment sub iudice constitutes an illegal cessation of the tax benefit, since, in its view, "maintaining the factual prerequisites - as it could not but be, because it is an IMT exemption, the taxable event formed instantaneously with the public deed, and the Petitioner is not debtor of any tax".

Also here it is considered that the Petitioner is not correct.

As the Petitioner itself agrees, "the AT is correct when it states that "(...) the attribution or verification of the said exemption in accordance with art. 20 of the aforementioned decree-law does not generate an administrative act".

And, contrary to what seems to be assumed by the Petitioner, the circumstance that the tax benefit in question has an automatic nature does not mean that it has been, simply, recognized, ope legis, to the Petitioner. This would be the case if, and this is what is now being discussed, its legal prerequisites were met, which, as was seen above, is not the case. In other words, since the legal prerequisites of the benefit are not met, the same was not automatically granted to the Petitioner, and the intervention of either the notary or the property registrar is irrelevant at this level, since, naturally, the tax benefit is not dependent on the recognition thereof by those, being, precisely, of an automatic nature.

Hence, since there is no administrative act in tax matters that defines the situation of the Petitioner with respect to the tax benefit in question, the AT is not barred from performing an act in such matters that defines the situation.

This understanding is believed to be underlying the decision in the Judgment of the Supreme Administrative Court of 09/07/2003, rendered in proceedings 0781/03[3], where it was summarized that "The principle of unitary challenge imposes that the question of the exemption, when automatic, be raised in court in the proceedings to challenge the tax assessment act where such exemption should be taken into account.", and further it can be read in the same judgment that "only in the assessment procedure, and not in any other, (...) is that the Administration may have committed the illegality accused by the appellant, in not recognizing that its situation falls within the prediction of the rule of paragraph 1 of article 46 of the Tax Benefits Statute. It was in that procedure that the matter necessary to define the appellant's legal situation was ascertained, and in that very procedure such definition was made, assessing the tax without taking into account the invoked exemption. Therefore, it was within the scope and following that procedure that the appellant could resort to the courts. And as the principle of unitary challenge prevails among us (see, now, expressly, article 54 of the Code of Tax Procedure and Process), the act to be subject to judicial scrutiny was the assessment".

Thus, and based on the foregoing, this part of the arbitral request should also be dismissed.

v.

Finally, the Petitioner claims that the tax act sub iudice constitutes a violation of the principle of good faith and its legitimate expectations, since "the fact that 7 years and 11 months after the act of transfer the AT assessed the tax based on the alleged non-compliance with the requirements of the exemption causes serious harm to the Petitioner that, by not having used the exemption to which it was entitled as a credit institution, did not worry about speeding up the process of alienation of the property within the 5-year period provided for in paragraph 6 of article 11 of the CIMT." and that "one month before the alleged IMT debt would expire, the AT surprised the Petitioner with the assessment now at issue, contradicting all the expectations that had been forming, for seven years and eleven months, that the transfer of the property in question would be exempt from IMT.", being that "the AT did not issue the assessment following the exit of the judgment establishing case law, which in 2013 changed all the understanding that had previously prevailed regarding the prerequisites for IMT exemption, having waited for the last days of the prescription of the alleged debt to do so, in 2015.", and therefore "the Petitioner concludes that its legitimate expectations were frustrated with the cessation of the tax benefit that came to benefit it seven years and eleven months ago".

Note, from the outset, that in order for expectations to be considered legitimate it is necessary that they be protected by law or that such protection results from the legal order considered as a whole, under penalty of any expectation arising from the passage of time being deemed legitimate.

Now, in the case, there is a prescription period for the right to assess, which the Petitioner would know or, at least, should know, and therefore any expectation of stability of its tax-legal situation that the Petitioner may have formed before the expiry of such period cannot be deemed legitimate.

Similarly, the performance of an assessment act within its respective prescription period, even if very close to the end, cannot, per se, be deemed to violate the principle of good faith, since it is a prerogative of the AT that is not, at that level, limited in any way.

In the case, it is not verified that the AT has, in any way, contributed to the Petitioner's expectation that its tax-legal situation, in question in the present arbitral proceedings, would be consolidated. Namely, no fact is ascertained from which it would result that the AT permitted the Petitioner to conclude that it recognized the existence of the tax benefit in question or that, for any reason, it would refrain from performing any tax act in the matter. Hence, it is not verified, to the contrary of what the Petitioner alleges, any action contrary to good faith.

The circumstance does not oppose the conclusion drawn that the Petitioner, by virtue of the action of the property registrar and the notary in the matter, did not use the exemption to which it was entitled as a credit institution.

In fact, and from the outset, the AT is not, in any way, reduced in its right to assess taxes before the respective prescription period expires, depending on the concrete situation of each taxpayer, which the AT is not obliged to know. In other words, the AT did not have to know whether the Petitioner refrained from using, or not, another exemption, whether it had or did not have the right thereto, and consequently did not have to condition the exercise of its right to assess the tax in question, depending on such circumstances.

If, perchance, someone acted to the detriment of the Petitioner, it could only have been the notary and/or the property registrar intervening, insofar as it is ascertained that they could and should have interpreted the applicable law differently, which may also, eventually, found some claim for compensation of the Petitioner, but, in no case, contend with the validity of the tax act sub iudice.

Thus, and based on the foregoing, in this final part the arbitral request should also be dismissed.

C. DECISION

In view of all the foregoing, it is decided by this Arbitral Tribunal to judge the arbitral request filed as unfounded and, in consequence:

a) Absolve the Respondent of the claim; and

b) Condemn the Petitioner to pay the costs of the proceedings, in the amount of € 4,284.00.

D. Value of the Proceedings

The value of the proceedings is set at € 209,927.26, in accordance with article 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of the RJAT and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is set at € 4,284.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Petitioner, since the request was entirely unfounded, in accordance with articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 4, paragraph 4, of the cited Regulation.

Notify.

Lisbon 17 April 2017

The President Arbitrator

(José Pedro Carvalho - Reporter)

The Arbitrator Member

(A. Sérgio de Matos)

The Arbitrator Member

(Suzana Costa)

[1] Available at www.dgsi.pt.

[2] Judgment 128/2009, available at http://www.tribunalconstitucional.pt/tc/acordaos/.

[3] Available at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption for tourist utility and how does it apply to hotel property acquisitions in Portugal?
The IMT tax exemption for tourist utility in Portugal is provided under Article 20(1) of Decree-Law 423/83, which exempts property acquisitions intended for installing tourist establishments. To qualify, the property must be destined for tourism purposes and meet licensing requirements. However, this exemption primarily applies to the initial installation of tourism enterprises. In Process 579/2016-T, the key issue was whether this exemption extends to secondary acquisitions of already-operating hotels. The bank acquired an already-licensed and functioning hotel through dation in payment. The notary initially granted the exemption, but the Tax Authority later challenged it, arguing the exemption applies only to new tourism installations, not transfers of existing operational establishments. This distinction is crucial: acquiring property to install a new tourism enterprise differs from acquiring an already-operating hotel. The case demonstrates that taxpayers must carefully verify that tourism exemption requirements are fully met, particularly regarding whether the acquisition involves new installation versus transfer of existing facilities.
Can the Portuguese tax authority retroactively revoke an IMT exemption granted for tourism investment purposes?
The Portuguese Tax Authority can challenge previously granted IMT exemptions, but faces significant legal constraints regarding retroactive revocation. In Process 579/2016-T, the Tax Authority assessed IMT eight years after the 2007 transaction, despite a notary having granted the exemption at the time. The taxpayer argued this violated the constitutional prohibition against retroactive taxation. Portuguese tax law generally prohibits retroactive application of tax laws that worsen taxpayers' positions. However, the Tax Authority distinguishes between retroactive law application and correction of improperly granted benefits. When an exemption was granted incorrectly from the outset, authorities may argue they are correcting an error rather than applying law retroactively. Nevertheless, such assessments face scrutiny regarding: (1) whether the original exemption grant was reasonable under applicable law; (2) whether the taxpayer legitimately relied on professional certifications; (3) the time elapsed since the transaction; and (4) whether dual legality controls by notaries and registrars were respected. The practical limitation is the statute of limitations for tax assessments, typically 4 years, extendable to 12 years in fraud cases. Taxpayers can challenge retroactive revocations through administrative review and CAAD arbitration.
What legal principles protect taxpayers against retroactive taxation under Portuguese tax law?
Portuguese tax law provides several constitutional and statutory principles protecting taxpayers against retroactive taxation. First, the Portuguese Constitution establishes the principle of legal certainty and protection of legitimate expectations, prohibiting laws with retrospective effect that worsen taxpayers' situations. Second, the principle of tax legality requires that taxes be established by pre-existing law. Third, the principle of good faith protects taxpayers who relied on official acts and certifications. In Process 579/2016-T, the taxpayer invoked these principles, arguing that: (1) the notary's exemption grant created legitimate expectations; (2) both the notary and property registrar exercised legality control, providing dual verification; (3) the taxpayer acted in good faith relying on these professional certifications; and (4) challenging the exemption eight years later violated legal certainty. The General Tax Law (LGT) Article 35 also limits compensatory interest to situations where taxpayers caused payment delays. The administrative review partially recognized these protections by annulling compensatory interest. These principles create meaningful barriers against arbitrary retroactive tax collection, though they do not absolutely prevent correction of clear legal errors. Taxpayers invoking these protections must demonstrate reasonable reliance on official acts and absence of fraud or bad faith.
How does the CAAD arbitration process work for challenging IMT tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process provides an alternative to judicial courts for challenging Portuguese tax assessments. The process in Process 579/2016-T illustrates typical procedures: (1) The taxpayer filed a petition on September 26, 2016, under the Legal Regime of Arbitration in Tax Matters (RJAT), seeking to declare the IMT assessment illegal. (2) The petition was automatically accepted and notified to the Tax Authority. (3) Since the taxpayer did not nominate an arbitrator, the CAAD Deontological Council appointed a three-arbitrator collective tribunal. (4) The tribunal was constituted on December 12, 2016. (5) The Tax Authority filed its reply on January 31, 2017, defending by way of challenge. (6) The oral hearing under Article 18 RJAT was dispensed with per Article 16(c) and (e). (7) Written submissions were allowed; the taxpayer submitted them while the Tax Authority did not. (8) The tribunal had 30 days after submissions to render its decision. CAAD arbitration offers advantages over courts: faster resolution (typically 6-12 months), specialized tax law expertise, lower costs, and binding decisions subject only to limited appeals. Taxpayers must first exhaust administrative review before CAAD arbitration. The process requires payment of assessed taxes before challenging them, though taxpayers may request suspension of enforcement.
What happens when an IMT tax benefit for a tourist establishment ceases and what are the taxpayer's rights?
When an IMT tax benefit for a tourist establishment ceases or is revoked, several consequences and taxpayer rights arise under Portuguese law. In Process 579/2016-T, the cessation occurred when the Tax Authority determined the tourism utility exemption was improperly granted. Legal consequences include: (1) Assessment of the previously exempted IMT amount (€209,927.26 in this case); (2) Potential compensatory interest for the period between the original transaction and payment, though the administrative review annulled this interest under LGT Article 35; (3) The taxpayer's obligation to pay assessed amounts before challenging them. Taxpayer rights include: (1) Administrative review (recurso hierárquico) - the taxpayer filed this on March 11, 2016, which was partially granted; (2) CAAD arbitration - available after administrative review, providing independent tribunal review; (3) Judicial appeal - if arbitration is unfavorable, limited appeals to administrative courts are possible; (4) Protection of legitimate expectations - taxpayers can argue they relied on official acts; (5) Challenge to compensatory interest - if the tax authority, not the taxpayer, caused payment delays. The case demonstrates that even when tax benefits are revoked, taxpayers retain significant procedural protections and can challenge both the substantive legality of the revocation and procedural aspects like interest calculation. Banks and financial institutions should note that the general IMT exemption for credit institutions under CIMT Article 8(2)(b) provides an alternative exemption basis.