Process: 601/2014-T

Date: January 30, 2015

Tax Type: IMT

Source: Original CAAD Decision

Summary

Case 601/2014-T examines whether IMT (Municipal Property Transfer Tax) applies to a 2002 promise-to-purchase contract for hotel development land valued at €13,920,000. The claimant, a hotel company, challenged an additional IMT assessment of €904,800 issued in 2013, arguing the tax was unlawfully applied to the promise contract rather than awaiting the final deed transfer. The company had made full payment between 2003-2004 and recorded the property as a fixed asset in 2002, though formal plot licensing and land registry only occurred in 2005. The claimant requested annulment of the assessment through CAAD arbitration proceedings under RJAT and CPPT provisions, claiming either substantive illegality or, alternatively, lack of proper legal reasoning (falta de fundamentação) in the tax authority's decision. The case involves determining when the IMT taxable event occurs—whether at the promise contract stage when possession and payment transfer, or only upon execution of the final deed. The CAAD arbitral tribunal, constituted on October 6, 2014, confirmed its jurisdiction to review IMT assessments and examine both substantive tax law questions and formal defects in administrative decisions. The claimant also requested reimbursement with compensatory interest from the date of wrongful payment, a remedy available when tax assessments are deemed unlawful under Portuguese tax procedure law.

Full Decision

Case No. 601/2014-T

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Carla Castelo Trindade and Prof. Doctor Nina Aguiar (arbitrators), appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-10-2014, hereby agree as follows:

1. Report

A... – SOCIEDADE DE PROMOÇÃO E CONSTRUÇÃO DE HOTEIS, S.A., holder of the NIPC [Tax Identification Number] …, with registered office in ..., …, hereinafter referred to as "A..." or "Claimant", came, pursuant to the provisions of paragraph a) of article 2(1), article 5(3), article 6(2), and articles 10 et seq. of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), in conjunction with paragraph a) of article 99 and paragraph f) of article 102(1), both of the Code of Tax Procedure and Process (CPPT), to request an arbitral pronouncement with a view to declaring the illegality and consequent annulment of the tax assessment act imposing an additional Municipal Tax on Onerous Property Transactions (hereinafter referred to as "IMT"), notified on 24-7-2013.

The Claimant also requests the return of the amount paid, in the sum of €904,800.00, with compensatory interest accrued from the date of the wrongful payment until full and effective reimbursement, or, alternatively, requests the annulment of the decision handed down by the Tax Authority sustaining the additional assessment due to lack of reasoning.

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

On 19-09-2014, the Parties were notified of this appointment and did not express any objection to the appointment of the arbitrators, in accordance with the combined provisions of article 11(1) paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Accordingly, in conformity with the provisions of paragraph c) of article 11(1) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 06-10-2014.

The Tax and Customs Authority submitted a response in which it argues that it is unclear whether the Claimant imputes the defect of lack of reasoning to the assessment act or to the decision of the administrative appeal, such that it is not possible to determine the existence of this defect, and that the request for arbitral pronouncement should be adjudged unfounded.

By order of 17-11-2014, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the proceedings continue with submissions.

The Parties did not submit any submissions.

By order of 13-01-2014, the Parties were notified for them to pronounce on issues concerning the jurisdiction of the arbitral tribunals operating at the CAAD to examine the request for annulment of the administrative appeal decision due to lack of reasoning and the futility of examining this defect for the purpose of assessing the legality of the assessment act.

The Arbitral Tribunal was properly constituted and is competent.

The parties have legal capacity and standing, are legitimate and are duly represented (articles 4 and 10(2) of the same law and article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities.

2. Findings of Fact

2.1. Proven Facts

The following facts are considered proven:

a) The Claimant's activity is "Hotels with Restaurant" (CAE 055111);

b) On 30-12-2002, a promise to purchase and sale contract (hereinafter referred to as "PPSC") was entered into between the company "B... – Empreendimentos Imobiliários e Turísticos, S.A." (hereinafter referred to as "B...") and "A...", by means of which the Claimant promised to acquire a parcel of land that was the subject of the Urbanisation Plan of ..., approved by the Municipal Assembly of ... on 27 March 1998, and ratified by Resolution of the Council of Ministers No. …/99, as set out in the document attached hereto and incorporated herein in its entirety for all legal purposes (doc. No. 4 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

c) Zone 2 of the ... of the aforementioned Urbanisation Plan of ... was the subject of a plot licensing process, which comprised a plot designated as "Lot 1", having a maximum area of 40,000.00 m² and a maximum building area above ground of 240,000 m², intended for a Hotel;

d) For the sale of the aforementioned property, a total price of €13,920,000.00 was fixed, in accordance with clause 2 of the PPSC;

e) The company "A..." made the payments stipulated in the PPSC, the price being paid to B... as follows:

(i) €3,480,000.00 on 6 January 2003;

(ii) €3,480,000.00 on 30 June 2003;

(iii) €3,480,000.00 on 26 December 2003;

(iv) €2,784,000.00 on 22 June 2004;

f) On 25-09-2003, the Claimant engaged the company "C… – … Geotecnia e Topografia, Lda" to carry out a geotechnical study of "Lot 1" (doc. No. 6 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

g) On 21-10-2003, the Claimant engaged D… to carry out the topographic survey work of the aforementioned "Lot 1" (doc. No. 7 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

h) On 01-09-2004, the Claimant submitted to the General Directorate of Tourism the document, a copy of which constitutes doc. No. 8 attached with the request for arbitral pronouncement, the contents of which are reproduced herein, requesting the integration of the Hotel ... project within the scope of Resolution of the Council of Ministers No. …/2003, so that it would be subject to assessment and monitoring by the Support Centre for the Licensing of Structuring Tourism Projects;

i) In the Claimant's accounts for the fiscal year 2002, the aforementioned property was recorded in the Fixed Assets of "A..." in the fiscal year 2002;

j) The transaction in question, concluded with "B...", is detailed in the Annex to the Financial Statements as at 31 December 2002 as "Tangible Investments" (doc. No. 9 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

k) In the Management Report for the fiscal year 2002, the transaction for the acquisition of "Lot 1" by the Claimant is described in section 1 of the Report under the heading "Preliminary Considerations" (doc. No. 10 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

l) The licensing of the plot subdivision occurred on 11-07-2005 (article 78 of the request for arbitral pronouncement);

m) The plot promised for sale on 30 December 2002 is duly identified in the preambles B and C of the PPSC (article 79 of the request for arbitral pronouncement);

n) In the Logo Plan contained in Annex III, which is an integral part of the PPSC and is comprised in the Urbanisation Plan of ... (docs. Nos. 11 and 12 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

o) The property is described in the land registry certificate issued by the Land Registry Office of ... as "Urban Property, Lot 1, ..., Zone 2, Subzone 1, ... – land parcel for urban construction", with the characteristics and adjacent properties as set out in the PPSC of 30 December 2002, the description being made on 14-07-2005 (doc. No. 13 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

p) The matrix registration of the said Lot 1 occurred on 11-07-2005 (doc. No. 14 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

q) The Urbanisation Plan of ... (2nd phase) determines the inclusion of Zone 2 of the ... in a plot licensing process, which, in accordance with Preamble C of the PPSC "shall comprise a plot designated as Lot 1, having a maximum area of 40,000 m² and a maximum building area above ground of 24,000 m²", and the areas indicated in the Urbanisation Plan and in the description of the property promised for sale in the contract of 30-12-2002 coincide entirely with the identification of the property described in the land registry certificate dated 14-07-2005 and also with the description contained in the urban property matrix issued on 5 June 2005 by the Tax Office of ... (docs. Nos. 13 and 14 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

r) By order of the Secretary of State for Tourism, of 08-11-2005, cf. Notice published in the Official Journal, Series III, No. 232, a provisional declaration of tourist utility was granted to a hotel (...), with the provisional classification of five stars, which B... – Empreendimentos Imobiliários e Turísticos, S.A., intended to carry out on lot i of the …, zone 2, subzone 1, in ..., municipality of ..., district of ...;

s) On 05-12-2005, the notarial deed of purchase and sale was executed by the Claimant from B... – Empreendimentos Imobiliários e Turísticos, SA, taxpayer No. … of the urban property described as "Lot 1", ..., Zone 2, Subzone 1, ..., provisional matrix article …, described in the Land Registry Office of ... under No. …, for the price of €13,920,000.00, with the balance of the price in the amount of €696,000.00 being paid on that date (doc. No. 5 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);

t) The acquisition of the aforementioned property was exempt from IMT payment in accordance with the provisions of article 16(4) of Decree-Law No. 423/83, of 5 December (as amended by Decree-Law No. 38/94, of 8 February) by virtue of the fact that the undertaking was granted provisional tourist utility in the aforementioned order of the Secretary of State for Tourism, of 08-11-2005, published in the Official Journal Series III No. 232, of 05-12-2005;

u) In the Official Journal, 2nd Series, No. 39, of 25-02-2013, at page 7399, Order No. 2968/2013 was published, from the Office of the Secretary of State for Tourism, which states that:

"Given the opinion of Tourism of Portugal, I.P., in which it is considered that the provisional tourist utility granted to the Hotel ... located in ... should be declared to have lapsed, I hereby decide:

I declare the lapse of the provisional tourist utility granted on 8 November 2005 to the Hotel ... located in ..., on the grounds set out in the opinion of Tourism of Portugal I.P., of 25 October 2012, the contents of which I hereby incorporate in full.";

v) The aforementioned order was published on 25-02-2013;

w) The Tax and Customs Authority understood that the act constituting the transmission of ownership of the property in question to the Claimant occurred on 05-12-2005, with the aforementioned execution of the notarial deed of purchase and sale at the Notarial Office of ...;

x) By letter dated 23-07-2013, the Claimant was notified by the Tax and Customs Authority for "Payment of IMT", in the amount of €904,800.00, with the respective assessment being issued on 11-10-2013, applying the rate of 6.5% to the purchase price of €13,920,000.00;

y) On 29-11-2014, the Claimant made payment of the tax amount mentioned plus compensatory interest in the amount of €8,130.81, calculated from 25-02-2013 to 17-05-2013 (totalling €912,930.81) (page 5 of the administrative file);

z) The Claimant filed an administrative appeal against the aforementioned assessment and was notified by letter No. … dated 28-03-2014 of the draft decision and to exercise the right to a hearing;

aa) The Claimant did not exercise the right to a hearing in the administrative appeal;

bb) On 02-05-2014, by letter No. …, the Claimant was notified of the final decision dismissing the administrative appeal;

cc) On 01-08-2014, the Claimant filed a request for the constitution of an Arbitral Tribunal, which gave rise to the present proceedings.

2.2. Unproven Facts

It was not proven that the Claimant had taken any other action in relation to the land referred to in the promise to purchase contract.

2.3. Basis for the Determination of Facts

The facts were considered proven on the basis of the documents referred to, the correspondence of which with reality is not contested.

3. Legal Issues

3.1. Questions Raised

On 30-12-2002, the Claimant entered into, as promissory purchaser, a promise to purchase and sale contract for a parcel of land that was the subject of the Urbanisation Plan of ....

In the promise to purchase contract, it was established that the price of the property was €13,920,000.00, which came to be paid in instalments on 06-01-2003, 30-06-2003, 26-12-2003 and 22-06-2004.

The aforementioned land was already identified in the promise to purchase contract in the manner in which the plot subdivision came to be licensed on 11-07-2005, and in which it came to be registered in the Land Registry Office on 14-07-2005.

It was proven that the Claimant referred to the land in question in its accounts for the fiscal year 2002 and made reference to it in the Annex to the Financial Statements and in the Management Report relating to the year 2002, that on 25-09-2003 and 21-10-2003 it engaged the execution of a geotechnical study and a topographic survey on the land, and that on 01-09-2004, the Claimant submitted to the General Directorate of Tourism communication requesting the monitoring and assessment of the project "Hotel ..." by the Support Centre for the Licensing of Structuring Tourism Projects.

The deed for the acquisition of the aforementioned land came to be executed on 05-12-2055, being exempt from IMT payment, as the undertaking was granted provisional tourist utility.

In the Official Journal, 2nd Series, No. 39, of 25-02-2013, at page 7399, Order No. …/2013 was published, from the Office of the Secretary of State for Tourism, in which the lapse of the provisional tourist utility granted was declared.

The Tax and Customs Authority understood that the act constituting the transmission of ownership of the property in question to the Claimant occurred on 05-12-2005, with the aforementioned execution of the notarial deed of purchase and sale, and therefore, on 11-10-2013, assessed IMT.

The Claimant understands that "several facts accumulate to substantiate, and demonstrate, beyond any doubt, that 'Lot 1' became part of the patrimony of the company 'A...' at the moment the promise to purchase and sale contract between it and B... was entered into on 30 December 2002" "and that from that date onwards the Claimant came to materially assume the role of owner of the property in question" (articles 65 and 66 of the request for arbitral pronouncement).

The Claimant understands that from that date onwards it "headed and led all procedures inherent in the construction of the Hotel ... on 'Lot 1'", "acting – from that moment onwards – in relation to the property in question as the true owner, ipso facto, of the same".

Accordingly, the Claimant understands that a transmission occurred for the purposes of article 2(1)(2) of the Code of Municipal Tax on Inheritance and Donations Tax, which establishes that transmissions of immovable property include "promises to purchase and sale or exchange of immovable property, once delivery to the promissory purchaser or promissory exchanging parties is effected, or when the latter or these are enjoying the property".

If it is understood that the transmission occurred with the promise to purchase contract and subsequent acts that constitute transmission, prior to 01-01-2004, the Code of Municipal Tax on Onerous Property Transactions cannot be applied, as that is the date of its entry into force, pursuant to article 32(3) of Decree-Law No. 287/2003, of 12 November.

The Claimant further argues that, if it is understood that the transmission of the property occurred on 30-12-2002, the limitation period for the assessment of inheritance tax has already expired, which is 8 years, pursuant to article 92 of the Code of Municipal Tax on Inheritance and Donations Tax.

The Claimant, as a "preliminary matter", further imputes to the "decision dismissing the administrative appeal issued by the Tax Directorate of ... a defect in form due to lack of reasoning".

3.2. Question of Lack of Reasoning in the Administrative Appeal Decision

The administrative appeal decision is an act subsequent to the contested assessment and, therefore, from its eventual annulment due to a defect in form, notably lack of reasoning, the illegality of the previous assessment act can never result.

Defects in tax acts can have an impact on subsequent acts that have as a prerequisite previous defective acts, but the illegality of an act cannot result subsequently from the eventual formal illegality of subsequent acts, as is the case of the administrative appeal decision in relation to the assessment act.

On the other hand, as follows from the express wording of article 2(1) of the RJAT, the jurisdiction of the arbitral tribunals operating at the CAAD is limited to the assessment of the legality of assessment acts and acts determining the taxable matter and determining the taxable base.

For this reason, the assessment of the legality of second-instance acts, such as administrative appeal decisions, can only be examined by arbitral tribunals insofar as those decisions incorporate the defects affecting them, as in those situations one is assessing the illegality of the assessment act indirectly.

It is, therefore, perfectly correct the Claimant's assertion, based on arbitral jurisprudence, that "the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-instance act confirming an assessment act, incorporating its illegality", but only because this illegality is incorporated and because in assessing the illegality of the second-instance act, one is indirectly assessing the same legality of the previous assessment act.

However, it has nothing to do with the legality of assessment acts, even indirectly, to examine the illegality of autonomous defects of those second-instance acts, not derived from the previous assessment act, such as defects in form that only affect those second-instance acts.

And, while it is true that the legislative authorization on which the Government based itself to approve the RJAT allowed it to include in the jurisdiction of arbitral tribunals, without any limitation, the assessment of the legality of acts fully or partially dismissing administrative appeals [article 124(4) paragraph a) of Law No. 3-B/2010, of 28 April], it is equally true that article 2 of the RJAT did not extend the jurisdiction of the arbitral tribunals operating at the CAAD in that manner, restricting it, at present, to the "declaration of illegality of assessment acts of taxes, self-assessments, withholding at source and payments on account" and to the "declaration of illegality of acts determining the taxable matter when not giving rise to the assessment of any tax, acts determining the taxable base and acts establishing patrimonial values".

Furthermore, the lack of reasoning in the administrative appeal decision could only lead, if verified, to the annulment of that decision, which, while potentially relevant for other purposes, could never justify the illegality of the assessment act.

It is thus to be concluded that the examination of formal defects in administrative appeal decisions that have nothing to do with the tax assessment act that was the subject of that appeal does not fall within the jurisdiction of the arbitral tribunals operating at the CAAD and that, for the purpose of the question of the annulment of the assessment act, which falls within that jurisdiction, it is futile to examine the question of the lack of reasoning in the administrative appeal decision.

For that reason, this defect is not examined, and the Tax and Customs Authority is absolved from the claim in that respect.

3.3. Question of the Illegality of IMT Assessment

The Claimant understands that the transmission occurred on 30-12-2002, by virtue of the provisions of article 2 of the CIMSISD [Code of Municipal Tax on Inheritance and Donations Tax], which establishes that "inheritance tax is levied on transmissions, for onerous consideration, of the right of ownership or of fractional figures of that right, over immovable property" and "for this purpose, transmissions of immovable property are considered" to be "promises to purchase and sale or exchange of immovable property, once delivery to the promissory purchaser or promissory exchanging parties is effected, or when the latter or these are enjoying the property".

Given that it was proven that a promise to purchase contract was entered into on that date, it remains to examine whether it was proven that delivery of the land to the Claimant was effected or that it came to enjoy the land on that date.

As regards enjoying the land, no fact is alleged that can be integrated into such a concept, as it was not even alleged that the Claimant derived any benefit or fruit from the land or used it for any purpose before the execution of the deed.

It thus remains to examine whether the acts demonstrated to have occurred constitute delivery for the purposes of that article 2.

Delivery of the immovable property for the purposes of article 2(1)(2) of the CIMSISD consists only of the symbolic transfer of the same by the promissory seller, accompanied by acts of the promissory purchaser revealing the respective acceptance, and it is not necessary for this purpose for the promissory purchaser to carry out acts of possession in civil law terms ([1]), although the carrying out of acts typical of possession is a relevant indication that delivery occurred.

However, for the equivalence of delivery to transmission to be justified, that shall have to consist of a presumed definitive factual transmission of the general powers that the owner holds in relation to the immovable property, even if the promissory purchaser does not come to exercise them. That is, it is necessary to determine the existence of delivery from the perspective of the promissory seller, and it is necessary to be able to conclude that he ceased, following the contract or subsequently, to intend to exercise in relation to the immovable property the powers of fact that constitute the content of the right of ownership, allowing instead that they be exercised by the promissory purchaser.

From this perspective, one cannot conclude that transfer of the property has occurred if it is demonstrated that the owner did not intend with the contract and subsequent acts to cease being able to exercise the powers of use, enjoyment and disposal that constitute the right of ownership (article 1305 of the Civil Code). Thus, delivery shall occur for tax purposes, when it is demonstrated that the promissory seller waived in favour of the promissory purchaser the exercise of the powers of fact that constitute the content of the right of ownership, retaining only the legal power to enter into the definitive contract.

In the case in question, the evidence produced does not permit a conclusion regarding the existence of delivery.

In fact, on the one hand, in the promise to purchase contract, there are provisions for situations in which resolution of the promise to purchase contract itself may occur [clauses 4 paragraphs e), f) and g), 5 paragraph b), and 16], which indicates that the parties did not consider it established that a transmission would occur in civil law terms, and in these circumstances, one cannot identify an act of transfer economically equivalent to transmission of the property.

On the other hand, it is manifest, in light of the conditions provided for in Clauses 8 and 9 of the promise to purchase contract, that it was not intended to grant the Claimant powers to act as if it were the owner of the property, as several conditions were imposed on the acts it could carry out in relation to the property, namely as regards the architectural project and the hotel unit project, which would have to be developed following guidelines set out in a study attached to the contract and would be subject to prior opinion of the promissory seller and as regards the characteristics of the hotel unit to be built (maximum height, maximum area, type of hotel unit to be built, minimum construction distances to the boundaries of the lot).

These clauses clearly reveal that the promissory seller did not transfer the property to the Claimant at the moment of the promise to purchase contract, so that from its date onwards it would act in relation to it as if it were the owner, but rather reserved for itself the power of final approval of the characteristics of the construction that should be carried out thereon, which constitutes the exercise of the right of disposal, which is part of the content of the right of ownership.

Under clause 10 paragraph b) of the promise to purchase contract, only after issuance of the prior opinion referred to in paragraph c) of clause 8 would the promissory seller enable the Claimant with powers to monitor the progress of the building licensing process, "requesting, deciding and requesting freely all the information, guidance and corrections that it deems to be useful or opportune", and therefore, at least until this enabling was concretised, one cannot identify an intention of the promissory seller to transfer the property to the Claimant.

The acts that the Claimant invokes were carried out in relation to the property (engagement of a study and topographic survey) do not permit concluding that the promissory seller had ceased to intend to exercise its powers in relation to the property, as they are acts compatible with its interest in a hotel unit being built near the golf courses of ... of which it was the owner and manager (which is mentioned in preamble G of the promise to purchase contract and is evidenced by the imposition of deadlines for submission of licensing project and for initiating and completing the hotel unit contained in clause 11 of the promise to purchase contract) and the Claimant carried them out in fulfilment of the contractual obligation to ensure the preparation of the building licensing projects (clause 8 of the promise to purchase contract). On the other hand, as regards the request that the hotel unit project be subject to assessment and monitoring by the Support Centre for the Licensing of Structuring Tourism Projects, does not imply the exercise of any power inherent in the right of ownership.

As regards the accounting records of the Claimant relating to the property, they may indicate its personal conviction about the acquisition of the property, but have no relevance whatsoever to define what is relevant for the purpose of satisfying the concept of delivery, which is the intention of the promissory seller to cease exercising its powers as owner.

Confirming that the parties to the contract did not understand that there was a transfer of the property equivalent to delivery, it is noted that in the promise to purchase contract itself there is an express reference to the payment of inheritance tax connected to the execution of the deed and not to any earlier moment [paragraph c) of Clause 4].

Further confirming that the parties understood that no transmission for tax purposes had occurred before the execution of the deed, it is noted that in that deed there is a reference to "this transmission being exempt from payment of Municipal Tax on Onerous Property Transactions, pursuant to article 20 of Decree-Law No. 423/83 of 5 December", which would not be understood if the transmission had been consumed during the validity of the CIMSISD.

Accordingly, one cannot conclude that the promissory seller from the promise to purchase contract abandoned the exercise of its rights as owner, and consequently, one cannot understand that the existence of delivery before the execution of the deed of purchase and sale has been demonstrated.

For this reason, the requirements for the application of article 2(1)(2) of the CIMSISD are not met, and it is correct the decision of the Tax and Customs Authority to apply the regime of the Code of Municipal Tax on Onerous Property Transactions, based on the execution on 05-12-2005 of the purchase and sale contract.

The request for arbitral pronouncement for the application of the CIMSISD and the expiration of the limitation period for the assessment of this tax is thus unfounded.

Accordingly, it is to be concluded that the request for arbitral pronouncement is unfounded.

3.4. Requests for Reimbursement of the Amount Paid and Condemnation of the Tax and Customs Authority to Pay Compensatory Interest

In view of the conclusion that the IMT assessment is not illegal, the requests for reimbursement of the amount paid and for the condemnation of the Tax and Customs Authority to pay compensatory interest to the Claimant are unfounded, as these requests have as their presupposition that alleged illegality.

4. Decision

Wherefore this Arbitral Tribunal hereby agrees to:

– adjudge unfounded the requests for annulment of the IMT assessment of 23-07-2013, for reimbursement of the tax paid by the Claimant, and for condemnation of the Tax and Customs Authority to payment of compensatory interest;

– absolve the Tax and Customs Authority of the aforementioned claims;

– adjudge this Arbitral Tribunal incompetent to examine the defect of lack of reasoning in the administrative appeal decision insofar as it does not constitute a defect attributable to the assessment act that was the subject of the administrative appeal, and absolve the Tax and Customs Authority from the claim in that respect.

5. Value of the Case

In accordance with the provisions of article 315(2) of the Code of Civil Procedure and article 97-A(1) paragraph a) of the CPPT and article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is set at €912,930.81.

6. Costs

Pursuant to article 22(4) of the RJAT, the amount of costs is fixed at €12,852.00, in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Claimant A... – Sociedade de Promoção e Construção de Hotéis, S.A..

Lisbon, 30-01-2015

The Arbitrators

(Jorge Lopes de Sousa)

(Carla Castelo Trindade)

(Nina Aguiar)

[1] Decision of the Supreme Administrative Court of 4-3-1998, case No. 20331, AP-DR of 8-11-2001, page 686.

Frequently Asked Questions

Automatically Created

Is IMT (property transfer tax) applicable to a promise-to-purchase contract (contrato-promessa) for land in Portugal?
IMT (Municipal Property Transfer Tax) is generally triggered by the actual transfer of property ownership through the final deed (escritura), not by a promise-to-purchase contract (contrato-promessa). However, Portuguese tax law recognizes exceptions when the promise contract has been substantially executed—meaning the buyer has obtained possession of the property and paid most or all of the purchase price. In such cases, the tax authorities may argue that the taxable event has effectively occurred at the promise stage. Case 601/2014-T addresses precisely this issue, where the claimant made full payment between 2003-2004 and treated the property as a fixed asset, while the tax authority assessed IMT in 2013. The determination depends on analyzing whether economic substance (possession and payment) should prevail over legal form (formal deed transfer).
Can a taxpayer challenge an additional IMT assessment through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge additional IMT assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings. Case 601/2014-T confirms this jurisdictional authority under articles 2(1)a), 5(3), 6(2), and 10 et seq. of RJAT (Administrative Arbitration Legal Regime), in conjunction with CPPT articles 99a) and 102(1)f). The CAAD arbitral tribunal is competent to examine both substantive questions (whether the IMT assessment is legally correct) and procedural defects (such as lack of reasoning). The arbitration process provides an alternative to judicial courts for resolving tax disputes, with the tribunal being constituted by specialized arbitrators appointed by the Deontological Council. Taxpayers must follow proper procedural requirements, including timely filing and payment of arbitration fees.
What are the grounds for annulling an IMT additional tax assessment due to lack of legal reasoning (falta de fundamentação)?
An IMT assessment can be annulled for lack of legal reasoning (falta de fundamentação) when the tax authority fails to adequately explain the legal and factual grounds supporting the assessment. This constitutes a formal defect violating the taxpayer's constitutional rights to understand the basis for administrative decisions and to exercise effective defense. In Case 601/2014-T, the claimant alternatively requested annulment on this ground, though the tax authority argued it was unclear whether the defect related to the assessment act itself or the administrative appeal decision. Portuguese administrative law requires that tax assessments contain sufficient reasoning to allow taxpayers to understand why the tax is due and to properly challenge it. The tribunal must examine whether the reasoning provided meets minimum legal standards, even if the substantive tax claim might be correct.
How does the CAAD arbitral tribunal determine its jurisdiction over IMT disputes involving promise-to-purchase agreements?
The CAAD arbitral tribunal determines its jurisdiction over IMT disputes involving promise-to-purchase agreements by examining whether the matter falls within the scope of RJAT (Decree-Law 10/2011) and whether proper procedural requirements are met. In Case 601/2014-T, the tribunal confirmed jurisdiction based on: (1) the dispute involving an administrative tax act subject to arbitration under RJAT article 2(1)a); (2) the parties' legal capacity and legitimacy under RJAT articles 4 and 10(2); (3) the tribunal's proper constitution with qualified arbitrators appointed by the Deontological Council; and (4) absence of procedural nullities. The tribunal also examined whether it could review both substantive IMT law questions (when the taxable event occurs) and formal defects (lack of reasoning), confirming competence over both aspects. Jurisdictional challenges by either party are examined before proceeding to the merits.
Is a taxpayer entitled to compensatory interest (juros indemnizatórios) after annulment of an unlawful IMT assessment?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) after annulment of an unlawful IMT assessment. Under Portuguese tax procedure law (CPPT), when a tax assessment is declared illegal and annulled, the State must reimburse amounts wrongfully paid plus compensatory interest calculated from the date of payment until full reimbursement. In Case 601/2014-T, the claimant requested return of €904,800 with compensatory interest accrued from the date of wrongful payment until effective reimbursement. This remedy recognizes that taxpayers who paid unlawful taxes suffered financial prejudice by being deprived of those funds. The interest rate and calculation method are established by law, and entitlement arises automatically upon annulment of the tax assessment, without requiring separate proof of damages. This compensatory mechanism aims to restore taxpayers to the financial position they would have occupied absent the unlawful assessment.