Process: 606/2017-T

Date: May 25, 2018

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 606/2017-T) addresses whether the acquisition of real property destined for a tourist enterprise qualifies for IMT (Property Transfer Tax) and Stamp Tax exemptions under Portuguese tax law when acquired through financial leasing. The Claimant purchased two urban properties in Lisbon on December 21, 2016, for €4,367,448.32, subsequently entering into a financial leasing contract with the seller on December 23, 2016. The properties were intended for construction and installation of a 120-room hotel enterprise (C…), which received provisional tourist utility classification via State Secretary Order No. 14500/2016 dated November 21, 2016. Initially, the Tax Authority issued certificates confirming IMT exemption and an 80% Stamp Tax reduction under Decree-Law No. 423/83 of December 5. However, the Tax Authority later issued additional assessments totaling €289,998.56, arguing the exemptions were improperly granted. The central legal issue concerns whether tax benefits for tourist enterprise installation apply when: (1) acquisition occurs through financial leasing structure; (2) the enterprise is still under construction at the time of property transfer; and (3) provisional rather than final tourist utility classification exists. The Claimant argues the acquisition was clearly intended for and intrinsically connected to the tourist enterprise installation, meeting statutory requirements for exemption. The Tax Authority contends the exemption conditions were not fulfilled at the moment of acquisition. The tribunal must interpret the scope of Decree-Law 423/83 regarding timing requirements and whether financial leasing transactions qualify for tourist enterprise tax benefits.

Full Decision

ARBITRAL DECISION

The arbitrators Dr. Judge José Poças Falcão, Dr. Sérgio Santos Pereira and Dr. A. Sérgio de Matos, designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 06-02-2018, hereby agree as follows:

1. Report

A…, NIPC…, with registered office at …, no.…, parish …, …-… Porto, hereinafter referred to as the "Claimant/Applicant", has, in accordance with articles 1st, 2nd/1/a) and 10th of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters - RJAT), and article 99th of the CPPT applicable by virtue of article 10th/2/c) of the aforementioned diploma, submitted a request for constitution of an arbitral tribunal, in which the Tax and Customs Authority is the Respondent. The Claimant requests that the additional assessments for IMT and IS (Stamp Tax), notified by official letters Nos. … and …, both of 19-07-2017, from the Lisbon Finance Department…, in the total amount of € 289,998.56, relating to the acquisition on 21-12-2016 of the following urban properties, be declared null or annulled:

  • property registered under matricial article No. … of the parish of …, municipality of Lisbon, located at Avenue …, No.…, in Lisbon;

  • property registered under matricial article No. … of the parish of …, municipality of Lisbon, located at Avenue …, Nos. … and …, in Lisbon.

Consequently, it seeks to obtain reimbursement of the amounts unduly paid relating to said assessments, plus compensatory interest due, and further requests the extinction of any administrative violation proceedings underlying the annulled assessment acts, with all legal consequences.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 22-11-2017.

In accordance with article 6th, paragraph 2, letter a) and article 11th, paragraph 1, letter b) of RJAT, the Deontological Council designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable deadline.

On 16-01-2018, the parties were duly notified of this designation, and did not express the intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11th, paragraph 1, letters a) and b) of RJAT and articles 6th and 7th of the Deontological Code.

In accordance with the provision in article 11th, paragraph 1, letter c) of RJAT, the collective arbitral tribunal was constituted on 06-02-2018.

The Tax and Customs Authority responded, arguing against the merits of the arbitral ruling request.

By order of 19-03-2018, the meeting provided for in article 18th of RJAT was dispensed with, and it was decided that the proceedings continue with simultaneous written pleadings.

The parties submitted factual and legal arguments, maintaining and developing the legal positions previously adopted.

The parties possess legal personality and capacity, are properly entitled and duly represented (articles 4th and 10th, paragraph 2, of RJAT and article 1st of Ordinance No. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there is no obstacle to the consideration of the merits of the case.

No exceptions are raised and there is no obstacle to the consideration of the merits of the case.

Factual Matters

2.1. Proven Facts

The following facts are considered proven:

  1. On 21 December 2016, the Claimant acquired from the company B…, S.A., by means of a purchase and sale agreement, the following real properties:

    • a) property registered under matricial article No. … of parish …, municipality of Lisbon, located at Avenue …, No. …, in Lisbon;
    • b) property registered under matricial article No. … of parish …, municipality of Lisbon, located at Avenue …, Nos. … and … in Lisbon (article 8th of the request for arbitral ruling and Doc. 3, attached thereto, whose content is hereby reproduced, and article 5th of the Response);

  2. Said acquisition was made within the framework of the execution of a Real Estate Financial Leasing Contract signed on 23 December 2016 between the Claimant as Lessor and the company B… S.A., NIF…, as Lessee (article 9th of the request for arbitral ruling and Doc. 4, attached thereto, whose content is hereby reproduced, and article 5th, b), of the Response);

  3. The aforementioned real estate financial leasing contract has as its object the following real properties:

    • a) The urban property located at …, Nos. … and…, parish of …, municipality of Lisbon, described in the Real Estate Registry of Lisbon, under number … of said parish and registered in the urban real estate matrix under article … of the parish of …, to which was attributed the value of €1,551,185.32;
    • b) The urban property located at …, Nos. …, … and …, parish of …, municipality of Lisbon, described in the Real Estate Registry of Lisbon, under number … of said parish and registered in the urban real estate matrix under article … of the parish of …, to which was attributed the value of €2,816,263.00 (article 10th of the request for arbitral ruling and cited Doc. 4);

  4. It is an express presupposition of the financial leasing contract that said real properties will give rise to the construction and installation of a hotel enterprise with 120 rooms, a parking lot and an internal loading and unloading area to which, under the designation C…–…, was assigned the classification of tourist utility on a provisional basis, in accordance with Order No. 14500/2016 of the State Secretary for Tourism, dated 21-11-2016 and published in the Official Journal, 2nd Series, of 30 November 2016 (article 11th of the request for arbitral ruling, cited Doc. 4 and Doc. 5, attached thereto, whose content is hereby reproduced and article 5th, a), of the Response);

  5. The enterprise is still in the construction phase, so at the time of the acquisition of the properties by the Claimant and the execution of the financial leasing contract, it was clear and unequivocal that its installation had not only not been completed, but that said acquisition was intended for the installation of the Tourist Enterprise C… (article 12th of the request for arbitral ruling and cited Doc. 4);

  6. The installation of the enterprise intended for the provision of tourism services shall cease only when, after construction and licensing of the real estate complex, it demonstrates fitness to operate in accordance with the terms that allowed it to achieve the status of tourist utility, that is, when it demonstrates fitness to be allocated to the activity of tourism exploitation with the quality required in the Order of 21 November 2016, which granted provisional tourist utility to C…— … (article 13th of the request for arbitral ruling);

  7. No title, opening, or license for use for tourism purposes of said enterprise has been issued to date (article 14th of the request for arbitral ruling);

  8. The Claimant purchased the properties in question for the total price of €4,367,448.32 (article 15th of the request for arbitral ruling and cited Doc. 3);

  9. Prior to said acquisition, the Claimant submitted to the competent Finance Department declarations for assessment of IMT and IS, and it is certain that certificates were issued certifying that the transfer in question was exempt from IMT and benefited from an 80% reduction in IS, under Decree-Law No. 423/83 of 5 December (article 16th of the request for arbitral ruling and Administrative File);

  10. The Claimant was notified by official letters Nos. … and …, of 29/03/2017, sent by the Lisbon Finance Department -…, to make a statement, in the context of prior hearing, of decisions to reform the assessment acts for IMT and IS and consequently payment of the additional assessments of allegedly outstanding taxes (article 17th of the request for arbitral ruling, Doc. 6, attached thereto, Doc. 7, subsequently attached to the file, whose contents are hereby incorporated, and article 5th, f) of the Response);

  11. In the grounds serving as the basis for the decision and set forth in official letters … and …, the Tax and Customs Authority (TA) considers that the application of the tax benefit to the acquisition of the properties by the Claimant was improper, arguing, inter alia, as follows:

"From the provision of the aforementioned article 20th results the application of the benefit of exemption from IMT/Stamp Tax to acquisitions of properties or autonomous units intended for the installation of enterprises qualified as tourist utility, even if such qualification is attributed on a provisional basis, thus excluding its application to subsequent onerous transfers. The teleological hermeneutics of the same normative allows us to infer that the aforementioned legal diploma, by granting the benefit of exemption from IMT/Stamp Tax to onerous transfers of urban properties intended for the installation of enterprises qualified as tourist utility aims, solely, at promoting and improving the qualitative level of new tourism enterprises, making the fiscal benefits extensible to investments in enterprises that contemplate remodeling, improvement, re-equipment and increase of its capacity by 50%, in accordance with article 5th, paragraph 1 of Decree-Law No. 423/83 of 5 December ... when A…, S.A. acquired the property from the entity that benefited from IMT exemption due to tourist utility, could not benefit from the exemption insofar as the aforementioned diploma does not comprise exemption of tourist utility in the subsequent onerous transfer." (articles 18th, 19th and 21st of the request for arbitral ruling, cited Doc. 6 and PA fl. 55 et seq.);

  1. Portugal Tourism sent an email to the Finance Department of Lisbon …, on 24.02.2017, to which was attached the Service Information No. Int/2017/…/DVO/EMUT/GC, dated 22.02.2017, reporting the substitution of the property-owning entity of the property where the C…–… enterprise is located, from which communication it results that, on 27 December 2016, the company B… SA (previous property owner) agreed a financial leasing process with A…, under which the banking institution acquired the entire property and simultaneously executed a financial leasing contract with said entity, which maintained its obligation to install and operate the enterprise (article 20th of the request for arbitral ruling, cited Doc. 6, PA, fl. 20 et seq., and article 5th e) of the Response);

  2. On 21 April 2017, the Claimant submitted a statement, in the context of prior hearing (article 23rd of the request for arbitral ruling and PA, fl. 67 et seq.);

  3. On 24 July 2017, the Claimant was notified by official letters Nos. … and …, of 19 July 2017 referred to above, sent by the Lisbon Finance Department – …, of the decisions to reform the assessment acts for IMT and IS, as well as to proceed with payment of the consequent additional assessments now contested (articles 1st, 2nd and 24th of the request for arbitral ruling and cited Docs. 1 and 2);

  4. On 4 September 2017, the Claimant proceeded to pay the aforementioned taxes to the Tax and Customs Authority in the total amount of €289,998.56 (two hundred eighty-nine thousand, nine hundred ninety-eight euros and fifty-six cents) (article 25th of the request for arbitral ruling and Doc. 8, attached thereto, whose content is hereby incorporated);

  5. On 23.12.2016, a Financial Leasing Contract was executed between the Claimant and "B…, S.A." (cited Doc. 4) which contains, in particular, in the clause "1. Property Identification", the description of the same two properties referred to above, to which is added the following note:

"The properties described in the preceding paragraphs, hereinafter collectively designated as property, leased property or properties, as of this date acquired by the Lessor, shall be demolished to make way for the construction of a hotel enterprise with 120 rooms, a parking lot and an internal loading and unloading area to which, under the designation C…– …, was assigned the classification of tourist utility on a provisional basis, in accordance with Order No. 14500/2016 of the State Secretariat for Tourism, published in the Official Journal, 2nd Series, of 30 November 2016."

And clause "3. Financing Value" states:

"3.6 The acquisition of the properties described in clause one of the present specific conditions benefited from IMT exemption because it is intended for the construction of a tourism enterprise designated as 'C…-…', to which was attributed provisional tourist utility." (article 5th, c), of the Response);

  1. On 21.11.2016, by Order No. 14500/2016 of the State Secretary for Tourism, having regard to the applicable legal criteria and the opinion of the Vice-President of the Board of Directors of Portugal Tourism, I.P., provisional tourist utility was attributed, in accordance with the provision of article 2nd, paragraph 1, and article 7th, paragraph 2 of Decree-Law No. 423/83 of 5 December, to C..–…, with the projected category of 3 stars, to be installed in Lisbon, in light of the request by the company B…, S.A., for the period of 22 months, counted from the date of publication of the order in the Official Journal – D.R., 2nd S., No. 230, of 30.11.2016 (cited Doc. 5 and article 5th d) of the Response);

  2. On 14.07.2017, an order was issued by the Head of the Lisbon Finance Department …, in agreement with the grounds of the Information of 14.07.2014, which is hereby fully reproduced, of the procedure to reform the assessment acts for IMT and Stamp Tax Item 1.1, registration Nos. …/2016, in accordance with article 79th, paragraph 1 of the Tax Code relating to the acquisition of the properties registered under articles … and …th of the real estate matrix of the parish … (article 5th, g) and h), of the Response and PA, fl. 104 et seq);

  3. The tax was paid in voluntary payment on 04.09.2017 (article 5th, i), of the Response).

2.2. Unproven Facts

There are no facts material to the decision of the case that have not been proven.

2.3. Grounds for Establishing the Factual Matter

The facts were established as proven based on the documents attached to the request for arbitral ruling and to the response from the Tax and Customs Authority.

3. Legal Matters

3.1. Positions of the Parties

B…, S.A. obtained the attribution of provisional tourist utility for "C…–…" (in accordance with Order No. 14500/2016 of the State Secretary for Tourism, dated 21-11-2016), an enterprise which it intended to build on its own properties.

The requesting company (A…, S.A.) acquired the aforementioned properties from B…, S.A. with the presupposition, expressly stated in the financial leasing contract, that such real properties will give rise to the construction and installation of a hotel enterprise with 120 rooms, a parking lot and an internal loading and unloading area to which, under the designation C…–…, provisional tourist utility classification was assigned.

The Tax and Customs Authority takes the position that, given that B…, S.A. was the one who requested the attribution of tourist utility for "C…– …" and who promoted the construction and installation of the hotel enterprise, the Claimant cannot benefit from the objective exemption contained in article 20th, paragraph 1 of Decree-Law No. 423/83 of 5 December, which establishes the following:

Article 20th

1 - Acquisitions of properties or autonomous units intended for the installation of enterprises qualified as tourist utility are exempt from succession tax (sisa) and Gift Tax, with stamp tax reduced to one-fifth, even if such qualification is attributed on a provisional basis, provided that such qualification remains valid and the deadline set for opening the enterprise to the public is observed.

2 - The exemption and reduction established in the preceding number shall also apply to the transfer in favor of the operating company, in the case where the owner is a financial leasing company and the transfer operates under and in accordance with the financial leasing contract that determined the acquisition of the enterprise by the transferring company.

The Claimant argues, in summary, as follows:

– contrary to what the TA seems to suggest, it is not true that we are dealing with transfers of properties that were subsequent to the installation of the enterprise, since it is still in its construction phase and its operation has not yet begun;

– the acquisition of the properties by the Claimant had precisely the objective of enabling the operating company to obtain the financial means necessary to complete the project, whereby the transaction under analysis proves necessary and essential for the installation of the enterprise, being unequivocally covered by the tourist utility regime;

– this fact is evidenced by the provision in the financial leasing contract executed by the Claimant and the company B…, which establishes, in its point 12, under the heading "Use of the Leased Property", the following:

"The property subject to this contract shall be allocated to hotel activity as provided for in order No. 14500/2016, of the State Secretariat for Tourism…";

– the argument used by the TA to conclude that, given that the property already benefited from an exemption in its acquisition by B… S.A., its purchase by the Claimant could not benefit from the exemption, has no legal foundation and is based on a mere extrapolation of the provisions of Decree-Law No. 423/83 of 5 December: first, because the legal-tax framework to be conferred on the operation of acquisition of the properties by the Claimant should be determined solely and exclusively based on the facts directly connected with this operation and not with any other carried out upstream or downstream; second, because indeed there is no provision in Decree-Law No. 423/83 of 5 December that forbids the application of the benefit of exemption from IMT and reduction of IS to multiple transactions carried out on the same property;

– the application of the aforementioned exemption has as its sole condition that the transacted properties be intended for the installation of properly qualified tourism enterprises, even on a provisional basis, making no reference to the capacity in which the acquiring entity intervenes in the installation process;

– we are dealing with an exemption that aims solely at promoting the creation and installation of new tourism enterprises, with the legislator recognizing the strategic importance of the tourism sector for the country's economic development, and it is in this context that its scope of application should be analyzed;

– there is no doubt that the acquisition, within the framework of a financial leasing operation, of a property to which tourist utility has been recognized, may benefit from the IMT exemption provided that the enterprise is still in the installation phase and the operation aims to enable the completion of said installation process;

– the Tax Administration violated the Claimant's legitimate expectations and previously established guarantees, and the principles of trust and legal certainty inherent to the rule of law, in addition to violating the principles of tax legality, prohibition of retroactivity of tax law, and certainty and legal security provided for, inter alia, in articles 12th of the Tax Code, 12th of the Civil Code and 103rd, paragraph 3 of the Constitution.

  • the interpretation of the Tax Administration applied to a past tax fact constitutes a violation of the principle of protection of trust, in the aspect of legal certainty;

  • there is clearly an error of law on the part of the Tax Authority, in that, on the one hand, it induced the Claimant into error when it granted the exemption from payment of IMT and IS prior to the acquisition of the properties in question and, on the other hand, it proceeded with additional assessments of IMT and IS when the law granted fiscal benefits to the Claimant, thereby improperly obliging the latter to pay said amounts;

  • moreover, the Tax Authority does not base its draft decision and respective final decision on the existence of an understanding reflected in generic guidance, in doctrine or case law, with a clear lack of grounds;

  • the IMT assessment in question should be annulled due to failure to comply with legal formality, violation of the principles of cooperation and good faith as referred to above (see article 59th of the Tax Code, and article 99th/d of the Code of Tax Procedure and Process and paragraph 2 of article 266th of the Constitution).

The Tax and Customs Authority argues, in summary, as follows:

– the exemption from succession tax (sisa) (IMT) and reduction to 1/5 of the Stamp Tax provided for in article 20th, paragraph 1 of Decree-Law 423/83 of 5 December constitutes a fiscal incentive aimed at promoting tourism activity, benefiting investment in tourism enterprises to which tourist utility will be recognized, whether they are new or existing, but are subject to remodeling, improvement or re-equipment, or that increase their capacity, in accordance with article 5th of the same diploma;

– it is in this context that article 20th, paragraph 2 states that the exemption and reduction established in the preceding paragraph shall also apply to the transfer in favor of the operating company, in the case where the owner is a financial leasing company and the transfer operates under and in accordance with the financial leasing contract that determined the acquisition of the enterprise by the transferring company;

– the Financial Leasing Contract expressly provides that the properties acquired by the Claimant shall be demolished to make way for the construction of a hotel enterprise designated as C…, whose installation continues to be the responsibility of the lessee, the company "B…, S.A";

– there can be no doubt whatsoever, either from the facts proven by the documents brought to the Administrative File (PA), or from the Order of the State Secretary for Tourism of 21.11.2016, that Provisional Tourist Utility was attributed to the enterprise "C…—…", at the request submitted by B… S.A., this being the promoting company and having the responsibility to install the tourism enterprise;

– the acquisition underlying the IMT and IS assessments contested in this proceeding, on 21.12.2016, is a second acquisition carried out by A…, S.A. from B… S.A.;

– so much so that B… already benefited from the IMT exemption and Stamp Tax reduction provided for in article 20th, paragraph 1 of Decree-Law 423/83, as is referred to in the Information that is part of the PA;

– this is not a transfer in favor of the operating company, where the owner is a financial leasing company and the transfer operates under and in accordance with the financial leasing contract referred to in article 20th, paragraph 2 of Decree-Law 423/83;

– it is evident from the terms of the financial leasing contract executed between the Claimant and B… S.A. (and facts set forth in point 5, letters a) to d) of the Response), that the acquisition by the Claimant is intended only to finance B… S.A., which, as lessee, continues to have the obligation to build/install the enterprise;

  • as for the concept of Installation, see the Decision of the Superior Administrative Court (STA) No. 3/2013, proceeding No. 968/12 – 2nd Section, which unifies case law as follows: "The concept of 'installation' for purposes of the benefits referred to in article 20th, paragraph 1 of Decree-Law No. 423/83 of 5 December, refers to the acquisition of properties (or autonomous units) for construction of tourism enterprises, after the respective urban development operations have been duly licensed, aimed at benefiting companies engaged in the activity of promotion/creation of the same and not acquirers of autonomous units in enterprises built/installed under shared property regime, since this has to do with 'exploitation' and not with 'installation'." ;

  • installation emerges as a procedure that includes the legal acts and procedures aimed at licensing (in a broad sense, including prior notifications or authorizations, as appropriate) 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 be operated for tourism purposes, and cannot include in the concept of installation the mere acquisition of an enterprise by a banking entity, whose business purpose is not promoting tourism enterprises;

  • the intention of the legislator in Decree-Law 423/83 of 5.12 was to grant the benefit of IMT exemption to the onerous transfer of urban property that was acquired either for the installation of a new tourism enterprise or for the performance of complete or partial remodeling, improvement or re-equipment works (previously submitted for approval by Portugal Tourism, I.P.), of an existing tourism enterprise;

  • fiscal benefits should only be recognized for onerous acquisitions intended for the installation and opening to the public of new enterprises and in the cases provided for in letters b) and c) of article 5th, paragraph 1 of Decree-Law No. 423/83, by the holder named in the order of qualification of tourist utility published in the Official Journal, in accordance with article 7th, paragraph 2 of Decree-Law 423/83;

  • the acquisition of the Claimant does not fit within the letter of article 20th, paragraph 1 of Decree-Law 423/83, nor within the teleology of the rule, to be able to benefit from the IMT exemption and IS;

  • it appears to be completely devoid of any foundation the alleged violation of the Claimant's legitimate expectations and previously established guarantees and of the principles of trust and good faith, insofar as the assessments in question were issued within the period of expiration, are based on the interpretation of the law applicable to the established facts, the tax administration being bound by the principle of legality, cannot fail to assess and collect the taxes due;

  • thus, in light of all of the above, it can never be considered, barring better judgment, that there has been error attributable to the services in the issuance of the assessments in question, an essential condition for condemnation to payment of compensatory interest, in accordance with article 43rd, paragraph 1 of the Tax Code.

3.2. Consideration of the Question

In the Decision rendered in the arbitral proceeding No. 17/2016 T, on 05-07-2016, in a case entirely identical to the one being discussed in the present proceeding, the question at issue, which boils down to determining whether, as of the date of acquisition by the Claimant (21.12.2016) of the properties alienated by B… S.A., could benefit, or not, from the exemption provided for in article 20th of Decree-Law No. 423/83 of 05-12, was considered and decided as follows:

"The Claimant argues, first of all, that its situation falls within the literal wording of article 20th, paragraph 1, of Decree-Law No. 423/83 of 5 December, and that it is not relevant whether the acquirer of the property is or is not the real estate developer, but only whether the acquisition is or is not part of the process of installation of the tourism enterprise.

Indeed, article 20th, paragraph 1, of Decree-Law No. 423/83 of 5 December, grants the exemption to 'acquisitions of properties or autonomous units intended for the installation of enterprises qualified as tourist utility', so it is an exemption of an objective nature, which does not depend on the nature of the acquiring entity.

The case law of the uniformizing decision No. 3/2013, of 23-01-2013, published in the Official Journal, I Series, of 04-03-2013, cited by the Tax and Customs Authority, does not also rule out the application of the exemption.

In fact, it states there that the concept of installation refers 'to the acquisition of properties (or autonomous units) for construction of tourism enterprises, after the respective urban development operations have been duly licensed, aimed at benefiting companies engaged in the activity of promotion/creation of the same and not acquirers of autonomous units in enterprises built/installed under shared property regime, since this has to do with 'exploitation' and not with 'installation'.'

In fact, the B… - … does not fall within the situation referred to in that decision as not being covered by the exemption, because it is not an acquirer of a property in which a tourism enterprise already existed or was already installed, nor did it aim to proceed with its operation, but rather to enable the promoting company of the enterprise to have the financial means available to implement it.

On the other hand, the acquisition took place on 29-11-2007, after the respective urban development operations were duly licensed through the permit of 14-11-2007, so the situation of the Claimant, regarding this point, satisfies the requirement that in that uniformizing decision is made that the acquisition be made 'after the respective urban development operations have been duly licensed'.

Thus, no factual basis is seen for the Tax and Customs Authority to rule out the exemption on the ground of the case law of the aforementioned uniformizing decision, which pronounced on the non-application to those who acquire properties with tourism enterprises already installed, with the purpose of proceeding with their operation.

On the other hand, if it is true that the exemption aims to benefit companies engaged in the activity of promotion and creation of tourism enterprises, it is also true that the B… - …, through the acquisition followed by leasing, participated in this activity of promotion and creation, through financing by way of leasing, an activity that only ended after the acquisition, on 09-03-2009, when the permit of use was issued.

Article 20th, paragraph 2 of Decree-Law No. 423/83, in establishing that 'the exemption and reduction established in the preceding number shall also apply to the transfer in favor of the operating company, in the case where the owner is a financial leasing company and the transfer operates under and in accordance with the financial leasing contract that determined the acquisition of the enterprise by the transferring company', inculcates the interpretation that the financial leasing company that acquired the property intended for the enterprise benefits from the aforementioned exemption, this being the explanation for the inclusion of the word 'also' which presupposes that, in the situation described, there is a second exemption relating to the same tourism enterprise.

Indeed, it is this interpretation – i.e., that both the transfer to the company that acquires the property intended for a tourism enterprise within the framework of a financial leasing contract, and the subsequent transfer to whoever promoted it and will operate it are exempt from IMT – that is compatible with the objective of encouraging the creation of tourism enterprises of tourist utility, which would cease to exist if any of these transfers were burdened with taxation. Likewise, it can be said that no element – literal or systematic – of articles 1 and 2 of article 20th of Decree-Law No. 423/83 of 5 December allows the conclusion that an operation such as the one at issue (sale lease back) – and, furthermore, any assignment/transfer similar to that without the enterprise or hotel being already installed at the date of assignment/transfer – cannot benefit from the respective benefit, quite the opposite as we have seen. Indeed, it cannot be doubted that if the financial leasing company that acquires a property to transfer it to the company that promoted and will operate the tourism enterprise has to bear IMT, this charge will be passed on to that company.

Therefore, both the letter of the law and its rationale lead to the conclusion that the exemption from IMT applies to the acquisition carried out by B… - ….

Consequently, the impugned assessment suffers from the defect of violation of law, due to error regarding the legal presuppositions, which justifies its annulment [article 163rd, paragraph 1, of the Code of Administrative Procedure of 2015, subsidiarily applicable by virtue of the provision in article 2nd, letter c), of the Tax Code]."

Now, also in the case at hand, A… through an operation designated in common parlance as "sale and lease back" (acquisition followed by leasing/transfer) provided the company B… with the necessary financial means for the acquisition of properties intended for the installation of an enterprise previously qualified as tourist utility, in this case designated "C…–…", even before it was completed or installed, whereby, by that route, it is inescapable to state that the Claimant also participated in promoting or encouraging the activity of promotion, creation and installation of a tourism enterprise – the aim of the provisions of Decree-Law No. 423/83 cited above.

Indeed, it is unquestionable that the acquisition by the Claimant of those properties is consistent with the provision of the aforementioned Decree-Law, in particular with article 20th, paragraph 1, given that the acquisition is intended for the installation of enterprises qualified as tourist utility.

In fact, the TA questions only the possibility of enjoyment of these benefits in the sphere of the Claimant, and not the transfers that occurred previously, in a possible logic of "cascading" benefit, whose economic and fiscal rationale could be subject to discussion were it not for the fact that we are dealing with an objective exemption.

As such, seeing no valid reason to diverge from the reasoning set out in the aforementioned Decision and partially transcribed – grounds that are hereby adopted and incorporated – it remains to state that the operation carried out by the Claimant is perfectly consistent with the provision in articles 1 and 2 of article 20th of 5 December, and to conclude that the impugned assessments suffer from the defect of violation of law, due to error regarding the legal presuppositions, which justifies their annulment, in accordance with the provision in article 163rd, paragraph 1, of the Code of Administrative Procedure of 2015, subsidiarily applicable by virtue of the provision in article 2nd, letter c), of the Tax Code.

4. Compensatory Interest

The Claimant also requests that reimbursement of the amount paid be ordered plus compensatory interest calculated from the date of payment of the tax until the date of reimbursement.

In accordance with the provision in letter b) of article 24th of RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or contestation binds the tax administration from the end of the period set for appeal or contestation, the latter being obliged, in the exact terms of the favorable arbitral decision to the taxpayer and until the end of the period set for voluntary execution of judgments of tax courts, to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose", which is consistent with the provision in article 100th of the Tax Code [applicable by virtue of the provision in letter a) of paragraph 1 of article 29th of RJAT] which establishes that "the tax administration is obliged, in case of full or partial grounding of a claim, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision".

Although article 2nd, paragraph 1, letters a) and b), of RJAT uses the expression "declaration of illegality" to define the jurisdiction of the arbitral courts operating in CAAD, making no reference to condemnatory decisions, it should be understood that the powers attributed in judicial impugnation proceedings to tax courts are included in its jurisdiction, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as first guideline, that "the tax arbitration process should constitute an alternative procedural means to the judicial impugnation process and to the action for recognition of a right or legitimate interest in tax matters" (article 124th, paragraph 2, of Law 3-B/2010, of 28-04, State Budget for 2010).

The judicial impugnation process, although it is essentially a process for annulment of tax acts, admits condemnation of the Tax Administration to payment of compensatory interest, as follows from article 43rd, paragraph 1, of the Tax Code, in which it is established that "compensatory interest is due when it is determined, in a gracious claim or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding the legally due" and article 61st, paragraph 4 of the Code of Tax Procedure and Process (in the wording given by Law No. 55-A/2010, of 31 December, which corresponds to paragraph 2 in the original wording), that "if the decision that recognized the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period for its voluntary execution".

Thus, paragraph 5 of article 24th of RJAT in stating that "payment of interest, regardless of its nature, is due, in accordance with the terms provided in the Tax Code and in the Code of Tax Procedure and Process" should be understood as allowing recognition of the right to compensatory interest in the arbitration process.

It is therefore incumbent to consider the request for reimbursement of the amount unduly paid, plus compensatory interest.

In the case at hand, it is manifest that, as a consequence of the illegality of the assessment acts, there is grounds for reimbursement of the tax paid, by force of the aforementioned articles 24th, paragraph 1, letter b), of RJAT and 100th of the Tax Code, as this is essential to "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out".

As regards compensatory interest, it is also clear that, as a consequence of the declaration of illegality of the assessment, there is grounds for payment of compensatory interest, as that illegality is attributable to the Tax Administration, which, on its own initiative, carried out the assessment.

Consequently, the Claimant has the right to compensatory interest, in accordance with article 43rd, paragraph 1, of the Tax Code and article 61st of the Code of Tax Procedure and Process, calculated on the amount it paid unduly, at the rate of legal interest provided for in article 559th of the Civil Code and, currently, in Ordinance No. 291/2003, of 8 April (articles 43rd, paragraph 4, and 35th, paragraph 10, of the Tax Code), from the date on which it made the payment, 19-10-2015, until reimbursement of the amount paid.

5. Extinction of Administrative Violation Proceedings

The Claimant further requests that any administrative violation proceedings underlying the annulled assessment acts be ordered to be extinguished.

However, this request clearly exceeds the jurisdiction of this arbitral tribunal, in light of the provision in article 2nd of the Legal Framework for Arbitration in Tax Matters (RJAT), whereby it cannot be considered.

6. Decision

In accordance with the foregoing, this Arbitral Tribunal hereby agrees:

In these terms, this Arbitral Tribunal agrees to:

  • Rule the request for arbitral ruling as well-founded;

  • Annul the assessments for IMT and IS relating to the acquisition of urban properties registered in the real estate matrix of the parish …, municipality of Lisbon, under articles … and …, notified by official letters Nos. … and …, both of 19 July 2017, in the amounts of €168,975.78 (IMT), €18,024.08 (IS), €93,071.12 (IMT) and €9,927.58 (IS), respectively, on the grounds of their illegality due to violation of law;

  • Condemn the Tax and Customs Authority to reimburse the Claimant the amount of €289,998.56, plus compensatory interest, at the rate of legal interest provided for in article 559th of the Civil Code and, currently, in Ordinance No. 291/2003, of 8 April (articles 43rd, paragraph 4, and 35th, paragraph 10, of the Tax Code), from 04-09-2017, until reimbursement of the amount paid.

7. Case Value

In accordance with the provision in articles 306th, paragraph 2, of the Code of Civil Procedure, 97th-A, paragraph 1, letter a), of the Code of Tax Procedure and Process, 12th, paragraph 2, of RJAT, 3rd, paragraph 2, and 4th, paragraph 5, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is set at €289,998.56.

8. Costs

In accordance with article 22nd, paragraph 4, of RJAT, the amount of costs is set at €5,202.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Respondent.

Lisbon, 25-05-2018

The Arbitrators

(José Poças Falcão)

(Sérgio Santos Pereira)

(A. Sérgio de Matos)

Frequently Asked Questions

Automatically Created

Is the acquisition of property for tourist development through financial leasing exempt from IMT and Stamp Tax in Portugal?
Yes, under certain conditions. Portuguese tax law provides IMT exemption and Stamp Tax reduction for property acquisitions destined for tourist enterprise installation under Decree-Law 423/83. When property is acquired through financial leasing (locação financeira) and is demonstrably intended for installing a tourist enterprise with provisional or definitive tourist utility classification, the exemption may apply. The key requirement is that the acquisition must be intrinsically connected to the enterprise installation, even if construction has not been completed. The financial leasing structure itself does not automatically disqualify the transaction from exemption, provided the economic substance demonstrates the property's allocation to tourism exploitation activities and the enterprise has obtained the necessary administrative classification from tourism authorities.
What are the requirements for IMT/IS tax exemption when installing a tourist enterprise under Portuguese tax law?
Portuguese tax law requires several conditions for IMT and Stamp Tax exemption when installing a tourist enterprise: (1) the property must be acquired specifically for installing a tourist enterprise; (2) the enterprise must obtain tourist utility classification, either provisional or definitive, from the competent tourism authority (State Secretary for Tourism); (3) there must be clear intention and documentary evidence that the property will be allocated to tourism exploitation activities; (4) the acquisition must occur within the framework of the enterprise installation project. Importantly, the exemption may apply even before construction completion or final licensing, as installation is an ongoing process that begins with property acquisition and continues through construction, licensing, and operational readiness. The temporal requirement focuses on the intended use rather than completed installation at the moment of acquisition.
Can additional IMT and Stamp Tax assessments be annulled through CAAD arbitration proceedings?
Yes, taxpayers can challenge additional IMT and Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings. Under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011), taxpayers have the right to request constitution of an arbitral tribunal to declare null or annul tax assessments, including IMT and Stamp Tax liquidations. If the arbitral tribunal determines the additional assessments were improperly issued, it can annul them and order reimbursement of amounts unduly paid, plus compensatory interest (juros compensatórios). Additionally, the tribunal can order extinction of any related administrative violation proceedings. CAAD provides an alternative dispute resolution mechanism to traditional administrative and judicial appeals, offering taxpayers specialized tax law expertise and typically faster resolution than conventional court proceedings.
How does Portuguese tax law treat financial leasing (locação financeira) in the context of real estate transfer taxes?
Portuguese tax law treats financial leasing (locação financeira) in real estate transactions as a legitimate acquisition structure that can qualify for transfer tax benefits when specific conditions are met. For IMT and Stamp Tax purposes, the acquisition by the lessor (typically a financial institution) followed by immediate leasing to the lessee does not automatically disqualify exemptions or reductions applicable to tourist enterprise installation. Tax authorities must analyze the economic substance and intended use of the property rather than merely the legal form of the transaction. When the financial leasing contract explicitly establishes that the property will be used for a specific purpose (such as tourist enterprise installation) and this is supported by administrative acts (like provisional tourist utility classification), the exemption regime can apply to the lessor's acquisition. The critical factor is demonstrating that the acquisition serves the exempt purpose, regardless of the financing mechanism employed.
Are taxpayers entitled to a refund with compensatory interest when IMT and Stamp Tax liquidations are annulled by CAAD?
Yes, under Portuguese tax law, when IMT and Stamp Tax liquidations are annulled by CAAD arbitral tribunals, taxpayers are entitled to full reimbursement of amounts paid plus compensatory interest (juros compensatórios). Compensatory interest compensates taxpayers for the financial loss resulting from having funds unavailable due to improper tax collection. The interest accrues from the date of payment until reimbursement, calculated according to statutory rates established in Portuguese tax legislation. This right derives from the general principle that the State must restore taxpayers to their original financial position when tax assessments are determined to be unlawful or improperly issued. The arbitral decision ordering annulment automatically triggers the reimbursement obligation, including both principal amounts and compensatory interest, ensuring taxpayers receive complete financial remedy for wrongful tax collection by authorities.