Process: 627/2018-T

Date: August 26, 2019

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Arbitral Decision 627/2018-T (dated August 26, 2019), the CAAD examined whether a property developer legitimately benefited from an IMT exemption under Article 7 of the IMT Code for properties acquired for resale. The claimant, A... S.A., a company engaged in tourism accommodation and real estate promotion, purchased an urban property in December 2015 for €1,828,516.80 with IMT exemption intended for resale. The property was originally a single-family dwelling without independent units. However, following extensive reconstruction works authorized by municipal permit, the property was converted into horizontal ownership comprising three autonomous residential units (apartments A, B, and C), significantly increasing both the land area (from 250m² to 282.88m²) and gross construction area (from 625m² to 926.66m²). The new configuration resulted in a combined Tax Property Value of €2,507,960.00. In August 2018, the Tax Authority liquidated IMT in arrears totaling €121,565.93 (€109,711.12 in tax plus €11,854.81 in compensatory interest calculated at 4% annually from the acquisition date), arguing that the substantial transformation constituted giving the property a different destination than resale, thereby revoking the exemption under Article 11(5) of the IMT Code. The claimant contested this assessment before CAAD, maintaining that merely placing properties for sale does not constitute a different destination. This case addresses the critical interpretation of what constitutes 'different destination' under Portuguese IMT law and the conditions under which resale exemptions may be revoked by tax authorities.

Full Decision

ARBITRAL TAX DECISION

Process No. 627/2018-T

Decision Date: 2019-08-26

IMT

Value of Claim: € 121,565.93

Subject Matter: IMT – Exemption – Different Destination

I – REPORT

  1. On 10 December 2018, A..., S.A., Tax Identification Number ..., with registered office at ..., No. ..., ...-... Lisbon, filed a petition for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Tax Arbitration, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as LRTA), seeking the declaration of illegality of the tax assessment act for Municipal Tax on Onerous Transfers of Real Property ("IMT") identified by document No. ..., dated 12 September 2018 and in the total amount of € 121,565.93, of which € 109,711.12 relates to tax and € 11,854.81 to compensatory interest.

  2. To support its petition, the Claimant alleges, in summary, that the disputed tax act is illegal by violation of Article 11(5) of the IMT Code, inasmuch as the property acquired for resale with IMT exemption was not given a different destination by it.

  3. On 11-12-2018, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

  4. The Claimant did not proceed to appoint an arbitrator, wherefore, under Article 6(2)(a) and Article 11(1)(a) of the LRTA, the President of the CAAD Ethics Council designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable time period.

  5. On 04-02-2019, the parties were notified of these designations and did not express any intention to refuse any of them.

  6. In compliance with Article 11(1)(c) of the LRTA, the collective Arbitral Tribunal was constituted on 25-02-2019.

  7. On 29-03-2019, the Respondent, duly notified for that purpose, submitted its defence by way of objection.

  8. Under Articles 16(c) and (e) and Article 29(2), both of the LRTA, the holding of the meeting referred to in Article 18 of the LRTA was dispensed with.

  9. Upon being granted a time period for the submission of written pleadings, these were submitted by the parties, pronouncing themselves on the evidence produced and reiterating and developing their respective legal positions.

  10. The Claimant was afforded the right of reply regarding documentation attached by the Respondent, with its pleadings.

  11. It was indicated that the final decision would be notified by the deadline provided in Article 21(1) of the LRTA.

  12. The Arbitral Tribunal is materially competent and is regularly constituted, under Articles 2(1)(a), 5, and 6(2)(a) of the LRTA.

The parties have legal personality and capacity, are entitled to sue and be sued, and are legally represented, under Articles 4 and 10 of the LRTA and Article 1 of Administrative Order No. 112-A/2011, of 22 March.

The proceedings do not suffer from any defects.

Accordingly, there is no obstacle to the adjudication of the case.

Everything considered, it is necessary to pronounce:

II. DECISION

A. MATTER OF FACT

A.1. Facts Established as Proven

  1. The Claimant is registered with the Classification of Economic Activities Code 55201 – "furnished accommodation for tourists"; and for the exercise of secondary activities, with CAE codes 55111, 55121 and 41100 – hotels with and without restaurant, and real estate promotion.

  2. By public deed of 30-12-2015, the Claimant acquired, from B..., for the price of €1,828,516.80, the urban property registered in the urban real property register under Article ... of the Union of Parishes of ... and ... .

  3. By virtue of this transaction, it became exempt from payment of IMT, under Article 7 of the IMT Code.

  4. According to the acquisition deed, the property in question, registered in the real property register on a date prior to ... under Article ... of the parish of ..., was composed of a basement, ground floor, first floor and attic.

  5. In the real property register, at that date, the property was described as a property in full ownership, comprising three floors, without divisions capable of independent use, composed of a basement with six rooms, a ground floor with six rooms, a first floor with four rooms, an attic with six rooms in partition and also a dependency with four rooms, occupying a gross private area of 625.0000 m² and a land area of 250.0000 m².

  6. B... submitted a project for construction works to the Municipal Council of ..., and the building alteration permit was issued on 14-09-2015.

  7. This same permit authorized the creation of three autonomous units on three floors of the property and modifications to the land area of the building (from 250 m² to 282.88 m²) and the gross construction area (from 625 m² to 926.66 m²).

  8. This permit was subsequently noted to extend the deadline for completion of works – initially, of eleven months – by a further six months.

  9. On 15-11-2017, the Claimant completed and submitted IMI Declaration form 1, indicating as the reason for such submission the fact that it was a property improved/modified/reconstructed.

  10. Following submission of that declaration, the previous register article was deactivated, and the property was assigned the provisional article ... .

  11. The property was appraised, with the appraisal record showing that it was subject to total reconstruction.

  12. In the new real property register, the property in question was described as property held in horizontal ownership, comprising four floors, in which unit A occupies the ground floor and 1st floor and has a total of eight rooms; unit B occupies the 2nd floor and has five rooms; and unit C, on the 3rd floor, has five rooms and two parking spaces in the garage.

  13. The property as a whole came to occupy a gross private area of 926.6600 m² and a land area of 282.8800 m².

  14. The three autonomous units created were assigned a Tax Property Value of €1,082,150.00, €725,790.00 and €700,020.00, in a total of € 2,507,960.00.

  15. The Claimant placed the three units that make up the property on the market for sale.

  16. On 10-08-2018 the Claimant was notified to pay the IMT in arrears due to lapse of the exemption it had benefited from when acquiring the property in question.

  17. In the context of that same notification, there was attached Information that served as the basis for the order issued by the Head of Finances of the Finance Service of Lisbon ..., which contains the following:

"(...) 2nd – The tax subject acquires a property in full ownership without floors or divisions capable of independent use (single-family dwelling) whose land area was 250.00 m² and gross construction area of 625.00 m²;

3rd – On 2017-11-15 IMI form 1 was submitted, record in ... for registration of property improved/modified/reconstructed, the property moving to the horizontal ownership regime, composed of units A, B and C (Apartments), in which the gross areas were substantially increased, the land area moving to 282.88 m² and gross construction area to 926.66 m²; (...)"

  1. The IMT assessment in the amount of € 109,711.12 was issued and paid on 12 September 2018.

  2. Together with the IMT, compensatory interest in the amount of € 11,854.81 was assessed and paid by the Claimant, calculated by applying the rate of 4% per annum to the amount of tax from 30 December 2015 (the date of acquisition of the property that constitutes the taxable event) until the date of assessment.

A.2. Facts Established as Not Proven

Relevant to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning for the Proven and Not Proven Matter of Fact

With respect to the matter of fact, the Tribunal need not pronounce on everything alleged by the parties; rather, it is its duty to select the facts that are relevant to the decision and distinguish between proven and not proven matters (see Article 123(2) of the TCPT and Article 607(3) of the CPC, applicable by virtue of Article 29(1)(a) and (e) of the LRTA).

In this way, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (see former Article 511(1) of the CPC, corresponding to current Article 596, applicable by virtue of Article 29(1)(e) of the LRTA).

Accordingly, having regard to the positions taken by the parties, in light of Article 110(7) of the TCPT, the documentary evidence and the case file attached to the proceedings, the facts listed above were considered proven as relevant to the decision.

Allegations made by the parties and presented as facts, consisting of strictly conclusive assertions incapable of proof and whose veracity must be assessed in relation to the concrete matter of fact consolidated above, were not established as proven or not proven.

B. ON THE LAW

Having the Claimant proceeded to acquire the property described in the matter of fact, with the intention of resale, and such acquisition having benefited from IMT exemption, under Article 7 of the IMT Code, as agreed by the parties in the present arbitration proceedings, the question to be decided consists in determining the meaning of the expression "different destination", contained in Article 11(5) of the IMT Code, and its application to the present case.

The wording of the rule referred to is as follows:

"The acquisition referred to in Article 7 shall cease to benefit from exemption as soon as it is verified that the properties acquired for resale have been given a different destination or that they have not been resold within a period of three years or were resold again for resale."

A similar question was the subject of examination in the Court of Final Instance Decision of 17-09-2014, issued in case No. 01626/13, cited by both parties, both the Claimant and the Respondent understanding that this decision supports their respective positions.

Let us then examine this.

The aforementioned Decision understood, in summary, that "For purposes of lapse of the exemption for municipal tax on onerous transfers of real property (IMT) that results from the combined provisions of Articles 7 and 11(5) of the IMT Code (exemption for acquisition of properties for resale), it does not matter whether the property acquired is or is not resold in the precise state in which it was acquired; what matters is that there is no metamorphosis or substantial alteration of the property that was acquired for resale."

The disagreement sub judice is based on determining whether in the case sub judice there was "a metamorphosis or substantial alteration of the property that was acquired for resale", the Claimant understanding that there was not, and the Respondent understanding that there was.

The understanding of what constitutes "a metamorphosis or substantial alteration of the property that was acquired for resale" should, in the first instance, be sought in the reasoning of the decision in question.

Upon examination thereof, it is verified that the Court of Final Instance understood that the question examined therein consisted in determining whether "in cases where the acquired property consists of land with a residential building already under construction or remodeling (whether in rough state or in an advanced phase of construction/remodeling) the expression for resale requires that the property be disposed of as it existed at the time of acquisition, thus excluding the possibility of carrying out a multiplicity of works indispensable to the completion of the building (with the exception of works of a light nature, that is, of mere repair and/or conservation) or does it allow the possibility of carrying out all works necessary to complete its construction, so as to finish it, license it for said destination, constitute horizontal ownership and dispose of the respective autonomous units."

As can be seen, the aforementioned decision expressly pronounced itself on situations involving land with a residential building undergoing remodeling (whether in rough state or in an advanced phase of construction/remodeling), clarifying further that the case decided by the Court of Final Instance concerned a situation in which "the property consisted of land where a building intended for residential use was already implanted, properly licensed and in an advanced phase of construction/remodeling".

Upon examination of the matter of fact proven in the present arbitration proceedings, it is verified that the situation in the proceedings does not directly fall within the situation examined in the decision in question, since in the case sub judice land with a residential building is involved that, at the time of acquisition, was not yet undergoing remodeling (whether in rough state or in an advanced phase of construction/remodeling), but rather the remodeling works had only been properly licensed at the time of acquisition.

Notwithstanding that it may be believed that the possibility of a direct application of the decision in question to the case sub judice is thus ruled out, as well as the possibility of contradiction between that and what is decided here, the general and doctrinal considerations expounded in the same decision should be weighed and, presumed to be evidential of what would be the understanding of that Supreme Court in the situation now at hand, should receive due consideration.

Continuing in reading the judicial decision under analysis, it is verified that therein it is clarified that if the property acquired for resale "consists of land with a residential building already under construction, the works done by the buyer to complete that construction, so as to sell the land with the finished building (or to sell its autonomous units), does not represent a transfiguration or substantial alteration of the destination of the property acquired for resale, does not represent, in short, a "different destination" of the resale of the property acquired", an assertion that is not transposable to the present case, since the property here at issue was not, at the time of its acquisition by the Claimant, the subject of any works.

Notwithstanding, subsequently, it is then stated that "only a 'substantial alteration' of the property acquired constitutes a different destination, namely the transformation of a rural property into an urban property (by purchasing land and subsequently constructing a building thereon for sale) or the demolition of a dwelling and subsequent sale of the land for construction". Now, in this strict sense, the situation here in judgment will not integrate a "'substantial alteration' of the property acquired", since we are neither facing "the transformation of a rural property into an urban property", nor facing "the demolition of a dwelling and subsequent sale of the land for construction", the present case concerning the acquisition of an urban property, with a building that was remodeled in certain terms described in the matter of fact.

But if the situation sub judice does not fall within the examples given in the Court of Final Instance decision of "'substantial alteration' of the property acquired", nor does it fall within the subsequent examples of situations in which such substantial alteration does not occur, namely cases where "the property acquired (land with a residential building still in rough state) was resold in a different state due to the completion works of the building, the establishment of horizontal ownership and the resale of the respective autonomous units."

Notwithstanding, the aforementioned decision continues by noting that "only in cases where the residential building acquired under construction is subject to works to achieve a use or destination completely distinct (as would happen if it were altered to an industrial, commercial or school building, which entail deep transformation works and a mutation capable of constituting a substantial alteration of the property, notably in terms of use) or in cases where, while maintaining the residential destination, the building is subject to substantial works that transform it into something quite different from what was set forth in the building license in force at the time of acquisition, is it possible to affirm that the works carried out by the buyer are suitable to divert the declared destination: – the resale of land with the residential building implanted thereon under a specific project and building license), thus integrating the legal concept of "different destination"".

Being at issue in the passage transcribed cases of residential buildings acquired under construction, the considerations in question cannot once again be directly transposed to the present case.

Having reached this point, it can be concluded that, from the perspective of the analyzed decision, the legal concept of "different destination" will be fulfilled in cases where there is verified:

a) the transformation of a rural property into an urban property; or

b) the demolition of a dwelling and subsequent sale of the land for construction;

c) that a residential building acquired under construction is subject to works to achieve a use or destination completely distinct (as would happen if altered to an industrial, commercial or school building); and

d) that a residential building acquired under construction, while maintaining the residential destination, is subject to substantial works that transform it into something quite different from what was set forth in the building license in force at the time of acquisition.

Given this, it is easy to see that the situation in question in the present arbitration proceedings does not fall within any of the examples presented by the Court of Final Instance as situations in which the legal concept of "different destination" will be fulfilled.

Notwithstanding, it is still possible to extract from the reasoning of the decision in question an additional aid for clarifying the question now to be decided.

Indeed, citing the foundation decision, the following is noted:

"As noted by Nuno Sá Gomes, in CTF 380, pages 488 et seq., the foundation for the exemption in question lies in the circumstance that the properties acquired are maintained, as merchandise, in the circulating assets of the enterprise subject to taxation for the exercise of the activity of acquisition of properties for resale, 'this characteristic not being affected by the completion of the properties acquired, still under construction, and the subsequent establishment of horizontal ownership'.

As, moreover, happens with the acquisition of rural properties acquired for resale and subsequent subdivision with sale by lots, notwithstanding the numerous works that, in general, such an operation entails, from the construction of road networks to basic sanitation.

On the contrary from what was decided, we are not, thus, faced with raw materials acquired for transformation into merchandise – see D.L. No. 410/89, of 21 November – but rather merchandise constituting part of the circulating assets of the enterprise.

Whereby, being sisa a tax on property or wealth – see Article 1 of the Sisa Code and the Court of Final Instance Decision of 06/10/1999 case 23.831 – it should not tax the sale of elements of circulating assets, being instead subject to income taxes."

That is, the Court of Final Instance reiterates the prior understanding, according to which the fundamental criterion for ascertaining the existence of a "different destination" lies in the circumstance that the acquired property has lost the nature of circulating property – destined for resale – to assume the nature of "raw material" – destined for transformation.

This, therefore, will be the criterion to follow, it is believed, to determine if, in the present case, there is verified, or not, that the property in question in the present arbitration proceedings has been given a "different destination", it being certain that what will be essential is not the manner in which the property was accounted for in the assets of the tax subject (as current assets or as raw material), but the reality observed, that is, whether, in fact, the property was subject to an economic process of transformation, or whether, on the contrary, the intervention carried out assumed an accessory character, of optimization of the property for its profitability in the market.

Relevant to this question, from the matter of fact ascertained there results, in summary, the following:

– The property was acquired for the price of €1,828,516.80;

– At the time of acquisition the same property had 3 floors, and occupied a gross private area of 625.0000 m² and a land area of 250.0000 m²;

– At that time (of acquisition) the works that were subsequently executed were licensed, but had not yet been initiated;

– After the works carried out by the Claimant, the property was constituted in horizontal ownership, with three autonomous units;

– The same property came to have four floors, with a gross private area of 926.6600 m² and a land area of 282.8800 m²;

– The three autonomous units created were assigned a Tax Property Value of €1,082,150.00, €725,790.00 and €700,020.00, in a total of € 2,507,960.00.

That is, by virtue of the works carried out by the Claimant, there was an increase of approximately 12.9% in the land area of the property, an increase of 48.27% in the gross private area and 37.15% in the tax property value of the property, with an additional floor being added and 3 autonomous units created.

The question that arises, therefore, is to judge whether the activity that led to this result is an economically significant activity that altered the acquired property in terms that one could say that what comes to be placed on the market is another, transformed, property, or whether, on the contrary, that activity was limited to preparing the same acquired property, so as to maximize its value upon its resale.

Recognizing that the case sub judice will already be situated in a borderline situation, it is believed that, in light of the criteria set forth in the Court of Final Instance Decision of 17-09-2014, issued in case No. 01626/13, previously analyzed, it should be concluded that the intervention carried out by the Claimant should not be qualified as having given a "different destination" to the real property it acquired.

Indeed, and first of all, account should be taken of the fact that the use – residential – of the property was not altered, as well as that it had already been the subject of a licensing process, which the Claimant merely executed.

These circumstances, if it is true that they do not fall within those described by the Court of Final Instance as typical of situations that do not result in the realization of a "different destination", are believed to bring the case sub judice closer to the situations exemplified wherein such an alteration of destination does not occur.

For, of the situations expressly referred to by the Court of Final Instance as embodying the realization of a different destination, the one that will most closely approximate the situation sub judice will be that which relates to the subjection of the property to substantial works that transform it into something quite different from what was set forth in the building license in force at the time of acquisition.

Now in the case, not only did the works carried out not transform the property into something quite different from what was set forth in the building license in force at the time of acquisition, but rather they were precisely limited to executing what was set forth in such license.

It is true that the hypothesis advanced by the Court of Final Instance decision refers to properties acquired with works already in progress, which, as was seen, was not what happened in the present case.

But no less certain is that the same decision, in formulating the example now at issue, places the emphasis not on the volume of works carried out after acquisition of the property, but on the disparity between the result thereof and what was set forth in the building license in force at the time of acquisition.

On the other hand, and taking into account the matter of fact ascertained, it is believed that, both from a material point of view and from an economic point of view, the intervention carried out is not such that one should say that the essential nature of the Claimant's commercial operation was transformative, that is, that the commercial activity executed was, in its essence, an activity of transformation of the acquired property.

Thus, from a material point of view, it is verified that the acquired property maintained, grosso modo, its land area (which increased approximately 12.9%), and, notwithstanding the fact that the gross private area increased by 48.27%, the fact is that to the property only an additional floor was added (moving from basement, ground floor, 1st floor and attic, to ground floor, 1st, 2nd and 3rd floors), a circumstance that suggests that the general layout and volumetry should have been maintained, as it is normal and within common experience that it be imposed at the level of administrative licensing, when interventions on already old properties are at issue.

On the other hand, and from an economic point of view, it is verified that from the intervention carried out by the Claimant, based on the available data – and the Tribunal can only consider such data – there resulted an increase in the tax property value of the property of approximately 37.15%.

This increase, although assuming considerable importance, it being for this very reason that it was noted earlier that the situation in judgment will be situated in a borderline zone, is not disproportionate or incompatible with interventions of an essentially restorative (and not transformative) nature on properties.

Indeed, it will be consistent with the normal reality of things that from an intervention that restores to "new" condition a property with more than 50 years of age, even while maintaining the essential of its characteristics, contributes to an appreciation in the order of that verified, especially if such intervention is associated, as happens in the case, with the implementation of horizontal ownership, and it is further certain that, as the case law is categorical on the matter, such a legal operation will be irrelevant for the ascertainment of the occurrence of a "different destination".

In this way, and given all of the above, it is believed that in the present case, it is not demonstrated that a "different destination" has been given to the property in question in the present arbitration proceedings, under the terms and for the purposes of Article 11(5) of the IMT Code, wherefore the tax act that is the subject of this same proceeding will be afflicted by error in the factual assumptions, and consequent error of law, and should therefore be annulled, the arbitration petition proceeding accordingly.

Annulment of the tax assessment necessarily entails annulment of the assessment of interest thereon.

As for the petition for compensatory interest formulated by the Claimant, Article 43(1) of the General Tax Law establishes that compensatory interest is due when it is determined that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due.

In the case, the error affecting the annulled assessment is attributable to the Tax and Customs Authority, which issued it without the necessary legal basis.

The Claimant thus has the right to be reimbursed of the amount it paid (under Articles 100 of the General Tax Law and 24(1) of the LRTA) by virtue of the annulled act and, further, to be indemnified for the undue payment through payment of compensatory interest by the Respondent, from the date of such payment until its reimbursement, at the legal supplementary rate, under Articles 43(1) and (4), and 35(10) of the General Tax Law, Article 559 of the Civil Code and Administrative Order No. 291/2003, of 8 April.

C. DECISION

It is hereby decided by this Arbitral Tribunal to find the arbitration petition formulated fully successful and, in consequence:

a) Annul the act of assessment for Municipal Tax on Onerous Transfers of Real Property ("IMT") identified by document No. ..., dated 12 September 2018 and in the total amount of € 121,565.93, of which € 109,711.12 relates to tax and € 11,854.81 to compensatory interest;

b) Condemn the Tax Authority to payment of compensatory interest, under the terms above determined;

c) Condemn the Respondent to payment of the costs of the proceedings, in the amount fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at € 121,565.93, under Article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of Article 29(1)(a) and (b) of the LRTA and Article 3(3) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 3,060.00, under Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax Authority, since the petition was entirely successful, under Articles 12(2) and 22(4), both of the LRTA, and Article 4(5) of the aforementioned Regulation.

Let it be notified.

Lisbon, 26 August 2019

The Arbitrator President

(José Pedro Carvalho)

The Arbitrator Member

(Regina de Almeida Monteiro)

The Arbitrator Member

(Jónatas Machado)

Frequently Asked Questions

Automatically Created

What happens to the IMT exemption when a property purchased for resale is given a different destination in Portugal?
When a property purchased for resale with IMT exemption is given a different destination in Portugal, Article 11(5) of the IMT Code provides for revocation of the exemption. The Portuguese Tax Authority will liquidate the IMT that would have been due at acquisition, plus compensatory interest calculated from the original acquisition date. In Process 627/2018-T, the AT considered that converting a single-family property into three autonomous residential units under horizontal ownership regime constituted a 'different destination,' triggering IMT assessment of €109,711.12 plus €11,854.81 in interest. The key issue is whether substantial reconstruction and subdivision for individual sale constitutes a destination different from the original resale purpose.
How does Article 11(5) of the Portuguese IMT Code regulate the revocation of tax exemptions for resale properties?
Article 11(5) of the Portuguese IMT Code regulates the revocation of tax exemptions for resale properties by establishing that if an exempt property is given a destination different from that which justified the exemption, the tax becomes due. The provision requires the Tax Authority to assess the IMT that would have been originally payable, along with compensatory interest from the acquisition date. In the 627/2018-T case, AT invoked this article when a property acquired as a single unit for resale was substantially reconstructed into three independent apartments, arguing this transformation exceeded mere resale activities. The taxpayer must demonstrate that the property's use remained consistent with the exemption's purpose—specifically, acquisition for resale without alteration of its essential character.
Can the Portuguese tax authority (AT) liquidate IMT and compensatory interest if a resale exemption is deemed improperly used?
Yes, the Portuguese Tax Authority can liquidate IMT and compensatory interest if a resale exemption is deemed improperly used. As demonstrated in Process 627/2018-T, when AT determined that a property acquired with exemption under Article 7 of the IMT Code had been given a different destination through conversion from a single dwelling to three autonomous units, it issued a liquidation for €121,565.93 (comprising €109,711.12 in IMT plus €11,854.81 in compensatory interest at 4% per annum). The compensatory interest is calculated from the original acquisition date (December 30, 2015) until the assessment date (September 12, 2018), reflecting the period during which the State was deprived of tax revenue. Taxpayers can challenge such liquidations before the CAAD arbitral tribunal under the Legal Regime for Tax Arbitration.