Process: 647/2016-T

Date: June 2, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 647/2016-T addresses the application of IMT rates to a mixed property (prédio misto) acquired in 2015. The claimant company paid €5,850 in IMT under Article 17(1)(d) of the IMT Code but subsequently argued that a manifest error occurred in the declaration, claiming the correct rate should be 1% under Article 17(1)(b) for properties exclusively intended for housing, resulting in only €900 IMT due. The central legal dispute concerns whether the urban part of a mixed property, described as having five rooms with two designated for agricultural use, qualifies as 'exclusively for housing' under Article 17(1)(b). The Tax Authority rejected the administrative appeal (reclamação graciosa), maintaining that the property's mixed nature—combining residential and agricultural components—precludes application of the preferential housing rate. The AT argued the property must be assessed as a unitary whole, not by segregating its urban component. The claimant challenged the AT's decision on multiple grounds: improper application of IMT rates, violation of the duty to provide adequate grounds for administrative decisions under Articles 268(3) CRP and 36 CPPT, and breach of principles of legal certainty, good faith, and cooperation. The case exemplifies interpretative challenges in Portuguese tax law regarding when mixed-use properties qualify for preferential IMT treatment, the procedural requirements for correcting alleged errors in tax declarations, and the extent of the Tax Authority's obligation to consider documentary evidence during administrative appeals. The tribunal must determine whether literal interpretation of 'exclusively for housing' bars application of Article 17(1)(b) to properties with any non-residential components, and whether taxpayers can rectify rate selection errors through administrative appeals.

Full Decision

ARBITRAL DECISION

1. REPORT

On 28-10-2016, the joint stock company A…, LDA, with company registration number …, with registered office at Rua …, n.º …, …, …-… Lisbon, registered at the Commercial Registry Office of Lisbon under number …, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the tax assessment act relating to Municipal Tax on Onerous Property Transfers (IMT) in the amount of 5,850.00 €.

The Claimant states that it acquired, on 17-09-2015, a mixed property, located in …, Union of Parish Councils of … and …, Municipality of Olhão, described at the Land Registry Office of Olhão under number … and the urban part is registered in the property register under article …, and the rural part is registered under article … . Prior to the deed, the Claimant submitted to the competent Tax Service the declaration for assessment of IMT relating to the urban part, in the amount of 5,850.00 €. The Claimant states that this assessment was issued pursuant to article 17 no. 1 subsection d) of the IMT Code.

The Claimant alleges that it submitted the declaration for assessment of IMT, but due to manifest error did not select the option for classification of IMT calculated for the acquisition of an urban property or autonomous unit of an urban property intended exclusively for housing, pursuant to article 17 no. 1 subsection b) of the IMT Code.

The Claimant submits that it always intended to select the option of the IMT rate of 1%, corresponding to subsection b) of no. 1 of article 17 of the IMT Code, since the urban part is intended exclusively for housing, whereby, in its view, the IMT assessment should be in the amount of 900 €.

The Claimant submitted, on 11-01-2016, an administrative appeal against the aforementioned IMT assessment in the amount of 5,850.00 €, which was dismissed on 02-05-2015.

On 01-06-2016, the Claimant submitted a hierarchical appeal against the decision dismissing the administrative appeal, which, up to the date of submission of the arbitral request, had not been subject to any decision.

The Claimant alleges that it attached to the administrative appeal documents proving the manifest error by the TA, and that the latter disregarded the aforementioned documents.

The Claimant further alleges that the Tax Authority's reasoning process for disregarding the content of the attached documents and concluding to dismiss the administrative appeal is not understood.

The Claimant makes reference to articles 268 no. 3 of the Portuguese Constitutional Law (CRP) and 36 of the Tax Procedure and Process Code (CPPT), as well as several court decisions, with regard to the duty of the Tax Authority to provide grounds for its acts.

In the Claimant's view, the assessment in question stems from the manifestly improper application of the IMT rate pursuant to subsection b) of no. 1 of article 17 of the IMT Code, since the urban part of the property in question is intended solely for housing.

The Claimant insists that the object of the acquisition that the law clearly favors is the urban property intended for housing, such as that acquired by it.

However, in the Claimant's view, it is not possible to apply the extensive interpretation made by the Tax Authority to subsection b) of no. 1 of article 17 of the IMT Code, as a purported ground to conclude that the urban part is not intended exclusively for housing.

For the Claimant, it should be considered contrary to the principle of confidence and legal certainty and security, as sub-principles of the rule of law principle, that the Tax Authority may use, especially at the level of norms granting tax benefits and within the same tax, the same concepts with opposite meanings, and thereby extract economic burdens on taxpayers in an unclear and non-transparent manner. And it concludes by asserting that there is a legal error on the part of the Tax Authority, by improperly requiring the Claimant to pay an amount of IMT not applicable to the specific case.

The Claimant alleges that the IMT assessment in question in these proceedings should be annulled for violation of the principles of cooperation and good faith, with the consequent refund of the amounts improperly paid, pursuant to articles 59 of the General Tax Law (LGT), 99 subsection d) of the CPPT and 266 of the CRP.

A sole arbitrator, Suzana Fernandes da Costa, was appointed on 28-12-2016.

In accordance with the provisions of article 11 no. 1, subsection c) of the RJAT, the sole arbitral tribunal was constituted on 12-01-2017.

Notified pursuant to article 17 of the Legal Regime for Arbitration in Tax Matters (RJAT), the Tax and Customs Authority submitted its response on 15-02-2017.

The Tax Authority states that the urban part of the property acquired, registered under article 1004, is a property in full ownership without storeys or divisions capable of independent use, with five rooms, with the following property register description: "dwelling of a single-storey building forming part of a mixed property with 3 compartments and 2 compartments for agricultural use".

As regards the defect of lack of grounds alleged by the Claimant, the Tax Authority states that it is unclear whether the Claimant is imputing the alleged defect to the express dismissal decision of the administrative appeal or to the implied dismissal of the hierarchical appeal. It alleges that the duty to provide legal grounds applies to express administrative acts and never to implied acts, and concludes that the implied dismissal of the hierarchical appeal is not affected by a defect of lack of grounds.

Regarding the decision dismissing the administrative appeal, the Tax Authority states that the documents attached by the Claimant to the administrative appeal did not demonstrate that the property in question was intended for housing. And it concludes by asserting that the decision is duly grounded, both in fact and in law.

With respect to the defect of illegality of the act based on legal error, the Tax Authority alleges that there is no legal error in that the Tax Authority does not apply the tax rate provided for in article 17 no. 1 subsection b) of the IMT Code to a property that is not intended exclusively for residential purposes, as was decided in the decision of the CAAD in case no. 78/2012-T.

The Tax Authority makes reference to the fact that the property in question is unitary, and as such, the rate to be applied, pursuant to article 17 of the IMT Code, must necessarily be that corresponding to the totality thereof.

The Tax Authority also contradicts the Claimant's position, by stating that it made no extensive interpretation of subsection b) of no. 1 of article 17 of the IMT Code, but only a literal interpretation, faithful to the express text of the legal norm in question.

The Tax Authority mentions that the urban part of the mixed property in question in these proceedings does not have as its exclusive purpose the Claimant's own and permanent residence, nor exclusively housing nor, furthermore, constitutes a rural property, since it is an urban property with five rooms, two of which are intended for agricultural use. Accordingly, it understands that no other IMT rate could be applied to the property in question other than that which was applied.

Finally, as to the alleged violation of the principle of confidence and legal certainty and security, the Tax Authority states that there is no violation of these principles, since the property with five rooms, two of which are intended for agricultural use, is not considered for IMT purposes as exclusively dedicated to housing.

The Respondent, in its response, protested to attach the administrative file.

On 06-03-2017, an order was issued requiring the Tax Authority to, within 10 days, attach to the file the administrative proceedings.

The Tax Authority attached the administrative proceedings on 10-03-2017.

On 04-04-2017, an order was issued dispensing with the holding of the meeting provided for in article 18 of the RJAT, and granting a period of 15 days for the Claimant and the Respondent, in that order and successively, to submit written submissions. In the same order, 02-06-2017 was designated for the pronouncement of the arbitral decision, and the Claimant was warned to, by that date, proceed to pay the subsequent arbitral fee.

The Claimant, on 19-04-2017, filed a submission informing that it considers as reproduced the previously alleged in its initial petition, which contains the facts and the matter of law applicable to the case. And it attached proof of payment of the subsequent arbitral fee.

On 04-05-2017, the Respondent filed a submission stating that, as to its submissions, it refers to what was stated in its response.

The parties possess legal personality and capacity and are legitimate (articles 4 and 10 no. 1 and 2 of the RJAT and article 1 of Regulation no. 112-A/2011 of 22 March).

The present arbitral decision request was submitted in a timely manner, pursuant to article 10 no. 1 subsection a) of Decree-Law no. 10/2011 of 20 January.

The proceedings do not suffer from any nullities and no preliminary issues were raised.

2. FACTUAL MATTERS

2.1. PROVED FACTS:

Having examined the documentary evidence produced, the following facts are considered proved and relevant for the decision of the case:

1. The Claimant A…, LDA acquired, on 17-09-2015, by public deed of sale and purchase, the mixed property, located in …, union of parish councils of … and …, Municipality of Olhão, described at the Land Registry Office of Olhão under number … and registered in the property register, the rural part registered in the register under article …, and the urban part under article … .

2. The urban part corresponds to a single-storey dwelling forming part of a mixed property with three compartments and two compartments for agricultural use, as stated in the property record attached to the proceedings by the Respondent with the administrative file.

3. The Claimant submitted, prior to the acquisition, to the competent Tax Service the declaration for assessment of IMT, and the assessment was issued in the amount of 5,850.00 €, attached to the arbitral request as document 2.

4. The Claimant submitted, on 11-01-2016, an administrative appeal against the aforementioned IMT assessment in the amount of 5,850.00 €, as shown in document 1 attached to the arbitral request.

5. The administrative appeal was expressly dismissed on 02-05-2015, as shown in document 1 attached to the arbitral request.

6. On 01-06-2016, the Claimant submitted a hierarchical appeal against the decision dismissing the administrative appeal, as shown in document 1 attached to the arbitral request, which, up to the date of submission of the arbitral request, had not been subject to any decision.

No other facts with relevance for the decision of the case were proved.

2.2. GROUNDS FOR THE PROVED FACTUAL MATTERS:

As regards the proved facts, the arbitrator's conviction was based on the documentary evidence attached to the file.

3. LEGAL MATTERS

3.1. OBJECT AND SCOPE OF THE PRESENT PROCEEDINGS

The issue to be decided in the present proceedings is whether the IMT rate was properly applied by the Tax Authority in the act of acquisition, by the Claimant, of the property identified above.

Pursuant to article 17 of the IMT Code, the applicable rate varies depending on two essential aspects, the first being the type of property or autonomous unit which is the object of acquisition, and the second being the purpose to which that property or autonomous unit is put.

As to the purpose to which the urban property or autonomous unit is put, the law distinguishes between properties intended exclusively for the personal and permanent residence of the acquiring taxpayer, properties intended exclusively for housing, and urban properties.

Considering these distinctions, article 17 of the IMT Code establishes the following rates:

"1 – The IMT rates are as follows:

a) Acquisition of an urban property or autonomous unit of an urban property intended exclusively for personal and permanent residence:

| Amount subject to IMT (in euros) | Percentage rates | |
| | Marginal | Average (*) |
| Up to 92,407 | 0 | 0 |
| More than 92,407 and up to 126,403 | 2 | 0.5379 |
| More than 126,403 and up to 172,348 | 5 | 1.7274 |
| More than 172,348 and up to 287,213 | 7 | 3.8361 |
| More than 287,213 and up to 574,323 | 8 | - |
| More than 574,323 | 6 (single rate) | |

(*) At the upper limit of the bracket.

b) Acquisition of an urban property or autonomous unit of an urban property intended exclusively for housing, not covered by the previous subsection:

| Amount subject to IMT (in euros) | Percentage rates | |
| | Marginal | Average (*) |
| Up to 92,407 | 1 | 1 |
| More than 92,407 and up to 126,403 | 2 | 1.2689 |
| More than 126,403 and up to 172,348 | 5 | 2.2636 |
| More than 172,348 and up to 287,213 | 7 | 4.1578 |
| More than 287,213 and up to 550,836 | 8 | - |
| More than 550,836 | 6 (single rate) | |

(*) At the upper limit of the bracket.

c) Acquisition of rural properties – 5%;

d) Acquisition of other urban properties and other onerous acquisitions – 6.5%."

At the time the taxable event occurred, the property acquired was not held in horizontal property regime, as it was a property in full ownership without storeys or divisions capable of independent use, with five rooms, with the following property register description: "dwelling of a single-storey building forming part of a mixed property with 3 compartments and 2 compartments for agricultural use", as stated in the property record attached to the file by the Respondent with the administrative proceedings.

Thus, the different units that comprised the property were not yet considered, from a legal standpoint, as true autonomous units.

This fact constitutes, in our view, a decisive aspect in the application of the tax rate, as understood in the decision of the CAAD in case no. 78/2012-T.

Indeed, in terms of dedication, it could not be considered, at the time of acquisition of the property, that the same, considering the full ownership regime that was in effect, was exclusively dedicated to housing, as required by subsection b) of article 17 of the IMT Code.

This would not be the case if all the units / non-autonomous fractions that comprised it, from a legal standpoint, were dedicated to that particular purpose.

Indeed, we are dealing with an urban property in full ownership regime in which one part was intended for agricultural use and another part for housing, to which corresponded one and only one registration in the property register.

Accordingly, the residual rate of 6.5% provided for in subsection d) of no. 1 of article 17 of the IMT Code must be applicable to the totality of the property.

The Claimant alleges that, due to manifest error, it did not select the option for classification of IMT calculated for the acquisition of an urban property or autonomous unit of an urban property intended exclusively for housing, pursuant to article 17 no. 1 subsection b) of the IMT Code.

However, even if the Claimant incurred an error in the selection of the classification, no rate other than the rate of 6.5% could be applicable to the acquisition in question, as demonstrated above.

Accordingly, the Claimant's request for annulment of the tax assessment act relating to Municipal Tax on Onerous Property Transfers (IMT) in the amount of 5,850.00 € must be dismissed as unfounded.

4. DECISION

Based on the foregoing, it is determined that the request formulated by the Claimant in the present tax arbitral proceedings is wholly dismissed as unfounded, with regard to the illegality of the assessment of Municipal Tax on Onerous Property Transfers (IMT) in the amount of 5,850.00 €.

5. VALUE OF THE PROCEEDINGS:

In accordance with the provisions of article 306 no. 2 of the CPC and 97-A no. 1 subsection a) of the CPPT and 3 no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the action is fixed at 5,850.00 €.

6. COSTS:

Pursuant to article 22 no. 4 of the RJAT and Table I annexed to the Regulation on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 612.00 €, to be borne by the Claimant.

Notify.

Lisbon, 2 June 2017.

Document prepared by computer, in accordance with article 138 no. 5 of the Code of Civil Procedure (CPC), applicable by reference from article 29 no. 1 subsection e) of the Tax Arbitration Regime, reviewed by me.

The sole arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What IMT tax rate applies to urban properties exclusively intended for housing under Article 17(1)(b) of the IMT Code?
Under Article 17(1)(b) of the IMT Code, urban properties or autonomous fractions exclusively intended for housing are subject to a 1% IMT rate. This preferential rate applies to properties where the exclusive purpose is residential habitation. However, the Tax Authority interprets 'exclusively' strictly—if a property contains any non-residential components (such as agricultural rooms or commercial spaces), the preferential rate does not apply, and higher rates under Article 17(1)(d) or other provisions govern the transaction.
Can an IMT assessment be annulled if the wrong tax rate was applied due to a manifest error in the declaration?
An IMT assessment may potentially be annulled if the wrong tax rate was applied due to manifest error, but success depends on demonstrating that: (1) the error was objectively manifest and not merely a misunderstanding of complex legal provisions; (2) the property genuinely qualifies for the claimed rate; and (3) supporting documentation proves the property's exclusive residential character. In Process 647/2016-T, the claimant's argument failed because the Tax Authority established that the property included agricultural components, meaning it was not exclusively for housing despite the claimed manifest error.
What is the procedure to challenge an incorrect IMT liquidation through reclamação graciosa and recurso hierárquico?
To challenge an incorrect IMT liquidation, taxpayers must follow a three-tier procedure: First, file a reclamação graciosa (administrative appeal) within 120 days from notification of the assessment with the entity that issued the liquidation. Second, if dismissed expressly or by implied rejection after three months, file a recurso hierárquico (hierarchical appeal) within 30 days. Third, if administrative remedies fail, submit a request for arbitration to CAAD within 90 days of the hierarchical appeal decision (or after tacit rejection). Each stage requires proper documentation proving the alleged error.
How does the CAAD arbitral tribunal evaluate cases involving misapplication of IMT rates on mixed properties (prédio misto)?
CAAD arbitral tribunals evaluate IMT misapplication cases on mixed properties by examining whether the property qualifies as 'exclusively for housing' under Article 17(1)(b) of the IMT Code. The tribunal conducts literal interpretation of statutory language, reviews property registry descriptions to identify all designated uses, and analyzes whether non-residential components (agricultural rooms, commercial spaces) disqualify the property from preferential rates. CAAD precedent (such as Decision 78/2012-T referenced in this case) establishes that mixed properties with any non-residential elements cannot benefit from the 1% housing rate, even if the predominant use is residential.
What is the duty of the Tax Authority (AT) to consider documentary evidence submitted during a reclamação graciosa for IMT purposes?
Under Articles 268(3) of the Portuguese Constitution (CRP) and 36 of the Tax Procedure Code (CPPT), the Tax Authority has a constitutional duty to adequately ground administrative decisions and consider all documentary evidence submitted during reclamação graciosa proceedings. However, in Process 647/2016-T, the AT argued that while it must examine evidence, the documents submitted by the claimant failed to demonstrate exclusive housing use because property registry records explicitly indicated agricultural components. The duty to consider evidence does not require the AT to accept the taxpayer's interpretation if objective documentation contradicts the claimed tax treatment.