Process: 71/2014-T

Date: October 2, 2014

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 71/2014-T) addresses the legality of additional IMT and Stamp Tax assessments following a corporate merger. In February 2009, A... S.A. acquired rural property through merger by incorporation, initially paying IMT of €492.63 based on the property's patrimonial tax value (TPV) of €9,852.64. A 2013 tax inspection revealed the property was registered in the merged company's books at €327,921.25—significantly higher than the TPV. The tax authority issued additional assessments totaling €17,652.13 (IMT: €15,285.30; Stamp Tax: €2,366.83) based on Rule 13 of Article 12(4) of the IMT Code, which requires using the higher of TPV or book value for merger transactions. The taxpayer challenged the assessments as time-barred, arguing the four-year limitation period under Article 31(3) of the IMT Code expired in February 2013. The taxpayer contended the original Finance Service committed an error of law by failing to apply the correct valuation rule in 2009. The Tax Authority countered that the eight-year period under Article 35(1) applies for omission of assets or values, and that the inspection process suspended the limitation period. Central issues include: whether this constitutes an administrative error (four-year period) versus value omission (eight-year period); suspension of limitation periods during inspection; the legal basis for additional assessments in merger transactions; and the joinder of IMT and Stamp Tax claims sharing the same taxable base.

Full Decision

I - REPORT

  1. On 29 January 2014, A..., S.A., (hereinafter referred to as the Claimant), with registered office at Avenue ..., …, VAT No. ..., submitted to the Administrative Arbitration Centre (CAAD) a request for the constitution of a single arbitral tribunal, in accordance with the provisions of Articles 10, No. 1, paragraph a) and 2, No. 1, paragraph a) of Decree-Law No. 10/2011, of 20 January (RJAT), with a view to declaring illegal the assessment of the Municipal Tax on Onerous Transfer of Real Property (IMT), in the amount of €15,285.30, with No. ... and assessment of Stamp Tax (IS), in the amount of €2,366.83, with No. ..., for a total amount of €17,652.13, as well as condemning the Tax and Customs Authority (hereinafter the Respondent or TA) to pay the corresponding compensatory interest, in accordance with the provisions of No. 2 of Article 43 of the General Tax Law and Article 61 of the Code of Tax Procedure.

  2. In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator.

  3. In accordance with No. 1 of Article 6 of the RJAT, by decision of the President of the Deontological Council, the undersigned was designated as sole arbitrator, and accepted the position within the statutory period.

  4. The parties having been notified and there being no refusal of such designation (Article 11, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code), the arbitral tribunal was duly constituted on 7 April 2014, in accordance with the provisions of paragraph c) of No. 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December.

  5. On 14 July 2014, the first meeting of the arbitral tribunal was held in accordance with the terms and objectives provided for in Article 18 of the RJAT (see minutes attached to the case file), the parties having waived written submissions and the tribunal deciding that the decision would be rendered by 3 October 2014.

  6. On 18 July 2014, the Respondent attached to the case file, as requested by the tribunal at the meeting of 14 July, a copy of the assessment request.

  7. The Request for arbitral pronouncement

The Claimant, invoking Article 3, No. 1 of the RJAT, requests that the cumulation of the two claims be accepted, namely the assessment of IMT and the assessment of Stamp Tax, taking into account that both affected the same taxable amount, namely the value of the transaction fixed for IMT purposes, treating them as "dependent taxes".

Regarding the assessments, the Claimant argues, in summary (our responsibility):

  • By means of the merger by incorporation, executed by deed on 11 February 2009, the transfer of the rural land to the Claimant's assets occurred, registered in the rural property matrix of the parish of …, under article …, with the Taxable Patrimonial Value (TPV) of €9,852.64, which formed part of the incorporated company D... – Investments and Tourism, SA;

  • Based on the TPV of said land, IMT was assessed on 11.02.2009 by the Finance Service of …, in the amount of €492.63 and Stamp Tax in the amount of €78.82;

  • Following an external inspection action that took place between 2 April 2013 and 23 July 2013, the Taxable Values were corrected and additional assessments were proposed calculated on the value of €327,921.25, for which the transmitted property was recorded in the company's assets, determining IMT amounts of €15,285.30 and Stamp Tax of €2,366.83, totalling €17,652.13 (seventeen thousand six hundred and fifty-two euros and thirteen cents);

  • Taking into account various provisions (paragraph g) of No. 5 of Article 2; Article 4; Rule 13 of No. 4 of Article 12) of the IMT Code, from which it follows that the initiative for IMT assessment lies with the interested parties (who submit an official model form duly completed for this purpose, in accordance with Article 19 of the IMT Code), that the authority to assess lies with the tax services (Article 21 of the IMT Code), and that information was provided to the Tax Administration services that this was a merger (mentioned in the payment guide), there was an error of law on the part of the Finance Service of … which carried out the original IMT assessment, failing to take into account the balance sheet value of the real property which was higher than the Taxable Patrimonial Value (Rule 13 of No. 4 of Article 12 of the IMT Code);

  • Thus, the additional assessment, made only following the Tax Inspection Report, was carried out after the expiry of the general limitation period in tax law of four (4) years (Article 45, No. 1 of the General Tax Law), applicable when the law does not provide otherwise;

  • Given that it was an error of law by the Finance Service of … when making the first IMT assessment on 9 February 2009, the eight (8) year period provided for in Article 35, No. 1 of the IMT Code is not applicable here, but rather the four (4) year limitation period provided for in No. 3 of Article 31 of the IMT Code;

  • As the taxable matter underlying the additional assessment resulted from an inspection process that took place from April to July 2013, and there being no suspension or interruption of the limitation period, the right to carry out this additional IMT assessment became barred on 12 February 2013 (Article 31, No. 3 of the IMT Code), because there is a single-obligation tax in view of the provisions of Article 45, No. 4 of the General Tax Law;

  • The assessments subject to this claim should be considered illegal with reimbursement of the amount paid, of €17,652.13 (seventeen thousand six hundred and fifty-two euros and thirteen cents), plus compensatory interest, in accordance with the provisions of No. 2 of Article 43 of the General Tax Law and Article 61 of the Code of Tax Procedure.

  1. The Respondent's Reply

The Respondent replied, in summary (our responsibility), that:

  • The inspection action of the Finance Directorate of …, preceded by a warning letter dated 24/09/2012, took place between 02/04/2013 and 23/07/2013;

  • The Claimant, notified of the draft corrections for purposes of Article 60 of the General Tax Law and Article 60 of the Tax Inspection Procedure Regulation, on 31/07/2013, did not exercise the right to prior hearing;

  • The Claimant, which received the Final Report on 31/07/2013, requested, pursuant to Article 19 of the IMT Code, payment of the additional IMT assessments, in the amount of €15,285.30, and Stamp Tax, in the amount of €2,366.83, which it paid on 02/12/2013, benefiting from a waiver of compensatory interest under Decree-Law No. 151-A/2013, of 31/10;

  • The merger carried out by public deed on 11/02/2009, by which the rural land registered in the rural matrix of the parish of … under art. 5, Section R, with patrimonial value of €9,852.64, was transferred from the assets of company D... Investments and Tourism Real Estate, S.A. and incorporated into the Claimant's assets, resulted in an IMT assessment of €492.63 and Stamp Tax of €78.82;

  • The Report prepared following the inspection carried out between 02/04/2013 and 23/07/2013 concluded with a correction to the taxable matter for IMT purposes, and corresponding assessment made in accordance with the provisions of paragraph g) of No. 5 of Article 2, combined with Rule 13 of No. 4 of Article 12 of the IMT Code, based on the value of €327,921.25, for which the transmitted property was recorded in the company's assets, as it was higher than the patrimonial value used in the assessment;

  • According to Article 31 of the IMT Code, the right to assess tax may only be exercised during the 4 years following the assessment to be corrected, except if the additional assessment is based on omission of assets or values, in which case the additional assessment may be made after those four years but not exceeding 8 years from the date of the tax event;

  • The reasons justifying the reduction of the period to four years relate to cases of error, of fact or of law, to which the TA has a special duty of attention and, consequently, of correction within a shorter period of 4 years, but this special protection to the taxpayer is not justified in a case where the elements declared by the Claimant for purposes of the initial IMT assessment, at its own initiative, under No. 1 of Article 19 of the IMT Code, as determined by the tax inspection, omitted the values to be considered for tax purposes, although the facts correspond to reality and their legal framework is correct;

  • In the statement submitted by the Claimant for IMT assessment, at its own initiative but within the jurisdiction of the Services, there is no discrepancy between the facts declared and reality, nor between the law and the tax-legal framework thereof, that is, it is the transfer of a rural property resulting from a merger by incorporation into the Claimant and which is subject to IMT - the Claimant omitted the taxable value to be considered for tax purposes, and only corrected it voluntarily, at its own initiative, following the Final Report of the tax inspection;

  • Thus, this being an omission that constitutes an irregularity attributable only to the Claimant, it is excluded from No. 3 of Article 31 of the IMT Code, and may be corrected by the services within the 8 year period provided for in No. 1 of Article 35 of the IMT Code;

  • The disputed assessments are legal, including the Stamp Tax assessment which is a direct consequence of the additional IMT assessment, and should be maintained in the legal system.

  1. Issues for decision

Beyond the preliminary issue concerning the cumulation of claims (IMT assessment and Stamp Tax), the fundamental subject matter of the dispute between Claimant and Respondent is whether, in the case under examination, the limitation period for the right to assess is the general limitation period of four (4) years provided for in Article 45, No. 1 of the General Tax Law and in No. 3 of Article 31 of the IMT Code, or the eight (8) year period provided for in Article 35, No. 1 of the IMT Code.

  1. Decision on the preliminary issue

Article 3 of the RJAT, in admitting the cumulation of claims, even if relating to different acts, when the success of the claims depends essentially on the assessment of the same factual circumstances and the interpretation and application of the same principles or rules of law, leaves no doubt as to the viability of examining the Claimant's claim, whereby the tribunal accepts the claim in its full scope, namely examination of the legality of the IMT and Stamp Tax assessments relating to the transfer of real property effected by the deed of merger executed on 11 February 2009 [1].

  1. Procedural soundness

The Tribunal is materially competent and has been duly constituted, in accordance with Articles 2, No. 1, paragraph a), 5, No. 2, and 6, No. 1 of the RJAT.

The parties have legal capacity and standing, are legitimately parties and are properly represented, in accordance with Articles 4 and 10, No. 2 of the RJAT and Article 1 of Order No. 112-A/2011, of 22 March.

The proceedings do not suffer from defects that would invalidate them.

Accordingly, we proceed to decide the merits.

II. GROUNDS

  1. Findings of fact

With relevance to the decision of the case, based on the documents in the case file, the following facts are established:

12.1. The Claimant, Company A..., SA., with registered office at Avenue ... …, VAT No. ..., has as its corporate purpose activities corresponding to the main Economic Activity Code 68100 – purchase and sale of real estate and secondary Economic Activity Code 41100 – real estate development (development of building projects) (Tax Inspection Report, p. 5, PA 1, fls. 19).

12.2. In the period between 2008 and 2009, a merger by incorporation took place between "A..., SA" and three companies whose capital was held 100% by the incorporating company: B... SA, C..., SA and D..., SA, (Document No. 4 attached by the Claimant and PA 3, merger project of 17 September 2008, fls 2 to 18).

12.3. The merger was registered on 27/11/2008 but the deed relating to the transfer of real property of the incorporated companies was executed on 11 February 2009 (PA 2, fls. 3).

12.4. The assets of D..., SA included a rural property, registered in the rural property matrix of the parish of …, under art. ….º Section R, with a Taxable Patrimonial Value (TPV) of €9,852.64 and an urban property U-.., parish of …, with a TPV of €2,510.00. (Reply 4.11).

12.5. On 5 February 2009, the taxpayer, A... S.A. submitted a statement (registration 26841, 2009) Model 1 for IMT assessment, at the finance office of the 2nd District of …, identifying the tax event as "transfer of real property by merger or division of companies" (box II), indicating €280.93 as the "contract" value (box V), and as the property transferred the rural land of parish 111402, article …, rural section, with an area of 117,720.00 m2 (box IV) (elements contained in the document "detail of Model 1 assessment statement", attached to the case file by the TA on 18 July 2014).

12.6. On 5 February 2009 the Directorate General of Tax Revenue issued documents for IMT payment (DUC ..., assessment …) in the amount of €492.63 and Stamp Tax (DUC …, assessment …) in the amount of €78.82, both referring to the transfer of rural property R-…-R, municipality of …, parish of …, with patrimonial value for IMT of 9,853.64 and declared value of €280.93 and taxable matter of €9,852.64 (Documents No. 5 and 6 of the Claimant, 4.11 of the Reply; PA 5 fl. 170).

12.7. By decision of 21/09/2012 (Service Order OI...) an external inspection action was ordered, subject to prior notice by official letter No. …, of 24/09/2012, which commenced at the registered office of A..., SA on 2 April 2013, as evidenced by the date of the service order signed by the representatives of the Claimant (Claim art. 8; 4.4 of Reply and PA 1, fls. 1 and 11).

12.8. The action, originally with partial scope (Corporate Income Tax), under the terms of paragraph b) of No. 1 of Article 14 of the Tax Inspection Procedure Regulation, had its scope altered by decision of 26/04/2013, under the terms of paragraph a) of No. 1 of Article 14 of the Tax Inspection Procedure Regulation, and took place until 23 July 2013 (Claim art. 8; Reply 4.5.; PA 1, fls. 1, 5, 9 and 11; Tax Inspection Report, p. 6).

12.9. From that inspection action resulted, dated 23 July 2013 and submitted to higher decisions, a draft Tax Inspection Report (RIT), containing various technical corrections in accordance with the provisions of the Codes of Corporate Income Tax, VAT, IMT and General Tax Law, which, sent for prior hearing within 15 days, by notice registered on 30 July and accepted on 31 July 2013, (Reply, 4.6., of the TA, and PA 6th part, fls 9 et seq), was not responded to by the Claimant (Reply 4.7).

12.10. The final Report of 28 August 2013, submitted on the same date to Decision of the Finance Directorate of …, was notified to the Claimant through official letter registered on 29 August 2013 (PA 1, fls. 15 et seq) with number RC…PT (delivered on 30 August 2013, according to postal service database).

12.11. With respect to the subject matter of the case, the RIT considers, regarding "corrections for IMT purposes", that in accordance with the provisions of paragraph g) of No. 5 of Article 2 of the Municipal Tax Code on Onerous Transfer of Real Property (IMT Code), transfers of real property effected in the context of a merger process are subject to taxation for IMT purposes, and Rule 13 of No. 4 of Article 12 of the IMT Code establishes that the tax is levied on the patrimonial value of all properties of the company subject to merger that are transferred to the company resulting from the merger, or on the value of such property as entered in the assets of the companies, if higher. And it stated: "Thus, having analysed the deed that evidences the merger carried out on 2009/02/11 and the documents relating to the IMT assessment that were exhibited at the time, it is found that IMT was paid on the TPV of the properties when it should have been paid on the value entered in the accounting records, as it was higher than that. And it concluded that: "at the time of executing the deed that evidences the merger, IMT was paid according to the data contained in the following table" (section III.2 of the text of the RIT and annex 23).

12.12. In the table referred to in the previous paragraph, it appears that upon incorporation into the Claimant, D..., SA held two properties – one urban, ..., parish …, TPV 2,510.00, and another, rural, parish 111402, TPV of 9,852.64 - recorded in the accounts for a total value of €327,921.25 (annex 23 to the RIT, PA 5, fl. numbered 159, merger project PA 3, annex 20 of the RIT, fls. 127 and table in section III.2 of the RIT).

12.13. In the RIT, the Head of the Inspection Team issues a decision to the effect that "in the context of a merger project that involved the transfer of real property, the taxpayer failed to comply with the provisions of paragraph g) of No. 5 of Article 2, combined with Rule 13 of No. 4 of Article 12, both of the IMT Code, in that it assessed the tax due for the operation on the basis of its patrimonial value and not on the value at which the same were recorded in the company's assets, since the latter was higher. From the irregularity committed, a correction to the taxable matter for IMT purposes resulted, in the amount of €4,223,651.59" (point 2 of the decision by Team Coordinator, PA 1, fls. 16 et seq., and PA 5), as well as the drafting of an official report of violations for the infringements detected (sections III.2, VII and X, fls. 18, 20 and 22 of the RIT, PA, fls 14 et seq), which met with agreement in higher decisions, including from the Finance Directorate of … (PA1, fls. 15 et seq).

12.14. The Claimant was notified by decision of 10 September 2013 from the Head of the Finance Service of … of the existence of a misdemeanor proceedings (...) instituted at the Finance Service of …, and of its suspension in accordance with Article 55 of the Tax Inspection Regulation (Document No. 1).

12.15. In the official report of violations dated 23 August 2013, the infringement detected in the tax inspection is described, following the analysis of the merger deed executed on 11/02/2009 and of the documents, then exhibited, relating to the IMT assessment, in this case regarding the rural property … R, of the parish of … (…) which formed part of the assets of D... Investments and Tourism, S.A., because the assessment should not have been made on a TPV of €9,852.64 but on the value of €325,411.25 [2], which implied a correction of taxable matter value in the amount of €315,558.61, in compliance with the provisions of paragraph g) of No. 5 of Article 2, combined with Rule 13 of No. 4 of Article 12 of the IMT Code (Documents 1 and 2 attached by the claimant).

12.16. Upon incorporation into the Claimant, D..., SA held two properties – one urban, ..., parish …, TPV 2,510.00 and another, rural, parish …, TPV of 9,852.64 - recorded in the accounts for a total value of €327,921.25 (annex 23 to the RIT, PA 5, fl. numbered 159, merger project PA 3, annex 20 of the RIT, fls. 127 and table in section III.2 of the RIT).

12.17. The Claimant, using the faculty granted by the "exceptional regime for regularization of tax and social security debts" approved by Decree-Law No. 151-A/2013, of 31 October, requested from the Finance Service of … that it proceed to issue payment guides for additional assessment of the taxes resulting from the corrections made by the tax inspection (Reply 4.1 and 4.2. 4.14).

12.18. The TA issued the payment documents of 29 November 2013, for IMT payment in the amount of €15,285.30 (DUC ...) and Stamp Tax in the amount of €2,366.83 (DUC ... of 29/11/2013), with payment being effected by the Claimant on 2 December 2013, with a waiver of compensatory interest (Document 2 and 3 attached by the Claimant; TA Reply 4.9.).

12.19. On 29 January 2014, the Claimant submitted, in accordance with Article 10 of the Tax Arbitration Procedure Regulation, the present Request for arbitral pronouncement, invoking the illegality of the assessments for violation of the limitation rules in view of the provisions of Article 99 of the Code of Tax Procedure.

  1. Findings of fact not established

The facts established prove to be sufficient for examination of the legal question, there being no facts not established that are relevant to the solution of the present dispute.

  1. Basis of proof

The facts were established based on the documents, not contested, attached to the proceedings and above indicated in relation to each point of the established facts.

  1. Legal assessment

15.1. The interpretations in issue

As seen above, Claimant and Respondent differ as to the application of the limitation rules to the present case.

The Claimant considers that, as the first IMT assessment was made on 9 February 2009, the right to carry out an additional IMT assessment (single-obligation tax) became barred on 12 February 2013, by expiry of the general limitation period of four (4) years provided by law (Articles 45, No. 4 of the General Tax Law and 31, No. 3 of the IMT Code), the eight (8) year period provided for in Article 35, No. 1 of the IMT Code not being applicable in the case at hand, which it qualifies as an error of law by the Finance Service, being inapplicable.

It further considers that the inspection process, from which resulted the taxable matter underlying the additional assessment, does not give rise to any ground for suspension or interruption of the limitation period, as it took place only between April and July 2013.

The exception to the application of the general four-year period (Article 31 of the IMT Code) for exercising the right to assess tax, provided for in the case of omission of assets or values, whereby the right may be exercised up to 8 years from the date of the tax event, is not justified in the present case because the TA had all the elements declared by the Claimant for purposes of the initial IMT assessment, at its own initiative, under No. 1 of Article 19 of the IMT Code, there being no discrepancy between the facts declared and reality.

The Respondent, invoking the fact that the Claimant, when transferring the rural property resulting from a merger operation, submitted the IMT assessment statement omitting the taxable value to be considered for tax purposes, having corrected it voluntarily and at its own initiative following the Final Report of the tax inspection, considers that this is an omission that constitutes an irregularity attributable to the Claimant, and is therefore excluded from the application of No. 3 of Article 31 of the IMT Code, and may be corrected by the services within the 8 year period provided for in No. 1 of Article 35 of the IMT Code.

15.2. Legal framework of limitation of the right to assess

15.2.1 The assessment period

The IMT Code provides in No. 1 of Article 35 that "Tax may only be assessed within eight years following the transfer or the date on which the exemption ceased to have effect, without prejudice to the provisions of the following number[3], and, as to the remainder, in Article 46 of the General Tax Law".

That is, for this tax a limitation period of eight years[4] is established, and account must be taken of the grounds for suspension and interruption provided for in Article 46 of the General Tax Law.

And Article 31 of the IMT Code provides[5]: "1. In the case of omission of assets or values subject to taxation or where there are well-founded indications that acts or contracts were performed or executed with the objective of reducing the tax debt or obtaining other undue advantages, the correction powers attributed to the tax administration by this Code or by other tax laws are applicable. 2 - When it is found that the assessments committed an error of fact or of law, from which resulted prejudice to the State, as well as in cases where there is place for valuation, the head of the finance office where the assessment was made or the statement was submitted for the purposes of No. 3 of Article 19, promotes the corresponding additional assessment. 3 - The assessment may only be made until four years have elapsed from the assessment to be corrected, except if it is due to omission of assets or values, in which case it may still be made subsequently, subject always to the provisions of Article 35. 4-…." (our emphasis).

Articles 35 and 31 of the IMT Code corresponded in the previous Municipal Tax Code on Sisa and Tax on Successions and Gifts (Municipal Tax Code on Sisa, Successions and Gifts) to Articles 92 and 111.

Article 92 of the Municipal Tax Code on Sisa, Successions and Gifts in its last version (given by Decree-Law No. 472/99, of 8/11) stated: "Municipal sisa tax or tax on successions and gifts may only be assessed within eight years following the transfer or the date on which the exemption ceased to have effect, without prejudice to the provisions of the following paragraphs and, as to the remainder, in Article 46 of the general tax law".

And Article 111, in its last version (Decree-Law No. 472/99, of 8/11), provided, in the body of the article: "When it is found that in the sisa assessments or in the process of assessment of tax on successions and gifts an error of fact or of law has been committed, or there has been any omission, from which resulted prejudice to the State, the head of the finance office must remedy it by means of additional assessment" and, in § 3, "Notification may only be made until four years have elapsed from the assessment to be corrected, except if it is due to omission of assets in the list required by Article 67, which may then still be made subsequently. This is without prejudice, in all cases, to the provisions of Article 92." (our emphasis).

As for Stamp Tax, No. 1 of Article 39 of the Stamp Tax Code provided at the time of transfer that "Tax may only be assessed within the periods and terms provided for in Articles 45 and 46 of the General Tax Law, except in the case of gratuitous transfers, in which the assessment period is eight years from the transfer or the date on which the exemption ceased to have effect, without prejudice to the provisions of Nos. 2 and 3".

However, at the time of the additional assessment in 2013, Article 39 of the Stamp Tax Code had been amended and stated: "Tax may only be assessed within the periods and terms provided for in Articles 45 and 46 of the General Tax Law, except in the case of acquisitions of property taxed under item 1.1 of the General Table or of gratuitous transfers, in which the assessment period is eight years from the transfer or the date on which the exemption ceased to have effect, without prejudice to the provisions of the following numbers." [6] (our emphasis).

It is thus concluded that there are, both in the IMT Code and in the Stamp Tax Code, special limitation periods for the right to assess in relation to the general four-year period, enshrined in the version of Article 45 of the General Tax Law, approved by Decree-Law No. 398/98, of 17/12[7].

With regard to the applicable special limitation period, it is recalled that the interpretation in recent case law (Decision of the Superior Administrative Court of 05 February 2014, proc. 1846/13), although relating to earlier taxes (sisa and tax on successions and gifts), regarding the combination of the provisions of Articles 92 and § 3 of Article 111 of the Municipal Tax Code on Sisa, Successions and Gifts: "From the combination of Article 92 with § 3 of Article 111 of the Municipal Tax Code on Sisa, Successions and Gifts, it follows that, in the case of additional sisa assessment, the limitation of the right to assess is subject to two periods: the notification of the additional assessment must occur within the period of 4 years from the assessment to be corrected, but always within the period of 8 years from the date of transfer. The limitation period for the right to assess applicable for sisa is not that of No. 1 of Article 45 of the General Tax Law, since it is this provision of the General Tax Law that limits the application of the period therein provided to cases where "the law does not fix another". Now, the Municipal Tax Code on Sisa, Successions and Gifts fixed its own limitation periods for the right to assess (In the sense of the special nature of the limitation period for the right to assess sisa, see DIOGO LEITE DE CAMPOS, BENJAMIM SILVA RODRIGUES and JORGE LOPES DE SOUSA, General Tax Law Annotated and Commented, Writing Meeting, 4th edition, 2012, annotation 15 to Article 45, p. 363): of 8 years, from the transfer or the date on which the exemption ceased to have effect, for the initial assessment, in accordance with Article 92, in the applicable version, which is that of Decree-Law No. 472/99, of 8 November; of 4 years, from the assessment to be corrected, for cases of additional assessment, but always without prejudice to compliance with the period of Article 92, all as provided by § 3 of Article 111."

15.2.2. The concept of additional assessment

The decisive question is therefore whether the assessment whose legality is examined in this proceedings has the nature of an additional assessment.

The Superior Administrative Court Decision above mentioned (proc. 1846/13) cited the definition of additional assessment by Alberto Xavier as "the act by which the Administration, verifying that by reason of omission a lower amount was defined than the legal one, fixes the quantitative amount that should be added to it so that absolute conformity with the law is achieved"[8], concluding that "additional assessment is nothing more than the correction of a deficient assessment as a consequence of errors or omissions, which may be the responsibility either of the services or of the taxpayers". (and cited, in this sense, earlier case law of the Contentious Tax Section of the Superior Administrative Court: Decisions of 17 January 2007, in proc. 909/06; of 18 May 2011, in proc. No. 153/11, of 14 September 2011, in proc. 294/11).

However, when comparing Articles 111 of the Municipal Tax Code on Sisa, Successions and Gifts and 31 of the IMT Code, we find that while the former required remedying through additional assessment the assessments of sisa or in the process of assessment of tax on successions and gifts where "error of fact or of law" had been committed, expressly including "any omission", only excepting (§ 3) the omission of assets from the list of assets provided for in Article 67, Article 31 of the IMT Code appears to have intended to separate realities that previously were, as a general rule, treated indistinguishably.

Let us see:

  • No. 1 of Article 31 of the IMT Code brings together situations of "omission of assets or values subject to taxation" and "existence of well-founded indications that acts or contracts were performed or executed with the objective of reducing the tax debt or obtaining other undue advantages", generically admitting in those cases the "correction powers" attributed to the tax administration by this Code or by other tax laws;

  • No. 2 of the same article refers to situations of error of fact or of law, from which resulted prejudice to the State, as well as in cases where there is place for valuation (in which the head of the competent finance office promotes the additional assessment);

  • and No. 3 provides that the additional assessment may only be made until four years have elapsed from the assessment to be corrected, except if it is due to omission of assets or values, in which case it may still be made subsequently, subject always to the provisions of Article 35 (eight year period following the transfer or the date on which the exemption ceased to have effect).

Apparently, Article 31 of the IMT Code establishes a more restrictive criterion of the concept "error of fact or of law", pointing to greater rigidity in the treatment of "omissions of assets and values". But this concept is, in itself, susceptible to raising doubts in the application of the law to a concrete situation….

In the present case, the Claimant alleges that all the elements placed in its statement were true and that the service wrongly applied the law, while the TA argues that, being a merger operation, the Claimant should have placed in the statement for IMT assessment the value at which the property was recorded in the company's assets.

15.2.3. Possible suspension of the limitation period

According to No. 1 of Article 46 of the General Tax Law "The limitation period is suspended by notification to the taxpayer, in accordance with legal procedures, of the service order or decision at the beginning of the external inspection action, ceasing, however, this effect, the period being counted from its beginning, if the duration of the external inspection has exceeded the period of six months following the notification".

In this case, although the inspection action was determined by decision of 21/09/2012 and notified by prior notice on 24 September 2012, it commenced only on 2 April 2013, as evidenced by the date of the service order signed by the representatives of the Claimant (12.7) and ended on 23 July 2013 (12.8).

Regarding the commencement of the six-month external inspection period, doctrine[9] and case law[10] point in the direction that what matters is the date on which the inspection actually took place.

On the matter Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa comment: "The six-month period provided for in No. 1 is not counted from the beginning of the inspection, but from what elapses since the notification. If following the notification, the external inspection is not completed within the six-month period or does not take place, then it will not suspend the limitation period, and the period shall be counted as if such notification had not been made"[11], which is related to the non-coincidence of the dates of notification and marking of the beginning of the action and the date of actual commencement of the inspection[12].

In light of the considerations made, it seems to us apposite that in the application of the General Tax Law, together with the provisions of the Tax Inspection Procedure Regulation (Articles 13 and 51), relevance should be given, as the initial term of the suspension period, to either of the two facts mentioned in No. 1 of Article 46 of the General Tax Law, service order or note of procedure, provided they are accompanied by the signature of the inspected parties (cf. for example, Decision of the Superior Administrative Court of 21/11/2012, in proc 0594/12[13]).

In the present case, on 24/09/2012 a prior notice of future inspection was sent, and only on 2 April 2013 was the inspection commenced with the signature of the service order by the representatives of the Claimant.

On the other hand, as for the end of the suspension, "The inspection acts are considered concluded on the date of notification of the note of procedure issued by the official in charge of the procedure, a final report being prepared, which must be notified to the taxpayer by registered mail - cf. Articles 61 and 62 of the Tax Inspection Procedure Regulation"[14].

This case law appears to be the majority view at the Superior Administrative Court. As stated in the Decision of 20 October 2010, proc. No. 0112/10: "If the inspection action is concluded before six months have elapsed, the suspensive effect of the limitation period is maintained until notification to the taxpayer of the conclusion of the inspection procedure, by drawing up the final report"[15].

That is, according to the interpretations referred to above, the inspection, because commenced on 2 April 2013 and ended with notification of the final report on 30 August 2013, will not have exceeded the six-month period provided for in No. 1 of Article 46 of the General Tax Law and the articles of the Tax Inspection Procedure Regulation.

But the issue that remains for us to decide is whether the inspection ever suspended the limitation period…

15.3. Application of the law to the facts

15.3.1. The legal situation

It follows from the facts established above that in the context of a merger process, the Claimant as the incorporating company acquired by deed executed on 11 February 2009 the ownership until then held by D..., SA of the rural land in the municipality of …, registered in the rural property matrix of the parish of …, under Article 5, Section R (12.2; 12.3 and 12.4).

Before the deed, on 5 February 2009, the taxpayer, A... S.A, submitted a Model 1 statement for IMT assessment, indicating €280.93 as the contract value, but identifying as the tax event the "transfer of real property by merger or division of companies". (12.5).

The tax administration services issued, on the same day, the assessment of IMT in the amount of €492.63 and Stamp Tax in the amount of €78.82, taking into account, in the transfer of rural property R-5-R, the patrimonial value for IMT of 9,853.64. (12.6).

In an external inspection action determined on 21 September 2012 but commenced only on 2 April 2013 and concluded on 23 July 2013, a final Report was issued on 28 August 2013, notified to the Claimant through official letter registered on 29 August 2013, containing a proposal for correction of the taxable matter that formed the basis of the additional assessment made on 29 November 2013. (12.7 to 12.15).

The correction proposed by the inspection action (and which gave rise to an official report for a misdemeanor dated 23 August 2013) was based on the merger deed executed on 11 February 2009 and the documents, then exhibited, relating to the IMT assessment, regarding the rural property 5 R of the parish of … (…) which formed part of the assets of D... Investments and Tourism, S.A., that the assessment should not have been made on a TPV of €9,852.64 but on the value at which that property was recorded in the accounts, of €325,411.25, which implied a correction of the taxable matter value in the amount of €315,558.61 (paragraph g) of No. 5 of Article 2, combined with Rule 13 of No. 4 of Article 12 of the IMT Code) (12.10 to 12.15).

15.3.2. IMT assessment

We take into account the doctrine adopted by the mentioned Decision of the Superior Administrative Court of 5 February 2014, regarding the application of Articles 92 and § 3 of Article 111 of the Municipal Tax Code on Sisa, Successions and Gifts, but beyond which, in that situation, was not in question, the nature of the tax act as an additional assessment[16], we find that the current version of Article 31 of the IMT Code presents some differences in relation to the version of Article 111 of the Municipal Tax Code on Sisa, Successions and Gifts.

What is, after all, the effective scope of Article 31 of the IMT Code?

Silvério Mateus and Freitas Corvelo[17] make Nos. 2 and 3 of Article 31 of the IMT Code correspond to the body and § 3, respectively, of Article 111 of the Municipal Tax Code on Sisa, Successions and Gifts, as well as making the omission of declarations of assets or values subject to taxation, provided for in No. 1 (and also in the segment of No. 3 that refers to the period of Article 35), coincide with unlawful conduct aimed at reducing the tax debt. They give as examples the performance of simulated transactions, whether as to value or nature, whether by interposition, omission or substitution of persons.

And, referring to the "correction powers" attributed to the tax administration in situations that involve the performance of acts or execution of contracts aimed at reducing the tax debt, they point to the application of the general anti-abuse clause, dependent on its own procedure.

Taking into account the previous history of application of the Municipal Tax Code on Sisa, Successions and Gifts and the framework of the new legislation in the legal system, namely the General Tax Law, Code of Tax Procedure, Tax Inspection General Regulation, we admit that to "error of fact or of law" are opposed omissions corresponding to unlawful actions, whose characterization requires careful analysis, from the objective and subjective point of view, as well as substantiated proof.

In the absence of such proof, "other omissions" may still constitute mere errors.[18]

In the case submitted to the examination of this tribunal we consider it difficult to sustain the Respondent's thesis in the sense of applying the segment of No. 3 of Article 31 of the IMT Code that excepts from the application of the 4-year period the situations of additional assessment in which the correction has underlying "omission of assets or values".

This is because, according to the facts established, the taxpayer declared the real property and essential elements for correct application of the law. It is true that it declared as the value subject to taxation the contract value (much lower than that provided by law as being, in the case of a merger, the subject matter of the levy), but it also declared that it was an acquisition by merger.

The services that carried out the assessment will have understood that for a correct application of the law it would be sufficient to replace the value presented by the declarant as being the contract value (Model 1 statement) with a higher amount, equivalent to the taxable patrimonial value (Property Tax TPV), without taking action to ensure strict compliance with the provisions of paragraph g) of No. 5 of Article 2 and Rule 13 of No. 4 of Article 12 of the IMT Code.

The tribunal admits that doubt may arise as to whether there was not a rather unjustifiable ignorance on the part of the declarant and/or lack of care in the actions of the services (what are the procedures usually followed in merger processes?)[19], but also considers that there are not sufficient elements in the case file that allow sustaining that it is an "omission of assets or values" provided for in No. 1 of Article 31 of the IMT Code, accepting the qualification as an error of law, on the part of the taxpayer (which indicated a much lower value, called "contract value", relative to the TPV) and on the part of the Administration (which, correcting the taxpayer's indication, did not take its action far enough, inquiring into the value at which the property was recorded in the company's assets).

And it did not do so, neither at the time of the statement submitted for assessment purposes before the deed, nor subsequently through internal review on the basis of available documentation.

Thus, it is considered that the new assessment is an additional assessment (No. 2 of Article 31 of the IMT Code), which corrected an error committed in the initial assessment, in which case the IMT assessment may only be made until four years have elapsed from the assessment to be corrected in accordance with Article 31, No. 3 of the IMT Code.

Given that the initial assessment was made on 5 February 2009, the additional assessment – only in August 2013 - was made after the four-year period provided for in Article 31 of the IMT Code.

And, as the end of this four-year period occurred on 5 February 2013, before the commencement of the external tax inspection on 2 April, there was no suspension of the limitation period in accordance with Article 46 of the General Tax Law, and the right to assess IMT became barred.

As for Stamp Tax, with the amendment to the version of Article 39 of the Stamp Tax Code, introduced by the 2012 Budget Law, effective from January of that year, an eight-year period was provided for the exercise of the right to assess in the case of item 1.1 of the General Stamp Tax Table. Being a new period, and nothing being provided to the contrary, the issue arises of its applicability, according to the provisions of Article 297 of the Civil Code, to the period that was in progress.

Although Article 39 of the Stamp Tax Code does not distinguish between initial and additional assessment, we consider that it is necessary to resort to the provisions of Article 23, No. 4 of the Stamp Tax Code[20] to sustain that in the case of Stamp Tax due in the application of item 1.1 of the General Stamp Tax Table the rules of the IMT Code relating to assessment are applicable, including the provisions of Article 31 of the Code, regarding additional assessment.[21]

Being so, and considering that this is also an additional assessment due to an error of law, and that the limitation period is four years, the same conclusion is reached as above regarding IMT – the right to assess became barred four years after the transfer, on 5 February 2013, the commencement of the external tax inspection on 2 April produced no suspension of the limitation period, in accordance with Article 46 of the General Tax Law, because the same had already elapsed. That is, the right to assess Stamp Tax also became barred.

III. DECISION

  1. In light of the above, this Arbitral Tribunal decides:

a) To uphold the claim for declaration of illegality of the assessment of the Municipal Tax on Onerous Transfer of Real Property (IMT), in the amount of €15,285.30 and assessment of Stamp Tax in the amount of €2,366.83, for a total amount of €17,652.13, annulling the respective assessments;

b) To condemn the Respondent to refund the amount unduly assessed and paid in the amount of €28,690.91 (twenty-eight thousand six hundred and ninety euros and ninety-one cents) and to pay compensatory interest, in accordance with the provisions of No. 2 of Article 43 of the General Tax Law and Article 61 of the Code of Tax Procedure.

c) To condemn the Respondent to pay the costs of the present proceedings.

  1. Process value and costs

The value of the process is fixed at €17,652.13 (seventeen thousand six hundred and fifty-two euros and thirteen cents) in accordance with Article 97-A, No. 1 of the Code of Tax Procedure, made applicable by force of Article 29, No. 1, a) of the Tax Arbitration Procedure Regulation and Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

The amount of costs is fixed at €1,224.00 (one thousand two hundred and twenty-four euros), to be borne by the Respondent and calculated in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, all in accordance with Articles 12, No. 2, and 22, No. 4 of the Tax Arbitration Procedure Regulation and Article 4 of the Regulation of Costs in Tax Arbitration Proceedings.

Let notice be given.

Lisbon, 2 October 2014.

The Arbitrator

Maria Manuela Roseiro

[Text prepared using computer, in accordance with Article 131, No. 5 of the Code of Civil Procedure (CPC), made applicable by reference of Article 29, No. 1, paragraph e) of the Tax Arbitration Procedure Regulation. The drafting of this decision follows the spelling prior to the most recent Orthographic Agreement].

Frequently Asked Questions

Automatically Created

Is a property transfer through a corporate merger subject to IMT and Stamp Tax in Portugal?
Yes, property transfers through corporate mergers are subject to IMT and Stamp Tax in Portugal. Article 2(5)(g) of the IMT Code specifically includes mergers, spin-offs, and contributions in kind as taxable events. For mergers, Rule 13 of Article 12(4) establishes special valuation rules: the taxable value is the higher of either the property's patrimonial tax value (VPT) or the book value at which the property is registered in the acquiring company's assets. This ensures taxation reflects the economic value of the transaction rather than potentially outdated cadastral values. The Stamp Tax applies concurrently to the same taxable base under the Stamp Tax Code provisions for property transfers.
Can the tax authority issue an additional IMT assessment after an initial liquidation based on patrimonial tax value?
Yes, the tax authority can issue an additional IMT assessment after an initial liquidation based on patrimonial tax value, subject to statutory limitation periods. When a property transfer occurs through merger and the property is registered in the company's books at a value exceeding the patrimonial tax value, Article 12(4), Rule 13 of the IMT Code requires using the higher book value as the taxable base. If the initial assessment incorrectly used only the patrimonial value, the tax authority may issue an additional assessment. However, this right is constrained by limitation periods: Article 31(3) provides a four-year period for correcting errors, while Article 35(1) allows up to eight years for assessments based on omission of assets or values. The classification of the deficiency determines which period applies.
How does the suspension of the statute of limitations (prazo de caducidade) apply to IMT and Stamp Tax assessments?
The suspension of the statute of limitations (prazo de caducidade) for IMT and Stamp Tax assessments is governed by Articles 31 and 35 of the IMT Code in conjunction with Article 46 of the General Tax Law (LGT). The limitation period is suspended during tax inspection procedures, from the date of notification initiating the inspection until the taxpayer receives the final inspection report (Article 46, LGT). For IMT, the base limitation period is four years from the date of the correctable assessment (Article 31(3)), but extends to eight years when additional assessment is based on omission of assets or values (Article 35(1)). The key distinction is whether the deficiency constitutes an administrative error of law (requiring application of legal rules to declared facts) versus omission of taxable values (undisclosed or unreported value elements). In merger transactions, if the taxpayer disclosed the book value but the tax service failed to apply Rule 13 of Article 12(4), this may constitute an error rather than omission, triggering the shorter four-year period.
What are the grounds for claiming compensatory interest (juros indemnizatórios) in tax arbitration proceedings before CAAD?
Compensatory interest (juros indemnizatórios) in CAAD tax arbitration proceedings may be claimed under Article 43(2) of the General Tax Law (LGT) and Article 61 of the Tax Procedure Code (CPPT). These provisions entitle taxpayers to compensatory interest when tax payments are later determined to be illegal, excessive, or unduly collected. The interest compensates for the financial prejudice of having funds improperly retained by the Tax Authority. To claim compensatory interest successfully, the taxpayer must: (1) have paid the contested tax amount; (2) obtain a favorable arbitration decision declaring the assessment illegal or partially illegal; (3) demonstrate the payment was not due or exceeded the legal obligation. The interest rate and calculation method follow the legal framework applicable to tax reimbursements. Compensatory interest runs from the date of payment until reimbursement, providing full compensation for the State's use of funds to which it was not entitled.
Can IMT and Stamp Tax claims be joined in a single arbitration request when they share the same taxable value?
Yes, IMT and Stamp Tax claims can be joined in a single CAAD arbitration request when they share the same taxable value or arise from the same underlying transaction. Article 3(1) of the RJAT (Legal Regime for Tax Arbitration) permits cumulation of claims involving dependent or connected tax obligations. In merger transactions, both IMT and Stamp Tax are assessed on the same taxable base—the value of the property transfer—making them inherently connected as 'dependent taxes.' This joinder promotes procedural efficiency by avoiding duplicate proceedings, ensuring consistent decisions on common factual and legal issues, and reducing costs for both parties. The arbitral tribunal has jurisdiction over both direct and local taxes, encompassing IMT (a municipal tax) and Stamp Tax (a State tax). When assessments are challenged on identical grounds—such as time-barring or incorrect valuation—joining the claims in a single proceeding serves judicial economy while respecting the taxpayer's right to comprehensive review of related tax determinations.