IMT exemption in buildings for resale

Article 7 of the Municipal Tax Code on Onerous Real Estate Transfers (CIMT), exempts the acquisition of buildings for resale from tax, provided that the following cumulative conditions are met:

1. Before the acquisition, a statement proving the exercise of the real estate resale activity must be submitted;
2. existence, in the previous year, of the normal exercise of the resale activity by the same company;
3. The building is intended for resale;
4. The purchased buildings are resold within three years, under penalty of expiry of the benefit;
5. The buildings, although resold within the legal timeframe, are not resold again for resale.
6. They are not given a different destination to the buildings purchased.

Faced with this scenario, as mentioned above, many taxpayers have encountered unforeseen difficulties, as a result of the referred discretion attributed to the Tax Authority (TA), and by the respective Courts,  in their restrictive interpretations of the legal expressions “acquisitions”, “acquired”, “resale” and “resold”, provided for  in paragraphs 3 and 4 of Art. 7, and no. 5 of Art. 11, both of the CIMT.

The adopted understanding relates to the meaning of transmission by act of sale, and not to any form of tax or civil transmission of real rights in real estate or its figures. It is therefore considered that only acts or contracts entitling the onerous civil legal transfer of the real right are part of the tax concept of resale act, being excluded from their scope, for example, exchange contracts.

In addition, it is worth noting the neuralgic role of the TA in the definition of situations that lead, or not, to the expiry of the exemption, if the building is assigned a purpose different from the resale itself, causing much uncertainty in the legal-fiscal panorama. This is because the standard in the IMT Code gives rise to a glaring discretion in the interpretation of the TA and the Courts themselves, which have over the years “densified” the purpose of  exemption.

In this context, it has been accepted the realization of works of mere conservation and finishes, or even leases, as situations that do not constitute an alteration to the purpose of the resale, and therefore admissible in the context of the exemption.

A practical example is that of leases, where the TA considers that if the purchaser of a particular building registers its acquisition in the “Inventories” and  not in the“Investments” category- which could legitimately give rise to a different use of resale – may benefit from the EXEMPTION of IMT, it does not constitute  a lease per se,  a support for the expiry of the exemption, which demonstrates, again, the central role that the TA has had in “clarifying” the purpose of the expiry of the exemption.

Given this scenario, it would be beneficial for all parties to densify the standard, seeking to drastically reduce litigation – which has reached high levels in this area – promoting legal certainty, essential for national and international investors.