PLMJ victory at the Court of Justice of the European Union with huge impact on VAT in the real estate sector

Since the VAT Exemption Waiver rules for real estate transactions came into force in 2007, the Portuguese Tax Authority has always held that operators of commercial premises had to repay to the State the part of the VAT deducted and still subject to the period of regularisation, whenever properties in question were vacant for more than two years (the period has been extended to 5 years in the meantime). Because of its financial implications, this approach by the Tax Authority was always seen as being disproportionate, particularly in the years of greatest crisis in the real estate sector.

Yesterday, the Court of Justice of the European Union published its judgment holding that the above obligation to repay VAT is illegal under European Union rules.

The judgment now published opens up the possibility for real estate operators, within the period is allowed by law, to recover the VAT they have repaid in the meantime in the circumstances described above.

The PLMJ Tax team that dealt with this case was headed by partners João Magalhães Ramalho, Serena Cabrita Neto and Sara Estima Martins. The team also included senior associates Priscila Santos and Filipe Abreu, and associate, Darcília Matos.

For Serena Cabrita Neto "this victory is extremely gratifying because it makes it possible to bring justice and balance back to the system of VAT on real estate which, in some respects, clearly penalises commercial real estate transactions."