An arbitration court ruled in favour of a real estate developer in a dispute with the Portuguese Tax Authority, ordering the cancellation of an additional VAT assessment exceeding 375,000 EUR and the payment of compensatory interest.
The ruling, issued by the Administrative Arbitration Centre, is based on the principle that the Tax Authority cannot contradict a binding information it issued itself, as that would violate good faith, predictability and the protection of taxpayers' trust.
The Propiso case
The case involves the company Propiso, which in 2020 requested binding information on the application of the 6% reduced VAT rate to a rehabilitation project in Vila Nova de Gaia. At the time, the Tax Authority replied that it was sufficient for the work to be located in an Urban Rehabilitation Area (ARU) to benefit from the reduced rate, and the company applied 6% based on that guidance.
The 2025 case-law shift
The situation changed in 2025, when the Supreme Administrative Court unified case law and additionally required the existence of an Urban Rehabilitation Operation (ORU) approved by the municipality. With this new understanding, the Tax Authority launched inspections and corrected several cases, including Propiso's, retroactively applying the standard 23% rate.
The arbitration court's decision
Although acknowledging that, in light of the new case law, the reduced rate would not in fact apply due to the lack of an ORU, the arbitration court concluded that the previously issued binding information must prevail. The arbitrators stressed that the tax administration is legally bound to honour the commitments it makes to taxpayers.
The additional assessment was therefore deemed illegal, and the State held responsible for an error attributable to the tax services.
Source: Jornal de Negócios
