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A new ruling was recently published by the Supreme Administrative Court (‘STA’) which has a potential impact on the VAT framework applied to work carried out under licence, prior communication or prior information requests submitted before October 2023 (i.e. before the Mais Habitação Package comes into force).
What is the highlight?
- The STA clarifies that in order to benefit from the reduced VAT rate (6% in mainland Portugal and 4% in the Autonomous Regions), urban planning operations must be integrated into an urban rehabilitation area (‘ARU’) and under an urban rehabilitation operation (‘ORU’) approved by the municipality.
- This position is in line with the interpretation of the Tax and Customs Authority (‘AT’) and has given rise to successive disputes with taxpayers, for whom an ORU was not necessary.
What are the impacts?
- Only projects with licensing procedures initiated before October 2023 are potentially affected by this STA ruling, since a new wording has applied since then.
- Disputes that have already been decided by the courts cannot be ‘reopened’ by the AT, so in these cases taxpayers are safeguarded if the decision obtained was favourable.
- Disputes that are ongoing and under discussion with the AT will surely be decided along the lines now defined by the STA, specifically impacting operations that are not covered by an ORU.
- The AT may eventually gain momentum to start tax inspections and promote corrections to urban planning operations without an approved ORU in 2021, 2022 and 2023.
In view of the above, we suggest that our clients revisit the procedures implemented in urban planning operations carried out or initiated in the years mentioned above, to analyse whether it is possible to implement measures that may mitigate the impacts of the STA's ruling.