Summary
Full Decision
ARBITRAL DECISION
REPORT
On 6 February 2017, A… – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, SA, with the Tax ID Number … and with registered office at …, no. …, …, in Lisbon, in its capacity as Managing Entity of B… – CLOSED REAL ESTATE FUND FOR RESIDENTIAL RENTAL, with the Tax ID Number … (hereinafter Claimant), came, under Article 2, No. 1, letter a), of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration (RJAT), to request the establishment of an Arbitral Tribunal, in which the Tax and Customs Authority (hereinafter TA or Respondent) is the opposing party, with a view to the declaration of nullity, or, alternatively, the annulment of the assessments of Municipal Property Transfer Tax (IMT) No. …, in the amount of € 23,746.75 and of Stamp Tax (ST) – item 1.1, of the General Stamp Tax Table, No. …, in the amount of € 3,479.00, in the total amount of € 27,225.75, which it attributes as the economic value of the claim.
Furthermore, the Claimant requests the Respondent be condemned to restitution of the amounts wrongfully paid, plus default interest and indemnity interest.
Summary of the Parties' Position
a. Of the Claimant:
To substantiate the claim, the Claimant alleges the following:
The "Special Regime Applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH)", approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December (State Budget for 2009), established, in its Article 8, the respective tax regime, in accordance with which acquisitions of urban immovable property or autonomous fractions of urban immovable property intended exclusively for rental for permanent residential housing by the investment funds referred to in No. 1 were exempted from IMT (Article 8, No. 7, letter a)) and from Stamp Tax "all acts performed, provided they are connected with the transfer of urban immovable property intended for permanent residential housing which occurs by reason of the conversion of the right of ownership of such immovable property into a right of rental thereon, as well as with the exercise of the purchase option provided for in No. 3 of Article 5" (Article 8, No. 8);
Article 235 of Law No. 83-C/2013, of 31 December (State Budget for 2014), amended Article 8 of the "Special Regime Applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH)" by adding Nos. 14 to 16, and furthermore established in No. 2 of its Article 236 a transitional legal provision, stipulating that the amendments introduced to that Article 8 would apply to immovable property acquired by FIIAH from 1 January 2014 onwards (No. 1), and were equally applicable "to immovable property acquired by FIIAH before 1 January 2014, with the three-year period provided for in No. 14 being counted from 1 January 2014 in those cases";
Given that the acquisition of the autonomous fraction object of the disputed assessments was carried out within the framework of the original wording of Article 8 of the "Special Regime Applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH)", its taxation could not occur in accordance with the terms established by the amendments introduced to that provision by Article 235 of Law No. 83-C/2013, of 31 December, as occurred, under penalty of unconstitutionality, as this constitutes a retroactive application of Nos. 14 to 16 of the aforementioned Article 8, in violation of the provision in No. 3 of Article 103 of the Constitution of the Portuguese Republic (CRP);
Nos. 14 to 16 of Article 8 of the aforementioned Regime established, de novo, assumptions on whose fulfillment depends the right to exemption from IMT and Stamp Tax, non-existent at the date of acquisition of the taxed immovable property, by concretizing the concept of "urban immovable property intended for rental for permanent residential housing", as well as the circumstances in which those forming part of the assets of FIIAH cease to benefit from the exemption provided for in Nos. 7, letter a) and 8, of the same article.
The Claimant thus considers that, since Article 235 of Law No. 83-C/2013, of 31 December, introduced a new regime for lapse of exemptions, the provision of No. 2 of Article 236 of the same Law, in determining the retroactive application of that new regime to situations that occurred under the prior law and already consolidated in the legal order, suffers from unconstitutionality, a defect that taints the disputed assessments, made under the provision of No. 16 of Article 8 of the "Special Regime Applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH)".
It concludes, thus, that the assessments object of these proceedings are null, due to abstract illegality, requesting the declaration of their nullity or, alternatively, should it be understood that such defect gives rise only to voidability, that they be annulled as illegal.
b. Of the Respondent:
Notified in accordance with the terms and for the purposes provided for in Article 17 of the RJAT, the TA submitted a response, in which it came to defend the legality and maintenance of the tax assessment acts object of this request for arbitral ruling, with the following grounds:
The amendments introduced by Law No. 83-C/2013, of 31 December (State Budget for 2014), to the tax regime applicable to FIIAH and SIIAH, approved by Article 102 of Law No. 64-A/2008, of 31 December (State Budget for 2009) limited themselves to clarifying the meaning of the expression "urban immovable property intended exclusively for rental for permanent residential housing", henceforth expressly providing a regime for termination of the fiscal benefit, in case of non-compliance with that legal requirement;
However, the aforementioned amendments do not entail retroactivity, since at the date of creation of the tax regime applicable to FIIAH, taxpayers wishing to benefit from the exemptions from IMT and Stamp Tax provided for therein would have to comply with the assumption that the property acquired would be intended exclusively for rental for permanent residential housing;
The disputed assessments do not entail any breach of the principles of legal certainty and protection of legitimate expectations, as the transitional rule contained in No. 2 of Article 236 of Law No. 83-C/2013, of 31 December, established a three-year transitional period for application of the amendments introduced to the "Tax Regime of FIIAH", not limiting itself to immediately ceasing all exemptions in course that did not prove to possess the legal requirements;
It is manifest that, since the beginning of the "Tax Regime of FIIAH", the benefit could always cease provided that the respective assumptions ceased to be verified, and it is further the case that, under No. 2 of Article 14 of the Tax Benefits Statute, the alienation of the immovable property to which the disputed assessments pertain would always determine that the exemptions of which the Claimant benefited upon acquisition would cease to have effect;
The new law established no new requirement, merely granted a period for fulfillment of that requirement; it is not, therefore, a matter of altering the assumptions, conditions of attribution or recognition of a fiscal benefit, but solely and only of a period of time for purposes of verification of the fulfillment of a requirement previously established.
The TA concludes, defending the dismissal of the request for arbitral ruling, with absolution from all claims as formulated.
II. SANATION
The single arbitral tribunal is competent and was regularly constituted on 19 April 2017, in accordance with Articles 2, No. 1, letter a), 5 and 6, all of the RJAT;
By Order of His Excellency the President of the Deontological Council of CAAD, of 10 November 2017, the undersigned was appointed arbitrator in substitution of the arbitrator previously in office in the proceedings, an appointment accepted within the applicable period, without opposition from the Parties;
By Arbitral Order of 5 December 2017, notified on 7 December 2017, the holding of the meeting referred to in Article 18 of the RJAT was waived, the period for issuance of the arbitral decision was extended until 19 December 2017, and the Parties were invited to produce successive written submissions, within a period of ten days;
By Arbitral Order of 18 December 2017, notified to the Parties on the same date, a new extension of the period for decision, to be delivered by 31 January 2018, was communicated, with the Claimant being warned that, by that date, it should proceed to payment of the remaining arbitration fee;
The Parties did not produce submissions;
The Parties have legal capacity and standing, are legitimate and are legally represented, in accordance with Articles 4 and 10 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;
No exceptions were raised that are necessary to be considered;
The cumulation of claims is admissible, in accordance with the provision in No. 1 of Article 3 of the RJAT, insofar as the request for arbitral ruling formulated, and its merits, depend on the consideration of the same factual circumstances and the interpretation and application of the same principles or rules of law.
III. REASONING
III.1 FACTUAL MATTERS
The factual matters relevant to the understanding and decision of the case, after critical examination of the documentary evidence attached to the request for arbitral ruling and having also regard to the facts invoked by the Parties, on which it is based, are fixed as follows:
A) Proven Facts
1. The autonomous fraction designated by the letters "CY" of the urban immovable property registered under article … of the parish and county of …, county of Lisbon, intended for residential housing, was acquired by "B… – CLOSED REAL ESTATE FUND FOR RESIDENTIAL RENTAL", on 11 November 2013, for the price of € 434,765.50 (Doc. 1 attached to P. I.);
2. Upon acquisition of the identified autonomous fraction, the acquirer benefited from exemptions from IMT and Stamp Tax, in accordance with Article 8, Nos. 7, letter a) and 8, respectively, of the Special Regime Applicable to FIIAH and SIIAH (Doc. 1 attached to P. I.);
3. The taxpayer requested the local services of the TA to issue the IMT and Stamp Tax assessments now object of these proceedings, "because the aforementioned fraction will be alienated" – As stated in the terms of assessment – Doc. 1, attached to P. I.;
4. In accordance with the request, assessments for IMT No. …, in the amount of € 23,746.75 and for Stamp Tax (item 1.1 of the GSTT) No. …, in the amount of € 3,479.00, were issued in its name, with a payment deadline of 2016-11-07 (Doc. 1 attached to P. I.);
5. The terms of the aforementioned assessments, made under the provision of No. 16 of Article 8 of the Regime of Real Estate Investment Funds for Residential Rental (FIIAH), state that they pertain to the following situation: "On 19 November 2013 the IMT No. …/2013 was assessed for the acquisition of article …, fraction "CY", registered in the urban property matrix of the parish of …, county of Lisbon, to the Taxpayer Tax ID Number: … (C…), with Benefit Code 92 FIIAH/SIIAH (…) for the price of 434,765.50€ with residential allocation" (Doc. 1 attached to P. I.);
5. The disputed assessments were paid on 7 November 2016 (Doc. 2 attached to P. I.).
B) Unproven Facts
There are no facts with relevance to the decision of the case that have been considered unproven.
C) Reasoning for the Determination of Factual Matters
The determination of factual matters was based on critical analysis of the documentary evidence attached to the proceedings and the facts alleged and not contested by the Parties.
III.2 ON THE LAW
1. The Question to be Decided
The disputed question in the present arbitral action consists of knowing whether the acquisition of an immovable property by a Real Estate Investment Fund for Residential Rental (FIIAH), on a date prior to 1 January 2014, with benefit of the exemptions provided for in Article 8, Nos. 7, letter a) (IMT) and 8 (Stamp Tax), of the "Special Regime Applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH)", hereinafter, in simplified form, Special Regime of FIIAH, may be taxed in accordance with the terms established by No. 2 of Article 236 of Law No. 83-C/2013, of 31 December (State Budget for 2014), if such immovable property has been alienated, outside the situations provided for in Article 5 of that Special Regime of FIIAH.
2. The Applicable Law
Article 8 of the Special Regime of FIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, established the tax regime applicable to FIIAH that were to be constituted during the five years subsequent to its entry into force, with respect to immovable property acquired by them for residential rental, in the same temporal period.
Specifically with respect to IMT and Stamp Tax, Nos. 7 and 8 of that Article 8 provided that
"7 – The following are exempted from IMT:
a) Acquisitions of urban immovable property or autonomous fractions of urban immovable property intended exclusively for rental for permanent residential housing, by the investment funds referred to in No. 1;
b) Acquisitions of urban immovable property or autonomous fractions of urban immovable property intended for own permanent residential housing, as a result of the exercise of the purchase option referred to in No. 3 of Article 5 by tenants of immovable property that form part of the assets of the investment funds referred to in No. 1.
8 – All acts performed are exempted from stamp tax, provided they are connected with the transfer of urban immovable property intended for permanent residential housing which occurs by reason of the conversion of the right of ownership of such immovable property into a right of rental thereon, as well as with the exercise of the purchase option provided for in No. 3 of Article 5."
Article 235 of Law No. 83-C/2013, of 31 December, amended Article 8 of the Special Regime of FIIAH by adding Nos. 14 to 16, with the following wording:
"Article 8 - [...]
(…)
14 - For purposes of the provision in Nos. 6 to 8, urban immovable property is considered to be intended for rental for permanent residential housing whenever it is subject to a rental contract for permanent residential housing within a period of three years counted from the moment it came to form part of the fund's assets, with the taxpayer being required to communicate and furnish proof to the TA of the respective effective rental, within 30 days following the end of the aforementioned period.
15 - When immovable property has not been subject to a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in Nos. 6 to 8 cease to have effect, and in that case the taxpayer shall request the TA, within 30 days following the end of the aforementioned period, to assess the respective tax.
16 - Should immovable property be alienated, with the exception of cases provided for in Article 5, or should the FIIAH be subject to liquidation, before the expiration of the period provided for in No. 14, the taxpayer shall likewise request the TA, prior to the alienation of the immovable property or the liquidation of the FIIAH, to assess the tax due in accordance with the preceding number."
Concurrently, No. 2 of Article 236 of the cited Law No. 83-C/2013, of 31 December, established a transitional legal provision, defining the terms of applicability of the new Nos. 14 to 16 of Article 8 of the Special Regime of FIIAH to immovable property acquired by them on a date prior to 1 January 2014.
The following is the wording of No. 2 of Article 236 of Law No. 83-C/2013, of 31 December:
"Article 236 - Transitional provision within the framework of the special regime applicable to FIIAH and SIIAH
1 – (…)
2 - Notwithstanding the provision in the preceding number, the provision in Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, is equally applicable to immovable property acquired by FIIAH before 1 January 2014, with the three-year period provided for in No. 14 being counted from 1 January 2014 in those cases."
In addition to the provisions just referred to, it is also necessary to invoke Article 10 of the IMT Code (Recognition of Exemptions), as these are exemptions dependent on recognition, and Articles 7 (Inspection) and 14 (Extinction of Fiscal Benefits) of the Tax Benefits Statute (TBS), for the reasons that will be indicated below.
3. The Disputed IMT and Stamp Tax Assessments
As follows from the request for arbitral ruling, the Claimant seeks the review of the legality of the disputed assessments, exclusively in light of the norm under which they were issued, that is, No. 16 of Article 8 of the Special Regime of FIIAH, and the transitional legal provision of No. 2 of Article 236 of Law No. 83-C/2013, of 31 December, which it deems unconstitutional, due to retroactivity of its application to a situation that occurred entirely under the prior law.
The Claimant invokes, in support of its thesis, the nature of single-obligation taxes of both IMT and Stamp Tax, whose taxable fact, temporally located, is exhausted in the performance of the act of acquisition of the immovable property, as well as the fact that it was granted the exemption from those taxes upon acquisition of the autonomous fraction now object of taxation, a right that it considers acquired and already crystallized in its legal sphere at the date of amendments to the Special Regime of FIIAH.
The TA contends that, since its inception, the Special Regime of FIIAH has always clearly defined the assumptions that conditioned the attribution of exemptions from IMT and Stamp Tax to FIIAH with respect to immovable property acquired by them, "intended exclusively for rental for permanent residential housing" and that, regardless of the amendments introduced to it by Law No. 83-C/2013, of 31 December, the TA could always, within the scope of its duty to inspect the assumptions of fiscal benefits referred to in Article 7 (current No. 1) of the TBS, decide on the maintenance of the exemptions or the restoration of the standard taxation regime (Article 14, No. 1, of the TBS) and that, under No. 2 of the cited Article 14 of the TBS, "when the fiscal benefit concerns the acquisition of property intended for the direct realization of the purposes of the acquirers, it ceases to have effect if they are alienated or given other use without authorization of the Minister of Finance, without prejudice to other sanctions or different regimes established by law".
Let us examine this.
With respect to the so-called "abstract illegality of assessment", judicially defined as the situation in which "the illegality does not reside directly in the act that applies the law to the concrete case, but in the law itself whose application is made, resulting from the non-existence of law in force at the date of the facts to which the obligation that provides for its assessment pertains or from the non-authorization of its collection at the date when the respective assessment took place"[1]; this is a defect that constitutes a ground for both opposition to tax execution under Articles 204, No. 1, letter a) and 99 of the Tax Procedure Code (CPPT), respectively.
However, in the concrete case of the present proceedings, at the date of the facts to which the tax obligation pertains, the taxes in question (IMT and Stamp Tax) were in force, and both their assessment and collection of the respective revenue were also provided for. There was merely no assessment of those taxes at the date of acquisition, because the acquirer met the assumptions of the respective exemption, which it ceased to meet upon alienation of the acquired immovable property.
For the reasons set out, the Claimant's argument fails on this point.
Nor does it have merit when it asserts that, as these are single-obligation taxes, the fact subject to taxation, both with respect to IMT and with respect to Stamp Tax, was exhausted at the date of acquisition of ownership of the immovable property by the Fund: as, although the onerous acquisition of the right of ownership of immovable property constitutes the taxable fact accepted by the norms of objective incidence of each of those taxes (see, respectively, Article 2, No. 1 of the IMT Code, Article 1, No. 1 of the Stamp Tax Code and item 1.1 of the General Table attached thereto), it does not, by itself, determine the birth of the tax obligation, if the taxable fact is arrested in the face of the existence of a negative requirement for taxation[2], such as exemption. In these cases, only with the extinction of the fiscal benefit is the taxable fact produced or, in the words of the legislator of the TBS, is the standard "taxation regime" restored.
Nor would the recognition, at the request of the Fund and at a date prior to that of the acquisition of the autonomous fraction object of the disputed IMT and Stamp Tax assessments, in accordance with Article 10 of the IMT Code, of the exemptions contained in Nos. 7, letter a) and 8 of Article 8 of the Special Regime of FIIAH, determine that such exemptions would remain definitively crystallized in the legal-tax order, since they were always, from the creation of the Special Regime of FIIAH by Law No. 64-A/2008, of 31 December, conditioned to the verification of the requirement that urban immovable property or autonomous fractions of urban immovable property acquired by FIIAH be intended "exclusively for rental for permanent residential housing".
However, it results from the proven factuality that the disputed assessments were issued at the request of the taxpayer, in which the local services of the TA are expressly informed of the alienation of the autonomous fraction to which the same assessments pertain.
There remain, therefore, no doubts that, with the alienation of the taxed immovable property, it was given a use different from that which was the assumption for the maintenance of the exemption recognized upon acquisition, in November 2013.
Nor can it, on the other hand, be invoked that the special nature of the regime created by Law No. 64-A/2008, of 31 December would determine the definitive crystallization of the granted exemptions, for in the silence of the legislator regarding the causes of lapse of the exemptions from IMT and Stamp Tax provided for in Nos. 7, letter a) and 8 of Article 8 of the Special Regime of FIIAH, it should be understood that those contained in Part I of the TBS, extensible to all fiscal benefits (Article 1 of the TBS) are applicable.
Thus, having regard to the inspection powers of the TA with respect to "control of the verification of the assumptions of the respective fiscal benefits and of the fulfillment of the obligations imposed on the holders of the right to benefits" (Article 7 of the TBS, in the wording in force at the date of the facts), the TA could always, in the absence of verification of such assumptions, determine the restoration of the standard taxation regime.
Concluding, for the reasons that precede, that the assessments object of the present proceedings could always have been issued by the TA, independently of the amendments introduced by Article 235 of Law No. 83-C/2013, of 31 December to Article 8 of the Special Regime of FIIAH, or the transitional norm of No. 2 of Article 236 of the same law, which determined the application of those amendments to immovable property acquired by FIIAH on a date prior to 1 January 2014, the review of the constitutionality of the aforementioned norms of the State Budget Law for 2014 becomes irrelevant to the decision of the case.
It is further concluded that, as the assessments now disputed do not constitute acts harmful to the rights and legally protected interests of the taxpayer, as they have not determined the payment of the taxes in a measure greater than that legally provided for, they should be maintained in the legal order.
As the assessed taxes are shown to be due, the review of the question regarding the indemnity interest requested is prejudiced.
IV. DECISION:
In harmony with the factual and legal grounds set out, it is decided to dismiss the requests for declaration of nullity or annulment of the tax assessment acts for IMT No. …, in the amount of € 23,746.75 and for ST (item 1.1 of the GSTT) No. …, in the amount of € 3,479.00, which shall be maintained.
VALUE OF THE CASE: In harmony with the provision in Article 306, Nos. 1 and 2, of the Civil Procedure Code, 97-A, No. 1, letter a), of the CPPT and 3, No. 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 27,225.75 (twenty-seven thousand, two hundred twenty-five euros and seventy-five cents).
COSTS: Calculated in accordance with Article 4 of the Regulations on Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 1,530.00 (one thousand five hundred thirty euros), to be borne by the Claimant.
Notify.
Lisbon, 31 January 2018.
The Arbitrator,
/Mariana Vargas/
Document prepared on computer, in accordance with No. 5 of Article 131 of the Civil Procedure Code, applicable by referral of letter e) of No. 1 of Article 29 of Decree-Law 10/2011, of 20 January.
The wording of this decision is governed by the 1990 orthographic agreement.
[1] See the Decision of the Supreme Administrative Court, of 09/04/2014, delivered in appeal No. 076/14.
[2] Considering the exemption as a "negative assumption, [which] will prevent a legal tax relationship from being constituted", see MARTINEZ, Pedro Soares, "Tax Law", 7th Edition, Almedina, Coimbra, 1993, pp. 188 and 189.
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