CAAD 105/2017-T: IMT and Stamp Tax Exemption for FIIAH Real Estate Funds Under Transitional Rule

ARBITRAL DECISION [1]

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to constitute the Arbitral Tribunal, established on 19 April 2017, with respect to the process identified above, decided as follows:

1.   REPORT
   

1.1. The Company A…, S.A., Legal Entity No…, registered under the same number at the Commercial Registry Office of Lisbon, with registered office at …, No…, …, in Lisbon (hereinafter referred to as "Claimant"), in its capacity as manager of the real estate investment fund B… – Closed Real Estate Investment Fund for Residential Rental, registered with the Securities Market Commission, with the tax identification number …, filed a request for an arbitral ruling and for the constitution of a sole Arbitral Tribunal, on 6 February 2017, pursuant to the provisions of Article 4 and No. 2 of Article 10 of Decree-Law No. 10/2011, of 20 January [Legal Regime for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is Respondent (hereinafter referred to as "Respondent").

1.2. The Claimant intends with the aforementioned request for an arbitral ruling that the Arbitral Tribunal considers that "given that the Assessments are based on Article 8, number 16, of the Tax Regime of the FIIAH (applicable ex vi Article 236 (Transitional Norm in the scope of the special regime applicable to FIIAH and SIIAH), number 2, of Law No. 83-C/2013, of 31 December) and given that this latter norm is unconstitutional due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103 (…), number 3, of the Constitution of the Portuguese Republic, the Assessments are vitiated by abstract illegality".

1.3. In consequence, the Claimant understands that there should be "declared the nullity of the Assessments based on their unconstitutionality (abstract illegality)" or "(…) if not so determined, the Assessments shall be annulled" and the Claimant shall be reimbursed "(…) for the entire amount paid by force of the Assessments object of the (…) request for an arbitral ruling, increased (…) by the compensatory interest that may be due until the date of such reimbursement".

1.4. The request for constitution of the Arbitral Tribunal was accepted, on 7 February 2017, by the Excellent Mr. President of the CAAD and notified to the Respondent on the same date.

1.5. The Claimant did not proceed to appoint an arbitrator, so, pursuant to the provisions of Article 6, No. 2, paragraph a) of the RJAT, the undersigned was appointed as arbitrator by the President of the Ethics Council of the CAAD, on 3 April 2017, the appointment having been accepted within the legally prescribed timeframe and terms.

1.6. On the same date both parties were duly notified of this appointment, and did not express the desire to challenge it, in accordance with the provisions of Article 11, No. 1, paragraphs a) and b) of the RJAT, in conjunction with Articles 6 and 7 of the Ethics Code.

1.7. Thus, in accordance with the provisions of paragraph c), of No. 1, of Article 11 of the RJAT, the Arbitral Tribunal was constituted on 19 April 2017, and an arbitral order was issued on the same date, to the effect of notifying the Respondent to, in accordance with the provisions of Article 17, No. 1 of the RJAT, submit a response, within the maximum period of 30 days and, if it wished, request the production of additional evidence.

1.8. Additionally, it was also mentioned in that arbitral order that the Respondent should submit to the Arbitral Tribunal, within the response period, a copy of the administrative file.

1.9. On 19 May 2017, the Respondent filed its Response, having defended itself by impugnation, petitioning that "the present request for an arbitral ruling should be judged as unfounded by lack of proof, and, consequently, the Respondent absolved of all claims, (…) all with the proper and legal consequences" or, "if not so determined (…) it is requested, by appeal to the provisions of Article 280, No. 3 of the CRP and Article 72, No. 3 of the Law of the Constitutional Court, that notification of the (…) arbitral decision be determined to the Public Prosecutor's Office".

1.10. Additionally, the Respondent requested "(…) the exemption from filing the administrative file" "(…) given the matter at issue and in light of the content of the documents already filed by the claimant".

1.11. On the same date, an arbitral order was issued to notify both Parties to, within a period of 5 days, express themselves on the possibility of exemption from holding the meeting referred to in Article 18 of the RJAT and on the possibility of exemption from the submission of arguments.

1.12. On 23 May 2017, the Respondent submitted a petition to the effect that "(…) to inform that it does not oppose the exemption from holding the meeting of Article 18 of the RJAT, as well as the exemption from holding arguments".

1.13. The Claimant, duly notified of the arbitral order dated 19 May 2017, did not express itself on its content.

1.14. In these terms, by order of this Arbitral Tribunal, dated 14 June 2017, and in harmony with the procedural principles enshrined in Article 16 RJAT, of the right to be heard [paragraph a)] of equality of the parties [paragraph b)], of the autonomy of the Arbitral Tribunal in conducting the process and in determining the rules to be observed [paragraph c)], of cooperation and procedural good faith [paragraph f)] and of free conduct of the process enshrined in Article 19 and 29, No. 2 of the RJAT, as well as taking into account the principle of limitation of useless acts, provided for in Article 130 of the Code of Civil Procedure (CPC), applicable by force of the provisions of Article 29, No. 1, paragraph e) of the RJAT, this Arbitral Tribunal decided as follows:

1.14.1. To dispense with the holding of the meeting referred to in Article 18 of the RJAT;

1.14.2. To dispense with the submission of arguments;

1.14.3. To set 21 June 2017 for purposes of rendering the arbitral decision.

1.15. The Claimant was further warned that "until the date of rendering the arbitral decision it should proceed with payment of the subsequent arbitral fee, in accordance with the provisions of No. 3 of Article 4 of the Regulation of Costs in Tax Arbitration Processes and communicate such payment to the CAAD".

1.     GROUNDS FOR ACTION
   

The Claimant supports its claim, in summary, as follows:

2.1. "Law No. 64-A/2008, of 31 December (…), approved the special regime applicable to real estate investment funds for residential rental (hereinafter «FIIAH») and to real estate investment companies for residential rental" and "in its Article 8 (…) the tax regime applicable to FIIAH was established (…)".

2.2. The Claimant continues by noting that "(…), the Tax Regime of the FIIAH defined (…)" that "are exempt from IMT (…) the acquisitions of urban real property or of autonomous fractions of urban real property intended exclusively for rental for permanent residence (…)" and "the acquisitions of urban real property or of autonomous fractions of urban real property intended for permanent own residence, as a result of the exercise of the purchase option (…) by the tenants of the real properties that form part of the assets of the investment funds referred to in No. 1".

2.3. Now, the Claimant alleges that "Law No. 83-C/2013, of 31 December (…) added to Article 8 (…) of the Tax Regime of the FIIAH numbers 14 to 16 (…)" under which:

2.3.1. "For the purposes of the provisions of Nos. 6 to 8, it is considered that urban real properties are intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within a period of three years counted from the moment they became part of the fund's assets (…)";

2.3.2. "When the real properties have 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, the taxpayer must in that case request from the AT, within 30 days following the end of the said period, the assessment of the respective tax";

2.3.3. "If the real properties are alienated, with the exception of the cases provided for (…) before the period provided for in No. 14 has elapsed, the taxpayer must equally request from the AT, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number".

2.4. And the Claimant continues, noting that "Law No. 83-C/2013, of 31 December (…) further established in its Article 236 (Transitional Norm in the scope of the special regime applicable to FIIAH and SIIAH) the following regime (…)":

2.4.1. "The provisions of 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, are applicable to real properties that have been acquired by FIIAH from 1 January 2014" (emphasis by Claimant);

2.4.2. "Notwithstanding the provisions of the preceding number, the provisions of 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, are equally applicable to real properties that have been acquired by FIIAH before 1 January 2014, with the three-year period (…) being counted in those cases from 1 January 2014"(emphasis by Claimant).

2.5. Based on the provisions referred to above, "(…) the now Claimant requested from the Tax Authority the assessment of IMT and Stamp Tax (…) of the tax acts of alienation of real properties by Fund B…", identified as follows:

Property Identification
Document Identification
Amount Paid (€)

Cadastral Article… (fraction S) of the Parish of …
Municipality of Maia

…
IMT Assessment

769.00

…
Stamp Tax Assessment

615.00

2.6. In this context, the Claimant further states that "the Assessments were paid (…) on 7 November 2016 (…)".

"Of the Assessments made under Article 8 (…) of the Tax Regime of the FIIAH (…) and of Article 236 (…), number 2 of the same law"

2.7. The Claimant argues that "number 14 of Article 8 (…) of the Tax Regime of the FIIAH (…) clearly defined, and for the first time, the meaning of the expression urban real properties (…)" by referring to "[are] intended for rental for permanent residence", given that "the introduction of this definition of urban real properties [---] intended for rental for permanent residence was accompanied by the specification of the circumstances in which the real properties forming part of FIIAH assets cease to benefit from the exemption regime provided for in numbers 6 to 8 of the Tax Regime of the FIIAH (…)".

2.8. Thus, for the Claimant "(…) if the real properties forming part of FIIAH assets have not been subject to a rental contract within 3 (three) years, counted from the date of their entry into such assets, the taxpayer must request from the Tax Authority, within 30 (thirty) days following the end of the said period the assessment of the respective tax", and should also do so in the case of "(i) the real properties being alienated by the FIIAH or (ii) the FIIAH being liquidated, in both cases, before the 3 (three) year period has elapsed, counted from the date of entry of the relevant real properties into the FIIAH's assets".

2.9. Additionally, the Claimant further clarifies that "(…) Article 236 (…) of Law No. 83-C/2013, of 31 December (…) extended the application of the regime (…) to real properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided (…) being counted in those cases from 1 January 2014".

2.10. Still according to the Claimant, "the amendments introduced by Law No. 83-C/2013, of 31 December (…) to the Tax Regime of the FIIAH raise legitimate perplexities and questions for the management companies of FIIAH that wish to comply with their obligations before the Tax Authority", since "(…) it is understood that the amendments to the Tax Regime of the FIIAH assume particular relevance within the framework of taxes of sole obligation (…) when they concern real properties that formed part of the FIIAH assets on the date of entry into force (…)" of that Law.

2.11. In this context, according to the Claimant, the tax acts assessing Municipal Tax on Onerous Transfers (IMT) and Stamp Tax, in question, were requested from the Respondent "(…) in light of the amendments introduced in the Tax Regime of the FIIAH", since, "if the Tax Regime of the FIIAH had not been amended (…), it would never have requested the Assessments", whereby "the (…) request for an arbitral ruling is limited to (…) the analysis of the legality of the Assessments which is based exclusively on the norms invoked (…)" (underline by us).

2.12. With effect, the Claimant continues, "those tax acts concerned urban real properties that formed part of Fund B's assets… on the date of entry into force of Law No. 83-C/2013, of 31 December (…), whereby "(…) it understands (…) that the Assessments suffer from illegality due to violation of Article 103 (…), number 3, of the Constitution of the Portuguese Republic and must, consequently, be declared null (or, subsidiarily, voidable)" (emphasis by Claimant).

On the illegality of the Assessments

2.13. According to the Claimant, "the taxable event is, both in the context of IMT and in the context of Stamp Tax, the acquisition of ownership of the relevant real properties by Fund B…", given that "the exemptions from IMT and Stamp Tax were not, on the date of their entry into the assets of the Fund (…) conditioned by the verification of any subsequent facts or circumstances nor, either, subject to any regime of expiry".

2.14. In these terms, the Claimant reiterates that "not being (…) legally provided for, at the moment of recognition of the exemption, any facts or circumstances on which the expiry of the exemption recognized depended, it is manifest that the subsequent imposition of such facts or circumstances to exemptions crystallized in the legal-tax order of the Claimant suffers from unconstitutionality, due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103 (…), number 3, of the Constitution of the Portuguese Republic" (underline by Claimant).

2.15. And the Claimant continues by noting that "(…) the violation of the principle of retroactivity, now invoked, takes into account the understanding that has been followed by the Constitutional Court according to which the prohibition of retroactivity, in the field of tax law, is directed only at authentic retroactivity, covering only the cases in which the taxable event that the new law intends to regulate has already produced all its effects under the old law (…)", being excluded from its scope, according to the Respondent, "(…) the situations of retrospectivity or improper retroactivity (…)".[2]

2.16. Thus, for the Claimant, "in the case sub judice there is no doubt whatsoever that the taxable events that the new law intends to regulate have already produced all their effects under the old law".

2.17. Additionally, the Claimant states that it requested "(…) the issuance of a legal opinion on the constitutionality of No. 2 of Article 236 (…) of Law No. 83-C/2013, of 31 December (…)", according to which "(…) corroborates the thesis of unconstitutionality defended (…)", whereby "(…) there will be no doubt about the unconstitutionality of No. 2 of Article 236 (…) of Law No. 83-C/2013, of 31 December, the norm in which (…) the Assessments are based", being thus to "(…) conclude that such assessments suffer from illegality (…)"[3].

On the nullity of the Assessments

2.18. The Claimant continues by noting that "according to number 1 of Article 133 of the Code of Administrative Procedure in force on the date of the Assessments, the acts to which any of the essential elements is lacking or for which the law expressly provides for such a form of invalidity are null (…)", understanding "(…) the prevailing doctrine and the learned jurisprudence of the Supreme Administrative Court that not all acts that violate constitutional principles are null, only those being null that offend the essential content of a fundamental right, that is, those that conflict with rights, freedoms and guarantees of citizens, and not those that conflict with the principle of tax legality".

2.19. Thus, "as a consequence of the fact that acts violating the principle of tax legality are voidable and not null", it should be clarified whether "the unconstitutionality now argued (…) should have as a consequence the voidability or the nullity of the Assessments".

2.20. Now, "considering that the principle of tax non-retroactivity has the character of a fundamental right, endowed with the protective legal regime of this right", "its non-respect results in the nullity of the act, in this case, the nullity of the Assessments" (emphasis by Claimant).

2.21. According to the Claimant, "in accordance with the provisions of Article 102 (…), number 3, of the CPPT, when the ground for impugnation is nullity, judicial impugnation may be brought at any time" and "the admissibility of impugnation of the defect of nullity without dependence on a time period does not exclude the competence of the Arbitral Tax Court, in particular, by literal interpretation of Article 10 (…) of the RJAT".

2.22. Additionally, according to the Claimant, "admitting, subsidiarily, that the defect (abstract illegality) of the Assessments determines their voidability (and not nullity), the Assessments should be annulled in accordance (…)".

2.23. In summary, the Claimant concludes that "given that the Assessments are based on Article 8, number 16, of the Tax Regime of the FIIAH (applicable ex vi Article 236 (…), number 2, of Law No. 83-C/2013, of 31 December) and given that this latter norm is unconstitutional due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103 (…), number 3, of the Constitution of the Portuguese Republic, the Assessments are vitiated by abstract illegality", whereby it understands that "there should be declared the nullity of the Assessments based on their unconstitutionality (…)" or, "subsidiarily, if not so determined, the Assessments shall be annulled" and "the Claimant shall be reimbursed (…) for the entire amount paid by force of the Assessments object of the (…) request for an arbitral ruling, increased (…) by the compensatory interest that may be due until the date of such reimbursement".

1.   RESPONDENT'S RESPONSE
   

3.1. The Respondent responded by sustaining the unfoundedness of the request for an arbitral ruling in the terms presented hereinafter in summary form.

On the impossibility of non-application by the AT of a legal norm on the grounds of unconstitutionality

3.2. In this context, the Respondent argues that "in accordance with (…) the CRP, the administration is obliged to act in accordance with the principle of legality", "this principle being concretized at the infra-constitutional level in the (…) Code of Administrative Procedure (CPA), which in turn determines that the organs of Public Administration must act in obedience to the law and the law, within the limits of the powers that are attributed to them and in accordance with the purposes for which those same powers were conferred upon them".

3.3. Thus, the Respondent understands that "(…) from such legal impositions it follows that the organs and administrative agents do not have competence to decide on the non-application of norms with respect to which doubts of constitutionality are raised", "contrary to the Courts which, in accordance with Article 204 of the CRP, are prohibited from applying unconstitutional norms, being attributed the competence for the oversight (…) of constitutional compliance".

3.4. According to the Respondent, given that this "(…)" is bound by the principle of legality (…) cannot, by force thereof, disapply norms in function of the interpretation it makes as to their unconstitutionality", whereby the Respondent "(...) could not/can refuse the application of a norm or fail to comply with the law invoking or questioning its constitutionality, for it is subject to the principle of legality (…)".

On the alleged unconstitutionality

3.5. At this point, the Respondent begins by clarifying that the "(…) Law No. 64-A/2008, of 31 December (…)" "approved a special regime applicable to the (…) FIIAH and the (…) SIIAH", given that "the regime provided therein would apply to FIIAH or SIIAH formed during the five years following the entry into force of the said law and to the real properties acquired by them in the same period".

3.6. Now, "with respect to the tax regime then specifically provided for (…)", the Respondent emphasizes that:

3.6.1. "In accordance with Article 8, No. 7, paragraph a), the acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent residence, by investment funds (…)", are exempt from IMT, "such exemption (…) being applied (…) to FIIAH formed between 1 January 2009 and 31 December 2013, which operate in accordance with the national legislation and with observance of the conditions provided for (…)" in the respective legal regime;

3.6.2. "(…) in accordance with Article 8, No. 8, all acts performed are exempt from stamp tax, provided they are connected with the transmission of urban real properties intended for permanent residence that occurs by force of the conversion of the ownership right in those real properties into a rental right over the same, as well as with the exercise of the purchase option provided for in No. 3 of Article 5".

3.7. The Respondent continues by noting that "Law No. 83-C/2013, of 31 December (…), came to give new wording to the aforementioned Article 8, relating to the tax regime applicable to FIIAH, adding (…) numbers 14 to 16 (…)", under which:

3.7.1. "For the purposes of the provisions of Nos. 6 to 8, it is considered that urban real properties are intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within a period of three years counted from the moment they became part of the fund's assets (…)".

3.7.2. "When the real properties have 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, the taxpayer must in that case request from the AT, within 30 days following the end of the said period, the assessment of the respective tax".

3.7.3. "If the real properties are alienated, with the exception of the cases provided for (…) before the period provided for in No. 14 has elapsed, the taxpayer must equally request from the AT, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number".

3.8. The Respondent further states that "Law No. 83-C/2013, of 31 December further established, in its Article 236 (…)" a transitional norm, under which "the provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH (…) are applicable to real properties that have been acquired by FIIAH from 1 January 2014", given that "notwithstanding the provisions of the preceding number, the provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH (…) are equally applicable to real properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided in No. 14 being counted in those cases from 1 January 2014".

3.9. In this context, the Respondent concludes that "(…) with the amendments introduced, the ratio of the exemptions established was not altered (…)", "all the more so that such amendments took care to respect the principle of legal certainty and protection of trust", "it being certain that (…), taking into account the alienation of the real properties, it results unequivocally that the Claimant could not (…) benefit from the requested exemption".

3.10. Now, according to the Respondent, "(…) the exemptions in question did not simply cease to apply: what happened (…) was that criteria were established to specify a legal requirement provided for in indeterminate form".

3.11. For the Respondent, taking into account that "the extinction of tax benefits has as a consequence the automatic restoration of the rule of taxation", "(…) it is manifest that, from the beginning of the regime, the tax benefits in question applicable to FIIAH always depended on the allocation of the real properties to rental for permanent residence, a legal requirement that the AT, within the scope of its supervisory powers, would always be able to assess, in order to conclude for the continuance of the benefit or, rather, for the restoration of the rule taxation system".

3.12. In consequence, "given that concrete alienation of the real properties (…) is at issue, with the expiry of the exemption occurring (…), Article 8, No. 16 of the regime merely specifies an anti-abuse measure, that is, specifying that real properties that do not remain in the portfolio with allocation exclusively to residential rental, were not acquired with such purpose".

3.13. Thus, with respect to the question of unconstitutionality, the Respondent understands that "(…) contrary to what the Claimant argues, there is no introduction ex novum of a regime of expiry of the benefit, and even less is there any frustration of the expectations of taxpayers or violation of the principle of non-retroactivity of tax law".[4]

3.14. However, the Respondent petitions that "if the Tribunal comes to accept the Claimant's claim and (…) refuses the application of Article 236 of the Regime applicable to FIIAH, on the ground of unconstitutionality (…)", "(…) notification of the (…) arbitral decision be determined to the Public Prosecutor's Office, so that it may fulfill its legal prerogatives".

On the right to compensatory interest

3.15. In this context, according to the Respondent, "(…) for all that has been said above, it is understood that the assessment acts do not suffer from a defect that should dictate their annulment", reiterating that "(…) to the services of the AT cannot be imputed any error of fact or law, given the compliance with the law that informs all its activity", "which, in turn determines (…) that there is no legal basis for the request for compensatory interest".[5]

3.16. Given that, according to the Respondent, "there is no illegality or unconstitutionality of the assessment acts nor legal foundation supporting the Claimant's claim (…)" the Respondent petitions the unfoundedness of the "(…) request for reimbursement of the amounts paid (…)".

3.17. Additionally, the Respondent requests, "(…) given the matter at issue and in light of the content of the documents already filed by the claimant (…)", the exemption from filing the administrative file.

3.18. The Respondent concludes its Response requesting that "the (…) request for an arbitral ruling should be judged as unfounded by lack of proof, and, consequently, the Respondent absolved of all claims (…) with the proper and legal consequences", "or if not so determined, it is requested (…) that notification of the (…) arbitral award be determined to the Public Prosecutor's Office".

1.   PRELIMINARY RULING
   

4.1. The request for an arbitral ruling is timely given that it was presented within the period provided for in paragraph a) of No. 1 of Article 10 of the RJAT.

4.2. The parties have legal personality and capacity, are legitimate with respect to the request for an arbitral ruling and are duly represented, in accordance with the provisions of Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

4.3. The Tribunal is competent to consider the request for an arbitral ruling filed by the Claimant.

4.4. The joinder of claims is legal, since the requirements provided for in Article 3, No. 1 of the RJAT are met, namely, the merits of the claims depend essentially on the consideration of the same factual circumstances and on the interpretation and application of the same principles or rules of law.

4.5. No exceptions were raised that need to be addressed.

4.6. There are no nullities, so it is now necessary to consider the merits of the claim.

1.   FACTS
   

Facts Proven

5.1. The following facts are considered proven:

5.1.1. The Claimant is the management company of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental", registered with the Securities Market Commission (CMVM), with tax identification number….

5.1.2. On 30 December 2013, IMT was assessed through assessment notice No. …/2013, for the acquisition of cadastral article No. … (fraction "S"), registered in the urban property roll of the parish of …, municipality of Maia, with residential allocation and with the tax benefit identified internally by the Respondent as "Code 92 FIIAH/SIIAH", in accordance with the document attached to the request (doc. No. 1).

5.1.3. In the course of its activity, the Claimant alienated, in November 2016, the real property described in the previous point, belonging to the investment fund identified in point 5.1.1., above, having requested from the Respondent, prior to the execution of the public deed of alienation, the following assessments, in accordance with the document attached with the request (doc. No. 1):

Property
Assessment
Tax
Amount

Cadastral Article… (fraction S) of the Parish of … Municipality of Maia

…
IMT
EUR 769.00

…
Stamp Tax
EUR 615.00

TOTAL
EUR 1,384.00

5.1.4. The assessments of IMT and Stamp Tax identified in the previous point are dated 4 November 2016 and the Claimant made payment thereof on 7 November 2016 (that is, within the period to do so), in accordance with copies of the bank transfers made and attached to the file with the request (doc. No. 2).

5.2. No other facts that could affect the decision on the merits of the claim have been proven.

Facts Not Proven

5.3. No facts were found to be unproven with relevance for the arbitral decision.

1.   LEGAL GROUNDS
   

6.1. In the proceedings, the essential question to be decided is whether the assessments of IMT and Stamp Tax object of the request for an arbitral ruling, dated 4 November 2016, suffer or do not suffer from illegality, as stated in point 2.11., above, by the Claimant.

6.2. As we have seen, in point 1.2., above, the Claimant, in summary terms, supports its claim on the fact of considering that "(…) the Assessments are based on Article 8, number 16, of the Tax Regime of the FIIAH (applicable ex vi Article 236 (…) suffer from illegality (…)" because they are based on a norm that "(…) is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined" (underline by us).

6.3. On the other hand, the Respondent argues that "in accordance with No. 2 of Article 266 of the CRP, the Administration is obliged to act in accordance with the principle of legality (…) which in turn determines that the organs of Public Administration must act in obedience to the law and the law, within the limits of the powers that are attributed to them and in accordance with the purposes for which those same powers were conferred upon them".

6.4. In these terms, the Respondent understands that "(…) from such legal impositions it follows that the organs and administrative agents do not have competence to decide on the non-application of norms with respect to which doubts of constitutionality are raised (…)", being "(…) subject to the law and the law (…)".

6.5. Thus, the Respondent concludes that being "bound by the principle of legality, (…) it cannot, by force thereof, disapply norms in function of the interpretation it makes as to their unconstitutionality".

6.6. In this context, it should be noted that this Arbitral Tribunal will not pronounce itself on the alleged (un)constitutionality of Article 236 of the State Budget Law for 2014, with respect to the transitional regime provided therein, applicable to FIAH and SIIAH, but rather to assess and decide, within the scope of its competences, provided for in Article 2 of the RJAT, on the (il)legality of the assessments in question as a consequence of the application of that regime, in the case under analysis.[6][7]

Special Regime Applicable to FIIAH and SIIAH

6.7. Law No. 64-A/2008, of 31 December approved "the special regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH)", providing that "the regime (…) is applicable to FIIAH or SIIAH formed during the five years following the entry into force of the present law and to the real properties acquired by them in the same period", that is, between 1 January 2009 and 31 December 2013 (underline by us).

6.8. In accordance with the legal regime provided for in the diploma identified above, "the establishment and operation of FIIAH (…) are governed by the provisions of the Legal Regime of Real Estate Investment Funds, approved by Decree-Law No. 60/2002, of 20 March (…)". [8]

6.9. Thus, as provided for in the legal regime referred to above, "FIIAH are established in the form of closed funds of public subscription or of private subscription" and "after the first year of activity the value of the total assets of the FIIAH must reach the minimum amount of (euro) 10 million (…)", given that "when formed with the use of public subscription" it must "have, at least, 100 participants, whose individual participation cannot exceed 20% of the value of the total assets of the fund".

6.10. "Non-compliance with the limit of individual participation provided for" in the previous point "results in the immediate and automatic suspension of the right to distribution of income of the FIIAH in the value of the participation that exceeds that limit".

6.11. With respect to the composition of the FIIAH's assets "the provisions of Article 46 of the Legal Regime of Real Estate Investment Funds are applicable, given that, at least, 75% of its total assets are comprised of real properties, located in Portugal, intended for rental for permanent residence".[9] [10]

6.12. "The borrowers of residential credit contracts who proceed to alienate the real property object of the contract to a FIIAH may enter into a rental contract with the fund management entity" and "prior to the execution of the contract for transfer of ownership of the real property to the FIIAH, the respective management entity provides to the alienator (…) information on the essential elements of the transaction, such as the price of the transaction, including, also, where applicable, the value of the rent, the respective conditions of adjustment and the criteria for fixing the price and the general terms of exercise of the purchase option" (underline by us).

6.13. "The rental (…) constitutes the tenant in a right to purchase the real property from the fund, capable of being exercised until 31 December 2020", which "(…) is only transmissible by death of the holder" (underline by us).[11]

6.14. With respect to the applicable tax regime, various exemptions are provided for in the special regime, in particular:

6.14.1. The exemption from Corporate Income Tax (IRC) with respect to income of any nature obtained by FIIAH formed between 1 January 2009 and 31 December 2013, which operate in accordance with the national legislation and with observance of the conditions provided for.

6.14.2. The exemption from Personal Income Tax (IRS) and IRC with respect to income relating to units of participation in the investment funds paid or placed at the disposal of the respective holders, whether by distribution or redemption, excluding the positive balance between gains and losses resulting from the alienation of units of participation.

6.14.3. The exemption from IRS with respect to gains resulting from the transfer of real properties intended for permanent own residence in favor of investment funds, which occurs by force of the conversion of the ownership right in those real properties into a rental right.[12]

6.14.4. The exemption from Real Estate Tax (IMI), as long as they remain in the FIIAH's portfolio, of urban real properties, intended for rental for permanent residence, that form part of the fund's assets.

6.14.5. The exemption from IMT with respect to acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent residence, by investment funds, as well as with respect to acquisitions of urban real properties or of autonomous fractions of urban real properties intended for permanent own residence, as a result of the exercise of the purchase option by the tenants of the real properties that form part of the fund's assets.

6.14.6. The exemption from Stamp Tax with respect to all acts performed, provided they are connected with the transmission of urban real properties intended for permanent residence that occurs by force of the conversion of the ownership right in those real properties into a rental right over the same, as well as with the exercise of the purchase option provided for.

6.15. The regime described above is applicable, with the necessary adaptations, to real estate investment companies (SIIAH) that may be formed under special law and that observe the provisions of the special regime applicable to FIIAH.

6.16. When it was created, in 2008 (with effects as of 1 January 2009), the tax regime described above stood out through its tax exemptions, as "a measure to stimulate rental (…), with the objective of alleviating the tax burden on owners and tenants", allowing families with residential loans, and with difficulty in paying their loan installments, to convert the respective installments into the payment of a rent, by selling the respective real property to the FIIAH, and executing, with the fund management entity (SIIAH), a rental contract over the same real property, and they may still maintain, until 2020, the option to purchase the real property.

6.17. In this context, it should be noted that the range of exemptions presented above configures the notion of tax benefits (in this case, applicable to FIIAH and SIIAH), as defined in the Tax Benefits Statute (EBF).

6.18. In effect, "tax benefits should be considered measures of an exceptional nature, established for the protection of relevant non-fiscal public interests and that are superior to those of the taxation that they prevent", and "from the legal point of view, and in the perspective of the tax legal relationship, tax benefits embody (…) facts which, being subject to taxation, are preventive of the birth of the tax obligation or, at least, of its occurring in full measure" (underline by us).[13]

6.19. "In truth, as a preventive fact, the tax benefit is always translated into situations that (…) are subsumable to the legal rules that define the objective and subjective incidence of the tax", but "(…) because the tax benefit constitutes a preventive fact of the rule of taxation, its extinction or lack of application requirements has as its immediate effect the automatic restoration of that same taxation, as established by Article 12, No. 1, of the EBF" (underline by us).[14]

6.20. With the State Budget for 2014 (Law No. 83-C/2013, of 31 December) numbers 14, 15 and 16 were introduced to Article 8 (tax regime) of the special regime referred to above, as follows:

6.20.1. "For the purposes of the provisions of Nos. 6 to 8, it is considered that urban real properties are intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within a period of three years counted from the moment they became part of the fund's assets, the taxpayer having to communicate and provide evidence to the AT of the respective actual rental, within 30 days following the end of the said period" [15] (No. 14) (underline by us).

6.20.2. "When the real properties have 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, the taxpayer must in that case request from the AT, within 30 days following the end of the said period, the assessment of the respective tax" (No. 15) (underline by us).

6.20.3. "If the real properties are alienated, with the exception of the cases provided for in Article 5, or if the FIIAH is subject to liquidation, before the period provided for in No. 14 has elapsed, the taxpayer must equally request from the AT, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number" (No. 16) (underline by us).

6.21. Additionally, the same Law (referred to in the previous point) also established, in its Article 236, a transitional regime applicable to FIIAH and SIIAH, in the terms of which:

6.21.1. "The provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH (…) are applicable to real properties that have been acquired by FIIAH from 1 January 2014" (No. 1).

6.21.2. "Notwithstanding the provisions of the preceding number, the provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH (…) are equally applicable to real properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided in No. 14 being counted in those cases from 1 January 2014" (No. 2).

6.22. The amendments described above not only served to clarify, unequivocally, the meaning of the expression "urban real properties intended exclusively for rental for permanent residence", but also served to specify the circumstances in which real properties comprising FIIAH assets cease to benefit from the exemption regime provided for in numbers 6 to 8 of the applicable tax regime.

6.23. In effect, if in the wording given by Law No. 64-A/2008, of 31 December, it was stated that "are exempt from IMT, the acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent residence", without clarifying the concepts implicit therein, with Law No. 83-C/2013, of 31 December it was clarified that "it is considered that urban real properties are intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within a period of three years counted from the moment they became part of the fund's assets (…)" (underline by us).

6.24. On the other hand, with the additions resulting from the State Budget Law for 2014, it was expressly specified that:

6.24.1. If the real properties comprising FIIAH assets have not been subject to a rental contract within 3 years, counting from the date of their entry into the fund's assets, the exemptions provided for, in the context of IMI, IMT and Stamp Tax, cease to have effect (expire), "the taxpayer having in that case to request from the AT, within 30 days following the end of the said period, the assessment of the respective tax assessed".

6.24.2. If the said real properties are, in particular, alienated, before the 3-year period provided for has elapsed, the taxpayer must equally request from the AT (before the alienation of the real property), the assessment of the tax due.

6.25. In the case under analysis, the Claimant understands that the assessments of IMT and Stamp Tax object of the request for an arbitral ruling "suffer from illegality due to violation of the provisions of Article 103, No. 3 of the CRP" (whereby they must, consequently, be declared null or voidable), because "the exemptions from IMT and Stamp Tax were not (…)", on the date the real property entered "(…) the assets of Fund B…, conditioned by the verification of any subsequent facts or circumstances nor (…) subject to any regime of expiry".

6.26. In this line of reasoning, the Claimant understands that the transitional regime provided for in "Article 236 (…) of Law No. 83-C/2013, of 31 December (…), by extending the application of the current Tax Regime of FIIAH to real properties that have been acquired by FIIAH before 1 January 2014 (…) is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined", because "(…) the extension enshrined therein configures a new regime of expiry of the exemptions provided for in numbers 7, paragraph a) and 8 of Article 8 (…) and not a mere densification of a criterion previously provided for".

6.27. For the Claimant, "(…) there is no doubt whatsoever that the taxable events that the new law intends to regulate have already produced all their effects under the old law" and, to corroborate "the thesis of unconstitutionality defended (…)" the Claimant attached to the request for an arbitral ruling, an opinion issued by two illustrious legal experts, according to which they conclude that "Article 236, No. 2, of the State Budget Law for 2014 is unconstitutional, due to violation of Article 103, No. 3 of the Constitution of the Republic, as it provides that the provisions of the new Nos. 14 to 16 of Article 8 of the legal regime of FIIAH, which alter and restrict the exemptions previously provided for in Nos. 7 and 8 of that same article, are equally applicable to real properties acquired by FIIAH before 1 January 2014".

6.28. The Respondent does not agree with the position defended by the Claimant since it understands "that at the date of creation of the tax regime applicable to FIIAH (…) the exemptions in question (…) required, respectively, that the acquisition of the real properties had as its exclusive destination rental for permanent residence and that the transmission had as its object real properties intended for permanent residence (…)", whereby "the taxpayers who wished to benefit from the said exemptions, have always had, from the beginning of the tax regime applicable to FIIAH, to comply with the requirement that such real properties were intended exclusively for rental for permanent residence" (underline by us).

6.29. Now, in the case under analysis, as results from the assessment notices attached to the file, the assessments of both taxes were based on the fact that fraction "S" of the real property registered in the urban property roll of the parish of … (under article…) has been alienated, that is, because the real property has been given a destination different from that on which the benefit was based (there being no evidence that this alienation was carried out in favor of the tenant, in accordance with the provisions of Article 5 of the special regime of SIIAH).

6.30. Thus, it is not a matter of the application of the requirement associated with allocation to a specific destination (rental for permanent residence), within the three-year period introduced by Article 236 of the transitional regime already referred to (and the respective counting of the period), but rather of the alienation of a real property allocated to a FIIAH managed by the Claimant, outside the scope of "the acquisitions of urban real properties or of autonomous fractions of urban real properties intended for permanent own residence, as a result of the exercise of the purchase option by the tenants of the real properties that form part of the fund's assets" [as provided for in Article 8, No. 7, paragraph b), No. 8 and Article 5, No. 3 of the special regime of FIIAH] which, implicitly, resulted in that real property ceasing to be (or having never been) allocated, by the FIIAH, to the legally provided purpose in Article 8, No. 7, paragraph a) and No. 8 of that special regime (residential rental).

6.31. Additionally, and with the aim of responding to the question raised above in point 6.1., more attention should be given to the analysis of the nature of Tax Benefits, in general, and those provided for in the Special Regime applicable to FIIAH and SIIAH, in particular.

On the Regime of Tax Benefits in General

6.32. In general, the grant of a tax benefit opposes the application of the normative system, as it is translated into a preventive fact of the birth of the tax obligation and, as it may be an economic, social or cultural incentive (pursuing purposes different from those that preside over the rule of taxation system), tax benefits should be characterized by their exceptional nature and by their non-fiscal foundation:

6.32.1. By their exceptional nature, because they hinder normal taxation;

6.32.2. By their non-fiscal foundation, to the extent that, if there were a fiscal foundation, it should be incorporated into the rule of taxation system itself.

6.33. Now, constituting the act of taxation an act of public interest, it must be recognized that the creation of a tax benefit will alter the balance in the distribution of the tax burden by treating citizens unequally, in light of the criterion of ability to pay, making the application of the principle of equality impossible.[16] [17]

6.34. In these terms, it can be affirmed that tax benefits contain three requirements:[18]

a) First, they constitute a derogation from the general rules of taxation;

b) Second, they pursue a relevant social and economic objective that determines the derogation of the general rule referred to in the previous point;

c) And, finally, they attribute, in consequence, an advantage to the taxpayers who benefit from them.

6.35. Thus, in accordance with the provisions of Article 2 of the EBF, "tax benefits are considered to be measures of an exceptional nature established for the protection of relevant non-fiscal public interests which are superior to those of the taxation that they prevent", being considered as tax benefits, in particular, "(…) exemptions (…)" (underline by us).[19]

6.36. In this sense, Article 2 of the EBF considers the concept of tax benefit as being a preventive fact of the constitution of the tax legal relationship, whereby the norms that preside over its creation, and that legitimize its grant, are:

6.36.1. Juridically special and,

6.36.2. Factually exceptional, given that they are founded on public, non-fiscal interests, but constitutionally relevant.

6.37. In this context, the break with the essential core of taxation passes, primarily, by a derogation of the principle of ability to pay ([20]) insofar as, in accordance with this principle, taxation would be practiced according to the subjective situation of each taxpayer, that is, the just tax is that which guarantees equality in the distribution of tax burdens.

6.38. The principle of ability to pay demands not only the personalization of taxation but also that the legislator directs the tax to the three manifestations of wealth relevant which indicate the taxpayer's economic capacity and which constitute the tax base, that is, the wealth that is gained (income), the wealth that is possessed (assets) and the wealth that is spent (consumption).[21]

6.39. In these terms, the principle of ability to pay comprises two dimensions, which are that of presupposition and that of limit of taxation:

6.39.1. As a presupposition or source of taxation, the principle of ability to pay is based on the economic power of the taxpayer expressed in the ownership or use of wealth;

6.39.2. As a limit or measure of the value of the tax, it forbids the legislator from adopting ordering elements affecting the constitutive elements of the tax, contrary to the requirements of tax justice set out by the same principle.

6.40. On the other hand, tax benefits may be distinguished as conditioned benefits, temporary benefits and permanent benefits. [22]

6.41. Conditioned tax benefits are those whose effectiveness is dependent on the verification of certain accessory secondary requirements (which are their "conditio juris"), thus distinguishing themselves from the so-called pure benefits whose effectiveness is not dependent on the verification of any accessory requirement.[23]

6.42. In conditioned benefits, the condition may take one of two forms, either suspensive or resolutive:

6.42.1. The condition is called suspensive when the benefit is granted after the verification of certain accessory requirements and,

6.42.2. It is considered resolutive when the benefit is granted but its effectiveness is dependent on the verification of the benefit's requirements, whose non-verification determines the expiry of the same.

6.43. With respect to temporary benefits, as the name indicates, they are granted for a limited period fixed in the law, as opposed to permanent benefits granted for the future without predetermined duration.[24] [25]

6.44. Given that temporary benefits are created with the objective of producing certain results of relevant public interest, the benefits of a permanent character, given their long duration, have the inconvenience of the possibility that, once the public interest pursued with their grant has been surpassed, they may become favors or fiscal privileges.

6.45. As established in Article 12 of the EBF, "the right to tax benefits must be reported as of the date of verification of the respective requirements, even if it is dependent on recognition (…)" whereby it is inferred that, as a general rule, the right to tax benefits is constituted with the verification of the respective requirements (underline by us).

6.46. In this matter, in accordance with the provisions of Article 5 of the EBF, tax benefits may be "automatic and dependent on recognition", given that "the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition" (underline by us).

6.47. In truth, with respect to the grant of tax benefits, the law distinguishes two types of recognition:

6.47.1. In automatic tax benefits, recognition results directly and immediately from the law, operating by the simple verification of the respective factual requirements, requiring no act by the tax authority;

6.47.2. In tax benefits dependent on recognition, this may be carried out by administrative act (in which case we have tax benefits dependent on unilateral recognition) or through contract (in which case we have tax benefits dependent on bilateral recognition).

6.48. For purposes of the above described, Article 65 of the Code of Tax Procedure and Process (CPPT) provides that "the recognition of tax benefits depends on the initiative of the interested parties, by petition directed specifically to that end, the calculation, when mandatory, of the requested benefit and proof of the verification of the recognition requirements under the law".

6.49. In accordance with the provisions of Article 7 of the EBF, "all natural or legal persons, of public or private law, to whom tax benefits are granted, whether automatic or dependent on recognition, are subject to oversight by the Tax and Customs Authority (…) for the purpose of controlling the verification of the requirements of the respective tax benefits and the compliance with the obligations imposed on the holders of the right to benefits" (underline by us).[26]

6.50. As to the form of extinction of tax benefits, in general terms, in accordance with the provisions of Article 14 of the EBF, the same may be caused by expiry, by alienation of property for purposes different from those for which the benefit was granted, by revocation of the administrative act of grant and by waiver of the benefits.

6.51. In any case, in accordance with the provisions of the article referred to in the previous point, "the extinction of tax benefits has as its consequence the automatic restoration of the rule of taxation", and in accordance with the provisions of Article 9 of the EBF, "the persons holding the right to tax benefits are obliged to declare, within a period of 30 days, that the factual or legal situation on which the benefit was based has ceased, except when that cessation is of ex officio knowledge" (underline by us).

6.52. On the other hand, in accordance with the provisions of Article 15 of the EBF, "the right to tax benefits (…) is inalienable inter vivos, being, however, transmissible mortis causa if the requirements of the benefit are verified in the transferee, except if this is of a strictly personal nature".[27]

On the Interpretation of Norms

6.53. Additionally, and with the aim of being better understood the tax benefits attributed to FIIAH and SIIAH, it will be important to attend to the basic principles of interpretation and application of tax laws.

6.54. In effect, and in accordance with what is established in Article 11 of the General Tax Law (LGT), "in the determination of the meaning of tax norms and in the qualification of the facts to which they are applied are observed the rules and general principles of interpretation and application of laws", given that "whenever, in tax norms, terms specific to other branches of law are employed, the same should be interpreted in the same sense that they have therein, unless otherwise directly follows from the law" (underline by us).

6.55. "If doubt persists about the meaning of the norms of incidence to be applied, account should be taken of the economic substance of the taxable events", and "the gaps resulting from tax norms covered by the requirement of law of the Assembly of the Republic are not susceptible to analogical integration" (underline by us).[28]

6.56. That is, in accordance with the provision referred to above, in the interpretation of tax norms the principles and general rules of interpretation and application of any legal norm are used, except when, as a result of the application of those principles and rules, the interpreter finds itself confronted with any insurmountable doubt – an event before which it is allowed to take account of the economic substance of the taxable events.

6.57. And those general rules are, as is the law, those which are drawn from what is established in Article 9 of the Civil Code, under which it is provided that:[29]

q "Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied" (underline by us).

q "However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, albeit imperfectly expressed"(underline by us).

q "In fixing the meaning and scope of the law, the interpreter will presume that the legislator established the most proper solutions and knew how to express its intent in adequate terms" (underline by us).

6.58. That is, the letter of the law is the starting point and limit for its interpretation and the role of any applicant/interpreter is to attend to what the law says, to its objective meaning, and not to what the legislator putatively would wish to say.

6.59. It is true that the teleology of the rule, a word that translates one of the logical elements of the interpretation of laws, namely its purpose or social justification, cannot but be borne in mind, but this cannot contend with what is established in No. 2 of Article 9 of the Civil Code, i.e., even if it is understood that the purpose of the rule does not accord with its letter, it is the latter that must prevail (because it is for the legislator to change the law, and it is only for the interpreter to understand and apply it).

6.60. In these terms, and in the context of the interpretation exercise, account must be taken of the fact that the applicability of the exemptions from IMT and Stamp Tax provided for in the special regime applicable to FIIAH, as defined by the State Budget Law for 2009 (vide point 6.14., above), were dependent on the fulfillment of the requirements listed below:

6.60.1. Existence of FIIAH, formed between 1 January 2009 and 31 December 2013, in accordance with the applicable legislation, given that at least 75% of its total assets were comprised of real properties, intended for rental for permanent residence.[30]

6.60.2. Existence of real properties, intended for rental for permanent residence, whose acquisition took place between 1 January 2009 and 31 December 2013.[31][32]

6.60.3. Existence of borrowers of residential credit contracts who proceed to alienate the real property object of the contract to a FIIAH (within the temporal period referred to in the previous point), who may enter into a rental contract with the fund management entity, being constituted in a right to purchase the real property (from the FIIAH) capable of being exercised until 31 December 2020.

6.61. Thus, the requirements referred to in the previous point having been verified, were exempt(ed):

6.61.1. From IMT the acquisitions of urban real properties or of autonomous fractions of urban real properties, intended exclusively for rental for permanent residence, by investment funds, as well as the acquisitions of urban real properties or of autonomous fractions of urban real properties, intended for permanent own residence, as a result of the exercise of the purchase option by the tenants of the real properties that form part of the fund's assets;

6.61.2. From Stamp Tax the acts connected with the transmission of urban real properties intended for permanent residence that occurs by force of the conversion of the ownership right in those real properties into a rental right over the same, as well as with the exercise of the purchase option provided for in the previous point.[33]

6.62. If those conditions (vide point 6.60., above) were not verified, in accordance with what is provided for in Article 14 of the EBF, the extinction of the tax benefits referred to above (exemptions from IMT and Stamp Tax) would always occur.

6.63. Now, taking into account the alienation of the real property identified in point 5.1.2., above, for purposes different from those for which the tax benefits described above were granted, such would determine (and did determine in the case under analysis), the automatic restoration of the rule of taxation.[34]

6.64. Thus, in light of what is stated above, this Arbitral Tribunal understands that what is provided for in No. 16 of Article 236 of the Transitional Regime, applied in conjunction with the provisions of No. 15 of the same article in no way alters the substance or requirements of applicability of the exemptions established by Article 8, No. 7 and No. 8 of the special regime applicable to FIIAH and SIIAH, with respect to the assessments in question.[35]

6.65. In these terms, taking into account the conclusions resulting from the analysis presented above, this Tribunal understands that the answer to the question posed in point 6.1., above, will be negative, that is, it understands that the assessments of IMT and Stamp Tax object of the request for an arbitral ruling do not suffer from any illegality, whereby the request for an arbitral ruling should be considered unfounded.

6.66. As a consequence of the conclusion referred to in the previous point the analysis of the question raised by the Claimant regarding the alleged retroactivity of the regime provided for in Article 236 of the State Budget Law for 2014 is prejudiced because, as demonstrated above, the circumstances that originated the tax assessments in question are in no way related to the additions originated by the said article but only to the alienation of the real property (identified in point 5.1.2., above), for purposes different from those for which the exemptions from IMT and Stamp Tax were granted.

6.67. Additionally, the analysis of the question of whether the assessments in question are null or voidable is also prejudiced, for the same reasons.

On the Reimbursement of Tax Paid with Compensatory Interest

6.68. In these terms, taking into account the conclusion presented in point 6.65., above, the request for an arbitral ruling being considered unfounded, there will be no place for reimbursement of the tax (IMT and Stamp Tax) paid, nor will there be, in consequence, place for payment of compensatory interest on that amount.

On Responsibility for Payment of Arbitral Costs

6.69. In accordance with the provisions of Article 22, No. 4, of the RJAT, "the arbitral decision issued by the arbitral tribunal contains the fixing of the amount and the distribution by the parties of the costs directly resulting from the arbitral process".

6.70. In harmony with the previous point, and in accordance with the provisions of Article 527, No. 1 of the CPC (ex vi 29, No. 1, paragraph e) of the RJAT), it should be established that the Party that caused them or, there being no outcome of the action, whoever benefited from the process shall be condemned in costs.

6.71. In this context, No. 2 of the article referred to specifies the expression "caused them", according to the principle of default, understanding that the losing party causes the process costs, in the proportion in which it loses.

6.72. In the case under analysis, and in accordance with the provisions of Article 12, No. 2 of the RJAT and Article 4, No. 4 of the Regulation of Costs in Tax Arbitration Processes, the entire responsibility for the arbitral costs should be attributed to the Claimant.

1.   DECISION
   

7.1. In these terms, taking into account the analysis carried out, this Arbitral Tribunal decided:

7.1.1. To judge unfounded the request for an arbitral ruling presented by the Claimant, with the tax assessment acts of IMT and Stamp Tax object of the request remaining in the legal order, with the consequences flowing therefrom;

7.1.2. To condemn the Claimant in the payment of the costs of the present process.

Value of the Process: Taking into account the provisions of Articles 306, No. 2 of the CPC, Article 97-A, No. 1 of the CPPT and Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Processes, the value of the process is set at EUR 1,384.00.

Costs of the Process: In accordance with the provisions of Table I of the Regulation of Costs in Tax Arbitration Processes, the value of the costs of the Arbitral Process is set at EUR 306.00, to be borne by the Claimant, in accordance with Article 22, No. 4 of the RJAT.

Notify.

Lisbon, 21 June 2017

The Arbitrator,

Sílvia Oliveira

[1] The drafting of this decision is governed by the pre-1990 Orthographic Agreement spelling, except with respect to transcriptions made.

[2] In this context, the Claimant refers to Constitutional Court Decisions No. 128/2009, 85/2010 and 399/2010, all accessible at www.tribunalconstitucional.pt.

[3] The Claimant attached to the arbitral request a copy of a legal opinion "On the constitutionality of Article 236, No. 2 of Law No. 83-C/2013, of 31 December (Application to acquisitions prior to the amendments to the exemptions from IMT and Stamp Tax for Real Estate Investment Funds for Residential Rental)", authored by Professor Dr. C… and Doctor D….

[4] In this matter, the Respondent states that it shares the same understanding as the arbitral decisions issued in proceedings Nos. 320/2015-T, 689/2015-T, 694/2016-T, 705/2015-T, 706/2015-T, 707/2015-T, 708/2015-T, 709/2015-T, 710/2015-T, 717/2015-T, 729/2015-T, 735/2015-T, 61/2016-T, 62/2016-T, 63/2016-T, 76/2016-T, 85/2016-T, 93/2016-T, 121/2016-T and 165/2016-T, all favorable to the AT.

[5] In this context, the Respondent cites the Decision of the Superior Administrative Court of 3 April 2015, issued in proceedings No. 01529/14 and lists the Decisions of the Superior Administrative Court of 26 February 2014 (appeal No. 0491/13), of 12 March 2014 (appeal No. 01916/13) and of 21 January 2015 (appeals No. 0843/14 and No. 0703/14).

[6] In this context, it should be recalled that, in accordance with the provisions of Article 2 of the RJAT, "the competence of arbitral tribunals comprises the consideration (…)" in particular, of the "declaration of illegality of tax assessment acts (…)", given that the competence to carry out the review of the conformity of legal norms (in particular of Laws and Decree-Laws) with the Constitution is exclusive to the Constitutional Court, as it is a matter of the core competence of that Court, assuming itself as the "guardian" or final guarantor of the Constitution (underline by us).

With effect, the competences of the Constitutional Court are multiple and varied, being established in the Constitution, in the Law of the Constitutional Court (Law No. 28/82, of 15 November), in the Law of Political Parties (Organic Law No. 2/2003, of 22 August) and in the Law on Financing of Political Parties and Electoral Campaigns (Law No. 19/2003, of 20 June).

[7] In the context of this process, given the similarity existing, the position of the undersigned expressed in Arbitral Decisions No. 688/2015-T, of 11 April 2016, No. 735/2015-T, of 20 May 2016 and 569/2016-T, of 27 February 2017 will be followed very closely.

[8] And amended by Decree-Laws Nos. 252/2003, of 17 October, 13/2005, of 7 January, and 357-A/2007, of 31 October, and subsidiarily, by the provisions of the Code of Securities, approved by Decree-Law No. 486/99, of 13 November, amended by Decree-Laws Nos. 61/2002, of 20 March, 38/2003, of 8 March, 107/2003, of 4 June, 183/2003, of 19 August, 66/2004, of 24 March, 52/2006, of 15 March, 219/2006, of 2 November, and 357-A/2007, of 31 October.

[9] The percentage limit defined "is assessed in relation to the average of the values verified at the end of each of the last six months, being respected within two years from the date of constitution of the FIIAH, and one year from the date of the capital increase, with respect to the amount of the increase".

[10] This constitution of its assets made it possible for FIIAH (at the date of its creation) to be an instrument that could promote the rental market in Portugal, combating speculation in new rental prices and the decay of urban centers.

[11] "The purchase option provided for (…) ceases if the tenant fails to pay the rent to the FIIAH for a period exceeding three months".

[12] The gains referred to become taxed, in the general terms, if the taxpayer ceases the rental contract or does not exercise the option provided in No. 3 of Article 5 of the regime provided for, with the deadlines for expiry and prescription being suspended for purposes of assessment and collection of the personal income tax, until the end of the contractual relationship.

[13] In this sense, vide Decision of the Administrative Court of Appeal No. 06588/13, of 25 June.

[14] See the Decision referred to in the previous footnote.

[15] In accordance with what is provided for, if the real properties are alienated, even before the period provided for has elapsed, under the terms of Article 5 of the regime (that is, in the case of exercise of the purchase option by the tenants, capable of being exercised until 31 December 2020, or by their legal heirs), there will be no place for assessment of the tax due.

[16] In accordance with Costa A., Rainha J. and Pereira M. [in "Tax Benefits in Portugal: Economic-Social Objectives - Systematization by Activities, Legislation", Coimbra, Livraria Almedina (1977)], tax benefits are policy instruments aimed at certain economic and social objectives, it being noted that a tax benefit exists whenever an entity or activity covered by the incidence of a tax is in a more favorable situation relative to those subject to the general tax regime (underline by us).

[17] The principle of ability to pay is characterized consensually by doctrine and the jurisprudence of the Constitutional Court as a structuring principle of the tax system that expresses and implements the principle of tax equality and which has implicit support in the "Fiscal Constitution", by force of the conjunction of the provisions of Articles No. 103° and 104° of the CRP.

[18] In this sense, Freitas, M. [in "Tax Incentives and Financing of Private Investment, Influence of Tax on the Form of Financing of Enterprises", Lisbon, Center for Tax Studies, (1980)], recognizes that there are three requirements in tax benefits: (i) being a derogation from the rules of taxation, (ii) constituting an advantage for taxpayers and (iii) having a relevant economic or social objective.

[19] Note that the EBF published by Decree-Law No. 215/89 of 1 July (a diploma that has undergone several updates), provides in its preamble that "the multiplicity and dispersion of tax benefits, abolished with the entry into force of the new taxes on income, on 1 January 1989, constituted one of the most criticizable aspects of the Portuguese tax system, given its manifest lack of coherence, the negative consequences of which it caused in terms of fairness and the foregone revenue it implied".

In the review of the regime which was effected with the approval of Decree-Law No. 215/89 of 1 July (Tax Benefits Statute), "relating especially to taxes on income, the Government understood to adopt principles that pass through the attribution to tax benefits of a necessarily exceptional character, to be granted only in cases of recognized public interest; by stability, so as to guarantee taxpayers a clear and secure situation; by moderation, given that revenues are put at risk with the grant of benefits, when the Country has to reduce the weight of the public deficit and, simultaneously, make investments in infra-structures and public services".

In that line, "(…) are included in the Tax Benefits Statute those that are characterized by a less structural character, but that still have relative stability. Benefits with markedly conjunctural purposes or requiring relatively frequent regulation will, in turn, be included in future State Budgets" (underline by us).

In these terms, "the Tax Benefits Statute contains the general principles to which the creation of benefit situations must comply, the rules of their attribution and administrative recognition and the list of such benefits, with the dual objective of, on the one hand, guaranteeing greater stability to the instruments regulating the new types of taxation and, on the other, giving a more systematic character to the set of tax benefits" (underline by us).

[20] In accordance with Azevedo, R. (in "Tax Benefits Statute, III Post-Graduate Course in Tax Law", Faculty of Law of the University of Porto), it is implicit in the concept of tax benefit an exceptional nature, and this exception constitutes, however, an advantage (or relief) in favor of a certain entity, activity or situation.

[21] In this sense, vide Decision of the Constitutional Court issued in the context of Process No. 1067/06, of 29 December.

[22] In this matter, vide Decision referred to in the previous footnote.

[23]Quoting Alberto Xavier (in "Tax Law, FDL Manuals", Lisbon, 1974), "(…) conditioned benefits are translated into making the right to the benefit subordinate to counterparts of public interest in the form of duties or burdens imposed on the beneficiaries (…)".

[24] For Alberto Xavier, in "Tax Law, FDL Manuals", Lisbon, 1974, "(…) the grant of a temporary exemption generates for the subject that benefits from it an expectation of maintenance of the benefit throughout the period to which it is related – which should be protected in the name of the principle of legal certainty – through the recognition of the right that such benefit is not suppressed or suspended during the period of validity of the exemption (…)". Thus, still according to the same author, "(…) it is a case of necessary recognition of acquired rights, which should lead to any hypotheses of derogation of the norms in which the exemption was granted does not involve the loss of the said rights, which may be invoked against the state while the initially provided period of validity lasts".

[25] In this sense, as affirms Nuno Sá Gomes (in "General Theory of Tax Benefits", Notebooks of Science and Tax Technique No. 165, Lisbon, Center for Tax Studies, 1991, page 145) "tax benefits are said to be permanent when they are established for the future, without predetermined duration; they are said to be temporary when the law fixes a time limit to the duration of the benefit".

[26] Amended by Law No. 64/2015, of 1 July (in the previous wording, the reference to the "Tax and Customs Authority" was made to the "Directorate-General of Taxes").

[27] In truth, by the fact that the tax benefit is granted "intuitu personae" it should be considered inalienable, whether "inter vivos" or "mortis causa". However, this rule of inalienability contains two exceptions, provided for in Article 15, Nos. 2 and 3 of the EBF, the first of automatic application and the second dependent on authorization by the Minister of Finance. Note that, with respect to this second derogation of the rule of inalienability, this is merely apparent, when it does not assume the character "mortis causa", because it makes the transmissibility "inter vivos" dependent on the grant of a new benefit, through a recognition process.

[28] In this sense, vide Decision of the Administrative Court of Appeal of 25 June 2013 (No. 06588/13), in terms of which "specifically the norms that establish tax benefits are not susceptible to analogical integration, although they admit extensive interpretation".

[29] In this context, citing Oliveira Ascensão (in "The Law – Introduction and General Theory", Lisbon, 3rd edition, 1983, pages 313 and 315), "we must start from the principle that the text expresses what it is natural for words to express, so that it can be affirmed that the literal understanding will normally be the one that will be accepted". But, given that the legislative intent must be reconstructed, it must still be clarified that, in the words of the same author, it is "(…) decisive the fact that law only has value once integrated into the social order. (…) This integration into the social order implies the disappearance of the legislator after the act of normative creation. It becomes more important to verify what meaning the source takes in the social order it intends to compose, than the meaning by the historical creator".

[30] In this matter, cite the Arbitral Decision No. 734/2015-T, of 14 July 2016, in the terms of which is noted that, with respect to the same opinion attached to the proceedings by the Claimant (vide footnote No. 4), in it may be read that "(…) nothing was provided on the need to maintain the real properties in the portfolio of FIIAH during a certain period, or on the need to actually conclude the rental contract also within a certain period".

Now, "if we read that normative provision well we will have to conclude that the exemption from IMT did not depend only on the identity of the acquirer of the real properties in

[31] This constitution of its assets made it possible for FIIAH (at the date of its creation) to be an instrument that could promote the rental market in Portugal, combating speculation in new rental prices and the decay of urban centers.

[32] "The purchase option provided for (…) ceases if the tenant fails to pay the rent to the FIIAH for a period exceeding three months".

[33] The gains referred to become taxed, in the general terms, if the taxpayer ceases the rental contract or does not exercise the option provided in No. 3 of Article 5 of the regime provided for, with the deadlines for expiry and prescription being suspended for purposes of assessment and collection of the personal income tax, until the end of the contractual relationship.

[34] In this sense, vide Decision of the Administrative Court of Appeal No. 06588/13, of 25 June.

[35] See the Decision referred to in the previous footnote.