Process: 125/2016-T

Date: August 25, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

This Portuguese tax arbitration case (Process 125/2016-T) addresses the controversial retroactive application of IMT (Property Transfer Tax) conditions to FIIAH (Real Estate Investment Funds for Residential Leasing). The claimant, a FIIAH fund management company, acquired residential properties in 2013 under the original IMT exemption regime established by Law 64-A/2008, which exempted acquisitions of urban properties intended exclusively for permanent residential leasing without temporal conditions. However, the 2014 State Budget Law (Law 83-C/2013) introduced Article 236, adding new requirements that properties must be subject to residential lease contracts within three years of acquisition to maintain the exemption. The Portuguese Tax Authority subsequently assessed €32,773.01 in IMT against the fund, claiming the exemption had lapsed. The fund challenged these assessments before CAAD (Administrative Arbitration Center) on constitutional grounds, arguing that Article 236 unconstitutionally applied retroactive conditions to tax benefits already granted, violating Article 103(3) of the Portuguese Constitution which prohibits retroactive tax legislation. The claimant further alleged the assessments suffered from lack of proper legal reasoning. This case highlights critical issues regarding tax legal certainty, constitutional protection against retroactive taxation, and the limits of legislative power to modify previously granted tax benefits. The arbitration proceedings followed standard CAAD procedures, with the tribunal constituted in May 2016 and both parties waiving oral hearings. The decision has significant implications for FIIAH fund taxation, investor protection, and the broader principle of legitimate expectations in Portuguese tax law, particularly concerning real estate investment vehicles designed to promote residential rental housing markets.

Full Decision

ARBITRAL DECISION

PARTIES

CLAIMANT: A…, SA, NIPC PT …, with registered office at Rua …, nº … –…-…-…Lisbon, in its capacity as managing company and in representation of B…– Real Estate Investment Fund Closed for Residential Leasing, NIPC PT… .

RESPONDENT: Tax and Customs Authority (AT)

I. REPORT

a) On 04-03-2016, the Claimant submitted to the CAAD a request seeking, pursuant to the Legal Framework for Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant seeks a declaration of illegality of the Property Transfer Tax (IMT) assessments made in 2016, contained in the following Single Collection Documents: … (€9,021.64, including interest); … (€1,746.57, including interest); … (€4,035.81, including interest); … (€1,459.19, including interest); … (€1,945.07, including interest); … (€1,416.74, including interest); … (€913.29, including interest); … (€1,180.83, including interest); … (€1,185.47, including interest); … (€4,121.55, including interest); … (€1,897.88, including interest); and … (€3,848.97, including interest), totaling €32,773.01.

c) It further seeks the condemnation of the AT to reimburse the amounts paid, plus compensatory interest.

d) Assessments relating to the following autonomous units of urban properties under horizontal property ownership regime:

THE CAUSE OF ACTION

e) The Claimant seeks annulment of the assessments because it contends that the norm that served as their basis, Article 236º of Law No. 81-C/2013, of 31.12, is truly retroactive and therefore violates the constitutional principle of non-retroactivity of tax law (Article 103º - 3 of the CRP), and should be disapplied here.

f) It further contends that the assessment acts in question, in addition to being based on unconstitutional norms, suffer from the defect of lack of reasoning.

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

g) The request for constitution of the TAS was accepted by the President of the CAAD and automatically notified to the AT on 18-03-2016.

h) By the CAAD's Deontological Council, the signatory of this decision was appointed as arbitrator, with the parties being notified thereof on 06-05-2016. The parties did not manifest any intention to challenge the appointment, in accordance with Article 11.º No. 1 paragraphs a) and b) of the RJAT and Articles 6.º and 7.º of the Deontological Code.

i) The Singular Arbitral Tribunal (TAS) has been, since 23-05-2016, duly constituted to hear and decide the subject matter of this dispute (Articles 2.º, No. 1, paragraph a) and 30.º, No. 1, of the RJAT).

j) All of these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 23-05-2016, which is hereby reproduced.

k) On 23-05-2016 the AT was notified in accordance with Article 17º-1 of the RJAT. It responded on 23.06.2016. It did not attach the Administrative Procedure File (PA), requesting waiver of its presentation.

l) By order of the TAS of 26.06.2016, notified on the following day, the parties were invited to take a position on whether or not to hold the meeting of parties provided for in Article 18º of the RJAT and on the production of submissions. The Respondent by request of 27.06.2016 manifested its position in favor of waiving submissions and not holding the meeting referred to in Article 18.º of the RJAT. The Claimant was notified on 19.07.2016 as to whether it concurred with the AT's position, and responded by request of 22.07.2016 manifesting a coinciding position.

m) In the TAS order referred to in the preceding paragraph, the Claimant was also invited to pronounce itself on the content of the 9 decisions adopted at the CAAD and two at the Constitutional Court, and did not pronounce itself within the 10-day period. In the same order the AT was relieved of the obligation to present the PA.

n) The TAS by order of 29 July 2016 set the date of the final decision and invited the Claimant to proceed with payment of the subsequent arbitration fee. This order was notified to the parties on that same day.

PROCEDURAL PREREQUISITES

o) Legitimacy, capacity and representation – The parties enjoy legal personality, procedural capacity, are legitimate parties and are duly represented (Articles 4.º and 10.º, No. 2, of the RJAT and Article 1.º of Ordinance No. 112-A/2011, of 22 March).

p) Principle of adversarial proceedings – The Respondent was notified of the content of the request for pronouncement as provided in item k) of this Report. All procedural documents and all documents attached to the case were made available to the respective counterparty in the CAAD's Case Management System. Both parties were always notified of their attachment.

q) Dilatory exceptions – The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely, as it was presented within the prescribed period in paragraph a) of No. 1 of Article 10.º of the RJAT, as evidenced by the fact that the Single Collection Documents issued for assessment, indicated in b) of this Report, as to the most recent assessment, bear the payment deadline of 14.12.2015 and the request for pronouncement was registered at the CAAD on 04.03.2016.

SUMMARY OF THE CLAIMANT'S POSITION

r) The Claimant, in its capacity as a Real Estate Investment Fund Closed for Residential Leasing (FIIAH) acquired in 2013, from C… SA, the autonomous units of urban properties under horizontal property ownership, intended for permanent residential use, which are listed in paragraph d) of this Report.

s) In these acquisitions the FIIAH benefited from IMT exemption under paragraph a) of No. 7 of Article 8º of the "special regime applicable to real estate investment funds for residential leasing (FIIAH) and real estate investment companies for residential leasing (SIIAH)", approved by Article 102.º of Law 64-A/2008, of 31 December - Chapter X.

t) It states that "following the alienation operations of said properties" the AT proceeded to assess IMT, contending that the Fund had assigned them a "different purpose" from that assigned at the time of the original assessment, and that, as such, the IMT exemption had lapsed, and it proceeded with payment of the assessed amounts. It does not agree, however, with the assessments, and therefore seeks their annulment.

u) Its disagreement with the implicit reading of the law undertaken by the AT in the assessments stems from the reading of the exempting norm (paragraph a) of No. 7 of Article 8º of the Legal Framework for FIIAH), namely: "7 - The following are exempt from IMT: a) The acquisitions of urban properties or autonomous units of urban properties intended exclusively for leasing for permanent residential use, by real estate investment funds …" advocating that this norm did not subject the benefit to any temporal condition, with mere acquisition of the real property and its incorporation into the Fund's assets being sufficient.

v) It challenges the fact that the State Budget Law for 2014 (Article 235º of Law No. 83-C/2013, of 31.12) added a No. 14 to Article 8º of the Legal Framework for FIIAH, stating as follows: "... it is considered that urban properties are intended for leasing for permanent residential use whenever they are the subject of a lease contract for permanent residential use within three years from the moment they became part of the fund's assets, and the taxpayer must communicate and provide proof to the AT of such effective lease, within 30 days following the end of said period", considering that the alteration of the law assumed a retroactive character, stipulating conditions or additional requirements for the application of tax benefits to operations carried out in the past, which had already benefited therefrom.

w) And adds that "the retroactive application of these conditions and requirements generated situations of 'loss of effect' of tax benefits", taking into account the norm contained in Article 236º of the State Budget Law for 2014 which states that the new rules, in addition to being applicable to urban properties acquired by the funds from 01.01.2014, are equally applicable to "… properties that were acquired by FIIAH before 1 January 2014, with the 3-year period provided for in No. 14 being counted from 1 January 2014"

x) It states that this transitional norm violates the principle of non-retroactivity of tax law and the principle of trust and legal certainty, in that the new framework applied to acquisitions made in 2013 prejudices the fund, defeating expectations, and the fund could not adapt its conduct in that with the new regime it would not have made the investment.

y) It seeks the disapplication of the regime in Article 236º of the State Budget Law for 2014 for non-conformity with No. 3 of Article 103º of the CRP, with the consequent annulment of the assessments.

z) It further contends that the assessment acts are not sufficiently reasoned, alleging that "from the analysis of the elements in the notices … the AT merely indicates the allegedly applicable legal norms and the amount of tax to be assessed, without, however, sufficiently pronouncing on the reasoning that underlies these assessments".

aa) Concluding that the Claimant "has failed to understand the reasons that gave rise to such official IMT assessments for the year 2013, given that they are lacking in factual and legal reasoning, which, without any margin for doubt, compromises their formal and substantive validity".

bb) It concludes by arguing that, also for this reason, the assessment acts should be annulled, as illegal.

SUMMARY OF THE RESPONDENT'S POSITION

cc) Disagreeing with the Claimant's viewpoint, the Respondent states: "… at the time of creation of the tax regime applicable to FIIAH, the IMT and IS exemptions required, respectively: (i) that the acquisition of the properties had as their exclusive purpose "leasing for permanent residential use" and, (ii) that the transfer had as its object "properties intended for permanent residential use occurring as a result of the conversion of the right of ownership of such properties into a leasing right over the same, as well as with the exercise of the purchase option provided for in No. 3 of Article 5". "Now, in the case in question, the properties were not given the purpose provided for by law, the dedication to leasing". "… the objective for the attribution of a tax benefit in the IMT and IS sphere to FIIAH was clearly established from the beginning: the acquisitions of urban properties or autonomous units of urban properties intended exclusively for leasing for permanent residential use, by real estate investment funds"".

dd) It invokes in support of its viewpoint the decisions of the CAAD adopted in proceedings 398/2015-T, 688/2015-T, 691/2015-T, 709/2015-T, 710/2015-T and 729/2015-T.

ee) Contending that any violation of the principle of legality, through a tax assessment act does not constitute an offense to the essential content of a fundamental right, it disagrees with the Claimant's reading of Article 236.º of Law 83-C/2013, of 31 December, which approved the State Budget for 2014, when read to mean that "it introduced a new regime of lapse of the exemptions provided for in Nos. 7, paragraph a) and 8 of Article 8.º of the Tax Framework of the Real Estate Investment Fund Closed for Residential Leasing (FIIAH) and not a mere clarification of the criterion previously provided for by law". "And, following this understanding, … the Claimant considers that there is a violation of the principle of non-retroactivity of tax law constitutionally enshrined".

ff) Citing the publication "Real Estate Investment Funds for Residential Leasing, Amândio Fernandes Silva, Jornal de negócios of 19.01.2009" it states: «In conclusion, the present regime aims to achieve two fundamental objectives: the first, to address situations of difficulty, the second, to encourage leasing for permanent residential use.»

gg) It considers that the alterations introduced by the norm of Article 236.º of Law 83-C/2013, of 31 December, which approved the state budget for 2014, to the extent that they apply "… to properties that were acquired by FIIAH from 1 January 2014" and because "with respect to properties that were acquired by FIIAH before 1 January 2014, the 3-year period is counted from 01.01.2014", do not violate any constitutional principle since the "…law establishes a transitional period for application of the alterations so that the new requirement established in law is only assessed for the future, expressly providing that the counting of the 3-year period referred to in the new law for the execution of the lease contract only occurs after the new law takes effect".

hh) It states that the "… legislative intervention advocated aimed to adopt regulatory measures of the regime and measures dissuading abusive situations, that is, the legislative intervention was aimed at clarifying the regime applicable to properties that do not remain in the portfolio with exclusive dedication to residential leasing, were not acquired with such purpose, which would constitute a situation of tax evasion, cannot enjoy tax benefits as exceptional measures instituted to protect relevant extrafiscal public interests superior to those of taxation itself which prevent".

ii) And concludes: "The new law does not alter the prerequisites, the conditions for attribution and recognition of the tax benefit of IMT and IS exemption, there being only the legal provision of the time and mode of compliance with a previously established legal requirement", since "…the exemptions in question did not simply cease to be in effect: what occurred, merely, was that means of proof were established aimed at concretizing a legal requirement provided for in indeterminate form with total and absolute respect for the principle of legal certainty and protection of trust", all the more so because "… the lapse of the exemption due to lack of prerequisites for attribution was already expressly enshrined in Article 14.º/2 of the EBF, with Article 8.º, No. 16 of the regime merely establishing a defined period whose counting only begins after the new law takes effect".

jj) The issue has even been subject to examination by the Constitutional Court, in proceedings 688/2015-T and 398/2015-T, where the appeal was not admitted.

kk) As to the alleged lack of reasoning, it states that it suffices to consider the Claimant's defense "to determine and conclude that … it understood the legal reasons that led the AT to issue the assessments, as well as compensatory interest".

ll) As to the request for interest, it states that this could never proceed, for the reason that the AT "is prevented from disregarding the application of legal provisions - unlike what occurs with courts, whose access to constitution is a binding competence (cf. Constitutional Court Decision No. 440/94 of 7 June 1994) – on the grounds of unconstitutionality".

mm) It advocates for the dismissal of the request for pronouncement and the maintenance in the legal order of the contested assessments, absolving the AT of all requests.

II - QUESTIONS FOR THE TRIBUNAL TO RESOLVE

The essential question to be decided is to ascertain whether the IMT assessments in question are or are not in non-conformity with the law:

  • Constitutional principles, and/or
  • Mere ordinary legislation, that is, the tax regime for FIIAH.

Should it be concluded that the assessments are in conformity with the law, there remains to be verified whether they suffer from the defect of insufficient reasoning.

III. PROVEN AND UNPROVEN FACTS AND REASONING

Regarding factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish proven facts from unproven facts (as per Article 123.º, No. 2, of the CPPT and Article 607.º, No. 3 of the CPC, applicable by reference in Article 29.º, No. 1, paragraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and defined based on their legal relevance, which is established in light of the various plausible solutions to the question(s) of law (as per former Article 511.º, No. 1, of the CPC, corresponding to current Article 596.º, applicable by reference in Article 29.º, No. 1, paragraph e), of the RJAT).

Therefore, taking into consideration the positions assumed by the parties, the documentary evidence attached to the case, the following facts were considered proven, with relevance to the decision, as listed below, indicating the respective documents (proof by documents) or the articles of the procedural pleadings as to facts admitted by agreement, as reasoning.

Proven Facts

  1. The Claimant "B…– Real Estate Investment Fund Closed for Residential Leasing" NIPC … is a collective investment body configured as a Real Estate Investment Fund Closed for Residential Leasing, with its units being subject to private subscription – as per Article 8º of the request for pronouncement and paragraph a) of Article 3º of the AT's response.

  2. In the context of its purpose, it acquired, in 2013, the following autonomous units of urban properties, under horizontal property ownership regime, intended for leasing for permanent residential use, having benefited from IMT exemption under paragraph a) of No. 7 of Article 8º of the legal framework for FIIAH:

As per Articles 11º and 13º of the request for pronouncement, paragraph a) of Article 3º of the AT's response and documents Nos. 13 and 14 attached with the request for pronouncement (purchase deeds).

  1. The Claimant sold on the dates indicated below the autonomous units identified therein:
Identification of the autonomous unit Date of sale
Article … - BS Union of Parishes of … and … 2015-06-05
Article …- AE Parish of … 2015-09-25
Article … - U Parish of … 2015-10-19
Article …– P Parish of … 2015-10-29
Article …-AE Parish of … 2015-10-09
Article …- AN Parish of … 2015-06-05
Article … - CL Parish of … 2015-07-16
Article … - CJ Parish of … 2015-08-24
Article … - AO Parish of … 2015-06-05
Article … - BN Union of Parishes of … and … 2015-11-27
Article …- V Parish of … 2015-11-12
Article …- N Parish of … 2015-12-14

As per documents attached with the request for pronouncement Nos. 15 to 26.

  1. The Claimant was notified by official letters of November 2015 (regarding the first 9 autonomous units indicated in the preceding item) and of January 2016 (regarding the last 3 autonomous units indicated in the preceding item) of the additional IMT assessment, on the grounds of their sale before the expiration of the period in No. 14 of the tax regime for FIIAH, being able to exercise the right to prior hearing in accordance with Article 60º of the LGT, and, if not exercised, within 30 days following, to request at the Tax Service guides for payment - As per documents attached with the request for pronouncement Nos. 15 to 26.

  2. The Claimant did not exercise the right to prior hearing and requested from the AT the issuance of IMT assessment documents and compensatory interest, namely: Single Collection Documents (DUC) … (€9,021.64, including interest); … (€1,746.57, including interest); … (€4,035.81, including interest); … (€1,459.19, including interest); … (€1,945.07, including interest); … (€1,416.74, including interest); … (€913.29, including interest); … (€1,180.83, including interest); … (€1,185.47, including interest); … (€4,121.55, including interest); … (€1,897.88, including interest); and … (€3,848.97, including interest), totaling €32,773.01 – As per documents attached with the request for pronouncement Nos. 1 to 12.

  3. The Claimant proceeded with payment, within the deadline, of the amounts in the DUC referred to in the preceding item - As per documents attached with the request for pronouncement Nos. 27 to 38.

  4. On 04-03-2016, the Claimant submitted to the CAAD the present request for pronouncement – registration of entry in the SGP of the request for pronouncement.

Unproven Facts

There is no other factuality alleged that has not been considered proven and that is relevant to the composition of the procedural matter.

IV. EXAMINATION OF THE QUESTIONS FOR THE TAS TO RESOLVE

Article 102º of Law No. 64-A/2008, of 31 December (norm inserted in Chapter X, under the heading "Tax Benefits") approved the special regime applicable to FIIAH.

In Article 8º of the legal framework for FIIAH is contained the tax regime, being relevant for the case presented here its No. 7, which states as follows:

7 - The following are exempt from IMT:

a) The acquisitions of urban properties or autonomous units of urban properties intended exclusively for leasing for permanent residential use, by the real estate investment funds referred to in No. 1;

b) The acquisitions of urban properties or autonomous units of urban properties intended for permanent residential use, as a result of the exercise of the purchase option referred to in No. 3 of Article 5.º by the lessees of properties that form part of the assets of the real estate investment funds referred to in No. 1.

Article 235º of Law 83-C/2013, of 31 December (State Budget Law for 2014) added three more numbers to the tax regime for FIIAH, namely:

14 - For the purposes of the provisions in Nos. 6 to 8, it is considered that urban properties are intended for leasing for permanent residential use whenever they are the subject of a lease contract for permanent residential use within three years from the moment they became part of the fund's assets, and the taxpayer must communicate and provide proof to the AT of such effective lease, within 30 days following the end of said period.

15 - When properties have not been the subject of a lease contract within the three-year period provided for in the preceding number, the exemptions provided for in Nos. 6 to 8 shall cease to have effect, and in that case the taxpayer must request from the AT, within 30 days following the end of said period, the assessment of the respective tax.

16 - In case properties are alienated, except in the cases provided for in Article 5.º, or in case the FIIAH is subject to liquidation, before the expiration of the period provided for in No. 14, the taxpayer must also request from the AT, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number.»

Article 236.º of Law 83-C/2013, of 31 December (State Budget Law for 2014), further established a transitional norm within the framework of the special regime applicable to FIIAH and SIIAH:

1 - The provisions in Nos. 14 to 16 of Article 8.º of the special regime applicable to FIIAH and SIIAH, approved by Articles 102.º to 104.º of Law No. 64-A/2008, of 31 December, are applicable to properties that have been acquired by FIIAH from 1 January 2014.

2 - Without prejudice to what is provided for in the preceding number, the provisions in Nos. 14 to 16 of Article 8.º of the special regime applicable to FIIAH and SIIAH, approved by Articles 102.º to 104.º of Law No. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided for in No. 14 being counted from 1 January 2014.

It is against this transitional norm that the Claimant directs its disagreement.

Let us then examine:

It follows from the proven facts that the acquisition of the real properties in question was carried out under the tax regime for FIIAH, that is, the Claimant acquired the autonomous units, invoking in the request for assessment made to the Tax Service through IMT Form 1, the exemption of paragraph a) of No. 7 of Article 8º of the legal framework for FIIAH, which states that the property must be intended exclusively for leasing for permanent residential use.

It also follows from the proven facts that the additional IMT assessments, here being challenged, were made "on the grounds of their sale before the expiration of the period in No. 14 of the tax regime for FIIAH".

It suffices to read the notices that the AT made to the Claimant to verify that the grounds for the assessments were the sale of the properties (not under the provisions of Article 5º of the legal framework for FIIAH).

The norm that the AT applied was No. 16 of Article 8º of the legal framework for FIIAH, moreover cited in the notices.

That is, the Claimant acquired the real properties, in 2013, with an IMT benefit, committing itself to dedicate them "exclusively to leasing for permanent residential use" and sold them in 2015 and 2016 without being under the regime of Article 5º of the legal framework for FIIAH (purchase option of lessees, former mutual fund holders).

That is, even considering the legislation that was in force between 01.01.2009 (date of the beginning of the legal framework for FIIAH) and 31.12.2013 (date of the introduction of the norms here under discussion), this benefit would be subject to the regime of current No. 3 of Article 14º of the EBF.

The purpose of the Claimant is, as its very designation indicates: "for Residential Leasing".

The norm of No. 16 of Article 8º of the legal framework for FIIAH did not, truly, create any new regime, but rather enshrine for the concrete case what was already established, in general and abstract terms, for similar situations.

Besides, Nos. 14, 15 and 16 added to Article 8º of the legal framework for FIIAH brought as a novelty only the 3-year period, for the achievement of the lease.

It would make no sense to create real estate investment funds destined, in terms of purpose, to provide leasing for "permanent residential use", conferring on them tax benefits to encourage them in the fulfillment of that objective and then not dedicate them to that purpose.

In any case, what is at issue here is not, in immediate terms, the transitional norm of Article 236.º of Law 83-C/2013, of 31 December (State Budget Law for 2014), but rather, as follows from the AT's notices and the Single Collection Documents (documents Nos. 1 to 12 attached with the request for pronouncement), No. 16 of Article 8º of the legal framework for FIIAH.

In other words, what is at issue is not the fact that the fund maintains the properties in its asset base for a period equal to or greater than 3 years (fixed in the law effective from 01.01.2014) without lease for permanent residential use, but rather their sale, not under the regime of Article 5º of the legal framework for FIIAH, thereby dedicating the property to purposes different from those resulting from the commitment of its acquisition inherent in IMT Form 1 in which it invoked the tax benefit of paragraph a) of No. 7 of Article 8º of the legal framework for FIIAH, without having proceeded in accordance with No. 16 of Article 8º of this regime.

We do not see how one can affirm that the new tax regime for FIIAH resulting from the added Nos. 14, 15 and 16, effective as of 01.01.2014, applicable to properties that have been acquired before 1 January 2014, with the 3-year period for contracting their lease also being counted from 01.01.2014, has retroactivity, since everything is applied as if the previously acquired properties were acquired as of 01.01.2014.

It is affirmed that "… the "new" framework applied to the acquisition of properties made in 2013, is manifestly prejudicial to the Fund, defeating all its expectations and preventing it from "adapting" its decisions - in effect, if the IMT exemption were inapplicable to the acquisition operations in question, certainly the Fund would not have made this investment".

As has been verified, what motivated the assessment was not the fact that the properties had or had not remained in the Fund for 3 years or more, without being subject to a lease contract for permanent residential use.

What motivated the assessments was the sale, that is, the exit of the real properties from the Fund's asset base not by means of the mechanism of Article 5º of its legal framework for FIIAH. Or in other words, it was the fact that the real properties were dedicated to a purpose different from that for which they were acquired.

On the other hand, it seems to us untenable to affirm (albeit implicitly) that the former regime by not providing for a period for leasing for permanent residential use purposes (subject to lapse of IMT exemptions), is what motivated the intention to invest, and then consider that the new regime by fixing a period for such purpose, subject to lapse of exemptions, violates the principle of trust and legal certainty. That would be to admit that the investor, from the outset, did not intend to lease properties for permanent residential use or was unable to accomplish this in a reasonable period, but rather intended to take advantage of the tax benefits in its acquisitions and then alienate them, without fulfilling the purpose for which it acquired them.

That is, even before the new regime (considering new the regime that is in effect with the alterations in force since 01.01.2014) the exit of properties from the FIIAH's asset base (except in the cases of Article 5º of its legal framework), would always have resulted in the lapse of the IMT exemption, in accordance with the general provisions of No. 3 of Article 14º of the EBF.

The tax exemption in question, granted at the time of acquisition of the properties, is an exemption of "automatic recognition" whose verification resulted from a declaration to the competent tax service (paragraph d) of No. 8 of Article 10º and Nos. 1 and 3 of Article 19º of the CIMT) which issued a Single Collection Document at zero rate, implicitly recognizing the tax benefit.

It is, therefore, a tax benefit dependent on recognition as per the final part of No. 1 of Article 5º of the EBF, giving rise to an administrative act as per the first part of No. 2 of Article 5º of the EBF.

However, this administrative act (in principle revocable only in accordance with No. 4 of Article 14º of the EBF) contains within itself a condition, for the benefit to be maintained, which is that of paragraph a) of No. 7 of Article 8º of the legal framework for FIIAH: that the units be intended exclusively for leasing for permanent residential use.

It is, therefore, in another dimension, a conditional tax benefit, that is, subject to the regime in the final part of No. 2 of Article 14º of the EBF.

This is what occurred in the present case. The dedication of the autonomous units to purposes different (sale) from that for which they were acquired with the conditional IMT exemption, corresponds to the "verification of the prerequisites of the respective terminating condition" referred to in No. 2 of Article 14º of the EBF.

In this conformity, we do not see that there is here at issue any of the principles contained in the "Grundnorm" invoked: prohibition of retroactivity of tax law, protection of trust and legal certainty.

Neither do we perceive, in what manner, the alterations made to the tax regime for FIIAH, effective as of 01.01.2014, stipulate "…conditions and additional requirements for the application of tax benefits to operations carried out in the past", insofar as the new law is applicable to all operations, prior or subsequent to 01.01.2014, but with the 3-year period for execution of a lease contract, as regards properties previously acquired by the funds, being counted as if they were acquired after 01.01.2014.

On the contrary. The new legal framework treats equally what is equal (even benefiting operations already carried out before the alteration of the law, to the extent that they have a longer period to accomplish the residential lease), that is, it conforms with the principle of equality required by fundamental law.

For all that has been stated, it must be found that the legal provisions that are the basis of the assessments here in question are not in non-conformity with any principles of fundamental law, insofar as their retroactivity is not verified, nor does it seem reasonable to invoke that a law that treats all acquisitions of FIIAH equally – as regards the essential aspect of the innovation, the counting of the 3-year period for leasing - could reasonably affect the principle of protection and legal certainty.

On the other hand, as stated above, the norm that was applied by the AT in the assessments was textually and immediately No. 16 of Article 8º of the legal framework for FIIAH, as is evident from the notices and in the Single Collection Documents issued for payment of the IMT assessments here being challenged.

The Claimant seeks the "disappliation" of the norm contained in Article 236º of Law 82-C/2013, of 31.12, which the AT did not apply, at least immediately, as the grounds for the assessments, which by itself, results in this Tribunal being prevented from adjudicating on this ground of the request for pronouncement.

In these terms, the request for pronouncement on the grounds of non-conformity of the assessments with fundamental law can only fail.

As to the second ground invoked of insufficiency in the reasoning of the assessments, let us examine the following:

  • The notices of the assessments are very complete in that, in addition to the elements of calculation of the tax and interest, they contain the grounds of fact (the elements of the sale) and of law (the applicable norms);

  • The Single Collection Documents issued at the Claimant's request, in "description", are redundant and repeat the grounds of fact and of law contained in the notices.

Both the notices and the elements of the Single Collection Documents, issued at the Claimant's request, title the act of assessment of IMT and it is evident that in these documents are contained all the elements of fact and of law sufficient for any ordinary citizen to understand the factual and legal grounds that motivated the assessments.

Moreover, the depth and quality of the impugnation of the assessments in the request for pronouncement evidences that the Claimant perfectly understood the grounds of the assessments, both at the level of facts and at the level of law, as well as its interpretation.

The Claimant states that the AT did not pronounce "… sufficiently on the reasoning that underlies these assessments". However, the AT clearly indicated the applicable norm – No. 16 of Article 8º of the legal framework for FIIAH and indicated the fact that led it to apply it: the sale of the autonomous units – so we do not see, concretely, what more the Claimant intended to be set forth in terms of grounds for the assessments.

Therefore, the request for pronouncement on the grounds of alleged insufficient reasoning of the assessment acts is also without merit.

Questions Subject to Prejudicial Determination

The examination of the request regarding the condemnation of the AT to reimburse the amounts paid and to pay indemnificatory interest is prejudiced.

V. OPERATIVE PART

Pursuant to and on the grounds set forth above:

  • The request for annulment of the IMT assessments made in 2016, contained in the Single Collection Documents: … (€9,021.64, including interest); … (€1,746.57, including interest); … (€4,035.81, including interest); … (€1,459.19, including interest); … (€1,945.07, including interest); … (€1,416.74, including interest); … (€913.29, including interest); … (€1,180.83, including interest); … (€1,185.47, including interest); … (€4,121.55, including interest); … (€1,897.88, including interest); and … (€3,848.97, including interest), totaling €32,773.01, is dismissed as being in conformity with the law, in the interpretation set forth above.

  • The AT is absolved of all requests.

Value of the case: in accordance with the provisions in Article 3.º, No. 2, of the Regulations on Costs in Tax Arbitration Proceedings (and paragraph a) of No. 1 of Article 97ºA of the CPPT), the value of the case is set at € 32,773.01.

Costs: in accordance with the provisions in Article 22.º, No. 4, of the RJAT, the amount of costs is set at € 1,836.00 according to Table I annexed to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Notify.

Lisbon, 25 August 2016

Augusto Vieira

Singular Arbitral Tribunal (TAS)

Document prepared by computer in accordance with the provisions in Article 131.º, No. 5, of the CPC, applicable by reference in Article 29.º of the RJAT.

The drafting of this decision follows the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the special IMT exemption regime for residential rental real estate investment funds (FIIAH) in Portugal?
The special IMT exemption regime for FIIAH funds in Portugal, originally established under Article 102 of Law 64-A/2008, exempts acquisitions of urban properties or autonomous units intended exclusively for permanent residential leasing from Property Transfer Tax. Under the original framework, FIIAH funds could acquire residential properties tax-free provided they were designated for rental purposes, without specific temporal requirements. This regime was designed to incentivize institutional investment in rental housing markets. However, the 2014 State Budget Law (Law 83-C/2013) introduced Article 236, which added stricter conditions requiring that properties be subject to actual residential lease contracts within three years of acquisition, with mandatory reporting to tax authorities within 30 days after the three-year period. Failure to meet these conditions results in loss of the exemption and retrospective IMT assessment with interest.
Can Article 236 of Law 83-C/2013 retroactively revoke IMT exemptions previously granted to FIIAH funds?
Article 236 of Law 83-C/2013 attempted to retroactively impose new conditions on IMT exemptions previously granted to FIIAH funds, specifically requiring that properties acquired before the law's enactment comply with the new three-year leasing requirement. The constitutional validity of this retroactive revocation is highly questionable. The claimant in Process 125/2016-T argued that applying these new conditions to transactions completed in 2013 (before the law's 2014 enactment) constitutes genuine retroactivity (retroatividade autêntica) rather than mere retrospectivity. This retroactive application violates the principle of legal certainty and legitimate expectations, as investors relied on the original exemption regime when making acquisition decisions. Portuguese constitutional doctrine generally prohibits retroactive tax laws that worsen taxpayers' positions regarding completed transactions, making Article 236's retroactive application legally vulnerable to constitutional challenge and potential disapplication by courts and arbitration tribunals.
Does the retroactive application of tax law violate the constitutional principle of non-retroactivity under Article 103(3) of the Portuguese Constitution?
Yes, the retroactive application of tax law violates the constitutional principle of non-retroactivity enshrined in Article 103(3) of the Portuguese Constitution (CRP), which states that no tax may be created or increased retroactively. This fundamental principle protects legal certainty and taxpayers' legitimate expectations. In Process 125/2016-T, the claimant argued that Article 236 of Law 83-C/2013 violated this constitutional guarantee by imposing new conditions on tax benefits already granted for transactions completed in 2013. The Portuguese Constitutional Court and administrative tribunals distinguish between authentic retroactivity (applying new rules to past completed facts) and retrospectivity (applying new rules to future effects of past facts). Authentic retroactivity in tax matters is generally unconstitutional, particularly when it worsens taxpayers' legal positions. Since the FIIAH fund acquired properties under the original exemption regime and the subsequent imposition of the three-year leasing requirement fundamentally altered the conditions for maintaining that benefit, this constitutes unconstitutional retroactive taxation that should be disapplied by courts.
How can FIIAH fund management companies challenge IMT tax assessments through CAAD tax arbitration?
FIIAH fund management companies can challenge IMT tax assessments through CAAD (Centro de Arbitragem Administrativa - Administrative Arbitration Center) by filing a request for arbitration within 90 days of notification of the tax assessment or payment deadline. The process involves: (1) submitting a formal arbitration request identifying the contested tax assessments (payment documents/DUC numbers) and amounts; (2) stating the legal grounds for challenge, such as unconstitutionality, illegality, or procedural defects; (3) appointing or accepting appointment of an arbitrator; (4) paying the required arbitration fees; (5) submitting legal arguments and evidence; and (6) responding to the Tax Authority's defense. In Process 125/2016-T, the claimant challenged €32,773.01 in IMT assessments on constitutional grounds (violation of Article 103(3) CRP regarding retroactive taxation) and procedural grounds (lack of proper reasoning). The CAAD arbitration process is typically faster and more specialized than judicial courts, offering an effective alternative dispute resolution mechanism for tax matters, with decisions having the same force as court judgments.
What are the grounds for annulment of IMT assessments based on unconstitutionality and lack of legal reasoning?
IMT assessments can be annulled on two primary grounds demonstrated in Process 125/2016-T: (1) Unconstitutionality of the underlying legal basis - When assessments are based on norms that violate constitutional principles, such as Article 236 of Law 83-C/2013's alleged violation of Article 103(3) of the Portuguese Constitution prohibiting retroactive taxation, courts and arbitration tribunals have the power to disapply unconstitutional norms and annul resulting assessments. The substantive illegality stems from applying retroactive conditions to previously granted tax benefits, violating legal certainty and legitimate expectations. (2) Lack of legal reasoning (fundamentação) - Portuguese administrative law requires all tax assessments to contain sufficient legal reasoning explaining the factual and legal basis for the tax liability. The claimant argued the IMT assessments suffered from deficient reasoning, failing to adequately explain how the retroactive application of Article 236 was legally justified. This procedural defect independently grounds annulment, as proper reasoning is essential for taxpayers to understand and effectively challenge assessments, constituting a fundamental guarantee of taxpayers' rights of defense.