Process: 148/2017-T

Date: November 13, 2017

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 148/2017-T) addresses whether properties held by a Special Real Estate Investment Fund to Support Companies (FIEAE) qualify for IMI exemption under the tax regime applicable to residential rental investment funds (FIIAH/SIIAH). The claimant contested an IMI assessment totaling €5,081.85 for 2015 on 24 autonomous units, arguing that Article 8 of the FIIAH/SIIAH regime, extended to FIEAE by Article 117 of Law 3-B/2010, entitled it to exemption. The Tax Authority raised three procedural defenses: res judicata (prior ruling on same tax year), untimeliness (exceeding the 90-day deadline under Article 10(1)(a) of RJAT), and material incompetence (instalments not autonomously reviewable). On the merits, the Authority argued the exemption requires proof that properties were acquired pursuant to Article 5(1) of Decree-Law 104/2009 for use in company activities supporting economic recovery, not under Article 5(3). The burden of proof rests on the claimant to demonstrate acquisition terms and rental contracts or other assignment agreements. The claimant alleged discriminatory treatment, noting other portfolio properties received exemption while these 24 units did not, and sought reimbursement plus compensatory interest from payment dates. The case illustrates the complex documentation requirements for FIEAE tax benefits, the importance of proving compliance with statutory prerequisites, and procedural hurdles including res judicata when multiple challenges arise for the same tax period.

Full Decision

ARBITRAL DECISION

The arbitrator, Dr. Henrique Nogueira Nunes, appointed by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Arbitral Tribunal, constituted on 15 May 2017, hereby decides as follows:

1. REPORT

1.1 A…, with the collective person number…, hereinafter referred to as the "Claimant", requested the constitution of the Arbitral Tribunal under articles 2, no. 1, paragraph a) and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT").

1.2 The request for arbitral pronouncement concerns the declaration of illegality of the act of assessment of Municipal Property Tax better identified under the collection documents issued with numbers 2015…; 2015… and 2015…, in the disputed amount of € 5,081.85, relating to the year 2015.

1.3 To substantiate its request, the Claimant alleges, in summary, the following vice:

(i) It considers itself harmed by the Tax Authority, inasmuch as it considers that it was not reimbursed the IMI [Municipal Property Tax] of 2015 relating to 24 autonomous units located in the municipality of …, better identified in the present arbitral request.

(ii) It invokes that it is completely unaware of the reasons why the Tax Authority granted to the properties located in the municipality of … a different treatment from that granted to the other properties that form part of its portfolio.

(iii) It invokes what it deems to be a clear and glaring error in the assessment of the IMI on the above-mentioned autonomous units, generating losses, having unduly borne, and only with reference to the year 2015, the amount of € 5,081.85.

(iv) It considers that the disputed assessment is tainted by illegality, due to violation of the provisions of article 8 of the special tax regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH) approved by article 102 of Law no. 64-A/2008, of 31 December, applicable to the FIEAE by virtue of article 117 of Law no. 3-B/2010, of 28 April, and that such illegality gives rise to the voidability of the IMI assessment relating to the year 2015 (article 163 of the Code of Administrative Procedure).

(v) It seeks the reimbursement of the amounts already paid, in the total amount of € 5,081.85, plus compensatory interest at the legal rate, accrued from the date of payment of each of the aforementioned three instalments until full reimbursement of these amounts.

1.4 The Tax and Customs Authority, hereinafter referred to as the "Respondent" or "Tax Authority", replied, in summary, as follows:

(i) It defends itself by raising a matter of exception, due to violation of res judicata, untimeliness, and material incompetence of the Tribunal.

(ii) Evidenced by the fact that the Claimant, for the same year, and with references to the two first "instalments of the assessment", had previously submitted a request for arbitral pronouncement, and, in its view, a decision was rendered on the dispute that is the subject of the present proceedings, for the same Claimant and relating to the same tax period.

(iii) Thus verifying, it understands, cumulatively the triple identity – as to the parties, the claim, and the cause of action – whereby in its view the requirements necessary for the verification of res judicata are met, which constitutes a dilatory exception in accordance with article 577, paragraph i) of the Code of Civil Procedure applicable, ex vi, article 29 of the RJAT, and the Respondent should be absolved of the suit (cf. article 576 of the Code of Civil Procedure).

(iv) It understands, thus, that given what was actually petitioned by the Claimant, the Tribunal cannot hear and decide on the request for declaration of illegality, given that it concerns the three tax payment instalments which, it says, are not autonomously reviewable, which constitutes a dilatory exception in accordance with article 577, paragraph a) of the Code of Civil Procedure applicable, ex vi, article 29 of the RJAT, and the Respondent should be absolved of the suit (cf. article 576 of the Code of Civil Procedure).

(v) It further invokes, and additionally, that considering the provisions of article 10, no. 1, paragraph a) of the RJAT, the present request for arbitral pronouncement is clearly untimely, inasmuch as the period of 90 days established therein for the presentation of the request for pronouncement was substantially exceeded. Consequently, also for this reason, it alleges that it cannot be accepted, and should be declared without merit, due to untimeliness, and consequently the Respondent should be absolved of the suit.

(vi) It likewise defends itself by counter-argument, alleging, in essence, that as for the properties that constitute the assets of the FIEAE, in order for it to be able to benefit from the exemption in question, it is necessary that proof be made that they were acquired in accordance with and for the purposes of article 5, no. 1 of Decree-Law no. 104/2009, that is, that the properties are integrated into the assets of the companies and are used in the development of their respective activities, since the exemption in question, given the provisions of the legal norms cited above and the purpose of the FIEAE arising from its legal regime, shall not apply if the property concerns the assets of the FIEAE, but acquired in accordance with no. 3 of that same article 5.

(vii) Wherefore, it invokes, no proof whatsoever having been submitted to the proceedings by the Claimant in order to confirm what it alleged, it cannot, as the Claimant intends, that such facts, merely because alleged, be deemed proven, with the burden of proof of the verification of the respective requirements falling on it, whether this proof relates to rental contracts or another form of assignment of use.

(viii) It alleges, in summary, that no proof was made by the Claimant that the properties were acquired, on a paid basis, within the scope of its policy for the recovery of economic companies in difficulties; and that the use of these properties was assigned to the proposing company through the execution of a rental contract, and proof of this condition is essential and prior to the verification of the others; the request for exemption and corresponding cancellation of the assessment cannot proceed, and the arbitral request should be judged without merit.

(ix) It thus seeks the recognition of the dilatory exceptions invoked of res judicata, material incompetence, and untimeliness of the arbitral tribunal, and the Respondent should, it says, be absolved of the suit; or, if this should not be considered, the request should be judged without merit due to lack of proof, and consequently the Respondent should be absolved as petitioned, all with the due and legal consequences.

1.5 The Tribunal understood to waive the holding of the first meeting of the Arbitral Tribunal, in accordance with the provisions of article 18 of the RJAT, which met with no express opposition from the parties. A matter of exception was invoked in the Response by the Respondent, which will be appreciated and decided in the present decision.

The parties were notified to submit pleadings, if they so wished, and both decided to do so, and the Claimant, in exercise of its right to be heard, responded to the exceptions invoked by the Respondent, seeking their complete rejection, and, for the rest, both parties maintained the positions previously expressed.

A deadline was set for the issuance of the arbitral decision until 15 November 2017.

1.6 The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are shown to be legitimate, and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

No procedural defects were identified.

2. QUESTIONS TO BE DECIDED

In the arbitral petition, the Claimant formulates the following essential question:

Should the act of assessment of IMI in question in the present proceedings be annulled, as illegal, due to error in the presuppositions, under the provisions of article 8 of the special tax regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH) applicable ex vi article 117 of Law no. 3-B/2010, of 28 April, and also on the grounds of article 99 of the Code of Tax Procedure and Process?

In its Response, in addition to defending itself by counter-argument, the Respondent invokes a matter of exception, due to violation of res judicata, material incompetence of the Arbitral Tribunal to hear the request, and untimeliness, seeking the absolution of the suit.

3. FACTS

With relevance for the appreciation and decision on the merits, the following facts are deemed proven:

A) The A… (A…), Claimant in the present proceedings, constitutes a special real estate investment fund created under Decree-Law 104/2009, of 12 May.

B) The present request for arbitral pronouncement concerns the act of assessment of IMI relating to the year 2015, with respect to the autonomous units designated by the letters "AK", "AL", "AM", "AN", "AP", "AQ", "AR", "AS", "AT", "AU", "AV", "AW", "AX", "AY", "AZ", "BA" and "BB", intended for services, all of the urban property, in a regime of horizontal ownership, located at Street …, no. …, parish and municipality of …, registered in the respective urban property register under article … and relating to the year 2015 (Cf. Collection notes attached by the Claimant as Documents nos. 1 to 6 and Administrative Process attached by the Respondent).

C) The Claimant received, on 18 March 2016, the collection note relating to the IMI assessment in question concerning the 1st instalment of the year 2015, and proceeded to pay it on 6 April 2016 (Cf. Documents nos. 1 and 2 attached by the Claimant).

D) The Claimant, on 17 June 2016, received the collection note relating to the IMI assessment in question concerning the 2nd instalment of the year 2015, and proceeded to pay it on 11 July 2016 (Cf. Documents nos. 3 and 4 attached by the Claimant).

E) The Claimant, on 12 October 2016, received the collection note relating to the IMI assessment in question concerning the 3rd instalment of the year 2015, and proceeded to pay it on 26 October 2016 (Cf. Documents nos. 5 and 6 attached by the Claimant).

F) By public deed of Sale and Purchase, Unilateral Promises to Purchase, Unilateral Promise to Sell and Lease, executed on 26 March 2012, the Claimant, under Decree-Law no. 104/2009, acquired from the company B…, S.A., and simultaneously leased to that company the autonomous units designated by the letters "AK", "AL", "AM", "AN", "AP", "AQ", "AR", "AS", "AT", "AU", "AV", "AW", "AX", "AY", "AZ", "BA" and "BB", intended for services, all of the urban property, in a regime of horizontal ownership, located at Street …, no. …, parish and municipality of …, registered in the respective urban property register under article … (Cf. Document no. 10 attached by the Claimant).

G) By request dated 28 March 2012 addressed to the Finance Office of … and subscribed by the representatives of the Claimant, was requested (i) the registration of the acquisition of the aforementioned autonomous units by the Claimant in the respective urban property register, and (ii) the recognition of the exemption of the IMI with reference to the aforementioned autonomous units, in accordance with the provisions of article 8 of the Special Regime Applicable to Real Estate Investment Funds for Residential Rental and to Real Estate Investment Companies for Residential Rental – approved by article 102 of Law 64-A/2008, of 31 December – applicable to the Fund in question in the present proceedings by remission of article 117 of Law no. 3-B/2010, of 28 April (Cf. Document no. 11 attached by the Claimant).

H) The Claimant submitted to the CAAD a request for arbitral pronouncement, which was processed under no. 475/2016-T, a process that has already concluded, in which it petitioned the annulment of the acts of assessment no. 2015… of 26.02.2016 and no. 2015… of 01.04.2016, relating to the IMI assessed with reference to the year 2015. The Arbitral Tribunal constituted in the context of this process issued a decision in which it did not hear the request, inasmuch as it considered that since it concerned two of the three tax payment instalments, which are not autonomously reviewable, it did not consider itself materially competent to appreciate the request (Cf. Pages 28 and 32 of this Arbitral Decision accessible at https://caad.org.pt/tributario/decisoes/).

I) On 27-02-2017 the Claimant submitted a request for constitution of the Arbitral Tribunal to the CAAD – cf. electronic request in the CAAD system.

4. UNPROVEN FACTS

There are no facts with relevance for the decision of the case that were not proven.

5. GROUNDS FOR THE DECISION ON FACTS

As to the essential facts, the settled matter is conformed in an identical manner by both parties, and the conviction of the Tribunal was formed on the basis of the documentary (official) elements attached to the proceedings and discriminated above, whose authenticity and veracity were not questioned by either party.

It should be noted that the Tribunal does not have the duty to pronounce on all the matters alleged, but rather has the duty to select only those that matter for the decision, taking into account the cause (or causes) of action that ground(s) the request formulated by the Claimant as plaintiff (cf. articles 596, no. 1 and 607, nos. 2 to 4, of the Code of Civil Procedure, as amended by Law 41/2013, of 26/6) and to establish whether it considers it proven or unproven (cf. article 123, no. 2 of the Code of Tax Procedure and Process).

According to the principle of free appreciation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the proceedings and in accordance with its experience of life and knowledge of persons (cf. article 607, no. 5 of the Code of Civil Procedure, as amended by Law no. 41/2013, of 26/6). Only when the probative force of certain means is pre-established in the Law (e.g. full probative force of authentic documents – cf. article 371 of the Civil Code) does not the principle of free appreciation of evidence dominate in the appreciation of the evidence produced.

6. ON THE LAW

In accordance with the questions stated, which appear in point no. 2 of the present Decision, and taking into account the facts established in point no. 3, it is now necessary to determine the applicable law.

First of all, it is necessary to appreciate the matter of exception invoked by the Respondent in its response, inasmuch as, in case of merit, such implies the absolution of the suit by the Respondent and the non-hearing of the request by the Tribunal.

6.1. On the Exception Invoked of Res Judicata

The Tax Authority invokes that, in the present case, there is a violation of res judicata, since "on the dispute that is the subject of the present proceedings, for the same Claimant and relating to the same tax period, the Tribunal has already pronounced." and that "Thus verifies, cumulatively, the triple identity – as to the parties, the claim, and the cause of action – whereby the requirements necessary for the verification of res judicata are met, which constitutes a dilatory exception in accordance with article 577, paragraph i) of the Code of Civil Procedure applicable, ex vi, article 29 of the RJAT, and the Respondent should be absolved of the suit (cf. article 576 of the Code of Civil Procedure)."

The Claimant, in turn, defends itself by saying that there is no violation of res judicata, inasmuch as, it says, the law distinguishes in articles 619 and 620 of the Code of Civil Procedure (applicable ex vi article 29 of the RJAT), between material res judicata and formal res judicata, according to whether its effect extends or does not extend to proceedings different from those in which the orders, sentences, or judgments in question were issued.

And that, contrary to what the Tax Authority invokes, there is no prior decision on the illegality and consequent annulment of the IMI assessment relating to the year 2015 of the autonomous units located in the municipality of …, subject of the present request for arbitral pronouncement, wherefore there is no prior judicial or arbitral decision on the subject of the present request for arbitral pronouncement, and the exception of res judicata does not occur.

And that the identity of claims does not likewise occur.

Let us see.

Let us begin by analyzing the applicable provisions of the Code of Civil Procedure ("Code of Civil Procedure").

Pursuant to the provisions of no. 1 of article 619 of the Code of Civil Procedure, which regulates the so-called material res judicata, (applicable ex vi article 29 of the RJAT):

"Article 619

Value of the sentence that has become final

1 - Once the sentence or the order that decides the merits of the case has become final, the decision on the disputed material relationship shall have binding force within and outside the proceedings within the limits set by articles 580 and 581, without prejudice to the provisions of articles 696 to 702."

And as to the scope of res judicata, article 621 of the Code of Civil Procedure provides (applicable ex vi article 29 of the RJAT):

"The sentence constitutes res judicata within the precise limits and terms in which it judges: if the party lost because a condition was not met, because a deadline had not elapsed, or because a certain fact was not performed, the sentence does not prevent the claim from being renewed when the condition is met, the deadline is filled, or the fact is performed."

Having examined the arbitral proceedings that were processed under no. 475/2016-T, a process that has already concluded, in which the Claimant petitioned the annulment of the acts of assessment no. 2015… of 26.02.2016 and no. 2015… of 01.04.2016, relating to the IMI assessed with reference to the year 2015, it is verified that the Arbitral Tribunal constituted in the context of this process issued a decision in which it did not hear and decide on this request, inasmuch as it considered that since it concerned two of the three tax payment instalments, which are not autonomously reviewable, it did not consider itself materially competent to appreciate the request formulated by the Claimant (Cf. Pages 28 and 32 of this Arbitral Decision accessible at https://caad.org.pt/tributario/decisoes/).

That is, in the present case, the Arbitral Tribunal that issued that decision did not pronounce on the merits of the case and, consequently, did not decide the merits of it, wherefore the Claimant is correct when it states "Thus and contrary to what the Tax Authority invokes, there is no prior decision – and therefore no res judicata – on the illegality and consequent annulment of the IMI assessment relating to the year 2015 of the autonomous units located in the municipality of …. With no prior judicial or arbitral decision on the subject of the present request for arbitral pronouncement, the exception of res judicata obviously does not occur."

Wherefore the Claimant is correct, and the invoked exception of res judicata is without merit.

6.2. On the Exception Invoked of Material Incompetence of the Arbitral Tribunal to Hear the Request

The Respondent understands that "given what was actually petitioned by the Claimant, the Tribunal cannot hear and decide on the request for declaration of illegality, given that it concerns the three tax payment instalments which, as we have seen, are not autonomously reviewable."

And that "the viability of the present proceedings could only pass through the challenge of the February 2016 assessment, as that assessment is the only act actually reviewable."

It thus seeks the verification of the dilatory exception invoked in accordance with article 577, paragraph a) of the Code of Civil Procedure applicable, ex vi, article 29 of the RJAT, with the consequence of its absolution of the suit (cf. article 576 of the Code of Civil Procedure).

The Claimant, in turn, comes to say that this does not correspond to the truth, inasmuch as in its request for arbitral pronouncement, it petitioned the declaration of illegality of the IMI assessment relating to the fractions in question in the present proceedings, and that the annulment of the three collection notes in question is only a logical and legal consequence of the challenge of the single IMI assessment relating to the year 2015.

Wherefore it contends that there is no autonomous challenge in the present request for arbitral pronouncement of each of the tax instalments in question.

Let us see.

In its request for arbitral pronouncement, the Claimant comes to petition the declaration of illegality of the IMI assessment relating to the year 2015, broken down in the three collection acts better identified in the proceedings.

Indeed, so much so is this the case that the Claimant, in article 3 of its Arbitral Petition, expressly recognizes that the IMI relating to the year 2015 is paid in instalments, corresponding to a mere tax collection technique and not to any partial payment.

Wherefore it does not correspond to reality what the Respondent invokes when it comes to say that what the Claimant intends is merely to challenge autonomously the IMI payment instalments, this because it follows from the request presented that what is intended is, effectively, and in the Claimant's own words the "declaration of illegality of the IMI assessment."

Wherefore the Respondent's request is without merit, and the Tribunal has competence to appreciate and decide on the request presented to it in accordance with the provisions of article 2, no. 1, paragraph a) of the RJAT.

6.3. On the Exception Invoked of Untimeliness of the Request for Constitution of an Arbitral Tribunal

Entering, finally, into the question of the untimeliness of the submission of the request for arbitral pronouncement raised by the Respondent, the latter understands that, in the present case, there has been a violation of the provisions of article 10, no. 1, paragraph a) of the RJAT, as the period of 90 days established therein for the presentation of the request for pronouncement will have been substantially exceeded, basing itself, for this purpose, on article 129, no. 2 of the IMI Code, in force since 02 August 2016, which provides that:

"The periods for complaint and challenge are counted from the end of the deadline for voluntary payment of the first or only instalment of the tax."

Thus, it considers that since, in accordance with the provisions of paragraph a) of no. 1 of article 120 of the IMI Code, the tax relating to the first instalment falls due in the month of April, and having regard to the end of the deadline of the first instalment in the end of April 2016, the arbitral request submitted by the Claimant, on 27-02-2017, was already manifestly untimely, given the 90-day deadline provided for in article 10, no. 1, paragraph a) of the RJAT.

The Claimant, in turn, came to say that the interpretation followed by the Tax Authority amounts to a glaring retroactivity of the law in the matter of fundamental rights and guarantees and an unconstitutional interpretation of the alteration introduced in article 129 of the IMI Code by Decree-Law no. 41/2016, of 1 August. Additionally, it comes to say that according to the Tax Authority's interpretation, its right to complain or challenge the IMI assessment relating to the year 2015 and affecting the autonomous units located in the municipality of … would have ended in July 2016, that is, even before the publication of Decree-Law no. 41/2016, of 1 August, which amended the aforementioned article of the IMI Code.

And that in the case sub iudice the IMI relating to the year 2015 is paid in three instalments whose maturity occurs at the end of the months of April, July, and November 2016, respectively, and this payment in instalments is nothing more than a tax collection technique and not a partial payment proper.

It thus contends that the interpretation carried out by the Respondent of the aforementioned article 129 of the IMI Code is unconstitutional, namely due to violation of articles 2, 14, and 18 of the Constitution of the Portuguese Republic (CRP).

It understands that the deadline for the submission of the present request for arbitral pronouncement relating to the IMI relating to the year 2015 cannot be considered reduced by the alteration introduced by Decree-Law no. 41/2016, of 1 August, and the manner of its calculation remains unchanged.

Furthermore, it says, article 10, no. 1, paragraph a), of the RJAT does not refer to article 129 of the IMI Code, but rather to nos. 1 and 2 of article 102 of the Code of Tax Procedure and Process, and that paragraph a), of no. 1 thereof, provides that the deadline for challenge is counted from the "End of the deadline for voluntary payment of tax liabilities legally notified to the taxpayer."

Wherefore, in summary, it concludes that as article of the Code of Tax Procedure and Process was not amended, for purposes of calculating the deadline provided for in article 10 of the RJAT, it should continue to be determined on the basis of the "end of the deadline for payment of each of the tax liabilities legally notified," and given that the Law does not contemplate autonomous challenge of each of the tax instalments in question, the 90-day deadline should be able to continue to be counted from the day following the end of the deadline for payment of the 3rd instalment, that is, in the present case, 30 November 2016, wherefore the arbitral request is timely.

Let us see.

There is, as will be seen hereinafter, only one assessment of Municipal Property Tax. The tax resulting from this assessment is what can be paid in three instalments.

If a taxpayer intends to challenge the legality of the tax, the act that is being reviewed is the act of assessment that gave rise to it, and the deadline for reaction, considering the IMI relating to the tax year 2015, is what is counted from the date of the first, second, or third instalment, as we shall see.

As is known, assessment is the operation through which the tax rate is applied to the taxable matter, thus determining the amount due by each taxpayer.

Pursuant to the provisions of article 113 of the IMI Code, the tax is assessed annually, in relation to each municipality, by the central services of the Tax Authority, in relation to taxpayers listed in the registers as of 31 December of the year to which the tax relates, being carried out in the months of February and March of the following year.

In turn, article 120 of the IMI Code, as amended by article 215 of Law no. 66-B/2012, of 31 December (State Budget for 2013), has the following wording:

"Article 120 - Payment deadline

1 - The tax must be paid:

a) In one instalment, in the month of April, when its amount is equal to or less than € 250;

b) In two instalments, in the months of April and November, when its amount is greater than € 250 and equal to or less than € 500;

c) In three instalments, in the months of April, July, and November, when its amount is greater than € 500.

2 – (…).

3 – (…).

4 - In the case provided for in nos. 1 and 3, the non-payment of an instalment or an annuity within the established deadline implies the immediate maturity of the remainder.

5 - If the delay in assessment is attributable to the taxpayer, the latter is notified to proceed with payment of the tax relating to all overdue years."

From the aforementioned norms it follows that there is only one assessment and that its payment must be made in three instalments, in the months of April, July, and November, when its amount is greater than € 500.

That is, one instalment does not equal a new tax assessment. An instalment is part of a tax assessment that is divided in time for purposes of its payment.

Indeed, the moment of assessment and the moment of payment are clearly distinguished in the law, as noted above.

The division of an assessment into instalments is thus nothing more than a mere technique for the collection of revenues.

From the perspective of this Tribunal, the possibility of payment in instalments is a collection technique of a certain assessment act that is unique and only this can constitute a harmful act susceptible to challenge. Any instalment considered autonomously is not an act of assessment, nor is it part of such an act; it is, as already stated, a mere collection technique, which does not invalidate that an act of assessment may be partially annulled.

In the specific case, the act of assessment of the IMI is the single act of determination of the total amount of the tax to be paid; the possibility of this amount being paid in instalments does not mean that there are as many assessments as there are instalments.

With reference to the law in force at the date of the taxable event at issue in the present proceedings, that single act of assessment could be challenged either after notification for payment of the 1st, 2nd, or 3rd instalment, sufficing for this purpose that the request be directed to the single act of assessment.

Now, in the present case, this is what the Claimant did, inasmuch as it submitted a request for constitution of an Arbitral Tribunal, on 27/02/2017, before 90 days had elapsed from the final payment deadline of the 3rd tax instalment (November 2016), and in that act, it aimed at the arbitral challenge of the tax act of assessment of the IMI relating to the year 2015, as, moreover, it points out from the outset from the heading of the request for arbitral pronouncement submitted.

Notwithstanding the above, the Tribunal does not ignore the amendments introduced by the provisions of Decree-Law no. 41/2016, of 01 August 2016, which came into force on 02 August 2016.

Pursuant to the provisions of this Decree-Law, article 129, no. 2 of the IMI Code now has the following wording:

"Article 129

[...]

1 - (Former text of the article.)

2 - The periods for complaint and challenge are counted from the end of the deadline for voluntary payment of the first or only instalment of the tax."

In the preamble of this norm it can be read that "article 166 of the State Budget Law for 2016 further authorizes that amendments be made to the IMI Code, these being related to the need to overcome interpretive difficulties that arose with previous wordings of this Code. Thus, it proved necessary, in particular, to clarify from which moment the deadlines defined in article 129 are counted."

The legislator understood not to confer interpretive nature on this amendment, and could have done so, as in this same Decree-Law it conferred interpretive nature on the amendments introduced to nos. 12 and 13 of article 106 of the Corporate Income Tax Code.

Thus, it is important to determine whether the amendments produced by this statute to no. 2 of article 129 of the IMI Code should be considered immediately applicable, even to taxable events apparently already consumed by this amendment.

Article 12, no. 3 of the General Tax Law provides that:

"3 - Rules on procedure and process are of immediate application, without prejudice to the guarantees, rights, and legitimate interests of taxpayers previously constituted."

The amendment in question, despite occurring in the IMI Code, has an evident procedural and process nature.

There is no doubt that there was some doubt about the moment from which the deadline to complain or challenge an IMI assessment should be counted, considering that there may be three instalments for payment of this tax, each of which provides a period of 120 days for complaint and 3 months for challenge, in the terms and deadlines established in articles 70 and 102 of the Code of Tax Procedure and Process.

It was always the understanding of this Tribunal, and of the majority of arbitral case law, that the deadline should be counted from the date of the end of payment of each of the instalments, as noted above, having the legislator, however, opted with this amendment to consider that this deadline should be counted from the date of the 1st instalment.

Pursuant to the provisions of article 113 of the IMI Code, the tax is assessed annually, in relation to each municipality, by the central services of the Tax Authority, in relation to taxpayers listed in the registers as of 31 December of the year to which the tax relates, being carried out in the months of February and March of the following year.

The taxable event of the IMI thus corresponds to the ownership of the property by the taxpayer on 31 December of the year to which the tax relates.

The Tribunal understands that the interpretation that the Tax Authority seeks to give to the aforementioned amendment would indeed be a solution clearly offensive to the fundamental rights of taxpayers, not to say that it would constitute an unconstitutional retroactivity due to direct violation of article 18 of the Constitution of the Portuguese Republic (CRP) and likewise of the normative command imposed by the final part of article 12, no. 3 of the General Tax Law.

As the Claimant justly notes, if this thesis of the Tax Authority were to prevail, it would mean that even before the entry into force of the statute that amended article 129 of the IMI Code, its request for arbitral pronouncement would already be considered untimely, which would represent an intolerable violation of its fundamental rights.

Even considering that the legislator opted (and in our view rightly so) not to confer interpretive nature on this legislative amendment.

Thus, the Tribunal understands that the solution that best fits the spirit of this legislative amendment and the intention of the legislator, although it is not denied that the solution adopted has clarifying content, as some controversy existed about the manner of calculating this deadline, is that this amendment should only apply to taxable events that occur after its coming into force, that is, in relation to the IMI relating to the tax year 2016 and subsequent years.

Wherefore the dilatory exception raised by the Respondent is without merit.

6.4. On the Request for Declaration of Illegality of the IMI Assessment Relating to the Year 2015

Entering, now, into the matter of challenge, it is important to appreciate whether the act of assessment of IMI at issue in the present proceedings should be annulled, in the terms petitioned, due to error in the presuppositions, in accordance with the provisions of paragraph a) of article 99 of the Code of Tax Procedure and Process, and consequently a ground for the request for arbitral pronouncement, ex vi paragraph c) of no. 2 of article 10 of Decree-Law no. 10/2011, of 20 January.

Let us see.

The Claimant assumes, as we have seen, the legal nature of a Special Real Estate Fund for Support of Enterprises ("FIEAE"), which, in accordance with its legal regime, namely the provisions of Decree-Law no. 104/2009, of 12 May, has among its principal objectives, as is defined in its article 2, "the support of economically viable companies, even if facing eventual financial difficulties, by betting in this way on their rehabilitation, their stabilization and consolidation, their modernization and possible restructuring, and in any case, in the creation, maintenance, and qualification of their respective employment."

In turn, no. 1 of article 3 of this regime provides that the "pursuit of the objectives of the FIEAE is concretized, essentially, through the acquisition by the same of properties from companies, especially SMEs, which are subsequently leased, or another form of paid assignment of use, to those same companies in terms that, being guided by principles of rigor, security, profitability, and diversification of risk, ensure the continued use of the same properties by the companies in question, in the exercise of their respective activities, and the adequate return of the investment made by the FIEAE."

The assets of these Funds may include, in accordance with the provisions of article 5 of its legal regime, "any real estate, whether these are autonomous units or urban, mixed, or rural properties, which are integrated into the assets of the companies and are used in the development of their respective activities."

In other words, in its policy of support for the economic recovery of companies in financial difficulties, the FIEAE, once a project is presented and accepted, acquires on a paid basis the properties that are affected to the economic activity carried out by the proposing company and simultaneously assigns the use of these same properties to the proposing company – through the execution of lease contracts or other forms of paid assignment – establishing, further, the possibility of its later repurchase.

Decree-Law no. 104/2009, of 12 May, which created the FIEAE, is silent as to the applicable tax regime, for which reason, in 2010, with the State Budget ("Law no. 3-B/2010, of 28 April"), it came in its article 117 to provide that: "To the Special Real Estate Fund for Support of Enterprises (FIEAE), created by Decree-Law no. 104/2009, of 12 May, the special tax regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH), approved by article 102 of Law no. 64-A/2008, of 31 December, shall apply."

A regime that, for purposes of IMI, enshrines in no. 6 of its article 8 a total exemption from IMI with respect to properties that are affected to the typical and principal activity of real estate investment funds for residential rental, which consists in the rental of properties for permanent housing.

However, it happens that the activity of the Claimant, in accordance with the provisions of its legal regime, consists in the acquisition and subsequent rental of properties affected to the business activity of companies that are in financial difficulties, and not, as the Claimant justly points out in its petition and in its pleadings, in the acquisition from any individuals of properties affected to their own permanent housing.

The legislator intended, with the remission made, to apply to the FIEAE a regime of exemption in respect of IMI on the properties that make up its assets, provided that the purposes provided for and intended by the legislator with the creation of this regime are observed, and within those purposes is precisely the rental or another form of paid assignment of the use of the acquired properties.

The Tax Authority, in its Response, comes to say that the Claimant made no proof of compliance with the requirements for access to the benefit, especially of the rental of the properties in question located in …, and that as the Claimant submitted no proof, the request for arbitral pronouncement cannot proceed.

But it is not correct.

The Claimant in its arbitral petition proves, in Document no. 10 attached with its Petition, that the fractions in question in the present arbitral proceedings were leased to B…, S.A., in accordance with the public deed of Sale and Purchase, Unilateral Promises to Purchase, Unilateral Promise to Sell and Lease, executed on 26/03/2012, and are, by virtue of the provisions of the Supplementary Document which forms an integral part of this Deed, affected to the typical and principal activity of the FIEAE, with the subsequent rental occurring in the same context, as clearly follows from article 18 of this Supplementary Document under the heading "End of Lease."

Now, the Public Deed is, as is known, an authentic document.

Which, in accordance with the provisions of article 371 of the Civil Code, has the following probative force:

"Article 371

(Probative force)

  1. Authentic documents make full proof of the facts they refer to as performed by the authority or respective public officer, as well as of the facts that are attested therein on the basis of the perceptions of the documenting entity; mere personal judgments of the documenter count only as elements subject to the free appreciation of the judge.

  2. If the document contains words that are amended, truncated, or written over erasures or interlineations, without proper reservation, the judge shall freely determine the extent to which the external defects of the document exclude or reduce its probative force."

Regarding this same Document presented by the Claimant, the Respondent understood not to make any comment on the same throughout the present arbitral process.

Moreover: The Claimant also presented (cf. Document no. 11 attached with its Petition) a Request, dated 28 March 2012, addressed to the Finance Office of … in which it petitioned the recognition of this exemption by the Tax Authority, attaching part of the aforementioned deed as proof.

This means that the Tax Authority was aware of the transaction involving the fractions in question in the present arbitral proceedings, and could easily request any further information if it considered the documentation attached by the Claimant to be insufficient and/or incomplete.

It follows from the foregoing that, contrary to what the Respondent maintains, the Claimant made proof of compliance with the requirements for access to the tax benefit in question, through the acquisition and subsequent rental of the fractions in question within the scope of its activity.

Having invoked and proved by the Claimant the verification of the requirements necessary for the application of the tax benefit in question, it was incumbent upon the Respondent to prove the non-existence of some or all of the requirements, which it did not do.

Wherefore the Claimant's request is fully upheld.

As to the right to compensatory interest, petitioned by the Claimant, it is to be noted that paragraph b) of no. 1 of article 24 of the RJAT provides that the Arbitral Decision on the merits of the claim from which no appeal or challenge is possible binds the Tax Authority as of the end of the deadline provided for appeal or challenge, and the latter – in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the deadline provided for the execution of sentences of the tax courts – must restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for this purpose.

This provision is in keeping with the provisions of article 100 of the General Tax Law, applicable to the case by virtue of the provisions of paragraph a) of no. 1 of article 29 of the RJAT, in which it is established that "The tax administration is obliged, in case of total or partial merit of complaints or administrative appeals, or of court proceedings in favor of the taxpayer, to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for in the law."

In turn, article 43, no. 1 of the General Tax Law provides that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due."

From the analysis of the evidentiary elements contained in the proceedings, it is possible to conclude that the Respondent was aware of the factual elements relevant to proceed with the correct assessment of the tax, and did not do so, choosing instead to maintain the assessment tainted by error in the presuppositions, and for this reason illegal, and is therefore obliged to indemnify.

Thus being, in view of the provisions of article 61 of the Code of Tax Procedure and Process, and considering that the requirements for the right to compensatory interest are met, that is, the existence of an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due, as provided in no. 1 of article 43 of the General Tax Law, the Claimant is entitled to compensatory interest, at the legal rate, calculated on the amount already paid, in the amount of € 5,081.85, counting from the date on which the payment was made until its full reimbursement.

7. DECISION

In light of the foregoing, this Singular Arbitral Tribunal hereby decides:

  • To judge the request for arbitral pronouncement as well-founded and declare the annulment of the petitioned act of assessment of IMI, relating to the year 2015, due to error in the presuppositions, better identified under the collection documents issued with numbers 2015…; 2015… and 2015…, and, in consequence, to order the restitution to the Claimant of the amount paid of € 5,081.85, plus compensatory interest in accordance with the law, from the date on which such payment was made until the date of full reimbursement thereof.

The value of the case is set at Euro 5,081.85, in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Processes of Tax Arbitration (RCPAT), 97-A, no. 1, paragraph a) of the Code of Tax Procedure and Process, and 306 of the Code of Civil Procedure.

The amount of costs is fixed at Euro 612.00, under article 22, no. 4 of the RJAT and Table I annexed to the RCPAT, charged to the Respondent, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Notify.

Lisbon, 13 November 2017.

The Arbitrator,

Dr. Henrique Nogueira Nunes

Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by remission of article 29, no. 1, paragraph e) of the RJAT.

The drafting of the present arbitral decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Are Special Real Estate Investment Funds (FIEAE) exempt from IMI property tax in Portugal?
FIEAE funds can be exempt from IMI under specific conditions. The exemption regime applicable to FIIAH/SIIAH is extended to FIEAE by Article 117 of Law 3-B/2010 of 28 April. However, the exemption requires proof that properties were acquired for the specific purposes under Article 5(1) of Decree-Law 104/2009 and are used in the development of company activities. The exemption does not apply if properties were acquired under Article 5(3) of the same decree-law.
What is the legal basis for IMI exemption under the FIIAH/SIIAH tax regime applied to FIEAE funds?
The legal basis is Article 8 of the special tax regime for residential rental real estate investment funds (FIIAH) and residential rental real estate investment companies (SIIAH), approved by Article 102 of Law 64-A/2008 of 31 December. This regime is made applicable to FIEAE through Article 117 of Law 3-B/2010 of 28 April. The exemption is tied to the FIEAE's statutory purpose of supporting companies in economic difficulty through property acquisition and rental.
Can a taxpayer challenge an IMI assessment through CAAD arbitration after a prior ruling on the same tax year?
The Tax Authority raised the defense of res judicata, arguing that a prior arbitral decision on the same tax year and first two instalments prevents a new challenge. Under Article 577(i) of the Code of Civil Procedure (applicable via Article 29 of RJAT), res judicata requires triple identity: same parties, same claim, and same cause of action. If these elements are verified, the exception constitutes grounds for absolving the respondent from the suit and prevents re-litigation of the same matter.
What are the grounds for claiming illegality of an IMI assessment on properties held by investment funds?
Grounds for claiming illegality include: violation of the exemption provisions under Article 8 of the FIIAH/SIIAH regime applicable to FIEAE, constituting voidability under Article 163 of the Code of Administrative Procedure; erroneous assessment by the Tax Authority; discriminatory treatment where similar properties in the same fund portfolio received different tax treatment; and failure by the Tax Authority to apply the applicable exemption regime to qualifying properties. The claimant must provide proof of compliance with statutory requirements.
Is the Portuguese Tax Authority required to pay compensatory interest when an IMI exemption is wrongfully denied?
Yes, when an IMI exemption is wrongfully denied and the taxpayer successfully challenges the assessment, the Tax Authority is required to pay compensatory interest at the legal rate. The interest accrues from the date of payment of each instalment until the full reimbursement of the amounts unduly paid. In this case, the claimant sought €5,081.85 plus compensatory interest calculated from each payment date until complete reimbursement.