IMI Tax Exemption Under Article 49 EBF: CAAD Arbitration Decision 149/2012-T

ARBITRAL DECISION

The undersigned Arbitrators José Manuel Cardoso da Costa, President, João Ricardo Catarino and José Rodrigo de Castro hereby agree:

I. Report.

A) Constitution of the arbitration and procedural progression.

1. On 27 December 2012, A, S.A., taxpayer no. …, domiciled at … in Lisbon, in its capacity as fund manager and representing B, taxpayer no. …, C, taxpayer no. …, D, taxpayer no. …, E, taxpayer no. …, F, taxpayer no. …, and G, taxpayer no. …, filed a request with the Administrative Arbitration Center (CAAD) for the constitution of a collective arbitral tribunal, with a view to an arbitral award, in accordance with article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter "LRTA"), with the Tax and Customs Authority (hereinafter "TCA") being named as respondent.

The Applicant seeks that such award declare the illegality of the IMI – Municipal Property Tax assessments identified in the Initial Petition, relating to the year 2011, made by the TCA to the funds it manages, in the total amount of € 550,167.28, partially annul those assessments, such annulment amounting to the overall value of € 275,083.64, and order the TCA to reimburse those same managed funds the amounts thus unduly paid by them, plus corresponding default interest.

1. The Applicant did not appoint an arbitrator, and therefore, pursuant to article 6, no. 2, subparagraph a), of the LRTA, the undersigned were designated by the Most Excellent President of the CAAD Deontological Council to compose this collective arbitral tribunal, and they accepted in accordance with the legally provided terms.

On 15-2-2013 the parties were duly notified of such designation, and neither manifested the intention to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, no. 1, subparagraphs a) and b), of the LRTA and articles 6 and 7 of the Deontological Code.

Thus, in conformity with the provision in subparagraph c) of no. 1 of article 11 of the LRTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 4-3-2013.

1. On 7-3-2013, the TCA filed its response, arguing that the claims should be judged to lack merit, with its dismissal.

2. On 9-4-2013, given that an arbitral award had been issued in Arbitral Process no. 107/2012-T of this Center concerning matter identical to that in dispute herein, the Applicant filed a supplementary pleading, attaching a copy of such award and proceeding to a critical analysis of its grounds.

The notification to the TCA of the submission of such pleading was made and effected on 22-4-2013, but the TCA neither opposed it nor submitted any response.

1. Subsequently, on 10-5-2013, the Applicant further requested that another award (still non-final) on the matter discussed herein, issued in Arbitral Process no. 150/2012-T of this Center, be joined to the case – such award being in the same sense as the previous one, but this time with a dissenting opinion in the sense of the thesis here sustained by the Applicant and on which, consequently, it relies.

Notified of the joinder of such award by the TCA (at the meeting hereinafter referred to), the TCA did not oppose such joinder, but declared its intention to submit a response – which it in fact did on 24-5-2013.

1. In the meantime, a meeting provided for in article 18 of the LRTA was scheduled for 9-5-2013, with notification to the parties, and was held on 14-5-2013.

At such meeting, in addition to the notification referred to in the preceding number being made to the TCA, and no other matters having been raised, the Tribunal, having heard the parties, and with their consent, decided that, given the nature of the matter and the issue at hand, there was no need to conduct trial of the case, and that there would likewise be no final arguments, and further communicated to them that the final award would be issued by 31-7-2013 – all as appears in the respective Minutes.

1. However, finding it impossible to conclude the present award by the date previously mentioned, the Tribunal decided to expressly extend until 30 September of the current year the deadline announced in May (Order of 29-7-2013) – notwithstanding that the legal deadline for the award, if it includes the summer judicial recess period (which is disputed), would only end (given the constitution of the arbitration on 4-3-2013) on 4 October (articles 15 and 21 of the LRTA).

Nevertheless, due to the impossibility of formalizing the award by 30 September, and the difficulty in doing so by the end of the legal deadline, the Tribunal further determined the extension of such deadline until 15 October current (Order of 25-9-2013).

The present award is thus rendered in time.

B) Subject matter of the arbitration and positions of the parties.

1. The Applicant states that the Funds it manages are all closed real estate investment funds, of private subscription, whose participation units were subscribed for or are held by non-qualified investors.

Thus, having regard to the provisions of nos. 1 and 2 of the then article 46 of the Tax Benefits Statute (hereinafter, TBS), as amended by article 82 of Law no. 53-A/2006, of 29 December (State Budget Act for 2007), and also having regard to the provision of subparagraph j) of article 88 of such Law, such funds came to benefit, from 1 January 2007 (date of entry into force of such Law), from the reduction to half of the Municipal Property Tax (IMI) and the Municipal Tax on Onerous Property Transfer (IMT) – instead of the exemption from such taxes, which they had previously enjoyed.

Indeed, the said article 46 then came to provide – later, after the final republication and renumbering of the TBS by Decree-Law no. 108/2008, of 26 June, article 49 (numbering which is now to be adopted) – as follows:

1 – Real property integrated in real estate investment funds, pension funds and retirement savings funds that are constituted and operated in accordance with national law shall be exempt from municipal property tax (IMI) and municipal tax on onerous property transfer (IMT).

2 – Real property integrated in mixed or closed real estate investment funds of private subscription by non-qualified investors or by financial institutions on their behalf shall not benefit from the exemptions referred to in the preceding number, with the IMI and IMT rates reduced to half.

For its part, in the cited subparagraph j) of article 88 of Law no. 53-A/2006, the following was provided:

The provision of no. 2 of article 46 of the Tax Benefits Statute shall apply, from the date of entry into force of the present law, to real property integrated in mixed or closed real estate investment funds of private subscription by non-qualified investors or by financial institutions on their behalf constituted after 1 November 2006 or that make capital increases after such date and, also, to real property integrated in funds with identical characteristics whose participation units were, as of 1 November 2006, held exclusively by non-qualified investors or by financial institutions on their behalf.

However, article 109 of Law no. 3-B/2010, of 28 April (State Budget Act for 2010), gave the following new wording to article 49 of the TBS:

1 – Real property integrated in open real estate investment funds, pension funds and retirement savings funds that are constituted and operated in accordance with national legislation shall be exempt from municipal property tax and municipal tax on onerous property transfer.

2 – (Repealed)

Thus the benefit granted for IMI (which is what now matters) to closed real estate investment funds was repealed – namely those that had the characteristics set forth in the preceding no. 2 of the provision – regarding real property integrated therein. (The situation was later partially revised by article 119 of the budget act for 2011, Law no. 55-A/2010, of 31 December, with the restoration of the exemption, through the corresponding addition to the content of no. 1, for real estate investment funds "of public subscription").

As a consequence of such repeal, the TCA assessed the full IMI relating to real property owned by the Funds managed by the Applicant, relating to the year 2011 (only the IMI of that year is at issue in the present case).

Now, what the Applicant contends is that – notwithstanding the repeal of no. 2 of article 49 of the TBS, effected by the last-cited provision – the same benefit was maintained (for funds existing at the date of such repeal) until 31 December 2011; and this, fundamentally, on the grounds of the provision in no. 1 of article 3 of the TBS, combined with the provision of article 11, no. 1, of the same TBS.

The first of these articles provides (introduced in the TBS as article 2-A, no. 1, by article 83, also of Law no. 53-A/2006, and renumbered by the aforementioned Decree-Law no. 108/2008, the numbering of no. 3 being reformed by Law no. 64-B/2011, of 30 December):

1 – The norms establishing the tax benefits contained in Parts II and III of the present Statute shall remain in force for a period of five years, unless they provide otherwise.

2 – Tax benefits whose right has been acquired during the validity of the norms establishing them are maintained, without prejudice to contrary legal provision.

3 – The provision in no. 1 shall not apply to tax benefits contained in articles 16, 17, 18, 21, 22, 23, 24, 32, 44, 60 and 66-A, as well as to Chapter V of the present Statute.

And the said no. 1 of the second provides (also renumbered by Decree-Law no. 108/2008, but coming from the original version of the TBS, of Decree-Law no. 215/89, of 1 July, then article 10, no. 1):

Norms that alter conventional, conditional or temporary tax benefits are not applicable to taxpayers who already enjoy the right to the respective tax benefit, to the extent that they prejudice them, unless the law provides otherwise.

By reason, then, of such period of validity of benefits and this rule of temporal application of norms relating to them, the IMI relating to real property integrated in the Funds in question and to the year 2011 should have been assessed – the Applicant sustains – only at half.

Whether it should or should not have been so – this is the question to be decided in the present case.

1. In summary, the Applicant argues, to sustain its understanding:

a) The reduction to half of the IMI (and IMT) rate granted by the transcribed no. 2 of article 49 of the TBS is (was) a temporary tax benefit – since that, with the introduction into such Statute of the principle of its article 3, tax benefits, in their generality, should be considered "temporary," there being no reason to distinguish between those that the law establishes specifically as such (with a period of validity different from that of such article) and the others, which are so, now, by force of such provision;

b) In the context of the current article 3 of the TBS, in effect, the distinction between "structural" benefits and "temporary" benefits, introduced by the reformed version of the TBS, of Decree-Law no. 198/2001, of 3 April, ceased to have "legal support." Such distinction "appeared to have as its objective to give meaning" to the provision that first introduced a temporal limitation of tax benefits, namely the primitive article 14 of the General Tax Code (approved by Law no. 14/98, of 4 August, hereinafter, GTC), which, in fact, provided: "without prejudice to acquired rights, norms providing for tax benefits shall remain in force for a period of five years, if they have not provided otherwise, unless, by nature, tax benefits have a structural character." With the replacement of this provision by the current article 3 of the TBS – in which the reference to "structural" benefits disappeared – the only distinction that can be made is rather between "temporary" benefits and "permanent" benefits (the latter, those that the provision reserves in its no. 3). Only by "mistake" could the systematization of the statute have persisted, distinguishing and grouping, in separate parts, "structural" benefits and "temporary" benefits;

c) On the other hand, the five-year period established in article 3, no. 1, TBS is not only a maximum period, but also a minimum period of validity of benefits: it is that, in effect, what should be concluded from the "Report of the Working Group for the Reassessment of Tax Benefits," constituted in 1997, which preceded the introduction of a temporal limit on tax benefits (with article 14 of the GTC, before mentioned) and what is also referred to in doctrine: the purpose was, above all, to confer a guarantee of "stability" on such benefits, giving confidence to taxpayers in their maintenance – a reason which especially applies to benefits of the nature of "incentive," such as the one at issue;

d) Thus, the provision of article 11, no. 1, of the TBS must be applied to the repeal of the tax benefit of reduction of the IMI rate, now under consideration, while a "temporary" benefit. This provision does not merely reiterate, in the matter to which it relates, the principle of non-retroactivity of laws, but rather establishes a rule of post-validity of norms relating to the tax benefits stated therein, in order to guarantee the acquired rights of their holders: its ratio "is founded on the legitimate expectations that taxpayers acquire" with the creation of such benefits, which "function as measures of direct fiscal promotion";

e) It is certain that, both in article 3, no. 1, as well as in article 11, no. 1, it is provided that the legislator may dispose differently from what is established therein – but the legislator must do so expressly (regardless, now, of the constitutional constraints that may be considered therein). Now, in the case of the repeal of no. 2 of article 49, this did not occur: thus the rule of article 11, no. 1, must apply, in that case, fully;

f) And it is not sufficient, against that, to invoke the nature of "reinforced value" of the legislation that effected such repeal, namely the State Budget Act for 2010 (Law no. 3-A/2010): – first, because such "reinforced value" does not extend to norms of such Law that are mere "budget riders," as is the case with the repeal norm at issue; – but, then, because, even if it extended, the nature of "reinforced value," or not, of such norm would always be irrelevant to, in the absence of express exception, prevent article 11, no. 1, TBS from producing its effect;

g) Now, in the case sub judice, which is that of reduction of the IMI rate relating to real property integrated in certain real estate investment funds, the constitutive fact of the right to the benefit occurred with the integration of the real property in the fund, verified at the date of the beginning of the validity of the benefit or in the course of it – thereby the holders thereof coming to rely on its maintenance during the period, of five years, of such validity. Such constitutive fact of the benefit could never be that of the tax fact of IMI, relating to 31 December of each year;

h) Thus, the validity of the benefit in question – reduction of the IMI rate relating to real property integrated in the funds at issue – having begun on 1 January 2007 and being required to cease only, in accordance with article 3, no. 1, TBS, on 31 December 2011, such benefit should have been maintained, by force of article 11, no. 1, of the same Statute, until that date, to the Real Estate Investment Funds represented by the Applicant;

i) Should it be otherwise – that is, should the repeal of the benefit in question operate with immediate effects relative to all taxpayers (including, thus, those funds that were already enjoying it, since the corresponding constitutive fact occurred, as previously mentioned) – the expectation and confidence created by it would be frustrated in an inadmissible manner, without there being any superior public interest to justify it. We would therefore be faced with a clear violation of the principles of protection of confidence and legal certainty, inherent in the idea of Rule of Law, of articles 2 and 8 of the Constitution of the Republic (hereinafter, CRP). That is: we would be faced with an unconstitutional interpretation, by infraction of such principles, of the combination of articles 11, no. 1, and 3, no. 1, of the TBS. [In nos. 114 and 115 of its first supplementary pleading, where this assertion is made more explicitly, the Applicant says "art. 49, no. 1 and 3, no. 1," but this is manifestly an error, as to the reference to article 49, in place of article 11].

1. For its part, and also without summary, the TCA argues, defending the legality of the assessments:

a) The tax benefit provided for in article 49, no. 2, of the TBS is a benefit of "structural" nature, and not of "temporary" nature, as it is inscribed in the list of Part II of the same Statute, which precisely concerns tax benefits with such nature;

b) The replacement of article 14, no. 1, of the GTC – which first established a period of validity for norms on tax benefits – by article 3 (initially article 2-A), no. 1, of the TBS, in no way modified the "discrimination" that such Statute makes between the two classes of benefits, as shown by the maintenance of the corresponding titles of the two Parts (II and III) of the enactment;

c) In truth, one thing – and it is such discrimination that the law makes – are "tax benefits with a predetermined duration that results from the fulfillment of their assumptions," and another is "tax benefits of indeterminate duration, but whose establishing norms, notwithstanding, are subject to a period of lapse" (emphasis added): only the former fall into the class of "temporary" benefits;

d) Thus, not including the benefit in question – which was provided for in no. 2 of article 49 of the TBS – among "temporary" tax benefits, the provision of article 11, no. 1, of such Statute is not applicable to its repeal;

e) Meanwhile – and returning to article 3, no. 1, TBS – the same, and from the outset, does not have, by itself, sufficient force to impose on the ordinary legislator a minimum period of maintenance of tax benefits: for that, it would be necessary that the TBS assume the nature of a "law of reinforced value," a nature that it does not in fact have;

f) Furthermore, what is shown – from the first doctrinal suggestions in the sense of introducing a "general rule of transitoriness" of tax benefits, to the preparatory works leading to it – is that, with such rule, first enshrined in article 14, no. 1, of the GTC, the intent was to institute an "instrument of selectivity of tax benefits," which, by obliging their periodic confirmation, would lead to verify "whether it was still justified, or not, the public interest for which the tax benefits were granted": it "imposed no temporal limit on the repeal of tax benefits, nor conferred any acquired right" on their respective holders;

g) And, recognizing "a problem of lack of operativeness" of such norm, the intent of the legislator, with the passage of the corresponding rule to the (now) article 3, no. 1, of the TBS, leading to the clarifying title "Lapse of tax benefits" (emphasis added), was – as seen from the "Report of the Working Group for the Reassessment of Tax Benefits," constituted in 2005 – to "confer true effectiveness, according to it until then non-existent or insufficient, on the obligation to reassess tax benefits, and not to establish a minimum duration" for the same;

h) In sum: "has no […] foundation the reduction of the original wording of article 14, no. 1, of the GTC to a mere norm of guarantee for taxpayers"; and "is based on an equivocation" the idea that the legislator, in transposing the corresponding rule to the TBS, intended to "assure taxpayers holding structural tax benefits of their duration for at least five years";

i) Thus, as to a minimum duration of tax benefits, what can be drawn from article 3, no. 1, of the TBS, as, previously, from article 14, no. 1, of the GTC, and even from the legislative authorization on which the emission of such norm was based [contained in article 2, subparagraph 7), of Law no. 41/98, of 4 August], is, at most, merely a "generic programmatic guidance directed to the tax legislator" (emphasized) not to alter before the deadline the tax benefits, "unless weighty reasons," but "whose assessment would be exclusively its prerogative";

j) On the other hand, the repeal, with immediate effects, of the tax benefit in question (the one provided for in article 49, no. 2, of the TBS) does not involve any "retroactivity," not even of "light" degree: from the outset, and in reason of what was previously stated, "there is no legitimate expectation legally protected that [such benefit] would have a duration of five years"; and, as the IMI is a periodic tax, whose subjective incidence is determined on 31 December of each year, according to the ownership of real property on that date, "such legitimate expectation is also not constituted at the beginning of the year to which the taxation relates";

l) And neither is there violation of the "principles of "confidence" and "legal certainty," which – for the reasons stated – do not have "any basis in article 3, no. 1, of the TBS" – and could only have it "within the scope of article 11, no. 1" of such enactment. Furthermore, at the time of the repeal of the benefit at issue "a strong process of budgetary consolidation, which includes local authorities, had already begun," with the deficit of each "influencing the budgetary situation of the Portuguese State";

m) Finally: in any event, and even if it were admitted, against what has been stated, that the tax benefit in question (of no. 2 of article 49 of the TBS) was a "temporary" benefit, and that the provision of the last-cited provision (article 11, no. 1, of the TBS) would therefore apply to it, in principle – still, the fact is that article 176 of Law no. 3-B/2010 (that is, of the legislation that repealed such benefit), by expressly determining its entry into force on the day following its publication, would always cause such repeal to fall, not in the first, but in the last part of such provision: that is, we would always be faced with a situation in which there would be an express legal provision (the said article 176) making the reservation of that final part of such provision function ("unless the law provides to the contrary"), and imposing the immediate effect of the repeal, prejudicing the norm or criterion of succession of laws in time that the same provision establishes, as a rule, in its first part.

II. Grounds.

II.I. The facts.

1. In light of the documents submitted by the Applicant with the Initial Petition, the following facts must be taken as established (Docs. nos. 6 to 11):

a) A is the management company of real estate investment funds that manages funds B, C, D, E, F, G.

b) B is a closed real estate investment fund of private subscription, constituted on 29 November 2006, whose participation units are subscribed by non-qualified investors.

c) C is a closed real estate investment fund of private subscription, constituted on 24 January 2006, whose participation units are held by non-qualified investors.

d) D is a closed real estate investment fund of private subscription, constituted on 30 December 2004, whose participation units are held by non-qualified investors.

e) E is a closed real estate investment fund of private subscription, constituted on 22 July 2005, whose participation units are held by non-qualified investors.

f) F is a closed real estate investment fund of private subscription, constituted on 8 November 2006, whose participation units are held by non-qualified investors.

g) G is a closed real estate investment fund of private subscription, constituted on 6 June 2003, whose participation units are held by non-qualified investors.

h) The Funds previously mentioned benefited, until the end of 2009, from the reduction to half of the IMI rate, in accordance with the then no. 2 of article 49 of the TBS, as amended by article 82 of Law no. 53-A/2006, in combination with the provision in subparagraph j) of article 88 of the same Law (which approved the State Budget for 2007).

1. And it must also be taken as established – in light of the same set of documents (now, Docs. nos. 0 to 5 and Docs. nos. 12 to 17) – furthermore the following (insofar as this case is concerned):

a) The collection of IMI, relating to the year 2011, assessed to B, amounted to the total value of € 123,862.82 (Assessment no. 2011…).

b) The collection of IMI, relating to the year 2011, assessed to C, amounted to the total value of € 187,719.84 (Assessment no. 2011…).

c) The collection of IMI, relating to the year 2011, assessed to D, amounted to the total value of € 10,900.75 (Assessment no. 2011…).

d) The collection of IMI, relating to the year 2011, assessed to E, amounted to the total value of € 45,390.28 (Assessment no. 2011…).

e) The collection of IMI, relating to the year 2011, assessed to F, amounted to the total value of € 53,385.94 (Assessment no. 2011…).

f) The collection of IMI, relating to the year 2011, assessed to G, amounted to the total value of € 128,943.64 (Assessment no. 2011…).

g) All these collections – which total the value of € 550,167.28 – resulted from the full application (without, thus, reduction to half), to the corresponding property values, of the IMI rates relating to the year 2011.

h) The IMI thus assessed to the Funds mentioned was already, in the meantime, paid by them.

II.II. The Law.

1. As emerges from the above-stated subject matter of the question submitted to the decision of this Arbitral Tribunal, such question amounts to a problem of temporal application of the norm repealing a certain tax benefit.

In truth – being undoubted that the tax benefit of no. 2 of article 49 of the TBS, as amended by Law no. 55-A/2006 (State Budget Act for 2007), with the transitional provision of article 88, subparagraph j), of the same Law, was repealed by article 109 of Law no. 3-B/2010 (State Budget Act for 2010) – the question is whether that repeal operated with immediate effects on the situations that had been enjoying such benefit or, then, whether, by force of the provisions above transcribed of the TBS, or of some of them, or by force of some legal principle, the same benefit remained transitionally, notwithstanding the repealing norm, as to those situations.

Thus being, it is important to clarify from the outset that such question does not interfere with any other matter relating to the hierarchy of the enactments to which the legal provisions that, in the case, would have to be considered belong. That is: such enactments are all situated at the same hierarchical level – at the hierarchical level of "ordinary," or common, legislation – none of them assuming the nature of a law of "reinforced value," such that such primacy hierarchical character could formally, and by itself alone, condition and prejudice the framing of the question sub judice only as a question of temporal application of laws.

In fact, such nature (of "law of reinforced value," as defined in article 112, no. 3, of the CRP) is not the exclusive province of the TBS (as it is not of the GTC, which preceded the first in the introduction of a period of validity for tax benefits) – so that such "formal" quality would suffice to preclude the claim for anticipated repeal of a tax benefit, conveyed by a simple "ordinary" law. The point, moreover, is not disputed between the parties.

But neither should such same nature be attributed to the annual State Budget law – here, contrary to what the TCA alleges, and which can be supported by some doctrinal understanding (cited, moreover, by the Applicant: thus, in Jorge Miranda / Rui Medeiros, Annotated Portuguese Constitution, Volume II, p. 270). That is because the circumstance – invoked to attribute to the budget law such qualification – that the same law can only be modified, during the economic year, by another law amending the Budget, has nothing to do with, or does not express a supposed formal hierarchical supremacy of it, and is rather rooted in the monopoly of budgetary legislative "initiative," which is reserved to the Government (see article 106, no. 2, of the CRP, and cf. Decision no. 317/86, of the Constitutional Court). There is, moreover, no known decision of such Tribunal (whose jurisprudence must always be taken as guiding in matters of jusconstitutional qualification) in which "reinforced value" has been attributed to the annual Budget law.

As to this second point, what is stated above is, however, not everything. That is – as the Applicant rightly alleges – even if the budget law had, in general, "reinforced value," such quality would only extend to its nuclear and typical provisions, that is, of truly "budgetary" content, in the strict sense of the concept: it would not extend to provisions inserted in it that are mere "budget riders" – as would be precisely provisions repealing tax benefits – which can be the subject of autonomous legislative treatment and for which the Constitution simply requires "ordinary" law, also not subject to the "initiative" reservation to the Government (cf., for a parallel situation, Decision no. 428/05, particularly no. 14, of the Constitutional Court, and the jurisprudence cited therein).

This is sufficient to set aside, also by this other side of things, any possible relevance or interference of the nature of the qualification of the enactments and norms, relating to the question sub judice, in the solution to be given to the same question. Moreover – and also here contrary to what the TCA alleges – it would always be highly problematic (to say the least) that a possible "reinforced" character of the repealing norm at issue could in some way be relevant to the answer to such question, as characterized at the outset (that is, as a question of succession of laws in time).

1. From what has been stated already emerges a first conclusion: that the invoked provision of no. 1 of article 3 of the TBS – which establishes a period of validity of five years, in principle, for the norms defining tax benefits – is, by itself alone, incapable of preventing the immediate effect of an ordinary legal norm which, before such period has elapsed, repeals or modifies a certain benefit.

For this to be the case, the TBS would have to assume the nature of a law of "reinforced value" – in which case a legislative norm that eliminated the benefit, before such period had elapsed, would be pure and simply "illegal." Not being the TBS of such nature, its article 3, no. 1, does not dispose, in itself, of the legal-formal force necessary to prevent that, at any moment during such period, the "ordinary" legislator takes the option (the political-fiscal option) to put an end to a certain tax benefit (or to modify its configuration, notably reducing its scope or reach).

And it is not valid to invoke here the argument that, in establishing a rule such as that of article 3, no. 1, the legislator had in view assuring a certain stability of benefits – with which their respective holders could come to rely. From the outset – and differently from what perhaps the Applicant intends (if the pleadings it produced are correctly interpreted) – it cannot be said, in light of the historical-doctrinal elements presented by the parties, that this was the exclusive or fundamental desideratum of the legislator in introducing such a rule: in truth what from such elements is drawn is that, with weight at least as strong as that of the idea of stability, there was also present the objective of opposing political-legislative inertia in the matter of tax benefits – requiring that, every five years, at most, the tax legislator think them through again and, if appropriate, confirm them: otherwise, they would "lapse."

But it is admitted – and without effort – that such an idea of stability has also been underlying the introduction, in our legal order, of the rule of "periodization" of norms on tax benefits: in that sense points, in the final analysis, the content of the legislative authorization law on the basis of which the GTC was issued, at the point where it, in defining the object and the sense of the authorization, precisely contemplated the possibility of the same GTC establishing (as it first came to establish, as recalled in the pleadings of the parties) such rule: there is read, in effect, that "the Government is authorized" to "regulate the period of validity of tax benefits, in terms of assuring their predictability in obedience to the principle of legal certainty, and the periodic evaluation of their respective results" [article 2, subparagraph 7), of Law no. 41/98, of 4 August].

Simply – even admitting this double justification, and even admitting that it has continued at the basis of the legal rule in question, after such rule was transposed to article 3 of the TBS – it is certain that such "substantive" justification, in its first part, is not such as to make up for the lack of sufficient "form" of the enactment in which such provision is inscribed (as also, initially, the GTC), so that what is provided in the same provision "binds" the subsequent ordinary legislator. The TCA, now respondent, is therefore right when it sustains that such provision, by itself alone, while an indication of a "minimum" limit on the duration of tax benefits, cannot mean more than a "generic programmatic guidance" directed to the tax legislator.

Whence – and making this concrete – that article 3, no. 1, of the TBS, by itself alone, cannot be invoked to support the thesis that the repeal of the benefit of article 49, no. 2, of the TBS by Law no. 3-B/2010 would not have had immediate effect on pre-existing situations, or rather would only affect them after the five-year period fixed in that first provision had elapsed.

And, if no. 1 of article 3 could not achieve such effect, it must nevertheless be said – now as to no. 2 of the same article – that this other provision naturally articulates with that of no. 1 and is as it were "dependent" on it, designed to govern precisely in cases in which the validity of the norm establishing a benefit "lapses" by reason of the passage of the period fixed in the same no. 1, that is, precisely in the hypothesis as it were "inverse" to that of the case at issue. Such other norm is, then, nothing more than irrelevant to the question now being decided.

1. Having stated this – and having thus framed such question as simply relating to the determination of the scope of application of two laws of the same hierarchical level (or the same formal value) that succeed one another in time (the norm of no. 2 of article 49 of the TBS and the norm of Law no. 3-A/2010, which repealed the first) – it should then be resolved according to the legal criteria, and primarily the legal criteria, by which the answer to such type of problems should be guided.

Thus, it shall be important: – first, to know whether there exists, in the case, a norm specifically issued for the purpose, that is, whether the legislator of the repealing norm determined, himself, the extent of its applicability; – then, and not being so, what solution flows from the rule or the general rules of temporal application of applicable laws; – and, finally, to verify whether to the solution thus resulting some obstacle opposes itself, which can only be of a "constitutional" order.

1. Beginning with the first point, it should be recalled that the TCA, now respondent, understands precisely that the problem of knowing to which situations the repealing norm of the tax benefit at issue applies is resolved definitively – and resolved in the sense of its immediate application to pending situations – by the norm of article 176 of Law no. 3-B/2010, which determined the entry into force of the law "on the day following its publication," which occurred on 28 April 2010.

It is, however, not so. And it is not so because the "validity" of a law and the scope of its "applicability in time" are not coincident temporal spaces: as is well known, the entry into force of a law on a certain date does not necessarily mean that, from this date forward, it will apply from that same date to all situations it is intended to govern, even those previously constituted. There will certainly be cases in which it will be so, and in which elements or circumstances occur imposing that the provision relating to entry into force be "interpreted" in that sense; but in very many other cases such will not be the case. And to conclude that, in this case, this is not the case, it will suffice to recall the multiplicity and variety of situations contemplated by Law no. 3-B/2010, in numerous "budget riders" (many or even, possibly, the majority of them unaccompanied by a provision defining their temporal scope of application) – such that it is inadmissible to think that the legislator intended, with the provision of article 176, to determine also the "immediate" applicability of all norms of such law to all pre-existing situations, now embraced by them.

The provision of article 176 of Law no. 3-B/2010 must, then, be combined, first and foremost, with the legal criteria relating to the application of laws in time to which one should resort in the case, so that, from there, one can conclude for "immediate" application, or not, to pending situations, of the repealing norm of the benefit provided for in article 49, no. 2, of the TBS.

1. In these terms, if the legislator had not established a specific criterion, regulating in general the temporal application of norms relating to tax benefits, there would then be recourse to the general principle of "non-retroactivity," enshrined and explained in article 12 of the Civil Code, which the GTC also welcomes, naturally, in its article 12.

Now, if it were so, there would then be immediately concluded that the application to situations preceding, in the year 2011, of the repeal of the benefit provided for in article 49, no. 2, of the TBS would not involve any retroactivity – as it should certainly be understood that there is here a hypothesis in which the law "[directly disposes] on the content of certain legal relationships, abstracting from the facts that gave rise to them" (cited article 12, no. 2, second part).

Being worth stating the point – to make clear that, in any event, and as the TCA sustains, there is, in the case, no retroactive application of the law – the fact is that the TBS contains a norm that specifically provides on the temporal application of norms on benefits: it is its article 11, whose no. 1 is above transcribed – so that it is in light of it, in the final analysis (with the reservation last above set out), that the question sub judice must be answered.

1. Well then: no. 1 of article 11 of the TBS (the other numbers of the provision are not of interest here) took the nature, the type or the species of tax benefits as a criterion for determining the scope of temporal application of the norms relating to the same benefits: if it is "conventional, conditional or temporary" benefits, the norms that alter them, in a sense prejudicial to taxpayers, "are not applicable," in principle, "to taxpayers who already enjoy the right to the benefit" – the provision expressly states; whence that – implicitly and a contrario – if the modifying norm respects a benefit of another nature, and even if more onerous for taxpayers, the latter will not benefit from the same reservation, such norm being applied, thus, even to situations already pending.

Not being in the case of the benefit of article 49, no. 2, of the TBS, either a benefit of "conventional" nature, nor a "conditional" benefit, the question that fits to be asked, when as to the repealing norm of such benefit, will be to know, however, whether the same should not be had as a "temporary" benefit. Indeed, it is precisely on this point, in the answer to such a question, that, in the last analysis, the parties ultimately diverge.

As was left stated above, the Applicant sustains that, following the introduction into the TBS of the norm of its article 3, no. 1, all benefits provided for in such enactment (with the exception of those enumerated in no. 3 of the same provision) came to be "temporary," the distinction between them and benefits of "structural" character (maintained formally in the systematization of the Statute) ceasing to have sense and becoming applicable to all (except, naturally, to those enumerated in no. 3 before mentioned) the reservation of article 11, no. 1; the TCA, now respondent, sustains, to the contrary, that the mentioned distinction maintains all meaning and that, being required to qualify the tax benefit at issue (that of article 49, no. 2) as of "structural" nature, in conformity with the place of its provision in the respective Part of the TBS, the norm that repealed it will not consequently be applicable such reservation.

One returns again here, then, to the rule of article 3, no. 1 – but, now, in another alleged dimension of it, projecting itself upon the qualification of tax benefits and, by way of consequence, upon the scope of application of article 11, no. 1, in the terms sustained by the Applicant. Should such a point of view be accepted?

This Tribunal understands that it should not.

In the first place, it happens that, notwithstanding the insertion into the TBS of the rule of article 3, by Law no. 53-A/2006 (ut supra, no. 8), for that reason did the legislator not alter the systematization of the Statute, introduced by Decree-Law no. 198/2001, of 3 July (the first major reformulation of the TBS, since the initial Decree-Law no. 215/89), according to which benefits came to be grouped into "benefits of structural character," stated in Part II of the enactment, and "benefits of temporary character," enumerated in Part III. And the legislator, not only did not alter such systematization then, but rather had it in mind in the formulation of the said article 3, defining its scope of application by express reference to the "parts II and III of [the present] Statute" (no. 1). But – even giving this for granted, and perhaps invoking, by contrast, that it would not be easy or proper to proceed to a re-systematization of the TBS in a budget law, such as Law no. 53-A/2006 was – even so, it happens that the legislator left things exactly the same when, through Decree-Law no. 108/2008, it came to carry out a new and extensive reformulation of the Statute, with the respective republication: in truth, there was maintained (and is maintained) the distribution of benefits between the two parts of the TBS, the titles of the same being preserved, as was maintained (and is maintained) article 3, no. 1, with content identical to the previous.

In a vision as it were "formal," and attending only to the systematization of the TBS combined with the insertion in such enactment of the norm of its article 3, it will be said, thus, that nothing permits affirming that such insertion has implied an emptying of the meaning and implications of the distinction between "structural" and "temporary" benefits – with reflexes on the scope of application of the reservation of no. 1 of its article 11.

It is, however, certain that in the content of this other provision no direct and express appeal is made to the distinction between the two parts of the TBS, which Decree-Law no. 198/2001 introduced in the systematization of such Statute, and that the reference made in the same provision to "temporary" benefits, without more, comes already from the primitive drafting of the enactment – being that such provision was only the subject, since then, of the renumbering given by Decree-Law no. 108/2008 (ut supra, no. 8). We would thus have that article 11, no. 1, would not necessarily be linked to such distinction and would permit the consideration of new situations – as, namely, that created or created by the norm of article 3, no. 1. And that all the more so since, after all (as the Applicant recalls), also in Part II of the TBS are found benefits limited by a temporal element: the Applicant cites the case of article 19, no. 5, but there are others, such as, for example, the well-known benefits relating to real property, of articles 45 and 46, or, in somewhat different terms, the benefits of article 36 or of article 41. Now it will be said (and we believe it will be said rightly) that to the alteration of benefits such as these latter, because in truth "temporary," the reservation of article 11, no. 1, should not cease to apply, although the law catalogues them as of "structural" character. Why not, then, to all others whose "temporariness" flows only from article 3, no. 1?

That is – and this will be the second and, in true fact, determining order of reasons to arrive at the conclusion that began to be advanced – there is foundation, on a plane, now not "formal" but more "substantive," to, in fact, distinguish the situations.

Everything is in the fact that in "temporary" benefits (and even though they appear in Part II of the TBS), such condition refers ab initio to the benefit itself, guaranteeing to its respective holder, not only the "expectation," but the "right" to avail himself of it for the time for which, by law or by the Administration, it was granted: it will be for these, then, that the norm of article 11, no. 1, will apply, which precisely reserves the "right" already acquired to the benefit; differently, article 3, no. 1, concerns the norms establishing the benefits, establishing a period of lapse for their validity and creating only for taxpayers (as was seen: ut supra, no. 14) an "expectation" as to their maintenance by the time indicated therein. The "temporary" character of certain benefits cannot, thus, be confused with the "temporalization" of the validity of the generality of them, established by article 3, no. 1, of the TBS.

That is why it can well be understood that the reservation of no. 1 of article 11 continues to apply solely to the norms that alter "temporary" benefits, in that first and precise sense, and not also to those that alter benefits whose establishing norm was only subject to the lapse rule of article 3, no. 1.

Now, being this the case of the norm of article 49, no. 2, of the TBS – which, inserted in Part II of the Statute, thus established a tax benefit of "structural" character, in favor of certain real estate investment funds, for indeterminate time, that is, without linking to such benefit any condition of "temporariness" – it follows that its repeal was not subject to the reservation of article 11, no. 1, of the same Statute.

Whence that – translating itself such benefit in the reduction to half of the IMI and IMT, and its repeal having occurred on 29 April 2010 (date of entry into force of Law no. 3-B/2010) – the full assessment of the IMI relating to the year 2011 made to each of the Funds represented by the Applicant cannot be considered illegal.

1. This conclusion having been established, it remains finally to see (ut supra, no. 15) whether, however, it will not have to be set aside by reason of another type of considerations – namely, considerations of principle, of constitutional nature.

This is the last argument of the Applicant, which – and recalling what was opportunely stated – invokes in this respect the violation of the principles of legal certainty and confidence, which are nuclear components of the idea of Rule of Law (articles 2 and 8 of the CRP). According to the Applicant, in truth, the immediate application, to pending situations, of the repeal of article 49, no. 2, would affect in an "indisputable and manifest" manner, without there being public interest to justify it, the well-founded expectations of their respective holders – it being that the right to exemption was constituted at the time of integration of real property in the funds, or (as to real property already integrated therein) at the time of the institution of the benefit itself. There would thus be an unconstitutional interpretation of articles 11, no. 1, and 3, no. 1, of the TBS.

That is, and generalizing: it would be unconstitutional the interpretation combined of these two texts, in the sense of excluding from the scope of the first the norms relating to tax benefits to which the second refers.

The argument, however, is without merit – and, from the outset, because it rests on a presumption that appears inexact to this Tribunal (as was just seen in the preceding number). That is because the tax benefit of article 49, no. 2 – and others in similar situation – cannot be had as a "temporary" benefit, in the precise sense of the term, and cannot be attributed the consistency of a true "right" to the objective situation of which the beneficiary funds came to enjoy, relative to real property already integrated in the same (on the date of the creation of the benefit) or that would subsequently be integrated therein. Such legal situation has no nature other than that of an "expectation" – in truth, juridically and when all is said, that which can be linked to that of the validity of a norm, since only in fact (recall again ut supra, no. 14) article 3, no. 1, TBS could confer on it a privileged value.

The fact is that, in the case of truly "temporary" benefits, the interested parties can invoke a qualified "credit of confidence," very different from that which can be sought to be derived from article 3, no. 1, of the TBS – and that (it can certainly be added) even if in the first situation only were at issue, by hypothesis (and contrary to what was previously emphasized), a simple "expectation."

But even if such point is granted, it is believed that the thesis of the Applicant cannot subsist.

It is true that – and returning again to the jurisprudence of the Constitutional Court, which should be the line of guidance here – the principle of legal confidence, according to such jurisprudence, is not limited to covering in its spectrum the protection of "acquired rights," being able well to include also the protection of situations that will not be characterizable only as "legal expectations"; and it does not even amount to the exclusion of situations of genuine "retroactivity," being able to go further (as, indeed, and conversely, to come closer) than that. But, where such happens, and especially when authentic retroactivity cannot be spoken of (and, in the case, as stated above, it is not seen that it can: ut supra, no. 17), the breaking of "expectations" must assume a truly unbearable character – in the context of all the aspects by which it should be envisaged (the greater or lesser foundation of the expectation itself, the nature, importance and gravity of the situation affected, the nature, relevance and urgency of the public interest that conduces to putting it in question: cf., by all, Decision no. 128/2009) – to deserve censure in light of the principle of protection of legal confidence.

Now – notwithstanding even the "factual" reinforcement of its expectations that may derive for taxpayers from article 3, no. 1, of the TBS – it is not seen that the breaking of such expectations, by the legislator, is to be considered as "unbearable," in a situation such as that found sub judice. And a first indication in that sense will be forthwith that the "reinforcement" of expectations that can derive from such provision for the holders of "non-temporary" benefits (in the strict sense previously specified) does not occur as to a certain and determined category of such holders, but as to all of them, whatever the benefit in question – that of article 49, no. 2, or any other in similar situation. That is: we would have that, to adopt an understanding different from that begun to be stated, after all the ordinary legislator, in repealing or reducing tax benefits, would always be limited, as to pending situations, by the period established by article 3, no. 1 – notwithstanding that the same does not possess the legal force of a norm of "reinforced value" (ut supra, nos. 13 and 14). Behold, in truth, what appears an excessive limitation of legislative power – that is, excessively restricting the revisability of law (which is its essential characteristic).

Independently, however, of this general reflection, it will be better, to assess the alleged occurrence, in the situation at issue, of violation of the principle of legal confidence, to confront it with the precedents of the Constitutional Court's own jurisprudence relating to the application of such principle in the tax sphere and, in particular, in the sphere of tax benefits. Now, it can well be said that such situation has no parallel, in terms of gravity of the afection of confidence, on the part of the recipients of the norms, in the maintenance of a certain status quo, with those in which the Constitutional Court, in the judicial cases known, considered there to be infraction of the same principle – it being that in the same jurisprudence there are other cases, of opposite signal, in which the afection of confidence could not, certainly, be considered of lesser gravity or less unexpected than in the situation sub judice.

As to these latter, it is believed that it will suffice to recall, from the outset, the first judgment in which the Tribunal confronted itself with the problem of retroactivity of taxation norms, Decision no. 11/83, in which it legitimized the extraordinary income tax, instituted in October 1983, to be applied in that very year; and, almost thirty years later, the well-known Decision no. 399/2010, in which, even after already inscribed in the Constitution, with the revision of 1997, the prohibition of retroactive taxation (article 103, no. 3), the Tribunal again legitimized an extraordinary tax similar to that one, introduced in the course of that year and applicable thereto. And if, in a situation such as that dealt with in Decision no. 617/2012 (to go to one of the most recent judgments in which the problematic here at issue is versed), the Tribunal, after diverging on the point, ended by declaring the unconstitutionality of an alteration of rates of autonomous taxation in IRC of certain expenses, introduced in the course of the year to be applied therein, it did so only on the ground that such form of taxation was configured as of "single obligation," whereby its application to already-realized expenses involved "genuine retroactivity." (See also, although it concerns a different and much less serious situation, Decision no. 592/2012).

On the other hand, and confining ourselves now to the cases dealing with the alteration of tax benefits, it becomes clear the conclusion that the Constitutional Court only in the case of the alteration of "temporary" benefits, in the strict sense of the concept (previously seen), or else in circumstances of genuine "retroactivity," censured the immediate applicability, to pre-existing situations, of the alteration (extinction or reduction) of such benefits. This is what is evidenced, from the outset and above all, in Decision no. 410/95 (which the Applicant invokes in favor of its thesis, but without foundation, as what was involved there was precisely a "temporary" benefit, as the Tribunal emphasized) and in Decision no. 416/02 (in which the Tribunal decided differently, in the sense of non-unconstitutionality, invoking expressly the circumstance that there was already involved a "permanent" benefit); and it is what is shown also in Decision no. 185/00 (the other of the judgments, known, in which the Constitutional Court judged unconstitutional the alteration with immediate, but also "retroactive," effects, of a tax benefit). As for Decision no. 128/09, which the Applicant considers non-invocable against its thesis, the truth is that it also does not favor it – it being that, when all is said, what was done therein was to assess a situation drawn as one of unequivocal "retroactivity."

These, then, are the precedents of the Constitutional Court's jurisprudence which, in the context of the situation sub judice, best can illuminate the general orientation that emanates from it, as to the reach of the principle of legal confidence. Now, in light of them, it is believed – lastly – that neither can it be considered that there occurs a constitutionally illegitimate afection of such principle, in the application, to pending situations, of the repeal of the tax benefit of article 49, no. 2, of the TBS, in terms of the same having already been assessed for the full amount of the IMI relating to the year 2011. This amounts to saying that the combined interpretation of articles 11, no. 1, and 3, no. 1, of the TBS that underlies such assessment cannot be judged unconstitutional.

1. The assessments of IMI above identified, relating to the year 2011, made to the Closed Real Estate Investment Funds represented by the Applicant, being thus not to be judged illegal, it remains only to recall (ut supra, nos. 4 and 5) that an identical conclusion was reached in the awards issued in Processes nos. 107/2012T and 150/2012T, of this Arbitration Center, in situations parallel to those of the present arbitral proceedings – although with justification only partially coincident or convergent.

As for, on the other hand, the dissenting opinion appended to the award issued in the second of the mentioned processes, this Tribunal does not endorse (with due respect) its doctrine, as flows from all that precedes – the respective argument being rebutted therein.

III. Decision.

1. For the grounds stated, the present arbitral action is judged to lack merit, the assessments of Municipal Property Tax, relating to the year 2011, above identified, made to the Real Estate Investment Funds, also above identified, represented by the Applicant, being not judged illegal nor being annulled – and the same Funds being condemned to the payment of the costs of the proceedings.

Lisbon and Administrative Arbitration Center, 9 October 2013.

The Arbitrators,

José Manuel Cardoso da Costa

João Ricardo Catarino

José Rodrigo de Castro