Process: 163/2016-T

Date: September 14, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD Process 163/2016-T addresses the constitutional validity of retroactive tax provisions affecting Real Estate Investment Funds for Residential Rental (FIIAH). The applicant fund manager challenged IMT and Stamp Tax assessments totaling €20,006.75, arguing that Article 236(2) of Law 83-C/2013 (2014 State Budget) unconstitutionally applied new restrictions to tax exemptions retroactively. Originally, the 2009 State Budget granted automatic IMT and Stamp Tax exemptions for FIIAH property acquisitions intended for residential rental, without requiring actual rental within a specific timeframe. The 2014 State Budget introduced Article 235, adding conditions that properties must be rented within three years and that exemptions 'cease to have effect' if not rented or if sold before this period. Article 236(2) applied these new restrictions to acquisitions completed before 2014. The applicant argued this violated Article 103(3) of the Portuguese Constitution, which prohibits retroactive taxes. The core legal question concerns whether modifying exemption conditions for already-completed tax facts (property transmissions and acquisitions) constitutes prohibited retroactive taxation. The applicant presented expert legal opinions supporting that the 2014 provisions altered essential tax elements retroactively, as the original exemptions were unconditional and the tax obligations arose at the moment of acquisition. The case illustrates the constitutional limits on legislative amendments to tax exemptions and the protection of legitimate expectations in tax planning for investment funds.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. The Applicant A... – Investment Fund Management Company, S.A. (Applicant), taxpayer no. ... as manager of the real estate investment fund B... – Closed Real Estate Investment Fund for Residential Rental, taxpayer no. ..., with registered office at ..., ..., in ..., filed on 16/03/2016 a request for arbitral decision concerning the examination and declaration of illegality of the acts of assessment of Property Transfer Tax (IMT) and Stamp Tax, in the total amount of € 20,006.75 (twenty thousand and six euros and seventy-five cents) on a property of which it is the owner.

1.2. His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed, on 19/04/2016, as sole arbitrator the signatory of this decision.

1.3. On 01/06/2016 the arbitral tribunal was constituted.

1.4. In compliance with the provisions of no. 1 of article 17 of the Legal Regime of Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified on 01/06/2016 to, if it wished, submit a reply and request the production of additional evidence.

1.5. On 30/06/2016 the AT submitted a reply.

1.6. On 01/07/2016 the arbitral tribunal decided to dispense with the holding of the meeting referred to in no. 1 of article 18 of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in the conduct of the proceedings, inviting both parties to, if they wished, submit optional written submissions and scheduled the date for delivery of the final decision.

1.7. On 12/07/2016 the Applicant submitted written submissions.

1.8. On 05/09/2016 the AT submitted written submissions.

2. JURISDICTIONAL REVIEW

The arbitral tribunal was duly constituted and is materially competent.

The parties have legal personality and capacity and are legitimately constituted, with no defects in representation.

The proceedings do not suffer from defects affecting their validity.

Consequently, the conditions for rendering the final decision are met.

3. POSITIONS OF THE PARTIES

There are two opposing positions: that of the Applicant, set forth in the request for arbitral decision, and that of the AT in its reply (and in the subsequent written submissions).

According to the Applicant, the assessments that are the subject of this petition are illegal because the Applicant contends that Article 236 of Law No. 83-C/2013, of 31 December, which approved the State Budget for 2014, is unconstitutional in violation of the provisions of no. 3 of article 103 of the Constitution of the Portuguese Republic.

To support its claim, the Applicant further presents a legal opinion from Professors Dr. C... and Doctor D..., on the constitutionality of no. 2 of article 236 (Transitional Provision within the scope of the Special Regime Applicable to FIIAH and SIIAH) of Law No. 83-C/2013, of 31 December corroborating the thesis of unconstitutionality it defends, and whose conclusions are transcribed as follows:

"CONCLUSIONS

(...)

  1. The State Budget Law for 2009 approved the legal regime of Real Estate Investment Funds for Residential Rental (FIIAH) and, within it, a special tax regime in its article 8, including, insofar as it is relevant here, exemptions from IMT and Stamp Tax for acquisitions by FIIAH of properties and autonomous fractions intended for permanent residential rental and related acts and contracts.

  2. The aforementioned exemptions from taxes due at the time of acquisition were self-contained with the acquisition by FIIAH intended for residential rental, not depending on the completion of the actual rental within a certain period nor on the non-alienation of the property within that same period, with the legislator not having placed on the FIIAH the risk of the non-realization of the rental.

  3. Article 235 of the State Budget Law for 2014 introduced new nos. 14 to 16 in article 8 of the FIIAH regime, which came to restrict the IMT and Stamp Tax exemptions introduced by the State Budget Law for 2009, as they made the qualification of the property as intended for permanent residential rental conditional upon it being effectively the subject of a contract for permanent residential rental within three years from the moment when they came to be part of the fund's assets, and provided that the aforementioned exemptions "cease to have effect" if the properties have not been the subject of a rental contract within that three-year period, the same occurring if the properties are alienated before that three-year period (except if in the exercise of the purchase option by the tenant who had previously alienated the property to the FIIAH).

  4. The requirement introduced in the State Budget Law for 2014 was not foreseen in the original regime of 2008, not resulting, in particular, from the assumption that these were acquisitions of urban properties or autonomous fractions "intended exclusively for residential rental", since that intention is compatible, particularly in periods of rental market crisis, with difficulties and delays in the realization of rental, nothing preventing, according to the original provision of the exemption, that the property be acquired as intended exclusively for residential rental despite only coming to be rented, for example, 3 and a half or 4 years after acquisition.

  5. Similarly, the alienation, within the three-year period from acquisition, of the property that had been acquired to be intended exclusively for rental also did not prevent the application of the exemption according to its original provision – being certain, moreover, that only 75% of the assets of FIIAH were obligatorily to be made up of properties intended for rental (article 4, no. 1 of its respective regime).

  6. The provision of a period for the realization of rental is not merely a form of verification of a requirement already foreseen – in which case a new law would clearly be unnecessary – but rather represents the introduction, with the three-year period, of a new condition for the exemption from IMT and Stamp Tax, with the effect of more restrictively delimiting the exception to the scope resulting from the exemption, providing that this "ceases to have effect".

  7. The special transitional provision contained in article 236, no. 2 of the State Budget Law for 2014, by ordering the application of the norms that restricted the exemption to acquisitions prior to its entry into force, effected at a moment when the exemption was provided for without such limitations, restricts the exemption from IMT and Stamp Tax with respect to tax facts previously exhausted, which are, for IMT and Stamp Tax, respectively, the onerous transmission of property and the act or contract related to the acquisition.

  8. The tax facts giving rise to the obligation of IMT and Stamp Tax are exhausted at the moment of their occurrence, and that is also the moment when the respective tax obligations arise (articles 5, no. 2, and 5, paragraph a), respectively of the IMT Code and the Stamp Tax Code).

  9. The provision of no. 2 of article 236 of the State Budget Law for 2014 altered an essential element of the taxes in question (the exemptions, and, as a consequence, the scope of their application, or field of application), as it is an element on which the very existence of the tax obligation depends (the "if" of the tax).

  10. Article 103, no. 3 of the Constitution of the Portuguese Republic prohibits retroactive taxes, such prohibition, introduced in 1997, having made clear that the legislator is not permitted to foresee or alter in its essential elements taxes that apply to facts already exhausted at the moment of entry into force of the law – that is, that are authentically retroactive.

  11. The wording of article 103, no. 3, introduced in 1997 gave rise to the fact that, after 1997, and applying the new constitutional parameter, the Constitutional Court came to decide in the sense of the unconstitutionality of norms that create or alter in their essential elements taxes for facts that were completed prior to their entry into force (authentic retroactivity, as opposed to mere retrospectitvity or inauthentic retroactivity).

  12. As can be read in the Decision nos. 128/2009 of the Constitutional Court, "given that the general principle of non-retroactivity of tax law is established, the mere retroactive nature of a tax law disadvantageous to individuals is sanctioned, in an automatic manner, by the Constitution, whatever may have been, in concrete terms, the conduct of the tax administration or the taxed individual. In other words, the judgment of unconstitutionality derives only from mere analysis of the normative data, not depending, at any moment, on the ascertainment of any circumstantial elements resulting from the condition, in concrete terms, of a certain tax-legal relationship".

  13. The provision of article 236, no. 2 of the State Budget Law for 2014 is authentically retroactive, as it orders the application of the new conditions of the exemptions – rental and non-alienation within a 3-year period, under penalty of these "ceasing to have effect" – to acquisitions and acts (that is, to tax facts) prior to its entry into force and which were completed before this.

  14. This is not prevented by the argument that the aforementioned restriction of the exemption by the provision of periods was merely intended to verify the purpose of rental of the acquisitions, since such a condition of the exemption was not previously concretized and embodied in law, at the moment when the relevant tax facts (the acquisition of the properties and the related acts and contracts) were completed.

  15. For this very same reason, it would be improper to characterize the provision of article 236, no. 2 of the State Budget Law for 2014 as an interpretative norm, since the conditions it added for the exemptions were not previously provided for.

  16. It is irrelevant that it is provided in article 236, no. 2 of the State Budget Law for 2014 that the three-year period is only counted from the entry into force of that law, since such a condition of the exemption (the period) was not even required at the moment when the relevant tax facts were performed.

  17. Article 236, no. 2 of the State Budget Law for 2014 is unconstitutional, in violation of article 103, no. 3 of the Constitution of the Portuguese Republic, in providing that the provisions of the new nos. 14 to 16 of article 8 of the legal regime of FIIAH, which alter and restrict the exemptions previously provided for in nos. 7 and 8 of that same article, are "equally applicable to properties that were acquired by FIIAH before 1 January 2014"."

The Applicant also considers that the assessments disputed are void under the provisions of paragraph d), no. 2 of article 133 of the Code of Administrative Procedure (CPA) inasmuch as they infringe the essential content of a fundamental right, and as such are subject to challenge at any time.

On the other hand, the AT, defending itself by exception and by counter-argument, maintains that the request for declaration of nullity of the disputed assessments should be judged unfounded.

By exception, the AT contends that the arbitral tribunal does not have competence to assess or declare the constitutionality or unconstitutionality of article 236 of Law 83-C/2013, of 31 December.

The AT further adds that competence for abstract review of legality and constitutionality is reserved to the Constitutional Court, and therefore the arbitral tribunal is materially incompetent to assess, in abstracto, the constitutionality of article 236 of Law No. 83-C/2013, of 31 December.

On the other hand, and also by exception, the AT contends that in the scope of the assessment of abstract review of constitutionality, it would always be a legitimate party.

However, according to the provisions of article 4, no. 1, paragraph b), first part of the Statute of the Administrative and Tax Courts (ETAF), it falls within the scope of administrative jurisdiction the assessment of disputes that have as their object the review of the legality of legal acts emanating from the AT in the exercise of administrative function, and paragraph a) of no. 2 of the aforementioned article 4 of ETAF expressly excludes from the scope of administrative and tax jurisdiction the assessment of disputes that have as their object the impugning of acts performed in the exercise of political and legislative function.

Thus, in the same way that which justifies the absolute incompetence of the arbitral tribunal, by reason of subject matter, applies in full to justify the passive illegitimacy of the Applicant.

By counter-argument the AT defends itself by invoking that in the Portuguese administrative law system, the rule regime of invalidity of acts is, for reasons of legal certainty, mere annulability, including for those performed on the basis of illegal or unconstitutional deliberations, with the Supreme Administrative Court having pronounced itself in this same sense.

On the other hand, the AT contends that the law in question is not affected by retroactivity, inasmuch as the alienation of the property has as a necessary consequence the lapse of the tax benefit granted for allocation to rental.

Thus, and contrary to what the Applicant contends, there is no introduction ex novum of a regime of lapse of the benefit, and even less is there any frustration of the expectations of the taxpayers or violation of the principle of non-retroactivity of tax law.

In light of the foregoing, the AT considers that the present request for arbitral decision should be judged unfounded.

4. QUESTIONS TO BE DECIDED

In the present proceedings the questions to be decided are:

a) To determine the exception of incompetence of the arbitral tribunal;

b) To determine the exception of passive illegitimacy;

c) To determine whether the assessments of IMT and IS effected under article 236 of Law No. 83-C/2013, of 31 December (State Budget for 2014) are illegal or not.

5. FACTS

5.1. FACTS CONSIDERED PROVEN

In light of the documents submitted to the proceedings, the following is deemed proven:

5.1.1. The real estate investment fund B... – Closed Real Estate Investment Fund for Residential Rental was, at the date of the assessments in question, the owner of the property located at ..., ..., ... A/B and Rua ..., ..., ... A/B, Block ..., ... Apt., registered in the parish of ..., in ..., under matriculation article no. ...;

5.1.2. The property in question was acquired on 19/11/2013, benefiting from the IMT exemption under paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH), and was alienated on 06/01/2016;

5.1.3. In accordance with what was mentioned in the request for arbitral decision and in the reply given by the AT, the assessment of IMT, ..., in the amount of € 17,184.75 (seventeen thousand, one hundred eighty-four euros and seventy-five cents) and Stamp Tax no. ..., in the amount of € 2,882.00 (two thousand eight hundred eighty-two euros) were effected, which were paid;

5.1.4. These assessments were made under article 236 of Law No. 83-C/2013, of 31 December (State Budget for 2014).

5.2. FACTS NOT CONSIDERED PROVEN

There are no facts with relevance to the decision that have not been deemed proven.

6. THE LAW

6.1. ON THE INCOMPETENCE OF THE ARBITRAL TRIBUNAL

Prior to examination of the merits of the case, it is necessary, first and foremost, to consider the exception of incompetence of the arbitral tribunal invoked by the AT.

As previously mentioned, the AT defends itself by exception, invoking that, since the Applicant alleges the unconstitutionality of the norm applied in the assessments in question, the arbitral tribunal is not competent to decide on the constitutionality or unconstitutionality of the norms.

Now, the arbitral tribunal will not obviously declare the (un)constitutionality of the norm in question, but will only pronounce itself as to its concrete application to the concrete facts, evaluating the legality or otherwise of that application, whereby the arbitral tribunal is materially competent.

The argumentation invoked by the AT regarding the incompetence of the arbitral tribunal therefore fails, and the exception in question is judged unfounded.

6.2. ON PASSIVE ILLEGITIMACY

The argumentation invoked by the AT regarding the incompetence of the arbitral tribunal having failed, the exception in question is likewise judged unfounded.

6.3. ON THE (IL)LEGALITY OF THE ACT OF ASSESSMENT OF IMT AND STAMP TAX

It is therefore necessary to decide on the merits of the request for arbitral decision regarding the assessments of IMT and Stamp Tax in question.

As is known, Law No. 64-A/2008, of 31 December approved the special regime applicable to real estate investment funds for residential rental (FIIAH).

Under the provisions of no. 7 of article 8, the following were exempt from IMT:

a) Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds referred to in no. 1;

b) Acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent residence, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the tenants of the properties that make up the assets of the investment funds referred to in no. 1.

Already the State Budget Law for 2014 came to amend the aforementioned article 8 as follows:

"14 - For purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for permanent residential rental whenever they are the subject of a contract for permanent residential rental within three years counted from the moment when they came to be part of the fund's assets, with the taxable person being obliged to communicate and provide proof to the AT of the respective actual rental within 30 days following the end of the aforementioned period.

15 - When the properties have not been the subject of a rental contract within the three-year period provided in the preceding number, the exemptions provided for in nos. 6 to 8 cease to have effect, with the taxable person in such case being obliged to request from the AT, within 30 days following the end of the aforementioned period, the assessment of the respective tax.

16 - If the properties are alienated, except in the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the expiry of the period provided for in no. 14, the taxable person must likewise request from the AT, prior to the alienation of the property or the liquidation of the FIIAH, the assessment of the tax owed under the preceding number." [emphasis ours].

As previously mentioned, the property in question was acquired by the real estate investment fund B... – Closed Real Estate Investment Fund for Residential Rental in 2014, benefiting from the IMT exemption under paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH).

This provision requires that the property be intended for permanent residential rental in order to benefit from the aforementioned exemption.

In this measure, the obligation to intend the property for residential rental is not a requirement of the amendments introduced by the State Budget Law for 2014, but rather a requirement of the special regime applicable to real estate investment funds for residential rental (FIIAH) ab initio, indeed a natural consequence of the objectives and motivations that presided over the creation of these funds.

The State Budget for 2014 does, it is certain, establish a new requirement for the exemption: if the allocation to permanent residential rental does not occur within the 3-year period following the entry of the property into the fund, the fund must request the assessment of the IMT that was not assessed.

However, this was not the case in question, contrary to what appears to follow from the argument of the Applicant, as can be seen.

The assessments of IMT and Stamp Tax in question were not based on their retention in the fund for a period equal to or greater than 3 years without there having been allocation to permanent residential rental.

In fact, the assessments in question, as appears from the assessment notices attached to the proceedings, were based on the fact that the properties were given "a purpose different from that on which the benefit was based".

On this matter, there is already abundant arbitral jurisprudence in the sense of the legality of the impugned acts in proceedings no. 398/2015-T, no. 688/2015-T, no. 689/2015-T, no. 709/2015-T, no. 710/2015-T, no. 729/2015-T, no. 735/2015-T, no. 76/2016-T and no. 93/2016-T, as follows.

Arbitral Decision no. 398/2015-T

"Now, it is necessary to evaluate the legality of the IMT assessments sub judice.

As mentioned above, both properties subject to assessment were acquired by the Applicant at the beginning of 2014, benefiting from the IMT exemption under paragraph a) of no. 7 of article 8 of the legal regime of FIIAH. Such a provision requires that the property be intended for permanent residential rental in order to benefit from such an exemption.

Now, the obligation to intend the property for residential rental is not a requirement of the amendments introduced by the State Budget for 2014, but rather a requirement of the tax regime of FIIAH ab initio, indeed a natural consequence of the motivations that led to the creation of these funds.

[...] The IMT assessments effected with respect to the properties above described were not based on their retention in the fund for a period equal to or greater than 3 years without there having been allocation to permanent residential rental. Indeed, as appears from the documentation submitted to the proceedings, both properties were in the fund for only a few months. The assessments in question, moreover as appears from the assessment notices attached to the proceedings, were based on the fact that the properties were given "a purpose different from that on which the benefit was based". Now, to this assertion made by the AT that a different purpose was given to the properties, that is, that they were not allocated to permanent residential rental, the Applicant responds only in its submissions that "It does not understand, however, where the Tax Authority found such an idea", saying nothing more on what is an essential requirement for the application of the exemption.

Thus being, we understand that the question at issue is not the retroactivity or otherwise of the applied norm, which would be the case if, for example, the property remained in the fund for 3 years without yet having been allocated to permanent residential rental and, for that reason, there was an assessment of IMT.

In the concrete case it is not about that. The properties in question are alienated without having fulfilled their purpose - allocation to permanent residential rental. It is not a question of period. Once alienated, that purpose can no longer be fulfilled, and therefore the requirement established for the exemption from IMT to be applicable was not met.

To comply with paragraph a) of no. 7 of article 8, it is not enough to have an intention declared at the time of property acquisition but rather an actual allocation to permanent residential rental. Now, the Applicant does not prove in any way in these proceedings, nor in the preceding administrative procedure the fulfillment of that requirement.

We thus understand that the retroactivity or otherwise of the law is not at issue, nor does there exist injury to the expectations of the Applicant or aggravation of its tax position. The rational basis for the attribution of a tax benefit in terms of IMT to FIIAH was established clearly from the start – "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds...";

Now, we thus understand that the assessment of IMT in question is legal under paragraph a) of no. 7 of article 8. Let us now then examine the rational basis of the assessment of IMT under article 235 no. 16 of Law 83/2013 of 31 December." [emphasis ours].

Arbitral Decision no. 688/2015-T

"Now, having regard to the alienation of the property identified in point 5.2.2., above, for purposes different from those for which the above-described tax benefits were granted, such would determine (and did determine in the case under analysis) the automatic restoration of standard taxation.

Thus, in light of the above, this Arbitral Tribunal understands that the provisions of no. 16 of article 236 of the Transitional Regime, applied in conjunction with the provisions of no. 15 of the same article in no way alter the substance or requirements of applicability of the exemptions established by article 8, nos. 7 and 8 of the special regime applicable to FIIAH and SIIAH with respect to the crisis assessments.

In these terms, having regard to the conclusions resulting from the analysis presented above, the Tribunal understands that the answer to be given to the question raised in point 6.1., above is negative, that is, that the assessments of IMT and Stamp Tax subject to the request for arbitral decision do not suffer from any illegality, whereby the request for arbitral decision should be considered unfounded.".

Arbitral Decision no. 689/2015-T

"The fact that the Applicant proceeded to alienate the property which, upon acquiring, it declared it would allocate for a purpose that allowed it to be recognized – as it was – the exemption from IMT and IS would always determine, even if the added number 16 did not expressly provide for it, the lapse of such exemptions, by virtue of the provisions of article 12 and no. 3 of article 14 of the Tax Benefits Statute (former 12, no. 3, in the wording of the TBS that was in force prior to the republication of the same by Decree-Law No. 108/2008, of 26/06), according to which "When the tax benefit concerns the acquisition of property intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those are alienated or given another purpose without authorization of the Minister of Finance, without prejudice to the remaining sanctions or different regimes established by law.".

The Applicant neither alleged nor, all the more so, demonstrated having obtained the authorization provided for therein, or any other circumstance that would prevent the granted exemptions from ceasing to have effect as a consequence of the alienation.

It is for this reason that, as we have already advanced above, we understand that the question raised by the Applicant regarding the alleged unconstitutionality of the provisions added does not arise in the case at hand, insofar as, in the part corresponding to the alienation of the property, no. 16 of article 8 of the Legal Regime of FIIAH limits itself to reiterating what already resulted from the provisions of the Tax Benefits Statute.

Which, moreover, is well understood, having regard to the ratio of the grant of the tax benefits.

The ratio for the attribution of the tax benefit in terms of IMT and IS to FIIAH is clearly its allocation to permanent residential rental - "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds..." – with the consequence of giving it a different purpose being that the exemption could not have been granted, with the need to restore legality, assessing the taxes which, were it not for the declaration of intention made at the time of acquisition, would have had to be assessed.

Which the Applicant recognized, all the more so because that is exactly what is contained in the declarations made by the Applicant itself for the assessment of IMT and IS.".

Arbitral Decision no. 709/2015-T

"To comply with the provisions of paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH) it is not enough to have an intention declared at the time of property acquisition but rather an actual allocation to permanent residential rental.

Now, the Applicant does not prove in any way in these proceedings the fulfillment of that requirement.

[...] We thus understand that the retroactivity or otherwise of the law is not at issue, nor does there exist injury to the expectations of the Applicant or aggravation of its tax position. The rational basis for the attribution of a tax benefit in terms of IMT to FIIAH was established clearly from the start - "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds...".

Arbitral Decision no. 710/2015-T

"And, thus being and in this segment of the decision, we again adhere to the position expressed in the CAAD decision in proceedings no. 398/2005 - T, in the sense that it is not even a question of testing the retroactivity of the applied norm, but rather the fact that the fraction in question was alienated «without having fulfilled its purpose - allocation to permanent residential rental» and that «once alienat[ed], [the fraction,] that purpose can no longer be fulfilled, and therefore the requirement established for the IMT exemption to be applicable was not met» (cit., p. 10).

[...] Thus being, and since the crisis assessments resulted from a declaration of the Applicant, it is not even necessary for us to dwell on the correction of the assessments with respect to their propriety. In any case, let it be recalled that the 15th number of the Special Regime, as amended by the State Budget Law for 2009 establishes that when the properties have not been the subject of a rental contract within the three-year period the benefits cease to have effect, and it falls to the taxable person to request from the AT, within thirty days following the end of the aforementioned period, the assessment of the respective tax. Now, as we have seen, in the case at hand there was an acquisition and alienation of a fraction that was never allocated to permanent residential rental by the Applicant, and it was for this reason – as indeed the Applicant did – that it fell to the latter to request the assessment of the respective tax." [emphasis ours].

Arbitral Decision no. 729/2015-T

"The ratio for the attribution of the tax benefit in terms of IMT and IS to FIIAH is clearly its allocation to permanent residential rental - "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds..." - with the consequence of giving it a different purpose being that the exemption could not have been granted, with the need to restore legality, assessing the taxes which, were it not for the declaration of intention made at the time of acquisition, would have had to be assessed.

Which the Applicant recognized, all the more so because that is exactly what is contained in the declarations made by the Applicant itself for the assessment of IMT and IS.

In conclusion, the alienation of the fraction would always determine the lapse of the exemption by application of the provisions of no. 3 of article 14 of the Tax Benefits Statute, and it is therefore not the case that, in the situation sub judice, there is any retroactive application of a norm that would introduce a new regime of lapse of the exemptions, nor does there exist injury to the expectations of the Applicant or aggravation of its tax position, whereby we understand that the assessments of IMT and Stamp Tax in question are legal.

Thus, the analysis of the question raised by the Applicant regarding the alleged retroactivity of the regime provided for by article 236 of the State Budget Law for 2014 is prejudiced, insofar as, as was demonstrated above, the circumstances that gave rise to the assessment of the tax in question in no way relate to the amendments brought about by the aforementioned article, but only to the alienation of the property and consequent allocation to a purpose different from that for which the exemptions from IMT and Stamp Tax were granted." [emphasis ours].

Arbitral Decision no. 735/2015-T

"Now, having regard to the alienation of the property identified (...), above, for purposes different from those for which the above-described tax benefits were granted, such would determine (and did determine in the case under analysis) the automatic restoration of standard taxation.

Thus, in light of the above, this Arbitral Tribunal understands that the provisions of no. 16 of article 236 of the Transitional Regime, applied in conjunction with the provisions of no. 15 of the same article in no way alter the substance or requirements of applicability of the exemptions established by article 8, nos. 7 and 8 of the special regime applicable to FIIAH and SIIAH with respect to the crisis assessments.

In these terms, having regard to the conclusions resulting from the analysis presented above, the Tribunal understands that the answer to be given to the question raised in (...), above is negative, that is, that the assessments of IMT and Stamp Tax subject to the request for arbitral decision do not suffer from any illegality, whereby the request for arbitral decision should be considered unfounded.

As a consequence of the conclusion referred to (...), above, the analysis of the question raised by the Applicant regarding the alleged retroactivity of the regime provided for by article 236 of the State Budget Law for 2014 is prejudiced, insofar as, as was demonstrated above, the circumstances that gave rise to the assessment of the tax in question derive from the fact that a purpose different from that for which the exemptions from IMT and Stamp Tax were granted was given to the property (...)."

Arbitral Decision no. 76/2016-T

"In this framework, it is our understanding that no. 16 of article 8 of the special regime applicable to FIIAH and SIIAH, applied in conjunction with the provisions of no. 15 of the same article, produces no alteration in the substance and/or in the requirements of applicability of the exemptions established by nos. 7 and 8 of the same article 8, with respect to the assessments of IMT and Stamp Tax disputed.

Effectively, contrary to what the Applicant contends, it is not correct to say that the facts or circumstances on which the lapse thereof depended were not already legally provided for, at the time the exemption was recognized, at least with respect to the circumstance that occurred in this case: the alienation of the property."

Arbitral Decision no. 93/2016-T

"The ratio for the attribution of the tax benefit in terms of IMT and IS to FIIAH is clearly its allocation to permanent residential rental - «Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds...» - with the consequence of giving it a different purpose being that the exemption could not have been granted, with the need to restore legality, assessing the taxes which, were it not for the declaration of intention made at the time of acquisition, would have had to been assessed.

In conclusion, the alienation of the property would always determine the lapse of the exemption by application of the provisions of no. 3 of article 14 of the Tax Benefits Statute, and it is therefore not the case that, in the situation sub judice, there is any retroactive application of a norm that would introduce a new regime of lapse of the exemptions, nor does there exist injury to the expectations of the Applicant or aggravation of its tax position, whereby we understand that the assessments of IMT and Stamp Tax in question are legal." [underlined ours].

Here we arrive at the understanding that the question of retroactivity or otherwise of the applied norm is not at issue, which would be the case if, for example, the property remained in the fund for 3 years without yet having been allocated to permanent residential rental and, for that reason, there was an assessment of IMT.

In the case at hand this is not what is happening.

The property in question was alienated without having fulfilled its purpose – allocation to permanent residential rental. It is not therefore a question of period. Once the property is alienated, that purpose can no longer be fulfilled, and therefore the requirement established for the exemption from IMT to be applicable was not met.

To comply with the provisions of paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH) it is not sufficient to have an intention declared at the time of property acquisition but rather an actual allocation to permanent residential rental.

Now, the Applicant does not prove in any way in these proceedings the fulfillment of that requirement.

We understand thus that the retroactivity or otherwise of the law is not at issue, nor does there exist injury to the expectations of the Applicant or aggravation of its tax position.

In fact, the rational basis for the attribution of a tax benefit in terms of IMT to FIIAH was established clearly from the start – "acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the investment funds (...)".

By all the foregoing, it is to be concluded that the assessments of IMT and Stamp Tax in question are legal under paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH).

7. DECISION

With the grounds exposed, the arbitral tribunal decides to judge unfounded the request for arbitral decision, with all legal consequences.

8. VALUE OF THE CASE

The value of the case is fixed at € 20,006.75 (twenty thousand and six euros and seventy-five cents), in accordance with article 97-A of the Tax Procedure and Process Code (CPPT), applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT).

9. COSTS

Costs to be borne by the Applicant, in the amount of € 1,224.00 (one thousand two hundred twenty-four euros), in accordance with Table I of the Regulations on Costs of Tax Arbitration Proceedings, in accordance with no. 2 of article 22 of the RJAT.

Notify.

Lisbon, 14 September 2016

The Arbitrator,

(Hélder Filipe Faustino)

Document produced by computer, in accordance with the provisions of no. 5 of article 131 of the CPC, applicable by referral of paragraph e) of no. 1 of article 29 of the RJAT. The writing of this decision is governed by the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the transitional provision of Article 236 of Law 83-C/2013 for FIIAH and SIIAH real estate investment funds?
Article 236(2) of Law 83-C/2013 is a transitional provision that applies new restrictive conditions to FIIAH and SIIAH tax exemptions retroactively. It requires properties acquired before 2014 to be rented within three years of acquisition to maintain IMT and Stamp Tax exemptions, and provides that exemptions 'cease to have effect' if properties are not rented within this period or are sold before the three-year term expires (except when sold via purchase option to the original seller-tenant).
Can IMT and Stamp Tax exemptions for FIIAH funds be retroactively revoked under the 2014 State Budget?
The constitutional validity of retroactively revoking IMT and Stamp Tax exemptions for FIIAH funds is contested. The applicant argues that Article 236(2) of Law 83-C/2013 violates Article 103(3) of the Portuguese Constitution, which prohibits retroactive taxes. Since the tax facts (property transmission and acquisition) were exhausted at the time of the original acquisition under the 2009 exemption regime, applying new restrictive conditions retroactively allegedly modifies essential tax elements (exemptions) in violation of constitutional protections against authentic retroactivity.
Is Article 236 of Law 83-C/2013 unconstitutional for violating Article 103(3) of the Portuguese Constitution on retroactive taxation?
The applicant contends Article 236 is unconstitutional for violating Article 103(3) of the Portuguese Constitution, which prohibits retroactive taxation. The argument centers on the provision retroactively altering essential tax elements (exemptions) for already-completed tax facts. Expert legal opinions support that the 2014 restrictions introduced new conditions not present in the original 2009 regime, effectively changing the 'if' of taxation retroactively. The Constitutional Court's post-1997 jurisprudence generally prohibits authentic retroactivity affecting exhausted tax facts, strengthening the unconstitutionality claim.
How does CAAD arbitration process work for challenging IMT and Stamp Tax assessments in Portugal?
CAAD arbitration for IMT and Stamp Tax challenges follows the Legal Regime of Tax Arbitration (RJAT). The process begins with filing an arbitration request. The CAAD President appoints an arbitrator (sole or panel), constituting the tribunal. The Tax Authority receives notification to submit a reply and request evidence. The tribunal may dispense with hearings based on procedural autonomy, allowing written submissions. Both parties can submit optional written arguments. The tribunal then issues a binding decision on the legality of tax assessments, providing an alternative to judicial courts for resolving tax disputes.
What are the tax consequences when a FIIAH fund property no longer meets the residential leasing requirements?
When a FIIAH fund property fails to meet residential leasing requirements under the 2014 regime, the previously granted IMT and Stamp Tax exemptions 'cease to have effect.' This triggers retrospective tax liability, requiring payment of the originally exempted taxes plus potential interest. Specifically, if the property is not subject to a permanent residential rental contract within three years of acquisition, or if sold before the three-year period (except via tenant purchase option), the fund becomes liable for IMT and Stamp Tax as if the exemptions never applied, potentially creating significant unexpected tax costs.