Process: 164/2016-T

Date: September 14, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitration case addresses whether Article 236 of Law 83-C/2013 unconstitutionally imposed retroactive taxation on FIIAH (Real Estate Investment Funds for Residential Leasing) by creating an expiration regime for previously granted IMT and Stamp Duty exemptions. The fund manager challenged assessments totaling €29,357.47 (IMT) and €4,039.27 (Stamp Duty) imposed after selling fund property, arguing that exemptions under Article 8(7)(a) and 8(8) of the FIIAH regime had permanently crystallized at acquisition and could not be retroactively revoked. The claimant contended Article 236 violated the constitutional principle of non-retroactivity of tax law (CRP Article 103(3)), seeking nullity of the assessments or subsidiarily their annulment with reimbursement plus default interest. The Tax Authority defended by arguing the provision merely established a compliance period for pre-existing requirements rather than creating new conditions, that tax benefits always depended on maintaining properties for residential leasing purposes, and that diverting property to other uses triggered standard taxation. The Authority also raised procedural defenses: lack of tribunal jurisdiction to declare unconstitutionality (reserved to the Constitutional Court) and its own lack of standing since officials cannot refuse to apply norms based on constitutionality doubts. Key legal issues include whether tax exemptions can be subject to subsequent expiration regimes, the distinction between interpretative versus retroactive legislation, the scope of arbitral tribunal competence regarding constitutional review, and entitlement to compensatory interest when applying potentially unconstitutional norms. The case illustrates tensions between legal certainty, legitimate expectations in tax benefits, and legislative power to clarify or modify incentive regimes for regulated investment vehicles.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, S.A., in its capacity as manager of B… – Closed Real Estate Investment Fund for Residential Leasing, taxpayer no. …, with registered office at Avenue …, no. … – …, … – … Lisbon, hereinafter referred to as the Claimant, filed on 16/03/2016 a request for arbitral decision, in which it requests that the nullity of the assessments of Municipal Tax on Onerous Property Transfers (IMT), with no. … and Stamp Duty, with no. …, be declared, or, subsidiarily, their annulment and the reimbursement of the amounts of tax paid, plus default interest.

1.2. His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD) designated Francisco Nicolau Domingos as arbitrator on 10/05/2016.

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

1.4. In compliance with the provisions of article 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 01/06/2016 to, if it so wished, file a response, request the production of additional evidence, and to submit the administrative file (PA).

1.5. On 30/06/2016 the Respondent filed its response, in which it contends for the rejection of all claims formulated by the Claimant.

1.6. The tribunal on 10/07/2016 decided to waive the holding of the meeting to which article 18, no. 1 of the RJAT refers, on the basis of the principle of the tribunal's autonomy in the conduct of proceedings and in the determination of rules to be observed with a view to obtaining, within a reasonable timeframe, a substantive decision on the claims formulated, see article 16, letter c) of the RJAT, granted 10 days for the parties, if they so wished, to file written final arguments and set a deadline for rendering the arbitral decision.

1.7. The Claimant filed its written final arguments on 22/08/2016 and attached to the record a legal opinion and a document, maintaining, finally, entirely the position set out in its request for arbitral decision.

1.8. The Respondent attached to the record on 05/09/2016 its final arguments, contending for the rejection of all claims and raising in an innovative manner the tribunal's lack of jurisdiction and its passive illegitimacy.

1.9. Consequently, the tribunal, with the normative authority described in article 16, letters a) and c) of the RJAT, determined that the Claimant, if it so wished, would pronounce itself on the exceptions raised and the Respondent as to the document presented with the Claimant's arguments.

1.10. The Respondent filed a response to the tribunal's invitation on 07/09/2016.

1.11. The Claimant pronounced itself on the lack of merit of the dilatory exceptions on 13/09/2016.

2. SUBJECT MATTER OF THE PROCEEDINGS

The Claimant begins by alleging that, as a result of the legislative amendment undertaken by Law no. 83-C/2013, of 31 December, it requested from the Tax and Customs Authority (AT) the assessment of IMT and Stamp Duty arising from the alienation by Fund B… of the property in question in these proceedings, and assessments of € 29,357.47 for IMT and € 4,039.27 for Stamp Duty were issued.

Subsequently, it invokes the illegality of the assessments, since they apply an unconstitutional norm, which leads to its nullity, or, should it not be understood that way, to its voidability. To justify this request it alleges that, with the entry of the property into the patrimony of the Claimant, the exemptions from IMT and Stamp Duty, provided for in article 8, no. 7, letter a) and no. 8 of the legal regime of Real Estate Investment Funds for Residential Leasing (FIIAH), became permanently crystallized in the legal system, because, at the date of acquisition, they were not subject to the verification of any subsequent facts or circumstances, nor to any expiration regime.

For this reason, it adds that the assessments apply an unconstitutional norm, article 236 of Law no. 83-C/2013, of 31 December, which violates the principle of non-retroactivity of tax law, provided for in article 103, no. 3 of the Constitution of the Portuguese Republic (CRP), since it creates an expiration regime for the exemptions provided for in article 8, no. 7, letter a) and no. 8 of the legal regime of FIIAH and not a clarification of a criterion previously established.

It concludes by petitioning the condemnation of the Respondent to reimburse the amounts of tax paid, plus default interest.

The Respondent, in its response, defends itself by impugning, when it affirms that the principle of legality to which the Administration is bound prohibits administrative bodies and agents from failing to apply norms as to which doubts of constitutionality are raised.

It further adds that the property in question in these proceedings formed part of the Fund's patrimony at the date of entry into force of Law no. 83-C/2013, of 31 December and that it was the Claimant here who requested from the AT the assessments of IMT and Stamp Duty in that it alienated it to third parties and thus gave it a destination different from that which was supposed, residential leasing.

In the third place it contends that, as a general rule, the consequence resulting from the invalidity of acts is voidability, nullity occurring only when it lacks one of its essential elements or when the law expressly sanctions it in that form. In this context it further observes that, even if there were a violation of article 103 of the CRP, as the Claimant contends, the impugned acts would only be annulled and not declared null.

It further adds that article 236 of Law no. 83-C/2013, of 31 December did not establish any new requirement, it merely granted a period for compliance with that requirement, which only begins with the entry into force of the new law. That is, it contends that such normative provision is not altering the assumptions and conditions for the granting or recognition of a tax benefit, but only providing for the period of time for purposes of verification of compliance with a requirement previously established, respecting the principles of legal certainty and protection of legitimate expectations. Or, put differently, no expiration regime for the benefit was introduced ex novo. For this reason it contends that, if that is so, there is no violation of the principle of non-retroactivity of tax law, provided for in article 103, no. 3 of the CRP and, as such, the aforementioned normative provision is not unconstitutional.

In summary, the tax benefits applicable to FIIAH always depended on the allocation of immovable property to leasing for permanent residence, a requirement that the AT could assess, in order to conclude as to the permanence or, rather, the restoration of the standard tax system.

Moreover, it contends that, even if the arguments described above were to lack merit, the taxpayer would never be entitled to default interest, because the binding of the AT to the law obligated it to apply the norm, even if unconstitutional.

Finally, and already in arguments, the Respondent came to contend that the arbitral tribunal does not have jurisdiction to assess or declare the (un)constitutionality of article 236 of Law no. 83-C/2013, of 31 December, since that jurisdiction is reserved to the Constitutional Court. Likewise, it would always be a party lacking standing, because its officials cannot refrain from applying a norm on the basis of its unconstitutionality.

In this way, these are the questions which the tribunal must address:

i) Whether the arbitral tribunal has jurisdiction to appreciate the request for arbitral decision;

ii) Whether the Respondent entity is a party lacking standing in these proceedings;

iii) Whether the IMT and Stamp Duty assessments are illegal;

iv) Whether there is grounds for payment of default interest.

3. PRELIMINARY RULING

3.1. Lack of Jurisdiction of the Arbitral Tribunal

The Respondent contends that the tribunal does not have jurisdiction to assess or declare the (un)constitutionality of article 236 of Law no. 83-C/2013, of 31 December, since abstract review of legality and constitutionality is reserved to the Constitutional Court.

Invited to pronounce itself on such exception, the Claimant came to state that the exception of lack of jurisdiction of the tribunal is based on an incorrect interpretation of the request for arbitral decision, in that, what is reflected in that procedural document is the claim that the nullity of, or subsidiarily the voidability of, the assessments placed in issue be declared on the grounds that they are based on the application of a norm that violates the CRP and the law.

Will the Respondent be correct?

In this regard it is uncontested that the application of a materially unconstitutional norm in the context of the assessment of a tax determines its annulment, because it suffers from the defect of violation of law arising from error concerning the assumptions of law.

Now, what the Claimant brings into question is the application of a norm which it deems unconstitutional, article 236 of Law no. 83-C/2013, of 31 December and not abstract review of legality and constitutionality.

Thus, the tribunal is materially competent, the exception invoked by the Respondent being judged to lack merit.

3.2. Passive Illegitimacy of the Respondent

The Respondent invokes that if the Claimant's claim consists in abstract review of the constitutionality of article 236 of Law no. 83-C/2013, of 31 December, it is necessary to conclude that it is a party lacking standing in the proceedings.

Conversely, the Claimant contends, in summary, that if the tribunal has jurisdiction to appreciate the request for arbitral decision, the alleged passive illegitimacy is not present.

Article 30, nos. 1 and 2 of the Code of Civil Procedure (CPC) provides that: "1. The plaintiff is a party with standing when he has a direct interest in bringing the action; the defendant is a party with standing when he has a direct interest in opposing. 2. The interest in bringing the action is expressed by the utility derived from the success of the action and the interest in opposing by the damage that would result from its success…"

Procedural standing is thus assessed by the relationship and interest of the party with the subject matter of the action.

Article 9, nos. 1 and 4 of the Code of Tax Procedure and Process (CPPT), applicable by virtue of article 29, no. 1, letter a), of the RJAT provides that the AT, which includes the defunct Tax Authority General Directorate and Customs and Excise Taxes General Directorate, has standing to intervene in tax procedure and tax judicial proceedings.

In truth, as legal doctrine maintains: "...all persons who have standing to intervene in tax procedure also have standing to intervene in tax judicial proceedings"[1].

Now, in the case sub judice we are in the presence of assessment acts performed by the Respondent whose legality now finds itself in question by reason of the Claimant understanding that they suffer from error concerning the assumptions of law by application of a materially unconstitutional norm.

In this way, if we are not before abstract review of constitutionality, if the tribunal is materially competent to hear the request for arbitral decision and if the Respondent performed the acts in question, it is necessary to conclude that it has passive procedural standing. In truth, if it was the Respondent who performed the act, it will be the entity that will best be able to proceed to the judicial sustaining of its legality.

For this sum of reasons, it is declared that the Respondent has standing in the present proceedings, the exception invoked thus being judged to lack merit.

3.3. Preliminary Ruling

The cumulation of claims underlying the present proceedings is admissible, because there is identity between the factual matter and the success of the claims depends on the interpretation of the same principles and rules of law, see article 3, no. 1 of the RJAT.

Thus, the proceedings do not suffer from nullities, the arbitral tribunal is regularly constituted and is materially competent to hear and decide on the claims, the conditions consequently being present for the final decision to be rendered.

4. FACTUAL MATTER

4.1. Facts Deemed Proven

4.1.1. The Claimant acquired on 19/11/2013 the fraction "AF" of the property registered in the land register under article … of the parish of …, municipality of Lisbon, located at …, no. … and … and Street …, no. … to …, Block …, …, Lisbon.

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

4.1.3. The Claimant declared on 11/01/2016 to the AT that it would execute a deed of sale and purchase on 12/01/2016 of the fraction and that it would be given a destination different from that which underpinned the benefit.

4.1.4. Thus, the IMT assessment was € 29,357.47 (no. …) and the Stamp Duty assessment was € 4,039.27 (no. …).

4.1.5. The value of the aforementioned assessments was paid on 11/01/2016.

4.2. Facts Not Deemed Proven

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

4.3. Basis for the Factual Matter Deemed Proven

The factual matter deemed proven originates from the documents used for each of the facts alleged and whose authenticity was not called into question.

5. LEGAL MATTER

The tribunal must first of all know about the (il)legality of the IMT and Stamp Duty assessments.

For this it is necessary to state that the legal regime of FIIAH was approved by Law no. 64-A/2008, of 31 December.

Article 8 of such regime established the normative dispositions of a tax nature. In particular and in the context of the taxation of property, article 8, no. 7 provided that there are exempt from IMT:

"a) The acquisitions of urban immovable property or of autonomous fractions of urban immovable property intended exclusively for leasing for permanent residence, by the investment funds referred to in no. 1;

b) The acquisitions of urban immovable property or of autonomous fractions of urban immovable property 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 lessees of the immovable property that form part of the patrimony of the investment funds referred to in no. 1".

And no. 8 of such article provided that: "There are exempt from stamp duty all acts practiced, provided that connected with the transfer of urban immovable property intended for permanent residence which occurs by virtue of the conversion of the right of ownership of such immovable property into a right of leasing over the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5".

It happens that Law no. 83-C/2013, of 31 December added to article 8 of the legal regime of FIIAH the following numbers:

"14. For the purposes of the provisions of nos. 6 to 8, urban immovable property is considered to be intended for leasing for permanent residence whenever it is the subject of a lease contract for permanent residence within three years counted from the moment it entered the fund's patrimony, the taxpayer being obliged to communicate and provide proof to the AT of the respective effective leasing within 30 days following the end of the said period.

  1. When the immovable property has not been the subject of a lease contract within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 cease to have effect, the taxpayer in that case being obliged to request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

  2. Should the immovable property be alienated, with the exception of the cases provided for in article 5, or should the FIIAH be subject to liquidation, before the expiry of the period provided for in no. 14, the taxpayer shall likewise be obliged to request from the AT, before the alienation of the immovable property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number".

It is further the case that Law no. 83-C/2013, of 31 December provided for a transitional norm (article 236) within the scope of the special regime applicable to FIIAH which provides as follows:

"1. The provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are applicable to immovable property acquired by FIIAH from 1 January 2014.

  1. Notwithstanding the provisions of the preceding number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are equally applicable to immovable property acquired by FIIAH before 1 January 2014, the three-year period provided for in no. 14 being counted in those cases from 1 January 2014".

The norm which the Claimant deems unconstitutional, by violation of the principle of non-retroactivity of tax law is article 236 of Law no. 83-C/2013, of 31 December, because, in its view, it establishes a new expiration regime for the exemptions, when it requires proof of the allocation to residential leasing of the immovable property that form part of the funds, within a three-year period, this period being counted from 1 January 2014, in relation to those immovable property acquired before such date.

Before anything else, let us undertake a brief analysis of the teleology underlying the normative provision of FIIAH. Now, faced with the economic crisis that broke out in 2008 and which extended to the real estate sector, the legislator understood it appropriate to create such instruments as dynamizing vehicles for the residential leasing market and to establish an alternative solution to the problem of non-performing mortgage credit, thereby protecting the public interest.

On the other hand, article 235 of Law no. 83-C/2013, of 31 December comes to establish new requirements for the exemption, the obligation of the FIIAH to request the assessment of the IMT that was not paid, should the allocation of the immovable property to leasing for permanent residence not occur within the three-year period following the entry of the immovable property into the fund and in the event of the FIIAH being subject to liquidation.

However, as results from the factual matter deemed proven, it is not that question which arises in the present proceedings, that is, the retention of the property above identified in Fund B… for a period equal to or exceeding three years without it having been allocated to leasing for permanent residence, but the fact that it was given a destination different from that which underpinned the benefit.

In truth, the legislator, in the context of the legal regime of FIIAH exempted from IMT and Stamp Duty urban immovable property intended for leasing for permanent residence, that is, those that were acquired for that purpose. Properly speaking, if the teleology underlying the institution of FIIAH consisted in the provision of instruments dynamizing the residential leasing market, it made perfect sense that its tax regime would establish an exemption which required that allocation and already Law no. 64-A/2008, of 31 December provides that the same exists with respect to immovable property "…intended exclusively for leasing for permanent residence…".

Thus, it is not possible to conclude that the obligation to allocate the immovable property to leasing for permanent residence constitutes a requirement introduced by Law no. 83-C/2013, of 31 December. Such obligation was already expressly and concretely contained in article 8, nos. 7 and 8 of the legal regime of FIIAH in its initial version.

In truth, article 14, no. 3 of the Tax Benefits Statute (EBF), which in the geography of such diploma is located in the general part, also points in that direction when it provides that: "When the tax benefit relates to the acquisition of assets intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those assets are alienated or given another destination without authorization of the Minister of Finance, without prejudice to other sanctions or different regimes established by law".

These are the reasons which lead us to conclude that the effects resulting from the alienation of the immovable property which are contained in article 8, nos. 15 and 16 of the legal regime of FIIAH do not have an innovative character, as they already resulted from article 8, nos. 7 and 8 of the said legal regime and the EBF and, thus, in the present hypothesis, the unconstitutionality of such norm is not brought into question.

Moreover, the property above referred to was acquired by the Claimant on 19/11/2013, benefited from the terms of article 8, nos. 7, letter a) and no. 8 of the legal regime of FIIAH, having regard to the declaration at the moment of purchase that this was intended for leasing for permanent residence.

Parallel to this, it happens that, in the instant case, in the declarations made with a view to the assessments placed in issue by the Claimant there is express mention that they have as their source the fact that a destination different from that which underpinned the benefit was given.

And we do not reach a different conclusion by reason of the Claimant having attached a document in which it requests the assessment of IMT and Stamp Duty, although this expressly states that the norm which leads to the aforesaid request is illegal and unconstitutional. With effect, such request does not concern the immovable property in question in these proceedings and if the declaration which justified the assessment of IMT and Stamp Duty (by itself attached as document 1 in the request for arbitral decision) had its origin in any other basis distinct from the allocation of the immovable property to an end different from leasing, it was incumbent on it alone to prove the allocation to leasing for permanent residence. There being no different proof in the record, it is necessary to conclude that the basis of the assessments in question consisted in the fact that Fund B… intended to give the immovable property a destination different from leasing for permanent residence.

Therefore, what is in question in these proceedings consists in the fact that the use which underpinned the exemption was not given, the allocation to leasing for permanent residence and not a question of period. This removes the question of violation of the principle of non-retroactivity of tax law.

In summary, the granting of the tax benefit does not require mere declared intention, at the moment of execution of the public deed of sale and purchase, of allocation of the immovable property to permanent residential leasing, but actual allocation. Now, if the Claimant expressed that intention, but did not proceed to such allocation, or, at least, did not prove it in these proceedings, its claim must lack merit. Or, put differently, the assessments result, as is evident from the Claimant's own declarations, from the fact that a different destination was given to the immovable property.

Thus, there is no violation of the principle of non-retroactivity of tax law or aggravation of the tax position of the Claimant.

For this sum of reasons, the assessments placed in issue by the Claimant are legal and, consequently, the requests for reimbursement of the amounts of tax paid are dismissed and the request for condemnation of the Respondent to payment of default interest is dismissed.

6. DECISION

In these terms and with the reasoning described above, the request for arbitral decision is judged to be entirely without merit, the assessments remaining in the legal order with all the legal consequences.

7. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 33,396.74, in accordance with article 97-A of the CPPT, applicable by virtue of the provisions of article 29, no. 1, letter a) of the RJAT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne entirely by the Claimant, in the amount of € 1,836, in accordance with article 22, no. 4 of the RJAT and Table I annexed to the RCPAT.

Let notification be made.

Lisbon, 14 September 2016

The Arbitrator,

(Francisco Nicolau Domingos)

[1] JORGE LOPES DE SOUSA, Code of Tax Procedure and Process – annotated, 4th edition, Vislis Editors, 2003, page 84.

Frequently Asked Questions

Automatically Created

Are FIIAH real estate investment funds exempt from IMT and Stamp Tax on property acquisitions?
Yes, FIIAH real estate investment funds were originally exempt from IMT (Municipal Property Transfer Tax) and Stamp Duty on property acquisitions under Article 8(7)(a) and 8(8) of the FIIAH legal regime. These exemptions were designed to incentivize residential leasing investment. However, the exemptions were conditional on maintaining properties for their intended purpose of residential leasing, and Law 83-C/2013 clarified the consequences when this condition was not met.
How did Law 83-C/2013 (Article 236) change the tax regime for FIIAH funds in Portugal?
Article 236 of Law 83-C/2013 established or clarified an expiration regime for FIIAH tax exemptions. According to the Tax Authority's interpretation, it did not create new requirements but rather provided a compliance period for verifying that properties remained allocated to residential leasing. When FIIAH properties are sold or diverted from residential leasing purposes, the previously granted IMT and Stamp Duty exemptions expire and taxes become payable. The claimant argued this constituted retroactive taxation violating constitutional protections, while the Authority contended it merely clarified pre-existing conditions inherent to the benefit.
Can a FIIAH fund manager request arbitral annulment of IMT and Stamp Tax assessments at CAAD?
Yes, a FIIAH fund manager can request arbitral annulment of IMT and Stamp Duty assessments at CAAD (Administrative Arbitration Centre). However, the Tax Authority raised procedural objections including lack of tribunal jurisdiction to declare norms unconstitutional (arguing this power is reserved to the Constitutional Court) and its own lack of passive standing since tax officials cannot refuse to apply legislation based on constitutionality concerns. The arbitral tribunal must rule on these preliminary questions before addressing the merits of the tax assessments.
What are the grounds for claiming nullity versus annulment of IMT and Stamp Tax liquidations for FIIAH?
Grounds for nullity of FIIAH tax assessments include application of an unconstitutional norm that violates fundamental constitutional principles such as the prohibition on retroactive tax legislation (CRP Article 103(3)). The claimant argued Article 236 unconstitutionally created retroactive taxation by imposing an expiration regime on previously crystallized exemptions. Subsidiarily, annulment (voidability) can be claimed as the general consequence of administrative illegality when assessments lack essential elements or violate legal requirements, even if not rising to the level of constitutional violation warranting nullity. The Tax Authority contended that even if unconstitutional, the proper remedy would be annulment rather than nullity declaration.
Is the taxpayer entitled to reimbursement with compensatory interest after successful CAAD arbitration on IMT?
Entitlement to reimbursement with compensatory (default) interest after successful CAAD arbitration on IMT is contested. The claimant requested reimbursement of taxes paid plus default interest. However, the Tax Authority argued that even if Article 236 were declared unconstitutional, no default interest would be due because the Administration was legally bound to apply existing legislation and cannot refuse application based on constitutionality doubts. This defense reflects the principle that tax officials must apply valid legislation until formally declared unconstitutional by competent courts, potentially limiting financial consequences even when taxpayers successfully challenge assessments on constitutional grounds.