Process: 165/2016-T

Date: July 15, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 165/2016-T examined the constitutionality of retroactive tax law application to closed-end real estate investment funds for residential leasing (FIIAH). A FIIAH fund acquired property in November 2013, benefiting from IMT and Stamp Tax exemptions under Law 64-A/2008, which provided unconditional exemptions for properties intended for permanent residential rental. Law 83-C/2013 (2014 State Budget) introduced Article 236 and amended Article 8, adding new conditions: properties must be rented for permanent residence within three years, or exemptions cease. When the fund sold the property in January 2016 before the three-year period elapsed, the Tax Authority assessed IMT of €6,249.29 and Stamp Duty of €1,647.13. The fund challenged these assessments through CAAD arbitration, arguing the retroactive application of the new conditions violated Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The claimant contended that the taxable event occurred at acquisition in 2013 when exemptions were unconditional, and imposing subsequent conditions on already-exempted transactions constituted unconstitutional retroactivity. The case raises fundamental questions about the temporal application of tax benefits, the protection of legitimate expectations in tax planning, and constitutional limits on legislative changes to tax exemption regimes for real estate investment vehicles.

Full Decision

ARBITRAL DECISION

I. REPORT

A… – …, S.A., with registered office at Avenida …, no. … – …, … – … …, with share capital of €1,550,000.00, registered in the Commercial Registry of … under the single registration and tax identification number … (hereinafter the Claimant), filed an application for the constitution of a single Arbitral Tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to only as LRTA), in which the Tax and Customs Authority (hereinafter TA) is the Respondent, with the objective of obtaining a declaration of illegality of the assessment act for Property Transfer Tax (PTT) No. … and the assessment act for Stamp Duty (SD) No. …, in the total amount of €7,869.42.

The application for the constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 24 March 2016 and automatically notified to the TA.

In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the LRTA, the single Arbitral Tribunal was constituted on 1 June 2016.

The TA responded defending the inadmissibility of the claim.

The meeting referred to in Article 18 of the LRTA was dispensed with, in view of the nature of the matter contained in the proceedings.

The Arbitral Tribunal is duly constituted and has material competence, in accordance with subparagraph a) of paragraph 1 of Article 2 of the LRTA.

The parties have legal personality and capacity, are legitimate and are represented (Article 4, and paragraph 2 of Article 10 of the LRTA and Article 1 of Ordinance No. 112/2011, of 22 March).

There are no nullities, exceptions or preliminary issues that prevent immediate consideration of the merits of the case.

II. STATEMENT OF FACTS

Based on the elements contained in the proceedings attached to the case file, the following facts are considered proven:

A) The Claimant constitutes a closed real estate investment fund for residential rental.

B) Fund B… – … was, at the date of the assessments in question, the owner of the urban property registered under article …, fraction "…", in the urban property register of the parish of …, in the municipality of Lisbon.

C) The aforementioned property was acquired on 19.11.2013, benefiting from exemption from PTT and SD under paragraph 7 subparagraph a) and paragraph 8 of Article 8 of the legal regime for Real Estate Investment Funds for Residential Rental (REIFHR) and was disposed of on 13.01.2016.

D) PTT assessment No. …, in the amount of €6,249.29 and SD assessment No. …, in the amount of €1,647.13 were issued;

E) The aforementioned assessments were based on the fact that the property was given a purpose different from rental for permanent residence;

F) The assessments were paid by the Claimant on 13.01.2016.

Having regard to the positions assumed by the parties, in light of Article 110, paragraph 7 of the Tax Procedure and Process Code and the documentary evidence attached to the case file, the facts listed above are considered proven, and are relevant to the decision.

III. LEGAL ISSUES

A – POSITION OF THE PARTIES

The Claimant alleges in its application for arbitral pronouncement the following:

  1. Law No. 64-A/2008, of 31 December (State Budget for 2009), approved the special regime applicable to real estate investment funds for residential rental (hereinafter "REIFHR") and to real estate investment companies for residential rental;

  2. In its Article 8 (Tax regime), the tax regime applicable to REIFHR was established (hereinafter this regime will be abbreviated as "Tax Regime for REIFHR");

  3. With respect to the Municipal Property Transfer Tax (hereinafter "PTT"), the Tax Regime for REIFHR established the following in paragraph 7 of the aforementioned Article 8 (Tax regime):

"7 – The following are exempt from PTT:

a) The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence, by the investment funds referred to in paragraph 1;

b) The acquisitions of urban properties or autonomous fractions of urban properties intended for permanent personal residence, as a result of the exercise of the purchase option referred to in paragraph 3 of Article 5 by the tenants of properties that form part of the assets of the investment funds referred to in paragraph 1."

  1. Law No. 83-C/2013, of 31 December (State Budget for 2014) added to Article 8 (Tax regime) of the Tax Regime for REIFHR paragraphs 14 to 16, with the following text ([1]):

"14 - For the purposes of the provisions of paragraphs 6 to 8, urban properties are considered to be intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within three years from the moment they became part of the fund's assets, and the taxpayer must communicate and prove to the TA the respective actual rental, within 30 days following the end of the aforementioned period.

15 - When the properties have not been subject to a rental contract within the three-year period provided for in the previous paragraph, the exemptions provided for in paragraphs 6 to 8 cease to have effect, and in that case the taxpayer must request from the TA, within 30 days following the end of the aforementioned period, the assessment of the respective tax.

16 - If the properties are disposed of, with the exception of the cases provided for in Article 5, or if the REIFHR is subject to liquidation, before the period provided for in paragraph 14 has elapsed, the taxpayer must equally request from the TA, before the disposal of the property or the liquidation of the REIFHR, the assessment of the tax due under the previous paragraph."

  1. Based on the provisions cited above, in particular those resulting from the amendments made to the Tax Regime for REIFHR, the Claimant requested from the Tax Authority the assessment of PTT and Stamp Duty for the property disposal acts by the Fund B… already identified;

  2. The amendments introduced by Law No. 83-C/2013, of 31 December (State Budget for 2014) to the Tax Regime for REIFHR raise legitimate perplexities and questions for the managing companies of REIFHR that intend to comply with their obligations before the Tax Authority;

  3. Without exhausting the issues raised, it is understood that the amendments to the Tax Regime for REIFHR assume particular relevance in the context of single-obligation taxes, in this case, PTT and SD when they concern properties that were part of the assets of REIFHR on the date of entry into force of Law No. 83-C/2013, of 31 December (State Budget for 2014), that is, those covered by the aforementioned Article 236 (Transitional provision in the context of the special regime applicable to REIFHR and Real Estate Investment Companies for Residential Rental);

  4. The Claimant, as indicated above in Article 6, requested from the Tax Authority the assessment of PTT and SD for tax acts in light of the amendments introduced in the Tax Regime for REIFHR;

  5. These tax acts referred to urban properties that formed part of the assets of Fund B…, on the date of entry into force of Law No. 83-C/2013, of 31 December (State Budget for 2014), that is, those covered by the aforementioned Article 236 (Transitional provision in the context of the special regime applicable to REIFHR and Real Estate Investment Companies for Residential Rental);

  6. The Claimant understands that the assessments are affected by illegality due to violation of the provisions of Article 103, paragraph 3, of the Constitution of the Portuguese Republic and should, consequently, be declared void;

  7. Indeed, the fact subject to taxation is, both in the context of PTT and SD, the acquisition of the ownership of the relevant properties by Fund B… and the exemptions from PTT and SD were not, at the date when they entered the assets of Fund B…, conditioned upon the subsequent verification of any facts or circumstances, nor, either, subject to any regime of expiry;

  8. Since there were not, however, legally foreseen, at the moment of recognition of the exemption, any facts or circumstances upon which the expiry of the recognized exemption depended, it is evident that the subsequent imposition of these facts or circumstances on exemptions crystallized in the legal-tax order of the Claimant is affected by unconstitutionality, due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103, paragraph 3, of the Constitution of the Portuguese Republic;

  9. Considering that the principle of non-retroactivity of tax law bears the character of a fundamental right, endowed with the protective legal regime of this right, its disrespect gives rise to the nullity of the act, in this case, the nullity of the assessments;

  10. Admitting, subsidiarily, that the defect (illegality) of the Assessments determines their voidability (and not nullity), the Assessments should be annulled accordingly, in accordance with Articles 10, paragraph 1, subparagraph a), of the LRTA and Article 102, paragraph 1, subparagraph a) of the Tax Procedure and Process Code.

For its part, the TA alleges, in summary, the following:

  1. Under paragraph 2 of Article 266 of the Constitution of the Portuguese Republic (CPR), the Administration is obliged to act in accordance with the principle of legality;

  2. Administrative bodies and agents do not have competence to decide on the non-application of norms regarding which doubts of constitutionality are raised, contrary to the Courts which, under Article 104 of the CPR, are prevented from applying unconstitutional norms, being assigned competence for diffuse and concrete review of constitutional conformity.

  3. Consequently, the TA could not/can refuse to apply a norm or fail to comply with the law by invoking or questioning its constitutionality, as it is subject to the principle of legality, as provided in Articles 266, paragraph 2 of the CPR, 3, paragraph 1 of the Administrative Procedure Code and 55 of the General Tax Law.

  4. Article 102 of Law No. 64-A/2008, of 31 December (State Budget for 2009), approved a special regime applicable to real estate investment funds for residential rental (REIFHR) and to real estate investment companies for residential rental (REICHR).

  5. The regime provided therein would apply to REIFHR or REICHR constituted during the five years following the entry into force of the aforementioned law and to properties acquired by them in the same period.

  6. Under Article 8, paragraph 8, "All acts performed are exempt from stamp duty, provided they are connected with the transmission of urban properties intended for permanent residence which occurs as a result of the conversion of the right of ownership of these properties into a rental right over the same, as well as with the exercise of the purchase option provided for in paragraph 3 of Article 5"

  7. With respect to the aforementioned property, which was part of the Fund on the date of entry into force of Law 83-C/2013, of 31 December, the Claimant requested from the TA the assessments of PTT and Stamp Duty, given the amendments introduced to the tax regime of REIFHR, insofar as in 2016 it disposed of it to third parties, giving it, thus, a purpose different from what was supposed: residential rental.

  8. Even if the violation of the normative provision invoked by the Claimant is verified, namely, Article 103, paragraph 3, of the CPR, the fact is that the impugned acts are only susceptible to annulment and never to their declaration of nullity, considering that the legal provision of subparagraph d), of paragraph 2 of Article 133 of the Administrative Procedure Code is only extensible to the violation of rights, freedoms and guarantees of Title II of Part I of the CPR (see TCAN ruling, of 03/02/2012, case: 00473/09.6BEPNF).

  9. First, it must be noted that, at the date of creation of the tax regime applicable to REIFHR, with Law No. 64-A/2008, of 31 December, the exemptions in question, both in the context of PTT and Stamp Duty, respectively required: (i) that the acquisition of the properties had as exclusive purpose "rental for permanent residence" and, (ii) that the transmission had as its object "properties intended for permanent residence which occurs as a result of the conversion of the right of ownership of these properties into a rental right over the same, as well as with the exercise of the purchase option provided for in paragraph 3 of Article 5".

  10. That is, taxpayers who wished to benefit from the aforementioned exemptions, have always had, since the beginning of the tax regime applicable to REIFHR, to comply with the condition that such properties were intended exclusively for rental for permanent residence.

  11. Therefore, the Claimant's argument lacks merit when it states that the exemptions in question were not conditioned by any facts or circumstances, and, consequently, the argumentation it builds starting from such an incorrect premise is equally affected by error.

  12. After all, the new wording introduced by Law No. 83-C/2013, of 31 December, in favor of legal certainty and the principle of protection of legitimate expectations, and in keeping with the spirit of the legislator, at the time of creation of the regime, only came to specify the criterion already required, stipulating "that urban properties are intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within three years from the moment they became part of the fund's assets".

  13. To which is further added the provision of Article 14, paragraph 2, of the Fiscal Benefits Statute in which it is provided that "when the tax benefit concerns the acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if they are disposed of or given another purpose without authorization of the Minister of Finance, without prejudice to other sanctions or different regimes established by law".

  14. Therefore, everything considered and weighed, it is evident that, since the beginning of the regime, the tax benefits in question applicable to REIFHR have always depended on the dedication of the properties to rental for permanent residence, a legal requirement that the TA, within its supervisory powers, could always verify, in order to conclude whether the benefit continues or, rather, for the reposition of the standard tax system.

  15. Finally, with respect to the question of unconstitutionality, Article 103, paragraph 3, of the CPR provides that "No one can be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose collection and payment are not made in accordance with the law".

  16. It is an understanding upheld by legal doctrine and case law that the aforementioned normative provision only prohibits authentic or proper retroactivity of tax law covering only cases in which the taxable fact that the new law intends to regulate has already produced all its effects under the old law, excluding from its scope of application situations of retrospectivity or improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects still persist in the present, as occurs when the law is approved up to the end of the year to which the tax corresponds (Constitutional Court ruling No. 399/2010).

  17. Indeed, it is true that the taxable fact in the context of PTT or Stamp Duty, for what matters here, occurs when the property is acquired.

  18. Therefore, contrary to what the Claimant argues, there is no introduction ex novum of a regime of expiry of the benefit, and, even less is there any frustration of the expectations of taxpayers or violation of the principle of non-retroactivity of tax law.

  19. Since it cannot be attributed to the TA's services an error that, by itself, has determined the payment of a tax debt in an amount higher than that legally due - since it was not within their discretion to decide differently from what they decided -, it can only be concluded that no compensatory interest is due under Article 43 of the General Tax Law.

B – THE CLAIM

In view of the above, with regard to the position of the Parties and the arguments presented, to determine whether the Stamp Duty assessment acts sub judice are or are not illegal due to violation of the provisions of Article 103, paragraph 3 of the CPR, it will be necessary to verify what is the interpretation that should be made of Article 236 of Law No. 83-C/2013, of 31 December.

For this purpose, it is important to consider the provisions of Article 11 of the General Tax Law (GTL), according to which the interpretation of tax law should be carried out in accordance with general principles of interpretation.

The general principles of interpretation are established in Article 9 of the Civil Code (CC), as follows:

"1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances under which the law was enacted and the specific conditions of the time in which it is applied.

  1. However, the interpreter cannot consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

  2. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intent in adequate terms."

Having regard to these principles, let us then see what was the tax regime applicable to acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence, by REIFHR and REICHR, before the amendments provided for by Article 236 of the State Budget Law 2014 were introduced.

Article 8 of the legal regime for REIFHR and REICHR provided the following:

"Article 8

Tax regime

1 - The income of any nature obtained by REIFHR constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and in compliance with the conditions provided for in the preceding articles, are exempt from Personal Income Tax (PIT).

2 - The income relating to participation units in the investment funds referred to in the previous paragraph, paid or made available to their holders, whether by distribution or reimbursement, are exempt from Personal Income Tax (PIT) and from Corporate Income Tax (CIT), excluding the positive balance between capital gains and capital losses resulting from the disposal of participation units.

3 - Capital gains resulting from the transmission of properties intended for permanent personal residence in favor of the investment funds referred to in paragraph 1, which occurs as a result of the conversion of the right of ownership of these properties into a rental right, are exempt from PIT.

4 - The capital gains referred to in the previous paragraph are subject to taxation, under general terms, if the taxpayer ceases the rental contract or does not exercise the purchase option right provided for in paragraph 3 of Article 5, with the periods of expiry and prescription being suspended for purposes of assessment and collection of PIT, until the end of the contractual relationship.

5 - The amounts supported by the tenants of the properties of the investment funds referred to in paragraph 1 as a result of the conversion of a right of ownership of a property into a rental right are deductible from the tax liability, under the terms and limits contained in subparagraph c) of paragraph 1 of Article 85 of the Personal Income Tax Code.

6 - Urban properties intended for rental for permanent residence that form part of the assets of the investment funds referred to in paragraph 1 are exempt from Municipal Property Tax, as long as they remain in the fund's portfolio.

7 - The following are exempt from PTT:

a) Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence, by the investment funds referred to in paragraph 1;

b) Acquisitions of urban properties or autonomous fractions of urban properties intended for permanent personal residence, as a result of the exercise of the purchase option referred to in paragraph 3 of Article 5 by the tenants of the properties that form part of the assets of the investment funds referred to in paragraph 1.

8 - All acts performed are exempt from stamp duty, provided they are connected with the transmission of urban properties intended for permanent residence which occurs as a result of the conversion of the right of ownership of these properties into a rental right over the same, as well as with the exercise of the purchase option provided for in paragraph 3 of Article 5

9 - Supervision fees are exempt for REIFHR management entities with respect solely to the management of funds of this nature.

10 - Entities that are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by ordinance of the Minister of Finance, are excluded from the exemptions contained in this article.

11 - The obligations provided for in Article 119 and in paragraph 1 of Article 125 of the Personal Income Tax Code must be complied with by the management or registration entities.

12 - If the requirements referred to in paragraph 1 cease to be verified, the application of the regime provided for in this article ceases, and the regime provided for in Article 22 of the Fiscal Benefits Statute is applied, and the income from the investment funds referred to in paragraph 1 which, on that date, have not yet been paid or made available to their holders shall be subject to autonomous taxation, at the rates provided for in Article 22 of the same statute, plus compensatory interest.

13 - The management entities of the investment funds referred to in paragraph 1 are jointly and severally liable for the tax debts of the funds under their management."

From the above, it follows, with relevance for the assessment of the assessment acts sub judice, that "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence, by the investment funds referred to in paragraph 1" are exempt from PTT.

Similarly, "All acts performed are exempt from stamp duty, provided they are connected with the transmission of urban properties intended for permanent residence which occurs as a result of the conversion of the right of ownership of these properties into a rental right over the same, as well as with the exercise of the purchase option provided for in paragraph 3 of Article 5"

The following are, therefore, covered by the PTT exemption: i) acquisitions of urban properties or autonomous fractions of urban properties", ii) whose purpose is exclusively rental for permanent residence, iii) effected by eligible REIFHR.

And by the SD exemption: i) all acts performed by eligible REIFHR; ii) connected with the transmission of urban properties intended for permanent residence; iii) which occurs as a result of the conversion of the right of ownership of these properties into a rental right over the same; or iv) the exercise of the purchase option by the tenant until 31 December 2020.

Thus, if no legislative amendment to Article 8 had occurred, the PTT and SD exemption in question would only be maintained, as long as the legal conditions for its application mentioned in the preceding paragraphs remained in place.

This means that the Claimant has the right to the tax benefit in question, provided that it complies with the legal conditions established for its grant.

In fact, the PTT and SD exemptions in question are conditioned to the facts and circumstances for which they are granted and which result from the provision and normative establishment of Article 8, paragraphs 7 and 8 of the REIFHR Regime.

Now, as results from paragraph 2 of Article 14 of the GTL "The holders of tax benefits of any nature are always obliged to reveal or authorize the revelation to the tax administration of the assumptions of their grant, or to comply with other obligations provided for by law or in the instrument of recognition of the benefit, namely those relating to taxes on income, expenditure or assets, or to the norms of the social security system, under penalty of the aforementioned benefits ceasing to have effect."

It is not understood, therefore, how one can argue that the exemption from PTT and SD in question was not at the date conditioned to the subsequent verification of any facts or circumstances, nor, either, subject to any regime of expiry. If this understanding were to prevail, theoretically, this would mean that, within the scope of the REIFHR regime, acquisitions of goods intended for residential rental could be made exempt from taxes on assets on one day and on the following day those same goods could be sold for another purpose than rental by the Fund, without any burden in terms of taxes on assets. Such a fiscal differentiation would be unjustified.

It is concluded, therefore, that given that it is apparent from the facts established that the assessment acts in question concern a property acquired on 19 November 2013, it is verified that, both in light of the legal regime for REIFHR established ab initio, and in light of the same legal regime, amended by the State Budget Law 2014, the exemption from PTT and SD expired, as the property ceased to be intended for rental for permanent residence and it has not been demonstrated that there was a transmission as a result of the conversion of the right of ownership into a rental right or that the purchase option right was exercised by the tenant.

Having regard to the fact that the assessment acts now in question are based legally on the provisions of Article 8, paragraphs 7 and 8 of the Tax Regime for REIFHR, whose current wording was already in force at the date of acquisition of the property by the Fund, the assessment acts in question are legal, since the exemption granted expired with the disposal of the properties, outside the situations provided for in Article 8, paragraphs 7 and 8 of the REIFHR Regime.

The question raised by the Claimant regarding the retroactivity or otherwise of the norms introduced by Article 236 of Law No. 83-C/2013, of 31 December, is, therefore, irrelevant for assessing the legality of the assessment act sub judice, in this specific case.

In fact, the State Budget Law 2014 added to Article 8, paragraphs 14 to 16, in the following terms:

"14 - For the purposes of the provisions of paragraphs 6 to 8, urban properties are considered to be intended for rental for permanent residence whenever they are subject to a rental contract for permanent residence within three years from the moment they became part of the fund's assets, and the taxpayer must communicate and prove to the TA the respective actual rental, within 30 days following the end of the aforementioned period.

15 - When the properties have not been subject to a rental contract within the three-year period provided for in the previous paragraph, the exemptions provided for in paragraphs 6 to 8 cease to have effect, and in that case the taxpayer must request from the TA, within 30 days following the end of the aforementioned period, the assessment of the respective tax.

16 - If the properties are disposed of, with the exception of the cases provided for in Article 5, or if the REIFHR is subject to liquidation, before the period provided for in paragraph 14 has elapsed, the taxpayer must equally request from the TA, before the disposal of the property or the liquidation of the REIFHR, the assessment of the tax due under the previous paragraph."

In the situation under analysis, none of the situations specifically provided for in the transcribed norms is at issue, or at least, no such facts were alleged.

Consequently, the norm questioned by the Claimant - Article 236 - Transitional provision in the context of the special regime applicable to REIFHR and REICHR, being related to the provisions of paragraphs 14 to 16 of Article 8, is inapplicable to the present situation.

It is therefore considered that the issue is not the retroactivity or otherwise of the law, nor is there any injury to the Claimant's expectations or worsening of its tax position.

IV. DECISION

Therefore, this Arbitral Tribunal decides:

A) To judge the claim for nullity and annulment of the PTT and SD assessment acts identified as entirely without merit;

B) To condemn the Claimant in the costs of the present proceedings, as the unsuccessful party.

V. VALUE OF THE PROCEEDINGS

In accordance with the provisions of Article 306, paragraph 2 of the Code of Civil Procedure, Article 97-A, paragraph 1 a) of the Tax Procedure and Process Code and Article 3, paragraph 2 of the Regulations on Costs in Tax Arbitration Proceedings, the value of the claim is fixed at €7,869.42.

VI. COSTS

In accordance with the provisions of Articles 12, paragraph 2 and 22, paragraph 4, both of the LRTA, and Article 4, paragraph 4 of the Regulations on Costs in Tax Arbitration Proceedings, the amount of the arbitration fee is fixed at €612, in accordance with Table I of the aforementioned Regulations, to be borne by the Claimant.

Notification.

Lisbon, 15 July 2016

The Arbitrator

Magda Feliciano

(The text of this decision was prepared by computer, in accordance with Article 131, paragraph 5, of the Code of Civil Procedure, applicable by reference in Article 29, paragraph 1, subparagraph e) of Decree-Law No. 10/2011, of 20 January (LRTA), with its drafting governed by the orthography prior to the Orthographic Agreement of 1990.)

[1] See Article 235 of Law No. 83-C/2013, of 31 December (State Budget for 2014).

Frequently Asked Questions

Automatically Created

What IMT and Stamp Tax exemptions apply to closed-end real estate investment funds for residential leasing (FIIAH) in Portugal?
FIIAH funds in Portugal benefit from IMT and Stamp Tax exemptions on acquisitions of urban properties intended for permanent residential rental under the special regime established by Law 64-A/2008. However, Law 83-C/2013 modified this regime by requiring properties to be subject to a permanent residence rental contract within three years of acquisition. If properties are not rented within this period or are disposed of beforehand (except tenant purchase option cases), the exemptions cease retroactively and the fund must request tax assessment from the Tax Authority within 30 days. The original exemption under paragraph 7(a) of Article 8 applied to acquisitions by FIIAH funds, while paragraph 7(b) covered tenant purchases under the purchase option regime.
Is the retroactive application of Article 236 of Law 83-C/2013 to FIIAH tax exemptions unconstitutional under Portuguese law?
The claimant in Process 165/2016-T argued that the retroactive application of Article 236 of Law 83-C/2013 is unconstitutional under Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The constitutional challenge centered on properties acquired before the 2014 law's entry into force that benefited from unconditional IMT and Stamp Tax exemptions. The fund contended that the taxable event was the property acquisition in 2013, when exemptions were granted without future conditions. Applying the new three-year rental requirement and withdrawal of exemptions to previously acquired properties constituted impermissible retroactivity. This argument invoked fundamental principles of tax law certainty, legitimate expectations, and constitutional protection against retrospective changes to completed tax obligations.
What happens to IMT and Stamp Tax exemptions if a FIIAH property is not used for permanent residential leasing?
Under the regime introduced by Law 83-C/2013, if a FIIAH property is not used for permanent residential leasing within three years of acquisition, the IMT and Stamp Tax exemptions previously granted cease to have effect. Paragraph 15 of Article 8 requires the taxpayer to request tax assessment from the Tax Authority within 30 days following the end of the three-year period. Similarly, if properties are disposed of before the three-year period elapses (except for tenant purchase option cases under Article 5) or if the FIIAH undergoes liquidation, paragraph 16 requires the taxpayer to request tax assessment before the disposal or liquidation occurs. The fund must pay the full IMT and Stamp Duty that would have been due on the original acquisition, effectively reversing the exemption retroactively.
How can a FIIAH fund challenge IMT and Stamp Tax assessments through CAAD tax arbitration in Portugal?
A FIIAH fund can challenge IMT and Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) by filing an application for constitution of an arbitral tribunal under the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). Process 165/2016-T demonstrates this procedure: the fund filed an application seeking declaration of illegality of IMT assessment No. … and Stamp Duty assessment No. … totaling €7,869.42. The CAAD President accepted the application, notified the Tax Authority, and a single arbitral tribunal was constituted. The process allows funds to contest assessments on grounds including illegality, constitutional violations, and procedural irregularities. The arbitral tribunal examines competence, party legitimacy, and merits before issuing a binding decision, providing an alternative to judicial courts for tax dispute resolution.
What was the outcome of CAAD arbitration Process 165/2016-T regarding retroactive fiscal law and FIIAH tax benefits?
Process 165/2016-T addressed whether Article 236 and the amended Article 8 of Law 83-C/2013 could constitutionally apply to FIIAH properties acquired before the law's entry into force. The claimant challenged IMT and Stamp Duty assessments totaling €7,869.42 on a property acquired in November 2013 with unconditional exemptions but sold in January 2016 before meeting the new three-year rental requirement. The fund argued this retroactive application violated Article 103(3) of the Portuguese Constitution's prohibition on retroactive tax laws, contending the taxable event and exemption occurred definitively at the 2013 acquisition. While the complete decision text is not provided in the excerpt, the case established important precedent regarding constitutional limits on retroactive modification of tax benefits for real estate investment funds and protection of legitimate expectations in tax-exempt transactions completed before legislative changes.