CAAD 220/2018-T: IMT Exemption for Real Estate Investment Funds Under Decree-Law 1/87

ARBITRAL DECISION (see complete version in PDF)

The Arbitrators, Councillor Maria Fernanda Maçãs (Presiding Arbitrator), Dr. Mariana Vargas and Dr. Nuno Maldonado Sousa (Arbitrator Members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 10 July 2018, agree as follows:

REPORT

On 27 April 2018, the CLOSED REAL ESTATE INVESTMENT FUND ..., with the Tax Identification Number ..., represented by its managing entity, A..., SA, with the Tax Identification Number ... and registered at Rua ..., n.º..., in Lisbon (hereinafter referred to as the Applicant), came, under the provisions of Article 95 of the General Tax Law, Article 99, paragraph a), of the Tax Procedure and Process Code, Article 43 of the Municipal Tax Code on Onerous Real Estate Transfers, and Articles 2, 3 and 10, nos. 1 and 2, of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework of Tax Arbitration (LFTA), to request the constitution of an Arbitral Tribunal, in which the Tax and Customs Authority (hereinafter AT or the Respondent) is the Respondent, informing that it does not intend to exercise the faculty of appointing an arbitrator.

The request for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD and automatically notified to AT, and, in accordance with the provisions of paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of the LFTA, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the assignment within the applicable timeframe.

A. Object of the Request. Summary of the Parties' Positions.

The Applicant seeks a declaration of illegality and the consequent annulment of the Municipal Tax on Onerous Real Estate Transfers (IMT) assessment No. ..., issued in its name by the Tax and Customs Authority – Tax Authority of..., in the amount of €455,000.00, which was notified to it on 12 January 2018, relating to the acquisition and simultaneous lease to B..., Ltd. (hereinafter, B...), on 25 November 2010, at the price of €7,000,000.00, of the urban property designated as Lot No. ..., located in..., parish of..., municipality of..., in respect of which the Municipality Council of ... had issued, on 9 April 2010, a permit for use as a Hotel and requested, by B... from the Institute of Tourism of Portugal, IP, the declaration of tourist utility on a definitive basis, which then assumed the designation of Hotel ....

The Applicant alleges that, prior to the acquisition, it had proceeded to assess IMT, enjoying tax exemption, under Article 20 of Decree-Law No. 420/83, of 5 December, and requested the waiver of VAT exemption in the acquisition of the Hotel..., a request which it supported with proof of IMT assessment.

The Applicant formulates, finally, the following subsidiary requests, conducive to a declaration of illegality and consequent annulment of the IMT assessment being challenged:

(i) by violation of the provisions of No. 2 of Article 19 of the Municipal Tax Code on Onerous Real Estate Transfers (IMT Code);

(ii) on the grounds of the expiry of the right to assess, provided for in No. 3 of Article 31 of the IMT Code;

(iii) by illegality in subjecting to IMT the acquisition of the Hotel ..., considering the provisions of Article 1 of Decree-Law No. 1/87, of 3 January;

(iv) by illegality in subjecting to IMT the said acquisition, in violation of the provisions of Article 20 of Decree-Law No. 420/83, of 5 December;

(v) by illegality arising from unconstitutionality, by violation of the principles of good faith and legal certainty and,

(vi) on the grounds of illegality of the revocation of the tax benefit.

The Applicant concludes by requesting restitution of the amount of €455,000.00, plus indemnity interest at the legal rate.

Following the notification order in accordance with the terms and for the purposes provided for in Article 17 of the LFTA, AT submitted its response and attached the administrative file (AF), in which, not contesting the factual innovations raised by the Applicant, it defends itself by objection, contends for the legality and maintenance in the legal order of the IMT assessment being challenged, requests the dismissal of all requests and alleges, in summary:

• that there was no IMT assessment on the date of presentation of the model 1 declaration, as the tax benefit provided for in Article 20 of Decree-Law No. 420/83, of 5 December, of automatic nature (Article 5 of the Tax Benefits Framework [EBF]), had been invoked;

• having subsequently AT verified, by virtue of Article 7 of the EBF, that the exemption requirements were not met, it assessed the tax, this being an official assessment, but truly original;

• AT having complied with the provisions of paragraph b) of No. 2 of Article 21 of the IMT Code, having not violated any rule on competence to proceed with assessment;

• that the alleged expiry of the right to assess does not occur, in that AT assessed the tax within the timeframe provided for in No. 1 of Article 35 of the IMT Code, the four-year timeframe referred to in No. 3 of Article 31 of that Code not being applicable, in this case, for the reasons already stated;

• that it does not appear that Article 1 of Decree-Law No. 1/87, of 3 January, remains in force after the amendments introduced to the EBF by Law No. 53-A/2006, of 29 December, in which Article 46 of the EBF came to regulate the tax benefits of IMT in the acquisition of real estate by investment funds, so, regulating the same matter, it tacitly revoked that Article 1 of Decree-Law No. 1/87, of 3 January;

• that there is no violation of the provisions of No. 1 of Article 20 of Decree-Law No. 423/83, of 5 December, in that the acquisition of the property by the Respondent occurred already after the phase of establishment of the tourist enterprise, being intended for commercial exploitation, as the reason for being and purpose of that rule is to benefit with IMT exemption the promoters who intend to construct/create establishments or adapt and remodel existing fractions;

• that the principles of legal certainty and security were not violated, as the Applicant had legal mechanisms at its disposal, namely the request for binding information to be submitted before the execution of the said deed, which it did not do at all, especially as the position taken by AT is, as to this latter aspect, in line with the Judgment on uniformisation of jurisprudence of the STA, No. 3/2013 of 23/01/2013, and administrative action in accordance with the principle of legality provided for in Article 266 of the Constitution, and implemented in Articles 55 of the General Tax Law, and in Article 3 of the Administrative Procedure Code (APC), as well as with the determination in the taxation of the Municipal Tax on Onerous Real Estate Transfers and,

• that the revocation of the tax benefit provided for in No. 1 of Article 20 of Decree-Law No. 423/83, of 5 December, did not occur, as this is of automatic nature, its effectiveness is not dependent on any administrative act of recognition, susceptible to revocation;

• that there is no place for the payment of indemnity interest, due to the non-existence of error by the services from which results the payment of tax debt of higher value than legally due.

On 23 November 2018, the meeting referred to in Article 18 of the LFTA took place, in which statements of party (Article 466 of the Civil Procedure Code) were taken and one of the witnesses listed by the Applicant was heard, the Representative of the Applicant having waived the hearing of an absent witness.

The Parties were further notified that the proceedings would continue with written submissions, in succession, for a period of 15 days starting with the Applicant, and the first deferment of the timeframe referred to in Article 21, No. 1 of the LFTA was determined, with notification to the Deontological Council of the CAAD, in accordance with No. 3 of Article 11 of the Deontological Code, the date of 10 March 2019 being established for the pronouncement of the arbitral decision and the Applicant being warned that, by that date, it should proceed with payment of the subsequent arbitration fee.

The Parties submitted their written submissions within the established timeframe, in which they reiterated the positions already expressed in their respective particulars.

II. CASE MANAGEMENT

• The Arbitral Tribunal is competent and was regularly constituted on 10 July 2018, in accordance with the precept in paragraph c) of No. 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, in the wording introduced by Article 228 of Law No. 66-B/2012, of 31 December.

• The parties have personality and judicial capacity, are legitimate and are duly represented, in accordance with Articles 4 and 10 of the LFTA and Article 1 of Ordinance No. 112-A/2011, of 22 March.

• The proceedings are not vitiated by defects that would invalidate it.

• No exceptions were invoked that the Arbitral Tribunal should appreciate and decide. In effect, the clause inserted in the conclusion of the Response with the content "the exception invoked of the incompetence of the Arbitral Tribunal should be upheld" cannot serve this purpose, because it is not accompanied by any support in the pleading. It appears, even, that such a reference is merely a slip.

III. REASONING

III.1 FACTUAL MATTER

In the judgment, the judge shall distinguish the established facts from those not established, basing his or her decisions (Article 123, No. 2, of the Tax Procedure and Process Code [TPPC], subsidiarily applicable to the tax arbitral process, in accordance with Article 29, No. 1, paragraph a), of the LFTA), on pain of nullity, penalised by No. 1 of Article 125 of the same TPPC.

A. Established Facts:

1. The Applicant is an investment fund with the name Closed Real Estate Investment Fund ..., with the collective person identification number ..., is registered with the CMVM under code 378 [RI, preamble, AF.2018, sheets 66, pp.6 to 14).

2. The Applicant is a closed real estate investment fund of private subscription, whose establishment was authorised by Ordinance No. 229/95, 2nd series, of the Office of the Deputy Secretary of State and Treasury, published in the Official Journal, 2nd series, of 27-07-1995 which approved the respective management regulations [RI, 8th, AF.2018, sheets 66, pp.6 to 14).

3. The Applicant's investment policy is aimed at the acquisition of real estate used for tourist activity for rental purposes, such as i) tourist animation of an innovative character, ii) hotel and tourist animation involving the recovery of historical and cultural architectural heritage, iii) hotels requiring modernisation and resizing, iv) tourist properties involving the recovery of unfinished real estate, whose works have been paused for more than five years and which constitute a factor of environmental degradation, and v) financial restructuring of economically viable enterprises (RI, 9th: doc.3 pp.6, AF.2018, sheets 66, pp.6 to 14).

4. The participants of the Applicant identified in the report and accounts for the year 2016 are (RI, 13th: doc.5 pp.6, AF.2018, sheets.90, p.9):

1. The Applicant has as its managing entity, A..., S.A., with registered address at Rua..., n.º..., in Lisbon, registered at the Commercial Registry Office under the unique registration number and collective person number ..., with share capital of €375,000.00 (RI, preamble, AF.2018, sheets 66, pp.6 to 14).

2. The managing entity of the Applicant, A..., S.A., is a public company with predominantly public capital whose mission consists in implementing public policies aimed at strengthening the competitiveness of national tourism, intervening on the real estate component of companies in the sector [RI,15th, AF.2018, sheets 66, pp.6 to 14 AF.2018, sheets 66, pp.6 to 14).

3. The Applicant is a collective investment undertaking which, through investments in tourist enterprises, aims fundamentally to facilitate the implementation of public policy and strategy defined for the Tourism sector, namely in the context of the National Strategic Plan for Tourism, and to improve the competitiveness and productivity of tourist companies with potential for appreciation, through their financial strengthening (RI, 16th, AF.2018, sheets 66, pp.6 to 14 AF.2018, sheets 66, pp.6 to 14).

4. The essential objective of the Applicant is the strengthening of the financial capacity of tourist companies, which is achieved through operations consisting in the acquisition from tourist companies and concomitant lease to them of real estate used for tourist activity (RI, 17th and 18th, AF.2018, sheets 66, pp.6 to 14 AF.2018, sheets 66, pp.6 to 14).

5. On 23-10-2009, the company B..., Ltd, proposed to A... Funds the realisation of an investment consisting in the acquisition and simultaneous lease to B... of real estate located on the beach of ..., municipality of ..., in which the hotel integrated in the resort called ... was being constructed, with 38 rooms, to be classified as five-star category (RI, 21st, 22nd and 23rd: doc. 6, testimony evidence).

6. On 23-10-2009 the hotel was still under construction and was perfectly autonomous, although integrated in a resort (RI, 23rd, testimony evidence).

7. The Executive Committee of A... Funds approved the realisation of the operation of acquisition with subsequent lease of the property "Hotel..." under the conditions contained in document No. 8 attached with the Initial Request, where, among others, the following can be read: (RI, 26th: doc. 8)

[Document 8 content not fully detailed in original]

1. A... Funds communicated to B... the approval of the operation referred to in 11) on 10 December 2009 (RI, 27th: doc. 8).

2. On 22 December 2009 A... Funds decided to authorise rules relating to certain aspects of the operation referred to in 11), in the terms contained in document No. 9 attached with the Initial Request, where, among other details it states that it authorised that: (RI, 28th: doc. 9)

[Document 9 content not fully detailed in original]

1. On 9 April 2010, the Municipality Council of ... issued permit for use No. .../2010, which authorised the use as a hotel of the urban property designated as Lot..., located in..., parish of..., municipality of ..., described in the Real Estate Registry of ... under No. ... and entered in the respective real estate matrix under article ..., in the terms contained in document No. 10 attached with the initial request (RI, 30th: doc. 10).

2. On 14 May 2010 B... requested from the Institute of Tourism of Portugal, IP, the declaration of tourist utility on a definitive basis for the Hotel ..., with the permit for use No. .../2010 of the Municipality Council of ... (RI, 31st: doc. 11).

3. On 12 November 2010, A... Funds submitted a declaration for assessment of IMT relating to the acquisition of the urban property U-..., in ..., lot..., parish of ..., Municipality of ... and declared in field 48, to be holder of the tax benefit with code 33, corresponding to "33-Tourist Utility (Art. 20 of D.L. 423/83), 100% of the taxable matter" (RI, 36th: doc. 13 and R-AT, 7th, AF, p.52).

4. On 23 November 2010 A... Funds requested from the Tax Authority Lisbon ... the waiver of VAT exemption on operations relating to real estate (RI, 37th: doc. 14).

5. On 25 November 2010, the FIIF... acquired by purchase from B..., at the price of €7,000,000.00, the urban property designated as Lot ..., located in ..., parish of ..., municipality of ..., described in the Real Estate Registry of ... under No. ... and entered in the respective real estate matrix under article ... (resulting from the previous registration article ...), and in the same notarial act B... leased the said property to the acquirer (RI, 39th: doc. 15).

6. On 14-08-2014 the supporting documents of the acquisition of the property where the Hotel ... is located by the FIIF... were sent to Tourism of Portugal, I.P. (RI, 40th: doc. 16).

7. By means of official letter No. ..., dated 13 October 2017, the Applicant was notified that, following consideration of the exercise of the right to be heard, it was determined to assess the outstanding tax on the acquisition made on 25-11-2010 of the property entered in the matrix under article ... of the parish of ... for the grounds contained in the information supporting that decision, in the terms contained in document No. 18 attached with the Initial Request, where, among others, the following can be read: (RI, 43rd: doc. 18)

[Document 18 content not fully detailed in original]

1. On 12 January 2018, the Applicant was notified by Official Letter No. ... of the Tax Authority ... to request a collection document to effect payment of the amount of €455,000.00 of IMT and was further notified of the ratification of all the proceedings that make up the administrative procedure for official assessment of IMT, up to the decision of 13/10/2017 issued by the Head of the Tax Authority Lisbon ..., notified through the official letter referred to in V), with the following justification: (RI, 46th: doc. 21 and R-AT, 5 and 6th, AF, p.114 and following)

[Decision content not fully detailed in original]

1. On 8 February 2018, the Applicant made payment of the IMT assessment, in the amount of €455,000.00, through the collection document No. ... (RI, 47th: doc. 22, AF, p.114 and following).

B. Facts Not Established:

None with relevance to the proper resolution of the case.

C. Justification of the Established and Not Established Factual Matter:

Regarding factual matter, the Tribunal need not pronounce on everything that was alleged by the parties; rather, it is the duty of the Tribunal to select the facts that matter to the decision and distinguish the established facts from those not established.

In this way, the facts pertinent to the judgment of the case are selected and defined in function of their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. former Article 511, No. 1, of the CPC, corresponding to current Article 596, applicable ex vi of Article 29, No. 1, paragraphs a) and e), of the LFTA).

Accordingly, having regard to the positions taken by the parties, in light of Article 110, No. 7, of the TPPC, and the documentary evidence which moreover is contained in the administrative file itself, the facts listed above were considered established, with relevance to the decision.

Allegations made by the Parties of a merely conclusive nature were neither established nor not established, even though they were presented as facts, as they are incapable of proof, and their accuracy can only be assessed in contrast with the justification of the decision on the legal matter, contained in the following chapter.

III.2 ON THE LAW

Order of Appreciation of Defects

According to the provisions of No. 1 of Article 124 of the TPPC, of subsidiary application to the tax arbitral process, in accordance with Article 29, No. 1, paragraph a), of the LFTA, as there are no defects leading to the declaration of non-existence or nullity of the act being challenged, the tribunal shall appreciate the defects alleged that determine its voidability, with No. 2, paragraph b), of the same article providing that, as to the latter, the order of its consideration shall be as indicated by the challenging party, provided that a relationship of subsidiarity is established between them, without prejudice to defects whose merit ensures the most stable or effective protection of the interests offended being prioritarily considered.

The Applicant imputes to the tax act being challenged the following identified defects, their consideration following the order indicated by it, unless any of the questions raised should be considered of prejudiced cognition in light of the solution given to others (No. 2 of Article 608 of the CPC, subsidiarily applicable to the tax arbitral process, by remission of Article 29, No. 1, paragraph e), of the LFTA):

(i) violation of the provisions of No. 2 of Article 19 of the Municipal Tax Code on Onerous Real Estate Transfers (IMT Code);

(ii) expiry of the right to assess, provided for in No. 3 of Article 31 of the IMT Code;

(iii) illegality in subjecting to IMT the acquisition of the Hotel, considering the provisions of Article 1 of Decree-Law No. 1/87, of 3 January;

(iv) illegality in subjecting to IMT the said acquisition, in violation of the provisions of Article 20 of Decree-Law No. 420/83, of 5 December;

(v) illegality arising from unconstitutionality, by violation of the principles of good faith and legal certainty and,

(vi) illegality of the revocation of the tax benefit granted under Article 20 of Decree-Law No. 420/83, of 5 December.

(i) Violation of the Provisions of No. 2 of Article 19 of the Municipal Tax Code on Onerous Real Estate Transfers (IMT Code)

Article 19 of the IMT Code allocates competence for assessment of the tax, in the first place to the taxpayer, by submission of a declaration using an official model (model 1 declaration, approved by Ordinance No. 1423-H/2003, of 31/12), before the act or fact transferring the goods (No. 1) and, subsidiarily, to the AT services, whenever the taxpayer fails to do so or there is need for correction of a previous assessment, through additional assessment (No. 2); the said model 1 declaration is mandatory for submission for all onerous transfers of real estate, even in situations of exemption (No. 3).

The Applicant alleges that, having submitted on 12 November 2010 a declaration for assessment of IMT relating to the acquisition of the urban property referred to in these proceedings, in a date prior to the execution of the respective public deed, therein declaring itself to be holder of the tax benefit established by Article 20 of Decree-Law No. 423/83, of 5 December, the requirement of competence of the services fails, as "it is an indispensable requirement of the competence provided for in No. 2 of Article 19 of the IMT Code the failure to submit the declaration for assessment of IMT before the act or fact transferring the goods".

It appears, however, that the Applicant is not correct.

Firstly, because, even if the declaration for assessment of IMT was submitted in a date prior to the act or fact transferring the goods, if this contains errors or omissions of goods or values that negatively affect the right of the tax creditor, the latter can always correct the assessment made on the basis of such declaration, through additional assessment (Articles 19, No. 2 and 31 of the IMT Code).

The same occurs when in the model 1 declaration of IMT, in which there has been no error or omission of goods or values, a tax benefit whose requirements are not met has been invoked, thus returning the initiative of assessment to the tax administration, within its supervisory powers, as derived from Article 7 of the Tax Benefits Framework, whether one is dealing with an automatic tax benefit or one dependent on recognition.

The assessment issued may suffer from error regarding the assumptions of fact or law, but does not violate any rule of competence, as AT has as its mission "to ensure the assessment and collection of taxes (…)", in accordance with Article 2, No. 2, paragraph a), of Decree-Law No. 118/2011, of 15 December.

(ii) On the Expiry of the Right to Assess

The Applicant invokes the expiry of the right to assess issued by AT in January 2018, relating to an acquisition that occurred in November 2010, arguing that the period in which the Respondent could legally have corrected the previous assessment, reflected in the issue of the IMT Collection Document No. ... at zero, following the submission of the model 1 declaration of IMT, on 12 November 2010, has elapsed.

The Applicant understands that the issue of the said Collection Document at zero constitutes a first assessment, which could only be corrected by AT through an additional assessment, within the four-year period referred to in No. 3 of Article 31 of the IMT Code.

The question is whether the assessment being challenged in these proceedings is an additional assessment and, if so, whether it was made after the expiry of the period, as, configuring expiry as a guarantee for taxpayers for reasons of legal certainty, the right to assess the tax is extinguished if the tax creditor has not exercised such right within the legally fixed period.

In the strict sense, assessment constitutes the act of applying the rate to the taxable matter, if a prerequisite preventing the occurrence of the tax fact, such as an exemption, is not verified.

Having the Applicant invoked in the model 1 declaration of IMT the exemption provided for in Article 20 of Decree-Law No. 423/83, of 5 December, no assessment was issued, but only the Collection Document evidencing compliance with the declarative obligation, essential to the execution of the deed of purchase and sale.

Thus, as the model 1 declaration of IMT submitted by the Applicant on 12 November 2010 gave rise to no assessment, the assessment subsequently issued by AT cannot be deemed an additional assessment, the eight-year period of expiry being applicable, in accordance with No. 1 of Article 35 of the IMT Code.

In this same sense was the decision adopted by the Supreme Administrative Court in the Judgment of 13 September 2017, Case No. 01126/16, according to the excerpt transcribed below:

"(…) III - The taxpayers, in complying with the declarative duty imposed by Art. 19 of the IMT Code, declaring that the acquisition of the fractions is intended for the establishment of a tourist enterprise, that is, declaring the existence of a reality that brings about the exemption under No. 1 of Art. 20 of D.L. 423/83, directly and automatically bring about the exemption from taxation. This obliges the tax service to issue a collection document (Collection Document) with the value of 0.00 euros, given the non-existence of a tax obligation in light of the content of that declaration and the need to issue a Collection Document for its presentation to the notary (Art. 49 of the IMT Code).

IV - What does not prevent the tax administration services from, subsequently, complying with the duty of supervision and control of verification of the factual and legal prerequisites of the benefit (Art. 7 of the EBF), having to ascertain whether or not the prerequisites for IMT exemption occurred in light of Art. 20 of D.L. 423/83.

V - When the tax administration came to ascertain, through inspection action, that (…) the prerequisites for the exemption of which the taxpayers had benefited in an automatic but undue manner did not occur, it had the power/duty to proceed, as it did proceed, to the assessment of the tax owed, as the right to that assessment had not expired in light of the rule establishing the period for that purpose (Art. 35 of the IMT Code (…).

VI - The realisation of that assessment within the legal period of expiry of the right to assess does not violate the constitutional principles of non-retroactivity of tax law, certainty and legal security and confidence (…)".

In light of the above, it is concluded that the Applicant is not correct on this question.

(iii) On the Illegality of Subjecting to IMT the Acquisition of the Hotel, Considering the Provisions of Article 1 of Decree-Law No. 1/87, of 3 January

The Applicant contends that, given its nature as a real estate investment fund, duly established in accordance with Portuguese legislation and registered with the CMVM, it would always benefit from IMT exemption under the provisions of Article 1 of Decree-Law No. 1/87, of 3 January, which, following Decree-Law No. 246/85, of 12 July, regulating the activity of real estate investment funds, came to define the appropriate tax framework for establishing the conditions for the creation of real estate investment funds and which, recognising the important contribution that this new type of financial institution could bring to savings formation and their mobilisation for investments in the real estate sector, as well as the positive effects that would thereby be felt in the construction industries and in the real estate rental market for residential and office purposes, created as a fiscal incentive the benefit of exemption from Sisa (stamp duty) for acquisitions of real estate for a real estate investment fund by its respective managing company.

Following closely the argument expended in the arbitral decision in Case No. 544/2016-T, the Applicant contends that, according to the literal content of the rule contained in Article 1 of Decree-Law No. 1/87, of 3 January, acquisitions of real estate to be integrated in a real estate investment fund are exempt from Sisa, with the said tax benefit being maintained in force, now relating to IMT, by virtue of the provisions of Articles 28, No. 2 and 31, No. 6, of Decree-Law No. 287/2003, of 12 November, which carried out the reform of taxation of property.

The Applicant further contends that Decree-Law No. 1/87, of 3 January, contains no indication that the said Article 1 was intended to have temporary effect, so that, as this rule has not been repealed, neither expressly nor tacitly, the exemption enshrined therein remains in force even today, notwithstanding the IMT exemption introduced in Article 46 of the Tax Benefits Framework by Law No. 53-A/2006, of 29 December (State Budget for 2007), as a joint interpretation of that rule and of Article 1 of the aforementioned Decree-Law permits the conclusion that from the entry into force of the new wording of Article 46 of the EBF, there were exempt from IMT, not only acquisitions of real estate carried out by managing companies of real estate investment funds with the intention that they become integrated in those funds, but also the properties integrated in the real estate funds.

Let us see whether it is correct:

The question regarding the force of Article 1 of Decree-Law No. 1/87, of 3 January, has already been the subject of various arbitral decisions, notably those pronounced in Cases No. 544/2016-T, 677/2016-T, 547/2017-T, 580/2017-T and 622/2017-T, 188/2018-T and 192/2018-T.

Legal norms, as rules of conduct, participate in the principle of legal certainty, ensuring that the expectations on which each person bases his or her decisions are conforming to the stability of social life; from the point of view of legal certainty, each person should be able to know which rules are in force at each moment so that he or she can guide his or her choices by them.

For this reason, there are rules regarding the coming into force and the end of force of laws, with Article 7 of the Civil Code providing that these can cease to be in force by expiry or by repeal:

"Article 7 - Cessation of force of the law

1. When it is not intended to have temporary force, the law only ceases to be in force if it is repealed by another law.

2. Repeal may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the earlier law.

3. General law does not repeal special law, except if the unequivocal intention of the legislator is otherwise.

4. Repeal of the repealing law does not bring about the revival of the law that it repealed.".

In light of the aforesaid, the law will only expire by a subsequent fact foreseen therein, if it is intended to have temporary force; otherwise, the law will cease its force if it is repealed, expressly or tacitly, partially or wholly with the coming into force of a new law.

Decree-Law No. 1/87, of 3 January, according to its preamble, was issued following the regulation of the activity of Real Estate Investment Funds by Decree-Law No. 246/85, of 12 July, with the Government recognising "the important contribution that this new type of financial institution could bring to savings formation and their mobilisation for investments in the real estate sector. There are added the positive effects that thereby will be induced in the construction industries and in the rental market of real estate for residential and office purposes.".

Given that those reasons were considered relevant, they justified the definition of "an appropriate tax framework" to enhance the necessary conditions for the creation of real estate investment funds with those characteristics.

Such tax framework included, among other measures, that established in Article 1 thereof, the benefit of exemption from Sisa for "acquisitions of real estate for a real estate investment fund by its respective managing company".

As Decree-Law No. 1/87, of 3 January, contains no rule establishing its temporary effect, it should be concluded that it has not ceased to be in force by expiry.

It is then necessary to ascertain whether, such as Article 1 of Decree-Law No. 1/87, of 3 January, is not expired, its express or tacit repeal occurred, namely by "incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the earlier law".

Decree-Law No. 287/2003, of 12 November (reform of taxation of property), which approved the IMI Code and the IMT Code, contains, in its Article 28, a rule of remission regarding sporadic tax benefits in the context of the extinct municipal contribution and municipal stamp duty, to be carried forward to the new municipal tax on real estate and municipal tax on onerous real estate transfers, with the following wording:

"Article 28 - Remissions

1 - All legal texts that mention the Code of Municipal Contribution or municipal contribution are deemed to refer to the Code of Municipal Tax on Real Estate (IMTIC) or to municipal tax on real estate (IMI).

2 - All legal texts that mention the Code of Municipal Stamp Duty and Tax on Inheritances and Gifts, municipal stamp duty or tax on inheritances and gifts are deemed to refer to the Code of Municipal Tax on Onerous Real Estate Transfers (CIMT), to the Stamp Duty Code, to the municipal tax on onerous real estate transfers (IMT) and to stamp duty, respectively."

For its part, No. 6 of Article 31 of the aforementioned Decree-Law No. 287/2003, of 12 November, provides that "6 - The tax benefits relating to municipal contribution, now relating to IMI, as well as those relating to municipal stamp duty established in legislation outside the Code approved by Decree-Law No. 41969, of 24 November 1958, and in the Tax Benefits Framework, which now relate to IMT, remain in force."

The joint interpretation of the rules of Articles 28 and No. 6 of Article 31, both of Decree-Law No. 287/2003, of 12 November, allows one to state, with reasonable degree of certainty, that the tax benefit in question remained after the reform of taxation of property carried out by that legislative instrument, with no notice of its express repeal as at the date of the facts.

In such a way, that the legislator felt the need to proceed to the express repeal of the aforementioned Article 1 of Decree-Law No. 1/87, of 3 January, by Article 319 of Law No. 71/2018, of 31 December, which approved the State Budget for 2019.

This would suffice to rule out the possibility of eventual tacit repeal of Article 1 of Decree-Law No. 1/87, of 3 January.

Still, it will always be said that, in order to ascertain whether, at the date of the facts, tacit repeal of that rule had occurred, by enquiring into its (in)compatibility with the new provisions of the EBF, or whether the latter came to regulate the same previous subject matter, as required by No. 2 of Article 7 of the Civil Code, this did not occur in the view of the arbitral tribunal.

In effect, following the coming into force of Law No. 30-G/2000, of 29 December, which carried out the reform of income taxation, and the authorisation granted to the Government therein, Decree-Law No. 198/2001, of 3 July, globally revised the articles of the EBF, having established, in its Article 46, the exemption from municipal contribution for "properties integrated in real estate investment funds and equivalents, in pension funds established in accordance with national legislation and in savings-pension funds.".

Article 46 of the EBF was to be amended by Law No. 53-A/2006, of 29 December, establishing therein the exemption from IMI and IMT for "properties integrated in real estate investment funds, in pension funds and in savings-pension funds that are established and operate in accordance with national legislation" (No. 1), the properties integrated in mixed or closed real estate investment funds of private subscription benefiting from the reduction of IMI and IMT rates to one-half (No. 2).

Decree-Law No. 108/2008, of 26 June, carried out the amendment and republication of the EBF, with the previous Article 46 being renumbered as Article 49, with the same wording. This Article 49 of the EBF, following the amendments made by Laws No. 3-B/2010, of 28 April, No. 55-A/2010, of 31 December and No. 83-C/2013, of 31 December, the latter determining the reduction to one-half of IMI and IMT rates "applicable to properties integrated in open or closed real estate investment funds of public subscription, in pension funds and in savings-pension funds that are established and operate in accordance with national legislation", was to be repealed by Article 215 of Law No. 7-A/2016 of 30 March.

From the comparison between the wording given to Article 46 of the EBF by Law No. 53-A/2006, of 29 December and that of Article 1 of Decree-Law No. 1/87, of 3 January, no normative incompatibility results, as while the latter establishes the exemption from sisa for "acquisitions of real estate for a real estate investment fund by its respective managing company", the former came to establish the exemptions from IMI and IMT for "properties integrated in real estate investment funds, in pension funds and in savings-pension funds that are established and operate in accordance with national legislation".

Thus, it is necessary to conclude, as in the decision given in Case No. 544/2016-T, that "from the coming into force of the new wording of Article 46 of the EBF there would be exempt from IMT, not only acquisitions of real estate carried out by managing companies of real estate investment funds with the intention that they become integrated in those funds – as had been established in the preceding rule – but also the properties integrated in the real estate funds – as established in that Article 46 of the EBF. In other words, IMT exemption would henceforth apply both to properties acquired to become integrated in real estate funds, as had been established up to then, and to those same properties if and while integrated in real estate funds, in accordance with Article 46 of the EBF. In the first case, the exemption would apply whenever the fund was in the position of acquirer of the property. In the second case the exemption would apply whenever the fund was in the position of alienator of the property. Thus, it is necessary to conclude that there is no incompatibility between the new provisions and the preceding rules.

(…)

Notwithstanding the structural differences that separate both exemptions, the truth is that in both cases the managing companies of real estate investment funds are placed in an economically advantageous position: either because they do not have to pay IMT when they acquire properties to integrate them in their respective real estate investment fund, or because they can place them on the market more easily by virtue of the prospective acquirer being exempt from IMT. The new provisions and the preceding rules are not only entirely compatible but create a fiscal regime specially attractive for the managing companies of real estate funds.

It is well understood that the exemption from IMI in favour of properties integrated in real estate funds, in that it frees them from payment of this annual tax on real estate property, provided for in Article 46 of the EBF before the wording given to it by the State Budget Law of 2007. However, neither is it negligible the utility of which the IMT exemption, added by this instrument, is invested in the case of transactions of properties integrated in real estate funds.

(…)".

Concluding that Article 1 of Decree-Law No. 1/87, of 3 January, remains in force, with the exemption therein provided for being invoked at the date of the facts and the requirements being met for the Applicant to benefit therefrom, the assessment being challenged cannot remain in the legal order, for being illegal, its annulment being determined.

2. Questions of Prejudiced Cognition

In the judgment, the judge must pronounce on all questions he or she must consider, refraining from pronouncing on questions he or she should not consider (final segment of No. 1 of Article 125 of the TPPC), the questions on which the tribunal's cognitive powers fall being, according to No. 2 of Article 608 of the CPC, subsidiarily applicable to the tax arbitral process, by remission of Article 29, No. 1, paragraph e), of the LFTA, "the questions that the parties have submitted to its consideration, excepting those whose decision is prejudiced by the solution given to others (…)".

The success of the request for annulment relating to the question of the illegality of the assessment being challenged, by violation of the provisions of Article 1 of Decree-Law No. 1/87, of 3 January, renders the consideration of the remaining defects invoked by the Applicant unnecessary.

3. On the Request for Indemnity Interest

Article 24, paragraph b), No. 1 of the LFTA determines that the arbitral decision on the merits of the claim not subject to appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, this being required, in the precise terms of the success of the arbitral decision in favour of the taxpayer and up to the end of the period provided for spontaneous execution of the decisions of the tax judicial tribunals, "to re-establish the situation that would exist if the tax act being subject of the arbitral decision had not been practised, adopting the acts and operations necessary for that purpose".

Equally, Article 100 of the General Tax Law, applicable to the tax arbitral process by virtue of the provisions of paragraph a) of No. 1 of Article 29 of the LFTA, provides that "The tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or of judicial proceedings in favour of the taxpayer, to immediate and full re-establishment of the situation that would exist if the illegality had not been committed, comprising the payment of indemnity interest, in the terms and conditions provided for by law.".

In accordance with the provisions of No. 1 of Article 43 of the General Tax Law (General Tax Law), applicable subsidiarily to the tax arbitral process, in accordance with Article 29, No. 1, paragraph a), of the LFTA, "Indemnity interest is due when it is determined, in administrative complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in amount higher than legally due.".

In the case at hand, it appears manifest that, declaring the illegality of the IMT assessment being subject of the request for arbitral pronouncement, for the reasons preceding, the Applicant must be recognised to have the right to indemnity interest on the amount unduly paid, as provided for in No. 5 of Article 61 of the Tax Procedure and Process Code.

DECISION

For these reasons, this Arbitral Tribunal decides:

1. To judge the arbitral request well-founded and, consequently, to declare the illegality, with the consequent annulment, of the act of IMT assessment, with the No. ...;

2. To condemn the Tax and Customs Administration to restore to the Applicant the amount of tax paid, plus indemnity interest;

3. To condemn the Respondent to pay the costs of the proceedings.

VALUE OF THE PROCEEDINGS:

In accordance with the provisions of Article 306, Nos. 1 and 2, of the CPC, Article 97-A, No. 1, paragraph a), of the TPPC and Article 3, No. 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €455,000.00 (four hundred and fifty-five thousand euros).

COSTS:

Calculated in accordance with Article 4 of the Regulation on Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of €7,344.00 (seven thousand, three hundred and forty-four euros), to be borne by the Tax and Customs Authority.

Notify.

Lisbon, 15 February 2019.

The Arbitrators,

Maria Fernanda Maçãs
(President)

Mariana Vargas
(Member)

Nuno Maldonado Sousa
(Member)

Text produced by computer, in accordance with No. 5 of Article 131 of the CPC, applicable by remission of paragraph e) of No. 1 of Article 29 of D.L. 10/2011, of 20 January.

The wording of this decision is governed by the 1990 Orthographic Agreement.