Process: 231/2016-T

Date: October 13, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

Process 231/2016-T addresses a critical constitutional challenge to Portugal's retroactive taxation of Real Estate Investment Funds for Residential Rental (FIIAH). The claimant, a FIIAH fund manager, contested IMT (Property Transfer Tax) and Stamp Duty assessments totaling €1,291.50, arguing that Article 236 of Law 83-C/2013 (2014 State Budget) violates Article 103(3) of the Portuguese Constitution by imposing retroactive tax obligations.

The case centers on fundamental changes to FIIAH tax exemptions. Under the original 2009 regime, FIIAH funds enjoyed immediate IMT and Stamp Duty exemptions upon acquiring residential rental properties, with no conditions regarding actual rental timeframes. However, the 2014 State Budget introduced restrictive requirements through Article 235: properties must be rented within three years of acquisition, and exemptions 'cease to have effect' if this condition is not met or if properties are sold within this period.

The constitutional issue arises from Article 236(2)'s transitional provision, which applied these new restrictions to acquisitions completed before 2014. Since IMT and Stamp Duty obligations arise at the moment of property transmission or contract execution—facts already completed under the original exemption regime—the claimant argues this constitutes prohibited retroactive taxation.

Supported by expert legal opinions, the claimant demonstrates that the 2014 amendments altered essential tax elements (exemption scope) for already-completed tax facts. Post-1997 Portuguese Constitutional Court jurisprudence consistently holds that Article 103(3) prohibits creating or modifying taxes in their essential elements with retroactive effect. The arbitral tribunal at CAAD (Centre for Administrative Arbitration) was constituted to examine whether the Tax Authority's assessments violated constitutional protections against retroactive taxation, with significant implications for FIIAH fund taxation and investor certainty in Portugal's real estate investment sector.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1. The Claimant A…, S.A. (Claimant), taxpayer no. … in its capacity as manager of the real estate investment fund B…– Closed Real Estate Investment Fund for Residential Rental, taxpayer no.…, with registered office at …, …, in Lisbon, filed on 19/04/2016 a request for arbitral award seeking the examination and declaration of illegality of the acts of assessment of Property Transfer Tax (IMT) and Stamp Duty, in the total amount of € 1,291.50 (one thousand two hundred ninety-one euros and fifty cents) on a property of which it is the owner.

1.2. His Excellency the President of the Deontological Council of the Centre for Administrative Arbitration (CAAD) appointed, on 19/05/2016, as sole arbitrator the signatory of this decision.

1.3. On 29/06/2016 the arbitral tribunal was constituted.

1.4. In compliance with the provisions of no. 1 of article 17 of the Legal Regime of Tax Arbitration (RJAT) the Tax and Customs Authority (AT) was notified on 01/07/2016 to, if it so wished, present its answer and request the production of additional evidence.

1.5. On 15/09/2016 the AT presented its answer.

1.6. On 16/09/2016 the arbitral tribunal decided to dispense with the holding of the meeting referred to in no. 1 of article 18 of the RJAT, on the grounds of the principle of autonomy of the arbitral tribunal in the conduct of the proceedings, inviting both parties to, if they so wished, present optional written submissions and set the date for the rendering of the final decision.

1.7. On 26/09/2016 the Claimant presented written submissions.

1.8. On 04/10/2016 the AT presented written submissions.

  1. SANATION

The arbitral tribunal was regularly constituted and is materially competent.

The parties have legal standing and capacity and are legitimate, with no defects in representation.

The proceedings do not suffer from defects affecting its validity.

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

  1. POSITIONS OF THE PARTIES

There are two opposing positions: that of the Claimant, set out in the request for arbitral award, and that of the AT in its answer (and in the subsequent written submissions).

According to the Claimant, the assessments in question in this petition are illegal as it considers it unconstitutional, in violation of the provisions of no. 3 of article 103 of the Constitution of the Portuguese Republic, article 236 of Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014.

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

"CONCLUSIONS

(…)

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

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

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

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

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

  6. The provision of a period for the realization of rental is not merely a way of proving a requirement already provided for – in which case a new law would evidently be unnecessary – but instead represents the introduction, with the three-year period, of a new prerequisite for the exemption from IMT and Stamp Duty, with the effect of more restrictively delimiting the exception to the incidence resulting from the exemption, providing that this "ceases to have effect".

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

  8. The tax facts that give rise to the obligation of IMT and Stamp Duty are completed at the moment of their practice, this being also the moment when the respective tax obligations arise (articles 5, no. 2, and 5, paragraph a), respectively of the Property Transfer Tax Code and the Stamp Duty Code).

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

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

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

  12. As can be read in Constitutional Court Decision no. 128/2009, "given that the general principle of non-retroactivity of tax law is enshrined, the mere retroactive nature of a tax law disadvantageous to individuals is sanctioned, automatically, by the Constitution, whatever may have been, in concreto, the conduct of the tax administration or the taxed individual. In other words, the judgment of unconstitutionality stems only from the mere analysis of the normative data, not depending, in any way, on the ascertainment of any circumstantial elements resulting from the condition, in concreto, of a certain tax law relationship".

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

  14. This does not prevent the argument that the said restriction of the exemption by the provision of periods would have aimed only to verify the purpose of rental of the acquisitions, since such a prerequisite of the exemption was not previously realized and enshrined in law, at the moment when the relevant tax facts (the acquisition of the properties and the related acts and contracts) were completed.

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

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

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

The Claimant also submands that the assessments in question are null and void under the provisions of paragraph d), of no. 2, of article 133 of the Code of Administrative Procedure (CPA) insofar as they violate the essential content of a fundamental right, and as such, are contestable at any time.

On the other hand, the AT, defending itself by counter-claim, argues that the request for a declaration of nullity of the disputed assessments should be judged unfounded, as follows.

According to the AT, contrary to courts, which are prevented from applying unconstitutional norms, being given the competence for diffuse and concrete supervision of constitutional conformity, the administrative bodies and agents do not have competence to decide on the non-application of norms with respect to which doubts of constitutionality are raised.

Thus, the sanction that falls on an invalid administrative act is its voidability [1], nullity only occurring when it lacks one of its essential elements or when the law expressly sanctions it with this form of invalidity [2].

This choice of the legislator should, furthermore, be reconciled with the principles of certainty and stability, fundamental in administrative activity and relations, so as not to jeopardize the effectiveness and security of this activity of the administration with its administered parties.

On the other hand, concretely with respect to the non-retroactivity of tax law, it has been the understanding of the jurisprudence that the possible violation of such a principle does not imply disrespect for directly applicable and binding constitutional norms, such as those referring to rights, freedoms and guarantees.

In summary, even if the defect attributed to the assessments in question existed, it would never be generative of nullity, but only of voidability.

The AT further argues that the law in question is not tainted with retroactivity, insofar as the alienation of the property has as a necessary consequence the lapse of the tax benefit granted for dedication to rental.

From the outset of the regime, the tax benefits in question applicable to FIIAH always depended on the dedication of the properties to permanent residential rental, a legal requirement that the AT, within the scope of its supervisory powers, would always be able to ascertain, in order to conclude on the permanence of the benefit or, rather, on the restoration of the standard taxation system.

Now, given that the alienation of the properties is in question without dedication of the same to permanent residential rental, such would always determine the lapse of the exemption, under no. 2 of article 14 of the Statute of Tax Benefits (EBF), with no. 16 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH) merely concretizing an anti-abuse measure, establishing that properties that do not remain in the portfolio with exclusive dedication to residential rental were not acquired with such purpose.

Thus, and contrary to what the Claimant argues, there is no introduction ex novo of a regime of lapse 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.

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

  1. FACTS

4.1. FACTS DEEMED PROVEN

In light of the documents filed in the proceedings, it is established as proven that:

4.1.1. The real estate investment fund B…– Closed Real Estate Investment Fund for Residential Rental was, at the date of the assessments in question, the owner of the property registered under article …, fraction "…", in the urban property registry of the parish of…, in the municipality of …;

4.1.2. The property in question was acquired on 31/12/2013, benefiting from exemption from IMT under paragraph a), of no. 7, of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH), and was alienated on 29/01/2016;

4.1.3. In accordance with what is mentioned in the request for arbitral award and in the answer given by the AT, an assessment of IMT, …, in the amount of € 717.50 (seven hundred seventeen euros and fifty cents) and Stamp Duty no.…, in the amount of € 574.00 (five hundred seventy-four euros), was made, which were paid;

4.1.4. These assessments were made under article 236 of Law no. 83-C/2013, of 31 December (State Budget for 2014), by virtue of the execution of a deed of purchase and sale, insofar as such fact determines that the property has been given a purpose different from that on which the benefit was based, resulting in the lapse of the exemption.

4.2. FACTS NOT DEEMED PROVEN

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

  1. THE LAW

5.1. ON THE (IL)LEGALITY OF THE ACT OF ASSESSMENT OF IMT AND STAMP DUTY

It is important, then, to examine the legal question raised by the Claimant, which consists of determining whether the assessments of IMT and Stamp Duty made under article 236 of Law no. 83-C/2013, of 31 December (State Budget for 2014) that are the subject of the request for arbitral award suffer from the alleged illegalities.

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

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

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

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

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

"14 - For the purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for permanent residential rental whenever they are the object of a rental contract for permanent residential purposes within three years from the moment they came to form part of the fund's assets, the taxpayer being obliged to communicate and provide proof to the AT of the respective actual rental, within 30 days following the expiry of the said period.

15 - When the properties have not been the object of a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 cease to have effect, and in that case the taxpayer must request from the AT, within 30 days following the expiry of the said period, the assessment of the respective tax.

16 - If the properties are alienated, with exception of the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the expiry of the period provided for in no. 14, the taxpayer must equally request from the AT, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax owed in accordance with the previous number." [emphasis added].

As mentioned above, the property in question was acquired by the real estate investment fund B…– Closed Real Estate Investment Fund for Residential Rental in 2013, benefiting from exemption from IMT under paragraph a), of no. 7, of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH).

This norm requires that the property be intended for permanent residential rental in order to be able to benefit from such exemption.

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

Now, the State Budget for 2014 does indeed establish a new requirement for the exemption: if the dedication to permanent residential rental does not occur within the period of 3 years after the entry of the property into the fund, the fund must request the assessment of the IMT that was not assessed.

However, this was not the case in question, contrary to what appears to follow from the Claimant's argument, as follows.

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

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

On this matter there is already abundant arbitral jurisprudence in the sense of the legality of the impugned acts, in proceedings no. 398/2015-T, no. 688/2015-T, no. 689/2015-T, no. 709/2015-T, no. 710/2015-T, no. 729/2015-T, no. 735/2015-T, no. 61/2016-T, no. 63/2016-T, no. 76/2016-T and no. 93/2016-T, as follows.

Arbitral Decision no. 398/2015-T

"It is therefore necessary to assess the legality of the IMT assessments sub judice.

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

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

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

Accordingly, we understand that the issue is not whether the norm applied is retroactive or not, which would be the case if, as an example, the property had remained in the fund for a period of 3 years without yet having been dedicated to permanent residential rental and, for that reason, there had been an assessment of IMT.

In the case at hand this is not the case. The properties in question are alienated without having fulfilled their purpose - dedication to permanent residential rental. This is not a matter of a period. Once alienated, such purpose can no longer be fulfilled, so the requirement established for the exemption from IMT to be applicable was not met.

To fulfill the requirements of paragraph a) of no. 7 of article 8 it is not sufficient to have a stated intention at the time of acquisition of the property but an actual dedication to permanent residential rental. Now, the Claimant does not prove in any way in these proceedings, nor in the previous administrative procedure, the fulfillment of such a requirement.

We accordingly understand that the issue is not whether the law is retroactive or not, nor is there any injury to the Claimant's expectations or aggravation of its tax position. The rationale for granting a tax benefit in the context of IMT to FIIAH was clearly established from the outset – "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the real estate investment funds...";

Accordingly, we understand that the assessment of IMT in question is legal under paragraph a) of no. 7 of article 8. Let us now therefore examine the rationale of the assessment of IMT under article 235 no. 16 of Law 83/2013 of 31 December." [emphasis added].

Arbitral Decision no. 688/2015-T

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

Thus, in light of the foregoing, this Arbitral Tribunal understands that what is provided for in no. 16 of article 236 of the Transitional Regime, applied in conjunction with the provisions of no. 15 of the same article, in no way alters the substance or requirements of applicability of the exemptions established by article 8, no. 7 and no. 8 of the special regime applicable to FIIAH and SIIAH, with respect to the assessments at issue.

In these terms, taking into account the conclusions resulting from the analysis presented above, the Tribunal understands that the answer to be given to the question posed in point 6.1, supra, is negative, that is, that the assessments of IMT and Stamp Duty that are the subject of the request for arbitral award do not suffer from any illegality, and accordingly the request for arbitral award should be considered unfounded.".

Arbitral Decision no. 689/2015-T

"The fact that the Claimant proceeded to alienate the property which, upon acquiring it, it declared it would dedicate to the purpose that allowed it to be recognized – as it was – the exemption from IMT and Stamp Duty, would always determine, even if the added number 16 did not expressly provide for this, the lapse of such exemptions, by effect of the provisions of article 12 and no. 3 of article 14 of the Statute of Tax Benefits (former no. 12, no. 3, in the wording of the EBF that was in force prior to its re-publication by Decree-Law no. 108/2008, of 26/06), according to which "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 these are alienated or given another purpose without authorization from the Minister of Finance, without prejudice to other sanctions or different regimes established by law.".

The Claimant neither alleged nor, a fortiori, demonstrated that it had obtained the authorization provided for therein, or any other circumstance that would prevent the granted exemptions from ceasing to have effect as a consequence of the alienation.

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

Which, moreover, is well understood, having regard to the rationale of the granting of these tax benefits.

The rationale for granting the tax benefit in the context of IMT and Stamp Duty to FIIAH is, clearly, its dedication to permanent residential rental - "The acquisitions of urban properties or fractions of urban properties intended exclusively for permanent residential rental, by the real estate investment funds..." – so that the consequence of its being given a different purpose is that the exemption could not have been granted, and legality must be restored, assessing the taxes that, were it not for the declaration of intent made at the time of acquisition, would have had to be assessed.

Which the Claimant recognized, all the more so as that is precisely what appears in the declarations made by the Claimant itself for the assessment of IMT and Stamp Duty.".

Arbitral Decision no. 709/2015-T

"To fulfill the requirements of paragraph a), of no. 7, of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH) it is not sufficient to have a stated intention at the time of acquisition of the property but rather an actual dedication to permanent residential rental.

Now, the Claimant does not prove in any way in these proceedings the fulfillment of such a requirement.

[…] We accordingly understand that the issue is not whether the law is retroactive or not, nor is there any injury to the Claimant's expectations or aggravation of its tax position. The rationale for granting the tax benefit in the context of IMT to FIIAH was clearly established from the outset - "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the real estate investment funds...".

Arbitral Decision no. 710/2015-T

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

[...] Accordingly, and since the assessments at issue resulted from a declaration by the Claimant, it is not even necessary to dwell on the correctness of the assessments with respect to their appropriateness. In any case, recall that no. 15 of the Special Regime, as added by the State Budget Law for 2009, provides that when the properties have not been the object of a rental contract within the three-year period, the benefits cease to have effect, and it is up to the taxpayer to request from the AT, within thirty days following the expiry of the said period, the assessment of the respective tax. Now, as we have seen, in the case at hand there was acquisition and alienation of a fraction that was never dedicated to permanent residential rental by the Claimant, so it was incumbent on the Claimant - as it indeed did - to request the assessment of the respective tax." [emphasis added].

Arbitral Decision no. 729/2015-T

"The rationale for granting the tax benefit in the context of IMT and Stamp Duty to FIIAH is, clearly, its dedication to permanent residential rental - "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the real estate investment funds..." - so that the consequence of its being given a different purpose is that the exemption could not have been granted, and legality must be restored, assessing the taxes that, were it not for the declaration of intent made at the time of acquisition, would have had to been assessed.

Which the Claimant recognized, all the more so as that is precisely what appears in the declarations made by the Claimant itself for the assessment of IMT and Stamp Duty.

In conclusion, the alienation of the fraction would always determine the lapse of the exemption by application of the provisions of no. 3 of article 14 of the EBF, there not being, therefore, in question in the situation sub judice, any retroactive application of a norm that comes to introduce a new regime of lapse of exemptions, nor is there any injury to the Claimant's expectations or aggravation of its tax position, so we accordingly understand that the assessments of IMT and Stamp Duty at issue are legal.

It is accordingly unnecessary to examine the question raised by the Claimant regarding the alleged retroactivity of the regime provided for by article 236 of the State Budget for 2014, insofar as, as demonstrated above, the circumstances that gave rise to the assessments at issue are in no way related to the additions arising from the said article, but solely to the alienation of the property and consequent dedication to a purpose different from that for which the exemptions from IMT and Stamp Duty were granted." [emphasis added].

Arbitral Decision no. 735/2015-T

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

Thus, in light of the foregoing, this Arbitral Tribunal understands that what is provided for in no. 16 of article 236 of the Transitional Regime, applied in conjunction with the provisions of no. 15 of the same article, in no way alters the substance or requirements of applicability of the exemptions established by article 8, no. 7 and no. 8 of the special regime applicable to FIIAH and SIIAH, with respect to the assessments at issue.

In these terms, taking into account the conclusions resulting from the analysis presented above, the Tribunal understands that the answer to be given to the question posed in (…), or that the assessments of IMT and Stamp Duty that are the subject of the request for arbitral award do not suffer from any illegality, and accordingly the request for arbitral award should be considered unfounded.

As a consequence of the conclusion referred to (…), supra, the examination of the question raised by the Claimant regarding the alleged retroactivity of the regime provided for by article 236 of the State Budget for 2014 is unnecessary, insofar as, as demonstrated above, the circumstances that gave rise to the assessments at issue derive from the fact that a different purpose has been given to the property (…) from that for which the exemptions from IMT and Stamp Duty were granted."

Arbitral Decision no. 61/2016-T

"The property in question was alienated without having fulfilled its purpose - dedication to permanent residential rental. This is not, therefore, a matter of a period, once alienated, such purpose can no longer be fulfilled, so the requirement established initially in the special regime of FIIAH for the exemption from IMT and Stamp Duty to be applicable to it was not met.

We note that the right to tax benefits must be reported to the date of verification of their respective prerequisites, as is postulated in article 12 of the Statute of Tax Benefits ("EBF").

[…]

It is for this reason that (…) we understand that the question regarding the alleged unconstitutionality of the norm provided for in article 236 of Law no. 83-C/2013, of 31 December, is not presented in the case at hand, insofar as, in the part corresponding to the alienation of the property, no. 16 of article 8 of the Tax Regime of FIIAH merely reiterates what already resulted from the provisions of the EBF.

Which, moreover, is well understood, having regard to the ratio legis of the granting of these tax benefits in concreto, as we have been explaining throughout this decision.

In summary, the Tribunal understands that the alienation of the property in question in the proceedings would always determine the lapse of the exemption by application of the provisions of no. 3 of article 14 of the EBF, there not being, therefore, in question in the situation sub judice, any retroactive application of a norm that comes to introduce a new regime of lapse of exemptions, nor is it seen that any violation has occurred of rights or legitimate expectations acquired by the Claimant, so it is concluded that the assessments at issue in the proceedings are maintained, as legal."

Arbitral Decision no. 63/2016-T

"The tax benefits that the legislator foresees when it understands that weighty reasons justify it, prevent taxation, but always conditioned to the verification of the legal requirements.

[…]

(…) it is concluded that the State Budget Law for 2014 did indeed come to clarify and establish a new condition to the legal prerequisite previously provided for the right to the exemption, namely: if the dedication to permanent residential rental does not occur within the three-year period after the entry of the property into the fund, the fund must request the assessment of the IMT that was not assessed ab initio.

However, it was not the application of this period, introduced in the version of the State Budget Law for 2014, that gave rise to the assessments impugned. These were a consequence derived from the fact that a different purpose has been given to the urban property in question from that which, since the introduction into the legal order of this special taxation regime (2008), was required as a prerequisite for the right to the exemption from IMT and Stamp Duty.

As appears from the content of the impugned assessments, the property was alienated by exchange, and it was for that reason that the tax benefit lapsed, by non-fulfillment of the prerequisite for the right to the exemption." [emphasis added].

Arbitral Decision no. 76/2016-T

"In this context, it is our understanding that no. 16 of article 8 of the special regime applicable to FIIAH and SIIAH, applied in conjunction with the provisions of no. 15 of the same article, does not produce any alteration in the substance and/or in the requirements of applicability of the exemptions established by nos. 7 and 8 of the same article 8, with respect to the assessments of IMT and Stamp Duty in question. Effectively, contrary to what is argued by the Claimant, it is not correct to say that the facts or circumstances on which the lapse thereof depends were not already legally provided for, when the exemption was recognized, at least with respect to the circumstance that occurred in the case at hand: the alienation of the property."

Arbitral Decision no. 93/2016-T

"The rationale for granting the tax benefit in the context of IMT and Stamp Duty to FIIAH is, clearly, its dedication to permanent residential rental - «The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for permanent residential rental, by the real estate investment funds...» - so that the consequence of its being given a different purpose is that the exemption could not have been granted, and legality must be restored, assessing the taxes that, were it not for the declaration of intent made at the time of acquisition, would have had to been assessed.

In conclusion, the alienation of the property would always determine the lapse of the exemption by application of the provisions of no. 3 of article 14 of the EBF, there not being, therefore, in question in the situation sub judice, any retroactive application of a norm that comes to introduce a new regime of lapse of exemptions, nor is there any injury to the Claimant's expectations or aggravation of its tax position, so we accordingly understand that the assessments of IMT and Stamp Duty at issue are legal." [underlined added].

Here arrived, we understand that the issue is not whether the norm applied is retroactive or not, which would be the case if, as an example, the property had remained in the fund for a period of 3 years without yet having been dedicated to permanent residential rental and, for that reason, there had been an assessment of IMT.

In the case at hand this is not the case.

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

To fulfill the requirements of paragraph a), of no. 7, of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH) it is not sufficient to have a stated intention at the time of acquisition of the property, but rather an actual dedication to permanent residential rental.

Now, the Claimant does not prove in any way in these proceedings the fulfillment of such a requirement.

We accordingly understand that the issue is not whether the law is retroactive or not, nor is there any injury to the Claimant's expectations or aggravation of its tax position.

In fact, the rationale for granting a tax benefit in the context of IMT to FIIAH was clearly established from the outset – "the acquisitions of urban properties or fractions of urban properties intended exclusively for permanent residential rental, by the real estate investment funds (…)".

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

  1. DECISION

With the grounds set out above, the arbitral tribunal decides to judge the request for arbitral award completely unfounded, with all legal consequences.

  1. VALUE OF THE CASE

The value of the case is fixed at € 1,291.50 (one thousand two hundred ninety-one euros and fifty cents), in accordance with article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne by the Claimant, in the amount of € 306.00 (three hundred six euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with no. 2 of article 22 of the RJAT.

Notify.

Lisbon, 13 October 2016

The Arbitrator,

(Hélder Filipe Faustino)

Text prepared by computer, in accordance with the provisions of no. 5 of article 131 of the Code of Civil Procedure, applicable by referral from paragraph e) of no. 1 of article 29 of the RJAT. The drafting of this decision is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] See article 135 of the former CPA, which corresponds to no. 1 of article 163 of the CPA in the wording introduced by Decree-Law no. 4/2015, of 17 January.

[2] See article 133 of the former CPA, which corresponds to no. 1 of article 161 of the CPA in the wording introduced by Decree-Law no. 4/2015, of 17 January.

Frequently Asked Questions

Automatically Created

What is the IMT and Stamp Tax exemption regime for FIIAH closed-end real estate investment funds for residential leasing in Portugal?
The IMT and Stamp Tax exemption regime for FIIAH (Fundos de Investimento Imobiliário para Arrendamento Habitacional) in Portugal originally provided unconditional exemptions at the moment of property acquisition intended for residential rental. Under the 2009 State Budget Law, FIIAH funds were exempt from IMT (Property Transfer Tax) and Stamp Duty when acquiring properties and autonomous fractions designated for permanent residential rental, with no requirement to actually complete rental within a specified timeframe. However, the 2014 State Budget Law (Article 235) introduced restrictive conditions: exemptions now require that properties be subject to actual rental contracts for permanent residential purposes within three years of joining the fund's assets. If properties are not rented within three years or are alienated before this period (except through tenant purchase options), the exemptions 'cease to have effect,' triggering retroactive tax liability. This fundamental shift placed rental market risk on FIIAH funds rather than providing immediate tax relief upon acquisition.
Is Article 236 of Law 83-C/2013 (State Budget 2014) unconstitutional for imposing retroactive taxation on FIIAH funds?
Article 236 of Law 83-C/2013 (2014 State Budget) faces serious constitutional challenges for imposing retroactive taxation on FIIAH funds. The article's unconstitutionality stems from violating Article 103(3) of the Portuguese Constitution, which explicitly prohibits retroactive taxes. Article 236(2) contains a transitional provision that applies the new restrictive exemption requirements to property acquisitions completed before the law's 2014 entry into force—when exemptions were unconditional. Since tax facts for IMT and Stamp Duty are completed at the moment of property transmission or contract execution (when tax obligations arise), applying new restrictions to already-completed facts constitutes authentic retroactivity. The provision altered essential tax elements—exemption scope and incidence—for transactions that occurred under the original regime with different legal conditions. Expert legal opinions in the case confirm this violates constitutional protections, citing post-1997 Constitutional Court jurisprudence that consistently rules against laws creating or modifying taxes retroactively for completed facts. The prohibition ensures legal certainty and protects taxpayers' legitimate expectations in tax planning.
How does Article 103(3) of the Portuguese Constitution protect taxpayers against retroactive tax laws?
Article 103(3) of the Portuguese Constitution provides robust protection against retroactive tax laws by explicitly prohibiting 'taxes with a retroactive nature.' Introduced through constitutional amendment in 1997, this provision prevents the legislator from creating new taxes or altering essential elements of existing taxes (such as incidence, rates, exemptions, or tax base) with application to facts already completed when the law enters into force. Essential elements are those affecting the very existence of the tax obligation—the 'if' and 'how much' of taxation. Following the 1997 amendment, the Portuguese Constitutional Court adopted a stricter interpretation, consistently ruling unconstitutional any norms that modify tax obligations for completed tax facts. This protection ensures legal certainty, safeguards taxpayers' legitimate expectations, and prevents the state from changing tax rules retroactively to capture revenue from past transactions planned under different legal frameworks. The constitutional prohibition distinguishes between authentic retroactivity (applying to completed facts—prohibited) and retrospectivity (applying to ongoing situations—generally permitted). For IMT and Stamp Duty, tax facts complete at the moment of property transmission or contract execution, making any subsequent modification of these obligations constitutionally impermissible retroactive taxation.
What is the CAAD arbitral tribunal procedure for challenging IMT and Stamp Tax assessments on real estate fund properties?
The CAAD (Centro de Arbitragem Administrativa) arbitral tribunal procedure for challenging IMT and Stamp Tax assessments on real estate fund properties follows the Legal Regime of Tax Arbitration (RJAT). The process begins with the taxpayer filing a request for arbitral award specifying the contested tax assessments and legal grounds for illegality. The President of CAAD's Deontological Council appoints a sole arbitrator (for amounts below certain thresholds) or a panel of three arbitrators. After tribunal constitution, the Tax and Customs Authority (AT) is notified and given opportunity to present its answer and request additional evidence under Article 17 RJAT. The tribunal may dispense with oral hearings based on procedural autonomy principles, instead inviting written submissions from both parties. Both the claimant and AT can present optional written submissions before the final decision deadline. The tribunal examines its own competence, parties' standing and legitimacy, and procedural validity before ruling on the merits. CAAD arbitration offers an alternative to judicial courts for tax disputes, providing specialized expertise, faster resolution, and binding decisions on tax assessment legality, including constitutional challenges to underlying tax legislation affecting fund taxation.
Can FIIAH fund management companies reclaim IMT and Stamp Tax paid under the transitional regime of Article 236 of the 2014 Budget Law?
FIIAH fund management companies can potentially reclaim IMT and Stamp Tax paid under the transitional regime of Article 236 of the 2014 Budget Law if they successfully challenge the provision's constitutionality. The reclamation process involves filing arbitration requests with CAAD or judicial appeals contesting the assessments' legality based on Article 236(2)'s violation of Article 103(3) of the Portuguese Constitution. If tribunals rule the transitional provision unconstitutional for imposing retroactive taxation on already-completed tax facts, the resulting tax assessments become illegal and unenforceable. Fund managers would be entitled to reimbursement of taxes paid, plus interest for the period from payment to reimbursement. The success of such claims depends on demonstrating that: (1) property acquisitions occurred before 2014 under the original unconditional exemption regime; (2) the tax facts (property transmission/contracts) were completed before the new law's entry into force; (3) Article 236(2) retroactively applied new restrictive conditions to these completed facts; and (4) this constitutes prohibited retroactive taxation under constitutional protections. Given the strong constitutional arguments and supporting legal doctrine, fund managers have substantial grounds for reclaiming these taxes, with significant implications for Portugal's real estate investment fund sector and fiscal legal certainty.