Process: 269/2016-T

Date: November 2, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD arbitral decision 269/2016-T addresses the constitutional validity of Article 236 of Law 83-C/2013, which established transitional rules for the special tax regime applicable to FIIAH (Real Estate Investment Funds for Residential Leasing). The case involves IMT (Municipal Property Transfer Tax) and Stamp Duty assessments totaling €33,397.01 levied on a property owned by a FIIAH fund. The applicant challenged these assessments on grounds that Article 236 violates Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax legislation. Originally, Law 64-A/2008 granted FIIAH funds exemption from IMT and Stamp Duty on properties acquired for residential leasing. Law 83-C/2013 modified this regime, requiring properties to be leased for residential purposes within three years of acquisition and maintained as such for at least three years. The transitional provision (Article 236) required funds to comply with these new conditions or face taxation. The applicant argued this constituted impermissible retroactivity by imposing new requirements on properties already acquired under the previous regime. The Tax Authority countered that the exemption always depended on actual residential leasing and Article 236 merely established a compliance deadline rather than creating new substantive requirements. The applicant alternatively invoked Article 133 of the Portuguese Administrative Procedure Code, claiming the assessments are null for violating a fundamental constitutional right. The tribunal had to determine whether Article 236 represents true retroactivity (unconstitutional application to completed past facts) or merely prospective application of new rules to ongoing situations. While the arbitral tribunal cannot declare provisions unconstitutional—a power reserved to the Constitutional Court—it must assess whether the assessments were legally grounded and whether the taxpayer is entitled to reimbursement with compensatory interest under Article 43 of the General Tax Law.

Full Decision

ARBITRAL DECISION

I – REPORT

1 –A…, SA with registered office at Avenue … no. …-… - …- … Lisbon with the NIPC[1]…, in its capacity as manager of the Real Estate Investment Fund –B…– Real Estate Investment Fund Closed for Residential Leasing, registered with CMVM[2] with the NIF[3]…, filed on 17/05/2016 a petition for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no.1 of article 2º, of no. 1 of article 3º and of paragraph a) of no. 1 of article 10º, all of the RJAT[4], with the AT[5] being made respondent, with a view to ascertaining whether article 236º of Law 83-C/2013 of 31 December violates or does not violate the principle of retroactivity of tax law, provided for in article 103º of the CRP[6] and consequently the nullity of the IMT[7] and IS[8] assessments, or in the alternative the annulment thereof and consequently that it be reimbursed of its amount accompanied by compensatory interest under article 43º of the LGT[9], relating to the urban property registered in the respective cadastre under article…, fraction … of the parish of …, located at … no.… and … and Street … no. … to … Block…, …, of the municipality of Lisbon and which resulted from the amendments introduced to the Tax Regime of FIIAH[10] and SIIAH[11] by Law 83-C/2013 of 31 December through the transitional provision of its article 236º.

2 – The petition for constitution of the arbitral tribunal was filed without exercising the option to designate an arbitrator, and was accepted by His Excellency the President of CAAD[12] and automatically notified to the AT on 17/05/2016.

3 – Pursuant to the provisions of no.2 of article 6º of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the sole arbitrator Arlindo José Francisco was appointed, who communicated to the Deontological Council and to the Administrative Arbitration Centre the acceptance of the appointment within the regularly stipulated deadline.

4 - The tribunal was constituted on 27/07/2016 in accordance with the provisions contained in paragraph c) of no. 1 of article 11º of the RJAT, in the wording introduced by article 228º of Law no. 66-B/2012, of 31 December.

5 – With its petition, the applicant seeks the declaration of nullity of the assessments, based on their unconstitutionality or in the alternative the annulment of the IMT in the amount of € 29,357.71, and of the IS € 4,039.300, as per documents … … respectively and which amount to the total sum of € 33,397.01.

6 - As already noted, in summary, it bases its position on the fact that the referred assessments are grounded in article 236º of Law no. 83-C/2013 of 31 December, a provision which it considers violates no. 3 of article 103º of the CRP.

7 – It further considers that the contested assessments are null under numbers 1 and 2 of article 133º of the CPA[13], a provision in force at the date of the said assessments, given that they violate the essential content of a fundamental right, being therefore challengeable at any time.

8 – In the AT's response, in summary, it sustains that the legislator with the formulation contained in article 236º of Law 83-C/2013 did not establish any new requirement that determines the forfeiture of the right to exemption, but merely granted a deadline for its fulfillment.

9 – It further considers that the legislative amendment introduced by Law 83-C/2013 to the tax regime of FIIAH did not modify the application of the tax benefits granted which always depended on the allocation of the properties to leasing for residential purposes, there being no retroactivity here.

II - PRELIMINARY PROCEEDINGS

The tribunal was regularly constituted and is competent ratione materiae in accordance with article 2º of the RJAT.

The parties have legal personality and capacity, show themselves to be properly interested and are regularly represented in accordance with articles 4º and 10º, no.2 of the RJAT and article 1º of Order no. 112-A/2011, of 22 March.

The date of 19 October 2016 was designated for the hearing provided in article 18º of the RJAT, and the respondent came, on 30 September, to request its dispensation, in case of agreement by the applicant.

The tribunal determined that the case file would await 5 days for the applicant to pronounce itself, which it did on 04 October agreeing with the dispensation of the hearing and the production of written arguments.

Finding no defects in the process, the tribunal considered that the conditions were met for the rendering of the final decision, fixing the date of 02 November for that purpose.

III - GROUNDS

1 – The questions to be decided, with relevance for the case file, are the following:

a) Declare or not the nullity of the assessments here put in issue based on their unconstitutionality or in the alternative their annulment, as requested.

b) In case it declares their nullity or annulment, declare whether their reimbursement should be accompanied by compensatory interest under article 43º of the LGT.

2 – Findings of Fact

The relevant factual findings proved based on the elements attached to the case file are as follows:

a) The Real Estate Fund was, at the date of the assessments in question, the owner of the property registered in the urban cadastre under article…, fraction … of the parish of…, already identified.

b) The said property, upon its acquisition, benefited from exemption of IMT and IS, under no. 7 paragraph a) and no. 8 of article 8º of the legal regime of FIIAH.

c) The assessments in question were made at the request of the applicant, under article 236º of Law 83-C/2013 of 31 December and were paid on 16 February 2016.

d) AT based them on the fact that the property had been given a different purpose from that which gave rise to the tax benefit, since its exchange took place.

There are no facts relevant to the decision that have not been accepted as proved.

3 – Findings of Law

On the legality or not of the IMT and IS assessments made under article 236º of Law 83-C/2013 of 31 December

The petition incorporates the conclusions of a legal opinion by His Excellencies Professors Doctor C… and Doctor D… who understand that no. 2 of article 236º of Law 83-C/2013 is unconstitutional. Although the arbitral tribunal does not have competence to declare or not the unconstitutionality of the provision, competence exclusive to the TC[14], it falls to it to assess the application of the provisions to the concrete facts that support the assessments put in issue, which is what it will seek to do.

Law 64-A/2008 of 31 December established a special regime of tax benefits applicable to real estate investment funds for residential leasing, in no. 7 of its article 8º it establishes the exemption of IMT in the following terms:

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

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

For its part Law 83-C/2013 of 31 December amended article 8º of Law 64-A/2008 of 31 December as follows:

a) "14 – For purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for leasing for permanent residential purposes whenever they are subject to a leasing contract for permanent residential purposes within three years counted from the moment they became part of the fund's assets, and the taxpayer shall communicate and furnish proof to the AT of the respective effective leasing, within 30 days following the end of the said period.

b) 15 - When the properties have not been subject to a leasing contract within the three-year period provided in the preceding number, the exemptions provided for in numbers 6 to 8 become ineffective, and in that case, the taxpayer shall request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

c) 16 – In case the properties are alienated, with the exception of the cases provided for in article 5º or in case the FIIAH is subject to liquidation, before the period provided in no. 14 has elapsed, the taxpayer shall likewise request from the AT, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax due under the preceding number".

Taking into account the established facts, the property in question was acquired by the applicant benefiting from exemption of IMT and IS, under no. 7 paragraph a) and no. 8 of article 8º of the special regime applicable to real estate investment funds for residential leasing, of Law 64-A/2008 of 31 December.

By this provision the applicant became obliged to allocate, exclusively, to leasing the acquired property, under penalty of losing the tax benefit granted. It can already be concluded that the requirement of exclusive destination to leasing arises from Law 64-A/2008 and not from the amendments introduced to the regime by Law 83-C/2013 which merely established the period of 3 years for the concretization of the leasing which, if not verified in the said period, the Fund is obliged to request the assessments from which it benefited from the exemption at acquisition, but in the future and not for the assessments put here in issue.

Now, having the applicant exchanged the property, it is necessarily concluded that it did not give it the destination to leasing which, exclusively, the Law imposed on it in order to benefit from the tax benefits granted at acquisition.

The basis of the assessments here in question is supported by the different purpose from that which underwrote the tax benefit granted and no other, now if the property was exchanged, it ceased to fulfill the purpose that had been declared in the acquisition title, thus losing the tax benefits granted at acquisition.

And let there be no talk of crystallization of benefits, in truth, any tax benefit is subject to inspection by the AT or other competent public entities for the control of verification of the assumptions that led to the granting of benefits and compliance with the requirements imposed for their granting, as arises from article 7 of the EBF[15], and in the concrete case the AT had the legal obligation to carry out the inspection, independently of the applicant's request and, upon verifying that a different purpose had been given to the property, it had to make the respective assessments of IMT and IS as legally falls to it.

Regarding the retroactive application of the provision of article 236º of Law 83-C/2013, we do not see, in the concrete case, the reason why such a basis should be invoked, insofar as the assessments in question, from the tribunal's point of view, had nothing to do with the said provision, but only with the fact that at acquisition it was declared that the same was intended for permanent residential leasing and it came to be exchanged, thus not fulfilling the assumptions of the exemption granted, that is, it is not enough the intention declared in the acquisition title, but rather its actual concretization, which did not occur.

From the above the tribunal considers that the assessments of IMT and IS in question result from the fact that the applicant did not observe the requirements set out in paragraph a) of no. 7 of article 8º of the special regime applicable to real estate investment funds for residential leasing, approved by Law no. 64-A/2008 of 31 December and not from the amendments introduced by Law 83-C/2013, as it claims, whereby there is no retroactive application here, what occurred was a different purpose from that declared in the acquisition of the property, being therefore the assessments legal, thus the question of the compensatory interest requested becomes moot.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

a) Declare the petition for arbitral pronouncement to be unfounded, with all legal consequences.

b) Fix the value of the case at € 33,397.01 in accordance with the provisions contained in article 299º, no. 1, of the CPC[16], article 97º-A of the CPPT[17], and article 3º, no.2, of the RCPAT[18].

c) Costs to be borne by the applicant, under no.4 of article 22º of the RJAT, fixing the respective amount at € 1,836.00, in accordance with the provisions in Table I referred to in article 4º of the RCPAT.

Notify.

Lisbon, 02 November 2016

Text prepared by computer, in accordance with article 131º, no. 5 of the CPC, applicable by remission of article 29º, no.1, paragraph e) of the RJAT, with blank verses and reviewed by the tribunal.

The sole arbitrator,

Arlindo Francisco

[1] Acronym for Collective Person Identification Number
[2] Acronym for Securities Market Commission
[3] Acronym for Tax Identification Number
[4] Acronym for Legal Regime of Arbitration in Tax Matters
[5] Acronym for Tax and Customs Authority
[6] Acronym for Constitution of the Portuguese Republic
[7] Acronym for Municipal Tax on Onerous Transfers of Real Estate
[8] Acronym for Stamp Duty
[9] Acronym for General Tax Law
[10] Acronym for Real Estate Investment Funds for residential leasing
[11] Acronym for Real Estate Investment Companies for residential leasing
[12] Acronym for Administrative Arbitration Centre
[13] Acronym for Code of Administrative Procedure
[14] Acronym for Constitutional Court
[15] Acronym for Tax Benefits Statute
[16] Acronym for Code of Civil Procedure
[17] Acronym for Code of Tax Procedure and Process
[18] Acronym for Regulations on Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What is the special IMT and Stamp Duty regime applicable to FIIAH and SIIAH real estate investment funds in Portugal?
The special regime for FIIAH and SIIAH real estate investment funds, established by Law 64-A/2008 and modified by Law 83-C/2013, grants exemption from IMT and Stamp Duty on acquisitions of urban properties intended for permanent residential leasing. Under the modified regime, properties must be subject to a residential leasing contract within three years from entering the fund's assets and this leasing must be maintained for at least three years. Failure to comply results in payment of previously exempt taxes with interest.
Does Article 236 of Law 83-C/2013 violate the principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
This is the central legal question in Process 269/2016-T. The applicant argued that Article 236 unconstitutionally applies new requirements retroactively to properties already acquired under the previous regime, violating Article 103(3) of the Portuguese Constitution. The Tax Authority argued that Article 236 does not create new substantive requirements but merely establishes a deadline for compliance with pre-existing conditions, since exemption always depended on actual residential leasing. While the CAAD arbitral tribunal cannot declare provisions unconstitutional (a power exclusive to the Constitutional Court), it must assess whether the provision's application to the case constitutes impermissible retroactivity.
Can IMT and Stamp Duty assessments on FIIAH fund properties be declared null under Article 133 of the Portuguese Administrative Procedure Code?
Yes, the applicant invoked Article 133(1) and (2) of the Portuguese Administrative Procedure Code (CPA in force at the time of assessments) as an alternative ground for nullity. This provision establishes that administrative acts violating the essential content of a fundamental constitutional right are null and may be challenged at any time. If the tribunal finds that the assessments violate the constitutional principle of non-retroactivity of tax law (Article 103(3) of the Portuguese Constitution), they could be declared null under this provision, providing an alternative remedy even without a formal declaration of unconstitutionality from the Constitutional Court.
How does the CAAD arbitral tribunal process work for challenging IMT and Stamp Duty assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitral process for challenging tax assessments begins with filing a petition under the RJAT (Legal Regime of Tax Arbitration). The petitioner can designate an arbitrator or leave the appointment to the President of CAAD. Once the sole arbitrator or arbitral panel is appointed and accepts, the tribunal is constituted. The Tax Authority files a response, and parties may request or waive the oral hearing in favor of written arguments. The tribunal then issues a binding arbitral decision determining the legality of the contested assessments. In Process 269/2016-T, the tribunal was constituted on 27 July 2016, parties agreed to dispense with the hearing, and the decision date was set for 2 November 2016.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) under Article 43 of the LGT when IMT and Stamp Duty assessments are annulled?
Yes, under Article 43 of the LGT (Lei Geral Tributária - General Tax Law), taxpayers are entitled to compensatory interest (juros indemnizatórios) when taxes are illegally collected and subsequently reimbursed following annulment or declaration of nullity of tax assessments. In Process 269/2016-T, the applicant specifically requested reimbursement of €33,397.01 (comprising €29,357.71 in IMT and €4,039.30 in Stamp Duty) accompanied by compensatory interest under Article 43 LGT. These interest payments compensate taxpayers for the financial prejudice suffered due to improper retention of funds by the Tax Authority and are calculated from the date of payment until reimbursement.