Process: 27/2018-T

Date: September 27, 2018

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 27/2018-T) addresses whether a special closed-end real estate investment fund is exempt from Municipal Tax on Onerous Property Transfers (IMT) when acquiring property in Portugal. The claimant, a special closed real estate investment fund managed by a real estate investment fund management company, challenged an IMT assessment of €55,250 on a property acquisition in Lisbon on December 28, 2017. The fund argued that Article 1 of Decree-Law 1/87 exempts acquisitions of real property made for real estate investment funds by their management companies from Sisa (the predecessor to IMT), and this exemption was preserved when IMT replaced Sisa under Decree-Law 287/2003. The Tax Authority countered that the exemption was not maintained in force, arguing that tax exemptions must be strictly interpreted and cannot be extended beyond their explicit scope. The dispute centers on whether the legislative transition from Sisa to IMT preserved the exemption for all types of real estate investment funds, particularly closed-end funds. The arbitral tribunal process followed standard CAAD procedures: the claimant requested arbitral tribunal constitution under the LRAT (Legal Regime for Arbitration in Tax Matters), the tribunal was constituted on April 4, 2018, the Tax Authority submitted its response, and the tribunal dispensed with oral hearings for procedural economy. The claimant also sought reimbursement of the improperly assessed tax plus compensatory interest under Articles 43 and 100 of the General Tax Law.

Full Decision

ARBITRAL DECISION

REPORT

On 23 January 2018, Special Closed Real Estate Investment Fund A..., holder of tax identification number..., represented herein by its management company B...-Real Estate Investment Funds Management Company, S.A., Tax Registration Number..., with registered office at...,…,…, Lisbon, hereinafter referred to as the Claimant, requested the constitution of an arbitral tribunal and made a request for arbitral decision, in accordance with paragraph a) of section 1 of article 2 and paragraph a) of section 1 of article 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in which the Tax and Customs Authority (hereinafter referred to as TCA) is the Respondent.

The Claimant is represented, in the context of the present proceedings, by her mandatary, Dr. C..., and the Respondent is represented by the legal experts, Dr. D... and Dr. E....

The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Respondent on 4 April 2018.

By means of the request for constitution of the arbitral tribunal and for arbitral decision, the Claimant seeks to submit to the tribunal's consideration the legality of the Municipal Tax on Onerous Property Transfers (IMT) assessment act No....., in the amount of €55,250.00 (fifty-five thousand, two hundred and fifty euros), relating to the acquisition of a property on 28 December 2017.

Having verified the formal regularity of the request presented, in accordance with paragraph a) of section 2 of article 6 of the LRAT and the Claimant not having proceeded to appoint an arbitrator, the undersigned was designated by the Mister President of the Ethics Council of CAAD.

The undersigned accepted the designation made, and the arbitral tribunal was constituted on 4 April 2018, at the headquarters of CAAD, located at Avenida Duque de Loulé, No. 72-A, in Lisbon, as evidenced by the communication of the constitution of the arbitral tribunal which was recorded and is attached to the present proceedings.

The Respondent, after being notified for this purpose, presented its response on 7 May 2018.

No exceptions having been raised, there being no need for production of additional evidence beyond what is already incorporated in the proceedings in documentary form, no need being envisaged for the parties to correct their respective procedural submissions, the process containing all necessary elements for rendering a decision, for reasons of procedural economy and celerity, the prohibition of useless acts, and following the express manifestation of will by the parties, the Tribunal decided, through the order issued on 4 June 2018, to dispense with the holding of the meeting referred to in article 18 of the LRAT, as well as the submission of arguments, having therein warned the Claimant that it should proceed with payment of the subsequent arbitral fee, in accordance with section 3 of article 4 of the Costs Regulations in Tax Arbitration Processes, and communicate such payment to CAAD.

The date of 4 October 2018 was set for rendering the final decision, following an order of 01.08.2018 extending the deadline, in accordance with section 2 of article 21 of the LRAT.

II. CLAIMANT'S POSITION

The Claimant supports its request, in summary, in the following manner:

The Claimant sustains its request for declaration of illegality of the Municipal Tax on Onerous Property Transfers (IMT) assessment act No....., in the amount of €55,250.00 (fifty-five thousand, two hundred and fifty euros), on the following grounds:

The Fund commenced its activities on 7 March 2008, operating as a closed real estate investment fund of private subscription managed by the Claimant, "whose activities are currently regulated by the General Regime of Collective Investment Undertakings, approved by Law No. 16/2015, of 24 February, which repealed and replaced the previous Legal Regime for Real Estate Investment Funds, approved by Decree-Law No. 60/2002, of 20 March."

In the exercise of its activities, the Claimant acquires properties with a view to their integration into the assets of the real estate investment funds it manages, including the Fund;

On 28 December 2017, the Claimant, in representation of the Fund, acquired, by public deed of sale and purchase, the urban property registered under matrix article No. ...-B, located in the parish of..., municipality of Lisbon, an acquisition which was subject to and taxed in IMT.

Considering these circumstances, the Claimant is of the opinion that, the said acquisition, notwithstanding the various legislative amendments over time, is covered by the exemption provided for by article 1 of Decree-Law No. 1/87, of 3 January, which provides that "acquisitions of real property made for a real estate investment fund by the respective management company shall be exempt from Sisa," inasmuch as it was preserved and maintained in force by Decree-Law No. 287/2003, of 12 November, which carried out the reform of property taxation and approved the creation of IMT and the Municipal Tax on Property (IMI), and especially by the provisions of section 2 of article 28 and section 6 of article 31 of the same decree-law.

Concluding thus, to the effect that "acquisitions of real property carried out by a management company of a real estate investment fund with the purpose of their being integrated into that fund are exempt from IMT. (…) Consequently, the Fund should not have been bound to pay IMT in that transaction carried out through its Representative, thus vitiating the tax assessment act for IMT in question herein with manifest illegality, as it results from the evident misinterpretation and misapplication of applicable law, and should be annulled."

Requesting, finally, "the reimbursement of the tax amount improperly assessed; and if such reimbursement proceeds, equal payment of the corresponding indemnity interest in accordance with articles 43 and 100 of the General Tax Law."

III. RESPONDENT'S RESPONSE

In its Response the Respondent invoked, in summary, the following:

Against the Claimant's claim, the Respondent contends that: "(...) it does not appear defensible to maintain in force art. 1 of DL 1/87, of 3 January, which refers to acquisitions of real property made for a real estate investment fund by the respective management company being exempt from sisa."

Inasmuch as, according to its understanding "[t]he fact that art. 31, section 3 of DL 287/2003, of 12 November, which repealed the Municipal Sisa Tax Code and the Code for Inheritance and Gift Tax, states that references in legal texts to those taxes are deemed to be references to the Code of Municipal Tax on Onerous Property Transfers (CIMT), the Stamp Tax Code and the Municipal Tax on Onerous Property Transfers (IMT) and Stamp Tax, respectively, does not have the capacity to maintain the IMT exemption for acquisitions of property made by all investment funds, regardless of whether they are open, closed and mixed funds, depending on the composition of participation units."

In fact, in the case in question, according to the Respondent, "the interpretation of a tax exemption rule is at issue, (...) [which] 'are not negative delimitations of incidence, since, on the contrary, they are situations subject to taxation, being rules that provide for complex situations, expressed, on one hand, by facts preventing the birth of the tax obligation, or, in the case of partial exemptions, facts preventing the birth of that obligation with its normal content, but always facts that fall within the generic scope of incidence, constituting "exceptions" to this, for non-tax reasons, which supersede the public interest in tax collection'."

As the Respondent explains "[a]n exemption consists of an extraordinary measure that underlies a set of extra-fiscal public interests relevant to setting aside the tax rule of taxation, whereby it will therefore be necessary to identify the relevant extra-fiscal public interests as well as the factual situations that should be taken into account in pursuing those objectives and which are found in the provision of the exemption rule," such that, "[w]ere it as the Claimant proposes, the IMT exemption would always be applied to all acquisitions of property made by all investment funds, open, closed and mixed, from 1987 to the present date, in accordance with art. 1 of DL No. 1/87, as well as to all acquisitions by third parties of property of all investment funds, by virtue of the provision of art. 49 of the FBE, subsequently repealed by Law No. 7-A/2016, of 30 March."

Concluding to the effect that "[s]hould it be understood that art. 1 of DL 1/87, of 3 January remains in force, real estate investment funds would be doubly benefited, in a clearly advantageous and unequal position compared to other actors in the real property market both in the acquisition of property and also in the alienation of property to third parties. An understanding which, naturally, should not be accepted."

Arguing, finally, that the request formulated by the Claimant be "judged entirely without merit for lack of proof, with the legal consequences."

IV. SANCTION

The Tribunal is competent and is regularly constituted, in accordance with paragraph a) of section 1 of article 2 and articles 5 and 6, all of the LRAT.

The parties have legal personality and capacity, show themselves to be legally entitled, are regularly represented and the proceedings are free from nullities.

V. MATTER OF FACT

For the conviction of the Arbitral Tribunal, with respect to the facts established, the positions exposed by the parties and the documents attached to the proceedings were relevant.

Facts Established

With relevance for the decision, the following facts are established as proven:

The Special Closed Real Estate Investment Fund A..., managed by B... is a closed real estate investment fund, of private subscription, which commenced its activities on 7 March 2008. - By agreement of the Parties -;

In the exercise of its activities, the Claimant acquires properties with a view to their integration into the assets of the real estate investment funds it manages, including the Fund. – By agreement of the Parties - ;

On 28 December 2017, the Claimant, in representation of the Fund, acquired, by public deed of sale and purchase, the urban property registered under matrix article No. ...-B, located in the parish of..., municipality of Lisbon, an acquisition which was subject to and taxed in IMT (see Document No. 2 attached to the initial petition).

Following that acquisition, the Tax and Customs Authority issued the IMT assessment act No. ..., in the total amount of €55,250.00 (see Document No. 1 attached to the initial petition).

The Fund proceeded to make full payment of the IMT assessment identified above. – By agreement of the Parties -.

VI. Facts Not Established

There are no facts established as not proven, because all facts relevant to the assessment of the claim were established as proven.

VII. LEGAL GROUNDS

In the present proceedings, the fundamental question that arises is whether the acquisition of a real property by a Closed Real Estate Investment Fund is covered by the IMT exemption, originally provided for in article 1 of Decree-Law No. 1/87, of 3 January, and whether this exemption remains in force, notwithstanding the various legislative amendments that have occurred since then.

Let us then examine the legislative evolution in this matter:

On Investment Funds

The first investment funds appeared in the mid-nineteenth century, in the 1860s, in Scotland, United Kingdom, with the aim of diversifying investment risk.

The more pronounced development and growth of European investment funds occurred after World War II, in the period between 1955 and 1960. In fact, in the 1960s, Switzerland and the United States presented themselves as the countries where investment funds had the greatest expression from an economic and legal point of view.

In Portugal, the first legal decree referring to investment funds dates from 1965 (Decree-Law No. 46.302, of 27 April 1965). It established the elementary rules for the operation of investment fund management companies (securities and real estate) considering them as credit institutions, commonly referred to as parabancary institutions.

First, Portugal regulated securities investment funds (open), through Decree-Law No. 46 342 of 20 May 1965, and only in 1985 did the regulation of real estate investment funds emerge, through Decree-Law No. 246/85, of 12 July. This latter decree had as its objective "to define an appropriate tax framework" for the creation of such funds, with the Government recognizing "the important contribution that this new type of financial institutions could make to savings formation and its mobilization for investments in the real estate sector," to which would be added "positive effects on construction and the real estate rental market."

In this sequence, fiscal incentives for the establishment of real estate investment funds emerged, which had expression in our legal system through Decree-Law No. 1/87, of 3 January, which provided in its article 1 that: "[a]cquisitions of real property made for a real estate investment fund by the respective management company shall be exempt from sisa."

Subsequently, Decree-Law No 101/87 of 6 March appeared, which introduced amendments to the regime of real estate investment funds with the aim of clarifying certain situations, thereby providing for the startup and establishment of management companies and the commencement of activities of real estate investment funds.

In 1988, through Decree-Law No. 229-C/88, of 4 July, the regime of investment funds, securities or real estate, open or closed, was defined. In fact, with this legal decree a new legal framework emerged that permits the creation of closed funds, which was an innovation, given that the existing regime was more directed at open securities and real estate investment funds, having permitted overcoming the difficulties previously experienced in building the assets of real estate investment funds.

Later, a new type of investment fund emerged – the mixed fund – through the amendment introduced by Decree-Law No 13/2005, of 7 January to the legal regime of investment funds, approved by Decree-Law No. 60/2002, of 20 March, with the amendments made by Decree-Law No. 252/2003, of 17 October.

Thus, and for purposes of contextualization, we can find various types of investment funds, namely:

a) Securities investment funds:

 i) open;

 ii) closed;

b) Real estate investment funds:

 i) open;

 ii) closed (which may have public or private subscription)

 iii) mixed.

Now, this distinction is prudent for introductory purposes of the narrative that emerges, given the tax regime applicable to real estate investment funds, in particular, the open and closed, which, it should be noted, was not exactly the same for both types.

Let us examine,

On the Evolution of the Tax Regime for Investment Funds

As mentioned above, and which we take up again here, the fiscal incentives for the establishment of real estate investment funds had expression in our legal system through Decree-Law No. 1/87, of 3 January, which provided in its article 1 that: "[a]cquisitions of real property made for a real estate investment fund by the respective management company shall be exempt from sisa."

In 2003, Decree-Law No. 287/2003, of 12 November appeared, which carried out the reform of property taxation. In fact, this decree-law, on one hand, made amendments to various tax legislation connected with that reform, and on the other hand, approved in annex the Code for the Municipal Tax on Property (CIMI) and the Code for the Municipal Tax on Onerous Property Transfers (CIMT).

Furthermore, this decree-law provided in section 2 of its article 28 under the heading "Cross-References" that: "[a]ll legal texts that mention the Code of Municipal Sisa Tax and the Code for Inheritance and Gift Tax, municipal sisa tax or inheritance and gift tax shall be deemed to refer to the Code of Municipal Tax on Onerous Property Transfers (CIMT), the Stamp Tax Code, the municipal tax on onerous property transfers (IMT) and stamp tax, respectively."

… and in section 6 of its article 31 under the heading "Repeals" that:

"6— Tax benefits relating to municipal contribution, now referred to IMI, as well as those relating to municipal sisa tax established in legislation outside the Code approved by Decree-Law No. 41,969, of 24 November 1958, and in the Tax Benefits Statute, which shall now be referred to IMT, remain in force."

Now, from the combined reading of the articles contained in Decree-Law No. 287/2003, of 12 November, it is possible to conclude, as does the CAAD decision issued in case No. 622/2017, of 24.05.2018, which we endorse, that "the sisa tax exemptions contained in any separate decrees should be deemed to be referred to IMT, and on the other hand, acquisitions of real property made for a real estate investment fund would continue to be exempt from IMT by virtue of the provision in article 1 of Decree-Law No. 1/87."

It happens that after the creation of the sisa tax exemption regarding the acquisition of property for real estate investment funds, carried out by the 1987 decree-law, the Tax Benefits Statute (FBE) was approved through Decree-Law No. 215/89, of 1 July, with the aim of systematizing the "principles that are to govern the attribution of tax benefits" and in order to combat the "multiplicity and dispersion of tax benefits, eliminated with the entry into force of the new income taxes [CIRS, CIRC and CA which] constituted one of the most criticizable aspects of the Portuguese tax system, given its manifest lack of coherence, the negative consequences it caused in terms of equity and the foregone revenue it entailed," it provided "the general principles to which the creation of benefit situations must comply, the rules for their assignment and administrative recognition and the list of such benefits, with the dual objective of, on one hand, guaranteeing greater stability to the decrees regulating the new species of taxes and, on the other, conferring a more systemic character to the set of tax benefits."

Now, the first version of the FBE contemplated in its article 26, and as regards real estate management and investment companies, a specific tax regime for taxation in respect of Corporate Income Tax (IRC) and in the context of Personal Income Tax (IRS), as to profits distributed by those companies to their respective shareholders. This regime transitioned, however, to article 22, with the wording given to it by Law No. 109-B/2001, of 27 December, under the heading "Investment Funds," which was also subject to various legislative amendments over this period.

The State Budget Law for 2003 (Law No. 32-B/2002, of 30 December) introduced amendments to the FBE, with article 46 of the same coming to provide, in a pioneering manner, a tax exemption regime in favor of investment funds in respect of municipal contribution, according to which: "[p]roperty integrated in real estate investment funds and comparable, pension funds and savings-retirement funds, which are established and operated in accordance with national legislation, shall be exempt from municipal contribution."

Similarly to what happens generally with our legal system, which is in constant mutation, this article 46 of the FBE also underwent amendments with the State Budget Law for 2007 (Law No. 53-A/2006, of 29 December), coming to provide that:

"1. Property integrated in real estate investment funds, pension funds and savings-retirement funds which are established and operated in accordance with national legislation shall be exempt from municipal tax on property (IMI) and municipal tax on onerous property transfers (IMT).

2 – Property integrated in mixed or closed real estate investment funds of private subscription by non-qualified investors or by financial institutions on their account shall not benefit from the exemptions referred to in the preceding section, with the rates of IMI and IMT being reduced by half."

With the State Budget Law for 2010 (Law No 3-B/2010, of 28 April), the FBE was renumbered, with the provision previously contained in article 46 passing to article 49, in which the following was provided:

"1 - Property integrated in open real estate investment funds, pension funds and savings-retirement funds, which are established and operated in accordance with national legislation, shall be exempt from municipal tax on property and municipal tax on onerous property transfers.

2 — (Repealed.)"

Now, let us pause to analyze the legal rules announced above:

  • on one hand, we have the amendment to the FBE (article 46), through the State Budget Law for 2007, which came to provide in its section 1, the exemption from IMI and IMT regarding property integrated in real estate investment funds (not specifying which), however section 2 came to provide, not an exemption, but a reduction of the rates of IMI and IMT with respect to property integrated in mixed or closed real estate investment funds of private subscription. This means that at this point only open real estate investment funds and closed ones of public subscription continue to benefit from the IMI and IMT exemption, while mixed real estate investment funds and closed ones of private subscription benefit only from a reduction in the rates of those taxes to one half.

  • On the other hand, and already in the context of the amendments introduced by the State Budget Law for 2010, the exemption from IMI and IMT comes to be provided only for property integrated by open real estate investment funds – section 1 of article 49 of the FBE - leaving out of its scope property integrated in closed real estate investment funds of public subscription. And the reduction of rates of such taxes for property integrated by mixed real estate investment funds or closed ones of private subscription, having been repealed by section 2 of this legal rule, ceased to exist.

Thus, we can conclude that from 2007 onwards, with this wording of the FBE, the exemption from IMI and IMT applied only to property integrated in open real estate investment funds.

Continuing the historical evolution regarding the taxation of real estate investment funds...

Subsequently, the State Budget Law for 2012 (Law No. 55-A/2010, of 31 December) came to extend the exemption from IMI and IMT to "property integrated in real estate investment funds (…) closed with public subscription."

Therefore, it did not apply solely to property integrated in open real estate investment funds, it now applying also to closed real estate investment funds with public subscription.

The State Budget Law for 2014 (Law No. 83-C/2013, of 31 December) came to introduce a new wording to section 1 of article 49, eliminating the exemption for IMI and IMT, coming to provide only a reduction in the tax rate, providing as follows:

"The rates of municipal tax on property and municipal tax on onerous property transfers applicable to property integrated in open or closed real estate investment funds with public subscription, pension funds and savings-retirement funds which are established and operated in accordance with national legislation are reduced by half."

Later, article 49 of the FBE was repealed by subparagraph g) of section 1 of article 215 of the State Budget Law for 2017 (Law No. 7-A/2016, of 30 March).

Now,

The legislative evolution just described allows concluding that the fiscal benefits attributed to real estate investment funds do not have a systematic character. They rather have a markedly cyclical nature.

Something that can be inferred from the consequent legislative amendments, with it being that in the initial phase the provision of the exemption from municipal contribution - and from IMI and IMT – encompassed property integrated in any type of real estate fund, subsequently it came to contemplate only a restriction to the same only for property integrated in open real estate investment funds and closed ones of public subscription (in 2007).

Subsequently, in 2010, the exemption was already provided only as to property integrated in open real estate investment funds; in 2012 it came to contemplate again property integrated in closed real estate investment funds with public subscription – similarly to what occurred in 2007 - the fiscal benefit then passing to a reduction in the tax rate applicable (2014) and finally being repealed (2017).

Now, this legislative evolution does not in fact allow ascertaining a general criterion defining a firm and stable tax regime that might impose itself on other separate provisions that already persisted in the legal order.

It should be noted in addition that the exemption provided for in article 46 of the FBE in the wording given by Law 53-A/2006 of 29 December, which provided for the exemption from IMI and IMT regarding property integrated in real estate investment funds - that is, the key word in this benefit was integration -

… and the exemption contained in article 1 of Decree-Law No. 1/87, which concerned the acquisitions of property made for a real estate investment fund by the respective management company.

Thus, the provision of the exemption for "integration" - in the FBE - and for "acquisition" - in the 1987 decree-law - in the legal provisions contained therein, allows concluding, as do the CAAD orders issued in cases No. 544/2016-T and 622/2017-T, that the FBE came to broaden the fiscal benefit of exemption not only for situations in which the fund is in the position of purchaser of the property but also for those in which the fund is in the position of seller of the property.

Before responding concretely to the question posed to us in the present proceedings – whether the acquisition of a real property by a Closed Real Estate Investment Fund is covered by the IMT exemption originally provided for in article 1 of Decree-Law No. 1/87, of 3 January, and whether this exemption remains in force notwithstanding the various legislative amendments that have occurred since then – the Tribunal deems it should point out that Decree-Law No. 1/87, of 3 January does not contain any indication that its article 1 was intended to have temporary force.

… such that in this circumstance it would be prudent to resort to section 1 of article 7 of the Civil Code, which contains the general rule regarding the cessation of the force of law, and according to which "when not intended to have temporary force, a law ceases to be in force only if it is repealed by another law."

Thus, and reaching the rules of repeal of the law, present in the Civil Code – article 7, section 2 – in accordance with which: "it may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the circumstance that the new law regulates the entire subject matter of the earlier law," and considering that, as stated in the arbitral order cited above, with reference to legal doctrine "[r]epeal is express when a law individualizes, in an explicit declaration, the subject matter of the cessation of force of an earlier law. Tacit repeal occurs when, in the face of the legislature's silence on the identification of repealed rules, there is a substantive incompatibility between the provisions of a new law and those of a legislative act chronologically preceding it. Global repeal occurs when an entire legal complex becomes, in its entirety, subject to a discipline different from that which previously existed, regardless of the question of its compatibility with the rules previously in force."

…the present arbitral tribunal understands that it is settled that express repeal does not raise special difficulties, given that "[i]t is contained in a declaration made in the new law and may be limited to extinguishing the force of the old law or to resuming a legal regime that had been repealed by it, or be accompanied by constitutive or modificatory effects, as occurs when the repealing law institutes a new complex of rules or operates the amendment of the legal regime previously in force."

Now, as regards tacit repeal, the situation might be somewhat different, inasmuch as it has as its basis a contradiction between the new law and the law that preceded it, which when not express permits coexistence between the two laws.

Relying on the discussion already made in the CAAD order issued in case No. 544/2017-T regarding the question in debate in the present proceedings, it will always be stated that "[t]he existence of recognition rules, aimed at the clear and precise identification of the rules that are in force in the legal system and those that have already been expressly or tacitly repealed, is of the greatest significance, in particular from the perspective of the principle of legality, specifically in its dimension of tax legality, affirming the requirement of legal certainty and protection of the trust inherent in the constitutionally structuring principle of the rule of law. Citizens, economic agents and legal operators must be able to know with certainty which rules are and which are not in force in the legal system. Article 7 of the Civil Code thus establishes three alternative criteria for repeal, the fulfillment or non-fulfillment of which has relevant implications in the concrete case.

It is thus necessary to ascertain whether one of the three alternatives has occurred which, according to article 7, section 2 of the Civil Code, led to the repeal of article 1 of Decree-Law No 1/87, of 3 January, namely:

a) the express declaration of repeal;

b) incompatibility between the new provisions and the preceding rules; or

c) the circumstance that the new law regulates the entire subject matter of the earlier law.

Regarding the first aspect, in vain will one search in article 46 of the FBE, in the wording given to it by article 82 of the 2007 Budget Law, for any rule of express repeal of article 1 of Decree-Law No 1/87, of 3 January. Thus it is concluded that there was no express declaration of repeal such that if there was repeal it could only happen through the verification of any of the remaining conditions.

As to incompatibility between the new provisions and the preceding rules, which constitutes the second alternative of article 7, section 2 of the Civil Code, neither can one speak. On the contrary, a joint reading of the new provision of article 46 of the FBE and the preceding rule of article 1 of Decree-Law No. 1/87, of 3 January, reasonably permits concluding that from the entry into force of the new wording of article 46 of the FBE there would be exempt from IMT not only acquisitions of real property carried out by management companies of real estate investment funds with the intention of their being integrated into those funds – as established in the preceding rule – but also property integrated into the real estate funds – as established in that article 46 of the FBE. In other words, the IMT exemption would henceforth apply both to property acquired to be integrated into real estate investment funds, as had been previously established, and to such property if and while integrated in real estate investment funds, under article 46 of the FBE. In the first case the exemption would be applicable whenever the fund is in the position of purchaser of the property. In the second case the exemption would be applicable whenever the fund is in the position of seller of the property. Thus it is inevitable to conclude the non-existence of an incompatibility between the new provisions and the preceding rules."

Thus and considering what is set out above, the present arbitral tribunal considers that it is manifest that the rule contained in article 1 of Decree-Law No. 1/87 cannot be deemed to have been repealed, inasmuch as on one hand it was not subject to express repeal and on the other hand there is no incompatibility between this rule and that which came to be introduced in the FBE (recall: article 46 later renumbered as article 49). In fact, and as to this, let us recall that both provisions have different scopes of application, the more recent one being limited to broadening the exemption already established by the 1987 decree-law.

Furthermore, and as stated in the decision of CAAD issued in case No. 622/2017-T, in this sequence: "[t]he possibility of a systemic repeal having occurred is also ruled out. As has been explained, the FBE in its original version and in relation to real estate management and investment companies only established a specific tax regime in respect of IRC and IRS (article 26 later renumbered as article 22). And it was only much later through budget laws that, regarding real estate investment funds, through the new wording given to article 46 (later renumbered as article 49), an exemption was provided in respect of property taxation by reference to municipal contribution and later to IMI and IMT (Laws No. 32-B/2002, of 30 December and 53-A/2006, of 29 December). That regime underwent further successive amendments until the tax benefit came to consist of a reduction by one half of the rates of tax on property and of tax on onerous property transfers (Law No. 83-C/2013, of 31 December) and was finally abolished through the repeal of article 49 carried out by Law No. 7-A/2016, of 30 March.

Continuing this arbitral decision, which we endorse for its clarity, to the effect that: "[i]t thus appears that with the approval of the Tax Benefits Statute, the fiscal benefits with structural character applicable to the financial system and capital markets, here including investment funds, concerned the taxation of income. The subsequent introduction of an exemption from IMI and IMT applicable to investment funds in the category of fiscal benefits relating to property, through mere amendment of an already existing provision, does not evidence any general criterion defining the regime of fiscal benefits in respect of property taxation and the subsequent legislative evolution reveals that the exemption was instituted for merely cyclical reasons and without a clear purpose of systematizing the legal regime. In this conditionality, one cannot speak of a global repeal of article 1 of Decree-Law No. 1/87."

Given what precedes it is manifest that the Sisa exemption provided for in article 1 of Decree-Law No. 1/87, of 3 January, which came to apply to IMT under articles 28 and 31 of Decree-Law No. 287/2003, of 12 November which approved the CIMT and CIMI, remains in force, as it has not been subject to repeal under the Law, which is why acquisitions of real property by real estate investment funds by their management company with the intention of their being integrated into the fund itself are exempt from IMT.

Returning to the case in question, considering that we are faced with a management company that acquired on 28.12.2017, by public deed of sale and purchase, a property to integrate into the assets of a closed real estate investment fund, the IMT exemption provided for in article 1 of Decree-Law No. 1/87, of 3 January is applicable to this acquisition/transaction and no payment is due on account of tax.

Given the foregoing, it is the understanding of this Tribunal that the Claimant is correct, with the claim for declaration of illegality of the IMT assessment act being judged entirely well-founded, No. ..., in the amount of €55,250.00 (fifty-five thousand, two hundred and fifty euros), such assessment act should accordingly be annulled.

C - On Indemnity Interest

The Claimant further petitions that the right to indemnity interest be recognized, on the basis of error attributable to the service.

Section 1 of article 43 of the General Tax Law and article 61 of the Code of Tax Procedure and Process provide that indemnity interest is due when it is determined in gracious objection or judicial impugned that there was error attributable to the service resulting in the payment of a tax debt in an amount greater than that legally due.

Error is deemed attributable to the administration when the error is not attributable to the taxpayer and is based on incorrect factual assumptions that are not the responsibility of the taxpayer.

Now, resulting from the tax assessment act challenged the obligation to pay tax in an amount greater than what would be due, indemnity interest is due under the terms legally provided, the legislature presuming in such cases, where the assessment is annulled, that a loss occurred in the taxpayer's sphere by virtue of having been deprived of the patrimonial sum that it had to deliver to the State by virtue of an illegal assessment. Consequently the taxpayer has the right to that indemnification independently of any allegation or proof of loss suffered.

In the present case it will be indisputable that following the establishment of the illegality of the assessment act there will be a refund of the tax by virtue of section 1 of article 43 of the General Tax Law and article 100 of the General Tax Law, necessarily thereby restoring the "situation that would exist if the tax assessment act subject of the arbitral decision had not been carried out."

Similarly it is understood that it will be beyond doubt that the illegality of the act is attributable to the Tax Authority, which autonomously carried it out illegally.

As to the concept of "error," it has been understood that only in cases of annulments based on vices concerning the tax legal relationship will indemnity interest be payable, such right not being recognized in the case of annulments for procedural or formal vices.

Thus being, being faced with a vice of violation of substantive law that consists of error in legal assumptions attributable to the Tax Authority, the Claimant has the right to indemnity interest in accordance with articles 43, section 1 of the General Tax Law and 61 of the Code of Tax Procedure and Process, calculated from the payment of the tax until the full refund of the said amount.

VIII. DECISION

For the factual and legal grounds set out, it is decided:

To judge the arbitral claim well-founded and to annul the IMT assessment act No. No. ..., in the amount of €55,250.00 (fifty-five thousand, two hundred and fifty euros), with the respective restitution of the tax paid;

To condemn the Respondent to pay indemnity interest from the payment of the tax until the date of issuance of a credit note, in accordance with article 43 of the General Tax Law and article 61 of the Code of Tax Procedure and Process.

Value of the Case

The value of the case is set at €55,250.00 (fifty-five thousand, two hundred and fifty euros) in accordance with article 97-A, section 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of section 1 of article 29 of the LRAT and section 2 of article 3 of the Costs Regulations in Tax Arbitration Processes.

Costs

Costs to be borne by the Respondent in accordance with article 22, section 2 of the LRAT, article 4 of the Costs Regulations in Tax Arbitration Processes and Table I annexed to the latter, which are set in the amount of €2,142.00.

Let notification be made.

Lisbon, 27 September 2018

The Arbitrator

(Jorge Carita)

[1] Issued in case No. 622/2017-T.

[2] Legal doctrine cited from Baptista Machado, in Introduction to Law and Legitimizing Discourse, Coimbra, 1993, pp. 165-166; Carlos Blanco Morais, in Reinforced Laws – The Reinforced Laws of Procedure within the Scope of the Structuring Criteria of Relations among Legislative Acts, Coimbra, 1998, pp. 338, 341 and 343).

Frequently Asked Questions

Automatically Created

Are closed-end real estate investment funds exempt from IMT (property transfer tax) in Portugal?
According to this arbitral decision, the exemption status of closed-end real estate investment funds from IMT depends on whether Article 1 of Decree-Law 1/87 remains in force after the legislative transition to IMT. The claimant argued that acquisitions by real estate investment fund management companies for the fund's portfolio are exempt from IMT based on the original Sisa exemption, preserved through Decree-Law 287/2003. However, the Tax Authority disputed this interpretation, contending that the exemption was not maintained for all types of investment funds under the new IMT regime.
What does Decree-Law 1/87 establish regarding IMT exemptions for investment funds?
Decree-Law 1/87, Article 1, originally established that acquisitions of real property made for a real estate investment fund by the respective management company are exempt from Sisa (the predecessor tax to IMT). The legal question in this case is whether this exemption was preserved when Decree-Law 287/2003 replaced Sisa with IMT, particularly through Article 28(2) and Article 31(6) of that decree-law, which addressed transitional provisions and references to the old tax regime.
How can a real estate investment fund challenge an IMT tax assessment through CAAD arbitration?
To challenge an IMT tax assessment through CAAD arbitration, a taxpayer must request the constitution of an arbitral tribunal under Article 2(1)(a) and Article 10(1)(a) of Decree-Law 10/2011 (LRAT - Legal Regime for Arbitration in Tax Matters). The process involves: (1) submitting a formal request for arbitral tribunal constitution and arbitral decision; (2) the CAAD President accepting the request and notifying the Tax Authority; (3) designation of an arbitrator if the claimant does not appoint one; (4) constitution of the tribunal; (5) the Tax Authority submitting its response within the legal deadline; (6) optional oral hearings or direct decision based on documentary evidence; and (7) payment of arbitral fees as required under the Costs Regulations.
What is the procedure for requesting arbitral tribunal constitution at CAAD for IMT disputes?
The procedure for requesting arbitral tribunal constitution at CAAD for IMT disputes follows the LRAT framework: the taxpayer submits a formal request identifying the contested tax assessment act, the legal grounds for challenge, and desired relief. In this case, the request was accepted on April 4, 2018, the Tax Authority was notified and submitted its response on May 7, 2018, and the tribunal was constituted with a single arbitrator designated by the CAAD President's Ethics Council. The tribunal may dispense with oral hearings when parties agree and sufficient documentary evidence exists, as occurred here for procedural economy and efficiency.
Can the Portuguese Tax Authority (AT) lawfully assess IMT on property acquisitions by special closed-end real estate investment funds?
Whether the Portuguese Tax Authority can lawfully assess IMT on property acquisitions by special closed-end real estate investment funds is the central legal question in this case. The Tax Authority's position is that the IMT exemption under Decree-Law 1/87 does not apply to all investment fund types under current legislation, arguing that tax exemptions must be strictly interpreted as exceptions to the general rule of taxation. The Authority contends that maintaining such exemptions requires explicit legislative preservation, which it argues did not occur comprehensively when IMT replaced Sisa. The final determination depends on statutory interpretation of the transitional provisions in Decree-Law 287/2003.