IMT Exemption for Real Estate Investment Funds Under Decree-Law 1/87 - CAAD Case 308/2018-T

Arbitral Decision

I – REPORT

A... REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A. with tax identification number (TIN) ... and registered office in Lisbon, in its capacity as management company and in representation of the CLOSED REAL ESTATE INVESTMENT FUND B... with TIN ..., came on 03/07/2018, pursuant to subparagraph a) of no. 1 of Article 2 and nos. 1 and 2 of Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters – RJAT) and Articles 1 and 2 of Order no. 112-A/2011, of 22 March, to request the constitution of a collective arbitral tribunal with a view to the declaration of nullity and consequent annulment of the tax assessment for Municipal Tax on Onerous Transfer of Real Property (IMT) no. ..., in the amount of € 7,656,565.06, with restitution of the amount assessed, which it paid, together with compensatory interest calculated from that payment.

The Tax and Customs Authority (AT) is the Respondent, author of the tax act in dispute.

The request for constitution of the collective arbitral tribunal was accepted by the President of the Administrative Arbitration Center (CAAD) and notified to the Respondent on 04/07/2018.

Pursuant to and for the purposes of the provision in subparagraph a) of no. 2 of Article 6 of the RJAT, by decision of the President of the Deontological Board of CAAD, duly notified to the parties within the prescribed periods, the undersigned were appointed as arbitrators, and they communicated to that Board their acceptance of the assignment within the period provided in Article 4 of the Code of Professional Conduct of the Administrative Arbitration Center.

On 22/08/2018 the parties were notified of this appointment, and they did not manifest any intention to refuse it, in accordance with the combined provisions of Articles 11, no. 1 subparagraphs a) and b) of the RJAT and 6 and 7 of the Code of Professional Conduct.

The collective arbitral tribunal was duly constituted on 11/09/2018, in accordance with the requirement of subparagraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 22 of Law no. 66-B/2012, of 31 December.

On 11/10/2018 the Respondent filed its reply.

By arbitral order of 15/10/2018 the holding of the meeting referred to in Article 18 of the RJAT was dispensed with, as well as the submission of arguments, and the pronouncement of the decision was announced for 19/11/2018.

II – PRELIMINARY DETERMINATION

The arbitral tribunal is regularly constituted and is competent to decide the claim of the Claimant.

The parties have legal personality and capacity, are legitimate and are properly represented.

No nullities were invoked nor exceptions or preliminary issues precluding consideration of the merits were raised.

III – FACTUAL MATTER

The following facts are considered proven:

a)

The Closed Real Estate Investment Fund B... is a closed real estate investment fund, established and governed according to national law, being managed and represented by the Claimant.

b)

By public deed of 20/06/2018 the Claimant acquired for the aforementioned Fund, and in its representation, for the global value of € 117,793,308.50, the following real properties:

c)

The Respondent assessed, with respect to that transaction, on 19/06/2018, IMT in the amount of € 7,656,565.06, which the Claimant paid on 20/06/2018.

The facts given as proven result from examination of the documents attached to the case by the Claimant and from its factual assertions accepted by the Respondent.

With regard to what is relevant for the decision of the case, nothing remains unproven.

IV – LEGAL MATTER

On the factual level, the nature of the taxable person, the occurrence of the taxable event and the date of its occurrence, and the tax act in question were established.

This is undisputed factuality – indeed, the occurrence of the taxable event is not disputed.

The issue under debate is, rather, the existence of a rule preventing taxation: the Claimant argues that there is no taxation because it benefits from a rule that grants it an exemption; the AT does not dispute that such a rule existed, but contends that it is no longer in force.

The rule in question is that of Article 1 of Decree-Law no. 1/87, of 3 January.

Article 7 of the Civil Code provides:

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

1. Repeal may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates all the matters covered by the preceding law".

Already in light of the regime prior to the current Civil Code (that of 1867, in its peculiar systematic arrangement, did not address the matter), Professors Pires de Lima and Antunes Varela taught, in Fundamental Notions of Civil Law (5th edition, Coimbra, 1961, p. 109 et seq.), that "A law may cease to be in force either because it has been repealed or because it has lapsed. (...) One speaks of the lapse of a law when it ceases to be in force by virtue of some circumstance inherent to the law itself, independent, therefore, of a new manifestation of will by the legislator".

The lapse of a law results, more frequently, from the law itself establishing its period of validity (when that period expires), or from aiming to achieve a certain objective (when this is attained), or from being a transitional law (when the state of affairs that serves as its premise comes to an end).

As for repeal, the cited Authors state that it "(…) results from a new manifestation of will by the legislator, contrary to that which served as the basis for the law's validity".

Repeal may be express – the new law points out the provisions it wishes to repeal – or tacit – the old law is incompatible with the new, and the more recent legislative choice prevails.

They further clarify that "Incompatibility between two laws may result from a direct and substantial conflict existing between the respective provisions or from the fact that the new law establishes a new, complete regime for the relations in question".

Much earlier, in 1922, Professor José Tavares – The Fundamental Principles of Civil Law, Coimbra, 1922, volume I, p. 167 – wrote that "Incompatibility of two or more legal provisions occurs when they are so antithetical, opposed, or contrary that it becomes impossible to execute them simultaneously. In such circumstances, the most recent must necessarily prevail, because it is that which represents the will of the legislator".

However distant these teachings may be, they remain relevant to this day.

In the present case, there are no signs that Decree-Law no. 1/87 has lapsed, nor does the Respondent argue this.

It is therefore important to determine whether it was repealed.

Again, a distinction must be made here, since the AT does not claim that there has been express repeal, nor do we find any rule that has terminated the validity of Decree-Law no. 1/87.

Thus, what must be decided is whether there has been tacit repeal.

In Article 1 of Decree-Law no. 1/87, of 3 January, it was provided that "acquisitions of real property made for a real estate investment fund by the respective management company are exempt from Sisa".

At that time, the Code of Sisa and Tax on Successions and Donations (CSISSD), approved by Decree-Law no. 41,969, of 24 November 1958, was in force. In the version given by Decree-Law no. 223/82, of 7 June, Sisa applied to "onerous transfers of the right of property or of partial figures of that right, over real property".

Making use of the legislative authorization given by Law no. 26/2003, of 30 July, Decree-Law no. 287/2003, of 12 November, was published, which approved the Code of IMT.

The prior legal texts that referred to Sisa came to be considered as referring to IMT, in accordance with Article 28, no. 2 of Decree-Law no. 287/2003; and Article 31, repealing the CSISSD, kept in force "(…) the tax benefits (…) relating to the municipal Sisa tax established in legislation outside the Code approved by Decree-Law no. 41,969, of 24 November 1958, and in the Tax Expenditure Statute, which are now to be reported to IMT".

Up to this point it seems certain that real estate investment funds enjoyed an exemption from IMT on acquisitions of real property.

In 2006 Law 53-A/2006, of 29 December, amended Article 46, no. 1 of the Tax Expenditure Statute, which then came to provide that the following were exempt from IMT: "onerous transfers of real property included in real estate investment funds (…)".

Real property included in a fund are none other than those which that fund has already acquired – which leads to the conclusion that, this time, the exemption referred to disposal and not acquisition.

Article 81, no. 3 subparagraph e) of Bill no. 478/2006, of 13 October – Draft Law on the Budget for 2007 – expressly repealed Decree-Law no. 1/87, of 3 January, but such repeal did not come to be embodied in the Budget Law for 2007 – Law no. 53-A/2006, of 29 December.

It is true that the non-adoption of that proposal by the Budget Law for 2007 does not constitute a definitive argument, since it may have two meanings.

One is that the legislator did not wish to repeal Decree-Law no. 1/87, of 3 January, as it intended to keep it in force.

Another is that the legislator understood that there was no need to expressly repeal the said Decree-Law no. 1/87 because it considered that it was no longer in force at that time, which would make the repeal redundant (and even erroneous, as legislative technique) to repeal.

But this second hypothesis is not plausible and does not favor the AT's thesis: it was in the Budget Law for 2007 that the legislator amended Article 46, no. 1 of the Tax Expenditure Statute, establishing the (new) exemption from IMT for real estate investment funds "established and operating in accordance with national legislation".

That is to say: if the legislator, in establishing the new tax benefit, intended to eliminate the previous one, by way of substitution, this was the appropriate moment to state that Decree-Law no. 1/87 would be repealed.

This is because the two benefits are distinct from one another, so it cannot be conceived that the one from the 2006 Law would replace, without more, the one from the 1987 Decree-Law.

The legislator of 1987 exempted (in a modernizing reading) from IMT "(…) acquisitions of real property made for a real estate investment fund by the respective management company".

That of 2006 exempted from IMT "onerous transfers of real property included in real estate investment funds (…)".

Whereas in 1987 there was reference to acquisitions, clearly not encompassing disposals, in 2006 reference is made to transfers (which may be either acquisitions or disposals), it being by the use of the phrase "included in" that it is concluded that the reference is limited to disposals. That which is already "included in" cannot be further acquired, but only disposed of by the "incorporator"; conversely, that which is not yet "included in" cannot be disposed of by one who does not incorporate it, but can only be acquired in order to become "included in".

It therefore seems clear, not only that the legislator of 1987 granted a benefit to acquisitions by real estate investment funds, but also that the legislator of 2006 favored disposals by these same funds.

Each benefit, distinct as they are, does not exclude the other, does not contradict it, is not antithetical, and both can be applied without any inconsistency.

And one cannot claim that the legislator of 2006, in establishing a benefit relating to disposals, created a complete regime of tax benefits in favor of real estate investment funds and repealed, by that comprehensive treatment of the matter, the benefit in force since 1987.

In summary, the legislator of Law no. 53-A/2006, in rejecting the Government's proposal to expressly repeal Decree-Law no. 1/87, knew that

– that Decree-Law was in force;

– the benefit which, by Article 82, it introduced into Article 46 of the Tax Expenditure Statute, was cumulative with that of Article 1 of Decree-Law no. 1/87;

– Law no. 53-A/2006 did not contain a comprehensive regime of tax benefits granted to real estate investment funds;

Therefore, it can only be concluded, from that rejection of the Government's proposal, that it intended to maintain the benefit granted by Decree-Law no. 1/87.

On the other hand, there exists nothing in the legislative evolution that has occurred since the approval of the Tax Expenditure Statute by Decree-Law 215/89, of 1 July, and in the successive Budget Laws, that can be characterized as a systematization of the regime of tax benefits in the field of taxes on the assets of real estate investment funds, in such a manner that one could claim that at some point the legislator created a new, complete regime, incompatible with the continued validity of Decree-Law no. 1/87. Nor is there any concrete provision that proves irreconcilable with this decree-law. As has been seen, Article 46 (later 49) of the Tax Expenditure Statute, in the version given to it by the 2003 Budget Law, is harmonizable with Article 1 of Decree-Law no. 1/87.

What has been stated is sufficient to support the decision set out below.

But it is also important to add that the issue brought before this tribunal has been raised before arbitral tribunals within the CAAD framework on at least six other occasions, and has been decided by them in each case.

All of these decisions were in the sense urged by the Claimant.

Five of them were rendered by collective tribunals, whose members participated in only one arbitral tribunal, except for one; the sixth decision was rendered by a sole arbitrator.

We have, therefore, that fifteen of the arbitrators who appear on the respective lists of the CAAD have already ruled on the issue, and have done so uniformly.

There is thus formed, in the arbitral tribunals, a strong and converging jurisprudential current, without dissent, which flows in the direction of maintaining in the legal order Article 1 of Decree-Law no. 1/87, of 3 January after Law no. 53-A/2006, of 29 December.

What is not insignificant and must be considered, in reinforcement of the grounds stated, in light of the command of Article 8, no. 2 of the Civil Code, which provides that "(…) the judge shall take into account all cases that merit analogous treatment, in order to obtain a uniform interpretation and application of the law".

It being proven that the tax assessed was paid, in accordance with subparagraph b) of Article 24 of the RJAT, Article 35, no. 10 and Article 43, no. 1 of the General Tax Law and Article 61, no. 5 of the Code of Tax Procedure and Process, the Respondent, which incurred in error attributable to it in proceeding with the assessment, must pay the Claimant compensatory interest on the amount paid, calculated at the legal rate, from that payment until restitution of the tax.

V – DECISION

For the reasons set out above, it is decided:

– To uphold the claims of the Claimant, and consequently to annul the tax act in dispute;

– To order the AT to reimburse the amount paid by the Claimant, together with compensatory interest, calculated from payment until effective reimbursement;

– To order the AT to pay the costs of the proceedings, which are fixed at € 95,472.00;

– To fix the value of the case at € 7,656,565.06.

Let notification be made.

Lisbon, 6 November 2018.

The arbitrators,

(José Baeta de Queiroz)

(Luís Menezes Leitão)

(Marcolino Pisão Pedreiro)

Document prepared by computer, in accordance with Article 131 of the Code of Civil Procedure, applicable by referral of Article 29, no. 1, subparagraph e) of the Legal Framework for Tax Arbitration, with blank lines, and reviewed by the arbitrators.

The drafting of this judgment is governed by the spelling prior to the 1990 Orthographic Agreement, except with respect to transcriptions made.