Summary
Full Decision
Arbitral Decision
1. Report
On 06-01-2017, A…, S.A., legal entity no.…, with registered office at …, no.…, …, …-… Lisbon, registered with the Commercial Registry Office of Lisbon under no.…, in its capacity as managing company of the real estate investment fund B… – Real Estate Investment Fund Closed for Residential Rental, registered with the Securities and Exchange Commission and with tax identification number …, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constituting an arbitral tribunal with a view to declaring the illegality of the acts of assessment of Municipal Tax on Transfers of Real Estate (IMT) and Stamp Tax assessment, in the total amount of 23,020.75 €.
The Claimant begins by stating that the request for arbitral pronouncement aims to assess whether article 236º - transitional rule within the scope of the Special Regime Applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH) - of Law No. 83-C/2013 of 31 December, insofar as it determines the application of the current Transitional Regime of FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided in no. 14 from 1 January 2014", constitutes a new regime of expiry of the exemptions provided in no. 7 item a) and no. 8 of article 8º of the Tax Regime of FIIAH, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, established in article 103º no. 3 of the Constitution of the Portuguese Republic (CRP).
The Claimant mentions that, taking into account the changes provided by the State Budget Law for 2014 in the Tax Regime of FIIAH, it requested from the Tax and Customs Authority (AT) the assessment of IMT and Stamp Tax of the tax acts of alienation by Fund B… of the urban property located at …, no.…, …, …, inscribed in the urban property matrix no.…, fraction …, of the union of parishes of … and …, Lisbon. And it states that if the tax regime of FIIAH had not been altered, it would never have requested the assessments.
The Claimant alleges that the tax acts of assessment of IMT and Stamp Tax referred to an urban property that was part of the assets of Fund B…, on the date of entry into force of Law No. 83-C/2013 of 31 December, that is, covered by article 236º.
The Claimant states that the only requirement of the exemption at the date it acquired the property in question and when such exemption was crystallized was that properties acquired by FIIAH should be intended to be rented for permanent residential purposes, in accordance with article 8º numbers 7 and 8 of the Tax Regime of FIIAH. And that the alteration of the aforementioned regime provided that the alienation of properties owned by FIIAH or the liquidation of FIIAH itself, before the expiry of the three-year period, counted from the date of entry of the relevant properties into the assets of FIIAH, in accordance with no. 16 of article 8º, leads to the expiry of the exemption. The Claimant thus understands that these changes were intended to establish a regime of expiry of exemptions that did not exist on the date when the tax facts occurred and that came to affect an exemption already crystallized in the legal order of the Claimant, in violation of what is provided in article 103º no. 3 of the CRP. The Claimant thus invokes that the assessments in question are affected by illegality for violation of the provisions of article 103º no. 3 of the Constitution of the Portuguese Republic (CRP), and should be declared null.
In summary, the Claimant alleges that: "not being, however, legally provided, at the moment of recognition of the exemption, any facts or circumstances on which the expiry of the recognized exemption depended, it is manifest that the subsequent imposition of such facts or circumstances to exemptions crystallized in the legal-tax order of the Claimant is affected by unconstitutionality, for violation of the principle of non-retroactivity of tax law, enshrined in article 103º, no. 3, of the Constitution of the Portuguese Republic".
On the other hand, the Claimant further states that article 236º (transitional rule within the scope of the special regime applicable to FIIAH and SIIAH) of Law No. 83-C/2013 of 31 December (State Budget Law for 2014), by extending the application of the current tax regime of FIIAH to properties that had been acquired before 01-01-2014, (counting, in such cases, the three-year period provided in no. 14 from 01-01-2014), would be violating in a direct and unequivocal manner the principle of non-retroactivity of tax law constitutionally enshrined.
The Claimant further invokes the unconstitutionality of article 236º no. 2 of the aforementioned Law No. 83-C/2013 of 31 December, for violation of the principle of non-retroactivity of tax law, provided in article 103º no. 3 of the CRP. The Claimant attaches an opinion signed by Professors Doctors C… and D…, which corroborates the thesis of unconstitutionality defended by the Claimant.
Finally, the Claimant requests that the nullity of the IMT and Stamp Tax assessments subject to the arbitral request be declared based on their unconstitutionality, or, subsidiarily, that the assessments be annulled, and that the AT be condemned to reimburse the Claimant for the entire amount of tax paid, plus compensatory interest, in accordance with article 43º of the General Tax Law.
A single arbitrator was appointed, on 06-03-2017, Suzana Fernandes da Costa.
In accordance with the provisions of article 11º no. 1, item c) of the RJAT, the single arbitral tribunal was constituted on 21-03-2017.
The AT submitted its response on 03-05-2017 (within the legal deadline for this purpose).
The AT defends that the request for declaration of illegality and consequent annulment of the assessments of IMT and Stamp Tax in dispute should be judged as lacking merit.
The Respondent begins by stating that the alteration introduced by Law No. 83-C/2013 of 31 December did not alter the prerequisites, conditions of attribution or recognition of a tax benefit, but only and solely the period of time for purposes of verifying compliance with a requirement previously established. And thus, it was not a situation of recognition of rights but only of procedures for proving rights, whose attribution would have been previously regulated.
As for the alleged unconstitutionality of the rule contained in article 236º of the tax regime of FIIAH, the Respondent argues that it is obliged to act in conformity with the principle of legality, in accordance with no. 2 of article 266º of the CRP, no. 1 of article 3º of the Code of Administrative Procedure and article 55º of the General Tax Law (LGT). Thus, the AT invokes that it does not have competence to decide on the non-application of rules regarding which doubts of constitutionality are raised.
As for the unconstitutionality invoked by the Claimant, the Respondent states that we are not faced with a circumstance of retroactivity, since the new law did not simply determine that properties previously acquired should be subject to taxation under IMT and Stamp Tax. What the new law did, according to the AT, was to clarify criteria already provided in the old law.
The Respondent further indicates the following arbitral decisions favorable to the AT: 320/2015-T, 689/2015-T, 694/2016-T, 705/2015-T, 706/2015-T, 707/2015-T, 708/2015-T, 709/2015-T, 710/2015-T, 717/2015-T, 729/2015-T, 735/2015-T, 61/2016-T, 62/2016-T, 63/2016-T, 76/2016-T, 85/2016-T, 93/2016-T, 121/2016-T and 165/2016-T.
As for the request for compensatory interest, the Respondent states that the same should be judged as lacking merit, since they do not appear to be owed, given the fact that the requirements provided in item c) of no. 3 of article 43º of the LGT are not met.
Finally, the AT requests the waiver of joining the administrative file.
On 10-05-2017, an order was issued ordering the notification of the Claimant to inform whether it agreed with the waiver of joining the administrative file, whether or not it agreed with the waiver of the meeting provided in article 18º of the RJAT, as well as arguments.
The Claimant came, on 11-05-2017, to inform that it did not object to the waiver of joining the administrative file, to the waiver of the meeting and to the waiver of arguments.
On 31-05-2017, this tribunal issued an order ordering the notification of the Respondent to indicate whether or not it agreed with the waiver of the meeting and with the waiver of presenting arguments by the parties.
The AT attached a request on 01-06-2017, informing that it would not oppose the waiver of the meeting and the presentation of arguments.
On 05-06-2017, an order was issued waiving the holding of the meeting and waiving the presentation of arguments, taking into account the fact that there is no need for production of additional evidence beyond the documentary evidence already incorporated in the process, the fact that the principles of procedural economy and the prohibition of performing useless acts were in force, and the position expressed by the parties. In the same order, the date for issuing the decision was set as 21-07-2017, and the Claimant was warned to, by that date, proceed to pay the subsequent arbitration fee.
The Claimant attached proof of payment of the subsequent arbitration fee to the process on 23-06-2017.
The parties have legal personality and capacity and are legitimate (articles 4º and 10º no. 1 and 2 of the RJAT and article 1º of Decree-Law No. 112-A/2011 of 22 March).
The present request for arbitral pronouncement was submitted in a timely manner, in accordance with article 10º no. 1 item a) of Decree-Law No. 10/2011 of 20 January.
The process is not affected by nullities and no preliminary questions were raised.
Although the Claimant did not expressly request the cumulation of claims, the arbitral request has as its object two taxes and there is identity of the tax facts, of the court competent to decide and of the grounds of fact and law.
In this case the cumulation of claims is admissible, in accordance with articles 104º of the CPPT and 3º of the RJAT, and thus it is admitted.
2. Factual Matters
2.1. Proven Facts:
After analyzing the documentary evidence produced, the following facts are considered proven and of interest for the decision of the case:
- On 05-08-2013, the Claimant acquired fraction CD of the urban property inscribed in the urban property matrix of the union of parishes of … and … under article …, located at …, no.…, …, … .
- The aforementioned fraction was acquired benefiting from IMT exemption under item a) of no. 7 of article 8º of the legal regime of Real Estate Investment Funds for Residential Rental.
- On 19-02-2016, the above-mentioned fraction was alienated.
- On 18-10-2016, the AT issued IMT assessment no. … in the amount of 19,924.75 €, and Stamp Tax assessment no. … in the amount of 3,096.00€, attached to the arbitral request as document 1, following a declaration by the Claimant for this purpose, with a view to the alienation of the property by the Claimant.
- The Claimant proceeded to pay the IMT assessment and the Stamp Tax assessment mentioned above, on 19-10-2016, as shown in document 2 attached to the arbitral request.
No other facts of relevance to the decision of the case were proven.
2.2. Grounds for the Proven Factual Matters:
With regard to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the case file and on facts admitted by agreement.
3. Legal Matters:
3.1. Object and Scope of the Present Process
The question to be decided in the present case is whether or not the IMT and Stamp Tax assessments in dispute, issued by the AT following a declaration by the Claimant, under article 8º of the Tax Regime of FIIAH, as amended by Law No. 83-C/2013 of 31 December (State Budget Law for 2014), and article 236º no. 2 of the same law, are legal.
On this same question, among others, the decisions of CAAD issued in cases number 689/2015-T, 694/2016-T, 705/2015-T, 706/2015-T, 707/2015-T, 708/2015-T, 709/2015-T, 710/2015-T, 717/2015-T, 729/2015-T, 735/2015-T, 61/2016-T, 62/2016-T, 63/2016-T, 76/2016-T, 85/2016-T, 93/2016-T, 121/2016-T, 164/2016-T, 165/2016-T, 288/2016-T, 419/2016-T, 559/2016-T, 615/2016-T, 617/2016-T, 691/2016-T, 32/2017-T and 105/2017-T have pronounced themselves.
3.2. Question of the Framework of IMT Exemption and the Expiry of the Exemption
The State Budget Law for 2009, Law No. 64-A/2008 of 31 December, approved the Special Regime applicable to Real Estate Investment Funds for Residential Rental, which provides in its article 8 no. 7 that:
"7 - The following are exempt from IMT:
a) the acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent residential purposes, by the investment funds referred to in no. 1;
b) the acquisition of urban properties or of autonomous fractions of urban properties intended for own permanent residential purposes, as a result of the exercise of the option to purchase referred to in no. 3 of article 5º by the tenants of the properties that are part of the assets of the investment funds referred to in no. 1".
The State Budget Law for 2014, Law No. 83-C/2013 of 31 December, added to the aforementioned article 8º the following numbers:
"14 – For purposes of the provisions of no. 6 to 8, urban properties are considered to be intended for rental for permanent residential purposes whenever they are subject to a rental contract for permanent residential purposes within three years from the moment they entered the assets of the fund, and the tax subject must communicate and provide proof to the AT of the respective effective rental, within 30 days following the end of the aforementioned period.
15 – When properties have not been subject to a rental contract within the three-year period provided in the previous number, the exemptions provided in no. 6 to 8 expire, and in such case the tax subject must request from the AT, within 30 days following the end of the aforementioned period, the assessment of the respective tax.
16 – If properties are alienated, with the exception of the cases provided in article 5º, or if FIIAH is subject to liquidation, before the expiry of the period provided in no. 14, the tax subject must also request from the AT, before the alienation of the property or the liquidation of FIIAH, the assessment of the tax owed in accordance with the previous number."
On the other hand, article 236º (transitional rule within the scope of the special regime applicable to FIIAH and SIIAH) of the aforementioned Law No. 83-C/2013 of 31 December, provides that:
"1 – The provisions of no. 14 to 16 of article 8º of the special regime applicable to FIIAH and SIIAH, approved by articles 102º to 104º of Law No. 64-A/2008, of 31 December, are applicable to properties that have been acquired by FIIAH from 1 January 2014.
2 – Notwithstanding the provisions of the previous number, the provisions of no. 14 to 16 of article 8º of the special regime applicable to FIIAH and SIIAH, approved by articles 102º to 104º of Law No. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided in no. 14 from 1 January 2014."
In the case of the present proceedings, the fraction whose transmission motivated the assessments in dispute of IMT and Stamp Tax, was acquired on 05-08-2013, benefiting in this operation and on this date from exemption from payment of IMT, under item a) of no. 7 of article 8º of the special regime aforementioned.
It is important to note from the outset that we adhere to the reasoning contained in the decisions of CAAD in cases no. 710/2015-T and 288/2016-T, when these state that the aforementioned rule already presupposed that the property should be intended for rental for permanent residential purposes in order to benefit from such exemption. Thus, we understand that the obligation to intend the property for residential rental is not a requirement of the changes introduced by Law No. 83-C/2013 of 31 December, but rather a requirement of the tax regime itself of FIIAH. What is added by the amendment of the State Budget Law for 2014 is the period within which entities have to intend properties for residential rental.
Indeed, it is hardly proven that there exists a violation of legal expectations on the part of the Claimant, not even in the aspect of the prohibition of the retroactive tax rule. Effectively, it was only the alienation of the fraction by the Claimant, subsequent to the entry into force of Law No. 83-C/2013 of 31 December, that caused taxation under the rule already in force at the time of alienation. This aspect invokes the position of the Constitutional Court of prevalence, as the fact generating tax, of the moment of alienation of goods and not the moment of their respective acquisition. In this sense, see the decision of the Constitutional Court no. 85/2010 of 03-03-2010.
Following closely the decisions of CAAD issued in cases no. 710/2015-T and 288/2016-T, the retroactivity of the law applied is not even in question, but rather the fact that the fraction in question was alienated without having fulfilled its purpose – allocation to permanent residential rental. And that once the fraction is alienated, this purpose can no longer be fulfilled, so the requirement established for the IMT exemption to be applicable was not met.
As the decisions of CAAD in cases 710/2015-T and 288/2015-T state, "in summary, the Claimant acquired and alienated a fraction. And it did so without having rented it between the date of acquisition and alienation. However, it benefited, on the date of its respective acquisition, from the tax benefit of not paying IMT and IS applicable to the acquisition of fractions intended exclusively for rental for permanent residential purposes. A benefit whose regime was regulated by the State Budget Law for 2014, with the above-mentioned alienation occurring precisely at a time subsequent to the entry into force of the aforementioned law. In this respect, we understand that the IMT assessment in dispute, as well as the IS assessment that has the same factual basis, are legal under the provisions of the Special Regime cited above".
3.3. On the Unconstitutionality of Article 236º no. 2 of Law No. 83-C/2013 of 31 December
The Claimant further states that article 236º (transitional rule within the scope of the special regime applicable to FIIAH and SIIAH) of Law No. 83-C/2013 of 31 December (State Budget Law for 2014), by extending the application of the current Tax Regime of FIIAH to properties that have been acquired before 01-01-2014, counting, in such cases, the three-year period provided in no. 14 from 01-01-2014, "is violating in a direct and unequivocal manner the principle of non-retroactivity of tax law constitutionally enshrined".
The Claimant further invokes the unconstitutionality of the article on which the assessments in dispute are based, article 236º no. 2 of the aforementioned Law No. 83-C/2013 of 31 December. And attaches an opinion signed by Professors Doctors C… and D…, which corroborates the thesis of unconstitutionality defended by the Claimant.
The no. 2 of article 236º (transitional rule within the scope of the special regime applicable to FIIAH and SIIAH) of the aforementioned Law No. 83-C/2013 of 31 December, provides that: "2 – Notwithstanding the provisions of the previous number, the provisions of no. 14 to 16 of article 8º of the special regime applicable to FIIAH and SIIAH, approved by articles 102º to 104º of Law No. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided in no. 14 from 1 January 2014."
The authors of the attached opinion conclude that "the rule of article 236º, no. 2, of the State Budget Law for 2014 is an authentically retroactive rule, as it orders the application of the new requirements for exemptions – rental and no alienation within a 3-year period, under penalty of these expiring – to acquisition and acts (that is, to tax facts) prior to its entry into force and that were completed before it".
However, without questioning the legal merit of the authors of the opinion, we adhere to the majority position of CAAD decisions, in the sense that the requirements for IMT exemption are contained in article 8º no. 7 item a) of the legal regime of FIIAH approved by Law No. 64-A/2008 of 31 December, which states that the following are exempt from IMT "the acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent residential purposes, by the investment funds referred to in no. 1". And it was not the State Budget Law of 2014, by adding article 236º no. 2 to the aforementioned legal regime, that came to create new requirements. This no. 2 merely came to mention that the provisions of numbers 14 to 16 of article 8º (expiry of exemptions), are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, counting in such cases the three-year period provided in no. 14 from 1 January 2014. Indeed, this article merely came to make concrete that the expiry of exemptions contained in numbers 14 to 16 of article 8º also applies to properties acquired before 1 January 2014. However, the requirement for IMT exemption - urban properties intended exclusively for rental for permanent residential purposes - would have already been established in law at the time of the property's acquisition.
Note that in the present case, the property was not intended for rental for permanent residential purposes within the three-year period, but was instead alienated. And it is for this reason that the Claimant submitted a declaration to the AT for purposes of issuing the IMT and Stamp Tax assessments, given that the intended use of the property was not residential rental, and the expiry of the exemption it had benefited from at the time of acquisition of the aforementioned property occurred.
Thus, as stated in the decision of CAAD issued in case no. 164/2016-T, "it is not possible to conclude that the obligation to intend the property for rental for permanent residential purposes constitutes a requirement introduced by Law No. 83-C/2013 of 31 December. Such obligation was already expressly and concretely stated in art. 8º, no. 7 and 8 of the legal regime of FIIAH in its original version".
Thus and in conclusion, there is, in our view, no violation of the principle of non-retroactivity of tax law or aggravation of the tax position of the Claimant, and the unconstitutionality of the aforementioned rule is not in question.
3.4. Application of the Regime to the Claimant's Situation
The State Budget Law for 2014 came to establish a new requirement for the exemption: if allocation to rental for permanent residential purposes does not occur within the three-year period following the entry of the property into the fund, the fund must request the assessment of IMT that was not assessed.
However, this is not what occurred in this case. The assessments of IMT and Stamp Tax in question were not based on their retention in the fund for a period equal to or greater than three years without there having been allocation to rental for permanent residential purposes. In fact, the assessments were based on the fact that the property was alienated. Once the fraction is alienated, that purpose, rental for permanent residential purposes, can no longer be fulfilled, so the requirement established for the IMT exemption to be applicable was not met.
Indeed, we understand that the effects resulting from the alienation of the property contained in article 8º no. 15 and 16 of the legal regime of FIIAH do not have an innovative character, as they already resulted from article 8º no. 7 and 8 of the aforementioned regime. Thus, the unconstitutionality of such a rule (article 8º no. 15 and 16 of the legal regime of FIIAH, added by Law No. 83-C/2013 of 31 December) is not in question.
The aforementioned property was acquired on 05-08-2013, benefiting from the IMT exemption provided for in article 8º no. 7 item a) of the legal regime of FIIAH, since the Claimant declared that the property in question would be intended for rental for permanent residential purposes.
The decision of CAAD issued in case no. 164/2016-T states that "(…) what is at issue (…) consists of the fact that the use that was the basis for the exemption was not given, the allocation to rental for permanent residential purposes and not a question of period. What removes the question of violation of the principle of non-retroactivity of tax law".
The aforementioned decision further states that "in summary, the granting of the tax benefit does not require a mere declared intention, at the moment of celebration of the public deed of purchase and sale, of allocation of the property to permanent residential rental, but effective allocation. Now, if the Claimant expressed this intention, but did not proceed to such allocation or at least does not prove it in these proceedings, the claim must fail".
The learned opinion that the Claimant attaches pronounces itself on the unconstitutionality of the rule, but in a situation different from that which occurred here, which is the case in which the expiry of the exemption occurs when the property acquired with exemption was not intended for rental within the period fixed by the rule whose unconstitutionality is invoked.
Now, in the present case, the assessments of IMT and Stamp Tax did not originate in the course of this period without the Fund having allocated the fraction to rental, but from the fact that the fraction was alienated.
Therefore, in the situation sub judice there is no application whatsoever of a retroactive rule that comes to introduce a new regime of expiry of exemptions, as was decided in the decision of CAAD in case no. 32/2017-T.
We thus understand that the rule in question does not suffer from unconstitutionality.
It must therefore be found that the Claimant's claim fails and it will be concluded that the assessments of IMT and Stamp Tax in question are legal, under item a) of no. 7 of article 8º of the special regime applicable to real estate investment funds for residential rental.
4. Decision
In light of the foregoing, it is determined that the claim filed by the Claimant in the present tax arbitral process is judged as lacking merit, regarding the illegality of the IMT assessments in the amount of 19,924.75 € and Stamp Tax assessment in the amount of 3,096.00 €.
5. Value of the Process:
In accordance with the provisions of article 315º, no. 2, of the CPC and 97º-A, no. 1, item a) of the CPPT and 3º, no. 2 of the Regulation of Costs in Tax Arbitration Processes, the value of the action is set at 23,020.75 €.
6. Costs:
In accordance with article 22º, no. 4, of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Processes, the amount of costs is set at 1,224.00 €, owed by the Claimant.
Notify.
Lisbon, 21 July 2017.
Text prepared by computer, in accordance with article 138º, no. 5 of the Code of Civil Procedure (CPC), applicable by reference from article 29º, no. 1, item e) of the Tax Arbitration Regime, reviewed by me.
The Single Arbitrator
Suzana Fernandes da Costa
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