Summary
Full Decision
ARBITRAL DECISION
Agree in Arbitral Court
I – Report
- A... – Real Estate Investment Fund Management Company, S.A; NIPC..., with registered office at ..., n.º..., ..., Lisbon, manager of the Closed Special Real Estate Investment Fund – B... and the Open Special Real Estate Investment Fund – C..., with registered office at the same location, filed a request for the constitution of an arbitral tribunal, pursuant to the provisions of articles 2.º, n.º 1, paragraph a), and 10.º and following of Decree-Law n.º 10/2011, of 20 January, to assess the legality of the tax acts imposing Municipal Tax on Onerous Property Transfers (IMT) n.º..., in the amount of € 807,695.66, and n.º..., in the amount of € 427,050.00, and likewise of the deemed rejection act regarding the official review request submitted to the Tax Authority, requesting the annulment of such acts and the consequent reimbursement of the tax unduly paid and condemnation to payment of compensatory interest.
The claim is grounded in the following terms.
The Funds are structured as real estate investment funds.
On 17 February 2016, the Claimant, acting in representation of B..., acquired, through a public deed of purchase and sale, the urban property named ..., in ..., which was taxed in IMT in the total amount of € 807,695.66.
On 23 November 2016, the Claimant, acting in representation of C..., concluded a purchase and sale contract, having as its object properties located on Rua ..., on Rua ... and on ..., in Lisbon, which were taxed in IMT in the total amount of € 427,050.00.
However, the aforementioned acquisitions are covered by the exemption provided for in article 1.º of Decree-Law n.º 1/87, of 3 January, which declares "exempt from transfer tax acquisitions of immovable property made for a real estate investment fund by the respective management company", this provision being preserved and maintained in force by Decree-Law n.º 287/2003, of 12 November, which reformed the taxation of property and approved the creation of IMT and IMI, and, especially, by the provisions of n.º 2 of article 28.º and n.º 6 of article 31.º of that statute.
The Tax Authority, in its response, argues that article 46.º of the Tax Benefits Code, as amended by Law n.º 53-A/2006, of 29 December, came to regulate the tax benefits for IMT in acquisitions of property by investment funds, thereby tacitly repealing article 1.º of Decree-Law n.º 1/87, and that the benefits provided for in that article 46.º, subsequently renumbered as article 49.º, were terminated by virtue of the repeal operated by Law n.º 7-A/2016.
As regards compensatory interest, the Tax Authority considers that, should it be due, it may only be calculated one year after the official review request, pursuant to paragraph c) of n.º 3 of article 43.º of the General Tax Law, since the Claimant did not challenge the assessment through a request for administrative review, thereby excluding the possibility of applying n.º 1 of that provision.
It concluded for the lack of merit of the claim.
- No production of witness evidence was requested and, in the course of the proceedings, the meeting referred to in article 18.º of the RJAT was waived, with the process moving forward to arguments.
The parties presented no arguments.
- The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority in accordance with regulatory terms.
Pursuant to the provisions of paragraph a) of n.º 2 of article 6.º and paragraph b) of n.º 1 of article 11.º of the RJAT, as amended by article 228.º of Law n.º 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the assignment within the applicable deadline.
The parties were duly and timely notified of such designation and did not manifest any will to refuse it, in accordance with the combined provisions of article 11.º, n.º 1, paragraphs a) and b), of the RJAT and articles 6.º and 7.º of the Deontological Code.
Thus, in compliance with the requirement of paragraph c) of n.º 1 of article 11.º of the RJAT, as amended by article 228.º of Law n.º 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 17 September 2018.
The arbitral tribunal was regularly constituted and is materially competent, in accordance with the provisions of articles 2.º, n.º 1, paragraph a), and 30.º, n.º 1, of Decree-Law n.º 10/2011, of 20 January.
The parties have legal personality and capacity, are entitled to act and are represented (articles 4.º and 10.º, n.º 2, of the same statute and 1.º of Ordinance n.º 112-A/2011, of 22 March).
The process contains no nullities and no exceptions have been raised.
It is appropriate to adjudicate and decide.
II – Grounds
Matters of Fact
- The factual matters relevant to the decision of the case are as follows:
a) The Closed Special Real Estate Investment Fund – B..., managed by the Claimant, is a public subscription fund with indefinite duration, which commenced its operations on 20 December 2007 and is managed by the Claimant;
b) The Open Special Real Estate Investment Fund – C..., managed by the Claimant, is a fund intended to be marketed to qualified and non-qualified investors, with indefinite duration, which commenced operations on 16 July 2010;
c) In its capacity as manager of fund B..., the Claimant, in representation of the Fund, acquired, through a public deed of purchase and sale, the urban property named ..., in ..., registered in the urban real estate register under n.º..., at a price of € 24,852,174.00;
d) With respect to that acquisition, the Tax Authority issued the IMT assessment act n.º ..., in the amount of € 807,695.66;
e) The Claimant proceeded to payment of the tax due on 17 February 2017;
f) In its capacity as manager of fund C..., the Claimant acquired, through a public deed of purchase and sale, at a total price of € 6,570,000.00, the urban properties located on Rua ..., registered in the real estate register under n.º ... of the parish of ..., on Rua ..., registered in the register under n.º ... of the parish of ..., and on ..., registered in the register under n.º ... of the union of parishes of ..., ... and ..., in Lisbon;
g) With respect to that acquisition, the Tax Authority issued the IMT assessment act n.º..., in the amount of € 427,050.00;
h) The Claimant proceeded to payment of the tax due on 23 November 2016;
i) The Claimant submitted a request for official review with the Lisbon Finance Service –..., which was submitted on 22 December 2017 and was not subject to an express decision within the deadline provided for in article 57.º, n.º 1, of the General Tax Law.
The Tribunal formed its conviction as to the proven facts based on the documents attached to the petition and those contained in the administrative file presented by the Tax Authority with its response.
Question of Law
- The Claimant contends that the acquisition of immovable property made for the Real Estate Investment Funds under its management falls within the scope of the IMT exemption, originally provided for in article 1.º of Decree-Law n.º 1/87, of 3 January, as an exemption from transfer tax, and which was preserved by article 28.º, n.º 2, of Decree-Law n.º 287/2003, of 12 November, and maintained in force by article 31.º, n.º 6, of that statute.
The Tax Authority argues, however, that the aforementioned provision of article 31.º, n.º 6, of Decree-Law n.º 287/2003, which maintained in force the tax benefits relating to municipal transfer tax, now referring to IMT, does not imply that this exemption remains valid today, having in particular regard that real estate funds have since been subject to a specific regime of tax benefits relating to IMT.
The issue to be addressed is, therefore, whether the subsequent legislative evolution caused the provision of article 1.º of Decree-Law n.º 1/87 to cease to apply.
On this matter, an arbitral decision was already rendered in Process n.º 622/2018-T – in line with that decided in Process n.º 544/2016-T – which, for want of any other considerations, is now reproduced:
"Decree-Law n.º 1/87 provides in its article 1.º that 'acquisitions of immovable property made for a real estate investment fund by the respective management company are exempt from transfer tax'. This provision arose following the regulation of real estate investment funds, carried out by Decree-Law n.º 246/85, of 12 July, and, as is apparent from the preamble thereof, aimed to define an appropriate tax framework for the creation of these funds to which the Government recognized an important contribution to the formation of savings and mobilization of investments in the real estate sector, with positive effects on construction and the property rental market.
Meanwhile, Decree-Law n.º 287/2003, of 12 November, which reformed the taxation of property, approving as an annex the Code for the Municipal Tax on Real Property (CIMI) and the Code for the Municipal Tax on Onerous Property Transfers (CIMT), determined in its article 28.º, n.º 2, that references in legal texts to municipal transfer tax are to be considered as referring to the Code for the Municipal Tax on Onerous Property Transfers.
Furthermore, the same statute, in article 31.º – which included several repeal provisions – preserved in its n.º 6 the continuation in force of tax benefits relating to municipal transfer tax established in independent legislation.
Thus, according to the combined interpretation of the cited provisions of articles 28.º and 31.º, n.º 6, of Decree-Law n.º 287/2003, the exemptions from transfer tax contained in any individual statutes should be considered as referring to IMT, and, on the other hand, acquisitions of immovable property made for a real estate investment fund would continue to be exempt from IMT by virtue of the provision of article 1.º of Decree-Law n.º 1/87.
After the creation of the transfer tax exemption regarding the acquisition of property for real estate investment funds in 1987, Decree-Law n.º 215/89, of 1 July, approved the Tax Benefits Code, with the clear purpose of systematizing the general principles to which the allocation of benefit situations should be subject. The Tax Benefits Code arose following the reform of the income tax for individuals (CIRS), income tax for legal entities (CIRC) and municipal tax (CA), which had already introduced some structural mechanisms for tax relief, such that the Code aimed to characterize some other situations of a less structural character but having relative stability, leaving for future State Budget laws benefits with markedly cyclical purposes or requiring more frequent regulation (cf. the respective preamble note).
In the original wording of the Tax Benefits Code, and in relation to real estate management and investment companies, only a specific tax regime for taxation in IRC matters was contemplated and, regarding IRS, as to profits distributed by those companies to their respective partners (article 26.º). This regime was maintained with various amendments and was transferred to article 22.º with Law n.º 109-B/2001, of 27 December, under the heading "Investment funds", which was likewise subject to various legislative modifications.
It is the new wording given to article 46.º of the Tax Benefits Code by the State Budget Law for 2003 (Law n.º 32-B/2002, of 30 December) that provides, for the first time, a tax exemption regime in favor of real estate investment funds in matters of municipal tax, in the following terms:
Real estate properties integrated in real estate investment funds and equivalent, pension funds and pension savings funds, which are constituted and operate in accordance with national legislation, are exempt from municipal tax.
Following the reform of property taxation, approved by the aforementioned Decree-Law n.º 287/2003 – which repealed the Municipal Tax Code – this article 46.º, as amended by the State Budget Law for 2007 (Law 53-A/2006, of 29 December), came to establish the exemption from municipal tax on real property (IMI) and municipal tax on onerous property transfers (IMT) for real estate properties integrated in real estate investment funds, under the same conditions already provided for in the previous wording of the provision, and Decree-Law n.º 108/2008, of 26 June, maintained that same exemption in the same terms.
Law n.º 3-B/2010, of 28 April, being also a budget law, through new wording given to article 49.º of the Tax Benefits Code, came to exempt from municipal tax on real property and municipal tax on onerous property transfers only 'real estate properties integrated in open real estate investment funds', and the State Budget Law for 2012 (Law n.º 55-A/2010, of 31 December) extended that exemption to 'real estate properties integrated in open or closed public subscription real estate investment funds'.
Law n.º 83-C/2013, of 31 December, amending that article 49.º, suppressed the exemption, coming instead to provide for a reduction of one half of the rates of municipal tax on real property and municipal tax on onerous property transfers applicable to real estate properties integrated in open or closed public subscription real estate investment funds.
Article 49.º of the Tax Benefits Code was repealed by article 215.º, n.º 1, paragraph g), of Law n.º 7-A/2016, of 30 March.
[6.] From the legislative evolution just described emerges the idea that the tax benefits attributed to real estate investment funds do not have a systematic character, instead assuming a markedly cyclical nature, thus justifying that the successive amendments to the legal regime have been established, as a rule, through budget laws.
Suffice it to note that it began by providing for the exemption of municipal tax – and IMI and IMT – in relation to real estate properties integrated in any type of real estate fund, to then restrict that exemption to real estate properties integrated in open real estate investment funds. Later the exemption was restored regarding real estate properties integrated in open or closed public subscription real estate investment funds until the tax benefit was converted into a reduction of the tax rate applicable and, finally, was suppressed.
It is therefore not possible to see in the approval of the Tax Benefits Code and in the multiple amendments to that Code a general criterion that would allow defining a stable tax regime that could supersede other individual provisions that already subsisted in the legal order.
Furthermore, it is important to note that the scope of application of the exemption initially created by Law n.º 53-A/2006, through the amendment of article 46.º of the Tax Benefits Code – which came to provide for the exemption from IMI and IMT in relation to real estate properties integrated in real estate investment funds – does not coincide with that of the exemption contemplated in article 1.º of Decree-Law n.º 1/87, which refers to acquisitions of immovable property made for a real estate investment fund by the respective management company. In fact, as a result of the new provision of article 46.º of the Tax Benefits Code, real estate properties already integrated in real estate funds became exempt from IMT, whereas the exemption referred to in the 1987 statute covered acquisitions of immovable property made by management companies of real estate investment funds to be incorporated into the assets of those funds. This means that the Tax Benefits Code came to expand the exemption, covering not only situations where the fund was in the position of acquirer of the real estate, but also those where the fund acts in the position of alienator of the real estate (cf. in this sense, the arbitral decision rendered in Process n.º 544/2016, in which the same question was analyzed).
[7.] It now falls to address the question of whether the rule of article 1.º of Decree-Law n.º 1/87 has been repealed by any of the provisions of the Tax Benefits Code that came to regulate the exemption from IMT in relation to real estate investment funds or whether there was a systemic repeal as a result of the new overall regulation of the matter of tax benefits.
As results from article 7.º, n.º 2, of the Civil Code, the repeal of law 'may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the circumstance that the new law regulates all the matter of the former law'.
Repeal is express when a law individualizes, in an explicit declaration, the object of the cessation of validity of a former law. Tacit repeal occurs when, faced with the silence of the legislator regarding the identification of the repealed rules, there is registered a content incompatibility between the provisions of a new law and those of a chronologically preceding legislative act. Global repeal occurs when a complex of norms becomes, as a whole, subject to a regulation different from that which previously applied, regardless of the question of its compatibility with the rules previously in force (cf. Baptista Machado, Introduction to Law and to Legitimating Discourse, Coimbra, 1993, pp. 165-166; Carlos Blanco Morais, Reinforced Laws – Reinforced Laws of Procedure Within the Scope of Structural Criteria of Relations Between Legislative Acts, Coimbra, 1998, pp. 338, 341 and 343).
Express repeal does not raise particular difficulties. It consists of a declaration made in the new law and may be limited to extinguishing the effect of the old law or to resuming a prior legal regime that had been repealed by it, or be accompanied by constitutive or modifying effects, as occurs when the repealing law institutes a new complex of norms or operates the modification of the prior legal regime.
Tacit repeal occurs to the extent of the contradiction existing between the preceding law and the new law, for where such contradiction does not occur the coexistence or interpenetration of the two laws is possible.
Global repeal has in common with tacit repeal the fact that it operates in the possible silence of the legislator, who may say nothing about the suppression of antecedent laws, but differs from it by the fact that it does not necessarily register a general incompatibility of commands between the old law and the new law. The ratio of this form of repeal is anchored essentially in reasons associated with the updating of the process of legal innovation or policies of systematization and legislative consolidation (Carlos Blanco Morais, op. cit., p. 344).
[8.] Applying the principles just enunciated to the situation before the court, it is easily concluded that the rule of article 1.º of Decree-Law n.º 1/87 cannot be considered as repealed.
It is settled that the rule of article 1.º of Decree-Law n.º 1/87 was not subject to express repeal. And, as has been indicated, there is no incompatibility between that rule and the one that came to be introduced in the Tax Benefits Code (article 46.º later renumbered as article 49.º), since those provisions contain different scopes of application and the latter merely served to expand the exemption already established by the 1987 statute.
The possibility of a systemic repeal having occurred is also excluded. As has been stated, the Tax Benefits Code, in its original version, and in relation to real estate management and investment companies, only established a specific tax regime in IRC and IRS matters. And only much later, through budget laws, was established relative to real estate funds, through the new wording given to article 46.º (later renumbered as article 49.º), the exemption in matters of property taxation by reference to municipal tax and, then, to IMI and IMT (Laws n.º 32-B/2002, of 30 December, and 53-A/2006, of 29 December). This regime underwent further successive amendments until the tax benefit came to be translated into the reduction by one half of the tax rates on real property and onerous property transfers (Law n.º 83-C/2013, of 31 December) and was finally abolished through the repeal of article 49.º operated by Law n.º 7-A/2016, of 30 March.
With the approval of the Tax Benefits Code, tax benefits of a structural character applicable to the financial system and capital markets, here including investment funds, focused on the taxation of income. The subsequent introduction of an exemption from IMI and IMT applicable to investment funds, in the category of tax benefits relating to real property, through the mere amendment of an already existing provision, does not evidence any general criterion defining the regime of tax benefits in matters 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 these circumstances, one cannot speak of a global repeal of article 1.º of Decree-Law n.º 1/87."
All these grounds remain fully valid and are applicable to the situation of the present case, leading to the conclusion that the IMT tax assessment acts relating to the acquisition of immovable property by the Claimant as representative of the Real Estate Investment Funds are illegal by virtue of violation of the provision of the cited article 1.º of Decree-Law n.º 1/87, of 3 January.
Compensatory Interest
The Claimant further requests condemnation of the Tax Authority to payment of compensatory interest at the legal rate, calculated on the tax, until full reimbursement of the amount due.
In accordance with the provision of paragraph b) of article 24.º of the RJAT, the arbitral decision on the merit of the claim not subject to appeal or challenge binds the Tax Administration in the exact terms of the success of the arbitral decision in favor of the taxpayer, with it behoving to 'restore the situation that would exist if the tax act subject to the arbitral decision had not been performed, adopting the acts and operations necessary for such purpose'. This is in harmony with the provision of article 100.º of the General Tax Law, applicable by virtue of the provision of paragraph a) of n.º 1 of article 29.º of the RJAT.
Furthermore, under n.º 5 of article 24.º of the RJAT 'payment of interest, regardless of its nature, is due in accordance with the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process', which refers to the provision of articles 43.º, n.º 1, of the General Tax Law and 61.º, n.º 5, of the Code of Tax Procedure and Process, implying the payment of compensatory interest from the date of unduly paid tax until the date of processing of the respective credit note.
There is therefore cause, following the declaration of illegality of the IMT assessment act, for payment of compensatory interest in accordance with the cited provisions of articles 43.º, n.º 1, of the General Tax Law and 61.º, n.º 5, of the Code of Tax Procedure and Process, calculated on the amount that the Claimant unduly paid, at the rate of legal interest (articles 35.º, n.º 10, and 43.º, n.º 4, of the General Tax Law).
The Respondent argues, however, that compensatory interest may only be calculated from one year after the official review request, pursuant to paragraph c) of n.º 3 of article 43.º of the General Tax Law, since the Claimant did not submit a request for administrative review, thereby excluding the possibility of applying n.º 1 of that provision.
Now, what article 43.º, n.º 3, paragraph c), of the General Tax Law prescribes is that 'compensatory interest is also due (...) when the revision of the tax act at the initiative of the taxpayer is effected more than one year after the request therefor, except if the delay is not attributable to the tax authority'. It is, therefore, compensatory interest that is due when, at the initiative of the taxpayer, the tax act is revised, but it has only occurred more than one year after the request was submitted and which, therefore, aim to compensate the interested party for delay in the issuance of the favorable decision. It is understood, in such case, that interest is due from one year after submission of the review request, which is comprehensible given that it is at that moment that the Tax Authority enters into default.
This regime still operates within the domain of tax procedure and presupposes a favorable decision regarding the review request.
What occurs, however, in the present case, is that the Tax Authority did not issue a ruling on the review request, which determined that the taxpayer filed judicial challenge through the submission of the arbitral request, such that the applicable rule is not that of paragraph c) of n.º 3 of article 43.º, but that of n.º 1 of that article, which refers to situations of unduly paid tax due to error attributable to the services when the error comes to be verified in administrative review or judicial challenge. Compensatory interest is, therefore, that owed by the favorable decision issued in the judicial challenge and without doubt it is computed from the date of unduly paid tax until the date of processing of the respective credit note (article 61.º, n.º 5, of the Code of Tax Procedure and Process).
III – Decision
In such terms, decision is rendered as follows:
a) To uphold the request for arbitral ruling and annul the municipal tax assessment acts on onerous property transfers n.ºs n.º ... and ...;
b) To condemn to payment of compensatory interest from the date of payment of tax until the date of issuance of the credit note, in accordance with articles 43.º of the General Tax Law and 61.º of the Code of Tax Procedure and Process.
Value of the Case
The Claimant indicated as the value of the case the amount of € 1,234,745.66, which was not contested by the Respondent, and corresponds to the value of the assessment that it sought to challenge (article 97.º, n.º 1, paragraph a), of the Code of Tax Procedure and Process).
Costs
Pursuant to articles 12.º, n.º 2, and 24.º, n.º 4, of the RJAT, and 3.º, n.º 2, of the Costs Regulation in Tax Arbitration Proceedings and Annex Table I to that Regulation, the amount of costs is fixed at € 16,830.00, which is charged to the Respondent.
Notify accordingly.
Lisbon, 7 December 2018
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitrator Member
Vasco Valdez
The Arbitrator Member
Miguel Patrício
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