Process: 33/2017-T

Date: June 23, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD Process 33/2017-T addressed whether Article 236 of Law 83-C/2013 unconstitutionally imposed retroactive taxation on Real Estate Investment Funds for Residential Leasing (FIIAH). The fund manager challenged IMT and Stamp Tax assessments totaling €36,924.75 issued in 2016 for a property in Cascais that had originally benefited from exemptions under Law 64-A/2008. The applicant argued that Article 236 violated Article 103 of the Portuguese Constitution by retroactively eliminating tax benefits already granted, constituting a fundamental rights violation warranting nullity under Article 133 of the Administrative Procedure Code. The Tax Authority contended that the 2013 legislation merely established a compliance deadline without creating new requirements or extinguishing existing exemption rights, and that benefits always depended on maintaining properties for residential leasing purposes. The arbitral tribunal, while lacking jurisdiction to declare constitutional unconstitutionality (reserved exclusively to the Constitutional Court), examined whether the norms were correctly applied to the concrete facts supporting the challenged assessments. The case centered on interpreting Law 64-A/2008 Article 8(7), which exempted FIIAH acquisitions of urban properties intended exclusively for permanent residential rental, and how Law 83-C/2013's amendments affected previously granted exemptions. The tribunal also considered whether compensatory interest under Article 43 of the General Tax Law would be due if assessments were annulled. This decision clarifies the temporal application of FIIAH tax regime changes and the boundaries of retroactive tax legislation under Portuguese constitutional law.

Full Decision

ARBITRAL DECISION

I – REPORT

1 – A…, SA with headquarters at Avenue … no. …-… - …- … Lisbon with the NIPC[1] …, acting as manager of the real estate investment fund –B…– Closed Real Estate Investment Fund for Residential Leasing, registered with the CMVM[2] under the NIF[3] …, filed on 09/01/2017 an application for constitution of the arbitral tribunal, pursuant to the provisions of subparagraph a) of no. 1 of article 2º, of no. 1 of article 3º and of subparagraph a) of no. 1 of article 10º, all of the RJAT[4], requesting the ATA[5], with a view to determining whether article 236º of Law 83-C/2013 of 31 December violates or not the principle of retroactivity of tax law, provided for in article 103º of the CRP[6] and consequently the nullity of the assessments of IMT[7] and IS[8] … and …, both from 2016, in the total amount of € 36,924.75, relating to the urban property registered in the respective assessment roll under article …, fraction ED of the parish of … and …, municipality of CASCAIS, or if not so understood, its annulment and consequently the reimbursement of its amount accompanied by indemnificatory interest under article 43º of the LGT[9].

2 – The application for constitution of the arbitral tribunal was filed without exercising the option of designating an arbitrator, and was accepted by the Honorable President of CAAD[10] and automatically notified to the ATA on 09/01/2017.

3 – Pursuant to and for the purposes of the provisions of no. 2 of article 6º of the RJAT, by decision of the Honorable President of the Ethics Council, duly communicated to the parties within the legally applicable time periods, the sole arbitrator Arlindo José Francisco was appointed, who notified the Ethics Council and the Administrative Arbitration Centre of his acceptance of the appointment within the regularly prescribed period.

4 – The tribunal was constituted on 21/03/2017 in accordance with the provisions contained in subparagraph c) of no. 1 of article 11º of the RJAT, as amended by article 228º of Law no. 66-B/2012, of 31 December.

5 – With its application, the applicant seeks the declaration of nullity of the assessments already mentioned, based on their unconstitutionality or subsidiarily their annulment.

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

7 – It further considers that the disputed assessments are null under the provisions of numbers 1 and 2 of article 133º of the CPA[11], a provision in force at the date of the aforementioned assessments, as they violate the essential content of a fundamental right and are therefore challengeable at all times.

8 – In its response, the ATA contends, in summary, that the legislator, with the formulation contained in article 236º of Law 83-C/2013, did not establish any new requirement determining the extinction of the right to exemption, but merely granted a period for its compliance.

9 – It further considers that the legislative amendment introduced by Law 83-C/2013 to the tax regime of FIIAH[12] did not modify the application of the tax benefits granted, which have always depended on the allocation of the properties for residential leasing, with no retroactivity involved.

II – PROCEEDINGS CLEARANCE

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

The parties have legal personality and capacity, are legitimate, and are duly represented in accordance with articles 4º and 10º, no. 2 of the RJAT and article 1º of Statutory Order no. 112-A/2011, of 22 March.

The ATA's response is attached to the file. The tribunal issued the following order on 04/05/2017:

"The response of the AT is attached and, after analysis of the file, the tribunal considers unnecessary the holding of the meeting provided for in article 18º of the RJAT and also unnecessary the production of oral or written arguments.

Accordingly, the parties are hereby notified that they have 10 days, if they so wish, to make such submissions as they deem appropriate regarding this understanding."

On 12/05/2017, a request from the applicant was filed, and the tribunal issued a further order on 26/05/2017:

"In view of the applicant's agreement as to the unnecessary nature of the meeting provided for in article 18º of the RJAT, as well as the production of oral or written arguments, the silence of the respondent, and the payment of the subsequent court fee, the tribunal considers the conditions met for the rendering of the decision, setting 23 June next for that purpose."

Accordingly, as the proceedings are not affected by any procedural defects, it is appropriate to decide the case.

III – REASONING

1 – The issues to be resolved, of relevance to the proceedings, are as follows:

a) Declare or not the nullity of the assessments at issue herein on the basis of their unconstitutionality or subsidiarily their annulment, as requested.

b) Should the tribunal declare their nullity or annulment, determine whether the reimbursement thereof should be accompanied by compensatory interest in accordance with article 43º of the LGT.

2 – Statement of Facts

The relevant facts established on the basis of the evidence in the file are as follows:

a) The Real Estate Fund was, at the date of the assessments in question, the owner of the property registered in the urban assessment roll under article …, fraction ED of the parish of … and …, municipality of CASCAIS.

b) The aforementioned property, upon its acquisition, benefited from exemption from IMT and IS, pursuant to no. 7 subparagraph a) and no. 8 of article 8º of the legal regime of FIIAH.

c) The assessments in question were made at the request of the applicant, invoking article 236º of Law 83-C/2013 of 31 December, and were paid on 21 October 2016.

d) The ATA based them on the fact that the property was given a different use from that which gave rise to the tax benefit, resulting in the extinction of the tax benefits.

There are no facts relevant to the decision that have not been established as proven.

3 – Legal Analysis

3.1 On the Legality or Otherwise of the IMT and IS Assessments Made During the Implementation of the Amendments Introduced by Article 236º of Law 83-C/2013 of 31 December to the Legal Regime of FIIAH

The petition incorporates the conclusions of a legal opinion of the Honorable Professors Doctor Guilherme Xavier de Basto and Doctor Paulo da Mota Pinto, who hold that no. 2 of article 236º of Law 83-C/2013 is unconstitutional. Although the arbitral tribunal does not have the competence to declare whether or not the provision is unconstitutional, that being the exclusive competence of the TC[13], it is within its competence to assess the application of the norms to the concrete facts that support the assessments at issue, which is what it will endeavor to do.

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

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

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

In turn, Law 83-C/2013 of 31 December amended article 8º of Law 64-A/2008 of 31 December as follows:

"14 – For the purposes of the provisions of nos. 6 to 8, urban properties are deemed to be intended for rental for permanent residential purposes whenever they are subject to a rental contract for permanent residential purposes within a period of three years from the moment they became part of the fund's assets, and the taxpayer must communicate and provide proof to the AT of the respective effective rental within 30 days following the end of the aforementioned period.

a) 15 – When the properties have not been subject to a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in numbers 6 to 8 cease to have effect, and in that case, the taxpayer must request from the AT, within 30 days following the end of the aforementioned period, the assessment of the respective tax.

b) 16 – Should the properties be alienated, with the exception of cases provided for in article 5º, or should the FIIAH be subject to liquidation, before the period provided for in no. 14 has elapsed, the taxpayer must likewise request from the AT, prior to the alienation of the property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number."

In light of the established facts, the property in question was acquired by the applicant with the benefit of exemption from IMT and IS, under the provisions of no. 7 subparagraph a) and no. 8 of article 8º of the Special Regime applicable to real estate investment funds for residential leasing, of Law 64-A/2008 of 31 December.

Under this provision, the applicant was obliged to allocate the acquired property exclusively for leasing, on pain of losing the granted tax benefit. It can be concluded at the outset that the requirement of exclusive allocation for leasing derives from Law 64-A/2008 and not from the amendments introduced to the regime by Law 83-C/2013, which merely established the three-year period for the implementation of the leasing that, if not verified within the aforementioned period, obliges the Fund to request the assessments from which it benefited upon acquisition, but for the future and not for the assessments at issue herein.

Now, as the applicant sold the property, it must be concluded that it did not give the property the leasing use that the law, exclusively, imposed on it in order to benefit from the tax benefits granted upon acquisition.

The basis for the assessments in question is supported by the different use from that on which the granted tax benefit was based, and no other reason; now if the property was sold, it ceased to comply with the use that had been declared in the acquisition deed, thereby losing the tax benefits granted upon acquisition.

The amendments introduced by Law 83-C/2013 of 31 December to the tax regime of FIIAH are not the cause of the assessments, notwithstanding their invocation by the applicant in its request to the ATA to proceed with them; the latter is obliged, under the terms of article 7 of the EBF[14], to conduct tax audits, regardless of the applicant's request, and, upon verifying that the property had been given a different use, would have to proceed with the respective assessments of IMT and IS as legally incumbent upon it.

As for the retroactive application of the provision of article 236º of Law 83-C/2013, we do not perceive, in the present case, the reason for invoking such a ground, insofar as the assessments in question, from the tribunal's perspective, had nothing to do with the aforementioned provision, but merely with the fact that in the acquisition it was declared that the same was intended for permanent residential leasing, which did not occur, thus not meeting the requisites of the granted exemption; the point is that the mere declared intention in the acquisition deed is not sufficient, but rather its actual implementation, which did not take place.

From the foregoing, the tribunal considers that the assessments of IMT and IS in question result from the applicant's failure to observe the provisions of subparagraph a) of no. 7 of article 8º of the special regime applicable to real estate investment funds for residential leasing, approved by Law no. 64-A/2008 of 31 December, and not from the amendments introduced by Law 83-C/2013, as it claims.

It is evident to the tribunal that had there been no legislative amendment to Law 64-A/2008, there would always have been assessments of IMT and IS from the moment the requisites supporting the respective exemptions ceased to be met, such that the question raised by the applicant as to whether or not the provision of article 236º of Law 83-C/2013 is retroactive is irrelevant to determining the legality of the assessments at issue, which would have occurred regardless of the amendments it introduced, since the granted exemptions lapsed with the different use given to the property, and therefore the assessments carried out by the ATA are legal.

3.2 Request for Payment of Indemnificatory Interest

In view of the foregoing and conclusions in point 3.1, the issue of indemnificatory interest requested is rendered moot.

IV – DECISION

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

a) Declare entirely without merit the application for arbitral pronouncement, with all legal consequences.

b) Set the value of the proceedings at € 36,924.75 in accordance with the provisions contained in article 299º, no. 1, of the CPC[15], article 97º-A of the CPPT[16], and article 3º, no. 2, of the RCPAT[17].

c) Court costs to be borne by the applicant, pursuant to no. 4 of article 22º of the RJAT, set in the amount of € 1,836.00, in accordance with the provisions of table I referred to in article 4º of the RCPAT.

Notify.

Lisbon, 23 June 2017

Document prepared by computer, in accordance with article 131º, no. 5 of the CPC, applicable by reference to article 29º, no. 1, subparagraph e) of the RJAT, with blank lines and reviewed by the tribunal.

The Sole Arbitrator,

Arlindo Francisco

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

Frequently Asked Questions

Automatically Created

What IMT and Stamp Tax exemptions apply to FIIAH real estate investment funds under Portuguese tax law?
Under Portuguese tax law, FIIAH (Real Estate Investment Funds for Residential Leasing) benefit from IMT (Property Transfer Tax) and Stamp Tax exemptions pursuant to Article 8(7) and 8(8) of Law 64-A/2008. Specifically, IMT exemptions apply to: (a) acquisitions of urban properties or autonomous fractions intended exclusively for permanent residential rental by qualifying investment funds, and (b) acquisitions by tenants exercising purchase options for their own permanent residence. These exemptions are conditioned on properties being allocated to residential leasing purposes as defined by the special FIIAH regime.
Does Article 236 of Law 83-C/2013 violate the constitutional prohibition on retroactive tax legislation under Article 103 of the CRP?
The applicant argued that Article 236 of Law 83-C/2013 violated Article 103(3) of the Portuguese Constitution (CRP), which prohibits retroactive tax legislation. The fund manager contended that applying Article 236 to extinguish previously granted tax benefits constituted unconstitutional retroactivity. However, the Tax Authority defended that the provision did not create new requirements for exemption extinction but merely granted a compliance period, and that benefits always depended on maintaining residential leasing allocation. While CAAD arbitral tribunals lack jurisdiction to declare constitutional unconstitutionality (exclusive to the Constitutional Court), they assess whether norms are correctly applied to concrete facts. The tribunal examined this retroactivity argument in determining the legality of the challenged assessments.
Can FIIAH tax assessments for IMT and Stamp Tax be declared null under Article 133 of the CPA for breaching fundamental rights?
The applicant invoked Article 133 of the Administrative Procedure Code (CPA), which was in force when the assessments were issued, arguing that the IMT and Stamp Tax liquidations should be declared null because they violated the essential content of a fundamental right (the constitutional prohibition on tax retroactivity under Article 103 CRP). Under Article 133 CPA, administrative acts that violate the essential content of fundamental rights are null and challengeable at any time without temporal limitation. The applicant claimed that by retroactively eliminating tax exemptions already granted, Article 236 of Law 83-C/2013 breached this fundamental constitutional protection, warranting nullity rather than mere annulment of the tax assessments.
How does the CAAD arbitral tribunal process work for challenging IMT and Stamp Tax liquidations related to FIIAH?
The CAAD (Administrative Arbitration Centre) arbitral tribunal process for challenging FIIAH-related IMT and Stamp Tax assessments follows the Legal Regime of Tax Arbitration (RJAT). The fund manager filed an arbitration request on January 9, 2017, under Articles 2(1)(a), 3(1), and 10(1)(a) of RJAT, without exercising the option to designate an arbitrator. The CAAD President accepted the request and notified the Tax Authority, then appointed sole arbitrator Arlindo José Francisco per Article 6(2) RJAT. The tribunal was constituted on March 21, 2017, under Article 11(1)(c) RJAT. After the Tax Authority's response was filed, the tribunal determined that the Article 18 RJAT meeting and oral/written arguments were unnecessary, notifying parties of this decision with opportunity for comment before rendering the final arbitral decision.
Are taxpayers entitled to compensatory interest under Article 43 of the LGT when FIIAH-related tax assessments are annulled?
Under Article 43 of the General Tax Law (LGT), taxpayers are entitled to compensatory interest when tax amounts paid are subsequently reimbursed due to annulment or revocation of tax assessments. The applicant in Process 33/2017-T specifically requested that if the IMT and Stamp Tax assessments totaling €36,924.75 were declared null or annulled, the reimbursement should be accompanied by compensatory interest pursuant to Article 43 LGT. This provision ensures taxpayers receive compensation for the time value of money and the unlawful deprivation of funds when tax authorities issue assessments that are later determined to be illegal. The tribunal identified this as one of the key issues requiring determination: whether compensatory interest should accompany any ordered reimbursement if the challenged FIIAH tax assessments were found to be null or subject to annulment.