Summary
Full Decision
ARBITRATION DECISION
I. Report
On 17 June 2016, the company A…, S. A., with the Tax Identification Number … and registered office at Avenue …, no. … – …, …-… – Lisbon, in its capacity as managing company of B… – CLOSED REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL, with the Tax Identification Number … (hereinafter referred to as Claimant), filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to as LRATM), in which the Tax Authority and Customs Authority (hereinafter, TA) is the Respondent.
The petition for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the TA. The Claimant chose not to appoint an arbitrator, whereupon, pursuant to article 6(1) of LRATM, the undersigned was appointed arbitrator by the Ethics Council of the Administrative Arbitration Centre, and the remaining legal proceedings were followed until constitution of the sole arbitrator tribunal on 8 September 2016, in accordance with article 11(1)(c) of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December.
a) Subject Matter of the Petition
The Claimant requests that the tribunal declare the nullity of the tax assessment acts for Municipal Tax on Onerous Real Estate Transfers (IMT) no. …, in the amount of € 1,114.06, and Stamp Duty (IS) no. …, in the amount of € 815.25, on the grounds of unconstitutionality, or, subsidiarily, should such not be upheld, their annulment, as well as condemnation of the Respondent to repay the tax paid, plus compensatory interest, pursuant to article 43(1) of the General Tax Code (LGT).
b) Summary of the Parties' Positions
a. Of the Claimant
The "Special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH)", approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December (State Budget for 2009) established, in article 8, the respective tax regime, pursuant to which exemptions were granted from IMT "for acquisitions of urban real estate or separate portions of urban real estate intended exclusively for rental for permanent residence, by the investment funds referred to in no. 1" (article 8(7)(a)) and from IS "for all acts performed, provided they are connected with the transfer of urban real estate intended for permanent residence occurring by virtue of the conversion of the right of ownership of such properties into a right of rental thereon, as well as with the exercise of the purchase option provided for in article 5(3)" (article 8(8)).
Article 235 of Law no. 83-C/2013, of 31 December (State Budget for 2014), amended article 8 of the "Special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH)" by adding nos. 14 to 16, with article 236(2) of the same Law establishing a transitional rule, providing that the amendments introduced to article 8 would apply to real estate acquired by FIIAH from 1 January 2014 onwards (no. 1), and would also be applicable "to real estate acquired by FIIAH before 1 January 2014, with the three-year period provided for in no. 14 being counted from 1 January 2014".
The Claimant contends that, since the acquisition of the separate portion that is the subject of the disputed assessments was made under the initial wording of article 8 of the "Special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH)", its taxation could not occur in light of the amendments introduced to that provision by article 235 of Law no. 83-C/2013, of 31 December, as happened, under penalty of unconstitutionality, as this constitutes a retroactive application of nos. 14 to 16 of cited article 8, in violation of article 103(3) of the Constitution of the Portuguese Republic (CPR).
Indeed, the Claimant argues, nos. 14 to 16 of article 8 of the referred Regime came to establish, ex novo, conditions whose fulfilment is necessary for the right to exemption from IMT and IS, which did not exist at the time of acquisition of the taxed property, specifying the concept of "urban real estate intended for rental for permanent residence", as well as the circumstances in which those forming part of FIIAH assets cease to benefit from the exemption provided in nos. 7(a) and 8 of the same article.
The Claimant thus considers that, having article 235 of Law no. 83-C/2013, of 31 December, introduced a new regime of lapse of exemptions, the provision in article 236(2) of the same Law, in determining the retroactive application of that new regime to situations that occurred under the previous law and already consolidated in the legal order, would be tainted with unconstitutionality, a defect that would vitiate the disputed assessments, made pursuant to no. 16 of article 8 of the "Special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH)".
b. Of the Respondent
Notified in accordance with article 17 of LRATM, the TA came to contest, defending the legality of the disputed assessments.
The TA alleges that article 236(2) of Law no. 83-C/2013, of 31 December, established a three-year transitional period for application of the amendments introduced to the "Tax Regime of FIIAH", so that the new requirement would only be assessed for the future, not immediately causing all current exemptions to lapse that did not prove to possess the legal requirements.
That, given the objectives that presided over the creation of the "Special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH)", one cannot consider that the amendments introduced by Law no. 83-C/2013, of 31 December, translate into a change of the conditions or requirements for granting the fiscal benefits initially established, but merely in the definition of the temporal period for purposes of proving such conditions – it would be merely the regulation of the evidentiary procedures for the right to fiscal benefits, without altering the ratio of the exemptions already established in the initial wording of article 8, "Tax Regime of FIIAH".
Nor was the principle of protection of legitimate expectations undermined, as such amendments are only applicable to real estate acquired by FIIAH before 1 January 2014, after three years have elapsed from the entry into force of the new law.
On the other hand, according to the Respondent, it was already a condition for the exemption from IMT in the acquisition of real estate by FIIAH constituted during the five years following the entry into force of Law no. 64-A/2008, of 31 December, that they be intended exclusively for rental for permanent residence and that, should they be given a different purpose, the TA would always have the power to control verification of the conditions for the exemption, pursuant to article 7(1) of the Statute of Tax Benefits (EBF), in order to determine the continuation of the benefit or the restoration of the standard taxation system, as determined by article 14(1) of EBF.
Finally, regarding the alleged unconstitutionality of article 236(2) of Law no. 83-C/2013, of 31 December, the TA invokes jurisprudence and doctrine that unanimously state that the Administration does not have the competence to decide on the non-application of norms concerning which doubts of constitutionality arise, a task entrusted to the Courts by article 204 of the CPR.
The Parties submitted successive written pleadings, in which they reiterated and developed the positions assumed in the initial procedural documents.
II. PRELIMINARY EXAMINATION
The Tribunal is competent and regularly constituted, pursuant to articles 2(1)(a), 5 and 6, all of LRATM.
The Parties have legal capacity and standing, are legitimate and legally represented, pursuant to articles 4 and 10 of LRATM and article 1 of Ordinance no. 112-A/2011, of 22 March.
The proceedings do not suffer from defects that would invalidate them.
The joinder of claims is admissible pursuant to article 3(1) of LRATM, insofar as the arbitral pronouncement requested and its substantiation depend on the appraisal of the same factual circumstances and the interpretation and application of the same principles or rules of law.
III. REASONING
III.1 Factual Matters
The factual matters considered relevant for the decision, following the analysis of the documentary evidence attached to the case file and taking into account the alleged facts, are established as follows:
A) Proven Facts
At the date of the disputed assessments, the taxed property formed part of the assets of B… – CLOSED REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL;
On 21 March 2016, the Tax Authority and Customs Authority issued, in the name and at the request of the identified taxpayer, the assessments for IMT no. …, in the amount of € 1,114.06 and for IS no. …, in the amount of € 815.25;
Both assessment notices contained a statement that their issuance was requested "pursuant to article 8, no. 16 of the special regime applicable to real estate investment funds for residential rental (SIIAH)", concerning the purchase made "on 18.12.2013 (…) with exemption pursuant to art. 8, no. 7 of the referred regime, of the portion … of article …, (…) intended for residence, (…) registered in the urban land register of the parish and municipality of …".
The disputed assessments were paid on 22 March 2016.
B) Facts Not Proven
There are no facts of relevance to the decision of the case that have been considered unproven.
III.2 ON THE LAW
A) – The Question to be Decided:
The disputed question in the present arbitral action consists in determining whether the acquisition of real estate by a Real Estate Investment Fund for Residential Rental (FIIAH), on a date prior to 1 January 2014, with the exemptions provided for in article 8, nos. 7(a) (IMT) and 8 (IS), of the "Special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH)", hereinafter, in simplified form, Special Regime of FIIAH, could be taxed before the expiration of the three-year period established by article 236(2) of Law no. 83-C/2013, of 31 December (State Budget for 2014), if such real estate had not been the subject of a rental contract or had been alienated outside the situations provided for in article 5 of that Special Regime of FIIAH.
B) The Applicable Law
Article 8 of the Special Regime of FIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, established the tax regime applicable to FIIAH that would be constituted during the five years following its entry into force, concerning real estate acquired by them for residential rental during that period.
Specifically with regard to IMT and IS, nos. 7 and 8 of that article 8 provided that:
"7 – Exemptions from IMT are granted for:
a) Acquisitions of urban real estate or separate portions of urban real estate intended exclusively for rental for permanent residence, by the investment funds referred to in no. 1;
b) Acquisitions of urban real estate or separate portions of urban real estate intended for owner-occupied permanent residence, as a result of the exercise of the purchase option referred to in article 5(3) by tenants of properties that form part of the assets of the investment funds referred to in no. 1.
8 – Exemptions from stamp duty are granted for all acts performed, provided they are connected with the transfer of urban real estate intended for permanent residence occurring by virtue of the conversion of the right of ownership of such properties into a right of rental thereon, as well as with the exercise of the purchase option provided for in article 5(3)."
Article 235 of Law no. 83-C/2013, of 31 December, amended article 8 of the Special Regime of FIIAH by adding nos. 14 to 16, with the following wording:
"Article 8 - [...]
(…)
14 - For purposes of the provisions in nos. 6 to 8, urban real estate shall be considered intended for rental for permanent residence whenever it is subject to a rental contract for permanent residence within three years from the date it became part of the fund's assets, with the taxpayer being required to communicate and provide proof to the TA of the respective actual rental, within 30 days following the end of the referred period.
15 - When real estate has not been subject to a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, and in such case the taxpayer shall request from the TA, within 30 days following the end of the referred period, the assessment of the respective tax.
16 - Should the real estate be alienated, with the exception of cases provided for in article 5, or should the FIIAH be liquidated, before the expiration of the period provided for in no. 14, the taxpayer shall likewise request from the TA, prior to the alienation of the real estate or the liquidation of the FIIAH, the assessment of the tax due pursuant to the preceding number.
Concurrently, article 236(2) of the cited Law no. 83-C/2013, of 31 December, established a transitional legal rule, defining the terms of applicability of the new nos. 14 to 16 of article 8 of the Special Regime of FIIAH to real estate acquired by them prior to 1 January 2014.
The following is the wording of article 236(2) of Law no. 83-C/2013, of 31 December:
Article 236 - Transitional Rule within the Special Regime applicable to FIIAH and SIIAH
1 – (…)
2 - Without prejudice to the provisions of the preceding number, the provisions in nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, shall also apply to real estate acquired by FIIAH before 1 January 2014, with the three-year period provided for in no. 14 being counted from 1 January 2014.
Beyond the rules just referred to, it is also necessary to invoke article 10 of the IMT Code (Recognition of exemptions), invoked by the Claimant, and articles 7 (Supervision) and 14 of the Statute of Tax Benefits (EBF) – (Extinction of tax benefits), invoked by the TA.
C – The disputed IMT and IS Assessments
As follows from the petition for arbitral pronouncement, the Claimant seeks the appraisal of the legality of the disputed assessments in light of the rule under which they were made, that is, no. 16 of article 8 of the Special Regime of FIIAH, and the transitional legal rule of article 236(2) of Law no. 83-C/2013, of 31 December (and not any other rules), considering its unconstitutionality, by reason of retroactive application to a situation that occurred entirely under previous law.
The Claimant invokes, for that purpose, the nature of single-obligation taxes of both IMT and IS, whose taxable event, temporally located, is exhausted in the performance of the act of acquisition of the real estate, and in the fact that exemption from such taxes was recognized thereto at the time of acquisition of the separate portion now subject to taxation, an acquired right already crystallized in its legal sphere at the date of amendments to the Special Regime of FIIAH.
The TA counters that, from its inception, the Special Regime of FIIAH has always clearly defined the conditions that conditioned the grant of exemptions from IMT and IS to FIIAH concerning real estate acquired by them, "intended exclusively for rental for permanent residence", taking into account the purpose that presided over the creation of that Regime and that, regardless of the amendments introduced to it by Law no. 83-C/2013, of 31 December, the TA could always, within its duty of supervision of the conditions of fiscal benefits referred to in article 7 (current no. 1) of EBF, decide on the maintenance of exemptions or on the restoration of the standard taxation regime (article 14(1) of EBF).
Let us examine which side is correct:
First, it must be noted that, in the scope of the present proceedings, the constitutionality of article 236(2) of Law no. 83-C/2013, of 31 December, or of the amendments introduced by the same Law to the Special Regime of FIIAH is not in question, for the simple reason that, the Fund not having been liquidated, the referred amendments, pursuant to that transitional legal rule, were not yet in effect for urban real estate or separate portions of urban real estate acquired by FIIAH prior to 1 January 2014.
That is, on 21 March 2016, the date of issuance of the disputed assessments, no. 16 of article 8 of the Special Regime of FIIAH was not yet in effect for the situation under analysis, as it would only enter into force on 1 January 2017.
This is, however, an issue not addressed by either Party, which is not a ground of the petition for arbitral pronouncement and which, in any case, would not imply, as the Claimant suggests, the so-called "abstract illegality of the assessment", defined in jurisprudence as the situation in which "the illegality does not reside directly in the act that applies the law to the specific case, but in the law itself whose application is being made, arising from the non-existence of law in force at the date of the facts to which the obligation that provides for its assessment relates or from the non-authorization of its collection at the date the respective assessment was made"[1], and which constitutes grounds for both opposition to tax enforcement, as well as judicial challenge, pursuant to articles 204(1)(a) and 99 of the Tax Procedure and Process Code (CPPT), respectively.
Now, in the specific case of the present proceedings, at the date of the facts to which the tax obligation relates, the taxes in question (IMT and IS) were in force, and provision was also made for both their assessment and the collection of the respective revenue.
Therefore, the Claimant is not correct in asserting that, as these are single-obligation taxes, the taxable event subject to taxation is, both for IMT and for IS, the acquisition of ownership of the real estate by the Fund (article 36 of the p. i.), for although the onerous acquisition of the right of ownership over real estate is a fact included in the rules of objective incidence of each of those taxes (cf. respectively, article 2(1) of the IMT Code, article 1(1) of the IS Code and item 1.1. of the General Schedule attached thereto), it does not, by itself, determine the birth of the tax obligation, if the taxable event is paralyzed before the existence of a negative condition of taxation[2], such as an exemption. In such cases, only with the extinction of the fiscal benefit is the taxable event produced or, in the words of the EBF legislator, the "standard taxation" regime is restored.
Nor can we agree with the Claimant in saying that, since the exemptions contained in nos. 7(a) and 8 of article 8 of the Special Regime of FIIAH were recognized at the Fund's request and on a date prior to the acquisition of the separate portion that is the subject of the disputed IMT and IS assessments, pursuant to article 10 of the IMT Code, such exemptions became definitively crystallized in the tax-legal order (articles 35 and 36 of the p. i.)
And we cannot agree, since, as the TA correctly notes, those exemptions have always been, since the creation of the Special Regime of FIIAH by Law no. 64-A/2008, of 31 December, conditioned on the verification of the requirement that urban real estate or separate portions of urban real estate acquired by the Funds be intended "exclusively for rental for permanent residence".
However, it is believed that such purpose is not satisfied by mere intention of dedication to rental for permanent residence, without there being a real dedication to the exclusive purpose to which the properties are destined. And, if the reference made in the assessment notices to no. 16 of article 8 of the Special Regime of FIIAH could constitute an error of the declarant, the Claimant comes to expressly affirm, in § 6 of its Pleadings, that the issuance of those assessments was requested by verbal petition, concerning "(…) the sale of the property identified in the petition for arbitral pronouncement (…)". There remain no doubts, therefore, that, with the alienation of the taxed property, it was given a purpose different from that which was the condition for the maintenance of the exemption recognized at the time of its acquisition in December 2013.
Nor can one, on the other hand, invoke the special nature of the regime created by Law no. 64-A/2008, of 31 December, which, in the Claimant's view, would determine the definitive crystallization of the granted exemptions, because in the legislator's omission as to the causes of the lapse of the exemptions from IMT and IS provided in nos. 7(a) and 8 of article 8 of the Special Regime of FIIAH, one should understand that those contained in Part I of EBF are applicable, extensible to all tax benefits (article 1 of EBF).
Given the TA's supervisory powers with respect to "control of verification of the conditions of the respective fiscal benefits and compliance with the obligations imposed on the holders of the right to benefits" (article 7 of EBF, as worded at the date of the facts), it could always, in the absence of verification of such conditions, determine the restoration of the standard taxation regime.
For the reasons set out above and, although the disputed assessments were issued pursuant to a rule that was not yet in effect for the situation in question, which is not invoked by the Claimant, the same do not represent an undue patrimonial burden for the taxpayer, as they have not determined payment of tax in excess of the amount legally due.
Given that the assessed tax is considered due, consideration of the question regarding the right to compensatory interest is foreclosed.
D – Conclusions:
In view of what has been set out, it is possible to formulate the following conclusions:
The Claimant's claim consists in the declaration of nullity or annulment of the IMT and IS assessments identified in the petition for constitution of the arbitral tribunal;
The grounds of the claim are the unconstitutionality of the transitional legal rule contained in article 236(2) of Law no. 83-C/2013, of 31 December (State Budget for 2014), which determines the retroactive application of the amendments introduced by article 235 of the same Law, to article 8 of the Special Regime of FIIAH, in particular its no. 16, pursuant to which the disputed assessments were issued and no other, as the Claimant emphasizes;
The unconstitutionality of the rules invoked as grounds of the claim is a matter of foreclosed consideration, as such rules are not applicable to the disputed assessments, at the date they were made;
The Tribunal cannot substitute itself for the Claimant and annul the disputed assessments on grounds different from those invoked in the petition for arbitral pronouncement, under penalty of exceeding its jurisdiction;
The conditions on which the fiscal benefit granted at the time of acquisition of the property was based not being satisfied, because, upon its alienation, it was given a purpose different from rental for permanent residence, the TA could always, within the period of prescription for the right to assessment, assess the tax that would be due, by reason of cessation of exemption;
The annulment of the disputed assessments is not justified, inasmuch as the same do not constitute an injurious act of the legally protected rights and interests of the taxpayer (cf. article 95(1) of LGT), nor do they determine payment of taxes in excess of the legally provided amount.
IV. DECISION:
In accordance with the factual and legal grounds set out above, this Arbitral Tribunal decides to hold the petitions for declaration of nullity and annulment of the tax assessment acts for IMT no. …, in the amount of € 1,114.06, and Stamp Duty no. …, in the amount of € 815.25, which are the subject of the petition for arbitral pronouncement, to be without merit, determining their maintenance in the legal order.
VALUE OF THE CASE
In accordance with article 306(1) and (2) of the Code of Civil Procedure, approved by Law no. 47/2013, of 26 June, 97-A(1)(a) of CPPT, and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of € 1,929.31 (one thousand nine hundred and twenty-nine euros and thirty-one cents).
COSTS
Pursuant to articles 12(2) and 22(4) of LRATM and 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, the amount of costs is set at € 306.00 (three hundred and six euros), to be borne by the Claimant.
Lisbon, 21 November 2016
The Arbitrator,
/Mariana Vargas/
[1] Cf. by way of example, the Judgment of the Supreme Administrative Court, of 09/04/2014, in appeal no. 076/14.
[2] - Considering the exemption as a "negative condition, [which] will prevent a tax legal relationship from being constituted", cf. MARTINEZ, Pedro Soares, "Tax Law", 7th Edition, Almedina, Coimbra, 1993, pp. 188 and 189.
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