Process: 398/2015-T

Date: March 14, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

Process 398/2015-T addresses the constitutionality of Article 236 of Law 83-C/2013 (2014 State Budget), which retroactively revoked IMT (Municipal Property Transfer Tax) and Stamp Tax exemptions for FIIAH (Real Estate Investment Funds for Residential Leasing). The claimant, a fund manager operating fund B…, challenged €2,056.12 in IMT and Corporate Income Tax assessments on two properties acquired in early 2014 under the FIIAH exemption regime and disposed of in September and November 2014. The claimant argued that Article 236 violated Article 103(3) of the Portuguese Constitution by retroactively imposing tax obligations, and that the assessments were null under Article 133(2)(d) of the Administrative Procedure Code for violating fundamental rights. The Tax Authority defended by exception, arguing that the assessments were merely defeasible (annullable) rather than null, making the Corporate Income Tax claims time-barred due to failure to file administrative appeals. The Tax Authority further contended that the CAAD arbitral tribunal lacked competence to declare unconstitutionality, and that Article 236 was not retroactive but merely established a compliance period for pre-existing requirements. The case raised critical questions about the distinction between null and annullable tax acts, the limits of retroactive tax legislation under constitutional tax legality principles, the scope of CAAD's judicial review powers, and taxpayers' rights to compensatory interest on unlawfully collected taxes. The arbitral tribunal had to determine whether violation of the tax legality principle constitutes violation of essential fundamental rights warranting nullity, and whether time limits apply differently to null versus defeasible administrative acts in tax proceedings.

Full Decision

The Arbitrator Dr. Maria Antónia Torres, appointed by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Singular Arbitral Tribunal, constituted on 16 September 2015, hereby renders the following decision:

  1. REPORT

1.1. A…, S.A., taxpayer no…, in its capacity as manager of fund B…, taxpayer no…, with registered office at Avenue…, no…, Lisbon, hereinafter referred to as the "Claimant", requested the constitution of an arbitral tribunal, under article 2, paragraph 1, subsection a), and article 10, both of Decree-Law no. 10/2011 of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral pronouncement has as its object the declaration of nullity of the tax assessment acts for Transfer Tax and Corporate Income Tax, in the total amount of €2,056.12 (two thousand and fifty-six euros and twelve cents), better identified in the initial petition presented by the Claimant, and which are hereby deemed articulated and reproduced, for all legal purposes, which relate to two urban properties owned by the Claimant, better identified as follows:

a) Urbanização Aldeamento de…, Leiria…, article…;

b) Rua…, no…, Vila Nova de Gaia, …, article…;

as per documents attached to the initial petition.

The Claimant further requests the condemnation of the Respondent to restitution of the sums unduly paid and that it be recognized its right to default interest on all amounts paid.

1.3. To substantiate its request, the Claimant alleges that the assessments which are the object of this petition are illegal as it understands to be unconstitutional, by violation of article 103, paragraph 3 of the Constitution of the Portuguese Republic, article 236 of Law 83-C/2013 of 31 December, which approved the State Budget for 2014.

The Claimant further understands that the challenged assessments are null under subsection d) of paragraph 2 of article 133 of the Administrative Procedure Code (CPA) because they violate the essential content of a fundamental right, and are therefore impugnable at any time.

1.4. The Tax Authority defends that the request for declaration of nullity of the contested assessments should be judged unfounded, defending itself by exception and by contestation. By exception, the Respondent argues that in the Portuguese administrative-legal order, the general regime of invalidity of acts is, for reasons of legal certainty, mere defeasibility, including for acts based on illegal or unconstitutional deliberations, with the Supreme Administrative Court having pronounced itself in that same sense.

The Respondent states that the declaration of nullity appears reserved for those acts that violate the essential content of a fundamental right, conflicting with the rights, freedoms and guarantees of citizens, but not those that conflict with the principle of legality, as is the case in this matter.

The acts in question, being, without conceding such, violators of the principle of tax legality, would thus be defeasible, but not null, whereby the present arbitral request is partially time-barred, as regards the Corporate Income Tax assessments, since the term for impugning such assessment acts has long since expired.

The Respondent further adds, in its defense by exception, that the Arbitral Tribunal has no competence to assess or declare the constitutionality or unconstitutionality of article 236 of Law 83-C/2013 of 31 December, as ultimately the Claimant intends.

It defends itself by contestation stating that the law in question is not affected by retroactivity, having not established any new requirement for application of the exemption provided for in the tax regime of the FIRAH, but merely having granted a period for compliance with a requirement already underlying the regime itself, a period that only begins after the entry into force of the new law.

It is not therefore a matter of altering the assumptions, conditions of attribution or recognition of a tax benefit, but solely and only, regulating the period of time for purposes of proving compliance with a previously established requirement. Whereby the Respondent understands that the provision in question is not unconstitutional.

Whereby the Respondent understands that the present petition should be declared unfounded.

1.5. The parties agreed to waive the holding of the arbitral tribunal meeting provided for in article 18 of the RJAT.

  1. PRELIMINARY EXAMINATION

The Tribunal was regularly constituted and is competent ratione materiae, in conformity with article 2 of the RJAT.

The parties have legal standing and capacity, show themselves to be legitimately interested and are regularly represented (cf. articles 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

No procedural nullities were identified.

  1. FACTS

With relevance to the decision on the merits, the Tribunal considers the following facts proven:

  1. The fund B… was, at the date of the assessments sub judice, owner of the urban properties which were the object of those same assessments, better identified above.

  2. Both properties were acquired in early 2014, benefiting from Transfer Tax exemption under subsection a) of paragraph 7 of article 8 of the legal regime of the FIRAH, and were disposed of on 16 September 2014 and 4 November 2014.

  3. In conformity with what is mentioned in the initial petition and in the response given by the Respondent, two Transfer Tax assessments were made in the amount of €1,143.02 (one thousand one hundred and forty-three euros and two cents) and two Corporate Income Tax assessments in the amount of €913.10 (nine hundred and thirteen euros and ten cents), which were paid by the Claimant.

  4. Such assessments were made under article 236 of Law 83-C/2013 of 31 December (State Budget for 2014).

Unproven Facts

No essential facts with relevance to the assessment of the merits of the case were found to be unproven.

Substantiation of the Facts

The conviction as to the facts given as proven was based on documentary evidence submitted by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent.

  1. ISSUES FOR DECISION

Two are the issues to be decided in the present matter:

a) To rule on the exception of impugnability of the acts due to time-barring of the request and lack of competence of the Arbitral Tribunal;

b) To determine the legality or otherwise of the Transfer Tax and Corporate Income Tax assessments sub judice made under article 236 of Law 83-C/2013 of 31 December (State Budget for 2014).

a) Of the impugnability of the acts and the lack of competence of the Arbitral Tribunal

Prior to the assessment of the merits of the case, it is necessary to first rule on the timeliness of the arbitral action request submitted by the Claimant. And on this matter it is necessary to distinguish between the Transfer Tax assessments, in the amount of €1,143.02 (one thousand one hundred and forty-three euros and two cents), which were claimed in administrative appeal by the Claimant, and the Corporate Income Tax assessments, in the amount of €913.10 (nine hundred and thirteen euros and ten cents), which were not subject to administrative appeal.

The Tax Authority bases its claim, as regards the exception of impugnability of the acts, on the fact that the assessment acts sub judice should be considered defeasible and not null. And that, thus being, the present arbitral request is, as regards the Corporate Income Tax assessments, having not been subject to administrative appeal, time-barred, since the term for impugning the Corporate Income Tax assessment acts had long since expired when the present petition was filed with the Arbitral Tribunal.

Now, it is established case law in various court decisions that, in the field of tax disputes, the nullity or even the non-existence of a norm on which an assessment act is based does not imply the nullity of the latter, generating only a situation of abstract illegality of the assessment.

The same regime applies in relation to an assessment act that applies an unconstitutional norm, except if it violates the essential content of a fundamental right, which is not the case with the principle of legality.

Or even if the assessment acts sub judice are based on an unconstitutional norm, the defect from which they suffer would always be defeasibility and not nullity.

By way of example, the Court Decision of 27.01.2010 - Appeal no. 948/09, in which it was written: "In fact, it is known that in the field of tax disputes the non-existence of a norm on which an assessment act is based does not imply the nullity of the latter, generating only a situation of abstract illegality of the assessment...invocable in accordance with the enforcement of tax execution, up to the end of the term for opposition to tax enforcement, even if later than that for impugning defeasible acts, but never at any time".

In accordance with firm and reiterated case law of the Supreme Administrative Court, even in cases of acts that apply unconstitutional norms, the corresponding defect of violation of law due to error in the legal assumptions generates mere defeasibility, except if it concerns the content of a fundamental right (subsection d) paragraph 2 of article 133 of the CPA) which does not occur in the case of the principle of legality, protection of good faith or right to private property (court decisions of 30/01/01, 15/01/03, 25/05/04, 16/11/05, 10/01/07, 5/07/07 and 7/05/08, in proceedings nos. 26.392, 1629/02, 208/04, 1108/03 (Plenary), 736/05, 496/06, 479/06 (Plenary) and 1034/07.

We see no reason to follow a different understanding from that which has been followed by the Supreme Administrative Court decisions mentioned above, because one thing is the defect of the norm, another, different one, is the defect of the act. That is, an assessment act that applies a norm under the mistaken assumption of its validity, its existence or legal relevance, suffers from a defect of violation of law due to error in the legal assumption, a cause of mere defeasibility, but not of nullity.

And, thus being, the assessment acts sub judice being subject only to the general rule of defeasibility, the regime applicable as to the term for submitting impugnation is that of subsection a) of paragraph 1 of article 102 of the CPPT.

Thus, as the Claimant was notified to pay the Corporate Income Tax assessments sub judice by 13 October and 17 November, both of 2014, when the Claimant's petition was filed with this Tribunal, the respective term had already been exceeded, whereby the Claimant's right to impugn by means of submission of the request for constitution of an arbitral tribunal the Corporate Income Tax assessments in question had lapsed.

Whereby the arbitral pronouncement request submitted is considered time-barred, as regards the Corporate Income Tax assessments, due to lapse of the right of action, thus being partially prejudicial to the ruling on the merits question.

The Respondent further defends by exception stating that, as the Claimant alleges the unconstitutionality of the norm applied in the assessments sub judice, the Tribunal is not competent to decide on the constitutionality or unconstitutionality of the norms.

Now, the Tribunal will obviously not declare the (un)constitutionality of the provision sub judice, but shall only pronounce itself as to its concrete application to the concrete facts, assessing the legality or otherwise of that application. The Tribunal is thus, to this extent, materially competent.

  1. ON THE LEGALITY OF THE TRANSFER TAX ASSESSMENTS

It is therefore necessary to decide on the merits of the request for arbitral decision of the Transfer Tax assessments sub judice.

Now let us see, Law no. 64-A/2008 of 31 December approved the special regime applicable to investment funds for residential rental housing (hereinafter "FIRAH"). This regime provided in paragraph 7 of its article 8 that the following were exempted from Transfer Tax:

"a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in paragraph 1;

b) The acquisitions of urban properties or of autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the purchase option referred to in paragraph 3 of article 5 by the lessees of the properties that form part of the assets of the investment funds referred to in paragraph 1."

The 2014 State Budget introduced 3 further paragraphs to the said article 8, as follows:

"14 – For the purposes of the provisions of paragraphs 6 to 8, urban properties are considered to be intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within three years from the moment when they became part of the assets of the fund, the taxpayer being required to communicate and provide proof to the Tax Authority of the respective effective rental, within 30 days following the end of the said period.

15 – When properties have not been the subject of a rental contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in paragraphs 6 to 8 cease to have effect, the taxpayer being required in that case to request the Tax Authority, within 30 days following the end of the said period, the assessment of the respective tax.

16 – If properties are disposed of, with the exception of the cases provided for in article 5 [i.e. purchase option], or if the FIRAH is subject to liquidation, before the expiry of the period provided for in paragraph 14, the taxpayer is equally required to request from the Tax Authority, prior to the disposition of the property or the liquidation of the FIRAH, the assessment of the tax due in accordance with the preceding paragraph."

Now, it is necessary to assess the legality of the Transfer Tax assessments sub judice.

As mentioned above, both properties which were the subject of assessment were acquired by the Claimant in early 2014, benefiting from Transfer Tax exemption under subsection a) of paragraph 7 of article 8 of the legal regime of the FIRAH. Such norm requires that the property be intended for rental for permanent housing in order for it to benefit from such exemption.

Now, the requirement to intend the property for residential rental is not a requirement of the amendments introduced by the 2014 State Budget, but rather a requirement of the FIRAH tax regime ab initio, indeed a natural consequence of the motivations that led to the creation of these funds.

The 2014 State Budget does, it is true, establish a new requirement for the exemption: if the allocation to rental for permanent housing does not occur within the 3-year period following the entry of the property into the fund, the fund must request the assessment of the Transfer Tax that was not assessed ab initio.

However, this was not the case at hand, contrary to what appears to follow from the Claimant's argument. The Transfer Tax assessments made with regard to the properties described above were not based on their retention in the fund for a period equal to or greater than 3 years without allocation to rental for permanent housing. Moreover, as follows from the documentation attached to the case, both properties were in the fund for only a few months.

The assessments in question, moreover as follows from the assessment notices attached to the case, were based on the fact that the properties were given "a destination different from that on which the benefit was based". Now, to this assertion made by the Tax Authority that the properties were given a different destination, that is, that they were not allocated to rental for permanent housing, the Claimant responds only in its allegations that "It does not understand, however, where the Tax Authority got such an idea", saying nothing more about what is the essential requirement of the application of the exemption.

Thus, we understand that the issue is not whether or not the norm applied is retroactive, which would be the case if, by way of example, the property remained in the fund for a 3-year period without yet having been allocated to rental for permanent housing and, for that reason, there was Transfer Tax assessment.

In the present case, this is not what is at issue. The properties in question are disposed of without having fulfilled their purpose – allocation to rental for permanent housing. It is not a matter of a time period. Once disposed of, that purpose can no longer be fulfilled, whereby the requirement established for the Transfer Tax exemption to be applicable was not met.

For compliance with subsection a) of paragraph 7 of article 8, it is not sufficient to have a declared intention at the acquisition of the property but an effective allocation to rental for permanent housing. Now, the Claimant does not prove in any way in this proceeding, nor in the prior administrative procedure the fulfillment of that requirement.

We thus understand that the issue is not whether or not the law is retroactive, nor is there any harm to the expectations of the Claimant or worsening of its tax position. The rationale for granting a tax benefit in the context of Transfer Tax to the FIRAH was clearly established from the outset – "The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds…";

Now, we thus understand that the Transfer Tax assessment at hand is legal under subsection a) of paragraph 7 of article 8. Let us now examine the rationale of the Transfer Tax assessment under article 235, paragraph 16 of Law 83/2013 of 31 December.

Recalling, paragraph 16 establishes:

16 – If properties are disposed of, with the exception of the cases provided for in article 5 [i.e. purchase option], or if the FIRAH is subject to liquidation, before the expiry of the period provided for in paragraph 14, the taxpayer is equally required to request from the Tax Authority, prior to the disposition of the property or the liquidation of the FIRAH, the assessment of the tax due in accordance with the preceding paragraph."

And in the preceding paragraph it establishes:

15 – When properties have not been the subject of a rental contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in paragraphs 6 to 8 cease to have effect, the taxpayer being required in that case to request the Tax Authority, within 30 days following the end of the said period, the assessment of the respective tax.

In the present case – disposition of properties that were never allocated to rental for permanent housing by the fund – this paragraph 16, conjugated with paragraph 15, does not alter the substance or requirements of the exemption established by subsection a) but has a more procedural/operative nature – reading that if there is disposition of properties that have not been the subject of a rental contract, the exemptions cease (namely that of subsection a) of paragraph 7), the taxpayer being required to request the Tax Authority for the assessment of the respective tax.

In conclusion, we maintain that the issue is not whether or not the law is retroactive, nor is there any harm to the expectations of the Claimant or worsening of its tax position, whereby we thus understand that the Transfer Tax assessment at hand is legal.

  1. DECISION

In light of the foregoing, it is decided to judge:

a) The arbitral pronouncement request submitted time-barred, as regards the Corporate Income Tax assessments, in the total amount of €913.10 (nine hundred and thirteen euros and ten cents), due to lapse of the right of action, thereby acquitting, in consequence, the Respondent of the request.

b) The arbitral pronouncement request unfounded, with the consequent annulment, with all legal effects, of the Transfer Tax assessment acts better identified in the case file, in the total amount of €1,143.02 (one thousand one hundred and forty-three euros and two cents);

The value of the case is set at Euros €2,056.12 (two thousand and fifty-six euros and twelve cents), in accordance with the provisions of articles 3, paragraph 2 of the Fees Regulation for Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subsection a) of the CPPT and 306 of the CPC.

The amount of costs is set at Euros 612 (six hundred and twelve euros) under article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, at the charge of the Claimant, in accordance with the provisions of articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Notify the parties.

Lisbon, 14 March 2016

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, in accordance with article 131, paragraph 5 of the Civil Procedure Code, applicable by reference of article 29, paragraph 1, subsection e) of the RJAT.

The wording of the present arbitral decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Acronym for Legal Framework for Tax Arbitration.

Frequently Asked Questions

Automatically Created

Is Article 236 of Law 83-C/2013 unconstitutional for retroactively revoking IMT and Stamp Tax exemptions for FIIAH real estate investment funds?
Article 236 of Law 83-C/2013 was challenged as unconstitutional for allegedly violating Article 103(3) of the Portuguese Constitution, which prohibits retroactive taxation. The claimant argued that retroactively revoking IMT and Stamp Tax exemptions for properties acquired under the FIIAH regime violated the principle of tax legality and legal certainty. The Tax Authority contended the provision was not retroactive because it merely established a compliance period for requirements already inherent in the FIIAH regime, rather than creating new tax obligations or altering the conditions for exemption eligibility. The provision regulated the timeframe for proving compliance with pre-existing requirements, with the period beginning only after the law's entry into force.
Can IMT and Stamp Tax assessments on FIIAH property acquisitions be declared null under Article 133(2)(d) of the Administrative Procedure Code?
The claimant sought nullity under Article 133(2)(d) of the Administrative Procedure Code, arguing the IMT and Stamp Tax assessments violated the essential content of fundamental rights, specifically the constitutional prohibition on retroactive taxation. However, the Tax Authority argued that assessments based on unconstitutional or illegal norms are merely defeasible (annullable) rather than null under Portuguese administrative law. According to established case law from the Supreme Administrative Court, nullity is reserved for acts that directly violate rights, freedoms and guarantees of citizens, not acts that merely conflict with the principle of legality. The distinction is critical because null acts can be challenged at any time, while defeasible acts are subject to strict time limits for judicial challenge.
What is the difference between nullity and annulability of tax assessments that violate the principle of tax legality under Article 103(3) of the Portuguese Constitution?
Portuguese administrative tax law distinguishes between null acts (nulos) and annullable acts (anuláveis). Null acts violate the essential content of fundamental rights and can be challenged at any time without limitation periods. Annullable acts are merely illegal or based on unconstitutional norms but do not directly violate fundamental rights; they are subject to strict time limits (typically 90-120 days from notification). The Tax Authority argued that assessments violating Article 103(3) of the Constitution (tax legality principle) are annullable, not null, because they conflict with the principle of legality rather than directly violating constitutional rights and guarantees. This distinction determines whether time-barring applies, particularly for Corporate Income Tax assessments that were not administratively appealed within statutory deadlines.
Are taxpayers entitled to compensatory interest on unlawfully collected IMT and Stamp Tax under the FIIAH special regime?
The claimant requested condemnation of the Tax Authority to restitution of sums unduly paid plus compensatory interest (default interest) on all amounts paid. Under Portuguese tax law, taxpayers who successfully challenge unlawful tax assessments are entitled to refunds plus compensatory interest calculated from the date of payment until restitution. The right to compensatory interest is recognized as compensation for the State's unlawful retention of taxpayer funds. However, entitlement depends on: (1) successful challenge of the assessments' legality, (2) proving the taxes were paid, and (3) demonstrating the assessments were unlawful under applicable law. If assessments are deemed valid or if procedural requirements are not met (such as time-barring of claims), no right to compensatory interest arises.
How does the CAAD arbitral tribunal review the legality of IMT and IS liquidations related to the SIIAH and FIIAH special tax regime?
The CAAD (Administrative Arbitration Center) arbitral tribunal reviews IMT and Stamp Tax liquidations under Article 2(1)(a) of the RJAT (Administrative Arbitration Legal Regime). However, the Tax Authority challenged CAAD's competence to declare Article 236 of Law 83-C/2013 unconstitutional. Under Portuguese constitutional law, only the Constitutional Court has competence to declare norms unconstitutional with erga omnes (general) effects. CAAD tribunals can refuse to apply norms they consider unconstitutional in specific cases (incidental review), but cannot make abstract declarations of unconstitutionality. The tribunal must first address jurisdictional issues, then review whether assessments comply with the FIIAH/SIIAH special regime requirements, whether Article 236 was properly applied, and whether any procedural or substantive illegalities warrant annulment or declaration of nullity, while respecting the Constitutional Court's exclusive competence for abstract constitutional review.