Process: 419/2016-T

Date: January 26, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD arbitration decision 419/2016-T addresses whether Article 236 of Law 83-C/2013 unconstitutionally applies retroactive tax treatment to real estate investment funds (FIIAH). The claimant FIIAH acquired urban property on December 18, 2013 for €105,562.50, benefiting from IMT and Stamp Tax exemptions under Article 8(7,a) and 8(8) of the FIIAH special regime. On May 25, 2016, tax authorities issued assessments totaling €2,031.68 (IMT: €1,187.18; Stamp Tax: €844.50) based on alleged change of property destination causing exemption lapse. The fund challenged these assessments arguing Article 236's transitional rule—which recalculates the three-year exemption period from January 1, 2014 for properties acquired before that date—violates Article 103(3) of the Portuguese Constitution prohibiting retroactive tax legislation. The claimant contends IMT and Stamp Tax are single-obligation taxes whose taxable events were exhausted at acquisition, creating vested exemption rights that cannot be retroactively revoked. The fund characterizes the assessments as constitutionally invalid and seeks full reimbursement plus compensatory interest under Article 43 of the General Tax Law. The arbitration tribunal confirms jurisdiction to assess constitutional conformity of tax acts within concrete legality analysis, though bound to apply law independently from administrative interpretation. This case examines the critical intersection of transitional tax regimes, constitutional protection against retroactivity, and vested rights doctrine in Portuguese real estate fund taxation.

Full Decision

ARBITRATION DECISION

The request for constitution of the arbitration tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority on 18-08-2016. Pursuant to the provisions of subsection a) of article 2 and subsection b) of article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council designated the undersigned as arbitrator of the sole arbitration tribunal and notified the parties of such designation.

Thus, in compliance with the provisions of subsection c) of article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the sole arbitration tribunal was constituted on 19-10-2016, followed by the pertinent legal proceedings.

I – REPORT

On 21-07-2016, the company "A... – Real Estate Investment Fund Closed for Housing Lease", NIPC..., filed a request for constitution of a sole arbitration tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, as amended by article 228 of Law No. 66-B/2012, of 31 December (hereinafter, briefly referred to as RJAT), in which the Tax and Customs Authority is the Respondent.

The purpose is to ascertain "whether article 236 (Transitional Rule within the Scope of the Special Regime Applicable to FIIAH and SIIAH) of Law No. 83-C/2013, of 31 December – insofar as it provides for the application of the current Tax Regime of FIIAH 'to urban properties that were acquired by FIIAH before 1 January 2014, in such cases calculating the three-year period provided for in article 14 as from 1 January 2014' – establishes a new regime for the expiry of exemptions provided for in article 8(7, a) and article 8(8) (Tax Regime) of the Tax Regime of FIIAH, constituting a flagrant and unequivocal violation of the principle of non-retroactivity of tax legislation, enshrined in article 103(3) of the Constitution of the Portuguese Republic."

In the present case, given the foregoing in the request for arbitration pronouncement, the contested assessments are: IMT No..., in the amount of €1,187.18 and Stamp Tax No..., in the amount of €844.50.

The Claimant requested that: "(i) the nullity of the Assessments be declared based on their unconstitutionality (abstract illegality); subsidiarily, should this not be accepted, the Assessments be annulled; (ii) the Claimant be reimbursed for the entire amount paid pursuant to the Assessments that are the subject matter of the present request for arbitration pronouncement, plus, in accordance with article 43 (Undue Payment of Tax Obligation) of the General Tax Law, the compensatory interest that may be due until such reimbursement."

II - Preliminary Issues

A - As to the issue raised, (albeit laterally), by the Respondent regarding the impossibility of this Tribunal pronouncing on the unconstitutionality of rules, or of a specific rule, it shall be stated that the claim does not seek to obtain a declaration of unconstitutionality of rules but merely to ascertain the legal relevance that the assessment of constitutional conformity will have on the concrete legality of an identified situation, act or procedure.

Thus, in theory, this tribunal may assess – from this perspective – whether the normative provision supporting the tax act respects the principles enshrined in the Fundamental Law, deciding accordingly.

ON THE OTHER HAND

B - The Courts, as independent bodies, are naturally subordinated to THE LAW, in the sense of being bound by the Law, and it is their duty to interpret and apply tax legislation without any dependence on the criteria, particularly of interpretation and action, adopted by the Administration in its application. Given that the Tax Authority does not have the power to derogate the principle of tax legality, it will always be possible to assert the non-conformity of the tax act with existing legal norms and their interpretation.

In this manner, the concrete presuppositions in question may impose an administrative decision to the contrary, even if the Tax Authority services claim to be complying with applicable law in performing the act. What is certain, in any event, is that the Arbitration Tribunal is naturally not bound by the understanding and considerations that the Administration took into account, being able and obliged to (always) scrutinize the (il)legality of the act performed.

The proceedings are not tainted by nullities.

There is no obstacle to the examination of the merits of the case.

III - MATTERS OF FACT

A - Facts Established as Proven

1 - The Fund A... – Real Estate Investment Fund Closed for Housing Lease was, at the date of the assessments now in question, the owner of the urban property, registered under article ..., fraction "A", in the urban property register of the parish of ..., in the municipality of ...;

2 - The said property was acquired on 18.12.2013, for the amount of €105,562.50, benefiting from exemption of IMT and Stamp Tax under article 8(7, a) and article 8(8) of the legal regime of FIIAH;

3 - Assessments of IMT No..., in the amount of €1,187.18 and Stamp Tax No..., in the amount of €844.50 were made on 25-05-2016;

4 - The Claimant, by petition, based the request regarding the aforementioned assessments on the provisions of article 236 (transitional rule within the scope of the special regime applicable to FIIAH and SIIAH), provided for in Law No. 83-C/2013 of 31 December;

5 - It appears from the respective assessment notices that they are based on the fact that in the deed of transfer a different destination from the one that gave rise to the benefit would be given, causing the exemption to lapse.

6 - The Assessments were paid by the Claimant on 31 May 2016.

B - Facts Established as Not Proven

Insofar as relevant to the decision, there are no facts that should be considered as not proven.

C - Substantiation of the Matters of Fact Proven and Not Proven

With respect to matters of fact, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it is its duty to select the facts relevant to the decision and to distinguish between proven and unproven matters (cf. article 123(2) of CPPT and article 607(3) of CPC, applicable ex vi article 29(1, a and e) of RJAT).

In this manner, the facts relevant to the judgment of the case are selected and delineated according to their legal relevance, which is established with regard to the various plausible solutions to the legal issue(s) in question (cf. previous article 511(1) of CPC, corresponding to the current article 596, applicable ex vi article 29(1, e) of RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110/7 of CPPT, and the documentary evidence produced in the proceedings, the facts listed above were considered proven, insofar as relevant to the decision.

IV - MATTERS OF LAW

1 - The disputed issue in the present arbitration action concerns the Claimant's claim regarding the assessment of the (il)legality of the assessments challenged, which, in its view, were made pursuant to and by force of article 8(16), of the Special Regime of FIIAH, and article 236(2) of Law No. 83-C/2013, of 31 December, alleging its unconstitutionality, due to retroactivity in its application to the case.

2 - Arguing in its favor the nature of single-obligation taxes of both IMT and Stamp Tax, whose tax event, temporally situated, is exhausted in the performance of the act of acquisition of the property, and in the fact that it had been recognized the exemption of such taxes at the time of that acquisition, a vested right already crystallized in its legal sphere at the date of the amendments to the Special Regime of FIIAH.

3 - The Tax Authority refutes this, pointing out that the Special Regime of FIIAH has always defined with clarity the presuppositions that conditioned the attribution of exemptions from IMT and Stamp Tax to FIIAH, with reference to properties acquired by them, "intended exclusively for lease for permanent housing", 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 Tax Authority could always, within the scope of its duty to supervise the presuppositions of tax benefits referred to in article 7 (current article 1), of the EBF, decide on the maintenance of exemptions or the restoration of the standard taxation regime (article 14(1) of EBF).

Let us examine this.

4 - The issue has been repeatedly dealt with in this CAAD, as evidenced, among others, in the Tax Authority's Response.

See, with due deference:

Proceedings Nos. 398/2015-T, 688/2015-T, 689/2015-T, 694/2015-T, 705/2015-T, 706/2015-T, 707/2015-T, 708/2015-T, 709/2015-T, 710/2015-T, 717/2015-T, 729/2015-T, 735/2015-T, 61/2016-T, 62/2016-T, 63/2016-T, 76/2016-T, 93/2016-T, 121/2016-T and 165/2016-T.

Arbitration Decision No. 398/2015-T

As mentioned above, both properties that are the subject of assessment were acquired by the Claimant in early 2014, benefiting from IMT exemption under subsection a) of article 8(7) of the legal regime of FIIAH. Such rule requires that the property be intended for lease for permanent housing in order to benefit from such exemption.

Now, the obligation to allocate the property for housing lease is not a requirement of the amendments introduced by the 2014 State Budget, but rather a requirement of the fiscal regime of FIIAH ab initio, indeed a natural consequence of the motivations that led to the creation of these funds.

Therefore, we understand that the retroactivity or non-retroactivity of the applied rule is not at issue, which would be the case, if, by way of example, the property had been in the fund for a period of 3 years without yet having been allocated to lease for permanent housing and, for that reason, there had been an IMT assessment.

In the present case, that is not what is at issue. The properties in question are transferred without having fulfilled their purpose - allocation to permanent housing lease. It is not a question of timeline. Once transferred, that purpose can no longer be fulfilled, so the requirement established for the IMT exemption to be applicable was not met.

Arbitration Decision No. 688/2015-T

Now, taking into account the transfer of the property... for purposes different from those for which the aforementioned tax benefits were granted, this would determine (and did determine in the case under analysis) the automatic restoration of standard taxation.

Thus, in light of the foregoing, this Arbitration Tribunal understands that the provisions of article 236(16) of the Transitional Regime, applied in conjunction with article 236(15) of the same article, in no way alter the substance or requirements of applicability of the exemptions established by article 8(7) and article 8(8) of the special regime applicable to FIIAH and SIIAH, with respect to the assessments in dispute.

In these terms, taking into account the conclusions arising from the analysis presented above, the Tribunal understands that the answer to the question posed at point 6.1, above, shall be negative, that is, the assessments of IMT and Stamp Tax that are the subject of the request for arbitration pronouncement do not suffer from any illegality, so the request for arbitration pronouncement should be considered without merit.

Arbitration Decision No. 709/2015-T

For compliance with the provisions of subsection a), of article 8(7), of the special regime applicable to real estate investment funds for housing lease (FIIAH), it is not sufficient to have a declared intention at the acquisition of the property but rather an effective allocation to permanent housing lease.

[...] We thus understand that the retroactivity or non-retroactivity of the law is not at issue, nor is there any injury to the expectations of the Claimant or worsening of its tax position. The rationale for the attribution of a tax benefit under IMT to FIIAH was clearly established from the outset - "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing, by investment funds..."

Arbitration Decision No. 729/2015-T

The rationale for the attribution of the tax benefit under IMT and Stamp Tax to FIIAH is, clearly, its allocation to permanent housing lease - "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing, by investment funds..." - so that the consequence of it being given a different purpose is that the exemption could not have been granted, and legality must be restored, assessing the taxes that, were it not for the declaration of intention made at the time of acquisition, would have been assessed.

...In conclusion, the transfer of the fraction would always result in the lapse of the exemption by application of article 14(3) of the EBF, so that, therefore, there is no question, in the situation sub judice, of any retroactive application of a rule that would introduce a new regime for the lapse of exemptions, nor is there any injury to the expectations of the Claimant or worsening of its tax position, so we thus understand that the assessments of IMT and Stamp Tax in dispute are legal.

Thus, the analysis of the issue raised by the Claimant regarding the alleged retroactivity of the regime provided for by article 236 of the State Budget Law for 2014 is rendered moot insofar as, as demonstrated above, the circumstances that gave rise to the tax assessments in dispute are in no way related to the amendments originating from that article, being solely related to the transfer of the property and consequent allocation to a purpose different from the one for which the exemptions from IMT and Stamp Tax were granted."

Arbitration Decision No. 93/2016-T

The rationale for the attribution of the tax benefit under IMT and Stamp Tax to FIIAH is, clearly, its allocation to permanent housing lease - "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing, by investment funds..." - so that the consequence of it being given a different purpose is that the exemption could not have been granted, and legality must be restored, assessing the taxes that, were it not for the declaration of intention made at the time of acquisition, would have been assessed.

In conclusion, the transfer of the property would always result in the lapse of the exemption by application of article 14(3) of the EBF, so that, therefore, there is no question, in the situation sub judice, of any retroactive application of a rule that would introduce a new regime for the lapse of exemptions, nor is there any injury to the expectations of the Claimant or worsening of its tax position, so we thus understand that the assessments of IMT and Stamp Tax in dispute are legal." [emphasis ours].

5 - In view of the consolidated decisional direction quoted above, (we are only aware of two decisions to the contrary), to which we adhere, as it is important to contribute to a uniform interpretation and application of the Law (article 8(3) of the Civil Code), it is necessary to conclude that it is not a question of (un)constitutionality of rules and their implications on the assessments made, which should be taken into account in the present proceedings, by force of the Transitional Rule within the Scope of the Special Regime Applicable to FIIAH and SIIAH of Law No. 83-C/2013, of 31 December, but rather the fact that a different purpose from the one that gave rise to the benefit or exemption was given.

6 - For this reason, the contested tax assessment act does not suffer from a defect of error regarding the presuppositions of law, requiring its maintenance in the legal order and not its nullity or annulment as is requested.

7 - As to the request for reimbursement of the tax paid and compensatory interest, formulated by the Claimant, article 43(1) of the General Tax Law provides that compensatory interest is due when it is determined that there was an error attributable to the services from which results payment of the tax debt in an amount greater than legally due.

In this case, given what has been stated, there is obviously no place for any reimbursement or payment of compensatory interest.

DECISION

In these terms, it is decided to judge the arbitration claim unfounded, and consequently:

a - Not to declare the nullity or annulment of the tax assessment act(s) challenged;

b - Not to order the reimbursement of the value of the tax paid and payment of compensatory interest;

c - To condemn the Claimant for the costs of the proceedings.

Value of the Proceedings

The value of the proceedings is set at €2,031.68, in accordance with article 97-A(1, a) of the Code of Tax Procedure and Process, applicable by force of subsections a) and b) of article 29(1) of RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

The arbitration fee is set at €612.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was considered entirely without merit, in accordance with articles 12(2) and 22(4), both of RJAT, and article 4(4) of the aforementioned Regulation.

Notify accordingly.

Lisbon, 26 January 2017

The Arbitrator

Fernando Miranda Ferreira

Frequently Asked Questions

Automatically Created

What is the special IMT and Stamp Tax regime applicable to FIIAH under Portuguese tax law?
The special IMT and Stamp Tax regime for FIIAH (Real Estate Investment Funds for Housing Lease) under Portuguese law provides exemptions at acquisition under Article 8(7,a) and 8(8) of the FIIAH legal regime. These exemptions apply to urban properties acquired by FIIAH funds, exempting them from both Real Estate Transfer Tax (IMT) and Stamp Tax at the time of purchase. However, the regime includes conditionality provisions that may cause exemptions to lapse if the property destination changes from what originally justified the tax benefit. The regime underwent significant modification through Law 83-C/2013, which introduced transitional rules affecting properties acquired before January 1, 2014.
Does Article 236 of Law 83-C/2013 violate the principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
The constitutional challenge centers on whether Article 236(2) of Law 83-C/2013 violates Article 103(3) of the Portuguese Constitution, which prohibits retroactive application of tax laws. The claimant argues that recalculating the three-year exemption period from January 1, 2014 for properties acquired in 2013 constitutes impermissible retroactivity. Since IMT and Stamp Tax are single-obligation taxes with taxable events exhausted at acquisition, the exemption became a vested right in the fund's legal sphere when granted in December 2013. Applying new temporal conditions retroactively to revoke previously recognized exemptions allegedly violates constitutional protection against retroactive tax legislation, as it imposes new tax burdens on completed transactions where exemption rights had already crystallized.
How does the three-year exemption deadline for FIIAH properties acquired before January 1, 2014 apply under the transitional regime?
Under Article 236 of Law 83-C/2013, the transitional regime for FIIAH properties acquired before January 1, 2014 provides that the current FIIAH tax regime applies to such properties, with the three-year period specified in Article 14 calculated from January 1, 2014—not from the actual acquisition date. For the property in question (acquired December 18, 2013), this means the three-year exemption maintenance period would run from January 1, 2014 to December 31, 2016, rather than from the original acquisition date. This recalculation extends the period during which exemption conditions must be maintained, creating the basis for the constitutional challenge regarding whether this temporal reset violates non-retroactivity principles for transactions completed under prior law.
What is the CAAD arbitration procedure for challenging IMT and Stamp Tax assessments issued to FIIAH funds?
The CAAD (Administrative Arbitration Center) procedure for challenging IMT and Stamp Tax assessments follows the Legal Regime for Arbitration in Tax Matters (RJAT) under Decree-Law 10/2011. The FIIAH fund filed a request for constitution of a sole arbitration tribunal on July 21, 2016, which was accepted and notified to the Tax Authority on August 18, 2016. The CAAD Ethics Council designated the arbitrator on October 19, 2016, constituting the tribunal. The procedure allows taxpayers to challenge tax assessments by requesting declarations of nullity based on unconstitutionality or illegality. The tribunal has jurisdiction to assess whether normative provisions supporting tax acts respect constitutional principles, deciding on concrete legality without being bound by administrative interpretations, though it cannot issue abstract declarations of unconstitutionality.
Can a FIIAH fund claim reimbursement and compensatory interest after unlawful IMT and Stamp Tax assessments?
Yes, a FIIAH fund can claim reimbursement and compensatory interest following unlawful IMT and Stamp Tax assessments under Article 43 of the General Tax Law (LGT), which governs undue payment of tax obligations. In this case, the claimant requested: (i) declaration of nullity of the assessments based on unconstitutionality or, subsidiarily, annulment; and (ii) full reimbursement of €2,031.68 paid on May 31, 2016, plus compensatory interest calculated until actual reimbursement. Compensatory interest compensates taxpayers for loss of use of funds improperly collected by tax authorities. The right to reimbursement arises when assessments are determined to be illegal, unconstitutional, or otherwise invalid, with interest accruing from payment date until refund to make the taxpayer whole for the financial prejudice suffered during the period funds were wrongfully retained.