CAAD 48/2017-T: IMT and Stamp Tax Exemption for Real Estate Investment Funds for Residential Leasing – Retroactivity Challenge

ARBITRATION DECISION

I – Report

1. On 16.01.2017, A…, S.A., with registered office at …, no. …–…, in Lisbon, with tax identification number …, in its capacity as manager of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental" registered with the Securities Market Commission with tax identification number …, submitted a request to CAAD for the constitution of an arbitral tribunal, in accordance with article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LBAT"), in which the Tax and Customs Authority is the Respondent, for the purpose of declaring the nullity or, should such not be deemed appropriate, the annulment of the following assessments relating to the acquisition of the autonomous fraction identified by the letter "I" of the urban property registered in the urban property matrix of the parish of …-…, municipality of Sintra, under matricial article number …, with B… – Closed Real Estate Investment Fund for Residential Rental as the taxpayer:

a) IMT assessment, in the amount of € 840.00, corresponding to document no. … .

B) Stamp tax assessments, in the amount of € 672.00, corresponding to document no. … .

1. The Applicant further requests the reimbursement of the amounts of the assessments, which it considers to have been paid unduly, as well as the respective indemnity interest.

2. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority.

Pursuant to the terms and for the purposes of the provisions in paragraph 1 of article 6 of the LBAT, by decision of the President of the Ethics Council, duly communicated to the parties within the legally applicable time limits, the undersigned was appointed as arbitrator, who communicated to the Ethics Council and to the Administrative Arbitration Centre acceptance of the appointment within the regularly applicable time period.

The Arbitral Tribunal was constituted on 21-03-2017.

1. In view of the absence of any situation provided for in article 18, paragraph 1, of the LBAT, which would render necessary the arbitral meeting provided therein, the holding of the same was dispensed with.

2. The grounds presented by the Applicant, in support of its claim, were, summarily, as follows:

Law no. 64-A/2008, of 31 December (State Budget for 2009), which approved the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental, established in article 8 the tax regime applicable to REIFHR with regard to Municipal Tax on Onerous Transfers of Real Estate, having defined in number 7 of the cited article 8 the following:

"Are exempt from IMT:

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

(…)"

Law no. 83-C/2013, of 31 December (State Budget for 2014) added to article 8 of the Tax Regime of REIFHR numbers 14 to 16, with the following text:

"14 - For the purposes of the provisions in nos. 6 to 8, urban properties are deemed to be intended for rental for permanent housing whenever they are subject to a rental contract for permanent housing within a period of three years counted from the moment they came to form part of the fund's assets, with the taxpayer being required to communicate and provide proof to the AT of the respective effective rental, within 30 days following the end of the said period.

15 - When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 are rendered ineffective, and in such case the taxpayer must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 - Should the properties be alienated, with the exception of cases provided for in article 5, or should the REIFHR be subject to liquidation, before the expiry of the period provided for in no. 14, the taxpayer must similarly request from the AT, before the alienation of the property or the liquidation of the REIFHR, the assessment of the tax due in accordance with the previous number."

Law no. 83-C/2013, of 31 December further established in its article 236 the following transitional regime:

"1 - The provisions of nos. 14 to 16 of article 8 of the special regime applicable to REIFHR and REISHR, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are applicable to properties that have been acquired by REIFHR from 1 January 2014.

2 - Without prejudice to the provision of the previous number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to REIFHR and REISHR, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by REIFHR before 1 January 2014, with the three-year period provided for in no. 14 being counted, in such cases, from 1 January 2014."

On the basis of the above-cited provisions, in particular those resulting from the amendments made to the Tax Regime of REIFHR, the now Applicant requested from the Tax Authority the assessment of IMT and Stamp Tax that are the subject of this request for arbitral pronouncement, with the assessments having been paid by the Applicant on 27 October 2016.

The tax acts refer to a property that formed part of the assets of Fund B…, at the date of entry into force of Law no. 83-C/2013, of 31 December (State Budget for 2014), that is, those covered by the above-mentioned article 236.

The exemptions from IMT and Stamp Tax, contained respectively in numbers 7, paragraph a), and 8 of article 8 of the Tax Regime of real estate investment funds for residential rental had been recognized at the request of the Applicant, in accordance with article 10 of the IMT Code, at a moment prior to the entry of the property into Fund B….

The taxable event, both in the case of IMT and in the case of Stamp Tax, is the acquisition of ownership of the relevant properties by Fund B…, and the IMT and Stamp Tax exemptions, at the date on which they entered the assets of Fund B…, were not conditioned upon the subsequent verification of any facts or circumstances, nor were they subject to any expiration regime.

Thus, it is manifest that the subsequent imposition to the taxable facts of any conditioning facts or circumstances affecting the exemption is subject to unconstitutionality for violation of the principle of non-retroactivity of tax law, enshrined in article 103, no. 3, of the Constitution of the Portuguese Republic.

1. The Tax and Customs Authority – called upon to render its opinion – contested the Applicant's claim, defending itself, in summary, with the following grounds:

BY WAY OF EXCEPTION

Given what is alleged by the Applicant, it appears that the latter seeks (after all) the non-application of the norm due to its alleged illegality/unconstitutionality and not due to any illegality occurring in its application to the concrete facts.

Now, it so happens that the Constitutional Court is the competent forum for knowing both the illegality and unconstitutionality of legal norms [articles 280, no. 2, als. a) and d) and 281, no. 1, als. a) and b) and no. 3 of the CRP and articles 6 and 66 of the Constitutional Court Law].

The Tribunal is incompetent to perform an abstract review, which is reserved to the Constitutional Court in accordance with article 281 of the CRP, so that there is a dilatory exception that prevents the continuation of the proceedings, with the consequent absolution of the instance, in accordance with articles 576, nos. 1 and 2 and 577, a) of the Civil Procedure Code, applicable ex vi of article 29, no. 1, al. e) of the LBAT.

With identical consequence, the lack of legal standing of the Respondent must be declared because "The Tax Administration cannot refuse to apply norms on the grounds of their unconstitutionality or illegality, since it is subject to the principle of legality, as provided for in articles 266, no. 2 of the CRP, 3, no. 1 of the CPA and 55 of the LGT"

BY WAY OF SUBSTANTIVE CHALLENGE

As results from the respective description of the assessments in question, relating to the acquisition of the property in question, IMT and Stamp Tax were assessed in accordance with article 235 of Law no. 83-C/2013, of 31 December [which added no. 16 to article 8 of Law 64-A/2008, of 31 December], by virtue of the execution of a deed of sale and purchase, as this fact determines that the property was given a destination different from that upon which the benefit was based, causing the exemption to expire.

No. 14 of article 8 of the Tax Regime of REIFHR came to clarify the meaning of the expression "urban properties intended exclusively for rental for permanent housing", as provided therein, "urban properties are deemed to be intended for rental for permanent housing whenever they are subject to a rental contract for permanent housing within a period of three years counted from the moment they came to form part of the fund's assets".

And it being the case that, alongside such clarification, with the introduction of numbers 15 and 16 in the said article 8, a regime for the cessation of the benefit came to be provided in the event that the legal requirement contained in no. 14 was not observed.

In the case at hand, with regard to the property to which the assessments in question refer and which formed part of the Fund at the date of entry into force of Law 83-C/2013, of 31 December, the Applicant requested from the AT the assessments of IMT and Stamp Tax, in view of the changes introduced to the tax regime of REIFHR, in that it alienated it to third parties, thereby conferring upon it a destination different from that which was to be supposed: residential rental.

Taxpayers who intended to benefit from the said exemptions always had, from the beginning of the tax regime applicable to REIFHR, to fulfill the prerequisite that such properties were intended exclusively for rental for permanent housing.

Therefore, the Applicant is without reason when it asserts that the exemptions in question were not conditioned by any facts or circumstances, and, consequently, the argumentation which it constructs, starting from such incorrect premise, is likewise burdened with error.

The new wording introduced by Law no. 83-C/2013, of 31 December, in favor of legal certainty and the principle of protection of legitimate expectations, and in the spirit of the legislator, when creating the regime, came only to specify the criterion already required.

The exemptions in question did not simply cease to apply: what occurred, merely, was that criteria were established to specify a legal requirement provided for in an indeterminate manner.

On the other hand, the cessation of a tax benefit may always take place, for example, should it be found, in a concrete case, by virtue of inspection, that the respective prerequisites are not met, to which is further added the provision of article 14, no. 2, of the TBF that:

"when the tax benefit relates to the acquisition of goods intended for the direct realization of the purposes of the acquirers, it becomes ineffective if those goods are alienated or given another destination without authorization from the Minister of Finance, without prejudice to other sanctions or different regimes established by law"

The action of the Respondent entity is always circumscribed in accordance with its subordination to the law, not being able to disapply a norm on the grounds of its unconstitutionality, should such unconstitutionality be verified, which by mere academic hypothesis is conceded.

Thus, the request for payment of indemnity interest is unfounded, as there is no error in the action of the respondent entity, much less an error attributable to the services, thereby ruling out the application of article 43 of the LGT.

1. With the request for constitution of the Arbitral Tribunal, the Applicant attached to the case a legal opinion authored by Professors Dr. C… and Doctor D… .

2. By arbitral order of 27.06.2017, the exceptions raised by the Respondent were judged to be unfounded.

3. The tribunal is materially competent and is regularly constituted in accordance with the LBAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings are not vitiated by defects that would render it invalid.

1. It is necessary to resolve the following issues:

a) Whether the assessments that are the subject of this proceeding are illegal.

b) If so, whether the Applicant should be recognized as having the right to restitution of the taxes allegedly paid, as well as indemnity interest on such amounts.

II – The Relevant Facts

1. The following facts are considered to be proven:

2. The Respondent proceeded with the following assessments, with B… – Closed Real Estate Investment Fund for Residential Rental as the taxpayer:

a) IMT assessment, in the amount of € 840.00, corresponding to document no. … .

B) Stamp Tax assessments, in the amount of € 672.00, corresponding to document no. … .

1. The autonomous fraction identified by the letter "I" of the urban property registered in the urban property matrix of the parish of …-…, municipality of Sintra, under matricial article number …, to which the tax acts in question refer, formed part of the assets of B… – Closed Real Estate Investment Fund for Residential Rental, at the date of entry into force of Law no. 83-C/2013, of 31 December, having been acquired for valuable consideration on a prior date.

2. The exemptions from IMT and Stamp Tax, contained respectively in numbers 7, paragraph a), and 8 of article 8 of the Tax Regime of real estate investment funds for residential rental, had been recognized at the request of the Applicant in accordance with article 10 of the IMT Code, at a moment prior to the entry of the fraction in question into Fund B…, as a real estate investment fund for residential rental.

3. The IMT assessment in question contains the following:

[space for document details]

1. The Stamp Tax assessment in question contains the following:

[space for document details]

1. The tax obligations to which the assessments refer were paid on 27 October 2016.

With interest for the resolution of the case, in the context of the facts alleged by the parties, there are no facts not proven.

1. The Tribunal's conviction regarding the resolution of the factual matter was based on the documents in the case file, as well as on the pleadings presented, and further on the circumstance that there is complete agreement between the parties regarding the same, with disagreement being limited to the matter of law.

III – The Applicable Law

1. Law no. 64-A/2008, of 31 December, approved the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental.

In its article 8, the tax regime applicable to real estate investment funds was established. With regard to the Municipal Tax on Onerous Transfers of Real Estate and Stamp Tax, it was established in nos. 7 and 8 of the mentioned article 8, as follows:

"7 — Are exempt from IMT:

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

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

8 - All acts are exempt from Stamp Tax, provided that they are connected with the transfer of urban properties intended for permanent housing which occurs as a result of the conversion of the right of property of such properties into a right of rental over the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5.

For its part, Law 83-C/2013, of 31 December, added to the said article 8 numbers 14 to 16 with the following wording:

"14 — For the purposes of the provisions in nos. 6 to 8, urban properties are deemed to be intended for rental for permanent housing whenever they are subject to a rental contract for permanent housing within a period of three years counted from the moment they came to form part of the fund's assets, with the taxpayer being required to communicate and provide proof to the AT of the respective effective rental, within 30 days following the end of the said period.

15 — When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 become ineffective, and in such case the taxpayer must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 — Should the properties be alienated, with the exception of cases provided for in article 5, or should the REIFHR be subject to liquidation, before the expiry of the period provided for in no. 14, the taxpayer must similarly request from the AT, before the alienation of the property or the liquidation of the REIFHR, the assessment of the tax due in accordance with the previous number."

Law 83-C/2013, of 31 December, further established in its article 236 the following transitional regime:

"1 — The provisions of nos. 14 to 16 of article 8 of the special regime applicable to REIFHR and REISHR, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are applicable to properties that have been acquired by REIFHR from 1 January 2014.

2 — Without prejudice to the provision of the previous number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to REIFHR and REISHR, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by REIFHR before 1 January 2014, with the three-year period provided for in no. 14 being counted, in such cases, from 1 January 2014."

1. In light of this legislative framework, the legal question that must be resolved is whether, in light of no. 2 of article 236 of Law 83-C/2013, of 31 December and nos. 14, 15 and 16 of Law no. 64-A/2008, of 31 December, in the wording given by that statute, the acquisition of the property in question, which occurred before 1 January 2014, can be taxed because the property was sold before the expiry of the three-year period counted from 1 January 2014, and on the other hand, if so, whether such legal solution is in accordance with article 103, no. 3, of the Constitution of the Portuguese Republic, which provides that "No one can be required to pay taxes (…) that are retroactive in nature (…)"

2. It is indubitable that, in light of the ordinary norms transcribed, a Real Estate Investment Fund for residential rental which, from 1.01.2014, sells a property acquired in a prior year, which had benefited from an exemption because the property was intended for rental for permanent housing, and which sells it before three years have elapsed after 1.01.2014, becomes subject to tax by virtue of Law 83-C/2013, of 31 December.

Note that, in the case "sub judice", the taxable event in question (the acquisition of property by the Applicant) occurred entirely under the old law.

It is also indubitable that the taxable event in question is subject to taxation in light of Law 83-C/2013, of 31 December, but was not, as will be better seen below, in light of Law no. 64-A/2008, of 31 December, in its original wording.

1. Sérgio Vasques writes that "The establishment of the express prohibition of article 103, no. 3, of the Constitution of the Republic, serves essentially to make clear that retroactivity, strong or weak, is in principle forbidden to the tax legislator, who may only resort to it as an exception. In light of article 103, no. 3, of the CRP, a retroactive tax law will always appear, from the outset, to be unconstitutional law, with no need for any case-by-case weighing to reach this first conclusion. But this does not prevent us, in a second moment, from concluding that legal certainty should [be] sacrificed to other constitutional values which in the concrete case prove to be more relevant and that in exceptional circumstances a retroactive tax law may be considered legitimate, as may happen in case of war, natural disaster, epidemic or serious financial crisis".[1]

Further in the doctrine, Ana Paula Dourado tells us that "In the cases of taxes of single obligation (for example, the purchase and sale of a property, subject to IMT), the prohibition of retroactivity implies the respect for past taxable facts, that is, the non-application of the new law to those facts, as the tax obligation was born and is concluded."[2]

1. In line with the qualified doctrine just referred to, one can read in judgment no. 617/2012, of 19 December 2012, Case no. 150/12, of the Constitutional Court:

"Indeed, the taxable event of the tax obligation (…) indisputably occurs before the publication of the new law, it not being possible to understand that there is a complex tax legal fact of successive formation.

The application of the new law to this fact occurring prior to its approval involves, thus, authentic retroactivity.

What is relevant, in light of the constitutional principles enunciated, is not the moment of assessment of a tax, but rather the moment in which the act occurs that determines the payment of that tax. It is that act that will give rise to the constitution of a tax obligation, so that at that time, in obedience to the principle of legality, in the aspect based on the principle of protection of legitimate expectations, it is required, as a preventive measure, that the law providing for the creation or aggravation of that tax already be in force, so that the citizen can consider the tax consequences of his conduct.

(…)

Now, the fact having already occurred that gave rise to the tax obligation later aggravated by new law, the reasons that presided over the establishment of the rule of prohibition of retroactivity in this domain are entirely present, since it is important to prevent the abstract risk that the law published with retroactive effect causes unreasonable financial burdens, due to the impossibility in which the affected taxpayers were, bound by such facts already occurred, to foresee and provide for their tax consequences, determined by future law."

1. In accordance with the foregoing, and in line with the doctrine and case law cited, it is clear that no. 2 of article 236 of Law 83-C/2013, of 31 December, in conjunction with no. 16 of article 8 of Law no. 64-A/2008, of 31 December, in the wording of Law 83-C/2013, establishes a retroactive taxation (authentic retroactivity), violating article 103, no. 3, of the Constitution of the Portuguese Republic, so that the tribunal cannot fail to disapply them, in obedience to the norm established in article 204 of the CRP.[3]

2. In essence in the sense just expounded, write Professors José Xavier de Basto and Paulo Mota Pinto, in the mentioned opinion attached to the case file:

"In providing for the application of norms that restricted exemptions – the new nos. 14 to 16 of article 8 of the regime of REIFHR, with the consequent effect of "broadening" of the incidence – to acquisitions of real estate for valuable consideration and acts and contracts connected thereto prior to its entry into force, which were not subject to IMT and Stamp Tax at the date of their execution and came to be by effect of that special transitional provision, the norm of no. 2 of article 236 of the Law of the State Budget for 2014 is thus a retroactive tax norm, and which is characterized by authentic retroactivity.

This is not hindered by any allegation to the effect that the said restriction of the exemption was only intended to verify the purpose of rental of the acquisitions, since such a prerequisite of the exemption did not exist – was not specified and embodied in a period provided for in the law – at the moment in which the relevant tax facts (the acquisition of the properties and the acts and contracts connected thereto) were completed. Just as it is irrelevant that provision is made that the three-year period only runs from the entry into force of the Law of the State Budget for 2014, since such a prerequisite of the exemption (the period) was not even required at the moment in which the relevant tax facts were performed.

The norm of article 236, no. 2, of the Law of the State Budget of 2014 thus attributes retroactive effects to the restriction of the exemptions operated by article 235 of the same Law, as it orders the application of the new prerequisites of the exemptions – rental and non-alienation within a period of 3 years, under pain of these becoming "ineffective" – to acquisitions and to acts (that is, to tax facts already completed) prior to its entry into force.

(…)

Having reached the foregoing conclusion, it is also necessary to conclude the unconstitutionality, by violation of the constitutional prohibition of tax with retroactive nature, contained in article 103, no. 3, of the Constitution, of the norm of article 236, no. 2, of the Law of the State Budget for 2014, in that it provides for the application of the amendments to the exemptions from IMT and Stamp Tax of REIFHR to tax facts (acquisition of real estate) prior to its entry into force."

1. The Respondent, although defending the constitutional conformity of article 236, no. 2, of the Law of the State Budget of 2014, and the expiration of the assessments in light of this Law, still maintains the legality of the assessments, by virtue of the expiration of the exemptions, also in light of the tax regime applicable before the entry into force of Law 83-C/2013, of 31 December.

2. Thus, the Respondent argues that taxpayers who intended to benefit from the said exemptions always had, from the beginning of the tax regime applicable to REIFHR, to fulfill the prerequisite that such properties were intended exclusively for rental for permanent housing, and that, in the case at hand, with regard to the property to which the assessments in question refer, the Applicant alienated it to third parties, thereby conferring upon it a destination different from that of residential rental, which constituted a condition of the exemptions in question, and that the new wording introduced by Law no. 83-C/2013, of 31 December, in favor of legal certainty and the principle of protection of legitimate expectations, and in the spirit of the legislator, when creating the regime, came only to specify the criterion already required.[4]

Let us examine this argument of the Respondent.

1. Numbers 7 and 8 of article 8 of the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental, approved by Law no. 64-A/2008, of 31 December, approved that were exempt from IMT, can be, with interpretive utility, compared with article 9 of the IMT Code which establishes that "Are exempt from IMT the acquisitions of urban property or autonomous fraction of urban property intended exclusively for own and permanent housing whose value that would serve as a basis for assessment does not exceed € 92,407".

For its part, no. 7 of article 11 of the same code establishes that:

"Are equally denied the benefit of the exemptions and reductions of rates provided for in article 9 and in paragraphs a) and b) of no. 1 of article 17 the following situations:

a) When the goods are given a destination different from that on which the benefit was based, within a period of six years from the date of acquisition, except in the case of sale;

b) When the immovable properties are not used for own and permanent housing within a period of six months from the date of acquisition."

It thus results clearly that, for the legislator, "to designate a property exclusively for housing" does not equate to "to use", as otherwise it would not be understood why a period within which such use under pain of loss of exemption was required.

On the other hand, by imposing a period within which the change of designation of the property implies also the loss of the exemption, the legislator recognizes that, in the absence of such normative provision, the change of designation would not imply the loss of the exemption.

The word "designate" expresses the intent of the taxpayer at the moment of the taxable fact and, declared before the Respondent, is legally presumed to be true in light of article 75, no. 1, of the General Tax Law, without prejudice to the Tax Administration being able to rebut such presumption in accordance with general terms.

Examining nos. 7 and 8 of article 8 of the Regime of REIFHR, resulting from Law no. 64-A/2008, of 31 December, the illustrious authors of the above-cited opinion tell us that:

"According to these norms, it was thus sufficient, for the exemption from IMT, that it was a question of acquisitions, by REIFHR, of urban properties or fractions of autonomous properties intended exclusively for rental for permanent housing – specifically, nothing was provided regarding the necessity of maintaining the properties in the assets of REIFHR for a certain period, or regarding the necessity of actual execution of the rental contract also within a certain period. If, therefore, a REIFHR acquired immovable properties intended for residential rental – counting as such for the purposes of the rules on the composition of its assets –, such acquisition would benefit from the exemption from IMT, even if, for example due to market difficulties, it were unable to realize the rental over a certain period, or if for that reason it were to come to alienate the property. This is understandable: the legislator wanted to encourage the acquisition of properties for rental by REIFHR and their placement on the market, providing for this the exemption from IMT, but without placing on REIFHR the risk, under pain of loss of the benefit consisting in the exemption, of being unable to rent the properties, or of being unable to alienate them, as the new law came to provide (…)"[5]

In light of the foregoing, it cannot fail to be concluded that within the scope of article 8 of the Regime of REIFHR, resulting from Law no. 64-A/2008, of 31 December, before the amendments introduced by Law no. 83-C/2013, of 31 December, the exemptions in question did not expire.

1. Further add that to such conclusion does not stand in the way, contrary to what the Respondent also alleges, article 14, no. 2, of the Statute of Tax Benefits, in the following terms:

"when the tax benefit relates to the acquisition of goods intended for the direct realization of the purposes of the acquirers, it becomes ineffective if those goods are alienated or given another destination without authorization from the Minister of Finance, without prejudice to other sanctions or different regimes established by law".

First of all, it must be emphasized that, as a prerequisite for the extinction of the tax benefit the circumstance that the property was given "another destination without authorization from the Minister of Finance", the absence of such authorization from the Minister of Finance does not constitute the basis of the tax act, nor is this alleged by the Respondent in these proceedings.

Moreover, the Respondent does not invoke any norm that establishes the requirements for such authorization, nor the attribution of competence to the Minister of Finance for the granting thereof.

In our view, article 14, no. 2, of the TBF should be approximated to the exemption regime of the following paragraphs of article 6 of the IMT Code:

"d) (Public utility administrative and merely public utility legal persons, regarding goods intended, directly and immediately, for the realization of their statutory purposes).

e) (Private institutions of social solidarity and entities legally equated to these, regarding goods intended, directly and immediately, for the realization of their statutory purposes).

f) (Acquisitions of goods for religious purposes, carried out by religious legal persons, as such registered, in accordance with the law regulating religious freedom).

g) (Acquisitions of properties individually classified as of national interest, of public interest or of municipal interest, in accordance with the applicable legislation). h) (Acquisitions of goods located in economically disadvantaged regions, when carried out by commercial or civil companies in commercial form, which intend them for the exercise, in those regions, of agricultural or industrial activities considered of superior economic and social interest).

i) (Acquisitions of goods by associations of physical culture, when intended for installations not normally usable for shows with paid admission)."

With respect to these exemptions, article 11 of the same code establishes that:

"1 - The exemptions referred to in paragraphs d), e), f), h) and i) of article 6 become ineffective when the goods are alienated or given another destination without prior authorization from the Minister of Finance.

2 - The authorization provided for in the previous number may only be granted when there is an impossibility or it is recognized as inconvenient for the goods to be given the original destination and the new destination of such goods or of those acquired with the proceeds of their sale equally justifies the exemption.

(…)".

None of this was provided for regarding the exemptions to which the present proceedings relate. Neither the expiration of the benefit, nor the possible ministerial authorization that would prevent such expiration, and consequently, neither the possible grounds for the hypothetical authorization.

For the reasons set out, this argument of the Respondent is manifestly also unfounded.

1. For everything set out above, and in particular by the non-application of no. 2 of article 236 of Law 83-C/2013, of 31 December, in conjunction with no. 16 of article 8 of Law no. 64-A/2008, of 31 December, in the wording of Law 83-C/2013, on the grounds of its unconstitutionality, as required by article 204 of the Constitution of the Portuguese Republic, it is concluded that the tax assessments in question lack a legal basis, which has as a consequence the annulment of the same.[6]

2. The Applicant further sought to condemn the Respondent to restituate the amounts paid corresponding to the assessment that is the subject of this proceeding, as well as the respective indemnity interest.

Let us see.

In accordance with the provision in paragraph b) of article 24 of the LBAT, the arbitral decision on the merits of the claim to which there is no appeal or challenge binds the tax administration from the end of the period provided for an appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of the sentences of tax courts, "reestablish the situation that would exist if the tax act that was the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for the purpose", which is in line with what is provided for in article 100 of the LGT [applicable by virtue of the provision in paragraph a) of no. 1 of article 29 of the LBAT], which establishes that "the Tax Administration is obligated, in case of total or partial success of a claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full reconstitution of the legality of the act or situation that is the subject of the dispute, including the payment of indemnity interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the LBAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning in CAAD, not making reference to condemnatory decisions, it should be understood that the competencies include the powers that in judicial challenge proceedings are attributed to tax tribunals, and this is the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the LBAT, in which it is proclaimed, as the first guideline, that "the tax arbitration procedure should constitute an alternative procedural means to the judicial challenge procedure and to the action for recognition of a right or legitimate interest in tax matters".[7]

The judicial challenge procedure, despite being essentially a procedure for annulment of tax acts, admits the condemnation of the Tax Administration to pay indemnity interest, as is evident from article 43, no. 1, of the LGT, which establishes that "indemnity interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services that results in payment of the tax debt in an amount greater than that legally due", and article 61, no. 4 of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which provides that "if the decision that recognized the right to indemnity interest is judicial, the period for payment runs from the beginning of the period of its voluntary execution".

Thus, no. 5 of article 24 of the LBAT in saying that "payment of interest, regardless of its nature, is due in accordance with the terms provided in the general tax law and in the Code of Tax Procedure and Process" should be understood as allowing the recognition of the right to indemnity interest in the arbitration procedure.

In the case at hand, it is manifest that, as a consequence of the illegality of the assessment acts, there is grounds for reimbursement of the tax, by virtue of the said articles 24, no. 1, paragraph b), of the LBAT and 100 of the LGT, as such is essential to "reestablish the situation that would exist if the tax act that was the subject of the arbitral decision had not been performed".

Regarding indemnity interest, it remains to examine this claim in light of article 43 of the General Tax Law.

It provides that no. 1 of that article that "Indemnity interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services that results in payment of the tax debt in an amount greater than that legally due".

As can be read in the judgment of the STA, of 03/04/2015, rendered in case no. 01529/14[8]:

"It is necessary then to ascertain whether that 'error as to the legal prerequisites' (the erroneous consideration, in the calculation of the tax to be paid, of a norm later ruled unconstitutional) can or cannot be attributable to the services of the AT. (….) That is, it must be examined whether the AT could or could not make that 'judgment'.

Also on this specific question the STA has already pronounced itself on various occasions in similar cases (see, among others, the judgments of 26/2/2014, case no. 0481/13; of 12/3/2014, case no. 01916/13; of 21/1/2015, case no. 0843/14; of 21/1/2015, case no. 0703/14), in the sense that, for purposes of payment of indemnity interest to the taxpayer, no error cannot be attributed to the services of the AT, by itself, that determined payment of the tax debt in an amount greater than that legally due, since it was not within its discretion to decide differently from the way it decided.

And as stated in that first cited decision, '…unless it is a matter of disrespect for directly applicable and binding constitutional norms, such as those referring to rights, freedoms and guarantees (see art. 18, no. 1, of the CRP), the AT cannot refuse to apply the norm on the grounds of unconstitutionality (With interest on the question, see the opinions of the Advisory Council of the General Prosecutor's Office referred to in the Collection of Opinions of the General Prosecutor's Office, volume V, items 10, 3, 3.2 – respectively, with the headings 'Review of Constitutionality', 'Subsequent Review' and '(Non)Application of Unconstitutional Norm (Powers and Duties of the Public Administration)' – whose doctrine we follow.).

As the Administration in general is subject to the principle of legality, enshrined constitutionally, and the AT is also subject to it by virtue of the provision in article 55 of the LGT.

In our view, the AT should await the declaration of unconstitutionality with binding general force, to be issued by the Constitutional Court (TC), in accordance with article 281 of the CRP.

As VIEIRA DE ANDRADE says, 'This conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over legal law. That is not what is at issue, because what is at issue is not the constitutionality of the law, but the judgment that administrative bodies may make about that constitutionality. On one hand, the Administration is not a body for review of constitutionality; on the other hand, the subjection of the Administration to the law is aimed not only at the protection of the rights of individuals, but also at the defense and pursuit of public interests […]. The grant to the administrative power of unlimited powers to control the unconstitutionality of the laws to apply would lead to administrative anarchy, would invert the Law-Administration relationship and would front directly against the principle of separation of powers, as enshrined in our Constitution' (Constitutional Law, Almedina, 1977, p. 270)."

In the same sense, JOÃO CAUPERS asserts that 'the Administration does not, in principle, have competence to decide the non-application of norms whose constitutionality offers it doubts, contrary to the courts, to whom it is incumbent to perform diffuse and concrete review of constitutional conformity, as is demonstrated by the differences between articles 207 [now 204] and 266, no. 2, of the Constitution. While the former prevents the courts from applying unconstitutional norms, the latter stipulates the subordination of administrative bodies and agents to the Constitution and the law.

It appears clear that the essential difference between the two precepts results exactly from the circumstance that it was not intended to commit to the Administration the task of review of constitutionality of laws. The performance of such function by that body must be viewed as exceptional' (The Fundamental Rights of Workers and the Constitution, Almedina, 1985, p. 157.).

We conclude, thus, that in Portuguese Constitutional Law there is no possibility for the Administration to refuse to obey a norm that it considers unconstitutional, substituting itself for the bodies responsible for review of constitutionality, unless it is a matter of violation of rights, freedoms and guarantees constitutionally enshrined, which is not manifestly the case when it is a matter of the application of a norm possibly violating the principle of non-retroactivity of tax law…" (end of quotation).

(…)

In sum, in the case at hand, for purposes of payment of indemnity interest to the taxpayer, no error can be attributed to the services of the AT, by itself, that determined payment of the tax debt in an amount greater than that legally due, since it was not within its discretion to decide differently from the way it decided. The erroneous consideration (in the calculation of the tax to be paid) of a norm later ruled unconstitutional cannot be attributed to illegal conduct of the AT, nor can it justify the condemnation to payment of the indemnity interest requested under article 43 of the LGT, as a factual prerequisite constitutive of such right – error attributable to the services – is not met."

In line with this case law,[9] which is accepted, the claim for indemnity interest is to be judged as unfounded.

Thus, the Tax and Customs Authority must give execution to the present decision, in accordance with article 24, no. 1, of the LBAT, restituating the amounts paid by the Applicant relating to the annulled assessments.

IV – Decision

Thus, the Arbitral Tribunal decides, judging the claim for arbitral pronouncement well-founded:

a) To decree the annulment of the assessments that are the subject of this proceeding.

b) To condemn the Respondent to restitute to the Applicant the amounts paid.

c) To absolve the Respondent from the claim for condemnation to payment of indemnity interest.

For the purposes of the provision in article 280, no. 3 of the CRP and article 72, no. 3 of the Constitutional Court Law, notice of the present arbitral decision is ordered to be given to the Public Prosecutor.

Value of the action: € 1,512.00 (one thousand five hundred and twelve euros) in accordance with the provision in article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Costs Regulation in Arbitration Proceedings.

Costs borne by the Respondent, in the amount of € 306.00 (three hundred and six euros), in accordance with no. 4 of article 22 of the LBAT.

Notice shall be given.

Lisbon, CAAD, 17 July 2017

The Arbitrator

Marcolino Pisão Pedreiro

[1] MANUAL OF TAX LAW, Almedina, 2011, p. 295.

[2] TAX LAW, Lectures, Almedina, 2015, p. 175.

[3] What has just been expounded corresponds, in essence, to the reasoning basis of the arbitral decision rendered on 20-05-2016, in case 683/2015-T, and also in the decision rendered in case 64/2016-T, in which the undersigned was the arbitrator.

[4] Among other arbitral decisions in this sense, one can read in the arbitral decision rendered in case 708/20015-T that "it would be ill understood that the legal-tax framework of REIFHR could be interpreted, in the segment to which relates paragraph a) of no. 7 and no. 8 of article 8 – article 104 of the LOE2009 – as not binding the REIFHR to the materialization of permanent residential rental with respect to the properties acquired for that purpose by REIFHR."

[5] Our emphasis.

[6] And not declaration of nullity, given that, in the case "sub judice", there is no apparent occurrence of offense "to the essential content of a fundamental right".

As can be read in the summary of the judgment of 23.10.2013, rendered in case 0579/13 (Rapporteur Isabel Marques da Silva), "The assessment act executed in application of a municipal resolution that is null, non-existent or unconstitutional suffers from abstract illegality – articles 286, no. 1, al. a) of the CPT and 204, no. 1 of the CPPT –, which, in cases of coercive collection, may be invoked up to the end of the period for opposition to tax enforcement, even if later than the period for challenge of voidable acts but never, consequently, at any time." (emphasis ours).

On this question, Jorge Lopes de Sousa also tells us that "There are, however, grounds that are invocable both as grounds for opposition to tax enforcement and for judicial challenge.

(…)

These are the cases of norms that violate superior hierarchy norms such as constitutional norms (…).

The illegality is abstract because. Affecting the law itself, it does not depend on the act that makes its application in concreto.

Being provided as grounds for opposition to tax enforcement, this abstract illegality also constitutes a defect of violation of law, as the assessment will have made application of a norm that is not valid in light of a superior hierarchy rule." (TAX PROCEDURE AND PROCESS CODE Annotated, 4th Ed., Vislis, 2003, p. 443-444, emphasis ours).

[7] On this question see Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, p. 110-116).

[8] http://www.dgsi.pt/jsta.nsf/35fbbbf22e1bb1e680256f8e003ea931/34af21b03b79ed3380257e03003b403a?OpenDocument&ExpandSection=1#_Section1

[9] In the same sense the following judgments of the Supreme Administrative Court: of 26-02-2014, case no. 0481/13; of 12-03-2014, case no. 01916/13; of 21-01-2015, case no. 0843/14; of 21-01-2015, case no. 0703/14; of 14-03-2015, case no. 01529/14 as well as the arbitral decision rendered in case 507/2015-T.