Summary
Full Decision
The Arbitrators José Pedro Carvalho (President Arbitrator), José Coutinho Pires and Francisco José Nicolau Domingos, appointed by the Deontological Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby agree as follows:
ARBITRAL DECISION
I – REPORT
1. On 1 October 2018, A... – CLOSED REAL ESTATE INVESTMENT FUND, Tax Number..., with registered office at..., no...., ..., Lisbon, represented by B... – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A., Tax Number... and registered office at the same location, filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the Municipal Tax on Onerous Real Estate Transmissions (IMT) assessment no..., in the amount of € 682,500.00.
2. To support its request, the Applicant alleges, in summary, that the assessment in dispute is vitiated by error regarding both the factual and legal assumptions.
3. On 02-10-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).
4. The Applicant did not proceed to appoint an arbitrator, wherefore, under article 6(2)(a) and article 11(1)(a) of the RJAT, the President of the Deontological Council of CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.
5. On 21-11-2018, the parties were notified of such appointments and manifested no intention to refuse any of them.
6. In accordance with article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 11-12-2018.
7. On 23-12-2018, the Respondent, duly notified for that purpose, filed its response defending itself by way of objection.
8. Under article 16(c) and (e) and article 29(2), both of the RJAT, the hearing referred to in article 18 of the RJAT was dispensed with, as well as the submission of arguments by the parties.
9. It was indicated that the final decision would be notified by the deadline provided in article 21(1) of the RJAT.
10. The Arbitral Tribunal is materially competent and is properly constituted, in accordance with articles 2(1)(a), 5 and 6(2) of the RJAT.
The parties have legal personality and capacity, are legitimately constituted and are duly represented, under articles 4 and 10 of the RJAT and article 1 of Order no. 112-A/2011, of 22 March.
The proceedings are not vitiated by nullities.
Thus, there is no obstacle to the consideration of the case.
All things considered, it is necessary to deliver:
II. DECISION
A. MATTERS OF FACT
A.1. Facts Established as Proven
1- A... – CLOSED REAL ESTATE INVESTMENT FUND (hereinafter, "Fund") is a collective investment undertaking established in the form of a closed real estate investment fund of private subscription, under the authorization issued on 16-06-2016 by the Securities Market Commission.
2- On 09-09-2016, the "Fund" commenced its activity under the management of B... – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A.
3- The assets of the "Fund" comprise urban properties or their autonomous units, intended for resale or for economic exploitation through leasing or other forms of onerous exploitation.
4- On 03-07-2018, the "Fund" filed IMT Model Declaration 1 registered under no. 2018/..., expressing to the Tax Authority its intention to acquire from C... (Tax Number...), D... (Tax Number...), E... (Tax Number...) and F... (Tax Number...) married in community of acquired property with G... (Tax Number...) two properties.
5- The properties which the Applicant manifested the intention to acquire are as follows:
• Urban property intended for commerce situated at Street..., nos... to..., in Lisbon, registered in the urban property register of the Parish of... under article..., for the price of € 8,228,000.00;
• Urban property intended for commerce situated at Street..., nos... to..., in Lisbon, registered in the urban property register of the Parish of... under article..., for the price of € 2,272,000.00.
6- On 03-07-2018, the Tax Authority issued IMT assessment no..., determining a total tax amount of €682,500.00.
7- Said amount corresponds to the application of the 6.5% rate to the value of the transactions referred to.
8- On 04-07-2018, the Applicant proceeded to pay said IMT assessment.
9- On that same date, the Applicant acquired by public deed the two properties described above.
A.2. Facts Established as Not Proven
With relevance to the decision, there are no facts that should be considered as not proven.
A.3. Grounds for the Proven and Not Proven Factual Matters
Regarding factual matters, the Tribunal does not need to pronounce itself on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish the proven from the not proven matters (see article 123(2) of the Code of Tax Procedure and Process (CPPT) and article 607(3) of the Code of Civil Procedure (CPC), applicable pursuant to article 29(1)(a) and (e) of the RJAT).
Thus, the facts relevant to the judgment of the case are chosen and determined according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former article 511(1) of the CPC, corresponding to current article 596, applicable pursuant to article 29(1)(e) of the RJAT).
Thus, taking into account the positions assumed by the parties, in light of article 110(7) of the CPPT, and the documentary evidence attached to the proceedings, the facts listed above were considered proven, with relevance to the decision.
Allegations made by the parties and presented as facts, consisting of strictly conclusive statements incapable of proof and whose veracity is to be assessed in relation to the specific factual matters consolidated above, were neither considered proven nor not proven.
B. THE LAW
The issue at stake in the present arbitral action is whether article 1 of Decree-Law no. 1/87, of 3 January remains in force and, therefore, whether Real Estate Investment Funds are exempt from IMT in the acquisition of properties.
To that end, it is important to decide whether the IMT exemption introduced in article 46 of the Tax Expenditure Budget (EBF) by the State Budget Law for 2007 revoked – and, if so, whether expressly or tacitly – the sisa (IMT) exemption contained in article 1 of Decree-Law no. 1/87.
On this matter, inter alia, the decisions of CAAD delivered in arbitral proceedings no. 544/2016-T, no. 677/2016-T and no. 440/2017-T have already pronounced themselves.
It is therefore important to first identify the legal norms relevant at the time of occurrence of the facts.
According to article 5(1) of the IMT Code, the incidence of IMT is regulated by legislation in force at the time the tax obligation is created, with article 5(2) establishing that such obligation is created at the moment when the transmission occurs.
Now, as appears from the established factual circumstances, the Applicant is a closed real estate investment fund, operating in accordance with the General Regime of Collective Investment Undertakings, approved by Law no. 16/2015, of 24 February.
The Applicant acquired, by public deed, on 04-07-2018, two properties located in the parish of Santa Maria Maior, to which correspond matrix articles no... and....
As it is relevant, a framework of the legal regime applicable to investment funds, created by Decree-Law no. 246/85, of 12 July, and subsequently supplemented by Decree-Law no. 1/87, of 3 January, which created tax incentives for the constitution of real estate investment funds, will be presented.
In the preamble to Decree-Law no. 1/87, it is expressly recognized the significant contribution that this new type of financial institution could bring to the formation of savings and their mobilization for investments in the real estate sector, in addition to the positive effects that thereby would be induced in the construction industries and in the market for leasing of properties for housing and for offices.
Article 1 of the aforementioned Decree-Law no. 1/87, of 3 January determined that "acquisitions of immovable property made for a real estate investment fund by its respective management company are exempt from Sisa."
Thus, in accordance with this legal norm, acquisitions of immovable property made with the objective of forming part of a real estate investment fund would be exempt from Sisa.
Later, Decree-Law no. 287/2003, of 12 November, reformed the taxation of assets, approving the Municipal Real Estate Tax Code (CIMI) and the Municipal Tax on Onerous Real Estate Transmissions Code (CIMT), published respectively in its annexes I and II.
With regard to references, article 28 of Decree-Law no. 287/2003, of 12 November determined that:
"1 - All legal texts that mention the Code of Municipal Property Tax or municipal property tax shall be deemed to refer to the Code of Municipal Tax on Immovable Property (CIMI) or to municipal tax on immovable property (IMI).
2 - All legal texts that mention the Code of Municipal Sisa Tax and the Code of Tax on Successions and Gifts, municipal sisa tax or tax on successions and gifts shall be deemed to refer to the Code of Municipal Tax on Onerous Real Estate Transmissions (CIMT), the Stamp Duty Code, the municipal tax on onerous real estate transmissions (IMT) and the stamp duty, respectively."
The aforementioned Decree-Law no. 287/2003 further included a repeal clause in its article 31, whose paragraph 6 provided:
"The tax benefits relating to municipal property tax, now reported on IMI, as well as those relating to municipal sisa tax established in legislation outside the Code approved by Decree-Law no. 41,969, of 24 November 1958, and in the Tax Expenditure Budget, which now pass to be reported on IMT, remain in force."
Indeed, in accordance with articles 28 and 31(6) of Decree-Law no. 287/2003, and as stated in the decision of CAAD in arbitral proceedings no. 544/2016-T, "the sisa tax exemptions should be deemed to be reported to IMT, so that acquisitions of immovable property carried out by a management company of a real estate investment fund with the intention that they form part of that fund would continue to be exempt from IMT (that sisa exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January). The exemption would exist whenever the fund was in the position of acquirer of the property."
It should be noted, as stated in the aforementioned decision of CAAD in arbitral proceedings no. 544/2016-T, "that this exemption had a clear purpose and one fully assumed by the tax legislator. At stake was the objective, of a social and economic nature, of defining a fiscal framework capable of encouraging the creation of investment funds with the capacity to mobilize savings towards the realization of investments in the real estate sector, thereby stimulating the construction industries and the market for leasing properties for housing and for offices."
The State Budget Law for 2007, in its article 82, amended the wording of article 46 of the EBF, which henceforth provided, in addition to the exemption from Municipal Property Tax (IMI) for properties forming part of open real estate funds, an IMT exemption for said properties. Thus, properties forming part of mixed or closed funds, provided certain conditions were met, would be entitled to a 50% reduction in the IMT rate.
This article 82 made no reference to the sisa (IMT) exemption which was established in article 1 of Decree-Law no. 1/87, of 3 January.
As alluded to in the aforementioned decision of CAAD in arbitral proceedings no. 544/2016-T, the question that arises concerns the issue of whether the IMT exemption introduced in article 46 of the EBF by the State Budget Law of 2007 revoked – and, if so, whether expressly or tacitly – the Sisa (IMT) exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January – which, until then, no one doubted remained in force. This question is pertinent to the extent that, under article 7(1) of the Civil Code, the general rule regarding the cessation of the force of a law is that "when it is not intended to have temporary force, a law ceases to be in force only if it is revoked by another law."
Now, Decree-Law no. 1/87 contains no indication that article 1 would have temporary force, so, admitting that it has not been revoked by another law, the exemption contained therein will – still today – remain in force, as concluded in the decision of CAAD in arbitral proceedings no. 544/2016-T.
Thus, the answer to this question will indicate the answer to the question of whether the IMT assessment acts at issue in these proceedings are illegal or not.
Article 7(2) of the Civil Code provides that "repeal may result from express declaration, from incompatibility between the new provisions and the previous rules or from the fact that the new law regulates all the matters of the previous law."
As explained in the decision of CAAD in arbitral proceedings no. 544/2016-T, "the existence of recognition rules, aimed at the clear and precise identification of norms that are in force in the legal system and those that have been expressly or tacitly repealed, is of the utmost significance, particularly from the perspective of the principle of legality, specifically in its dimension of tax legality, affirming the requirement of legal certainty and protection of confidence inherent in the constitutionally structuring principle of the Rule of Law. Citizens, economic agents and legal operators must be able to know with certainty which norms are and which are not in force in the legal system. Article 7 of the Civil Code thus establishes three alternative criteria of repeal, the satisfaction or non-satisfaction of which has significant implications in the specific case."
As the Applicant states, it could only be considered that the exemption provided for in article 1 of Decree-Law no. 1/87 is not applicable if it were understood "that the force of article 1 of Decree-Law no. 1/87, of 3 January ceased because that provision: (i) had temporary force; or (ii) was expressly repealed; or (iii) was tacitly repealed."
Let us therefore examine whether any of the three alternatives occurred which, according to article 7(2) of the Civil Code, would lead to the repeal of article 1 of Decree-Law no. 1/87, of 3 January.
The three alternatives of article 7(2) of the Civil Code are:
a) express declaration of repeal;
b) incompatibility between the new provisions and the previous rules; or
c) the fact that the new law regulates all the matters of the previous law.
As to the first of these, there is no express repeal clause in article 46 of the EBF, in the wording given to it by article 82 of the State Budget Law for 2007, of the aforementioned article 1 of Decree-Law no. 1/87.
As to the second of these alternatives, the IMT exemption contained in the new wording of article 46 would apply whenever the fund was the acquirer of the property, whereas the IMT exemption contained in article 1 of Decree-Law no. 1/87 would apply when the fund was in the position of transferor of the property. Indeed, there is no incompatibility between the new provisions (new article 46 of the EBF) and the previous rules (article 1 of Decree-Law no. 1/87), but rather, as the Applicant states, they apply "to distinct moments in the process of acquisition/transfer of properties and, in that respect, also to different taxpayers." Thus, it can be noted that the new provisions and the previous rules are not only compatible but create a fiscal regime that is especially attractive for management companies of real estate funds.
It should also be noted that the reduction to half of the IMT rates, contained in the current article 49 of the EBF, constitutes a supplement that is not insignificant and not redundant in relation to the exemption established by article 1 of Decree-Law no. 1/87. It is a structural exemption and teleologically distinct from the latter, whose introduction and maintenance in the legal order is based on a different assessment of fiscal policy.
Continuing with what was written in the decision of arbitral proceedings no. 544/2016-T of CAAD, "the possibility of legal-normative coexistence of IMT exemptions at the moments of acquisition and transfer of a property is far from constituting an anomalous or systemically dysfunctional solution. Such coexistence can be found today in the EBF itself, in relation to urban properties intended for rehabilitation, provided that certain conditions are met. Indeed, article 45(2) determines that 'Acquisitions of urban properties intended for urban rehabilitation are exempt from municipal tax on onerous real estate transmissions, provided that, within three years from the date of acquisition, the acquirer initiates the respective works.' In parallel, article 71(8) of the EBF provides that 'Acquisitions of urban property or autonomous unit of urban property intended exclusively for own and permanent housing, in the first onerous transmission of the rehabilitated property, when located in the urban rehabilitation area, are exempt from IMT.' Here too, an exemption from IMT at the moment of acquisition of the property to be rehabilitated coexists with the exemption at the moment of transfer of the rehabilitated property, in a framework of legal complementarity consistent with the economic and social rationality of the established regimes.
A structurally identical solution can also be found in article 8(7) of the Special Regime applicable to real estate investment funds for residential leasing (FIIAH) and real estate investment companies for residential leasing (SIIAH), approved by article 102 of Law no. 64-A/2008, of 31 December - Chapter X, which provides that the following are exempt from IMT: 'a) Acquisitions of urban properties or autonomous units of urban properties intended exclusively for leasing for permanent housing, by the investment funds referred to in paragraph 1; b) Acquisitions of urban properties or autonomous units 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 tenants of the properties that form part of the assets of the investment funds referred to in paragraph 1.'"
Regarding the third alternative of article 7(2) of the Civil Code, the introduction of the exemption in article 46 of the EBF cannot be interpreted as a repeal by substitution of the exemption contained in article 1 of Decree-Law no. 1/87, not least because tax benefits are not only provided for in the EBF but may be contained in separate legislation.
Thus, we must conclude that the two exemptions are different, compatible and complement each other.
Given this, let us now examine the various amendments that were made over time to the aforementioned article 46 of the EBF:
• the provision, in article 88 of Law no. 53-A/2006, of 31 December (State Budget Law for 2007), of a transitional regime for mixed or closed funds in certain circumstances;
• the renumbering of article 46 of the EBF, which became 49, carried out by article 109 of Law no. 2-B/2010, of 28 April (State Budget Law for 2010), which reserves the IMT exemption to open real estate investment funds;
• the extension of the IMT exemption to closed funds of public subscription carried out by article 119 of Law no. 55-A/2010, of 31 December (State Budget Law for 2011);
• the replacement of the IMT exemption for properties forming part of open or closed real estate investment funds of public subscription with a reduction to half of the IMT rates, made by article 206 of Law no. 83-C/2013, of 31 December (State Budget Law for 2014), accompanied by a transitional regime in article 209.
The aforementioned amendments concerned the IMT exemption relating to properties forming part of real estate investment funds. Nothing follows from them which could lead to the conclusion that they addressed the exemption contained in article 1 of Decree-Law no. 1/87.
In this context, it must necessarily be concluded, as was concluded in the decision of CAAD in arbitral proceedings no. 544/2016-T, namely that the Sisa exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January, and which came to be reported to IMT, under articles 28 and 31 of Decree-Law no. 287/2003, of 12 November, remains in force. Therefore, acquisitions of immovable property made for a real estate investment fund by its respective management company are exempt from IMT.
Now, the Applicant acquired two properties which it assigned to the fund itself. Thus, the IMT exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January, is applicable to the acquisition in question, and there should be no IMT payment required as a result of said acquisition.
Thus, and in conclusion, the Applicant has good cause, and the declaration of illegality of the challenged assessment is determined, so that the arbitral claim is upheld with the consequent annulment of the said IMT assessment and other resulting consequences.
*
As for the request for indemnificatory interest submitted by the Applicant, article 43(1) of the General Tax Law (LGT) establishes that indemnificatory interest is due when it is determined that there was error attributable to the services which resulted in payment of the tax debt in an amount greater than legally due.
Indeed, article 43(1) of the LGT provides that:
"Indemnificatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services which resulted in payment of the tax debt in an amount greater than legally due."
Thus, the Applicant has the right to be reimbursed the amount paid (under articles 100 of the LGT and 24(1) of the RJAT) as a result of the annulled acts and, furthermore, to be indemnified for the undue payment through the payment of indemnificatory interest by the Respondent, from the date of payment of the amount until reimbursement, at the legal default rate, under articles 43(1) and (4) and 35(10) of the LGT, article 559 of the Civil Code and Order no. 291/2003, of 8 April.
*
C. DECISION
In light of the above, this Arbitral Tribunal decides to declare the arbitral claim wholly procedurally valid and, in consequence,
a) Annul the IMT assessment act no..., in the amount of € 682,500.00;
b) Condemn the Tax Authority (AT) to refund the amount of improperly paid tax and to payment of indemnificatory interest in accordance with the terms set out above;
c) Condemn the Respondent to pay the costs of the proceedings, set out below.
D. Value of the Proceedings
The value of the proceedings is set at € 682,500.00, in accordance with article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of article 29(1)(a) and (b) of the RJAT and article 3(3) of the Regulations on Costs in Tax Arbitration Proceedings.
E. Costs
The arbitration fee is set at €10,098.00, in accordance with Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the Tax Authority, since the claim was wholly upheld, in accordance with articles 12(2) and 22(4), both of the RJAT, and article 4(5) of the aforementioned Regulations.
Let notification be made.
Lisbon, 28 February 2018
The President Arbitrator
(José Pedro Carvalho)
The Arbitrator Member
(José Coutinho Pires)
The Arbitrator Member
(Francisco José Nicolau Domingos)
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