Summary
Full Decision
ARBITRAL DECISION
Agree in Arbitral Tribunal
I – Report
1. A... – Open Real Estate Investment Fund, taxpayer no. ..., with registered office at Rua ..., ... of the ..., ..., ...-... Lisbon and represented by the management company B... – Real Estate Investment Funds Management Company, S.A., legal entity no. ..., with registered office at the same location, filed a request for constitution of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, paragraph a), and 10 et seq. of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax acts assessing Municipal Tax on Onerous Transfers of Immovable Property (IMT), in the global amount of €1,179,807.86, relating to the acquisition of various immovable properties, requesting the annulment of those acts and the consequent reimbursement of the tax unduly paid and condemnation to payment of compensatory interest.
The request is based on the following grounds.
The Fund is a Collective Investment Organism constituted in the contractual form of an open real estate investment fund, under the authorization issued by the Securities Market Commission, which commenced its activity on 15 July 2005, under the management of B... – Real Estate Investment Funds Management Company, S.A.
Pursuant to the provisions of the Fund's Management Regulation, the respective assets may include "urban properties, or their autonomous fractions, intended for rental, development or any other form of onerous exploitation legally permissible that generates income for the Fund, as well as for resale".
On 4 July 2018, the Claimant acquired, by public deed, the autonomous fraction designated by the letter "B" of the urban property intended for services located at ..., no. ..., in ..., for the price of €480,000.00, which was taxed in IMT of €31,200.00.
On 8 August 2018, it acquired, by public deed, a set of immovable properties in the municipality of ..., which are identified in document no. 7 attached to the initial petition, which were taxed in IMT in the total amount of €729,357.86.
On 29 August 2018, it acquired by public deed the urban properties identified in document no. 10 attached to the initial petition, which were taxed in IMT in the total amount of €419,250.00.
However, the aforementioned acquisitions are covered by the exemption provided for by article 1 of Decree-Law no. 1/87, of 3 January, which states "acquisitions of immovable property carried out for a real estate investment fund by the respective management company are exempt from sisa", being that this provision was reserved and maintained in effect by Decree-Law no. 287/2003, of 12 November, which reformed the taxation of assets and approved the creation of IMT and IMI. And that was not subject to repeal by effect of the regime established in article 46 of the Tax Benefits Statute.
It concluded that the disputed IMT assessments suffer from error regarding their material and legal prerequisites, and should be declared illegal, by violation of the provisions of article 1 of Decree-Law no. 1/87, of 3 January.
The Tax Authority did not file a response.
2. No production of testimonial evidence was requested and, in the course of the proceedings, the meeting referred to in article 18 of the RJAT was dispensed with, the proceedings continuing to the pleadings phase.
In pleadings, the Claimant maintained its previous position. The Tax Authority did not file counter-pleadings.
3. The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority in accordance with regulatory provisions.
Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the undersigned signatories, who communicated acceptance of the appointment within the applicable time limit.
The parties were duly and timely notified of this designation, and did not manifest an intention to refuse it, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.
Thus, in conformity with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 17 December 2018.
The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties possess legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same decree and 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and no exceptions have been raised.
It is incumbent upon us to assess and decide.
II – Reasons
Material Facts
4. The material facts relevant for the decision of the case are as follows:
a) The Claimant is a real estate investment fund whose activity is regulated by the General Regime of Collective Investment Organisms;
b) In the exercise of its activity, the Claimant may include in its respective assets urban properties, or their autonomous fractions, intended for rental, development or any other form of onerous exploitation legally permissible that generates income for the Fund, as well as for resale;
c) On 5 July 2018, the Claimant acquired, by public deed, an autonomous fraction of the urban property identified in document no. 6 attached to the request, which is hereby reproduced;
d) On 8 August 2018, it acquired, by public deed, a set of immovable properties in the municipality of ..., which are identified in document no. 8 attached to the request, which is hereby reproduced.
e) On 30 August 2018, the Claimant acquired by public deed the urban properties identified in document no. 10 attached to the request, which is hereby reproduced;
f) Regarding those acquisitions, the Tax Authority issued IMT assessment acts no. ..., in the amount of €31,200.00, no. ..., in the amount of €729,357.86, and no. ..., in the amount of €419,250.00;
g) The Claimant proceeded to pay the tax due.
The Tribunal formed its conviction regarding the proven facts on the basis of the documents attached to the petition and also taking into consideration that the material facts were not questioned by the Tax Authority, which did not file a response.
Question of Law
5. The Claimant contends that the acquisition of immovable property carried out for Real Estate Investment Funds falls within the IMT exemption, originally provided for in article 1 of Decree-Law no. 1/87, of 3 January, as an exemption from sisa, and which was reserved by Decree-Law no. 287/2003, of 12 November, and was not subject to repeal by the regime applicable to tax benefits regarding IMT.
The question thus arises as to whether subsequent legislative evolution has caused the cessation of validity of the said provision of article 1 of Decree-Law no. 1/87.
On this matter, an arbitral decision already rendered in Process no. 622/2018-T has pronounced itself, in line with also being decided in Processes no. 316/2018 and 326/2018, and various other case law, and which, as there is no need for any other considerations, is now reproduced in full:
"Decree-Law no. 1/87 provides in its article 1 that 'acquisitions of immovable property carried out for a real estate investment fund by the respective management company are exempt from sisa'. This provision arises following the regulation of real estate investment funds, effected by Decree-Law no. 246/85, of 12 July, and, as emerges from its preamble, was intended to define an appropriate tax framework for the creation of such funds which the Government recognizes as having an important contribution to the formation of savings and mobilization of investments in the real estate sector, with positive effects on construction and the property rental market.
Meanwhile, Decree-Law no. 287/2003, of 12 November, which reformed the taxation of assets, approving in annex the Municipal Tax Code on Immovable Property (CIMI), and the Code of the Municipal Tax on Onerous Transfers of Immovable Property (CIMT), determined in its article 28, no. 2, that references in legal texts to the municipal sisa tax shall be considered as referring to the Code of the Municipal Tax on Onerous Transfers of Immovable Property.
Furthermore, the same decree, in article 31 – which included various repeal provisions – reserved in its no. 6, the maintenance in effect of tax benefits relating to the municipal sisa tax established in separate legislation.
Thus, in accordance with the combined interpretation of the cited provisions of articles 28 and 31, no. 6, of Decree-Law no. 287/2003, the exemptions from sisa tax contained in any separate enactments should be considered as referred to IMT, and on the other hand, acquisitions of immovable property carried out for a real estate investment fund would continue to be exempt from IMT by effect of that established in article 1 of Decree-Law no. 1/87.
After the creation of the exemption from sisa tax regarding the acquisition of immovable property for real estate investment funds in 1987, Decree-Law no. 215/89, of 1 July, approved the Tax Benefits Statute, with the clear purpose of systematizing the general principles to which the grant of benefit situations should be subject. The TBS arose following the reform of personal income tax (CIRS), corporate income tax (CIRC) and local authority contribution (CA), which had already introduced some structural mechanisms for tax relief, so the Statute was intended to characterize some other situations of a less structural character but which would have relative stability, leaving for future State Budget laws benefits with markedly cyclical purposes or those requiring more frequent regulation (cf. the respective preamble note).
In the original wording of the TBS, and in relation to real estate investment and management companies, only a specific tax regime of taxation regarding IRC was contemplated and, in the context of IRS, regarding profits distributed by those companies to their respective members (article 26). This regime was maintained with various amendments and came to be transferred to article 22 with Law no. 109-B/2001, of 27 December, under the heading "Investment Funds", which was likewise subject to various legislative modifications.
It is the new wording given to article 46 of the TBS by the State Budget Law for 2003 (Law no. 32-B/2002, of 30 December) that provides, for the first time, a tax exemption regime in favor of real estate investment funds regarding local authority contribution, in the following terms:
Immovable property included in real estate investment funds and equivalent, pension funds and pension-savings funds, which are constituted and operated in accordance with national legislation, are exempt from local authority contribution.
Following the reform of asset taxation, approved by said Decree-Law no. 287/2003 – which repealed the Local Authority Contribution Code – this article 46, in the wording given by the State Budget Law for 2007 (Law 53-A/2006, of 29 December) came to establish the exemption from municipal tax on immovable property (IMI) and municipal tax on onerous transfers of immovable property (IMT) for immovable property included in real estate investment funds, under the same conditions already contained in the previous wording of the provision, and Decree-Law no. 108/2008, of 26 June, maintained that same exemption in the same terms.
Law no. 3-B/2010, of 28 April, being also a budget law, through new wording given to article 49 of the TBS, came to exempt from municipal tax on immovable property and from municipal tax on onerous transfers of immovable property only 'immovable property included in open real estate investment funds', and the State Budget Law for 2012 (Law no. 55-A/2010, of 31 December) extended that exemption to 'immovable property included in open or closed real estate investment funds of public subscription'.
Law no. 83-C/2013, of 31 December, amending that article 49, eliminated the exemption, coming instead to provide for the reduction to half of the rates of municipal tax on immovable property and municipal tax on onerous transfers of immovable property applicable to immovable property included in open or closed real estate investment funds of public subscription.
Article 49 of the TBS was repealed by article 215, no. 1, paragraph g), of Law no. 7-A/2016, of 30 March.
[6.] From the legislative evolution just described, there emerges the idea that the tax benefits granted to real estate investment funds do not have a systematic character, assuming instead a markedly cyclical nature, thus justifying that successive amendments to the legal regime were established, as a rule, through budget laws.
Suffice it to note that initially the exemption of local authority contribution – and of IMI and IMT – was provided for regarding immovable property included in any type of real estate fund, and later that exemption was restricted to immovable property included in open real estate investment funds. Subsequently the exemption regarding immovable property included in open or closed real estate investment funds of public subscription was restored until the tax benefit was transformed into a reduction of the applicable tax rate and, finally, it was eliminated.
It is thus not possible to see, consequently, in the approval of the TBS and in the multiple amendments to that Statute a general criterion that would allow defining a stable tax regime that could override other separate provisions that already subsisted in the legal order.
Furthermore, it is important to note that the scope of application of the exemption initially created by Law no. 53-A/2006, through the amendment of article 46 of the TBS – which came to provide for the exemption of IMI and IMT regarding immovable property included in real estate investment funds – is not coincident with that of the exemption contemplated in article 1 of Decree-Law no. 1/87, which refers to acquisitions of immovable property carried out for a real estate investment fund by the respective management company. In fact, by effect of the new provision of article 46 of the TBS, immovable property already included in real estate funds came to be exempt from IMT, whereas the exemption referred to in the 1987 decree covered acquisitions of immovable property carried out by management companies of real estate investment funds to become part of the assets of those funds. This means that the TBS came to broaden the exemption, covering not only situations in which the fund was in the position of purchaser of the immovable property, but also those in which the fund acted in the position of seller of the immovable property (cf. in this sense, the arbitral decision rendered in Process no. 544/2016, in which the same question was analyzed).
[7.] It now falls to address the question of whether the provision of article 1 of Decree-Law no. 1/87 is repealed by any of the provisions of the TBS that came to regulate the exemption of IMT regarding real estate investment funds or whether there was place for a systemic repeal by effect of the new overall regulation of the matter of tax benefits.
As follows from article 7, no. 2, of the Civil Code, the repeal of a law 'may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the circumstance that the new law regulates the entire subject matter of the prior law'.
Repeal is express when a law identifies, in an explicit declaration, the object of the cessation of validity of a prior law. Tacit repeal occurs when, in view of the legislator's silence on the identification of the repealed norms, there is registered an incompatibility of content between the provisions of a new law and those of a chronologically preceding legislative act. Global repeal occurs when a complex of norms comes to be, in its entirety, subject to a discipline different from that which previously prevailed, regardless of the problem of its compatibility with rules previously in effect (cf. Baptista Machado, Introduction to Law and Legitimizing Discourse, Coimbra, 1993, pp. 165-166; Carlos Blanco Morais, Reinforced Laws – Reinforced Laws of Procedure within the Scope of Structuring Criteria of Relations between Legislative Acts, Coimbra, 1998, pp. 338, 341 and 343).
Express repeal does not raise special difficulties. It consists of a declaration made in the new law and may be limited to extinguishing the efficacy of the old law or to restoring a prior legal regime that had been repealed by it, or be accompanied by constitutive or modifying effects, as is verified when the repealing law institutes a new complex of norms or operates the modification of the prior legal regime.
Tacit repeal is verified to the extent of the contradiction existing between the preceding law and the new law, for where that contradiction does not occur, coexistence or interpenetration between the two laws is possible.
Global repeal has in common with tacit repeal the fact that it operates in the possible silence of the legislator, which may say nothing about the suppression of the preceding laws, but differs from it in that it does not necessarily register a general incompatibility of commands between the old law and the new law. The rationale for this mode of repeal is anchored essentially in reasons associated with the updating of the process of legal innovation or to policies of systematization and legislative consolidation (Carlos Blanco Morais, op. cit., p. 344).
[8.] Applying the principles just enunciated to the situation sub judice, it is readily concluded that the provision of article 1 of Decree-Law no. 1/87 cannot be considered to be repealed.
It is established that the provision of article 1 of Decree-Law no. 1/87 was not subject to express repeal. And, as has been noted, there is no incompatibility between that provision and the one that came to be introduced in the TBS (article 46, subsequently renumbered as article 49), since those provisions contain different scopes of application and the latter merely expanded the exemption already established by the 1987 decree.
The possibility of systemic repeal is also ruled out. As has been set out, the TBS, in its original version, and in relation to real estate investment and management companies, only established a specific tax regime regarding IRC and IRS. And only much later, through budget laws, was the exemption regarding real estate funds established, through the new wording given to article 46 (subsequently renumbered as article 49), regarding exemption from asset taxation by reference to local authority contribution and, subsequently, to IMI and IMT (Laws no. 32-B/2002, of 30 December, and 53-A/2006, of 29 December). That regime underwent further successive amendments until the tax benefit came to be translated into the reduction to half of the rates of tax on immovable property and tax on onerous transfers of immovable property (Law no. 83-C/2013, of 31 December) and was finally eliminated through the repeal of article 49 effected by Law no. 7-A/2016, of 30 March.
With the approval of the Tax Benefits Statute, tax benefits of a structural character applicable to the financial system and to the capital market, including here investment funds, focused on the taxation of income. The subsequent introduction of an exemption from IMI and IMT applicable to investment funds, in the category of tax benefits relating to immovable property, through mere amendment of an already existing provision, does not evidence any general criterion defining the regime of tax benefits regarding asset taxation and the subsequent legislative evolution reveals that the exemption was instituted for merely cyclical reasons and without a clear purpose of systematizing the legal regime.
In these circumstances, one cannot speak of a global repeal of article 1 of Decree-Law no. 1/87."
All these considerations remain fully valid and are applicable to the situation of the present case, leading to the conclusion that the IMT tax assessment acts relating to the acquisition of immovable property by the Claimant as representative of the Real Estate Investment Funds are illegal by violation of the provision of the cited article 1 of Decree-Law no. 1/87, of 3 January.
Compensatory Interest
The Claimant also requests condemnation of the Tax Authority to payment of compensatory interest, at the legal rate, calculated on the tax, until full reimbursement of the amount due.
In accordance with the provisions of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of a claim that is not subject to appeal or challenge binds the Tax Administration, in the exact terms of the success of the arbitral decision in favor of the taxpayer, obliging it to "restore the situation that would exist if the tax act subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose". This is in line with the provision of article 100 of the LGT, applicable by force of the provision in paragraph a) of no. 1 of article 29 of the RJAT.
Furthermore, pursuant to no. 5 of article 24 of the RJAT "payment of interest, regardless of its nature, is due in accordance with the provisions of the General Tax Law and the Tax Procedure and Procedure Code", which refers to the provisions of articles 43, no. 1, of the LGT and 61, no. 5, of the CPPT, entailing the payment of compensatory interest from the date of unduly paid tax until the date of processing of the respective credit note.
There is thus occasion, following declaration of illegality of the IMT assessment acts, for payment of compensatory interest, in accordance with the cited provisions of articles 43, no. 1, of the LGT and 61, no. 5, of the CPPT, calculated on the amount that the Claimant unduly paid, at the rate of legal interest (articles 35, no. 10, and 43, no. 4, of the LGT).
III – Decision
The tribunal decides as follows:
a) To uphold the request for arbitral pronouncement and to annul the municipal tax assessment acts on onerous transfers of immovable property no. ..., in the amount of €31,200.00, no. ..., in the amount of €729,357.86, and no. ..., in the amount of €419,250.00;
b) To condemn to payment of compensatory interest from the payment of the tax until the date of issuance of the credit note, in accordance with articles 43 of the LGT and 61 of the CPPT.
Value of the Case
The Claimant indicated as the value of the case the amount of €1,179,807.86, which was not contested by the Respondent, and corresponds to the value of the assessment that it was sought to oppose (article 97, no. 1, paragraph a), of the CPPT).
Costs
Pursuant to articles 12, no. 2, and 24, no. 4, of the RJAT, and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at €16,218.00, which shall be borne by the Respondent.
Notify.
Lisbon, 3 April 2019
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitrator Member
Gustavo Lopes Courinha
The Arbitrator Member
Paulo Nogueira da Costa
Frequently Asked Questions
Automatically Created