Summary
Full Decision
ARBITRAL DECISION
REPORT
On 11 October 2017, A…– REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, SA, with Tax Number (NIPC) … and registered at Avenue …, No. …, in Lisbon, in its capacity as managing company of the SPECIAL CLOSED REAL ESTATE INVESTMENT FUND – B…, with Tax Number (NIPC) … and registered at the same address (hereinafter referred to as the Applicant), came, in accordance with the terms and for the purposes of Article 10, paragraph a), of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters (LRATM), to request the establishment of an Arbitral Tribunal, in which the respondent is the Tax and Customs Authority (hereinafter AT or Respondent), with a view to the declaration of illegality and consequent annulment of the assessment of Municipal Tax on Onerous Transfer of Real Estate (IMT) bearing No. …, of 12/07/2017, in the amount of € 727.35 (seven hundred and twenty-seven euros and thirty-five cents), the economic value assigned to the claim.
The Applicant further requests the condemnation of the Respondent to restitution of the amount unduly paid, together with compensatory interest at the legal rate, from the date of payment of the tax, until its actual restitution.
Summary of the Parties' Positions
Of the Applicant:
As grounds for the request for annulment of the IMT assessment act No. …, the Applicant invokes, in summary, the following factual and legal reasons:
The SPECIAL CLOSED REAL ESTATE INVESTMENT FUND – B… is a public subscription fund, established for an indefinite term, which began its activity on 20/12/2007.
In 2017, in the course of its activity, the FUND acquired from the Lisbon City Council, by exchange, two real estate properties located in the Parish of …, in that municipality.
To equalize the value of the exchanged property, the FUND paid the Municipality of Lisbon the sum of € 11,190.00, on which IMT was assessed and paid in the total amount of € 727.35.
The exchange of real estate property is comprised within the concept of transfer, under the terms of Article 2, No. 5, paragraph b), of the IMT Code, the rule under which assessment No. … was issued.
However, the Applicant considers that, given the legal nature of the acquirer, it benefits from the exemption referred to in Article 1 of Decree-Law No. 1/87, of 3 January, which remains in force.
Effectively, the aforementioned Decree-Law No. 1/87, of 3 January was not repealed by any of the means provided for in Article 7 of the Civil Code, despite the evolution undergone by the legislation concerning tax benefits.
It is concluded that, having the Applicant acquired two properties, by exchange, from the Lisbon City Council, with the intent that these be integrated into the FUND, the exemption provided for in Article 1 of Decree-Law No. 1/87, of 3 January should have been applied to such operation.
As well as having the right to restitution of the tax paid and to be compensated through compensatory interest, under the terms of Article 43, No. 1, of the General Tax Law (LGT).
Whereupon the Applicant requests that the request for arbitral pronouncement be judged to be well-founded, as proved, for all legal purposes.
Of the Respondent:
Notified in accordance with the terms and for the purposes provided for in Article 17 of the LRATM, the AT presented a response in which it defends the legality and maintenance of the IMT assessment that is the object of the request for arbitral pronouncement, with the following grounds:
The IMT assessment impugned was made on the basis of the Applicant's declaration of the acquisition, on 17/07/2017, from the Lisbon City Council, of two urban properties registered in the property register of the parish of …, municipality of Lisbon, in return for two other urban properties registered in the same parish, owned by the SPECIAL CLOSED REAL ESTATE INVESTMENT FUND – B…, with IMT being assessed, by virtue of the provision in paragraph b) of No. 5 of Article 2 of the IMT Code, at the rate of 6.50%.
Contrary to what is argued by the Applicant, it is not defensible to maintain in force Article 1 of D.L. No. 1/87, of 3/01, which refers to acquisitions of real estate made for a real estate investment fund by the respective managing company being exempt from sisa.
The fact that Article 31, No. 3 of DL 287/2003, of 12/11, which repealed the Municipal Code for Sisa and the Tax Code on Inheritance and Donations, states that references in legal texts to those taxes are considered to be references to the IMT Code, the Stamp Tax Code and the IMI, does not have the effect of maintaining the exemption from IMT for acquisitions of real estate made by all investment funds, regardless of whether they are open, closed and mixed funds.
At issue is the interpretation of a tax exemption rule and these, as stated by Nuno Sá Gomes, "are not negative delimitations of incidence, but rather situations subject to taxation, being rules that provide for complex situations, translated, on one hand, by facts preventing the birth of the tax obligation, or, in the case of partial exemptions, facts preventing the birth of that obligation with normal content, but always facts that fall within the generic scope of incidence, constituting 'exceptions' to this, for non-tax reasons, which override the public interest in tax collection".
If it were as the Applicant argues, the exemption from IMT would always be applied to all acquisitions of real estate made by all investment funds, open, closed and mixed, from 1987 to the present date, as well as to all acquisitions by third parties for the real estate of all investment funds, by virtue of the provision in Article 49 of the Tax Benefits Statute, subsequently repealed by Law No. 7-A/2016, of 30/03.
If Article 1 of D.L. No. 1/87, of 3/01, remained in force, real estate investment funds would be doubly benefited, in a clear position of advantage and inequality compared to the other participants in the real estate market, both in the acquisition of real estate and in the alienation of real estate to third parties.
The AT concludes by requesting the exemption from the meeting referred to in Article 18 of the LRATM, as well as from the production of written submissions, given that no exceptions have been invoked, the positions of the Parties are fixed and documentarily supported by the means of evidence attached to the Case File, and the matter at issue is exclusively one of law.
*
By arbitral order of 29/01/2018, the holding of the meeting alluded to in Article 18 of the LRATM was exempted, the Parties being invited to, if they so wish, produce written submissions within the successive period of ten days, beginning with the Applicant, with the date of 16 March 2018 being set (by mistake, the year 2017 was indicated, which is now corrected) for pronouncement of the arbitral decision and warning the Applicant that, until that date, it should proceed to payment of the subsequent arbitration fee.
The Parties did not produce submissions.
II. PROCEDURAL SOUNDNESS
The singular arbitral tribunal is competent and was regularly established on 20 December 2017, in accordance with the terms of Articles 2, No. 1, paragraph a), 5 and 6, all of the LRATM.
The parties have legal standing and capacity to be parties, are legally entitled to participate, and are legally represented, in accordance with Articles 4 and 10 of the LRATM and Article 1 of Ordinance No. 112-A/2011, of 22 March.
The process is not vitiated by defects that would invalidate it.
No exceptions requiring examination and decision were invoked.
III. SUBSTANTIVE REASONING
III.1 FACTUAL MATTERS
A – Proven Facts
With regard to the factual matters, the Tribunal does not need to pronounce on everything that was alleged by the parties; rather, it is incumbent upon it to select the facts that are relevant for the decision and to distinguish the proven from the unproven matters (cf. Articles 123, No. 2, of the Code of Procedure and Tax Procedure and 607, No. 3 of the Code of Civil Procedure, applicable ex vi of Article 29, No. 1, paragraphs a) and e), of the LRATM).
Thus, the factual matters relevant to the understanding and decision of the case, following critical examination of the documentary evidence attached to the case file, are established as follows:
The Special Closed Real Estate Investment Fund – B… (hereinafter, Fund), which has as its managing company A…– Real Estate Investment Fund Management Company, SA, and which operates with the CMVM Code No. …, is a closed public subscription real estate investment fund that began its activity on 20/12/2007, for an indefinite term – Doc. 2;
By public deed of 17/07/2017, the following urban properties were exchanged, in which the FUND received property valued at € 11,190.00 more:
The Municipality of Lisbon ceded to the FUND:
The urban property registered in the property register of the parish of …, municipality of Lisbon, under the article …, with the Taxable Patrimonial Value of € 160.00, to which the value of € 200.00 was attributed;
The urban property registered in the property register of the parish of …, municipality of Lisbon, under the article …, with the Taxable Patrimonial Value of € 25,400.00, to which the value of € 32,390.00 was attributed;
In exchange, the FUND ceded to the Municipality of Lisbon:
The urban property located in the parish of …, municipality of Lisbon, omitted from the register, with the provisional article P…, to which the value of € 7,900.00 was attributed;
The urban property located in the parish of …, municipality of Lisbon, omitted from the register, with the provisional article P…, to which the value of € 13,500.00 was attributed;
Prior to the execution of the deed of exchange, to which was attached documentary proof of the respective payment, the IMT assessment No. … was issued on 12/07/2017 and paid on 13/07/2017, in the amount of € 727.35 (Docs. 1 and 4);
In the term of said IMT assessment appears the Fund as the taxpayer, assessed at the rate of 6.50% on the global value of € 11,190.00, with the taxable event being the exchange of real estate with the Municipality of Lisbon and the exchanged property being identified: the urban properties registered under articles … and … of the parish of …, municipality of Lisbon, property one and property two, respectively (Doc. 1).
B – Unproven Facts
There are no facts with relevance to the decision of the case that should be considered unproven.
C – Substantiation of the Establishment of Factual Matters
The establishment of the factual matters was based on critical analysis of the documentary evidence attached to the request for arbitral pronouncement, expressly accepted by the Respondent.
III.2 ON THE LAW
The Issue to be Decided
The only issue to be decided in the present case is whether the exemption from Municipal Sisa Tax, created by Article 1 of Decree-Law No. 1/87, of 3 January, for the acquisition of real estate by Managing Companies of Real Estate Investment Funds, to be integrated into the assets of the Funds they manage, is maintained in the context of Municipal Tax on Onerous Transfer of Real Estate (IMT), as the Applicant argues, or whether, on the contrary, that exemption has ceased to exist, given the legislative evolution undergone with the reform of taxation of assets and the rules concerning tax benefits, as the Respondent proposes.
Being certain that, should the validity of the rule in Article 1 of Decree-Law No. 1/87, of 3 January be maintained, its non-application in the acquisition of real estate for a Real Estate Investment Fund, by the respective managing company, constitutes a defect of breach of law in the assessed amount that is impugned, by disregard of a rule providing tax exemption, which will justify its annulment, with the other consequential legal effects.
Let us therefore examine:
First, it should be said that the exchange of real estate property is comprised within the concept of transfer contained in the rule of objective incidence of Article 2, No. 5, paragraph b), of the IMT Code, with the taxpayer being the exchanger who receives property of greater value (Article 4, paragraph c), of the IMT Code) and the tax obligation arising at the moment when the transfer occurs (Article 5, No. 2, of the IMT Code), if there is not an exemption that prevents it.
As to the validity, at the date of the transfer, of the exemption provided for in Article 1 of Decree-Law No. 1/87, of 3 January, and its application to the specific facts of the present case, it may be said that:
Legal rules, as rules of conduct, participate in the principle of legal certainty, a guarantee that the expectations on which each person bases their decisions conform to the stability of social life.
From the standpoint of legal certainty, each person should be able to know which rules are in force at each moment in order to be able to conduct their choices accordingly.
For this reason there are rules concerning the entry into force and termination of validity of laws, with Article 7 of the Civil Code providing that the same may cease to be in force by expiry or by repeal, in providing that:
"Article 7 - Termination of Validity of a Law
1. When not intended to have temporary validity, a law only ceases to be in force if it is repealed by another law.
2. Repeal 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 preceding law.
3. A general law does not repeal a special law, except if that is the unequivocal intention of the legislature.
4. The repeal of a repealing law does not result in the renewal of the law that it had repealed."
Thus, a law will only lapse by a supervening fact provided therein if it is intended to have temporary validity; otherwise, a law will cease to be in force if it is repealed, expressly or tacitly, partially or wholly, with the entry into force of a new law.
Returning to the case at hand, it is found that Decree-Law No. 1/87, of 3 January, in accordance with its preamble, was issued as a result of the regulation of the activity of Real Estate Investment Funds by Decree-Law No. 246/85, of 12 July, the Government recognizing "the important contribution that this new type of financial institution could bring to the formation of savings and its mobilization for investment in the real estate sector. Added to this are the positive effects that in this way will be induced in the construction industries and in the market for rental of real estate for housing and for offices."
These reasons being considered relevant, justified the definition of "an appropriate tax framework" that would create the necessary conditions for the creation of investment funds with those characteristics.
Such tax framework included, among other measures, that established in its Article 1, the benefit of exemption from sisa for "acquisitions of real estate made for a real estate investment fund by the respective managing company".
Decree-Law No. 1/87, of 3 January does not contain within itself any rule establishing its temporary validity, it being concluded that it did not cease to be in force by expiry.
There is thus the need to ascertain whether its Article 1 was expressly repealed or subject to tacit repeal, by "incompatibility between the new provisions and the preceding rules or from the circumstance that the new law regulates the entire subject matter of the preceding law" and there is only notice of the express repeal of its Article 7 by Law No. 2/88, of 26 January, which approved the State Budget for 1988.
With respect to the possible repeal of Article 1 of Decree-Law No. 1/87, of 3 January, it should be noted that the publication of the Tax Benefits Statute (TBS), approved by Decree-Law No. 215/89, of 1 July, was only directed to tax benefits under income taxes and municipal contribution, leaving untouched the tax benefits under sisa.
The reform of taxation of assets then followed, with Decree-Law No. 287/2003, of 12 November, approving the IMI Code and the IMT Code.
Article 28 of Decree-Law No. 287/2003, of 12 November, contains a rule of cross-reference, according to which:
"Article 28 - Cross-references
1 - All legal texts that mention Municipal Contribution Code or municipal contribution are considered to be references to the Code of Municipal Tax on Real Estate or the municipal tax on real estate (IMI).
2 - All legal texts that mention the Code of Municipal Sisa Tax and the Tax Code on Inheritance and Donations, municipal sisa tax or tax on inheritance and donations are considered to be references to the Code of Municipal Tax on Onerous Transfer of Real Estate, the Stamp Tax Code, the municipal tax on onerous transfer of real estate (IMT) and stamp tax, respectively."
And, in accordance with No. 6 of Article 31 of the aforementioned Decree-Law No. 287/2003, of 12 November, "6 - The tax benefits concerning municipal contribution, now applying to IMI, as well as those concerning municipal sisa tax established in legislation external to the Code approved by Decree-Law No. 41969, of 24 November 1958, and in the Tax Benefits Statute, which now apply to IMT, are maintained in force." (emphasis ours).
It is concluded, from the foregoing, that there was no express repeal of Article 1 of Decree-Law No. 1/87, of 3 January.
Rather, on the contrary, both the rule of Article 28 of Decree-Law No. 287/2003, of 12 November, and especially that of No. 6 of its Article 31, permit the conclusion to be drawn, with a reasonable degree of certainty, that the tax benefit in question was maintained following the reform of taxation of assets operated by that legislative instrument.
As to the possible tacit repeal of Article 1 of Decree-Law No. 1/87, of 3 January, there is a need to investigate its incompatibility with the new provisions of the TBS or whether the latter came to regulate the same previous subject matter, as required by No. 2 of Article 7 of the Civil Code:
Following the entry into force of Law No. 30-G/2000, of 29 December, which carried out the reform of taxation of income, and the authorization granted therein to the Government, Decree-Law No. 198/2001, of 3 July, broadly reviewed the articles of the TBS, establishing, in its Article 46, the exemption from municipal contribution for "real estate integrated in real estate investment funds and equivalent, in pension funds established in accordance with national legislation and in pension savings funds."
Article 46 of the TBS would subsequently be amended by Law No. 53-A/2006, of 29 December, establishing therein the exemption from IMI and IMT for "real estate integrated in real estate investment funds, in pension funds and in pension savings funds that are established and operate in accordance with national legislation" (No. 1), with real estate integrated in mixed or closed real estate investment funds of private subscription benefiting from a reduction in IMI and IMT rates to half (No. 2).
Decree-Law No. 108/2008, of 26 June, carried out the amendment and re-enactment of the TBS, with the previous Article 46 being renumbered as Article 49, with the same wording. This Article 49 of the TBS, following the amendments made by Laws No. 3-B/2010, of 28 April, No. 55-A/2010, of 31 December and No. 83-C/2013, of 31 December, the latter determining the reduction to half of the rates of IMI and IMT "applicable to real estate integrated in open or closed real estate investment funds of public subscription, in pension funds and in pension savings funds that are established and operate in accordance with national legislation", would subsequently be repealed by Article 215 of Law No. 7-A/2016 of 30 March.
With respect to the legislative evolution concerning tax benefits and the possible tacit repeal of Article 1 of Decree-Law No. 1/87, of 3 January, we rely on the arbitral decision rendered in the case that proceeded before the CAAD under No. 544/2016-T, to which we adhere and which, with proper deference, is transcribed herein:
"Of incompatibility between the new provisions and the preceding rules, which constitutes the second alternative of Article 7, No. 2 of the Civil Code, neither can one speak. Rather, on the contrary, a joint reading of the new provision of Article 46 of the TBS and the preceding rule of Article 1 of Decree-Law No. 1/87, of 3 January, reasonably permits the conclusion that, from the entry into force of the new wording of Article 46 of the TBS, would be exempt from IMT, not only the acquisitions of real estate carried out by managing companies of real estate investment funds with the intent that the same come to be integrated in those funds – as previously established in the preceding rule – but also real estate integrated in real estate investment funds – as established in that Article 46 of the TBS. In other words, the exemption from IMT would henceforth be worth both for real estate acquired to come to be integrated in real estate investment funds, as had previously been established, and for that same real estate if and insofar as integrated in real estate investment funds, under the terms of Article 46 of the TBS. In the first case, the exemption would be applicable whenever the fund was in the position of acquirer of the real estate. In the second case the exemption would be applicable whenever the fund was in the position of alienor of the real estate. Thus, it is forced to conclude that there is an absence of incompatibility between the new provisions and the preceding rules.
(…)
Despite the structural differences that separate both exemptions, the truth is that in both cases managing companies of investment funds are placed in an economically advantageous position: either because they do not have to pay IMT when they acquire real estate to be integrated in the respective real estate investment fund, or because they can place it on the market more easily given that the prospective acquirer is exempt from IMT. The new provisions and the preceding rules are not only entirely compatible but create a tax regime specially attractive for managing companies of real estate investment funds.
The exemption of IMI in favor of real estate integrated in real estate investment funds is well understood, insofar as it frees them from payment of this annual tax on real estate assets, provided for in Article 46 of the TBS before the wording given to it by the Law Budget for 2007. However, neither is it negligible the utility of which the exemption from IMT, added by this instrument, is invested in the case of transactions of real estate integrated in real estate investment funds.
(…)".
And, as in the arbitral decision cited, we conclude that, given that Article 1 of Decree-Law No. 1/87, of 3 January has not lapsed or been expressly or tacitly repealed, the Applicant is correct, and the illegality of the assessment impugned should be declared, by non-application of the exemption provided therein, with its consequent annulment.
On the Request for Compensatory Interest
Paragraph b) of No. 1 of Article 24 of the LRATM provides that the arbitral decision on the merits of the claim to which no appeal or challenge is available binds the tax administration from the end of the period provided for the appeal or challenge, with the latter being obliged, in the precise terms of the judgment of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of sentences of tax courts, to "restore the situation that would exist if the tax act that is the object of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose".
Likewise, Article 100 of the General Tax Law (LGT), applicable to the tax arbitral process by virtue of the provision in paragraph a) of No. 1 of Article 29 of the LRATM, establishes that "The tax administration is obliged, in the event of full or partial success of complaints or administrative appeals, or of judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would exist if the illegality had not been committed, including payment of compensatory interest, in accordance with the terms and conditions provided for by law."
In accordance with the provision in No. 1 of Article 43 of the General Tax Law (LGT), applicable as subsidiary to the tax arbitral process, under the terms of Article 29, No. 1, paragraph a), of the LRATM, "Compensatory interest is due when it is determined, by means of administrative review or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount greater than that legally due."
In the case at hand, it is manifest that, given the illegality of the IMT assessment that is the object of the request for arbitral pronouncement declared for the reasons set out above, it must be recognized that the Applicant has the right to compensatory interest on the amounts unduly paid, as provided for in No. 5 of Article 61 of the Code of Procedure and Tax Procedure.
DECISION
On the basis of the factual and legal grounds set out above and, in accordance with Article 2 of the LRATM, the decision is:
Declaring the illegality of the IMT assessment No. …, of 12/07/2017, on account of error in the legal grounds, determining its annulment;
Condemning the Tax and Customs Authority to the restitution of the amount unduly paid by the Applicant, together with compensatory interest, from the date of the undue payment until the date of issuance of the respective credit note.
VALUE OF THE CASE: In accordance with the provision in Article 306, Nos. 1 and 2, of the Code of Civil Procedure, 97-A, No. 1, paragraph a), of the Code of Procedure and Tax Procedure and 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value assigned to the case is € 727.35 (seven hundred and twenty-seven euros and thirty-five cents).
COSTS: Calculated in accordance with Article 4 of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 306.00 (three hundred and six euros), borne by the Tax and Customs Authority.
Let notification be made.
Lisbon, 15 March 2018.
The Arbitrator,
/Mariana Vargas/
Text prepared by computer, in accordance with No. 5 of Article 131 of the Code of Civil Procedure, applicable by cross-reference from paragraph e) of No. 1 of Article 29 of Decree-Law 10/2011, of 20 January.
The wording of this decision is governed by the Orthographic Agreement of 1990.
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