Summary
Full Decision
Arbitral Decision
The arbitrators Consul. Jorge Lopes de Sousa (arbitrator-president), Prof. Doctor Luís Menezes Leitão and Prof. Doctor Paulo Jorge Nogueira da Costa (arbitrators-members), designated by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 17-01-2019, agree as follows:
1. Report
A... - REAL ESTATE INVESTMENT FUND MANAGEMENT, S.A., with tax identification number ... and registered office at ..., ..., ..., ..., ...-... ... (hereinafter designated as "Claimant"), in its capacity as management company and in representation of B... - Special Closed Real Estate Investment Fund, with tax identification number ... (hereinafter designated as "Fund") has, pursuant to Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), requested the constitution of an Arbitral Tribunal.
The Claimant seeks the assessment of the legality of the implicit rejection of the administrative appeal presented against the tax assessment act for Municipal Tax on Onerous Property Transfers ("IMT") no. ..., issued by the Tax and Customs Authority ("AT") on 20-12-2017, in the amount of € 75,000.00.
The Claimant further requests reimbursement of the amount paid plus compensatory interest.
The respondent is the TAX AND CUSTOMS AUTHORITY.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 09-11-2018.
Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Arbitrators who were initially designated by the Ethics Council communicated their acceptance of the assignment within the applicable period.
On 28-12-2018 the parties were duly notified of this designation, and did not manifest the will to refuse the designation of the arbitrators, pursuant to the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 17-01-2019.
The Tax and Customs Administration was notified pursuant to article 17 of the RJAT, but stated that it does not submit a Reply.
By order of 15-02-2019, the meeting provided for in article 18 of the RJAT and arguments were dispensed with and a date for the decision was set.
The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law no. 10/2011, of 20 January, and is competent.
The Parties are duly represented, enjoy legal personality and capacity and are legitimate (articles 4 and 10, paragraph 2, of the same enactment and article 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from any nullities.
2. Factual Matter
2.1. Established Facts
The following facts are considered proven:
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The Fund, represented by the Claimant, constitutes a closed real estate investment fund;
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The Claimant, in its capacity as management company, acquires, through the legal mechanism of representation, real properties in representation of real estate investment funds, which are intended to form part of the assets of these funds;
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The Claimant, in representation of the Fund, acquired, on 20-12-2017, the urban property located in the parish of ..., municipality of Coimbra, under the registration article ...;
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With respect to the acquisition of said property, a tax assessment act for IMT with identification number ..., in the amount of € 75,000.00, was issued on 20-12-2017, which appears in document no. 2 attached to the request for arbitral pronouncement, the content of which is reproduced herein;
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The assessed amount was paid by the Fund on 20-12-2017 (document no. 3 attached to the request for arbitral pronouncement, the content of which is reproduced herein);
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On 10-04-2018, the Claimant filed an administrative appeal against the aforementioned assessment act (document no. 1, attached to the request for arbitral pronouncement, the content of which is reproduced herein);
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The administrative appeal was not assessed until 08-11-2018, the date on which the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings.
2.2. Unproven Facts and Reasoning for the Decision on Factual Matter
There are no facts relevant to the decision of the case that have not been proven.
The established facts are based on documents submitted by the Claimant, the correspondence of which to reality was not contested by the Tax and Customs Authority.
No administrative file was submitted.
3. Legal Matter
The Claimant represents a closed real estate investment fund that acquired a property in the year 2017, with IMT having been assessed by the Tax Administration with respect to the acquisition.
Article 1 of Decree-Law no. 1/87, of 3 January, establishes that "acquisitions of real properties effected for a real estate investment fund by the respective management company are exempt from transfer tax."
The Claimant argues, in summary, that the acquisition of the aforesaid property is exempt from IMT, because this exemption is applicable to it, and such exemption was not repealed on the date when it effected the acquisitions of properties to which the assessment under challenge refers.
Decree-Law no. 1/87 refers to transfer tax and not to IMT, but Decree-Law no. 287/2003, of 12 November, which reformed the taxation of property, repealed, in its article 31, paragraph 3, the Code of Municipal Transfer Tax and Tax on Successions or Gifts, but established, in article 28, paragraph 2, that "all legal texts mentioning the Code of Municipal Transfer Tax and Tax on Successions and Gifts, municipal transfer tax or tax on successions and gifts shall be deemed to refer to the Code of Municipal Tax on Onerous Property Transfers (CIMT), the Stamp Tax Code, the municipal tax on onerous property transfers (IMT) and stamp tax, respectively."
Paragraph 6 of article 31 of Decree-Law no. 287/2003, establishes that "tax benefits relating to municipal contribution, now reported to IMI, as well as those relating to municipal transfer tax established in legislation separate from the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, which shall henceforth be reported to IMT, remain in force."
The aforementioned acquisition falls within the scope of article 1 of Decree-Law no. 1/87, so that, if this provision remains in force, the exemption will be applicable, reported to IMT, by virtue of these provisions of Decree-Law no. 287/2003.
The essential question to be decided is, therefore, whether article 1 of Decree-Law no. 1/87, was or was not repealed, in particular by Law no. 53-A/2006, of 29 December.
3.1. Regime for Cessation of Legal Force
The general regime for cessation of legal force is provided for in article 7 of the Civil Code, which establishes the following:
Article 7
Cessation of legal force
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When it is not intended to have temporary force, a law ceases to apply only if it is repealed by another law.
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Repeal may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the prior law.
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General law does not repeal special law, except if this is the unequivocal intention of the legislator.
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The repeal of the repealing law does not entail the revival of the law which it had repealed.
Temporary force was not provided for article 1 of Decree-Law no. 1/87, so any cessation of its legal force can only result from repeal (express or tacit) by another law, as follows from paragraph 1 of article 7 of the Civil Code.
3.1.1. Express Repeal
Express repeal did not occur, in particular before or with the approval of the Tax Benefits Statute, by Decree-Law no. 215/89, of 1 July.
In fact, the approval of the Tax Benefits Statute was preceded by a comprehensive reassessment of tax benefits, which was initiated by Law no. 2/88, of 26 January (State Budget Act for 1989), which in its article 49 repealed various tax benefits, including that provided for in article 7 of Decree-Law no. 1/87, but not that provided for in article 1, which is at issue here.
The list of tax benefits expressly repealed was subsequently completed by Decree-Law no. 485/88, of 30 December, in which the tax benefit provided for in article 1 of Decree-Law no. 1/87 is also not included.
After the approval of the Tax Benefits Statute, there is also no law that expressly repeals article 1 of Decree-Law no. 1/87.
In particular, express repeal was proposed by the Government in article 81, paragraph 3, of the Draft State Budget for 2007 (Draft Law no. 99/X), in a list of tax benefits to be repealed, but was not included in the approved Budget Act (Law no. 53-A/2006, of 29 December), although the express repeal of other tax benefits was maintained (in article 87).
It is thus unequivocal that article 1 of Decree-Law no. 1/87 was not expressly repealed.
3.2. Tacit Repeal
In the absence of express repeal, any repeal of article 1 of Decree-Law no. 1/87 could only result from tacit repeal, resulting from "incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the prior law."
The Tax Benefits Statute, in its original wording (Decree-Law no. 215/89, of 1 July), does not include any provision regarding property taxes relating to real estate investment funds, so it cannot be understood that it regulated the entire subject matter of the prior law.
Moreover, the fact already mentioned that the Tax Benefits Statute was preceded by the express repeal of tax benefits, which included one of those provided for in Decree-Law no. 1/87, but not that provided for in its article 1, requires the conclusion that it was not intended to repeal this tax benefit.
Decree-Law no. 189/90, of 8 June, added to the Tax Benefits Statute article 56 relating to "Real Estate Investment Funds," establishing that "properties forming part of real estate investment funds are exempt from municipal contribution." Law no. 39-B/94, of 27 December, amended the wording of this article to "properties forming part of real estate investment funds and equivalent funds, pension funds constituted in accordance with national legislation and savings-pension funds are exempt from municipal contribution."
With the renumbering carried out by Decree-Law no. 198/2001, of 3 July, article 56 was renumbered as article 46.
Law no. 32-B/2002, of 30 December, gave article 46 the following wording: "Properties forming part of real estate investment funds and equivalent funds, pension funds and savings-pension funds, which are constituted and operate in accordance with national legislation, are exempt from municipal contribution."
With Law no. 53-A/2006, of 29 December, article 46 of the Tax Benefits Statute came to encompass tax benefits regarding IMT, relating to properties forming part of real estate investment funds.
This article 46 came to have the following wording:
1 - Properties forming part of real estate investment funds, pension funds and savings-pension funds that are constituted and operate in accordance with national legislation are exempt from municipal tax on property (IMI) and municipal tax on onerous property transfers (IMT).
2 - Properties forming part of mixed or closed real estate investment funds with private subscription by non-qualified investors or by financial institutions on their behalf do not benefit from the exemptions referred to in the preceding paragraph, and the rates of IMI and IMT are reduced by half.
With Decree-Law no. 108/2008, of 26 June, article 46 was renumbered as article 49 of the Tax Benefits Statute.
This article 49 was successively amended by Law no. 3-B/2010, of 28 April, by Law no. 55-A/2010, of 31 December, by Law no. 83-C/2013, of 31 December, and came to be repealed by Law no. 7-A/2016, of 30 March.
In any of the aforementioned versions, article 49 refers only to properties forming part of real estate investment funds, not referring to IMT relating to their acquisition.
In this context, it cannot be understood that tacit repeal of article 1 of Decree-Law no. 1/87 occurred, since the entire subject matter provided for therein was not regulated by any subsequent law, in particular that relating to benefits regarding the acquisition of real properties by real estate investment funds.
On the other hand, no provision is found that is incompatible with that tax benefit, because, as the Claimant argues, "while the IMT exemption provided for in paragraph 1 of Decree-Law 1/87 applies to situations in which the Fund is in the capacity of acquirer, i.e., when it acquires properties to form part of its assets, the exemption in article 46 of the Tax Benefits Statute applies to situations in which the Fund is in the position of transferor, i.e., when it proceeds to sell the properties that already form part of its assets."
In fact, acquisitions of real properties effected for a real estate investment fund as referred to in article 1 of Decree-Law no. 1/87 are not covered by article 46 of the Tax Benefits Statute.
Furthermore, the existence of benefits relating to the acquisition of real properties concurrently with benefits relating to their transfer is expressly provided for in the regime of incentives for urban rehabilitation, in subparagraphs b) and c) of article 45 of the Tax Benefits Statute in the wording introduced by Law no. 114/2017, of 29 December (and was already previously provided for in paragraph 2 of article 45 and paragraph 8 of article 71), which demonstrates that, from a legislative perspective, there is no obstacle to the cumulation of benefits relating to acquisition with benefits relating to the transfer of real properties.
Thus, since there is no incompatibility of benefits for acquisition of real properties with benefits for their transfer, the regime of the aforementioned article 46 (later article 49) is not incompatible with the maintenance of the exemption for acquisition of real properties by real estate investment funds.
Therefore, it cannot be concluded that article 46 of the Tax Benefits Statute regulates the entire subject matter of exemptions for real estate investment funds, and it is perfectly acceptable that it introduced a new exemption, with the previously existing one subsisting.
Thus, as was understood in the arbitral award rendered in case no. 544/2016-T, "the exemptions under analysis are substantially and structurally different and independent of each other, and cannot in any way be considered contrary, contradictory or logically irreconcilable. And even less can they be considered legally and economically incompatible. One preserves its own utility independently of what may happen to the other."
Furthermore, and decisively, the fact already mentioned that the express repeal of Decree-Law no. 1/87 was included in the Draft State Budget for 2007, and that the proposal was not approved, corroborates the conclusion that its article 1 was not intended to be repealed. In fact, since it must be presumed that the legislator knew how to express its thought in adequate terms (article 9, paragraph 3, of the Civil Code), the omission in Law no. 53-A/2006 of the express repeal that had been proposed objectively has the significance of expressing that it was not intended to repeal that provision, since the adequate way of expressing a hypothetical intention of repeal was to refer to it expressly, approving the proposal, and not to obscure it with silence, which, in this context, is adequate to express the intention to reject the proposed repeal.
Therefore, it must be concluded that article 1 of Decree-Law no. 1/87, of 3 January, was not tacitly repealed, nor was it repealed in 2017, when the acquisition in question was effected. [1]
Confirming the non-repeal of Decree-Law no. 1/87 through the year 2018, Law no. 71/2018, of 31 December (State Budget Act for 2019), expressly repealed that Decree-Law, in its article 319.
Consequently, the assessment challenged is vitiated by a violation of law that justifies its annulment, pursuant to article 163, paragraph 1, of the Code of Administrative Procedure, subsidiarily applicable pursuant to article 2, subparagraph c), of the General Tax Law.
The implicit rejection of the administrative appeal, which maintained the aforementioned assessment, suffers from the same defect.
4. Reimbursement of Amounts Paid and Compensatory Interest
The assessed amount was paid by the Fund on 20-12-2017.
The Claimant requests reimbursement of the tax improperly paid, plus compensatory interest.
4.1. Reimbursement of Amounts Paid
In accordance with the provisions of subparagraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim that cannot be subject to appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, and the Administration 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 the voluntary execution of the decisions of tax courts, "restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose," which is in harmony with the provision of article 100 of the General Tax Law [applicable by virtue of the provision in subparagraph a) of paragraph 1 of article 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of an appeal, judicial challenge or resort in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision."
Although article 2, paragraph 1, subparagraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating in CAAD, making no reference to condemning decisions, it should be understood that the competences of the arbitral tribunals include the powers that, in judicial challenge proceedings, are attributed to tax courts, being this the interpretation that harmonizes with the meaning of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first guideline, that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to action for the recognition of a right or legitimate interest in tax matters."
The judicial challenge process, although essentially an annulment process for tax acts, admits the condemnation of the Tax Administration in the payment of compensatory interest, as can be inferred from article 43, paragraph 1, of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in an administrative appeal or judicial challenge, that there was error attributable to the administration resulting in payment of the tax debt in an amount greater than legally due" and from article 61, paragraph 4, of the Code of Tax Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, which corresponds to paragraph 2 in the original wording), that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period for its voluntary execution."
Thus, paragraph 5 of article 24 of the RJAT, when stating that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process," should be understood as allowing recognition of the right to compensatory interest in the arbitral process.
On the other hand, as the right to compensatory interest depends on the existence of a right to a sum to be reimbursed, from this competence to decide on the right to compensatory interest it follows that it extends to the assessment of the right to reimbursement.
Since the assessment must be annulled, the Fund represented by the Claimant has the right to be reimbursed the amount of € 75,000.00, improperly paid.
4.2. Compensatory Interest
Article 43 of the General Tax Law establishes the regime of compensatory interest, in the following terms, as is relevant here:
Article 43
Improper Payment of Tax Obligation
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Compensatory interest is due when it is determined, in an administrative appeal or judicial challenge, that there was error attributable to the administration resulting in payment of the tax debt in an amount greater than legally due.
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Error attributable to the administration is also considered to exist in cases in which, although the assessment is made based on the taxpayer's declaration, the latter followed, in its completion, generic guidelines of the tax administration, duly published.
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Compensatory interest is also due in the following circumstances:
a) When the legal deadline for official restitution of taxes is not met;
b) In case of annulment of the tax act by initiative of the tax administration, from the 30th day following the decision, without the credit note having been processed;
c) When the revision of the tax act at the initiative of the taxpayer takes place more than one year after the taxpayer's request, unless the delay is not attributable to the tax administration.
The assessment was challenged within the legal period for challenge, in particular within the period provided in article 10, paragraph 1, subparagraph a), of the RJAT.
The error affecting the assessment is attributable to the Tax and Customs Authority that carried it out.
Consequently, the Fund represented by the Claimant is entitled to compensatory interest, pursuant to article 43, paragraph 1, of the General Tax Law and article 61 of the Code of Tax Procedure and Process from the date of improper payment (20-12-2017), until the reimbursement is realized.
Compensatory interest is due at the legal supplementary rate, pursuant to articles 43, paragraphs 1, and 35, paragraph 10 of the General Tax Law, article 24, paragraph 1, of the RJAT, article 61, paragraphs 3 and 4, of the Code of Tax Procedure and Process, article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or other ordinance or ordinances that amend the legal rate), from the date of payment until full reimbursement.
5. Decision
In accordance with the foregoing, the members of this Arbitral Tribunal agree to:
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Rule that the request for arbitral pronouncement is well-founded;
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Annul the assessment of IMT no. ..., of 20-12-2017, in the amount of € 75,000.00;
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Rule that the request for reimbursement of the amount of € 75,000.00 is well-founded and condemn the Tax and Customs Authority to pay it to the Claimant;
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Rule that the request for compensatory interest is well-founded and condemn the Tax and Customs Authority to pay it to the Claimant, calculated on the value of € 75,000.00, in the terms referred to in point 4.2 of this award.
6. Case Value
In accordance with the provisions of articles 296, paragraph 1, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and Process and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 75,000.00.
7. Costs
Pursuant to article 22, paragraph 4, of the RJAT, the amount of costs is fixed at € 2,448.00, pursuant to Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.
Lisbon, 18-02-2019
The Arbitrators
(Jorge Lopes de Sousa)
(Luís Menezes Leitão)
(Paulo Jorge Nogueira da Costa)
[1] Moreover, this is an understanding that was already expressly adopted in 2009 in the Report of the Group for Study of Fiscal Policy Competitiveness, Efficiency and Justice of the Tax System, prepared within the scope of the Secretariat of State for Tax Affairs, in which Decree-Law no. 1/87, of 3 January, is listed among the legislation considered at that time to be in force (page 412).
This Report, which was assessed in Parliamentary Hearing no. 3COF-XI:
https://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheAudicao.aspx?BID=87515 and is published on the page of the Assembly of the Republic at:
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