IMT and Stamp Tax Exemptions for Real Estate Investment Funds (FIIAH) – Unconstitutionality of Retroactive Tax Law Under Law 83-C/2013

Arbitral Decision

IMT - tax benefits, tourism utility

I - REPORT

1. On 2 February 2016, A… – Investment Fund Management Company, S.A., with registered office at…, no. … –…, …–… …, registered at the Commercial Registry Office of Lisbon under the sole registration and tax identification number … (hereinafter "Claimant"), in its capacity as management company of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental" registered with the Securities Market Commission, with tax identification number … (hereinafter "Fund B…"), came to request the constitution of an Arbitral Tribunal, presenting, in accordance with Article 2, paragraph 1, subparagraph a) of the Legal Framework for Tax Arbitration (RJAT), a Request for Pronouncement with a view to assessing the legality of the IMT assessments (in the amount of € 27,764.75) and Stamp Duty (in the amount of € 3,880.00), relating to the acquisition of a real estate property with registration number U-…-…, from the parish of … and…, with a declaration of nullity or annulment of the tax acts and restitution of the amounts paid, as well as recognition of the right to compensatory interest. Two documents were attached.

2. In the arbitral request for pronouncement, the Claimant opted not to designate an arbitrator.

3. Pursuant to Article 6, paragraph 1 of the RJAT, by decision of the President of the Deontological Council, Maria Manuela do Nascimento Roseiro was appointed as sole arbitrator, the signatory hereto, who accepted the appointment within the legally prescribed period.

4. The parties being notified and there being no objection to said appointment (Article 11, subparagraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code), the arbitral tribunal was constituted on 20 April 2016, in accordance with the provision of subparagraph c) of Article 11, paragraph 1 of the RJAT, and on the same date an arbitral order was issued notifying the Tax and Customs Authority (AT or Respondent) in accordance with Article 17 of the RJAT.

5. On 4 May 2014, the Respondent presented a Response, requesting an exemption from the attachment of the administrative file and attaching three arbitral decisions in identical proceedings.

6. Following arbitral orders, the Claimant responded to the objection raised by the Respondent and, with the consent of the Parties, the holding of the meeting provided for in Article 18 of the RJAT was dispensed with, setting a period of ten days for the submission of arguments, to run successively.

7. The arguments were submitted on 22 June and 8 July 2016, respectively, with the Claimant attaching three documents, including an arbitral decision handed down in identical proceedings and a doctrinal opinion. The tribunal indicated that the arbitral decision would be presented by 5 August 2016.

8. Request for arbitral pronouncement

The Claimant invokes, in summary (our responsibility):

a) Articles 102 to 104 of Law No. 64-A/2008, of 31 December (State Budget for 2009) approved the special regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental, providing in Article 8 of the regime contained in Article 104 the "tax regime" of FIIAH.

b) On the basis of said Article 8, following the addition of paragraphs 14 to 16 by Law No. 83-C/2013, of 31/12 (State Budget for 2014), and of a transitional provision contained in Article 236 of that State Budget, the Claimant requested from the Tax Authority the assessment of IMT and Stamp Duty (IS) due to the sale by Fund B… of the real estate property located at…, …, Block…, …, with the registration entry U-…-… of the Parish of … and….

c) Assessments Nos…, of IMT, in the amount of € 27,764.75, and No…, of Stamp Duty (IS), in the amount of € 3,880.00, were issued.

d) Paragraph 14 added by Law No. 83-A/2013 established unequivocally, and for the first time, the meaning of the expression "urban real estate properties intended for rental for permanent housing" as those which, for the purposes of the special regime, are the subject of a lease agreement for permanent housing within three years counted from the moment they became part of the fund's assets.

e) The added provisions also established the circumstances under which real estate properties forming part of the assets of FIIAH cease to benefit from the exemption regime provided for in paragraphs 6 and 8 of the Tax Regime of FIM, providing that in cases where the real estate properties forming part of the assets of FIIAH have not been the subject of a lease within the three-year period from said entry, or in cases of sale of real estate properties by the FIIAH, or liquidation of the FIIAH itself, before the three-year period, counted from the date the relevant real estate properties entered the assets of the FIIAH, has elapsed, the taxpayer shall request from the Tax Authority, within 30 days following the end of said period, the assessment of the respective tax.

f) Given that IMT and Stamp Duty are taxes of single obligation, and given that on the date of entry into force of Law No. 83-C/2013, of 31/12, the real estate property in question in the case was part of the Claimant's assets and had been acquired with the exemptions provided for in paragraphs 7 and 8 of the Tax Regime of FIIAH, previously recognized at the request of Fund B…, it should be understood that the exemptions were crystallized in the legal order.

g) Because the exemptions were not, at that date, conditional on the subsequent verification of any facts or circumstances nor subject to any expiry regime, the subsequent imposition relating to exemptions crystallized in the legal order suffers from unconstitutionality due to violation of the principle of non-retroactivity of tax law enshrined in Article 103 of the CRP (Portuguese Constitutional Law).

h) The extension, provided for in Article 236 of the State Budget for 2014, of application of the current FIIAH Regime to real estate properties that have been acquired before 1 January 2014 (…) establishes a new regime of expiry of the exemptions provided for in paragraphs 7, a) and 8 of Article 8, violating directly and unequivocally said principle of non-retroactivity of tax law.

i) And because this principle of tax non-retroactivity has the character of a fundamental right, endowed with the legal framework protecting this right, its disregard gives rise, according to some doctrine, to the nullity (or even the legal non-existence) of the assessments, and the challenge may be made at any time.

j) Thus, and even if it is considered that only annulability is at issue, the Request should be upheld as to the illegality of the assessments, ordering the restitution of the amounts paid in the meantime plus compensatory interest.

8. The Response of the Respondent

The Respondent replied, in summary (our responsibility):

By objection

a) The Arbitral Tribunal is incompetent to assess or declare the constitutionality or unconstitutionality of Article 236 of Law 83-C/2013, of 31/2, with the competence for abstract review of constitutionality being reserved to the Constitutional Court (Article 281 of the CRP), such that there is a dilatory objection leading to absolution of the instance (Article 576/1 and 2 and in Article 577-a) of the CPC, applicable ex vi of Article 29/1-e) of the RJAT).

By challenge:

b) The obligation to allocate the real estate property to residential rental is not a requirement of the changes introduced by the State Budget for 2014, but rather a requirement of the tax regime of FIIAH (Article 8) approved by the State Budget for 2009, such that taxpayers wishing to benefit from said exemptions always had to comply with the assumption that such real estate properties would be allocated exclusively to permanent residential rental.

c) The assessments now being challenged were based precisely on the fact that the real estate property was given a different purpose than the one that originated the attribution of the existing tax benefit, with there already being diverse arbitral jurisprudence in the sense that this is not a matter of retroactivity or otherwise of the applied norm, but rather of sale of real estate properties without having fulfilled its purpose of allocation to permanent residential rental, because they were sold without realization of that purpose, that is, without fulfillment of the requirement established for the application of the IMT exemption.

d) For compliance with subparagraph a) of paragraph 7 of Article 8, a mere declared intention at the time of acquisition of the real estate property is not sufficient but an actual allocation to rental for permanent housing is required, a requirement that the present Claimant does not prove in any way in this proceeding, nor in the prior administrative procedure.

e) In these cases, given the sale of the real estate property, the automatic restoration of standard taxation is determined.

f) As for the alleged nullity of the assessments being challenged, the standard regime of invalidity of administrative acts in the Portuguese administrative legal order is, for reasons of legal certainty, mere annulability.

g) Nullity affects only acts that violate the essential content of a fundamental right, those that conflict with the rights, freedoms and guarantees of citizens, and not those that conflict with the principle of legality, as in the case at hand, especially because this would create an unsustainable generalized and perpetual uncertainty in the area of public finances, making any consistent medium-term financial planning impossible.

h) The FIIAH regime introduced by the Law that approved the State Budget for 2009 had as its objective to support persons with difficulty in paying monthly installments of loans relating to home purchase, making it possible to sell and rent the real estate property, with right of repurchase.

i) The new law does not alter the assumptions, the conditions for attribution and recognition of the tax benefit of exemption from IMT and IS, it merely provides the time and manner of compliance with the legally established requirement, there being no violation whatsoever of the principle of non-retroactivity of tax law due to there being no subsequent imposition of any conditions determining the expiry of the right to exemption from IMT or IS that were not initially provided for.

j) In this case it cannot be said that the taxpayer was surprised by the requirement to provide proof of a lease agreement, the expiry of the exemption due to lack of requisites for attribution was already expressly established in Article 14/2 of the EBF, with Article 8, paragraph 16 of the FIIAH regime merely establishing a defined period whose counting only begins after the entry into force of the new law.

k) In any case, and without conceding, as the Respondent cannot refuse to apply the law on the ground of its unconstitutionality, there is no error in the actions of the respondent entity or attributable to its services, with no compensatory interest being owed in accordance with Article 43 of the LGT.

9. Issues to be decided

Beyond the objection raised by the Respondent regarding the incompetence of the tribunal, the issues to be decided are:

A. Legality of the IMT and Stamp Duty assessments made by the Respondent at the time of sale by a Real Estate Investment Fund for Residential Rental (FIIAH), of real estate property that it had previously acquired with the exemptions provided for in Article 8 of the special regime of FIIAH, created by Law No. 64-A/2008, of 31 December (State Budget for 2009), assessing in particular whether the application of provisions added by Law No. 83-C/2013, of 31 December (State Budget for 2014) is at issue, in violation of Article 103 of the CRP.

B. Right to compensatory interest, in case the assessments in question are illegal.

10. Sanitation

As to the issue raised by the Respondent of incompetence of the arbitral tribunal to decide on the constitutionality or unconstitutionality of a given norm, the request does not aim to obtain a declaration of unconstitutionality of legal norms but only pronouncement on their specific application to a given situation, assessing whether the result constitutes a violation of a constitutional norm.

Because the arbitral tribunal has, like other courts, competence not to apply norms that infringe the provisions of the constitution or the principles contained therein (Article 204 of the CRP), the objection raised by the Respondent is considered groundless.

The Tribunal is, therefore, materially competent, and is regularly constituted in accordance with Articles 2, paragraph 1, subparagraph a), 5, paragraph 2, and 6, paragraph 1 of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10, paragraph 2 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceeding does not suffer from defects that would invalidate it.

Wherefore, we proceed to the decision on the merits.

II. GROUNDS

11. Proven facts

11.1. The Claimant, designated A… – Investment Fund Management Company, S.A., is a management company of the real estate investment fund "Closed Real Estate Investment Fund for Residential Rental", registered with the Securities Market Commission with tax number … (Request).

11.2. The Claimant acquired the share … of Article … of the parish of …, current … of the Union of parishes of … and… from the entity with NIF …, with exemption having been requested and granted in accordance with Article 10 of the CIMT (Article 21 of the Request and doc. No. 1 attached with the Request).

11.3. With respect to the acquisition referred to in the preceding number, on 26 July 2013, an IMT assessment was made "enjoying tax benefit 92, FIIAH/SIIAH (Article 87 of the State Budget/09)"[1] (doc. No. 1).

11.4. On 20 January 2016, before the sale of the real estate property referred to in 11.2, the Respondent made an assessment of IMT and Stamp Duty relating to the prior acquisition[2] of the same real estate property, at the price of 485,000 euros, which resulted in the amounts, respectively, of € 27,764.75 (IMT) and € 3,880.00 (IS) (Article 6 of the Request and Article 5 of the Response and doc. No. 1 attached with the request).

11.5. In the assessment documents it is mentioned, as to IMT, that the assessment is due to expiry of the exemption in accordance with paragraphs 1 and 2 of Article 34 of the CIMT as a consequence of completion of sale of the real estate property, to take place on 20 January 2016[3], with change of the purpose on which the granting of the benefit was based (doc. No. 1).

11.6. The taxes assessed in accordance with the two preceding numbers were paid on 21 January 2016 (Doc. No. 2)

12. Unproven facts

The factual matter established proves to be sufficient for assessment of the legal question, there being no unproven facts relevant to the solution of the present dispute.

13. Grounds for proof

The factual findings were made on the basis of facts alleged by the parties and not contested, as well as on the documents attached to the case file.

14. Application of law

14.1. Type of illegality under examination

The Claimant invokes a violation of Article 103 of the CRP, concluding that there is a situation of nullity of the tax acts subject to the request for pronouncement.

The Respondent replies, citing various jurisprudence of the STA, that even if the assessment acts in question were based on an unconstitutional norm, the defect they would suffer would always be annulability and not nullity, because the latter only occurs in cases of violation of the essential content of a fundamental right (subparagraph d) of paragraph 2 of Article 133 of the CPA) and not in situations of mere violation of legality as is the case.

This position of the Respondent is subscribed to, in line with the cited jurisprudence, understanding that the assessment acts subject to the request are not null and that, in the decision on the legality of the assessment to be issued in this case, what is at issue is the possible annulability of the tax acts.

14.2. The special regime for FIIAH and SIIAH created by the State Budget Law for 2009

In its Articles 102 to 104, Law No. 64-A/2008, of 31 December, approved a special regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH) (Article 102), constituted during the five years following the entry into force of the same law and to real estate properties acquired by these during the same period (that is, between 1 January 2009 and 31 December 2013) (Article 103), providing for the application to their constitution and functioning of the Legal Framework for Real Estate Investment Funds, approved by Decree-Law No. 60/2002, of 20 March (Article 104).[4]

Real Estate Investment Funds for Residential Rental (FIIAH),[5] in accordance with the provisions of Articles 1 to 4 of the regime approved by the State Budget for 2009:

• included in their denomination the expression 'real estate investment funds for residential rental' or the abbreviation FIIAH, which only they (that is, with the characteristics of Articles 2 to 6) could adopt;

• the respective value of total assets should at the end of the first year reach the minimum amount of € 10 million and, when constituted through public subscription, have at least 100 participants, whose individual participation may not exceed 20% of the value of the total assets of the fund, and the failure to comply with said limit of individual participation determined the immediate and automatic suspension of the right to distribution of income of the FIIAH in the value of the participation exceeding that limit.

• as to the composition of the assets of the FIIAH, Article 46[6] of the Legal Framework for Real Estate Investment Funds is said to be applicable, but at least 75% of its total assets are constituted by real estate properties, located in Portugal, intended for rental for permanent housing.

Article 5 of the Regime established by Law 64-A/2008 provides that:

• Borrowers of residential credit contracts who proceed to sell the real estate property subject to the contract to a FIIAH may celebrate with the fund management entity a lease agreement (paragraph 1);

• Prior to the celebration of the contract of transfer of ownership of the real estate property to the FIIAH, the respective management entity provides to the vendor, on paper or another durable medium, information on the essential elements of the transaction, such as the price of the transaction, including, also, where applicable, the value of the rent, the respective conditions for updating and the criteria for fixing the price and the general terms for exercising the purchase option (paragraph 2);

• The lease entered into by borrowers, in accordance with the provisions of paragraph 1, constitutes the lessee in a right of purchase option of the real estate property from the fund, capable of being exercised until 31 December 2020, a right of purchase option which is only transferable by death of the holder (paragraphs 3 and 4);

• Said right of purchase option ceases if the lessee fails to comply with the obligation to pay rent to the FIIAH for a period exceeding three months (paragraph 5);

• The terms and conditions of exercise of the option are regulated by ordinance of the government member responsible for the area of finance, and should assure the right of the vendor to repurchase the real estate property from the FIIAH by reference to the updated value of the sale, as well as, in case of non-exercise of the right of option, the right to receive the difference between the value of the future sale of the real estate property and the updated value of acquisition of that same real estate property by the FIIAH.

Article 7 of the Regime provides for the creation of a Monitoring Commission (composed of three independent persons) to verify compliance with the legal and regulatory regime applicable to the activity of FIIAH, in particular compliance with the legal framework and the principles of good governance that should govern the management of FIIAH (e.g., investment and financing policy of responsibilities; respect by the management entity of the rights of participants and lessees; compliance with information duties) and verification, in particular, of compliance by the FIIAH with the regime of exercise of the purchase option by the lessee.

Article 8 contains the "Tax regime" providing for various exemptions. In addition to exemptions in IRC and IRS,[7] provision is made as to real estate properties:

• Exemption from IMI, while they remain in the portfolio of the FIIAH, of urban real estate properties intended for rental for permanent housing, which form part of the assets of the funds.

• Exemption from IMT as to acquisitions of urban real estate properties or autonomous fractions of urban real estate properties intended exclusively for rental for permanent housing, by investment funds, as well as as to acquisitions of urban real estate properties or autonomous fractions of urban real estate properties intended for own permanent housing, as a result of the exercise of the purchase option by lessees of the real estate properties forming part of the assets of the investment funds.

• Exemption from Stamp Duty as to all acts executed, provided they are connected with the transfer of urban real estate properties intended for permanent housing that occurs as a result of the conversion of the right of ownership of those real estate properties into a right of lease on the same, as well as with the exercise of the purchase option provided for.

(underlining ours).

14.3. The changes introduced by the State Budget for 2014 and their application in time

The State Budget for 2014 (approved by Law No. 83-C/2013, of 31 December), in its Article 235, extended to FIIAH constituted until 31 December 2015 the exemption from income in IRC provided for in paragraph 1 of Article 8 of the Regime and added to the same article paragraphs 14 to 16, with the following content:

"14 — For the purposes of the provisions of paragraphs 6 to 8, it is considered that urban real estate properties are intended for rental for permanent housing whenever they are the subject of a lease agreement for permanent housing within three years counted from the moment they became part of the fund's assets, with the taxpayer to communicate and provide proof to the AT of the respective actual lease, within 30 days following the end of said period.

15 — When the real estate properties have not been the subject of a lease agreement within the three-year period provided for in the preceding number, the exemptions provided for in paragraphs 6 to 8 are without effect, and in that case the taxpayer shall request from the AT, within 30 days following the end of said period, the assessment of the respective tax.

16 — In case the real estate properties are sold, with the exception of the cases provided for in Article 5, or in case the FIIAH is subject to liquidation, before the period provided for in paragraph 14 has elapsed, the taxpayer shall likewise request from the AT, before the sale of the real estate property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the preceding number." (underlining ours)

And in Article 236, the State Budget for 2014 prescribed a transitional regime for FIIAH and SIIAH, to the effect that:

"1 — The provisions of paragraphs 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, apply to real estate properties that have been acquired by FIIAH as from 1 January 2014.

2 — Without prejudice to the provision in the preceding number, the provisions of paragraphs 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, are equally applicable to real estate properties that have been acquired by FIIAH before 1 January 2014, counting, in those cases, the three-year period provided for in paragraph 14 from 1 January 2014."

As to the effects of the changes introduced by Article 235 of the State Budget for 2014 (approved by Law No. 83-C/2013, of 31 December) to situations occurring during the validity of the wording of the Law of the State Budget for 2009, the Claimant understands that, in accordance with the original wording of Article 8 of the special regime for FIIAH, the exemptions from IMT and IS were not, on the date the real estate property was acquired by Fund B…, conditional on the subsequent verification of any facts or circumstances nor subject to any expiry regime, and that they continue not to be, because the application of the extension, established by Article 236 of the State Budget for 2014, to acquisitions prior to 1 January 2014 represents a violation of the principle of non-retroactivity of tax law constitutionally established in Article 103 of the CRP.

On the contrary, the Respondent understands that the regime approved by Law No. 64-A/2008, of 31 December, already required that the beneficiaries of the exemptions in question, both as to IMT and as to Stamp Duty, had to comply with the assumption that the real estate properties covered were intended exclusively for rental for permanent housing.

14.4. The type of benefits in question and the issue of their expiry

In the assessment of the situation in this case, applying the principles of legal interpretation established, account must be taken of the ratio and the context of creation of the legal regime created by the State Budget Law for 2009.

The specific conditions of the time in which the law was created confirm what derives from the wording of the norm, interpreted together with other norms of the legal system. "At the time of its creation, in 2008 (with effects from 1 January 2009), the tax regime described above stood out through its tax exemptions, as a "stimulus measure for rental (…), with the objective of alleviating the tax burden on owners and tenants", allowing families with residential loans, and with difficulty in paying their loan installment, to be able to convert their respective payments into the payment of rent, by selling the respective real estate property to the FIIAH, and entering into, with the fund management entity (SIIAH), a lease agreement on that same real estate property, while still being able to maintain, until 2020, the option to purchase the real estate property."[8]

Or, as stated in the learned opinion attached to the case file by the Claimant, with the arguments, the FIIAH regime established "a mechanism that intended to protect the interest of borrowers of residential credit loans, with difficulties in compliance, in maintaining the possibility of acquisition of the real estate properties, on an installment basis (for this reason being granted them a right of option), although they became immediately mere lessees of the FIIAH, to whom they sold the real estate property in question" (see Article 5).

That is to say, everything indicates that the exemptions provided for in Article 8 of the Special Regime for FIIAH were intended only for real estate properties acquired with that allocation realized or to be realized shortly, in many cases at the moment the real estate property was acquired by the Fund, of integration into its assets.

Given the provisional, cyclical nature of the "special regime applicable to real estate investment funds for residential rental (FIIAH)" approved by Law No. 64-A/2008 (Articles 102 to 104),[9] in particular through the granting of tax benefits (Article 8), it cannot but be understood that the benefits were justified only if the objectives outlined for the new legal entities of FIIAH were gathered and maintained.

It was not a matter of exempting the acquisition of a real estate property intended in the abstract for residential rental, but rather a real estate property that, in concrete terms, has to be allocated to that purpose. The aim was not to exempt FIIAH with respect to any acquisition of real estate properties but only acquisitions of real estate properties actually intended for residential rental.

Thus, it would appear as an exceptional situation, not intended by the legislature, that real estate properties acquired with express destination for rental for permanent housing were not leased for permanent housing.

And the fact that the exemption foreseen intends to realize an overriding extrafiscal public interest over the taxation it prevents (paragraph 1 of Article 2 of the EBF) requires monitoring of the situation (Article 7 of the EBF). It should be recalled that, given certainly the political and social relevance of the ends of this special regime, it itself provides for monitoring, by a permanent commission, of compliance with the legal and regulatory regime applicable to the activity of FIIAH (paragraph 7 of Article 8 of the special regime).

There is, therefore, a tax benefit conditioned on the verification of requirements in the law, provided for since the original wording of the special regime of FIIAH.

Faced with the evidence of the ratio of the norm it is difficult to accept the conclusion that the original wording of the exemptions did not require any requirement relating to actual rental, let alone a period, being only necessary the scope of its acquisition for rental.[10] This thesis appears to contain a contradiction in terms, amounting to saying that the granting of exemption was for real estate properties to be allocated to rental but which could also not be…

Although the Regime contained in Article 8 of the wording of the State Budget Law for 2009 specifies nothing about the period of time allowed for, with respect to the acquired real estate properties, the realization of the purpose "allocation to rental for permanent housing", such omission appears to be due to the fact that the control difficulties were minimized, perhaps thinking that, given that the transfers originated in the transition of the borrower to tenant would not find situations of non-allocation of acquired real estate properties to rental for permanent housing.[11]

But the Tribunal does not subscribe to the Claimant's thesis that the exemptions in question were not originally conditioned by any facts or circumstances, considering instead that given the wording of the regime approved by Law No. 64-A/2008, of 31 December, it cannot but be understood that the tax benefits would already then be subject to expiry insofar as the non-observance of the obligations imposed, were attributable to the beneficiary (paragraph 2 of Article 14 of the EBF).

And it would, therefore, also be applicable paragraph 3 of Article 14 of the EBF, which provides that "When the tax benefit concerns acquisition of goods intended for the direct realization of the objectives of the acquirers, it is without effect if they are sold or given another purpose without authorization of the Minister of Finance, without prejudice to the remaining sanctions or different regimes established by law".

Because, being a tax benefit conditioned on the verification of requirements in the law, provided for since the original wording, it could not but apply the existing rules on the matter and which guarantee the unity of the legal system. The granting by law of an exemption, to be granted on the assumption of achieving an objective, not subject to control of verification of the result, would indeed be an invitation to tax evasion resulting in a violation of constitutional principles, namely tax justice and equality.

Thus, it does not appear correct to say that "without the changes to the Special Regime applicable to FIIAH and SIIAH of Law No. 83-C/2013, of 31 December, the Claimant would have had neither would ever, proceed to present any request for assessment of IMT and IS when proceeding to exchange the real estate property (…)" (§ 26 of the arguments).

And the statement that "The sole requirement of the exemption, on the date the Claimant acquired the real estate property in question and when such exemption was consummated, was that the real estate properties acquired by FIIAH be intended to be leased for permanent housing (…)" and only with the change of the Regime which came to provide that "the sale of real estate properties owned by FIIAH – or the liquidation of the FIIAH itself – before the three-year period, counted from the entry of the relevant real estate properties into the assets of FIIAH (…) leads to the expiry of the exemption" is based on an incorrect reading of the concept "real estate properties intended for rental for permanent housing" (§ 27 of the arguments), as if the actual allocation were not a prerequisite of the exemption, a condition whose absence leads to the expiry of the benefit.

In practice, the regime approved by the State Budget for 2009 could provide some insecurity and inequality in the application of the law, in cases where real estate properties enjoying exemption were not immediately allocated to the purposes for which the exemption had been granted. That is, insofar as no period was provided for allocation to the stated purposes, it hindered the application of the segment of paragraph 2 of Article 14 of the EBF "expiry insofar as the non-observance of the obligations imposed, be attributable to the beneficiary".

For example, situations could arise in which, invoking the economic crisis and difficulties in renting, the funds benefiting from the exemption, granted expressly by law on the assumption of meeting certain requirements, would come to be able to benefit from exemption by always postponing the realization of the extrafiscal ends legally intended and which justified the loss of tax revenue.

In this respect, the provision of the transitional norm contained in Article 235 of Law No. 83-C/2013, of 31/12, in fixing a period, fairly lengthy, for allocation to the objectives (3 years) appears, in practice, to have even lengthened that period for real estate properties already previously acquired by FIIAH, by providing the possibility of allocation to rental for permanent housing within the period of (another) three years from January 2014.[12]

But the law did not add the obligation to allocate to rental for permanent housing the real estate properties previously acquired with granted exemptions.

This is because such obligation derived already, at the time of acquisition of the real estate properties, from the tax regime provided for in Law No. 64-A/2008, of 31 December.

14.5. Conclusion as to the situation in this case

Thus, the case in this proceeding must be resolved taking into account that:

• FIIAH, constituted between 1 January 2009 and 31 December 2013, in accordance with the applicable legislation, with assets constituted in at least 75% by real estate properties intended for rental for permanent housing, enjoyed exemption from taxes on acquisition (IMT and Stamp Duty) and on holding (IMI) of real estate properties acquired during that period and intended for allocation to rental for permanent housing

• The benefits in question were granted in the case of borrowers of residential credit contracts who, within the same period, proceeded to sell a real estate property subject to the contract to a FIIAH, celebrating with the fund management entity a lease agreement, constituting themselves in a right of purchase option of the real estate property (from the FIIAH) capable of being exercised until 31 December 2020.

• It is in that context – requirements met - that the exemption from IMT in acquisitions of urban real estate properties or autonomous fractions of urban real estate properties intended exclusively for rental for permanent housing by investment funds is justified, as well as acquisitions of urban real estate properties or autonomous fractions of urban real estate properties intended for own permanent housing, as a result of exercise of the purchase option by lessees of real estate properties forming part of the assets of investment funds.

• As well as the exemption from Stamp Duty of the acts connected with the transfer of urban real estate properties intended for permanent housing that occurs as a result of the conversion of the right of ownership of those real estate properties into a right of lease on the same, as well as with the exercise of the purchase option referred to before.

In the case at hand, it is assessments of IMT and IS made in 2015, at the moment of sale of a real estate property acquired in July 2013 (it is not exactly known from whom but it does not appear to be from a borrower), with exemptions provided for in paragraph 7 of Article 8 of the FIIAH Regime and in which no proof was made or even invoked that it had been allocated to rental for permanent housing. It was also not sold to a lessee or with any conditionality as to the end of its allocation.

Thus, if the exemptions granted, initially, in the acquisition of a real estate property acquired by a FIIAH were to be maintained in a case like this, the purpose of the law would be completely unattainable without corresponding loss of benefit. And, in situations of acquisition of real estate properties acquired by Real Estate Investment Funds for Residential Rental, these would benefit from exemption from IMT and Stamp Duty on acquisition and from IMI in the period elapsed until resale without the need for the real estate properties to actually be allocated to rental for permanent housing, it being sufficient that they could possibly come to be… That is to say the granting of benefits ceased to be conditional, it being sufficient the legal form of the acquiring entity.

However, the benefits as to IMT, Stamp Duty and IMI are not granted to the Funds because they have a certain activity but are granted to the real estate properties, if and while intended, in concrete terms, to that activity. And, clearly determined post-2014, during a minimum period provided for in the law.

In the present case, the actual allocation of the real estate property in question was not invoked but rather the mere quality of the acquiring Fund which proceeded to resale of a real estate property two years after its respective acquisition, of a real estate property that will have benefited from exemptions provided for in the law for real estate properties allocated to rental for permanent housing.

The Claimant states, in arguments,[13] that when it requested payment of the taxes in question it invoked Article 236 of Law No. 83-C/2013, of 31 December and not the allocation of the real estate property "to a purpose different from the one on which the benefit was based".

However, it is certain that, on the basis of the Claimant's statements that it was going to sell the real estate property, the Respondent understood that there was expiry of the exemption due to change of purpose of the real estate property, basing the assessment on the allocation of the asset to a purpose different from the one on which the benefit was based.

The amendments made by Article 203 of Law No. 83-C/2013, of 31/12 are not invoked (the unconstitutionality of which, moreover, does not appear to us to be confirmed given the interpretation we have adopted) but even Article 34 of the CIMT which provides that taxpayers request assessment of tax before the expiry of the respective exemption occurs. Even if the Claimant had not requested the prior assessment, the Respondent could come, with the grounds invoked, to make the assessment, in accordance with Article 35 of the CIMT.

In these conditions and on the grounds set out, the tribunal considers legal the assessment based on the expiry of exemption by verification of the lack of prerequisites provided for in Article 104 of Law No. 64-A/2008, of 31/12.

And it results from the interpretation we have adopted that the amendments made by Article 203 of Law No. 83-C/2013, of 31/12, will not constitute a violation of Article 103 of the CRP but, because the assessment does not need to invoke the application of the added norms, it is considered superfluous to undertake a more in-depth legal assessment of the invoked issue of unconstitutionality.

And, the arbitral request being unsuccessful, the request for reimbursement of amounts paid is also unsuccessful, as is the request for compensatory interest.

III. DECISION

15. In light of the above, the present Arbitral Tribunal decides:

a) To dismiss as unsuccessful the present request for declaration of illegality of the assessment of IMT in the amount of € 27,764.75 (twenty-seven thousand euros, seven hundred and sixty-four euros and seventy-five cents) and of the assessment of Stamp Duty in the amount of € 3,880.00 (three thousand eight hundred and eighty euros).

b) To condemn the Claimant to pay the costs of the present proceeding.

16. Value of the proceeding and costs

The value of the proceeding is fixed at € 31,644.75 (thirty-one thousand six hundred and forty-four euros and seventy-five cents) in accordance with Article 97-A, paragraph 1 of the CPPT, applicable by force of Article 29, paragraph 1, a) of the RJAT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

The amount of costs is fixed at € 1,836.00 (one thousand eight hundred and thirty-six euros), charged to the Claimant and calculated in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, all in accordance with Articles 12, paragraph 2, and 22, paragraph 4 of the RJAT and Article 4 of the RCPAT.

Lisbon, 5 August 2016.

The Arbitrator

Maria Manuela Roseiro

[1] There appears to be a typographical error (it should have been intended to refer to Article 8, paragraph 7 of the regime approved by Article 104 of the State Budget).

[2] In the assessment forms, the space referring to "tax event" describes "15-exchange of real estate properties", but at the end of the documents there is a note "Observations: where it reads tax event 15 should read tax event 1-Acquisition of the right of full ownership over real estate properties".

[3] The date on which the sale was completed is unknown, the tax having been paid on 21-01-2016.

[4] With the changes of the various diplomas referred to in Article 100 of Law No. 64-A/2008, it was subsequently altered and republished by Decree-Law No. 71/2010, of 18 June.

[5] Article 9 provides that the regime provided for in the preceding articles is applicable, with the necessary adaptations, to real estate investment companies (SIIAH) that come to be constituted under special law and that observe the provisions of the special regime applicable to FIIAH.

[6] From the rules of Article 46 of the Real Estate Investment Fund Regime note: a) The development of construction projects may not represent, as a whole, more than 50% of the total assets of the investment fund; b) The value of a real estate property may not represent more than 25% of the total assets of the investment fund; c) The value of real estate properties leased, or subject to other forms of paid operation, to a single entity or to a set of entities which, under the law, are in a relationship of control or group, or which are controlled, directly or indirectly, by the same natural or legal person, may not exceed 25% of the total assets of the investment fund; d) The investment fund may borrow up to a limit of 25% of its total assets.

[7] In paragraphs 1 to 5 provision is made for exemptions in the context of IRS and IRC, namely: exemption from IRC as to income of any nature obtained by FIIAH constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and with observance of the conditions provided for; exemption from IRS and IRC as to income relating to units of participation in investment funds paid or made available to the respective holders (…) whether by distribution or reimbursement, excluding the positive balance between capital gains and losses resulting from the sale of units of participation; exemption from IRS as to capital gains resulting from the transfer of real estate properties intended for own housing in favor of investment funds, which occurs as a result of the conversion of the right of ownership of those real estate properties into a right of lease.

[8] Citation of Decision handed down on 20 May 2016 in arbitral proceeding No. 735/2015-T (No. 6.18.)

[9] Article 103 of Law No. 64-A/2008 provides that "the regime contained in this section applies to FIIAH or SIIAH constituted during the five years following the entry into force of this law and to real estate properties acquired by these during the same period" and paragraph 2 of Article 9 of the regime "The regime contained in this section is in force until 31 December 2020, with the conversion of FIIAH into real estate investment funds subject in full to the Legal Framework for Real Estate Investment Funds taking place on that date".

[10] As in the learned Opinion attached to the case file by the respondent.

[11] Thus, and also contrary to the thesis of the Opinion attached to the case file ("there is a clear difference between proving the purpose of acquisition of real estate properties by FIIAH, as a prerequisite of the exemptions originally provided and the restriction of these through the introduction of new prerequisites, as occurred in 2014") it is believed that it is not apt to understand that the later clarification of periods and actions means that, in the original wording, the actual allocation of the real estate property to rental for permanent housing was not already an essential prerequisite for the granting of exemption.

[12] The expansion of benefits is also expressed in paragraph 1 of Article 8, for FIIAH constituted until 31 December.

[13] See § 20 to 23. "By way of example" the claimant attached a request, alleging it was presented in other cases, without providing any concrete data about the real estate property in question in this proceeding, resold two years after having been acquired with tax exemption granted under the special regime for FIIAH.