Summary
Full Decision
ARBITRAL DECISION
The arbitrators Counsellor Maria Fernanda dos Santos Maçãs (arbitrator-president), Dr. José Ramos Alexandre and Dr. João Menezes Leitão (arbitrator-members), appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, agree as follows:
Report
The Closed Real Estate Investment Fund A..., NIPC..., registered with the CMVM under code ..., represented by its respective managing entity, B..., S.A., with registered office at Rua ..., nº..., - ... - ...-... LISBON, came, in accordance with article 10, no. 2, of the Legal Regime for Arbitration in Tax Matters, approved by Decree-Law no. 10/2011, of 20 January and amended by Law no. 66-B/2012, of 31 December (hereinafter RJAT), to request the constitution of an Arbitral Tribunal requesting the declaration of illegality and consequent annulment of the assessment of the Municipal Tax on Onerous Transfers of Real Property (IMT) no. ..., in the amount of € 325,000.00 whose payment was made, jointly requesting that the reimbursement of this amount be ordered, increased by compensatory interest at the legal rate, from the date of payment until the date of effective reimbursement.
The Tax and Customs Authority is the respondent in the proceedings.
The request for constitution of the Tribunal was accepted and, in accordance with articles 5, no. 3, al. a), article 6, no. 2, al. a) and article 11, no. 1, al. a) of the RJAT, the Deontological Council of the Centre for Administrative Arbitration (CAAD), by order of 2019/01/04, appointed the signatories as arbitrators, the appointment having been accepted within the legally established time period.
The parties were duly notified of the appointment, to which they did not refuse in accordance with the combined provisions of articles 11, no. 1, subsections b) and c), article 8 of the RJAT and articles 5, 6 and 7 of the Deontological Code of the CAAD.
The Collective Arbitral Tribunal was constituted on 24 January 2019.
The Tax and Customs Authority (AT), notified in accordance with article 17 of the RJAT, to pronounce on the arbitral request, by motion of 2019/02/27, informed the Tribunal that it would not submit a Response, and it was also noted that it did not send the Administrative File to the Tribunal.
By order of 2019/03/02 the holding of the meeting provided for in article 18 of the RJAT was dispensed with, the parties being notified to submit, if they wished, written submissions.
The Applicant submitted written submissions on 2019/03/20.
The date 2019/07/24 was set as the deadline for pronouncing the final decision.
Of the Request
To support its arbitral request, the Applicant alleges the following:
The Applicant is a closed real estate investment fund for private subscription, "whose constitution was authorized by decision of the Governing Council of the Securities Market Commission of 20 January 2000, which operates in accordance with the terms provided for in articles 204 and following of the General Regime for Collective Investment Undertakings approved by Law no. 16/2015, of 24 February".
As such, it benefits, in acquisitions it makes of real properties to be integrated into the Fund, from IMT exemption under "article 1 of Decree-Law no. 1/87, of 3 January, which establishes that acquisitions of real property made for a real estate investment fund by its respective managing company are exempt from sisa".
In the Applicant's view this rule is still in force, as article 31 of Decree-Law no. 287/2003, provided that "Tax benefits relating to municipal contribution, now reported to the IMI, as well as those relating to the municipal sisa tax established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, which now apply to IMT, remain in force".
Thus, acquisitions of real property carried out with the intention of being integrated into a real estate investment fund are currently exempt from IMT.
The Applicant, in the course of its activity, acquired, by public deed of purchase and sale, unilateral promise of sale and lease, full ownership of three urban real properties: an urban real property situated at ..., nos ... and ..., nos ... and ..., Setúbal; a second urban real property situated at ..., nos ..., ... and ..., also Setúbal; and a third urban real property situated at ..., no..., in the same location.
Beforehand, on the same date, it made payment of the IMT relating to these acquisitions, and the Finance Service assessed IMT no. ..., relating to the acquisition of the three properties, in the amount of € 325,000.00.
On the grounds that no tax was due on these transactions, it filed a gracious appeal with the Finance Service of Setúbal ..., on 16/04/2018, petitioning the annulment of the tax, as well as its reimbursement, on the understanding that the mentioned assessment violated the provisions of article 1 of Decree-Law no. 1/87, of 3/01.
As of the date of submission of the present arbitral request, the Applicant was not notified of any decision taken in that process by the competent body of the Tax Authority.
It considers, therefore, that this is a case of tacit rejection, as, in accordance with article 57, no. 5 of the General Tax Law (LGT), the time period for decision is four months counted from the date the petition is received by the services, the request being presumed tacitly rejected once that four-month period has elapsed for purposes of hierarchical appeal or judicial challenge, and consequently the submission of the present request for arbitral pronouncement is timely.
The assessed liability in question was made taking into account the amount of €5,000,000.00, corresponding to the value of the contract, as it was higher than the sum of the respective VPT values, with application of the rate of 6.5% (doc. 3).
In turn, the Respondent had previously informed the Tribunal that it would not submit a Response.
Preliminary Proceedings
The Arbitral Tribunal is regularly constituted and is materially competent to examine and decide on the object of the proceedings.
The parties possess legal personality and capacity and have standing, in accordance with what is provided for in articles 4 and 10, no. 2, of the RJAT and article 1 of Ordinance no. 112/A/2011, of 22 March.
No issues were raised that prevent examination of the merits of the request and the proceedings are not affected by any nullities, the conditions being met for a final decision to be issued.
Factual Matters
The Tribunal considers the following facts to be proven:
I - The FIIFT A... is a closed real estate investment fund for private subscription, whose constitution was authorized by decision of the Governing Council of the Securities Market Commission of 20 January 2000, as per doc. no. 1.
II - The FIIFT A..., as per doc. 1, operates in accordance with the terms provided for in articles 204 and following of the General Regime for Collective Investment Undertakings approved by Law no. 16/2015, of 24 February.
III - In the course of its activity, the FIIFT A... acquired, by public deed of purchase and sale, unilateral promise of sale and lease, executed on 28 December 2017 (doc. 2), full ownership of the following real properties: ... ..., nos ... and ..., nos ... and ..., Union of parishes of ..., ... and ..., municipality of Setúbal, described in the ... Land Registry Office of Setúbal under no. ..., of the extinct parish of ... (...) and registered in the respective urban property matrix under article...;
The urban real property situated at ..., nos ..., ... and ..., Union of parishes of ..., ... and ..., municipality of Setúbal, described in the ... Land Registry Office of Setúbal under no. ..., of the extinct parish of ... (...) and registered in the respective urban property matrix under article...; and
The urban real property situated at ..., no..., Union of parishes ..., ... and ..., municipality of Setúbal, described in the ... Land Registry Office of Setúbal under number ... of the extinct parish of ... (...) and registered in the respective urban property matrix under article....
IV - For the execution of that deed, as per document no. 3 which is hereby fully reproduced, the Applicant requested in advance the assessment of IMT due by the onerous acquisition of the real properties previously identified on 28 December 2017, from the Finance Service ... of Setúbal, which processed assessment no. ..., in the value of €325,000.00, the calculation of which took into account the declared value of €5,000,000.00, on which the rate of 6.5% was applied.
V - Also on the same day, 28 December 2017, the FIIFT A... proceeded to pay the assessed amount, in the value of € 325,000.00, as IMT, as evidenced by the payment document which constitutes doc. 4.
VI - The Applicant filed a gracious appeal against assessment no. ... a copy of which constitutes doc. no. 5, which was sent by registered mail with proof of receipt on 17 April 2018.
It is not, however, possible to know whether or not any decision was made on the matter of the gracious appeal since the AT said nothing about the arbitral request, nor did it submit the administrative file relating either to the assessment or to the mentioned gracious appeal.
Nevertheless, taking into account the date the petition was sent and considering the provisions of article 57, no. 1 and 5, of the LGT, the arbitral request must be considered timely as it was submitted within the 90-day period contained in no. 1 subsection a) of article 10 of the RJAT, pursuant to subsection d) of no. 1, of article 102 of the CPPT.
Facts Not Proven
No other facts with relevance to the arbitral decision were proven and the Tribunal formed its conviction as to the proven facts on the basis of the documents attached to the petition.
Matters of Law
The issue in question essentially concerns the application of the IMT exemption provided for (as a sisa exemption) in article 1[1] of Decree-Law no. 1/87, of 3 January, to the aforementioned acquisitions of urban real properties made by the Applicant on 28 December 2017.
The Applicant argued that, given its nature as a Real Estate Investment Fund, and given the integration of the acquired real properties into its fund, it would benefit from IMT exemption under the provisions of the said rule, which created the tax benefit of sisa exemption for acquisitions of real property for these funds – an exemption that became an IMT exemption by virtue of the provisions of article 28[2] of Decree-Law no. 287/2003, of 12 November, and by virtue of the provision in the tax benefits preservation rule contained in the same diploma (article 31, no. 6[3]).
The Applicant further argued that Decree-Law no. 1/87 was not intended to have a temporary duration, and that it was not repealed – which was true at the time – either expressly or tacitly, so that the exemption established in its article 1 remained in force, notwithstanding article 46 of the Tax Benefits Statute, amended by Law no. 53-A/2006, of 29 December (State Budget for 2007), having introduced another IMT exemption for properties integrated into real estate funds, as such exemptions would be "structurally different, economically and fiscally compatible, and, strictly speaking, complementary". And it stated: "In the first case, the exemption applies whenever the real estate investment fund is in the position of acquirer of the real property (investment phase). In the second case, the exemption applies whenever the fund is in the position of seller of the real property (disinvestment phase)."
It also invoked the parallel treatment in the tax treatment of urban real properties intended for rehabilitation, which results from the provisions of articles 45, no. 2, al. b), and 71, no. 8, of the EBF, and the Special Regime Applicable to Real Estate Investment Funds for Residential Leasing (FIIAH) and to Real Estate Investment Companies for Residential Leasing (SIIAH), approved by article 102 of Law no. 64-A/2008, of 31 December.
It further invoked various arbitral decisions issued by the CAAD (case nos. 544/2016-T, 677/2016-T, 440/2017-T, 580/2017-T, 547/2017-T and 622/2017-T) on the maintenance in force of article 1 of Decree-Law no. 1/87, of 3 January.
Decree-Law no. 1/87 – approved following the regulation of the activities of Real Estate Investment Funds by Decree-Law no. 246/85, of 12 July – recognized in its preamble "the important contribution that this new type of financial institutions could bring to the formation of savings and their mobilization for investments in the real estate sector. There are also added the positive effects that will be induced in this way in the construction industries and in the market for leasing of real property for housing and for offices.".
In turn, Decree-Law no. 287/2003, of 12 November (reform of taxation of property), which approved the IMI Code and the IMT Code, did not alter this assessment, maintaining the tax benefit.
This is such that, faced with the discussion raised, the legislature proceeded to the express repeal of article 1 of Decree-Law no. 1/87 (article 319[4] of Law no. 71/2018, of 31 December, which approved the State Budget for 2019).
It must therefore be concluded, as in the decision issued in case no. 544/2016-T, that "from the entry into force of the new wording of article 46 of the EBF, not only acquisitions of real property carried out by managing companies of real estate investment funds with the intention of these being integrated into these funds – as established in the preceding rule – would be exempt from IMT, but also real properties integrated into real estate funds – as established in that article 46 of the EBF. In other words, IMT exemption would henceforth apply both to real properties acquired to be integrated into real estate funds, as had been the case until then, and to these same real properties if and while integrated into real estate funds, in accordance with article 46 of the EBF. In the first case, the exemption would apply whenever the fund was in the position of acquirer of the real property. In the second case the exemption would apply whenever the fund was in the position of seller of the real property. Thus, it is necessary to conclude that there is no incompatibility between the new provisions and the preceding rules.
(…)
Notwithstanding the structural differences that distinguish both exemptions, the fact is that in both cases the 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 properties to integrate them into their respective real estate investment fund, or because they can place them on the market more easily because the prospective acquirer is exempt from IMT. The new provisions and the preceding rules are not only entirely compatible but create a tax regime especially appealing for the managing companies of real estate funds.
The IMI exemption in favor of real properties integrated into real estate funds is well understood, insofar as it frees them from paying this annual tax on real property wealth, provided for in article 46 of the EBF before the wording given to it by the 2007 State Budget Law. However, the usefulness of the IMT exemption, added by this diploma, in the case of transactions in real properties integrated into real estate funds, is also not negligible.
(…)".
This was also the position adopted in other arbitral decisions – in particular those cited by the Applicant – without there being reasons to alter this understanding. In fact, the greater elaboration of such decisions was related to the demonstration of the force of the rule in article 1 of Decree-Law no. 1/87, a discussion that is now superseded by its express repeal by the 2019 Budget Law (Law no. 71/2018, of 31 December).
Thus, as article 1 of Decree-Law no. 1/87 was fully in force at the date of the facts (28 December 2017), and the factual requirements being met for the Applicant to benefit from the exemption contained therein (interpreted in an updated manner as IMT exemption, for the reasons seen), the assessed IMT in question (with the no. ...) cannot remain in the legal system, as it is illegal, and its annulment must be ordered.
Of the Request for Compensatory Interest
Finally, the Applicant requests reimbursement of the tax incorrectly paid increased by compensatory interest at the legal rate.
From the evidence it results that the same proceeded, on 28 December 2017, to pay the assessed amount, in the value of € 325,000.00, as IMT.
Subsection b) of no. 1 of article 24 of the RJAT provides that the arbitral decision on the merits of the claim for which no appeal or challenge may be made binds the tax administration from the end of the period provided for appeal or challenge, the administration having to, in the precise terms of the decision being in favor of the taxpayer and up to the end of the period provided for voluntary execution of sentences of tax courts, "restore the situation that would exist if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that effect".
Similarly, article 100 of the LGT, applicable to tax arbitral proceedings by virtue of the provision in subsection a) of no. 1 of article 29 of the RJAT, establishes that "The tax administration is obliged, in case of full or partial granting of gracious appeals or administrative appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, including the 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 subsidiarily to tax arbitral proceedings, in accordance with article 29, no. 1, subsection a), of the RJAT, "Compensatory interest is due when it is determined, in a gracious appeal or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally due.".
In the case in question, it is clear that, given the illegality declared of the IMT assessment subject of the request for arbitral pronouncement, for the reasons above, the Applicant's request for reimbursement of the tax incorrectly paid increased by payment of compensatory interest must be granted, as established in no. 5 of article 61 of the Code of Tax Procedure and Process (CPPT), accrued from 28 December 2017 until full reimbursement of the amounts incorrectly paid.
DECISION
On these grounds, this Arbitral Tribunal decides:
That the request for arbitral pronouncement is upheld;
That the illegality of IMT assessment no. ..., of 28/12/2017, in the value of €325,000.00, is declared with the consequent annulment;
That the Tax and Customs Authority is condemned to pay the Applicant compensatory interest, in accordance with article 43, no. 1, of the LGT and article 61 of the CPPT, calculated at the legal rate in force, on the amount it paid incorrectly, until full reimbursement of the amounts incorrectly paid.
VALUE OF THE CASE
In accordance with the provisions of articles 306, no. 2, and 297, no. 2 of the CPC, article 97-A, no. 1, al. a) of the CPPT, and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at € 375,000.00.
COSTS
The arbitration fee is set at € 6,120.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, since the request was entirely upheld, in accordance with articles 12, no. 2, and 22, no. 4, both of the Legal Regime for Tax Arbitration, and article 4, no. 5, of the said Regulation.
Let notice be given.
Lisbon, 11 April 2019
The Arbitrator-President
(Fernanda Maçãs)
Dr. José Ramos Alexandre (arbitrator-member),
Dr. João Menezes Leitão (arbitrator-member).
[1] Providing for sisa exemption for "acquisitions of real property made for a real estate investment fund by its respective managing company".
[2] "Article 28 - References
1 - All legal texts that mention the Code of Municipal Contribution or municipal contribution are deemed to refer to the Code of Municipal Tax on Real Property (CIMI) or to municipal tax on real property (IMI).
2 - All legal texts that mention the Code of Municipal Sisa Tax and Tax on Successions and Gifts, municipal sisa tax or tax on successions and gifts are deemed to refer to the Code of Municipal Tax on Onerous Transfers of Real Property (CIMT), to the Stamp Tax Code, to municipal tax on onerous transfers of real property (IMT) and to stamp tax, respectively."
[3] "6 - Tax benefits relating to municipal contribution, now reported to the IMI, as well as those relating to the municipal sisa tax established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, which now apply to IMT, remain in force."
[4] "The following are repealed: article 20 of Decree-Law no. 423/83, of 5 December, which defines tourist utility and establishes the principles and requirements necessary for its granting, article 4 of Decree-Law no. 20/86, of 13 February, which establishes the regime of tax incentives for securities investment funds, and articles 1 and 8 of Decree-Law no. 1/87, of 3 January, which creates tax incentives for the constitution of real estate investment funds."
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