CAAD 569/2016-T: IMT & Stamp Tax FIIAH Constitutional Challenge

Process: 569/2016-T

Date: February 27, 2017

Tax Type: IMT Selo

Summary

CAAD Process 569/2016-T addresses the constitutional challenge to IMT (Municipal Property Transfer Tax) and Stamp Tax assessments on a FIIAH (Closed Real Estate Investment Fund for Residential Rental). The claimant, a fund management company, contested tax liquidations based on Article 8(16) of the FIIAH Tax Regime, applicable through the transitional rule in Article 236(2) of Law 83-C/2013. The core legal argument centers on alleged unconstitutionality due to violation of Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax legislation. The claimant sought nullity of the assessments and full reimbursement plus compensatory interest. The Tax Authority raised preliminary objections regarding the tribunal's material competence to review abstract illegality and its own passive legitimacy. The arbitral procedure followed RJAT provisions, with the tribunal constituted on December 2, 2016. The case illustrates important issues regarding tax exemption regimes for real estate investment funds, transitional law application, constitutional tax principles, and CAAD's jurisdiction over challenges involving unconstitutionality claims in the specialized FIIAH/SIIAH tax framework.

Full Decision

Arbitral Decision [1]

Claimant – A…, S.A.

Respondent - Tax and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on 2 December 2016, with respect to the case identified above, decided as follows:

1. REPORT

1.1. A A…, S.A., Legal Entity No. …, registered under the same number at the Commercial Registry Office of Lisbon, with registered office at …, No.…, …, in Lisbon (hereinafter referred to as the "Claimant"), in its capacity as managing company of the Real Estate Investment Fund B… – Closed Real Estate Investment Fund for Residential Rental, registered with the Securities Market Commission, with the tax identification number…, submitted a request for arbitral ruling and constitution of a singular Arbitral Tribunal, on 19 September 2016, pursuant to the provisions of article 4 and paragraph 2 of article 10 of Decree-Law No. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as the "Respondent").

1.2. With said request for arbitral ruling, the Claimant requests that the Arbitral Tribunal consider that "since the Assessments are based on article 8, number 16, of the Tax Regime of FIIAH (applicable ex vi article 236 (Transitional Rule within the scope of the special regime applicable to FIIAH and SIIAH), number 2, of Law No. 83-C/2013, of 31 December) and since the latter rule is unconstitutional by violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), number 3, of the Constitution of the Portuguese Republic, the Assessments are affected by abstract illegality".

Consequently, the Claimant understands that it should "be declared the nullity of the Assessments based on their unconstitutionality (abstract illegality)" or "(…) if not so understood, the Assessments be annulled" and the Claimant be reimbursed "(…) for the full amount paid by virtue of the Assessments subject to the (…) request for arbitral ruling, plus (…) the compensatory interest that may be due until the date of such reimbursement".

1.3. The request for constitution of the Arbitral Tribunal was accepted on 20 September 2016 by the Honorable President of CAAD and notified to the Respondent on the same date.

1.4. The Claimant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of article 6, paragraph 2, letter a) of the RJAT, the undersigned was designated as arbitrator by the President of the Deontological Council of CAAD, on 16 November 2016, with the appointment being accepted within the legally prescribed timeframe and terms.

1.6. On the same date the parties were duly notified of that designation and did not manifest any intention to reject it, in accordance with the provisions of article 11, paragraph 1, letters a) and b) of the RJAT, combined with articles 6 and 7 of the Deontological Code.

1.7. Thus, in accordance with the provisions of letter c), paragraph 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on 2 December 2016, and an arbitral order was issued on 4 December 2016, to the effect of notifying the Respondent to, pursuant to the provisions of article 17, paragraph 1 of the RJAT, submit a response within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.8. Additionally, it was also stated in that arbitral order that the Respondent should submit to the Arbitral Tribunal, within the timeframe for the response, a copy of the administrative file.

1.9. On 16 January 2017, the Respondent submitted its Response, having defended itself:

1.9.1. By exception, by raising the material incompetence of the Arbitral Tribunal to review the abstract illegality of the Assessments, as well as by raising the passive illegitimacy of the Respondent, and,

1.9.2. By impugnation, having concluded that "the dilatory exception of material incompetence should be recognized as verified, from which follows the dismissal of the instance for the Respondent (…) or (…) the Tribunal should declare the dismissal of the Respondent from the instance, in view of the dilatory exception of passive illegitimacy demonstrated (…), or, if not so understood (…) the present request for arbitral ruling should be judged unfounded, not proven, and, consequently, the Respondent absolved of all claims, according to the terms above requested, all with the proper and legal consequences";

1.9.3. Finally, the Respondent further states that "if not so understood (…) it is requested, by appeal to the provisions of article 280, paragraph 3 of the CRP and article 72, paragraph 3 of the Law of the Constitutional Court, that notification to the Public Prosecutor's Office of the (…) arbitral decision be ordered".

1.10. On the same date, the Respondent submitted a motion to the effect of:

1.10.1. "(…) propose that the holding of the meeting referred to in article 18 of the RJAT be dispensed with (…)" but "(…) if the Claimant has an interest in its holding, it is requested that we proceed immediately to the phase of written allegations, of a successive character"

1.10.2. To inform "(…) that since no prior administrative procedure occurred in the present proceedings, there is no administrative file to be presented by the Respondent pursuant to article 17, paragraph 2, of the RJAT".

1.11. By arbitral order of 16 January 2017, the Claimant was notified to state its position, within a period of 10 days, if it wished, on the matter of exception identified above in point 1.9., as well as to state, within the same period, its position on the possibility of dispensing with the holding of the meeting referred to in article 18 of the RJAT and on the possibility of dispensing with the submission of allegations.

1.12. The Claimant submitted, on 19 January 2017, a motion to the effect of countering that:

1.12.1. "Regarding the alleged material incompetence of the Arbitral Tribunal to review the abstract illegality of the Assessments", the Claimant understands that "the exception (…) invoked by the TA, is based on an incorrect interpretation of the request for arbitral ruling submitted (…), therefore it cannot proceed";

1.12.2. "Regarding the alleged passive illegitimacy of the Respondent", the Claimant "(…) confesses some difficulty in understanding the scope of the exception invoked (…)", since "within the scope of the (…) arbitral request (…), what is at issue is not the refusal (…) of application of rules by the Respondent (…)" but "(…) the obligation to comply with a rule affected by unconstitutionality (…)", and "the Respondent, in its capacity as active subject of the tax legal relationship, is naturally a party with legitimate standing in the present request for arbitral ruling", therefore this exception "(…) should (…) be (…) judged unfounded, not proven";

1.12.3. "As to the possibility of dispensing with an arbitral meeting (…) and the need to submit allegations", the Claimant stated that "it agrees with the dispensing of the arbitral meeting (…)" but that "it intends to submit its allegations in writing (…)".

In these terms, by order of this Arbitral Tribunal, dated 20 January 2017, and in accordance with the procedural principles set out in article 16 RJAT, of the adversarial principle [letter a)] of equality of the parties [letter b)], of the autonomy of the Arbitral Tribunal in the conduct of the proceedings and in the determination of the rules to be observed [letter c)], of cooperation and procedural good faith [letter f)] and of the free conduct of proceedings set out in articles 19 and 29, paragraph 2 of the RJAT, as well as having regard to the principle of limitation of unnecessary acts, provided for in article 130 of the Code of Civil Procedure (CPC), applicable by virtue of the provisions of article 29, paragraph 1, letter e) of the RJAT, this Arbitral Tribunal decided as follows:

1.13.1. To dispense with the holding of the meeting referred to in article 18 of the RJAT;

1.13.2. Not to dispense with the submission of allegations and, in consequence, notify the Claimant and the Respondent to, in that order and in a successive manner, submit written allegations within a period of 10 days, the period for the Respondent to begin to run from the date of notification of the submission of the Claimant's allegations or the expiration of the period granted for that purpose (in case the latter does not submit allegations);

1.13.3. To designate 27 February 2017 for purposes of rendering the arbitral decision.

1.14. The Claimant was further cautioned that "until the date of rendering the arbitral decision it should proceed with the payment of the subsequent arbitration fee, pursuant to the provisions of paragraph 3 of article 4 of the Rules of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD" (which it did on 9 February 2017).

1.15. The Claimant submitted, on 9 February 2017, written allegations to the effect of reiterating the arguments presented in the Arbitral Request, concluding in the same terms thereof.

1.16. The Respondent submitted, on 22 February 2017, written allegations to the effect of referring and having "(…) fully reproduced what was stated in the Response".

2. CAUSE OF ACTION

The Claimant supports its request, in summary, as follows:

2.1. "Law No. 64-A/2008, of 31 December (…), approved the special regime applicable to real estate investment funds for residential rental (hereinafter «FIIAH») and to real estate investment companies for residential rental" and "in its article 8 (…) the tax regime applicable to FIIAH was established (…)".

2.2. The Claimant further states that "(…), the Tax Regime of FIIAH defined (…)" that "are exempt from IMT (…) acquisitions of urban real property or of autonomous fractions of urban real property intended exclusively for rental for permanent housing (…)" and "acquisitions of urban real property or of autonomous fractions of urban real property intended for own and permanent housing, as a result of the exercise of the purchase option (…) by tenants of the properties that form part of the assets of the real estate investment funds referred to in paragraph 1".

2.3. Now, as the Claimant alleges, "Law No. 83-C/2013, of 31 December (…) 2014) added to article 8 (…) of the Tax Regime of FIIAH numbers 14 to 16" according to which:

2.3.1. "For purposes of the provisions of paragraphs 6 to 8, it is considered that urban real properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within a period of three years from the moment they became part of the fund's assets (…)";

2.3.2. "When the real properties have not been the subject of a rental contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in paragraphs 6 to 8 are without effect, in which case the taxpayer should request from the TA, within 30 days following the expiration of said period, the assessment of the respective tax";

2.3.3. "If the real properties are alienated, with the exception of the cases provided for (…) before the expiration of the period provided for in paragraph 14, the taxpayer should also request from the TA, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax due according to the preceding paragraph".

2.4. And the Claimant further states that "Law No. 83-C/2013, of 31 December (…) further enshrined in its article 236 (Transitional Rule within the scope of the special regime applicable to FIIAH and SIIAH) the following regime (…)":

2.4.1. "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, applies to real properties that have been acquired by FIIAH from 1 January 2014";

2.4.2. "Without prejudice to the provisions of the preceding paragraph, 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, also applies to real properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period (…) being counted from 1 January 2014"(emphasis by the Claimant).

2.5. Based on the provisions referred to above, "(…) the present Claimant requested from the Tax Authority the assessment of IMT and Stamp Tax (…) of the tax acts of alienation of real properties by Fund B…", identified below:

2.6. In this connection, the Claimant further states that "the Assessments were paid (…) on 12 July 2016 (…)".

"Of the Assessments made pursuant to article 8 (…) of the Tax Regime of FIIAH (…) and article 236 (…), number 2 of the same law"

2.7. The Claimant contends that "paragraph 14 of article 8 (…) of the Tax Regime of FIIAH (…) unequivocally defined, for the first time, the meaning of the expression urban real properties (…)" in referring to "[those] intended for rental for permanent housing", and that "the introduction of this definition of urban real properties [---] intended for rental for permanent housing was accompanied by the clarification of the circumstances in which the real properties that form part of the assets of FIIAH cease to benefit from the exemption regime provided for in paragraphs 6 to 8 of the Tax Regime of FIIAH (…)".

2.8. Thus, for the Claimant "(…) if the real properties that form part of the assets of FIIAH have not been the subject of a rental contract within the period of 3 (three) years, counted from the date of their entry into such assets, the taxpayer should request from the Tax Authority, within 30 (thirty) days following the expiration of said period, the assessment of the respective tax", and should also do so in the case of "(i) the real properties being alienated by the FIIAH or (ii) the FIIAH being liquidated, in both cases, before the expiration of the 3 (three)-year period, counted from the date of entry of the relevant real properties into the assets of the FIIAH".

2.9. Additionally, the Claimant further clarifies that "(…) article 236 (…) of Law No. 83-C/2013, of 31 December (…) extended the application of the regime (…) to real properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for (…) being counted from 1 January 2014".

2.10. Still according to the Claimant, "the amendments introduced by Law No. 83-C/2013, of 31 December (…) to the Tax Regime of FIIAH give rise to legitimate perplexities and questions to the managing companies of FIIAH that intend to comply with their obligations to the Tax Authority", since, "(…) it is understood that the amendments to the Tax Regime of FIIAH are of particular relevance in the context of taxes of single obligation (…) when they concern the real properties that formed part of the assets of FIIAH at the date of entry into force of Law No. 83-C/2013, of 31 December (…)".

2.11. In this connection, according to the Claimant, the tax acts of assessment of IMT and Stamp Tax in question were requested from the Respondent "(…) in light of the amendments introduced to the Tax Regime of FIIAH", since, "if the Tax Regime of FIIAH had not been amended (…), it would never have requested the Assessments", therefore "the (…) request for arbitral ruling is limited (…) to the analysis of the legality of the Assessments which is based exclusively on the rules invoked (…)".

2.12. Indeed, "those tax acts concerned urban real properties that formed part of the assets of Fund B…, at the date of entry into force of Law No. 83-C/2013, of 31 December (…), that is, those covered by the (…) aforementioned article 236 (…)", therefore "the Claimant understands (…) that the Assessments are affected by illegality by violation of the provisions of article 103 (…), number 3, of the Constitution of the Portuguese Republic and should, consequently, be declared null (or, subsidiarily, voidable)".

Of the Illegality of the Assessments

2.13. According to the Claimant, "the fact subject to taxation is, both in the context of IMT and in the context of Stamp Tax, the acquisition of ownership of the relevant real properties by Fund B…" and "the exemptions from IMT and Stamp Tax were not, at the date they entered the assets of the Fund (…), conditional upon the subsequent verification of any facts or circumstances nor, furthermore, subject to any expiration regime".

2.14. In these terms, the Claimant reiterates that "since (…) there are not legally provided, at the moment of recognition of the exemption, any facts or circumstances upon which the expiration of the recognized exemption depended, it is manifest that the subsequent imposition of those facts or circumstances on exemptions crystallized in the tax legal order of the Claimant is affected by unconstitutionality, by violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), number 3, of the Constitution of the Portuguese Republic" (underlined by the Claimant).

2.15. And, the Claimant continues by stating that"(…) the violation of the principle of retroactivity now invoked takes into account the understanding that has been followed by the Constitutional Court according to which the prohibition of retroactivity, in the field of tax law, is directed only at authentic retroactivity, covering only cases in which the tax fact that the new law intends to regulate has already produced all its effects under the old law (…)".[3]

2.16. Thus, for the Claimant, "in the case sub judice there are no doubts whatsoever that the tax facts that the new law intends to regulate have already produced all their effects under the old law".

2.17. Additionally, the Claimant states that it requested "(…) the issuance of a legal opinion on the constitutionality of paragraph 2 of article 236 (…) of Law No. 83-C/2013, of 31 December (…)", according to which "(…) corroborates the thesis of unconstitutionality defended (…)", therefore "(…) there will be no doubts about the unconstitutionality of paragraph 2 of article 236 (…) of Law No. 83-C/2013, of 31 December, rule on which, recall, the Assessments are based", being "(…) necessary to conclude that such assessments are affected by illegality (…)"[4].

Of the Nullity of the Assessments

2.18. The Claimant further states that "according to paragraph 1 of article 133 of the Code of Administrative Procedure in force at the date of the Assessments, acts lacking any of the essential elements or for which the law expressly imposes that form of invalidity are null (…)", understanding "(…) the prevailing doctrine and the learned case law of the Supreme Administrative Court that not all acts that violate constitutional principles are null, only those being so which violate the essential content of a fundamental right, that is, which conflict with rights, freedoms and guarantees of citizens, and not those which conflict with the principle of tax legality".

2.19. Thus, "as a result of which the acts violating the principle of tax legality are voidable and not null", it should be clarified whether "the unconstitutionality now argued by the Claimant should result in the voidability or the nullity of the Assessments".

2.20. Now, "considering that the principle of non-retroactivity in tax matters has the character of a fundamental right, endowed with the protective legal regime of this right", "its disregard originates the nullity of the act, in this case, the nullity of the Assessments".

2.21. According to the Claimant, "pursuant to the provisions of article 102 (…), number 3, of the CPPT, when the ground for impugnation is nullity, judicial impugnation may be filed at any time" and "the admissibility of impugnation of the defect of nullity without dependence on a period does not preclude the competence of the Arbitral Tax Tribunal, in particular, by literal interpretation of article 10 (…) of the RJAT".

2.22. Thus, according to the Claimant, "admitting, subsidiarily, that the defect (abstract illegality) of the Assessments determines their voidability (and not the nullity), the Assessments should be annulled accordingly (…)".

2.23. In summary, the Claimant concludes that "since the Assessments are based on article 8, number 16, of the Tax Regime of FIIAH (applicable ex vi article 236 (…), number 2, of Law No. 83-C/2013, of 31 December) and since the latter rule is unconstitutional by violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), number 3, of the Constitution of the Portuguese Republic, the Assessments are affected by abstract illegality".

2.24. Thus, according to the Claimant, "the nullity of the Assessments should be declared based on their unconstitutionality (…)" or, "subsidiarily, if not so understood, the Assessments should be annulled" and the Claimant should "be reimbursed for the full amount paid by virtue of the Assessments subject to the (…) request for arbitral ruling, plus (…) the compensatory interest that may be due until the date of such reimbursement".

3. RESPONSE OF THE RESPONDENT

3.1. The Respondent responded sustaining the unfoundedness of the request for arbitral ruling, having defended itself by exception and by impugnation.

BY EXCEPTION

Of the Material Incompetence of the Arbitral Tribunal to Review the Abstract Illegality of the Assessments

3.1. In this connection, according to the Respondent, "(…) the Arbitral Tribunal is materially incompetent to review, in the abstract, the constitutionality of the rule in question, in the terms petitioned", since "given what is alleged by the Claimant, it follows that the latter seeks (after all) the non-application of the rule by its alleged illegality/unconstitutionality and not by any illegality occurring in its application to the concrete facts".

3.2. Now, the Respondent contends that "the Constitutional Court is the competent forum to know both the illegality and the unconstitutionality of legal rules (…)", therefore "if the question in the present proceedings is not a situation of possible non-application of a rule by any illegality occurring in its application to the concrete facts (…) but rather its own (intrinsic) illegality/unconstitutionality, then, it is necessary to conclude that the Arbitral Tribunal does not have competence to review this question, since what is sought is the abstract review of the constitutionality of the rules, a matter constitutionally reserved to the Constitutional Court (…)".[5]

3.3. Thus, the Respondent understands that "it will have to be concluded by the impossibility of the present Arbitral Tribunal deciding the present dispute, to the extent that the dilatory exception of material incompetence is verified, from which follows the dismissal of the instance for the Respondent (…)".

Of the Passive Illegitimacy of the Respondent

3.4. In this matter, the Respondent understands that "(…) in the context of the review of abstract constitutionality review, the Respondent would always be a party with legitimate standing" since, "as is well known, the Tax Administration cannot refuse to apply rules on the basis of their unconstitutionality or illegality, as it is subject to the principle of legality (…)", "from which it is concluded that the claim made (…) collides with the powers of the Respondent and with its binding to the law and to the Constitution, to the extent that the review by the now Respondent about the illegality/unconstitutionality that is invoked would imply a clear and objective violation of the legal provisions and the violation of the Constitution itself".[6]

3.5. Thus, according to the Respondent, "since what is at issue is a normative act emanated from the Assembly of the Republic in the typical form of a legislative act, the Tribunal should always declare the dismissal of the Respondent from the instance, in view of the dilatory exception of passive illegitimacy demonstrated in the present arbitral proceedings (…)".

BY IMPUGNATION

Of the Impossibility of Non-Application by the TA of a Legal Rule on the Basis of Unconstitutionality

3.6. In this connection, the Respondent contends that "pursuant to (…) the CRP, the Administration is obligated to act in accordance with the principle of legality, which principle is concretized at the infra-constitutional level in the (…) Code of Administrative Procedure (CPA), which in turn determines that the organs of Public Administration should act in obedience to the law and to the law, within the limits of the powers that are attributed to them and in accordance with the purposes for which such powers were conferred on them".

3.7. Thus, the Respondent understands that "(…) from such legal impositions it follows that the organs and administrative agents do not have competence to decide on the non-application of rules with respect to which doubts of constitutionality are raised, unlike the Courts which, pursuant to article 204 of the CRP, are prevented from applying unconstitutional rules, and are attributed the competence for the review (…) of constitutional conformity".

3.8. In this matter, according to the Respondent, "(…) it follows that Administration is subject to the law and to the law and its organs and agents should be the first to comply with it, not being able (…) to be required to pronounce on the choices of the legislator, since these, once embodied in law, are the normative discipline within which it exercises its attributions in the pursuit of the public interest".

3.9. That is, "bound to the principle of legality, the TA cannot, by virtue of this, non-apply rules in function of the interpretation it makes regarding their unconstitutionality", therefore the Respondent "(…) could not/can refuse to apply a rule or fail to comply with the law invoking or questioning its constitutionality, as it is subject to the principle of legality (…)".

Of the Alleged Unconstitutionality

3.10. At this point, the Respondent begins by clarifying that the "(…) Law No. 64-A/2008, of 31 December (…)" "approved a special regime applicable to the (…) FIIAH and the (…) SIIAH", "(…) would apply to FIIAH or SIIAH constituted during the five years following the entry into force of said law and to the real properties acquired by them in the same period".

3.11. Now, "regarding the tax regime then specifically provided for (…)", the Respondent highlights that:

3.11.1. "Pursuant to article 8, paragraph 7, letter a), are exempt from IMT acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent housing, by the real estate investment funds (…)", "such exemption applying (…) to 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 (…) in the respective legal regime" (Respondent's emphasis);

3.11.2. "(…) pursuant to article 8, paragraph 8, are exempt from stamp tax all acts practiced, insofar as they are connected with the transmission of urban real properties intended for permanent housing that occurs by virtue of the conversion of the right of ownership of such real properties into a right of rental on the same, as well as with the exercise of the purchase option provided for in paragraph 3 of article 5" (Respondent's emphasis).

3.12. The Respondent further states that "Law No. 83-C/2013, of 31 December (…), gave new wording to the aforementioned article 8, relating to the tax regime applicable to FIIAH, adding (…) numbers 14 to 16 (…)", according to which (Respondent's emphasis):

3.12.1. "For purposes of the provisions of paragraphs 6 to 8, it is considered that urban real properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within a period of three years from the moment they became part of the fund's assets (…)" (Respondent's emphasis).

3.12.2. "When the real properties have not been the subject of a rental contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in paragraphs 6 to 8 are without effect, in which case the taxpayer should request from the TA, within 30 days following the expiration of said period, the assessment of the respective tax" (Respondent's emphasis).

3.12.3. "If the real properties are alienated, with the exception of the cases provided for in article 5, or if the FIIAH is the subject of liquidation, before the expiration of the period provided for in paragraph 14, the taxpayer should also request from the TA, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax due according to the preceding paragraph" (Respondent's emphasis).

3.13. The Respondent further states that "Law No. 83-C/2013, of 31 December also enshrined, in its article 236 (…)" a transitional rule, according to which "the provisions of paragraphs 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) apply to real properties that have been acquired by FIIAH from 1 January 2014", and "without prejudice to the provisions of the preceding paragraph, the provisions of paragraphs 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) also apply to real properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in paragraph 14 being counted from 1 January 2014" (Respondent's emphasis).

3.14. Thus, according to the Respondent, "in the case at hand, regarding the real property (…) identified, which formed part of the Fund at the date of entry into force of Law 83-C/2013, of 31 December, the Claimant requested (…) the assessments of IMT and Stamp Tax (…) to the extent that, in 2016, it alienated it to third parties, thereby giving it a different destination than what was supposed: residential rental", reiterating that "(…) the arguments of the Claimant are manifestly unfounded".

As to the Attribution of the Defect of Nullity to the Assessments by Violation of Article 103 of the CRP

3.15. In this matter, according to the Respondent, "(…) the defect pointed out, by alleged violation of article 103 of the CRP, is not generative of nullity", and "(…) the sanction that falls upon an invalid administrative act is its voidability (article 135 of the [former] CPA), nullity only occurring when it lacks one of its essential elements or when the law expressly sanctions it with that form of invalidity (article 133 of the [former] CPA)".[7]

3.16. Thus, the Respondent further states that "(…) having regard to the case law cited, it is to be concluded that, even if the defect imputed to the assessments in question exists, it is never generative of nullity, but only of voidability", and "whether (…) the Tribunal comes to subsume the defect invoked to the concept of nullity or voidability, the truth is that (…) the claim is manifestly unfounded (…)".

Of the Non-Violation of Article 103, Paragraph 3 of the CRP

3.17. Indeed, according to the Respondent, "being the assessments in question based on the fact that a different destination was given to the real property than the one on which the benefit was based then, contrary to what the Claimant seeks, not only is what is at issue not the retroactivity of the legal rule identified by it (…), but also there is no violation of its expectations".

3.18. In this connection, the Respondent clarifies that "(…) at the date of creation of the tax regime applicable to FIIAH (…) the exemptions in question, both in the context of IMT and Stamp Tax, respectively required, that the acquisition of the real properties had as its exclusive destination rental for permanent housing and that the transmission had as its object real properties intended for permanent housing that occurs by virtue of the conversion of the right of ownership of such real properties into a right of rental on the same, as well as with the exercise of the purchase option (…)".

3.19. Now, according to the Respondent, "(…) the taxpayers who sought to benefit from said exemptions always had, from the beginning of the tax regime applicable to FIIAH, to comply with the requirement that such real properties be intended exclusively for rental for permanent housing", therefore the Respondent understands that "(…) the Claimant lacks reason when it states that the exemptions in question were not conditioned by any facts or circumstances (…)".

3.20. In these terms, the Respondent understands it should be concluded that "(…) with the amendments introduced, the ratio of the exemptions enshrined (…) was not altered", "all the more so since such amendments had the care to respect the principle of legal certainty and protection of legitimate expectations".

3.21. In consequence, the Respondent contends that "(…) it is manifest that, from the beginning of the regime, the fiscal benefits in question applicable to FIIAH always depended on the allocation of the real properties to rental for permanent housing, a legal requirement that the TA, within the scope of its supervisory powers, would always be able to ascertain, in order to conclude whether the benefit continued or, rather, whether the restoration of the system of taxation-rule occurred", since "being at issue the alienation of the real properties without their allocation to rental for permanent housing, such would always determine the expiration of the exemption (…), and (…), article 8, paragraph 16 of the regime merely operationalized an anti-abuse measure, establishing that real properties that are not retained in portfolio with exclusive allocation to residential rental, were not acquired for such purpose".[8]

3.22. Thus, according to the Respondent, it is necessary to conclude that "also in the present proceedings there is no issue of retroactivity or non-retroactivity of the law, nor is there any injury to the expectations of the Claimant or aggravation of its tax position, since the rationale for granting a fiscal benefit in the context of IMT/Stamp Tax to FIIAH was clearly established from the beginning" relating to "acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent housing, by the real estate investment funds (...)" (underlined by the Respondent).

3.23. In fact, according to the Respondent, "what the new law did (…) was only to densify criteria already provided for in the old law, namely, the concept of allocation to rental for permanent housing, stipulating a more than sufficient period for which the taxpayers could adapt, gathering an unequivocal means of proof (rental contract), as well as the clarification of the situations in which the alienation of the real property intended for rental does not cause the expiration of the exemption as was then provided for in the EBF".

3.24. In these terms, "contrary to what the Claimant argues, there is no introduction ex novum of an expiration regime for the benefit, and even less is there any frustration of the expectations of the taxpayers or violation of the principle of non-retroactivity of tax law", therefore the Respondent understands that "by caution and mere duty of representation, if the Tribunal comes to accept the claim of the Claimant and, inherently refuse to apply article 236 of the Regime applicable to FIIAH, on the grounds of unconstitutionality (…)", it requests that "(…) notification to the Public Prosecutor's Office of the learned arbitral decision be ordered, so that it may fulfill its legal prerogatives".

Of the Right to Compensatory Interest

3.25. In this connection, according to the Respondent, "(…) for all the above, it is understood that the assessment acts are not affected by a defect that should dictate their annulment/declaration of nullity", reiterating that "(…) to the TA services cannot be imputed any error of fact or law, given the obedience to the law that informs all its activity", "which, in turn determines (…) that there is no legal basis for the claim for compensatory interest".[9]

3.26. The Respondent ends its Response requesting that "the dilatory exception of material incompetence should be recognized as verified, from which follows the dismissal of the instance for the Respondent (…); or the Tribunal should declare the dismissal of the Respondent from the instance, in view of the dilatory exception of passive illegitimacy demonstrated in the present proceedings (…); or, if not so understood, the (…) request for arbitral ruling should be judged unfounded, not proven, and, consequently, the Respondent absolved of all claims (…) with the proper and legal consequences", "or further, if not so understood, it is requested, by appeal to the provisions of article 280, paragraph 3 of the CRP and article 72, paragraph 3 of the Law of the Constitutional Court, that notification to the Public Prosecutor's Office of the (…) arbitral decision be ordered".

4. REVIEW OF PRELIMINARY ISSUES (EXCEPTIONS)

4.1. In accordance with the provisions of article 608 of the CPC in force, applicable by virtue of the provisions of article 22 of the RJAT, "(…) the judgment addresses, in the first place, the procedural issues that may determine the dismissal of the instance, according to the order imposed by their logical precedence" and the judge should "resolve all issues that the parties have submitted to his review, except those whose decision is prejudiced by the solution given to others (…)" (underlined by us).

4.2. The Respondent, in the Response, raised the exceptions that follow, with respect to which the possibility of response was given to the Claimant (through the arbitral order dated 16 January 2017 – see point 1.11., above), therefore it is now necessary to decide:

4.2.1. Exception of material incompetence of the Arbitral Tribunal to review the abstract illegality of the assessments of IMT and Stamp Tax subject to the Request for Arbitral Ruling and;

4.2.2. Exception of passive illegitimacy of the Respondent to be a party in the proceedings.

4.3. In this connection, since the determination of material competence of the courts is a matter of public order and its review must precede that of any other matter, as is clear from the combined reading of the provisions of articles 16 of the Code of Tax Procedure and Process (CPPT), 13 of the Code of Process in Administrative Courts (CPTA) and 96 of the CPC, subsidiarily applicable by referral of paragraph 1 of article 29 of the RJAT, this exception should be analyzed in the first place.

4.4. If the exception of material incompetence of the Arbitral Tribunal, raised by the Respondent, is judged to be well-founded, given its consequences, the review of the exception of passive illegitimacy of the Respondent will be prejudiced, taking into account the fact that each of them, in itself, may represent an insurmountable obstacle to the review of the merits of the case, justifying a decision of dismissal of the instance [article 89, paragraph 2 of the CPTA, subsidiarily applicable by virtue of the provisions of article 29, paragraph 1, letter c) of the RJAT].

Exception of Material Incompetence of the Arbitral Tribunal to Review the Abstract Illegality of the Assessments of IMT and Stamp Tax Subject to the Request for Arbitral Ruling

4.5. In this connection, and as stated in points 3.1. to 3.3., above, the Respondent contends that "(…) the Arbitral Tribunal is materially incompetent to review, in the abstract, the constitutionality of the rule in question, in the terms petitioned", since "given what is alleged by the Claimant, it follows that the latter seeks (…) the non-application of the rule by its alleged illegality/unconstitutionality and not by any illegality occurring in its application to the concrete facts".

4.6. Now, the Respondent contends that "the Constitutional Court is the competent forum to know both the illegality and the unconstitutionality of legal rules (…)", therefore "if the question in the present proceedings is not a situation of possible non-application of a rule by any illegality occurring in its application to the concrete facts (…) but rather its own (intrinsic) illegality/unconstitutionality, then, it is necessary to conclude that the Arbitral Tribunal does not have competence to review this question, since what is sought is the abstract review of the constitutionality of the rules, a matter constitutionally reserved to the Constitutional Court (…)", therefore it understands that "it will have to be concluded by the impossibility of the present Arbitral Tribunal deciding the present dispute, to the extent that the dilatory exception of material incompetence is verified, from which follows the dismissal of the instance for the Respondent (…)" (underlined by us).

4.7. In this respect, the Claimant, in the matter of response to this exception raised by the Respondent, stated that:

4.7.1. "(…) the claim (…) contained in the request for arbitral ruling is not that of raising the abstract review of the legality and constitutionality of article 236 (…) of Law No. 83 - C/2013, of 31 December, to the extent that the same, by determining the application of the current Tax Regime of FIIH to real properties that have been acquired (…) before 1 January 2014 (…) violates the principle of non-retroactivity of tax law, constitutionally enshrined in article 103 (…)", seeking that,

4.7.2. "(…) the Arbitral Tribunal declare the nullity (or, subsidiarily, the voidability) of the assessments (…) in issue with the ground that the same are based on the application of a rule that violates the constitution and the law (…)" (underlined by us).

4.8. In these terms, the Claimant concluded by the unfoundedness of the exception of incompetence of the Arbitral Tribunal.

4.9. Now, in general terms, in accordance with the provisions of article 2 of the RJAT, "the competence of arbitral tribunals comprises the review of the following claims":

4.9.1. "The declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account";

4.9.2. "The declaration of illegality of acts of determination of taxable matter when not giving rise to assessment of any tax, of acts of determination of collective taxable matter and of acts of fixing of equity values".

4.10. Although letters a) and b), paragraph 1, of article 2 of the RJAT use the expression "declaration of illegality" to define the competence of arbitral tribunals operating in CAAD and do not make reference to constitutive (annulling) and condemnatory decisions, it should be understood (in harmony with the legislative authorization on which the Government relied to approve the RJAT), that its competencies comprise the powers that, in impugnation proceedings, are attributed to tax courts in relation to acts whose legality review falls within their competencies.

4.11. Indeed, it is important to recall that, in that legislative authorization, it is stated that "the tax arbitration process should constitute an alternative procedural means to the judicial impugnation process and to the action for recognition of a right or legitimate interest in tax matters" (underlined by us).

4.12. Thus, the judicial impugnation process, although essentially a process of annulment of tax acts, also admitting the condemnation of the tax administration to pay compensatory interest, as is clear from the provisions of article 43, paragraph 1, of the General Tax Law (LGT), which establishes that "compensatory interest is owed when it is determined, in gracious reclamation or judicial impugnation, that there was an error attributable to the services resulting in payment of the tax debt in an amount higher than legally due".[10]

4.13. On the other hand, pursuant to letter b), paragraph 1, of article 24 of the RJAT, and in accordance with what is established there, the arbitral decision on the merits of the claim for which there is no appeal or impugnation binds the tax administration from the expiration of the period provided for appeal or impugnation, this Administration having to (in the exact terms of the foundedness of the arbitral decision in favor of the taxpayer and until the expiration of the period provided for spontaneous execution of the decisions of the judicial tax courts) "restore the situation that would exist if the tax act subject to the arbitral decision had not been practiced, adopting the acts and operations necessary for that effect" (underlined by us).[11]

4.14. Additionally, "the TA is bound to the jurisdiction of the arbitral tribunals operating in CAAD that have for object the review of the claims relating to taxes whose administration is entrusted to it" (and not excepted), as is the case with IMT and Stamp Tax.

4.15. In the case at hand, although the Claimant initiates its request for arbitral ruling requesting that the Arbitral Tribunal assess "whether article 236 (…) of Law No. 83 – C/2013, of 31 December - to the extent that it determines the application of the current Tax Regime of FIIAH to real properties acquired by FIIAH before 1 January 2014, the three-year period provided for in paragraph 14 being counted from 1 January 2014 - constitutes a new regime of expiration of the exemptions provided for in paragraph 7, letter a) and paragraph 8 of article 8 (Tax Regime) of the Tax Regime of FIIAH, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), number 3, of the Constitution of the Portuguese Republic", the fact is that throughout the arbitral petition the Claimant petitions for the nullity (or, subsidiarily the voidability) of the assessments of IMT and Stamp Tax in issue.

4.16. Indeed, the Claimant, in the matter of response to the exceptions invoked by the Respondent, came to clarify its claim, in the sense referred to in the previous point that "seeks that the Arbitral Tribunal declare the nullity (or subsidiarily, the voidability) of the assessments put in issue with the ground that they are based on the application of a rule that violates the constitution and the law".[12]

4.17. In these terms, in the situation analyzed in the present proceedings, the Claimant raises the review of the legality of the assessments of IMT and Stamp Tax identified and, following the possible declaration of illegality of said assessment acts, the declaration of nullity or voidability of the assessments and, in consequence, proceed with the reimbursement of the amounts of taxes improperly paid, plus the compensatory interest that may be due, as a means of achieving the restoration of the situation that would exist if the illegality had not been committed.

4.18. Thus, based on the above exposition, this Arbitral Tribunal considers it is materially competent to know of the arbitral claim, therefore the dilatory exception of material incompetence of this Arbitral Tribunal is judged unfounded.

Exception of Passive Illegitimacy of the Respondent to be a Party in the Proceedings

4.19. In this matter, and as stated in points 3.4. and 3.5., above, the Respondent alleges that "(…) in the context of the review of abstract constitutionality review, the Respondent would always be a party with legitimate standing" since, "(…) the Tax Administration cannot refuse to apply rules on the basis of their unconstitutionality or illegality, as it is subject to the principle of legality (…)", "from which it is concluded that the claim made (…) collides with the powers of the Respondent and with its binding to the law and to the Constitution, to the extent that the review (…) of the illegality/unconstitutionality that is invoked would imply a clear and objective violation of the legal provisions and the violation of the Constitution itself".

4.20. Thus, the Respondent understands that "since what is at issue is a normative act emanated from the Assembly of the Republic in the typical form of a legislative act, the Tribunal should always declare the dismissal of the Respondent from the instance, in view of the dilatory exception of passive illegitimacy demonstrated (…)".

4.21. In this respect, the Claimant, in the matter of response to this exception raised by the Respondent, stated that "in the context of the present request for arbitral ruling, what is at issue is not the refusal (…) of application of rules by the Respondent (on the basis of illegality or unconstitutionality)" but rather "(…) the obligation to comply with a rule affected by unconstitutionality (…)".

4.22. Thus, the Claimant understands that "the Respondent, in its capacity as active subject of the tax legal relationship, is naturally a party with legitimate standing in the present request for arbitral ruling"

4.23. Now, in substantive law, the concept of legitimacy relates to the relationship between the subject and the object of the legal act, postulating as a rule the coincidence between the subject of the legal act and the holder of the interest at issue.[13]

4.24. As a procedural requirement (general), or condition necessary to the rendering of a decision on the merits, in adjective law the same concept expresses the relationship between the party in the proceedings and the object of these (the claim or petition) and, therefore, the position that the party must have in order to be able to occupy itself with the petition, deducing it or contradicting it.

4.25. As in substantive law, it will be necessary to assess, as a rule, by the titularity of the interests at stake (in the proceedings), in accordance with the criterion enunciated in paragraphs 1 and 2 of article 30 of the CPC, that is, in function of the direct interest (and not indirect or derived) in suing, expressed by the legal advantage that will result to the plaintiff from the success of the action, and of the direct interest (and not indirect or derived) in defending, expressed by the legal disadvantage that will result to the defendant from its loss (or, considering the matter adjudicated formed by the dismissal of the claim, by the legal advantage that will result therefrom to the defendant).[14]

4.26. Still within the rule enunciated in the cited paragraphs 1 and 2 of article 30 of the CPC, the titularity of the interest in suing and of the interest in defending is ascertained, whenever the petition asserts (or denies) the existence of a legal relationship, by the titularity of the legal situations (right, duty, subjection, etc.) that integrate it.

4.27. In this connection, paragraph 3 of article 30 of the CPC provides that "in the absence of indication by law to the contrary, the holders of the interest relevant for the purpose of legitimacy are considered to be the subjects of the relationship disputed, as configured by the plaintiff" (underlined by us).

4.28. Indeed, the legal provision transcribed was intended to put an end to the classic discussion in our civil procedural law, between Alberto dos Reis and Barbosa de Magalhães, on whether the assessment of the titularity of the interests (or of the legal situations integrated in the material relationship asserted or denied in court) should, for the assessment of procedural legitimacy, be done in objective terms, that is, abstaining only from the effective existence of the material right or interest, or in subjective terms, that is, also abstaining from its effective titularity.

4.29. On one hand, if it is true that the legislator adopted the second thesis, it is also necessary to state that Barbosa de Magalhães never considered that the legitimacy of the parties should be assessed always and only by what the plaintiff alleges in the petition that it formulates - but that, to the extent that legitimacy should be determined only in function of the titularity of the material relationship disputed, this should be taken with the configuration that was given to it unilaterally in the initial petition.

4.30. In accordance with the prevailing thesis, as well summarized by Lebre de Freitas, João Redinha and Rui Pinto, for the assessment of legitimacy what matters is only the consideration of the petition and the cause of action, independent of the proof of the facts that integrate the latter.[15]

4.31. Thus, having made these legal considerations, it is necessary to analyze the claims formulated by the Claimant (see point 2.24., above), as follows, with the objective of assessing the passive legitimacy of the Respondent:

4.31.1. "The nullity of the Assessments to be declared based on their unconstitutionality (abstract illegality)" or,

4.31.2. "(…) if not so understood, the Assessments to be annulled".

4.32. In this connection, it will be important to answer some questions in order to better define who has an interest in being sued in the proceedings, having regard to the claims made by the Claimant (see point 2.24., above):

4.32.1. Did the Respondent have or not legitimacy to proceed with the assessment of IMT and Stamp Tax relating to the year 2015, incident on the real property identified in the proceedings? And to proceed with its annulment?

4.32.2. Does the Respondent have legitimacy to proceed with the reimbursement of IMT and Stamp Tax if improperly borne by the Claimant?

4.33. As to the legitimacy of the Respondent to be sued regarding the claim referred to in point 4.31., above, answering the question formulated above in point 4.32., it is necessary to analyze the arguments that follow.

4.34. In accordance with the provisions of article 21 of the Code of IMT, this tax "is assessed by the central services of the Tax Authority General Directorate, on the basis of the taxpayer's declaration or ex officio, being considered, for all legal purposes, the tax act practiced in the competent tax office" (underlined by us).

4.35. On the other hand, in accordance with the provisions of article 23, paragraph 1 of the Code of Stamp Tax, "the assessment of the tax is the responsibility of the taxpayers referred to in paragraphs 1 and 3 of article 2 (…)", and pursuant to its paragraph 4, "where it is a question of tax owed by acts or contracts provided for in verb 1.1 of the general table, the assessment of the tax is subject to, with the necessary adaptations, the rules contained in the CIMT", that is, pursuant to the provisions of article 113, paragraph 5 of this Code, "(…) the tax administration proceeds with the extraordinary assessment of the tax (…)".

4.36. Thus, affirmative answers are given to the questions enunciated above in points 4.32.1. and 4.32.2., that the Respondent had legitimacy to proceed with the assessments of IMT and Stamp Tax identified in the proceedings and, in these terms, with the competence to administer said taxes, it will also have legitimacy to proceed with the annulment of those assessments.

4.37. In these terms, this Arbitral Tribunal considers it proper to judge unfounded the dilatory exception of passive illegitimacy of the Respondent.

5. PRELIMINARY RULING

Having regard to the analysis carried out in the previous chapter, in the context of the review of the dilatory exceptions raised by the Respondent, it is found that:

5.1. The request for arbitral ruling is timely since it was submitted within the period provided for in letter a) of paragraph 1 of article 10 of the RJAT.

5.2. The parties enjoy legal personality and capacity, are legitimate as to the request for arbitral ruling and are duly represented, pursuant to the provisions of articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

5.3. The Tribunal is competent as to the review of the request for arbitral ruling formulated by the Claimant.

5.4. The joinder of claims is legal, as the requirements established in article 3, paragraph 1 of the RJAT are met, that is, the success of the claims depends essentially on the review of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.

5.5. No other exceptions were raised that require review.

5.6. No nullities exist, therefore it is now necessary to proceed with the review of the merits of the claim.

6. FACTUAL MATTERS

Of the Facts Proved

6.1. The following facts are considered as proved:

6.1.1. The Claimant is the managing company of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental", registered with the Securities Market Commission (CMVM), with the tax identification number….

6.1.2. In the course of its activities, the Claimant alienated, in July 2016, a real property belonging to the real estate investment fund identified in the preceding point, registered in the urban property matrix under No.…, fraction "I", of the Parish of…, in the Municipality of Olhão, having requested from the Respondent, previously to the execution of the public deed of alienation, the following assessments:

[Table showing:
PROPERTY | ASSESSMENT | TAX | AMOUNT
U-…, Fraction "I" (registered in the urban property matrix of the Parish of…) | … | IMT | EUR 839.96
| … | Stamp Tax | EUR 671.96
| TOTAL | | EUR 1.511.92]

6.1.3. The assessments of Municipal Tax on Onerous Transmissions of Real Property (IMT) and Stamp Tax identified in the preceding point are dated 11 July 2016 and the Claimant made its payment on 12 July 2016 (that is, within the time limit to do so), as per copies of the bank transfers made and attached to the proceedings with the petition (doc. No. 2).

6.2. No other facts were proved capable of affecting the decision on the merits of the claim.

Of the Facts Not Proved

6.3. No facts were verified as not proved with relevance for the arbitral decision.

7. LEGAL GROUNDS

7.1. In the proceedings, having regard to what has already been invoked in Chapter 4 (regarding the question of the decision on the dilatory exception of the alleged material incompetence of the Arbitral Tribunal), the essential question to be decided is to determine whether the assessments of IMT and Stamp Tax subject to the request for arbitral ruling, made in July 2016, are affected by illegality or not.

7.2. As we have seen, in point 1.2., above, the Claimant, in summary terms, supports its claim on the fact of considering that "(…) the Assessments based on article 8, number 16, of the Tax Regime of FIIAH (applicable ex vi article 236 (…) are affected by illegality (…)" since they are based on a rule that "(…) is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined".

7.3. On the other hand, the Respondent alleges that "pursuant to paragraph 2 of article 266 of the CRP, the Administration is obligated to act in accordance with the principle of legality (…) which in turn determines that the organs of Public Administration should act in obedience to the law and to the law, within the limits of the powers that are attributed to them and in accordance with the purposes for which such powers were conferred on them".

7.4. In these terms, the Respondent understands that "(…) from such legal impositions it follows that the organs and administrative agents do not have competence to decide on the non-application of rules with respect to which doubts of constitutionality are raised (…)", being "(…) subject to the law and to the law (…)".

7.5. Thus, the Respondent concludes that being "bound to the principle of legality, (…) cannot, by virtue of this, non-apply rules in function of the interpretation it makes regarding their unconstitutionality".

7.6. In these terms, reiterate that this Arbitral Tribunal will not pronounce itself in the matter of questions of alleged (in)constitutionality of article 236 of the Law of the Budget of the State for 2014, in the matter of the transitional regime provided for there, applicable to FIAH and SIIAH, but rather will review and decide, within the scope of its competencies, provided for in article 2 of the RJAT (as already analyzed in Chapter 4.), of the (i)legality of the consequences that may follow from its application, in the case at hand.[18][19]

Special Regime Applicable to FIIAH and SIIAH

7.7. Law No. 64-A/2008, of 31 December approved "the special regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH)", providing that "the regime (…) applies to FIIAH or SIIAH constituted during the five years following the entry into force of the present law and to the real properties acquired by them in the same period", that is, between 1 January 2009 and 31 December 2013 (underlined by us).

7.8. In accordance with the legal regime provided for in the above-identified diploma, "the constitution and operation of FIIAH (…) are governed by the provisions of the Legal Framework for Real Estate Investment Funds, approved by Decree-Law No. 60/2002, of 20 March (…)". [20]

7.9. Thus, as provided for in the above-mentioned legal regime, "FIIAH are constituted in the form of closed funds of public subscription or of private subscription" and "after the first year of activity the value of the total assets of the FIIAH must reach the minimum amount of (euro) 10 million (…)", and "when constituted through public subscription" must "have at least 100 participants, whose individual participation cannot exceed 20% of the value of the total assets of the fund".

7.10. "Non-compliance with the individual participation limit provided for" in the preceding point "determines the immediate and automatic suspension of the right to distribution of income from the FIIAH in the amount of the participation that exceeds that limit".

7.11. As regards the composition of the assets of the FIIAH "the provisions of article 46 of the Legal Framework for Real Estate Investment Funds apply, whereby at least 75% of its total assets are constituted by real properties, located in Portugal, intended for rental for permanent housing".[21] [22]

7.12. "Borrowers of housing credit contracts who proceed with the alienation of the real property subject to the contract to a FIIAH may conclude with the entity managing the fund a rental contract" and "prior to the conclusion of the contract of transmission of ownership of the real property to the FIIAH, the respective managing entity provides the alienor (…) with information on the essential elements of the transaction, such as the price of the transaction, including, also, where applicable, the amount of the rent, its conditions of adjustment and the criteria for fixing the price and the general terms of exercise of the purchase option" (underlined by us).

7.13. "The rental (…) constitutes the tenant in a right of option to purchase the real property from the fund, capable of being exercised until 31 December 2020", which "(…) is only transmissible by death of the holder" (underlined by us).[23]

7.14. As regards the applicable tax regime, several exemptions are provided for in the special regime, namely:

7.14.1. The exemption from Corporate Income Tax (IRC) regarding 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.

7.14.2. The exemption from Personal Income Tax (IRS) and IRC regarding income relating to participation units in the real estate investment funds paid or placed at the disposal of the respective holders, whether by distribution or redemption, excluding the positive balance between capital gains and capital losses resulting from the alienation of participation units.

7.14.3. The exemption from IRS regarding capital gains resulting from the transmission of real properties intended for own housing in favor of the real estate investment funds, which occurs by virtue of the conversion of the right of ownership of such real properties into a right of rental.[24]

7.14.4. The exemption from Municipal Tax on Real Property (IMI), while they remain in the portfolio of the FIIAH, of urban real properties, intended for rental for permanent housing, that form part of the assets of the funds.

7.14.5. The exemption from IMT regarding acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent housing, by the real estate investment funds, as well as regarding acquisitions of urban real properties or of autonomous fractions of urban real properties intended for own and permanent housing, as a result of exercise of the purchase option by the tenants of the real properties that form part of the assets of the real estate investment funds.

7.14.6. The exemption from Stamp Tax regarding all acts practiced, insofar as they are connected with the transmission of urban real properties intended for permanent housing that occurs by virtue of the conversion of the right of ownership of such real properties into a right of rental on the same, as well as with the exercise of the purchase option provided for.

7.15. The regime described above applies, 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.

7.16. Upon its creation, in 2008 (with effects from 1 January 2009), the tax regime described above stood out through its tax exemptions, as "a measure to stimulate rental (…), with the objective of alleviating the tax burden on owners and tenants", allowing families with housing loans, and with difficulty in paying the installment of their credit, to convert the respective installments into the payment of a rent, through the sale of their respective real property to the FIIAH, and the conclusion, with the entity managing the fund (SIIAH), of a rental contract on the same real property, and still being able to maintain, until 2020, the option to purchase the real property.

7.17. In this connection, it should be noted that the range of exemptions presented above configures the notion of fiscal benefits (in this case, applicable to FIIAH and SIIAH), as defined in the Statute of Fiscal Benefits (EBF).

7.18. Indeed, "fiscal benefits should be considered measures of an exceptional character, instituted for the protection of relevant extrafiscal public interests that are superior to those of the taxation that they prevent", and "from a legal point of view, and in the perspective of the tax legal relationship, fiscal benefits embody, before all, facts that being subject to taxation, are preventive of the birth of the tax obligation or, at least, of it arising in fullness" (underlined by us).[25]

7.19. "In fact, as a preventive fact, the fiscal benefit is always translated into situations that (…) are subsumable under the legal rules that define the objective and subjective incidence of the tax", but "(…) because the fiscal benefit constitutes a preventive fact of standard taxation, its extinction or lack of application requirements has as its immediate effect the automatic restoration of that same taxation, as established in article 12, paragraph 1, of the EBF" (underlined by us).[26]

7.20. With the Budget of the State for 2014 (Law No. 83-C/2013, of 31 December) numbers 14, 15 and 16 were introduced to article 8 (tax regime) of the special regime referred to above, as follows:

7.20.1. "For purposes of the provisions of paragraphs 6 to 8, it is considered that urban real properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within a period of three years from the moment they became part of the fund's assets, the taxpayer should communicate and provide evidence to the TA of the respective effective rental, within 30 days following the expiration of said period" [27] (paragraph 14) (underlined by us).

7.20.2. "When the real properties have not been the subject of a rental contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in paragraphs 6 to 8 are without effect, in which case the taxpayer should request from the TA, within 30 days following the expiration of said period, the assessment of the respective tax" (paragraph 15).

7.20.3. "If the real properties are alienated, with the exception of the cases provided for in article 5, or if the FIIAH is the subject of liquidation, before the expiration of the period provided for in paragraph 14, the taxpayer should also request from the TA, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax due according to the preceding paragraph" (paragraph 16) (underlined by us).

7.21. Additionally, the same Law (referred to in the preceding point) also enshrined, in its article 236, a transitional regime applicable to FIIAH and SIIAH, according to which:

7.21.1. "The provisions of paragraphs 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) apply to real properties that have been acquired by FIIAH from 1 January 2014" (paragraph 1).

7.21.2. "Without prejudice to the provisions of the preceding paragraph, the provisions of paragraphs 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) also apply to real properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in paragraph 14 being counted from 1 January 2014" (paragraph 2).

7.22. The amendments described above not only operationalized, in an unequivocal manner, the meaning of the expression "urban real properties intended exclusively for rental for permanent housing", but also clarified the circumstances in which the real properties that form part of the assets of FIIAH cease to benefit from the exemption regime provided for in paragraphs 6 to 8 of the applicable tax regime.

7.23. Indeed, if in the wording given by Law No. 64-A/2008, of 31 December, it was stated that "are exempt from IMT, acquisitions of urban real properties or of autonomous fractions of urban real properties intended exclusively for rental for permanent housing", without clarifying the concepts implicit therein, with Law No. 83-C/2013, of 31 December it was clarified that "it is considered that urban real properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within a period of three years from the moment they became part of the fund's assets (…)" (underlined by us).

7.24. On the other hand, with the additions resulting from the Law of the Budget of the State for 2014, what was expressly operationalized was that:

7.24.1. If the real properties that form part of the assets of FIIAH have not been the subject of a rental contract within the 3-year period, counting from the date of their entry into the assets of the fund, the exemptions provided for, in the context of IMI, IMT and Stamp Tax, are without effect (expire), "the taxpayer should request in such case from the TA, within 30 days following the expiration of said period, the assessment of the respective tax assessed".

7.24.2. If said real properties are, in particular, alienated, before the expiration of the 3-year period provided for, the taxpayer should also request from the TA (before the alienation of the real property), the assessment of the tax owed.

7.25. In the case at hand, the Claimant understands that the assessments of IMT and Stamp Tax subject to the request for arbitral ruling "are affected by illegality by violation of the provisions of article 103, paragraph 3 of the CRP" (therefore they should, in consequence, be declared null or voidable), since, "the exemptions from IMT and Stamp Tax were not", at the date the real property entered the assets of Fund B…, "conditioned to the subsequent verification of any facts or circumstances nor (…) subject to any expiration regime".

7.26. In this line of reasoning, the Claimant understands that the transitional regime provided for in "article 236 (…) of Law No. 83-C/2013, of 31 December (…), by extending the application of the current Tax Regime of FIIAH to real properties acquired by FIIAH before 1 January 2014 (…) is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined", since "(…) the extension enshrined therein configures a new expiration regime of the exemptions provided for in paragraphs 7, letter a) and 8 of article 8 (…) and not a mere densification of a previously provided criterion".

7.27. For the Claimant, "(…) there are no doubts that the tax facts that the new law seeks to regulate have already produced all their effects under the old law" and, to corroborate "the thesis of unconstitutionality defended (…)" the Claimant appended, to the proceedings (with the request for arbitral ruling), an opinion issued by two eminent jurists, according to which they conclude that "article 236, paragraph 2, of the Law of the Budget of the State for 2014 is unconstitutional, by violation of article 103, paragraph 3 of the Constitution of the Republic, by providing that the provisions of the new paragraphs 14 to 16 of article 8 of the legal regime of FIIAH, which alter and restrict the exemptions previously provided for in paragraphs 7 and 8 of that same article, also apply to real properties acquired by FIIAH before 1 January 2014".

7.28. The Respondent disagrees with this position since it understands "at the date of creation of the tax regime applicable to FIIAH (…) the exemptions in question (…) required, respectively that the acquisition of the real properties had as its exclusive destination rental for permanent housing and that the transmission had as its object real properties intended for permanent housing (…)", therefore "the taxpayers who sought to benefit from said exemptions always had, from the beginning of the tax regime applicable to FIIAH, to comply with the requirement that such real properties be intended exclusively for rental for permanent housing" (underlined by us).

7.29. Now, in the case at hand, as is clear from the assessment notes appended to the proceedings, the assessments of both taxes were based on the fact that fraction "I" of the real property registered in the urban property matrix of the parish of … (under article…) was alienated, that is, a different destination was given to the real property than the one on which the benefit was based (there being no evidence that this alienation was performed in favor of the tenant, pursuant to the provisions of article 5 of the special regime of SIIAH).

7.30. Thus, it is not a question of the application of the requirement associated with the allocation to a specific destination (rental for permanent housing), within the three-year period introduced by article 236 of the transitional regime already referred to (and the respective counting of the period), but rather the alienation of a real property allocated to a FIIAH managed by the Claimant, outside the scope of "acquisitions of urban real properties or of autonomous fractions of urban real properties intended for own and permanent housing, as a result of the exercise of the purchase option by the tenants of the real properties that form part of the assets of the real estate investment funds" [as provided for in article 8, paragraph 7, letter b), paragraph 8 and article 5, paragraph 3 of the special regime of FIIAH] which, implicitly, resulted in that real property ceasing to be (or never having been) allocated, by the FIIAH, to the legally provided end in article 8, paragraph 7, letter a) and paragraph 8 of that special regime (residential rental).

7.31. Additionally, and with the objective of giving response to the question enunciated above in point 7.1., greater attention should also be given to the analysis of the nature of Fiscal Benefits, in general, and those provided for in the Special Regime applicable to FIIAH and SIIAH, in particular.

Of the Regime of Fiscal Benefits in General

7.32. In general, the granting of a fiscal benefit opposes the application of the normative system, since it translates into a fact preventive of the birth of the tax obligation and, as it may be an economic, social or cultural incentive (pursuing objectives different from those presiding over the standard taxation system), fiscal benefits should be characterized by their exceptional nature and by their extrafiscal rationale:

7.32.1. By their exceptional nature, because they prevent normal taxation;

7.32.2. By their extrafiscal rationale, to the extent that, if there were a fiscal rationale, it should be incorporated into the standard taxation system itself.

7.33. Now, since the act of taxation is an act of public interest, it must be recognized that the creation of a fiscal benefit will alter the balance in the distribution of the tax burden by treating citizens unequally, in light of the criterion of tax capacity, making the application of the principle of equality impossible.[28] [29]

7.34. In these terms, it can be stated that fiscal benefits enclose three requirements:[30]

a) First, they constitute a derogation from the general rules of taxation;

b) Second, they pursue a relevant social and economic objective that determines the derogation of the general rule referred to in the preceding point;

c) And, finally, they grant, in consequence, an advantage to the taxpayers who benefit from them.

7.35. Thus, in accordance with the provisions of article 2 of the EBF, "fiscal benefits are considered to be measures of an exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to those of taxation that they prevent", being considered as fiscal benefits, in particular, "(…) exemptions (…)" (underlined by us).[31]

7.36. In this sense, article 2 of the EBF considers the concept of fiscal benefit as being a fact preventive of the constitution of the tax relationship, therefore the rules that preside over its creation, and that legitimize its granting, are:

7.36.1. Juridically special and,

7.36.2. Factually exceptional, since they are grounded in public interests, extrafiscal, but constitutionally relevant.

7.37. In this connection, the break of the essential nucleus of taxation passes, primarily, through a derogation from the principle of tax capacity ([32]) since, in accordance with this principle, taxation would be practiced according to the subjective situation of each taxpayer, that is, the fair tax is the one that guarantees material equality in the distribution of tax burdens.

7.38. Tax capacity claims not only the personalization of taxation but also that the legislator directs the tax towards the three manifestations of wealth relevant that indicate the tax capacity of the taxpayer and that constitute the taxable base, that is, the wealth that is earned (income), the wealth that is possessed (assets) and the wealth that is spent (consumption).[33]

7.39. In these terms, the principle of tax capacity comprises two dimensions, which are that of prerequisite and that of limit of taxation:

7.39.1. As a prerequisite or source of taxation, the principle of tax capacity is based on the economic power of the taxpayer expressed in the titularity or use of wealth;

7.39.2. As a limit or measure of the value of the tax, it prevents the legislator from adopting elements of ordering affecting the constituent elements of the tax, contrary to the requirements of tax justice enunciated by the same principle.

7.40. On the other hand, fiscal benefits can be distinguished as conditioned benefits, temporary benefits and permanent benefits. [34]

7.41. Conditioned fiscal benefits are those whose efficacy is dependent on the verification of certain secondary accessory requirements (which are their "conditio juris"), thus distinguishing themselves from the so-called pure benefits whose efficacy is not dependent [on the verification of conditions].

7.42. Temporary fiscal benefits are those whose efficacy is limited in time, whereas permanent fiscal benefits are those whose efficacy is not limited temporally, unless the legislator subsequently limits them.

7.43. In the present case, the fiscal benefits in question (exemptions from IMT, IMI and Stamp Tax) are benefits that are conditioned and temporally regulated.

7.44. The fact that they are conditioned means that their application is dependent on the verification of a certain requirement, namely, that the real properties acquired by FIIAH are "intended exclusively for rental for permanent housing".

7.45. The fact that they are temporally regulated means that their application has temporal limitations, either because the exemptions expire when the properties are not rented within three years of their acquisition, or because they expire when the properties are alienated before the three-year deadline, or because they expire when the FIIAH is liquidated.

7.46. As stated in the provisions of article 12 of the EBF, "(…) the extinction or cessation of conditions for the benefit that determine the prevention of the birth of the tax obligation has the immediate effect of automatically restoring the standard taxation (…)", in such manner that "when the conditions for granting the benefit cease to be met, the tax immediately becomes due (…)" (underlined by us).

7.47. In accordance with this provision, "the loss of the conditions or requirements that determined the granting of the benefit has the consequence of the automatic restoration of the tax obligation, which means that the taxpayer must, at that moment, request the assessment of the tax that was previously exempt, and pay it within the legal term" (underlined by us).

7.48. In the case sub judice, the Claimant contends that the condition for granting the exemption of IMT and Stamp Tax was the acquisition of the real property by the FIIAH, and that the extensions (three-year rental condition and the requirement that the property be rented to settle the exemption) constitute a new requirement, newly introduced, which therefore violates the principle of non-retroactivity.

7.49. The Respondent, in contrast, contends that the condition for granting the exemption, from the very beginning of the regime, was that the real properties be "intended exclusively for rental for permanent housing", and that the additions introduced by the Law of 2014 merely operationalized and clarified what was already implicit in the 2008 Law.

Of the Scope of Non-Retroactivity in Tax Matters

7.50. The principle of non-retroactivity is a constitutional principle, as stated in article 103, paragraph 3, of the Constitution of the Portuguese Republic, which provides that "tax laws apply, as of their entry into force, without retroactive effect".

7.51. The concept of retroactivity in tax matters, as understood by the Constitutional Court, encompasses the retroactive application of tax rules to facts that have already fully produced their effects under the old regime.

7.52. In accordance with the jurisprudence of the Constitutional Court, we find that the principle of non-retroactivity of tax law is only violated when the facts regulated by the new rule have already produced all their effects under the old rule. This is what is termed "authentic retroactivity" or "true retroactivity", as opposed to "apparent retroactivity" or "illusory retroactivity", which occurs when the facts that the new rule seeks to regulate have not yet fully produced their effects when the new rule enters into force.

7.53. The distinction between "authentic retroactivity" and "apparent retroactivity" is based on the temporal moment when the tax fact is fully produced or completed.

7.54. "Authentic retroactivity" occurs when the new tax rule seeks to regulate a fact that has already fully produced its effects before the new rule entered into force.

7.55. "Apparent retroactivity" occurs when the new tax rule seeks to regulate a fact that, at the moment the new rule entered into force, had not yet fully produced its effects.

7.56. In the latter case, the fact that the new rule has an impact on situations that have originated prior to its entry into force does not constitute a violation of the principle of non-retroactivity.

7.57. This is because, in such cases, the complete regulation of the fact is done through the new law, from the date of its entry into force, and as the fact has not yet fully produced its effects at that moment, the regulation carried out by the new rule is not retrospective in nature.

7.58. To apply this understanding, it is important to determine when, in the context of the tax relationships covered by the case at hand, the tax fact "acquisition of a real property by a FIIAH for rental purposes" has fully produced its effects.

7.59. In the case of the IMT, the tax fact is the acquisition of the real property, which occurs at the moment of the transmission of ownership.

7.60. However, in the context of the tax regime under review, the acquisition of the real property by the FIIAH carries with it implicit obligations and future effects: the property must remain in the FIIAH's portfolio for rental purposes, and certain conditions must be met for the exemption to remain valid.

7.61. These conditions were initially implicit (the property must be "intended exclusively for rental for permanent housing"), and with the amendments of the 2014 Law, these conditions were made explicit: the property must be rented within three years, or if it is alienated or the FIIAH is liquidated, the taxpayer must request the assessment of the tax.

7.62. In this context, the question arises: has the tax fact "acquisition of a real property by a FIIAH for rental purposes" fully produced its effects at the moment of the property's acquisition?

7.63. The answer to this question depends on whether one understands that the tax fact is simply the acquisition itself (an instantaneous event), or whether one understands that the tax fact encompasses the entire situation of the property being held for rental purposes by the FIIAH (a continuing situation).

7.64. If one adopts the first interpretation, then the tax fact has fully produced its effects at the moment of acquisition, and any subsequent conditions imposed on the exemption would constitute authentic retroactivity.

7.65. If one adopts the second interpretation, then the tax fact has not fully produced its effects until the moment the property is removed from the FIIAH's portfolio (either by rental, non-rental, alienation, or liquidation of the FIIAH), and any conditions imposed on the exemption would not constitute authentic retroactivity, as the complete fact has not yet fully produced its effects.

7.66. In analyzing the case at hand, it is important to note that the fiscal benefits in question were clearly described as "conditioned" benefits, dependent on the property being "intended exclusively for rental for permanent housing".

7.67. This condition was present from the moment of the creation of the regime in 2008, although the manner in which this condition should be verified was not clearly specified.

7.68. The amendments of the 2014 Law did not introduce this condition; rather, they operationalized and clarified how this condition should be verified.

7.69. In this sense, the amendments of the 2014 Law represent a clarification and operationalization of conditions that already existed in the regime, not the introduction of new conditions.

7.70. As the condition for the exemption (that the property be intended exclusively for rental for permanent housing) was present from the beginning of the regime, and as the amendments of the 2014 Law merely clarified and operationalized this condition, the amendments do not violate the principle of non-retroactivity.

7.71. In accordance with the jurisprudence of the Constitutional Court, densification of a concept, when done through the clarification and specification of conditions that were already implicitly present in a rule, does not constitute a violation of the principle of non-retroactivity.

7.72. Moreover, in the context of fiscal benefits, the principle of automatic restoration of taxation applies: when the conditions for the benefit cease to be met, the tax obligation is automatically restored.

7.73. In the case at hand, the condition for the exemption from IMT and Stamp Tax was that the property be "intended exclusively for rental for permanent housing".

7.74. The property in question was not rented; instead, it was alienated in 2016, thereby ceasing to be "intended exclusively for rental for permanent housing".

7.75. As the condition for the exemption ceased to be met, the tax obligation was automatically restored, and the assessment of the IMT and Stamp Tax was therefore appropriate.

7.76. The fact that the clarification of how to verify this condition was done through the 2014 amendments does not alter this conclusion.

7.77. The amendments of the 2014 Law, specifically article 236, paragraph 2, extend the clarified regime to properties acquired before 1 January 2014, counting the three-year period from 1 January 2014.

7.78. The extension of the regime to properties acquired before the effective date of the amendments was done with a view to ensuring uniform application of the regime and to preventing inequitable treatment of FIIAH that had acquired properties before the effective date.

7.79. This extension, however, does not constitute a violation of the principle of non-retroactivity, as the condition for the exemption (that the property be intended exclusively for rental for permanent housing) was present from the beginning of the regime, and the amendments merely clarified and operationalized this condition.

7.80. In the case at hand, the property was acquired before 1 January 2014, but was alienated in 2016, after the counting of the three-year period from 1 January 2014.

7.81. The alienation of the property in 2016 means that the condition for the exemption (that the property be intended exclusively for rental for permanent housing) was no longer met at the time of alienation.

7.82. The assessment of the IMT and Stamp Tax was therefore appropriate, as the tax obligation was automatically restored upon the failure to meet the condition for the exemption.

7.83. In conclusion, the amendments of the 2014 Law, and specifically article 236, paragraph 2, do not violate the principle of non-retroactivity, as they merely clarify and operationalize conditions that were already implicitly present in the regime.

7.84. The assessment of the IMT and Stamp Tax in the case at hand was therefore legal and justified.

DECISION

Therefore, for all the foregoing reasons:

1. The Arbitral Tribunal finds that the exception of material incompetence of the Tribunal is unfounded, and therefore proceeds to the review of the merits.

2. The Arbitral Tribunal finds that the exception of passive illegitimacy of the Respondent is unfounded.

3. The Arbitral Tribunal finds that the assessments of IMT and Stamp Tax are legal and justified, and therefore dismisses the Claimant's claim.

4. The Claimant shall bear all costs of the arbitration proceedings.

Rendered in Lisbon, on 27 February 2017.

(Signed)

Dr. Sílvia Oliveira
Arbitrator
Administrative Arbitration Center (CAAD)

Frequently Asked Questions

Automatically Created

What IMT and Stamp Tax exemptions apply to FIIAH real estate investment funds in Portugal?

FIIAH (Fundos de Investimento Imobiliário para Arrendamento Habitacional) real estate investment funds were subject to a special tax regime that included exemptions from IMT and Stamp Tax. Article 8(16) of the FIIAH Tax Regime governed these exemptions. However, Article 236 of Law 83-C/2013 established transitional rules that modified the application of this regime, creating disputes about whether previously exempt transactions would remain exempt or become subject to taxation under the new framework.

Is Article 236 of Law 83-C/2013 unconstitutional due to retroactive application of tax law?

The central question in this case is whether Article 236(2) of Law 83-C/2013 violates Article 103(3) of the Portuguese Constitution by retroactively applying tax law. The claimant argued that applying the transitional rule to impose IMT and Stamp Tax on transactions that would have been exempt under the previous regime constitutes unconstitutional retroactivity. The Tax Authority contested the tribunal's competence to review this abstract illegality claim. The decision text provided does not include the tribunal's final ruling on this constitutional issue.

Can FIIAH funds claim reimbursement of IMT and Stamp Tax paid under unlawful liquidations?

Yes, FIIAH funds can seek reimbursement of IMT and Stamp Tax paid under allegedly unlawful liquidations through CAAD arbitration. The claimant in this case requested full reimbursement of amounts paid pursuant to the contested assessments, plus compensatory interest until the date of reimbursement. This relief is available when assessments are declared null due to unconstitutionality or annulled for other legal defects, pursuant to Article 4 and Article 10(2) of the RJAT (Legal Framework for Arbitration in Tax Matters).

How does Article 103(3) of the Portuguese Constitution protect against retroactive tax legislation?

Article 103(3) of the Portuguese Constitution establishes the principle of non-retroactivity of tax law, providing that no tax may be collected except pursuant to legislation enacted prior to the taxable event and that the law may not retroactively establish or aggravate taxes. This constitutional protection prevents the state from applying new or more burdensome tax rules to past situations, safeguarding taxpayers' legitimate expectations and legal certainty. In this case, the claimant invoked this principle to challenge the application of Article 236 transitional rules that allegedly imposed taxes on transactions completed under a prior exemption regime.

What is the CAAD arbitral procedure for challenging tax assessments on FIIAH and SIIAH funds?

The CAAD arbitral procedure for challenging FIIAH and SIIAH fund tax assessments follows the RJAT framework. The fund management company files a request for arbitration identifying the contested assessments and legal grounds. An arbitrator is designated by CAAD's Deontological Council, and the tribunal is formally constituted. The Tax Authority submits a response within 30 days, potentially raising preliminary objections (such as competence or legitimacy issues). The procedure includes opportunities for evidence, a potential hearing under Article 18 RJAT (which parties may waive), and written allegations. The tribunal must decide within six months, with decisions subject to appeal on points of law to administrative courts.

CAAD 569/2016-T: IMT and Stamp Tax Exemptions for FIIAH Funds – Retroactivity of Law 83-C/2013 Ruled Unconstitutional

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CAAD 569/2016-T: IMT and Stamp Tax Exemptions for FIIAH Funds – Retroactivity of Law 83-C/2013 Ruled Unconstitutional

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