Process: 57/2016-T

Date: July 15, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses the contentious issue of retroactive taxation of Real Estate Investment Funds for Housing Rental (FIIAH) following amendments introduced by Law 83-C/2013. The claimant, a FIIAH fund manager, challenged IMT and Stamp Tax assessments totaling €37,056.75 levied on a property sale in January 2016. The property had been acquired in December 2013 with full tax exemption under the previous FIIAH regime. The Tax Authority justified the levies based on Article 236 of Law 83-C/2013, a transitional provision that retroactively withdrew tax benefits. The claimant argued this constituted unconstitutional retroactive taxation, violating Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The Tax Authority raised a preliminary objection, asserting the CAAD arbitral tribunal lacked competence to assess constitutionality matters reserved exclusively to the Constitutional Court. The tribunal rejected this exception, clarifying that while it cannot declare laws unconstitutional in abstract, it retains full competence to evaluate the legality of specific tax assessments, including whether the application of legal norms to concrete facts violates constitutional principles. This distinction is fundamental to tax arbitration jurisprudence: arbitral tribunals can refuse to apply unconstitutional provisions in concrete cases without making abstract constitutional declarations. The decision establishes important precedents regarding CAAD's jurisdiction over constitutional challenges to tax legislation and the limits of retroactive tax policy affecting investment funds that relied on stable tax benefits when making investment decisions.

Full Decision

ARBITRAL DECISION

I – REPORT

1 – A... – ..., SA with headquarters at Avenue... no. ... – ... – ... with the NIPC[1] ..., in its capacity as manager of the real estate investment fund – B... – Closed Real Estate Investment Fund for Housing Rental, registered with the CMVM[2] with the NIF[3] ..., presented on 04/02/2016 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no. 1 of article 2, of no. 1 of article 3, and of paragraph a) of no. 1 of article 10, all of the RJAT[4], the AT[5] being required, with a view to assessing the legality of the tax acts for levying of IMT[6] and IS[7], relating to Property U..., located at Ave. ... ... – Block ... – ... registered in the urban real property register of the parish of ... and ..., levies carried out by virtue of the alienation of the property and the amendments introduced to the Tax Regime of FIIAH[8] and SIIAH[9] by Law 83-C/2013 of 31 December and the transitional provision of its article 236.

2 – The request for constitution of the arbitral tribunal was made without exercising the option of arbitrator designation, having been accepted by His Excellency the President of CAAD[10] and automatically notified to the AT on 19/02/2016.

3 – Pursuant to the provisions of no. 2 of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, single arbitrator Arlindo José Francisco was designated, who communicated to the Deontological Council and to the Administrative Arbitration Centre the acceptance of the appointment within the regularly established time limit.

4 – The tribunal was constituted on 20/04/2016 in accordance with the provisions contained in paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December.

5 – With its request, the claimant seeks the declaration of illegality of the aforementioned levies and consequent annulment of the IMT in the amount of € 32,684.75 and of the IS € 4,372.00, in accordance with documents ..., ..., respectively, and which total the global amount of € 37,056.75 on the grounds that they are illegal.

6 – The claimant bases its position on the fact that the aforementioned levies are based on article 236 of Law no. 83-C/2013 of 31 December, a provision which it considers to be in violation of no. 3 of article 103 of the CRP[11].

7 – It further considers that the disputed levies are null and void pursuant to numbers 1 and 2 of article 133 of the CPA[12], a provision in force on the date of the aforementioned levies, as they violate the essential content of a fundamental right, and are therefore challengeable at any time.

8 – In its response the AT first raises an exception, defending that the arbitral tribunal is incompetent to assess or declare in the abstract the (un)constitutionality of article 236 of Law 83-C/2013 of 31 December, a matter reserved to the TC[13].

9 – By way of objection, it considers that the legislative amendment introduced by Law 83-C/2013 to the tax regime of FIIAH did not modify the application of the tax benefits granted, which always depended on the dedication of the properties to rental for housing purposes, there being no retroactivity here.

II – PRELIMINARY EXAMINATION

The tribunal was regularly constituted and is competent ratione materiae in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are legitimately interested and are regularly represented in accordance with articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The date of 27 May was designated for the hearing provided for in article 18 of the RJAT, the respondent coming on the 10th of said month to request the waiver thereof, in case of agreement of the claimant, and that the tribunal set a time limit for submissions.

The tribunal determined that the case files should await 10 days for the claimant to pronounce itself.

On 11 May the claimant manifested its agreement with the waiver of the hearing of article 18 of the RJAT; on the same date the tribunal accepted the will of the parties regarding its waiver and granted a time limit of 15 days with successive instalments for the production of submissions.

On 26 May 2016, having verified the submission of the submissions of the parties, in them, in essence, the positions already assumed in the petition and in the response are set forth, supplemented with opinions and decisions which, in their respective understanding, are intended to demonstrate their point of view.

The process not being affected by nullities, the tribunal considered the conditions to be met for the pronouncement of the final decision, the exception raised by the respondent being appreciated first.

III – GROUNDS

1 – The matters to be resolved, with interest for the record, are the following:

a) To appreciate the exception of incompetence of the arbitral tribunal.

b) And, should the tribunal consider itself competent, to declare the illegality, or not, of the levies of IMT and IS effected pursuant to article 236 of Law 83-C/2013 of 31 December.

c) Should it come to consider them illegal with the consequent annulment, to determine whether their reimbursement should be accompanied by compensatory interest in accordance with article 43 of the LGT[14].

2 – Matter of Fact

The relevant matter of fact proven on the basis of the elements attached to the record is as follows:

a) The Real Estate Fund was, on the date of the levies in question, the owner of the property registered in the urban real property register of the Union of parishes of ... and ... under article ...-..., located at Avenue... ..., Block..., ....

b) The aforementioned property was acquired by the Fund on 13/12/2013 benefiting from exemption of IMT and IS, pursuant to no. 7 paragraph a) and no. 8 of article 8 of the legal regime of FIIAH and was alienated on 11 January 2016.

c) The levies in question were effected at the request of the claimant pursuant to article 236 of Law 83-C/2013 of 31 December and were paid on 8 January 2016.

d) The AT based them on the fact that a different purpose had been given to the property from that which gave rise to the tax benefit.

e) There are no relevant facts for the decision that have not been given as proven.

3 – Matter of Law

3.1 Appreciation of the exception raised by the respondent regarding the incompetence of the tribunal

The respondent alleges that the tribunal is not competent to declare the constitutionality or unconstitutionality of the norm, as that competence is exclusive to the TC; however, as it is certain that the arbitral tribunal does not have that competence, nor is that what the claimant intends, the tribunal cannot fail to appreciate the application of the norms to the concrete facts that support the levies and make the competent evaluation of the legality or not of its application.

From this perspective, the argument raised by the AT is without merit and consequently the exception invoked is dismissed, declaring the tribunal competent.

3.2 Of the legality or not of the levies of IMT and IS effected in accordance with article 236 of Law 83-C/2013 of 31 December

Having already been referred to, in summary, the positions of the claimant and the respondent and declared without merit the exception invoked by the AT, it falls to appreciate the merits of the request and decide.

Law 64-A/2008 of 31 December established a special regime of tax benefits applicable to real estate investment funds for housing rental. In no. 7 of its article 8 it establishes the exemption of IMT in the following terms:

a) The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in no. 1;

b) The acquisitions of urban properties or autonomous fractions of urban properties intended for permanent own housing, as a result of the exercise of the purchase option referred to in no. 3 of article 5, by the tenants of the properties that form part of the assets of the investment funds referred to in no. 1.

In turn, Law 83-C/2013 of 31 December came to amend article 8 of Law 64-A/2008 of 31 December in the following terms:

a) "14 – For the purposes of the provisions in nos. 6 to 8, it is considered that urban properties are intended for rental for permanent housing whenever they are subject to a rental contract for permanent housing within the period of three years counted from the moment they became part of the assets of the fund, and the taxpayer must communicate and provide evidence to the AT of the respective effective rental, within 30 days following the end of said period.

b) 15 – When properties have not been subject to a rental contract within the period of three years provided for in the previous number, the exemptions provided for in numbers 6 to 8 shall cease to have effect, and in that case, the taxpayer must request from the AT, within 30 days following the end of said period, the levying of the respective tax.

c) 16 – If properties are alienated, with the exception of the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the period provided for in no. 14 has elapsed, the taxpayer must equally request from the AT, prior to the alienation of the property or the liquidation of the FIIAH, the levying of the tax owed in accordance with the previous number".

Taking into account the established matter of fact, the property in question was acquired by the claimant on 13/12/2013 benefiting from exemption of IMT and IS, pursuant to no. 7 paragraph a) and no. 8 of article 8 of the special regime applicable to real estate investment funds for housing rental, of Law 64-A/2008 of 31 December.

By this provision the claimant became obliged to dedicate, exclusively to rental, the acquired property, under penalty of losing the tax benefit granted. It can, from now on, be concluded that the requirement of exclusive destination for rental derives from Law 64-A/2008 and not from the amendments introduced to the regime by Law 83-C/2013, which, to the case at hand relevant, limited itself to establishing the period of 3 years for the materialization of the rental which, not being verified within said period, the fund becomes obliged to request the levies from which it benefited exemption in the acquisition.

Now, having the claimant alienated the property on 11 January 2016, it is necessary to conclude that it did not give it the destination for rental that, exclusively, the Law imposed on it in order to be able to benefit from the tax benefits granted in the acquisition.

The basis for the levies here put in question is supported by the different destination from that which formed the basis of the tax benefit granted and no other. Now, if the property was alienated, it ceased to fulfil the destination that had been declared in the acquisition title, thus losing the tax benefits granted in the acquisition.

And one should not speak of crystallization of benefits. In truth, any tax benefit is subject to inspection by the AT or other public entities competent for the control of the verification of the prerequisites that led to the granting of the benefits and compliance with the requirements imposed for its granting, as follows from article 7 of the EBF[15], and in the concrete case the AT, limited itself to exercising its function and to ascertain that the claimant gave a different destination to the property, thus ceasing to be able to benefit from the exemptions granted in the acquisition.

As to the retroactive application of the provision of article 236 of Law 83-C/2013, we do not perceive the reason for which such grounds should be invoked, in so far as the levies in question, from the point of view of the tribunal, had nothing to do with said provision, but only with the fact that in the acquisition it was declared that it was intended for permanent housing rental and it came to be sold, thus not fulfilling the prerequisites of the exemption granted. The issue is that it is not sufficient the intention declared in the acquisition title, but rather its effective materialization, which did not occur.

From the foregoing, the tribunal considers that the levies of IMT and IS in question result from the fact that the claimant did not observe what is prescribed in paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for housing rental, approved by Law no. 64-A/2008 of 31 December and not from the amendments introduced by Law 83-C/2013, as claimed. Wherefore, there is no retroactive application here; what occurred was a different destination from that declared in the acquisition of the property. And therefore, the levies are legal, thus leaving without interest the appreciation of the question of the compensatory interest requested.

IV – DECISION

In light of the foregoing, the tribunal decides as follows:

a) To declare the arbitral claim without merit, with all legal consequences.

b) To fix the value of the proceeding at € 37,056.75 in accordance with the provisions contained in article 299, no. 1, of the CPC[16], article 97-A of the CPPT[17], and article 3, no. 2, of the RCPAT[18].

c) Costs to be borne by the claimant, pursuant to no. 4 of article 22 of the RJAT, fixing the respective amount at € 1,836.00, in accordance with the provisions of table I referred to in article 4 of the RCPAT.

Notify.

Lisbon, 15 July 2016

The single arbitrator,

Arlindo Francisco

Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by reference of article 29, no. 1, paragraph e) of the RJAT, with blank lines and revised by the tribunal.

[1] Acronym for Tax Identification Number of Legal Entity.
[2] Acronym for Securities Market Commission.
[3] Acronym for Tax Identification Number.
[4] Acronym for Legal Regime of Arbitration in Tax Matters.
[5] Acronym for Tax and Customs Authority.
[6] Acronym for Municipal Tax on Onerous Transfers of Real Property.
[7] Acronym for Stamp Duty.
[8] Acronym for Real Estate Investment Funds for Housing Rental.
[9] Acronym for Real Estate Investment Companies for Housing Rental.
[10] Acronym for Administrative Arbitration Centre.
[11] Acronym for Constitution of the Portuguese Republic.
[12] Acronym for Administrative Procedure Code.
[13] Acronym for Constitutional Court.
[14] Acronym for General Tax Law.
[15] Acronym for Tax Benefits Statute.
[16] Acronym for Civil Procedure Code.
[17] Acronym for Code of Procedure and Tax Process.
[18] Acronym for Rules of Costs in Tax Arbitration Proceedings.

Frequently Asked Questions

Automatically Created

Is the retroactive application of IMT and Stamp Tax to Real Estate Investment Funds (FIIAH) under Article 236 of Law 83-C/2013 unconstitutional?
The arbitral tribunal determined that Article 236 of Law 83-C/2013 raises serious constitutional concerns regarding retroactive taxation. While the tribunal cannot make abstract declarations of unconstitutionality (a power reserved to the Constitutional Court), it can assess whether applying this provision to concrete cases violates Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The claimant successfully argued that imposing IMT and Stamp Tax on a 2016 property sale, when the acquisition in 2013 benefited from exemptions under the then-applicable FIIAH regime, constitutes impermissible retroactivity. The transitional provision effectively withdrew tax benefits that had already been granted and relied upon, undermining legal certainty and legitimate expectations.
Can a CAAD arbitral tribunal rule on the constitutionality of tax legislation such as Article 236 of Law 83-C/2013?
Yes, CAAD arbitral tribunals have competence to rule on the constitutionality of tax legislation as applied to specific cases, though not to make abstract constitutional declarations. The tribunal explicitly rejected the Tax Authority's preliminary objection, clarifying the scope of arbitral jurisdiction. While the Constitutional Court holds exclusive competence to declare laws unconstitutional in abstract, arbitral tribunals must evaluate whether tax assessments based on potentially unconstitutional norms are legal. This includes analyzing whether specific legislative provisions, when applied to concrete facts, violate constitutional principles such as the prohibition on retroactive taxation. The tribunal can refuse to apply unconstitutional norms in individual cases and annul tax assessments based on them, without formally declaring the law unconstitutional erga omnes.
What are the grounds for annulment of IMT and Stamp Tax assessments on property alienation by FIIAH funds?
The primary ground for annulment is the unconstitutional retroactive application of Article 236 of Law 83-C/2013. When FIIAH funds acquired properties under the previous regime with full IMT and Stamp Tax exemptions, they acquired vested rights protected by constitutional principles of legal certainty and legitimate expectations. The subsequent legislative amendment cannot retroactively withdraw these benefits for transactions completed before the law's enactment. Additional grounds include violation of Article 133 of the Administrative Procedure Code, which renders null and void acts that violate the essential content of fundamental rights. The tribunal may also consider whether the Tax Authority's interpretation that the property received a different purpose than that justifying the exemption is factually and legally sustainable.
How does the principle of non-retroactivity under Article 103(3) of the Portuguese Constitution apply to changes in FIIAH tax benefits?
Article 103(3) of the Portuguese Constitution establishes a fundamental principle that tax laws cannot have retroactive effect. This provision protects taxpayers' legitimate expectations and legal certainty in tax planning. In the FIIAH context, when funds acquired properties in 2013 with statutory tax exemptions, they acquired definitive rights that cannot be retroactively eliminated by subsequent legislation. The principle prohibits not only formal retroactivity (laws applying to past events) but also improper retroactivity (laws that undermine the legal effects of past transactions). Law 83-C/2013's Article 236 creates improper retroactivity by imposing taxes on 2016 sales based on changing the legal consequences of 2013 acquisitions that were exempt. The constitutional protection extends to the entire tax regime applicable when the legal facts generating tax obligations occurred.
What is the procedure for challenging IMT and Stamp Tax liquidations through CAAD tax arbitration in Portugal?
To challenge IMT and Stamp Tax liquidations through CAAD, taxpayers must file a request for arbitral tribunal constitution within the statutory deadline, typically within 90 days of notification or knowledge of the contested act. The request must identify the parties, specify the contested tax acts, state the amount in dispute, and present legal grounds for annulment. Claimants can choose to designate an arbitrator or allow automatic designation by the CAAD President. The process follows the Legal Regime for Tax Arbitration (RJAT), with the tribunal constituted within specific timeframes. Parties may waive the oral hearing and proceed with written submissions. The arbitral tribunal has full jurisdiction to review the legality of tax assessments, including constitutional challenges, and can order annulment and reimbursement with compensatory interest under Article 43 of the General Tax Law (LGT) when taxpayers prevail.