Process: 61/2016-T

Date: July 13, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitral case before CAAD (Administrative Arbitration Center) addresses the constitutional validity of retroactive tax assessments on FIIAH (Real Estate Investment Funds for Residential Rental). The claimant challenged IMT (Property Transfer Tax) and Stamp Tax assessments totaling €30,443.55, arguing that Article 236 of Law 83-C/2013 unconstitutionally revoked previously crystallized tax exemptions. The central legal issue concerns whether tax exemptions granted under the original FIIAH regime became definitive rights when properties entered the fund's assets, or whether they remained conditional on ongoing compliance with residential rental requirements. The claimant asserted that exemptions under Article 8 of the FIIAH Tax Regime definitively vested in their legal sphere without conditions, making subsequent legislative changes imposing a three-year holding period retroactive and unconstitutional under Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The Tax Authority defended the assessments, arguing no retroactivity occurred because properties were always required to be exclusively allocated to permanent housing rental from inception. The TA maintained that Law 83-C/2013 merely clarified pre-existing conditions rather than creating new obligations, and that property alienation demonstrated non-compliance with exemption requirements. This case highlights critical tensions between taxpayer protection of legitimate expectations, constitutional principles of tax non-retroactivity, and administrative authority to interpret and enforce tax benefit conditions. The dispute exemplifies broader issues in Portuguese tax law regarding when tax benefits become acquired rights versus conditional privileges subject to ongoing compliance verification and legislative clarification.

Full Decision

ARBITRAL DECISION

The arbitrator, Henrique Nogueira Nunes, appointed by the Ethics Council of the Administrative Arbitration Center ("CAAD") to form the Arbitral Tribunal, agrees to the following:

1. REPORT

A…– …, S.A., with the tax identification number … (hereinafter abbreviated as "Claimant"), requested the constitution of the Arbitral Tribunal pursuant to Article 2, paragraph 1, subparagraph a) of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT").

The request for arbitral pronouncement concerns the declaration of nullity and illegality of the Property Transfer Tax (IMT) assessment No. …, in the amount of € 26,672.75, as well as the Stamp Tax assessment No. …, in the amount of € 3,770.80.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (hereinafter abbreviated as "TA" or "Respondent") on 19 February 2016, with the aforementioned arbitrator being appointed to the Arbitral Tribunal, who accepted the appointment.

On 05 April 2016, the parties were duly notified of this appointment and expressed no desire to refuse the arbitrator's appointment, pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of RJAT and Articles 6 and 7 of the Ethics Code.

The Arbitral Tribunal was constituted on 20 April 2016.

To support its request, the Claimant alleges, in summary, the following:

(i) The Claimant contends that the assessments in question in these proceedings suffer from illegality due to violation of the provisions of Article 103, paragraph 3, of the Constitution of the Portuguese Republic and should, consequently, be declared null.

(ii) It considers that at the moment when the properties – subject to the assessments – entered the assets of Fund B…, the exemptions from IMT and Stamp Tax provided for, respectively, in paragraphs 7, subparagraph a), and 8 of Article 8 of the Tax Regime for Real Estate Investment Funds for Residential Rental (FIIAH) became definitively crystallized in the tax legal order.

(iii) Therefore, it argues, inasmuch as there were no legal provisions at the moment of recognition of the exemption for any facts or circumstances upon which the lapse of the recognized exemption depended, it is manifest, in its view, that the subsequent imposition of such facts or circumstances on exemptions crystallized in its tax legal order suffers from unconstitutionality due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103, paragraph 3, of the Constitution of the Portuguese Republic.

(iv) It considers that Article 236 (Transitional Provision within the scope of the special regime applicable to FIIAH and SIIAH) of Law No. 83-C/2013, of 31 December (State Budget for 2014), by extending the application of the current Tax Regime for FIIAH "to properties that were acquired by FIIAH before 1 January 2014, counting, in those cases, the three-year period provided for in paragraph 14 from 1 January 2014" is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined.

(v) It also argues for its unconstitutionality, which it contends generates the nullity of the assessments in question in these proceedings.

(vi) Inasmuch as it contends that Article 103, paragraph 3, of the Constitution of the Portuguese Republic provides that "no one can be obliged to pay taxes that have not been created in accordance with the Constitution (...)".

(vii) Considering that the principle of tax non-retroactivity bears the character of a fundamental right, endowed with the legal protection regime of this right, its disregard, in its view, results in the nullity of the Assessments.

(viii) Admitting, subsidiarily, that the defect (illegality) of the assessments may result in their voidability (and not nullity), it argues for the annulment of the assessments in accordance with the provisions of Articles 10, paragraph 1, subparagraph a), of RJAT and Article 102, paragraph 1, subparagraph a) of the Tax Procedure and Process Code.

(ix) It contends, in summary, that as the assessments are based on Article 236 (Transitional Provision within the scope of the special regime applicable to FIIAH and SIIAH) of Law No. 83-C/2013, of 31 December (State Budget for 2014), they suffer from unconstitutionality due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103, paragraph 3, of the Constitution of the Portuguese Republic, and therefore the Respondent should not have assessed the IMT and Stamp Tax corresponding to the assessments as requested by it, and therefore it argues for the nullity of the assessments based on their unconstitutionality, or alternatively, should that not be accepted, for the annulment, for illegality, of the assessments in question in these proceedings.

(x) Considering this, it requests reimbursement of the total amount of tax paid, plus, pursuant to Article 43 of the General Tax Law, any compensatory interest owed until the date of such reimbursement.

(xi) In its Reply to Exceptions, it reinforced the above arguments, attached an Opinion, a copy of a request, and a copy of an arbitral decision.

(xii) Notified by the Arbitral Tribunal to make submissions, if it wished, regarding the dilatory exceptions raised by the Respondent in its Reply to Exceptions, it responded, stating that it merely intends for the Arbitral Tribunal to declare the nullity (or, alternatively, the voidability) of the assessments in question with the ground that they are based on the application of a norm that violates the constitution and the law, arguing for the rejection of the exception raised by the TA, as unproven.

The TA responded, arguing that the request should be judged unfounded, alleging, in summary, as follows:

(i) It defends itself by impugnation, maintaining that it cannot refuse to apply a norm or fail to comply with the law by invoking or questioning its constitutionality, as it is subject to the principle of legality.

(ii) It maintains that the impugned assessments do not infringe the essential content of a fundamental right, and even if any defect were to occur, it should be associated with voidability and not with the declaration of nullity.

(iii) It alleges that in the case of these proceedings, as the impugned assessments are based on the fact that the property was given "a purpose different from that which formed the basis of the benefit," the retroactivity of the legal norm is not at issue, nor is there any injury to its legitimate expectations.

(iv) For it maintains that taxpayers who wished to benefit from the aforementioned exemptions always had, it says, from the beginning of the tax regime applicable to FIIAH, to comply with the requirement that such properties be intended exclusively for rental for permanent housing.

(v) Therefore, it argues that the Claimant is mistaken in its assumption when it asserts that the exemptions in question were not conditioned by any facts or circumstances.

(vi) And that the new wording introduced by Law No. 83-C/2013, of 31 December, in favor of legal certainty and the principle of protection of legitimate expectations, and in the spirit of the legislator when creating the regime, merely clarified the criterion already required.

(vii) It concludes that in light of the alienation of the property, it is clear that the Claimant could, in any event, not benefit from the requested exemption.

(viii) It maintains that from the beginning of the regime, the tax benefits in question in these proceedings always depended on the allocation of properties for rental for permanent housing, and that, once the alienation of the properties occurred, the lapse of the exemption occurred.

(ix) Concluding for the absence in the case of these proceedings of any situation of retroactivity of tax law.

(x) Therefore, it contends that the impugned act should be maintained in the legal order, having been clearly demonstrated, according to it, that the arguments advanced by the Claimant should not proceed.

(xi) Considering that it contends that there is no illegality or unconstitutionality of the assessment acts in question in these proceedings, nor legal ground supporting the Claimant's claim, it argues for the total dismissal of the request, and likewise, for the rejection of the request for compensatory interest filed by the Claimant, inasmuch as it contends that there is no error in its action, much less an error attributable to the services, and thus, according to it, the application of Article 43 of the General Tax Law is excluded.

(xii) In its Reply to Exceptions, it reinforced the above arguments and raised two dilatory exceptions, although connected to each other, the material incompetence of the Arbitral Tribunal and, consequently, the passive illegitimacy of the Respondent.

Given the documentary evidence presented by the parties and considering that the issues to be resolved in these proceedings are merely of law, the Arbitral Tribunal, by order entered in the CAAD procedural system on 13-06-2016 and notified to the parties, deemed it appropriate to waive the meeting of the Arbitral Tribunal provided for in Article 18 of RJAT. The parties were notified to submit successive submissions. The deadline for rendering the arbitral decision was set until 15 July 2016.

Furthermore, by order dated 04-07-2016, the Tribunal determined that the Claimant be notified to make submissions on the matter of exception raised by the Respondent in its submissions, thereby observing the principle of contradiction.

2. SANITATION

The Tribunal is materially competent and is regularly constituted pursuant to the provisions of Articles 2, paragraph 1, subparagraph a), 5, paragraph 2, and 6, paragraph 1, of RJAT.

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

The proceedings do not suffer from nullities and no issues have been raised that prevent the consideration of the merits of the case, beyond the exceptions raised by the TA which will be considered and decided in this decision.

3. FACTUAL MATTER

A) ESTABLISHED FACTS

Based on the facts alleged by the parties and not contested, as well as on the documentation attached to the proceedings, the following relevant facts are established:

A) The Claimant was the owner of the urban property U-…, intended for housing registered in the urban property matrix of the parish of … and…, located in …, …, …, (cf. Document No. 1 attached to the proceedings by the Claimant).

B) The property described in A) above was acquired by the Claimant by deed executed on 13 December 2013, for the amount of € 471,350.00, benefiting from the exemptions from IMT and Stamp Tax contained in, respectively, paragraphs 7, subparagraph a), and 8 of Article 8 of the Tax Regime for FIIAH, which were recognized at the request of the Claimant, pursuant to the provisions of Article 10 of the IMT Code.

C) The Claimant requested from the Tax and Customs Authority an oral request for assessment of IMT and Stamp Tax, requesting its payment, inasmuch as it declared its intention to alienate the property described in A) above. (cf. Article 6 Arbitral Petition and Article 20 of the Claimant's Reply to Exceptions).

D) Such request gave rise to the assessment of IMT Number …, in the amount of € 26,672.75, and the assessment of Stamp Tax Number …, in the amount of € 3,770.80, which the Claimant paid on 14-01-2016 (cf. Documents Nos. 1 and 2 attached to the proceedings by the Claimant).

E) The IMT and Stamp Tax assessments made by the Respondent in question in these proceedings were justified by the fact that the property described in A) above was given a purpose different from rental, and therefore the lapse of the tax benefit initially granted occurred.

F) The property was alienated for purposes other than those related to residential rental in accordance with the operation of FIIAH.

B) UNESTABLISHED FACTS

There are no further facts relevant to the merits decision that have not been established.

C) JUSTIFICATION OF THE DECISION ON FACTUAL MATTER

Regarding the essential facts, the settled matter is conformed in an identical manner by both parties and the Tribunal's conviction was formed based on the documentary elements attached to the proceedings and above identified, whose authenticity and veracity was not questioned by either party.

4. ISSUES TO BE DECIDED

There are two issues that merit consideration and decision:

  1. To rule on the dilatory exceptions raised by the Respondent;

  2. To assess the legality of the IMT and Stamp Tax assessments in question in these proceedings.

5. LAW

In accordance with the issues outlined, which appear in point 4 of this Decision, and taking into account the factual matter established in point 3, it is now necessary to determine the applicable law.

First and foremost, it is necessary to consider the matter of exception raised by the TA in its Reply to Exceptions, relating, as to the substantive matter, to the exception based on the alleged incompetence of the Arbitral Tribunal.

1) Regarding the Incompetence of the Arbitral Tribunal

The Respondent argues that the Tribunal does not have competence to consider abstract judicial review of the legality and constitutionality of Article 236 of Law No. 83-C/2013, of 31 December, insofar as such intention corresponds to the true request of the Claimant, thereby constituting a dilatory exception that prevents the continuation of the proceedings and leads to the dismissal of the instance regarding the claim in question in these proceedings.

It must be said immediately that the Respondent is not correct.

Although the Claimant frames its request for arbitral pronouncement under the claim that the Tribunal assess "whether Article 236 (Transitional Provision within the scope of the Special Regime Applicable to FIIAH and SIIAH) provided for by Law No. 83-C/2013, of 31 December - insofar as it provides for the application of the current Tax Regime for FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, counting, in those cases, the three-year period provided for in paragraph 14 from 1 January 2014" - constitutes a new regime for the lapse of the exemptions provided for in paragraph 7, subparagraph a) and paragraph 8 of Article 8 (Tax Regime) of the Tax Regime for FIIAH, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in Article 103 (Tax System), paragraph 3, of the Constitution of the Portuguese Republic."

The fact is that in the request formulated in the arbitral petition, the Claimant petitions for the nullity (or, alternatively, the voidability) of concrete assessment acts based on the invalidity of the aforementioned norm, that is, the Claimant merely intends for the Arbitral Tribunal to pronounce on the application of the cited norm to the concrete facts submitted to its consideration, assessing the nullity (or, alternatively, the voidability) of the assessments in question in these proceedings on the ground that they are based on the application of a norm that violates the constitution and the law.

This was likewise reinforced in its response to the exception raised by the TA, resulting from notification by the Tribunal, thereby clarifying its claim.

The Tribunal is, to this extent, materially competent, and the exception raised by the Respondent is judged unfounded.

Once the competence of the Arbitral Tribunal has been determined, the exception raised by the Respondent regarding its own passive illegitimacy is consequently groundless.

Proceeding to the matter of impugnation, regarding the issues raised by the Claimant.

2) Regarding the Legality of the IMT and Stamp Tax Assessments in Question in These Proceedings

It should be stated that the issue in question in these proceedings is entirely similar to that decided by this same Arbitral Tribunal in case No. 717/2015-T, in which the herein Claimant was the claimant, and it will naturally follow the decision rendered in that proceedings.

Article 102 (provision inserted in Chapter X, under the heading "Tax Benefits") of Law No. 64-A/2008 of 31 December (State Budget for 2009) approved the special regime applicable to real estate investment funds for residential rental (hereinafter abbreviated as "FIIAH") and real estate investment companies for residential rental ("SIIAH").

According to paragraph 7 of Article 8 of FIIAH, which contains the respective tax regime, the following are exempt from IMT:

"a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing by the investment funds referred to in paragraph 1;

b) The acquisitions of urban properties or of autonomous fractions of urban properties intended for permanent own housing, as a result of the exercise of the purchase option referred to in paragraph 3 of Article 5 by the tenants of the properties forming part of the assets of the investment funds referred to in paragraph 1."

In turn, according to paragraph 8 of Article 8 of FIIAH:

"All acts performed are exempt from stamp tax, provided that they are connected with the transmission of urban properties intended for permanent housing that occurs by virtue of the conversion of the right of ownership of such properties into a rental right over the same, as well as with the exercise of the purchase option provided for in paragraph 3 of Article 5."

Article 235 of Law No. 83-C/2013, of 31 December (State Budget for 2014) came to amend the tax regime of FIIAH by introducing 3 more paragraphs to the aforementioned Article 8:

"14 — For the purposes of the provisions of paragraphs 6 to 8, urban properties are deemed to be intended for rental for permanent housing whenever they are subject to a rental contract for permanent housing within three years from the moment they entered the fund's assets, and the taxpayer must communicate and provide proof to the TA of the respective actual rental within 30 days following the end of said period.

15 — When properties have not been subject to a rental contract within the three-year period provided for in the previous paragraph, the exemptions provided for in paragraphs 6 to 8 cease to have effect, and in that case the taxpayer must request from the TA, within 30 days following the end of said period, the assessment of the respective tax.

16 — If the properties are alienated, except in the cases provided for in Article 5, or if the FIIAH is subject to liquidation, before the period provided for in paragraph 14 has elapsed, the taxpayer must likewise request from the TA, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax owed in accordance with the previous paragraph."

In turn, in Article 236 of this Law there is likewise the following transitional provision:

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

2 - Without prejudice to the provisions of the previous 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 apply to properties that have been acquired by FIIAH before 1 January 2014, counting, in those cases, the three-year period provided for in paragraph 14 from 1 January 2014."

It is against this transitional provision that the Claimant objects in its arbitral request, considering it unconstitutional due to violation of the principle of non-retroactivity of tax law, embodied in Article 103, paragraph 3, of the Constitution of the Portuguese Republic ("CRP"), insofar as, in its view, this constitutes a new regime for the lapse of the exemptions from IMT and stamp tax granted.

Considering.

It results from the established facts that the property in question was acquired by the Claimant benefiting from exemption from IMT and stamp tax[1] under the provisions of subparagraph a) of paragraph 7 of Article 8 of the tax regime of FIIAH.

Such provision requires that the property be intended for rental for permanent housing in order to benefit from such exemption.

That is the ratio legis of the tax benefit granted, that is, the obligation to allocate the property for residential rental is not a requirement of the amendments introduced by Articles 235 and 236 of Law No. 83-C/2013, of 31 December, but rather a requirement of the FIIAH regime itself.

In our view, with all due respect, the Claimant's request suffers from a fundamental error, namely the fact that it seeks to have the IMT and stamp tax assessment acts in question in these proceedings annulled based on the application of a legal norm allegedly unconstitutional - Article 236 of Law No. 83-C/2013, of 31 December – when the same[2] occurred at the request of the Claimant due to the lapse of the tax benefit initially granted, considering that the property in question was alienated, having been given a purpose different from rental[3].

Although the Claimant justified its request for assessment of the taxes in question in these proceedings in an oral request in which it states that it was based on Article 236 of Law No. 83-C/2013, of 31 December, the fact is that this was not the reason or justification that appears in the assessments themselves, as we have already shown, nor does it seem that this is minimally relevant to the case sub judice.

Indeed, it cannot be discerned how such oral request[4], in which by its own exclusive initiative it declares that the assessment is based on a given legal provision, is by itself sufficient to alter the nature of the alienation in question in these proceedings.

The same was based on an established fact and was never denied by the Claimant, namely that the property in question was alienated for purposes other than residential rental in accordance with the operation of FIIAH.

Nor is there any evidence that this alienation was made in favor of the tenant, pursuant to the provisions of Article 5 of the special regime of SIIAH.

What is at issue is rather the alienation of a property assigned to a FIIAH managed by the Claimant, outside the scope of "the acquisitions of urban properties or of autonomous fractions of urban properties intended for permanent own housing as a result of the exercise of the purchase option by the tenants of the properties forming part of the assets of the investment funds" as results from the provisions of Article 8, paragraph 7, subparagraph b), paragraph 8 and Article 5, paragraph 3 of the special regime of FIIAH, which implicitly resulted in the property ceasing to be assigned, by the FIIAH, to the legally foreseen purpose in Article 8, paragraph 7, subparagraph a) and paragraph 8 of that special regime (residential rental).

As was correctly decided in case No. 717/2015-T, the issue to be considered and decided in these proceedings is not that of unconstitutionality of the norm, since it was established in these proceedings that the property to which the impugned assessment acts referred was alienated for purposes different from those for which such tax benefits were initially granted, as the Respondent correctly demonstrates in these proceedings.

The legislator's intention with the tax regime initially established in Article 8 of Law No. 64-A/2008, of 31 December was clear: the grant of a tax benefit in the context of IMT and stamp tax to FIIAH was conditioned on the fact that the acquisitions of urban properties or of autonomous fractions of urban properties were intended for rental for permanent housing by the FIIAH.

In other words, taxpayers who wished to benefit from the aforementioned exemptions always had, from the beginning of the tax regime applicable to FIIAH in 2009, to comply with the legal requirement of exclusive allocation of such properties for rental for permanent housing.

It is the natural consequence of the motivations that led to the creation of a special temporary regime applicable to these Funds, intrinsically linked to the economic crisis that began in 2008 and the consequent increased difficulty of people and families to comply with the payment of installments of loan agreements entered into for the acquisition of permanent own housing, and the legislator thus intended to create a mechanism capable of acting at the level of situations of difficulty and to incentivize rental for permanent own housing.

It is manifest that, from the beginning of the regime already in 2009, the tax benefits in question applicable to FIIAH always depended on the allocation of properties for rental for permanent housing.

The new wording introduced by Law No. 83-C/2013, of 31 December, came, according to the Tribunal's interpretation of the amendment promoted by the legislator and in the spirit of the latter when initially creating the regime, to reinforce this objective, by stipulating a maximum period of three years for such properties to be effectively rented by the FIIAH.

Article 235 of Law No. 83-C/2013, of 31 December (State Budget for 2014) certainly came to establish new requirements for the exemption, by establishing a three-year period following the entry of the property into the Fund for the rental of the acquired property to be realized, and likewise, should the liquidation of the fund occur before that period had elapsed, in which case the acquirer would have to request the assessment of IMT and stamp tax that had not been assessed at the time of acquisition.

However, this was not the reason for which the Claimant proceeded to request the assessments of the taxes in question in these proceedings, which clearly results from the factual matter established as proven in these proceedings, despite the effort made by the latter to demonstrate another factual reality.

The IMT and stamp tax assessments made with regard to the property in question in these proceedings were not based on its retention in the fund for a period equal to or greater than 3 years without residential rental having taken place.

The assessments in question, as moreover results from the assessments themselves, were based on the fact that the property was given "a purpose different from rental, thereby resulting in the lapse of the benefit."

The legislative intervention advocated by the legislator in the context of the State Budget for 2014 was, in our view, in the direction of reinforcing the regime applicable to properties that were acquired with the aim of being allocated to residential rental, by determining a maximum period of 3 years for such rental to be realized, under penalty of, should this not occur, potentially abusive situations of acquisition of properties that remain in portfolio with exclusive allocation to residential rental without such ever occurring could subsist.

It is important to recall that the grant of tax benefits constitutes an exceptional measure instituted for the protection of relevant extra-fiscal public interests that are superior to those of taxation itself which they prevent.

It would, it is easily seen, be completely in dissonance with the legislator's purpose if properties acquired with tax benefits under this special regime could be freely alienated without ever having been rented, without this implying the lapse of the tax benefits initially granted.

Thus, the Tribunal disagrees with the position expressed by the Claimant and by the distinguished legal experts consulted by it when, in the Opinion attached to the proceedings at pages 23 and 24, they argue: "according to the 2008 law, a property could be acquired for residential rental, benefiting from exemptions, but then be alienated due to unforeseeable reasons, such as crisis, etc."

And that, "It is not, therefore, also appropriate to make a distinction between the hypotheses of retention of the property in the FIIAH's assets without rental, on the one hand, and of alienation within the period without rental, on the other. (...) the provision of "lapse" of exemptions in case of alienation within three years is also new, it did not exist before. According to the 2008 law, with respect to acquisitions of properties intended for residential rental by FIIAH - which had to hold at least 75% of its assets in properties intended for such rental - this was sufficient for the exemptions, and it was not provided that the exemption would "lapse" should there be alienation within three years."

With all due respect to the distinguished legal experts, the Tribunal cannot agree with this position, because, it is easy to conclude, it would lead to situations of manifest abuse of right in which properties would be acquired with exemption from IMT and stamp tax with the aim of being allocated to residential rental, and at a later moment and without ever having complied with their purpose, be alienated for other purposes, maintaining the tax benefits initially granted.

That was certainly not the legislator's intention, as has been said.

The consequence of the property being given another purpose is that the exemption initially granted could not have been granted, and legality must be restored by assessing the taxes that, were it not for the declaration of intention made at the time of acquisition to allocate them to residential rental, would always have had to be assessed.

Thus, we consider that the issue is not whether the norm provided for in Article 236 of Law No. 83-C/2013, of 31 December is retroactive or not, which would be the case if, by way of example, the property appeared for a period of 3 years in the FIIAH's assets without yet having been subject to a rental contract for permanent housing and, for that reason, there was assessment of IMT and stamp tax.

However, in the case of these proceedings, those are not the facts determined.

The property in question was alienated without having fulfilled its purpose - allocation to permanent residential rental. It is not, therefore, a matter of term; alienated as it is, that purpose can no longer be fulfilled, and therefore the requirement initially established in the FIIAH special regime was not met for the exemption from IMT and stamp tax to be applicable to it.

We note that the right to tax benefits must be reported to the date of verification of the respective requirements, as provided for in Article 12 of the Tax Benefits Statute ("EBF").

The fact that the Claimant proceeded to alienate the property which, when acquiring, it declared it would allocate to the purpose that permitted it to be recognized – as it was – the exemption from IMT and stamp tax, would always determine, even if added paragraph 16 of Article 8 of FIIAH did not expressly provide for it, the lapse of such exemptions, by virtue of the application of the provisions of Article 12 and paragraph 3 of Article 14 of the EBF (former paragraph 12, 3, in the wording of the EBF that was in effect prior to the republication thereof by Decree-Law No. 108/2008, of 26/06), according to which: "When the tax benefit relates to the acquisition of goods intended for the direct realization of the acquirers' purposes, it ceases to have effect if such goods are alienated or given another purpose without authorization from the Minister of Finance, without prejudice to other sanctions or different regimes established by law."

The Claimant never demonstrated at any moment that it had obtained the authorization provided for therein, or any other circumstance that would prevent the granted exemptions from ceasing to have effect as a consequence of said alienation.

It is for this reason that, as we have already stated above, we consider that the issue of the alleged unconstitutionality of the norm provided for in Article 236 of Law No. 83-C/2013, of 31 December does not arise in the case under consideration, insofar as, in the part corresponding to the alienation of the property, paragraph 16 of Article 8 of the Tax Regime of FIIAH merely reiterates what already resulted from the provisions of the EBF.

Which, moreover, is easily understood, given the ratio legis of the grant of these tax benefits in concreto, as we have been explaining throughout this decision.

In summary, the Tribunal considers that the alienation of the property in question in these proceedings would always result in the lapse of the exemption by virtue of the application of the provisions of paragraph 3 of Article 14 of the EBF, and therefore the issue is not that of the retroactive application of a norm that introduces a new regime for the lapse of exemptions, nor is there any evidence that there has been a violation of rights or legitimate acquired expectations by the Claimant, and therefore we conclude for the maintenance of the assessments in question in these proceedings as legal.

Thus, the analysis of the issue raised by the Claimant regarding the alleged retroactivity of Article 236 of Law No. 83-C/2013, of 31 December (State Budget for 2014) which amended the tax regime of FIIAH is rendered moot, because, as has been amply demonstrated above, the requirements that guided the issuance of the tax assessments in question in these proceedings are in no way related to the amendment to the tax regime of FIIAH introduced in 2014.

Having the Tribunal decided in favor of the legality of the assessments in question, the consideration of the request for compensatory interest filed by the Claimant is likewise rendered moot.

6. DECISION

In view of the foregoing, this Arbitral Tribunal agrees to:

  • Judge the request for arbitral pronouncement to be entirely unfounded.

The value of the case is set at Euro 30,443.55, in accordance with the provisions of Articles 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subparagraph a) of CPPT and 306 of the CPC.

The amount of costs, in the value of Euro 1,836.00, pursuant to the provisions of Article 22, paragraph 4 of RJAT and Table I attached to RCPAT, shall be borne exclusively by the Claimant, in accordance with the provisions of Articles 12, paragraph 2 of RJAT and 4, paragraph 4 of RCPAT.

Notice is hereby given.

Lisbon, 13 July 2016.

The Arbitrator,

Dr. Henrique Nogueira Nunes

Document prepared by computer in accordance with Article 131, paragraph 5 of the CPC, applicable by remission of Article 29, paragraph 1, subparagraph e) of Decree-Law No. 10/2011, of 20 January, with blank lines and revised. The wording of this arbitral decision is governed by the orthography prior to the 1990 Orthographic Agreement.

[1] Although the assessment of IMT and stamp tax in question in these proceedings bases the original exemption in accordance with the provisions of Article 7, paragraph 7, subparagraph a), this is due to a lapse, since the applicable provisions are, respectively, Article 8, paragraph 7, subparagraph a), and Article 8, paragraph 8 of FIIAH.

[2] The assessments.

[3] This is likewise described in the assessments in question in these proceedings.

[4] Written, in most cases that the Claimant had identical to those of the proceedings according to it alleges, having attached an example.

Frequently Asked Questions

Automatically Created

Can the Portuguese Tax Authority retroactively revoke IMT and Stamp Tax exemptions granted to FIIAH real estate investment funds?
The Portuguese Tax Authority's ability to retroactively revoke IMT and Stamp Tax exemptions granted to FIIAH funds depends on constitutional limits established in Article 103(3) of the Portuguese Constitution. According to the claimant's arguments, once properties entered FIIAH fund assets under the original regime, exemptions became definitively crystallized rights that cannot be retroactively conditioned or revoked. However, the Tax Authority maintains that exemptions were always conditional on allocating properties exclusively to permanent housing rental, meaning enforcement does not constitute retroactive application but rather verification of pre-existing conditions. The key legal question is whether Article 236 of Law 83-C/2013, which applied new three-year holding requirements to properties acquired before January 1, 2014, violates constitutional prohibitions against retroactive taxation.
Does Article 236 of Law 83-C/2013 violate the constitutional principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
Article 236 of Law 83-C/2013 faces constitutional challenge under Article 103(3) of the Portuguese Constitution, which enshrines the principle of non-retroactivity of tax law as a fundamental right. The claimant argues this provision unconstitutionally imposes new conditions on previously granted exemptions by extending current FIIAH tax regime requirements to properties acquired before January 1, 2014, and counting the mandatory three-year period from that date rather than the original acquisition date. This allegedly violates taxpayer legitimate expectations and the prohibition against retroactive taxation. Conversely, the Tax Authority contends no constitutional violation occurred because the provision merely clarified pre-existing requirements that properties be used exclusively for permanent housing rental, promoting legal certainty rather than creating new obligations. The constitutional analysis hinges on whether exemptions constituted acquired rights or conditional benefits subject to ongoing compliance.
What are the tax exemption conditions for properties acquired by FIIAH funds before January 1, 2014?
For properties acquired by FIIAH funds before January 1, 2014, tax exemption conditions became subject to transitional rules under Article 236 of Law 83-C/2013. This provision extended the current FIIAH tax regime to pre-2014 acquisitions, requiring that the three-year holding period mandated under paragraph 14 of Article 8 be counted from January 1, 2014, regardless of actual acquisition date. The underlying requirement remained that properties must be allocated exclusively to permanent housing rental purposes. According to the Tax Authority's interpretation, this allocation requirement existed from the regime's inception, making it an original condition rather than a new imposition. Properties given purposes different from those forming the basis of the tax benefit would lose exemption eligibility. The dispute centers on whether these conditions represent clarification of original requirements or impermissible retroactive conditioning of vested exemption rights.
How does the CAAD arbitral tribunal handle disputes over IMT and Stamp Tax liquidations involving real estate investment funds?
CAAD arbitral tribunals handle IMT and Stamp Tax disputes involving real estate investment funds through proceedings established under the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). The process begins with a request for arbitral pronouncement challenging specific tax assessments. After acceptance by CAAD's President, an arbitrator is appointed, and parties may exercise refusal rights. The tribunal is formally constituted once appointment procedures conclude. Parties submit written arguments - the claimant presents the request, and the Tax Authority files a reply, potentially raising dilatory exceptions regarding jurisdiction, passive legitimacy, or procedural requirements. The tribunal may request additional submissions on preliminary issues before addressing substantive claims. Disputes may involve constitutional challenges, requiring analysis of whether assessments violate fundamental rights or constitutional principles. The tribunal has jurisdiction under Article 2(1)(a) of RJAT to declare nullity or illegality of tax acts, including on constitutional grounds, and may order reimbursement with compensatory interest when assessments are invalidated.
What legal remedies are available to challenge unconstitutional tax assessments on FIIAH fund property acquisitions in Portugal?
Legal remedies available to challenge unconstitutional tax assessments on FIIAH fund property acquisitions include: (1) Requesting arbitral tribunal constitution under RJAT to declare assessment nullity based on unconstitutionality violating fundamental rights under Article 103(3) of the Constitution, which may result in automatic nullity under the principle that unconstitutional norms cannot impose tax obligations; (2) Alternatively arguing for assessment annulment due to illegality under Articles 10(1)(a) of RJAT and 102(1)(a) of the Tax Procedure and Process Code if the defect constitutes voidability rather than nullity; (3) Seeking reimbursement of taxes paid plus compensatory interest calculated under Article 43 of the General Tax Law until actual reimbursement; (4) Submitting expert legal opinions and precedent arbitral decisions supporting constitutional arguments; (5) Challenging the Tax Authority's passive legitimacy or the tribunal's jurisdiction through preliminary exceptions; and (6) Invoking protection of legitimate expectations and the principle that tax benefits, once granted without conditions, become acquired rights immune from retroactive legislative modification that would impose new obligations or extinguish vested exemptions.