Process: 616/2016-T

Date: June 30, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD Process 616/2016-T addressed the controversial tax treatment of Real Estate Investment Funds for Residential Rental (FIIAH) under transitional provisions of Law 83-C/2013. The Tax Authority issued IMT and Stamp Tax collection notices totaling €1,633.77 for properties acquired by a FIIAH fund before 2014, arguing that Article 236 of Law 83-C/2013 retroactively imposed a three-year rental requirement. The fund manager challenged these collections on constitutional grounds, asserting violation of the non-retroactivity principle under Article 103(3) of the Portuguese Constitution. The claimant argued that IMT and IS exemptions under Article 8(7) and 8(8) of the FIIAH regime became definitively established when properties entered the fund's assets, and subsequent imposition of rental conditions constituted unlawful retroactive taxation. The Tax Authority raised procedural objections, claiming the arbitral tribunal lacked competence to assess constitutionality (reserved to the Constitutional Court) and asserting passive illegitimacy since it was legally bound to apply validly enacted legislation. The case centers on whether Article 236's transitional provision, which extended the new three-year rental requirement to pre-2014 acquisitions counting from January 1, 2014, unconstitutionally altered vested tax exemptions. This decision has significant implications for FIIAH fund structuring, tax planning for residential rental investment vehicles, and the temporal application of tax regime amendments to previously granted exemptions.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. On 14 October 2016, the company "A…, S.A.", with registered office at …, n.º…, …-… Lisbon, registered at the Commercial Registry Office under the sole registration and tax identification number…, in its capacity as manager of the Real Estate Investment Fund "B…– Closed Real Estate Investment Fund for Residential Rental", registered with the Securities and Exchange Commission, with tax identification number… (hereinafter referred to as the "Claimant"), submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal in order to obtain an arbitral decision, in accordance with the provisions of articles 2, no. 1, paragraph a), 3, no. 1 and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), following the tax collection acts for Municipal Tax on Onerous Transmission of Real Property (IMT) and Stamp Tax (IS), dated 27 July 2016, by virtue of no. 16 of article 8 of the Special Regime applicable to Real Estate Investment Funds for Residential Rental (FIIAH) and Real Estate Investment Companies for Residential Rental (SIIAH), approved by articles 102 to 104 of Law 64-A/2008, of 31 December, amended by article 235 of Law 83-C, of 31 December, in the amount of €907.65 (nine hundred and seven euros and sixty-five cents) and €726.12 (seven hundred and twenty-six euros and twelve cents), respectively.

  2. In the request for arbitral decision, the Claimant opted not to appoint an arbitrator.

  3. In accordance with no. 1 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as sole arbitrator, who accepted the position within the legally stipulated period.

  4. The arbitral tribunal was constituted on 30 December 2016.

  5. On 3 February 2017, the Respondent, duly notified for this purpose, submitted a response.

  6. The Respondent requested exemption from the meeting provided for in article 18 of the RJAT, as well as the submission of pleadings, provided that the Claimant had no interest therein and the Tribunal did not consider them necessary. The Tribunal, considering the reasons of procedural economy and celerity and the prohibition of performing useless acts, deemed it appropriate to dispense with the meeting referred to in article 18 of the RJAT and the submission of pleadings, with no opposition from either party.

  7. The position of the Claimant, expressed in the request for arbitral decision, is, in summary, as follows:

7.1. The collection acts subject to the present arbitral decision are tainted by defect of error regarding legal presuppositions, error regarding factual presuppositions and defect of violation of law.

7.2. Law no. 64-A/2008, of 31 December, approved the special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental.

7.3. In its article 8, the tax regime applicable to FIIAH, more specifically its no. 14, added by Law no. 83-C/2013, of 31 December, the meaning of the expression "urban properties intended for rental for permanent residence" was established for the first time.

7.4. Thus, for purposes of the Tax Regime of FIIAH, namely regarding the recognition of the exemptions provided for in nos. 6 to 8 of article 8, it is considered that urban properties are intended for rental for permanent residence whenever they are the subject of a rental contract for permanent residence within three years from the moment they became part of the fund's assets.

7.5. In fact, if the properties that are part of the assets of FIIAH have not been subject to a rental contract within three years from the date of their entry into the fund's assets, the taxable person must request from the Tax and Customs Authority (AT) the collection of the respective tax within thirty days following the end of said period. When the properties are transferred by the FIIAH or the FIIAH itself is liquidated, also before the expiration of the three-year period from the date of entry of the relevant properties into the assets of FIIAH, the collection of the respective tax must also be requested.

7.6. Nevertheless, 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, extended the application of the tax regime of FIIAH to properties that have been acquired by them before 1 January 2014, with the three-year period being counted from 1 January 2014 in such cases. For this reason, a request was made to the AT for the collection of IMT and IS for tax collection acts in light of the amendments introduced to the Tax Regime of FIIAH.

7.7. However, such IMT and IS collections are unlawful due to violation of the provisions of article 103, no. 3 of the Constitution of the Portuguese Republic, since, for purposes of IMT and IS, the acquisition of ownership of the relevant properties by Fund B…was not conditioned upon the subsequent verification of any facts or circumstances, nor was it subject to any lapse regime. At the moment when the properties – subject to the Collections – entered the assets of Fund B…, the exemptions from IMT and IS provided for, respectively, in numbers 7, paragraph a), and 8 of article 8 of the Tax Regime of FIIAH, became definitively established in the tax-legal order.

7.8. Therefore, not being legally provided for, at the moment of recognition of the exemption, any facts or circumstances upon which the lapse of the recognized exemption depended, it is manifest that the subsequent imposition of such facts or circumstances to exemptions established in the tax-legal order of the Claimant is unconstitutional, by violation of the principle of non-retroactivity of tax law, enshrined in article 103, no. 3, of the Constitution of the Portuguese Republic.

7.9. There is the further fact that the Transitional Provision within the scope of the special regime applicable to FIIAH and SIIAH (article 236 of Law no. 83-C/2013, of 31 December), in extending the application of the current Tax Regime of FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided for in no. 14 being counted from 1 January 2014" – is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined.

7.10. For all the foregoing, the IMT and IS collections, referring to the year 2016, should be null and void on the basis of their unconstitutionality, with all legal consequences.

  1. The position of the Respondent expressed in the response is, in brief summary, as follows:

8.1. Regardless of the defect that may be considered attributable to the said collections, the Arbitral Tribunal has no competence to appreciate the constitutionality of the norm in question, as petitioned, since it is a matter constitutionally reserved to the Constitutional Court, in accordance with paragraph a) of no. 2 of article 281 of the CRP, thus verifying an exception of dilatory material incompetence.

8.2. Furthermore, the claim raised by the Claimant conflicts with the powers of the Respondent and its binding to law and the Constitution, insofar as the appreciation by the now Impugned party regarding illegality/unconstitutionality, which is invoked, would imply clear and objective violation of legal provisions and violation of the Constitution itself, since it is a normative act emanated from the Assembly of the Republic in the typical form of a legislative act. Therefore, the Tribunal should always declare the dismissal of the Respondent from the proceedings, given the exception of dilatory passive illegitimacy.

8.3. Nevertheless, the Respondent, being subject to law and law, its organs and agents must be the first to comply with it. Since it could not/cannot refuse the application of a norm or fail to comply with the law by invoking or questioning its constitutionality, as it is subject to the principle of legality, as established in articles 266, no. 2 of the CRP, 3, no. 1 of the CPA and 55 of the LGT.

8.4. On the other hand, with respect to the property in question, which was part of the Fund at the date of entry into force of Law no. 83-C/2013, of 31 December, the Claimant requested from the AT the collections of IMT and Stamp Tax, in light of the amendments introduced to the tax regime of FIIAH, insofar as in 2016 it transferred it to third parties, thus giving it a destination different from that which was supposed: residential rental.

8.5. For this reason, the retroactivity of the legal provision of article 8 of the Tax Regime of FIIAH, as amended by Law no. 83-C/2013, of 31 December, and of article 236, no. 2 of the same law, is not in question, nor is there any violation of its expectations.

8.6. Since the creation of the tax regime applicable to FIIAH, with Law no. 64-A/2008, of 31 December, the exemptions in question, both for IMT and Stamp Tax, required, respectively: (i) that the acquisition of the properties was intended exclusively for "rental for permanent residence" and, (ii) that the transmission had as its object "properties intended for permanent residence that occurs due to the conversion of the right of ownership of such properties into a rental right over them, as well as with the exercise of the purchase option provided for in no. 3 of article 5".

8.7. In fact, taxable persons who wished to benefit from said exemptions always had, since the beginning of the tax regime applicable to FIIAH, to comply with the presupposition that such properties were intended exclusively for rental for permanent residence.

8.8. In any case, given the transfer of the property in 2016, it is unequivocal that the Claimant could not, in any manner, benefit from the requested exemption.

8.9. Therefore, since there is a transfer of the property without its being allocated to rental for permanent residence, this would always determine the lapse of the exemption, under article 14, no. 2 of the EBF.

8.10. Article 8, no. 16 of the regime merely served to implement an anti-abuse measure, establishing that properties that do not remain in the portfolio with exclusive allocation to residential rental, were not acquired for such purpose. Further limiting such lapse to a period defined in law as opposed to what occurred previously, due to the application of the EBF. In fact, one cannot conclude that there is a circumstance of retroactivity since the new law did not simply determine, and no more, that properties previously acquired would be subject to taxation for purposes of IMT and Stamp Tax.

8.11. In this sequence, the Respondent concludes by the total dismissal of the request for arbitral decision filed, with it being evident the legal conformity of the act subject to these proceedings.

  1. To the exceptions of incompetence of the Tribunal and illegitimacy invoked by the AT, the Claimant understands that those, in a pronouncement sent on 2 March 2017, in compliance with the order dated 1 March 2017, are based on an incorrect interpretation of the request for arbitral decision presented. The Claimant intends for the Arbitral Tribunal to declare the nullity (or, subsidiarily, the voidability) of the collections challenged with the ground that they are based on the application of a norm that violates the constitution and the law, namely the principle of non-retroactivity of tax law, enshrined in article 103, no. 3 of the CRP. In fact, the objective of the Claimant is to prevent an unconstitutional norm from being applied to it, as set forth in article 204 of the CRP.

II – ISSUE TO BE DECIDED

  1. In light of what has been set out in the preceding numbers, the main issue to be decided is the following:

− Are the tax collection acts for Municipal Tax on Onerous Transmissions of Real Property and Stamp Tax, referring to the year 2016, effected under article 8 of the Tax Regime of FIIAH, as amended by Law no. 83-C/2013, of 31 December, and article 236, no. 2 of the same Law, in the total amount of €1,633.77 (one thousand, six hundred and thirty-three euros and seventy-seven cents), issued by the Tax and Customs Authority, illegal.

III – CASE MANAGEMENT

  1. The Tribunal is regularly constituted and is materially competent, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1 of the RJAT.

The request for arbitral decision is timely, in accordance with no. 1 of article 10 of the RJAT.

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

Having regard to the appreciation of the same factual circumstances and the interpretation and application of the same legal principles and rules, the cumulation of claims here in question is admissible, in accordance with article 3, no. 1 of the RJAT.

The proceedings do not suffer from defects that would render it invalid.

All things considered, it is necessary to render a decision.

IV – FACTUAL FINDINGS

  1. Having regard to the tax administrative proceedings and the documentary evidence attached to the file, it is now necessary to present the factual matter relevant to the understanding of the decision, which is established as follows:

The Claimant established B…- Closed Real Estate Investment Fund for Residential Rental (cf. fact alleged by the Respondent and not contradicted by the Claimant).

On 21.06.2012, "B…– Closed Real Estate Investment Fund for Residential Rental" acquired the urban property registered in the respective property register under article …, fraction "AV", having benefited from the exemption from IMT and Stamp Tax under the provisions of paragraph a) of no. 7 and no. 8 of article 8 of the legal regime of FIIAH (cf. fact alleged by the Respondent as well as by the Claimant in its initial petition).

On 27.07.2016, IMT assessment notices no.…, in the amount of €907.65 (nine hundred and seven euros and sixty-five cents), and Stamp Tax assessment notices no.…, in the amount of €726.12 (seven hundred and twenty-six euros and twelve cents) were issued (cf. Doc. no. 1 annexed to the Arbitration Petition).

The description of the tax fact of the aforementioned collections states:

"The taxable person requests the collection of IMT, in accordance with no. 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 31/12, as worded by article 235 of Law no. 83-C/2013, of 31/12, applicable by virtue of article 236 of Law no. 83-C, of 31/12, relating to fraction AV, of article… of the parish of… (extinct), Initial IMT 2012/…, with benefit Code 92 FIIAH/SIIAH (article 87 of OE/09), for the price of €90,765.00." (cf. Doc. no. 1 annexed to the Arbitration Petition).

The previous article number of the property register U-… belonging to the extinct parish of …, corresponding to the property identified in B), gave rise to property register article U-…, belonging to the current parish of… and… (cf. Doc. no. 1 annexed to the Response).

In July 2016, the property identified in B) was transferred by the Fund (cf. fact alleged by the Respondent and not contradicted by the Claimant).

On 28.07.2016, the Fund proceeded to pay the total amount of €1,633.77 (one thousand, six hundred and thirty-three euros and seventy-seven cents), as payment for the collection of IMT and Stamp Tax (cf. Doc. no. 2 annexed to the Arbitration Petition).

  1. The facts listed in the preceding number constitute uncontested matter and are documentarily demonstrated in the file.

  2. There are no facts given as unproven, because all relevant facts for the appreciation of the claim were given as proven.

V – LEGAL GROUNDS

  1. We will now determine the applicable law to the underlying facts, in accordance with the issue already stated (see, supra no. 10).

  2. In order to appropriately respond to the issue posed to us, we understand it pertinent to analyze, first, the special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH) approved through article 102 of Law no. 64-A/2008, of 31.12 (LOE2009), with the objective of, following the economic crisis triggered in 2008, assisting various entities with difficulties in meeting commitments assumed before financial and credit institutions.

  3. Thus, and in this sequence, the special regime of FIIAH was introduced into the Portuguese legal system, with article 104 of LOE2009 providing as follows:

"1 - The constitution and operation of FIIAH, as well as the marketing of the respective investment units, are governed by the provisions of the Legal Regime of Real Estate Investment Funds, approved by Decree-Law no. 60/2002, of 20 March, amended by Decree-Laws nos. 252/2003, of 17 October, 13/2005, of 7 January, and 357-A/2007, of 31 October, and subsidiarily, by the provisions of the Securities Code, approved by Decree-Law no. 486/99, of 13 November, amended by Decree-Laws nos. 61/2002, of 20 March, 38/2003, of 8 March, 107/2003, of 4 June, 183/2003, of 19 August, 66/2004, of 24 March, 52/2006, of 15 March, 219/2006, of 2 November, and 357-A/2007, of 31 October, with the specificities contained in the following articles" (bold and underlined in the original)

  1. In fact, from the range of specificities provided for in the regime, it is relevant to highlight only those which, with interest for the present proceedings, are enshrined in nos. 7 and 8 of article 8 of the regime, and according to which:

"7 - The following are exempt from IMT:

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

b) Acquisitions of urban properties or of autonomous fractions of urban properties intended for permanent own residence, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the lessees of properties that are part of the assets of the investment funds referred to in no. 1.

8 - The following are exempt from stamp tax all acts performed, provided they are related to the transmission of urban properties intended for permanent residence that occur due to the conversion of the right of ownership of such properties into a rental right over them, as well as with the exercise of the purchase option provided for in no. 3 of article 5."

  1. However, and in accordance with the legislative evolution on the matter of exemptions that FIIAH and SIIAH could benefit from, Law no. 83-C/2013, of 31.12, in its article 235 proceeded to add nos. 14 to 16 of article 8, now providing as follows:

"14 - For purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residence whenever they are the subject of a rental contract for permanent residence within three years from the moment they became part of the fund's assets, with the taxable person being required to communicate and provide proof to the AT of the respective effective rental, within 30 days following the end of said period.

15 - When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, in which case the taxable person must request from the AT, within 30 days following the end of said period, the collection of the respective tax.

16 - If the properties are transferred, with the exception of the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the expiration of the period provided for in no. 14, the taxable person must likewise request from the AT, prior to the transfer of the property or the liquidation of the FIIAH, the collection of the tax due in accordance with the previous number."

  1. Such additions, subordinated to and dependent on the transitional provision provided for by article 236 of Law no. 83-C/2013, of 31.12, within the scope of the special regime applicable to FIIAH and SIIAH, which provided as follows:

"1 - The provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are applicable to properties that have been acquired by FIIAH from 1 January 2014.

2 - Without prejudice to the provisions of the previous number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided for in no. 14 being counted from 1 January 2014 in such cases."

  1. Now, having set out this chronology and the historical evolution of the special regime of FIIAH, we shall proceed to the interpretation of the norms in question, relying on the general principles that guide this task, in conformity with article 9 of the Civil Code (CC) applicable by virtue of article 11 of the General Tax Law (LGT), according to which the interpretation of tax law must be carried out in accordance with the general principles of interpretation.

  2. Thus, in respect of the general rules of interpretation, we can observe that the exemptions from IMT and Stamp Tax, provided for in nos. 7 and 8 of article 8 of the legal regime of FIIAH and SIIAH, take place only when the following presuppositions are met:

As regards IMT:

a) Acquisitions of urban properties or of autonomous fractions of urban properties, by the investment funds referred to in no. 1 of article 8 of the regime;

b) intended exclusively for rental for permanent residence,

And/or

a) Acquisitions of urban properties or of autonomous fractions of urban properties;

b) intended for permanent own residence;

c) as a result of the exercise of the purchase option for the property by the lessees of properties that are part of the assets of the investment funds, capable of being exercised up to 31 December 2020.

In fact, and as is relevant to us here, paragraph a) of no. 7 of article 8 of the special regime requires that the property in question be intended for rental for permanent residence in order to be able to benefit from the provision therein.

As regards the exemption from Stamp Tax:

a) All acts performed by FIIAH;

b) Related to the transmission of urban properties intended for permanent residence that:

i) Occur due to the conversion of the right of ownership of such properties into a rental right over them;

ii) OR, occur due to the exercise of the purchase option by the lessee up to 31.12.2020.

  1. This means that the Claimant, as a FIIAH, has the right to the fiscal benefit in question – exemption from IMT and Stamp Tax - provided that it complies with the legal conditions established for its attribution.

  2. I.e., the exemption from IMT and Stamp Tax in question is influenced by and dependent on the facts and circumstances in light of which it is granted, resulting from the provision and normative establishment of article 8, nos. 7 and 8 of the Regime of FIIAH.

  3. However, and since it is a fiscal benefit, it is necessary to bring to bear the provision of no. 2 of article 14 of the General Tax Law (LGT) according to which:

"The holders of fiscal benefits of any nature are always obligated to reveal or to authorize the revelation to the tax administration of the presuppositions of their grant, or to comply with other obligations provided for in law or in the instrument of recognition of the benefit, in particular those relating to taxes on income, expenditure or patrimony, or to the norms of the social security system, under penalty of the said benefits ceasing to have effect."

  1. In fact, and in conformity with this legal provision, also applicable to the legal regime of FIIAH, in question here, the fiscal benefit provided for in nos. 7 and 8 of article 8 of the special regime of FIIAH – exemption from IMT and Stamp Tax – in order to be applicable at the date of its attribution, it was necessary that the interested party, here the Claimant, reveal to the Tax Authority the presuppositions of its grant, as regards the exemption from IMT and Stamp Tax, namely, and here specifically, that:

As regards IMT:

a) The acquisition of the fraction designated by the letter "AV" of the urban property registered in the respective property register under article… of the current parish of… and…, was intended exclusively for rental for permanent residence.

It should be noted that the obligation to allocate the fraction here in question to residential rental is not a requirement that was added or introduced by the amendments carried out by the LOE2014, it is in fact, "a requirement of the fiscal regime of FIIAH ab initio, indeed a natural consequence of the motivations that led to the creation of these funds. The State Budget for 2014 indeed comes to establish a new requirement for the exemption: if allocation to rental for permanent residence does not occur within the period of 3 years after the property enters the fund, the fund must request the collection of the IMT that was not collected ab initio. (…) it is not enough to have a declared intention at the time of acquisition of the property, but an effective allocation to rental for permanent residence." (Decision of the CAAD handed down in proceeding no. 398/2015-T).

As regards the exemption from Stamp Tax:

The transmission of urban properties intended for permanent residence occurred due to the conversion of the right of ownership of such properties into a rental right over them, or due to the exercise of the purchase option by the lessee up to 31.12.2020.

  1. Now, it appears in B) of the facts given as proven that "On 21.06.2012, "B…– Closed Real Estate Investment Fund for Residential Rental" acquired the urban property registered in the respective property register under article…, fraction "AV", having benefited from the exemption from IMT and Stamp Tax under the provisions of paragraph a) of no. 7 and no. 8 of article 8 of the legal regime of FIIAH.", which means that (apparently) the Claimant, on 21.06.2012, met the necessary and sufficient presuppositions for the exemption from IMT and Stamp Tax provided for in the regime to be recognized.

  2. In this sequence and returning to paragraph a) of no. 7 of article 8 of the Special Regime, it is important to note, agreeing with some arbitral decisions which we transcribe here, that "with respect to the same normative framework, when this refers to the cited provision – i.e., paragraph a) of no. 7 of article 8 of the Special Regime – it already presupposed that the property be intended for rental for permanent residence to be able to benefit from such exemption. Therefore, we also subscribe to the view that "the obligation to allocate the property to residential rental is not a requirement of the amendments introduced by the State Budget for 2014, but rather a requirement of the fiscal regime of FIIAH ab initio, indeed a natural consequence of the motivations that led to the creation of these funds" (Decision of the CAAD in proceeding no. 710/2015-T).

  3. The truth is that the identified conditionalities, as already mentioned, were, ab initio, present in the regime – See no. 8 of article 8 of the special regime - not having undergone any modification with the amendments introduced by the LOE 2014, contrary to what is argued by the Claimant, when it states that: "the exemptions from IMT and Stamp Tax were not, at the time they entered the assets of Fund B…, conditioned upon the subsequent verification of any facts or circumstances, nor were they subject to any lapse regime."

  4. As is further stated in the Decision of the CAAD above referenced [proc. 710/2015-T], regarding this matter "the fiscal benefit in question is not of a subjective or contractual nature, and was dependent on a condition – allocation to residential rental. Furthermore, fiscal benefits are not, as is known and as a rule, permanent and even less immutable. There are in fact several ways to extinguish them such as their express revocation, the suppression of the tax to which the benefit relates or the passage of the normative periods provided for the validity of the 'beneficial' norms with the consequent lapse of benefits. The Tax Benefits Status itself currently enshrines, a general regime of extinction of fiscal benefits provided for in its article 14 and which includes, in particular, express reference to cases of fiscal benefits relating to acquisition of goods intended for the direct realization of the purposes of the acquirers (see no. 3). It happens that none of this occurred in this case with the entry into force of the State Budget Law for 2014, since this limited itself to introducing a densifying element of the concept 'allocation to rental for permanent residence'. In this regard, one must even say that it always seemed to us incomprehensible that the reference to 'allocation to rental' did not contain, in the initial regime (i.e., in the wording of the State Budget Law for 2009) any densification. What type of allocation did the tax law intend (e.g., merely accounting)?"

  5. Continuing, that same decision alluding, regarding facts in all respects similar to those of the present proceedings, that: "That said, it is difficult to demonstrate the existence of a violation of legal expectations on the part of the Claimant, not even in the aspect of the prohibition of retroactive tax law. In this respect, note that the position of the Claimant, before and after the entry into force of the State Budget Law for 2014, did not change in any way, despite the special regime and the transitional provision beginning to indicate a period of holding and impose actual rental (i.e., conclusion of contract). In fact, it was only the transfer of the fraction by the Claimant – subsequent to the entry into force of the State Budget Law for 2014, it should be said – that triggered taxation under the (now) applicable provision. This aspect invokes the traditional position of the Constitutional Court of prevalence, as the tax generating event, of the moment of transfer of the goods and not of the moment of their acquisition – see, for all, Constitutional Court Decision no. 85/2010, handed down on 3 March 2010, and our annotation thereto.]."

  6. In fact, and returning to the facts given as proven in the present proceedings, we observe that the Claimant acquired, on 21.06.2012, the fraction designated by the letter "AV" of the urban property registered in the respective property register under article…, of the parish of… and…, which it transferred in July 2016.

  7. From these facts, it appears that the property in question was transferred without having properly fulfilled its purpose – allocation to permanent residential rental. This is not a question of time, but merely of fact.

  8. As stated in the decision handed down in proceeding no. 398/2015-T of the CAAD, which we recall here: "for compliance with paragraph a) of no. 7 of article 8, it is not enough to have a declared intention at the time of acquisition of the property, but an effective allocation to rental for permanent residence."

  9. Thus, the Claimant not proving this requirement, and having in mind that the collection acts in question relate to a property that was transferred by the Claimant in the year 2016, in light of the legal regime of FIIAH approved by article 102 of Law no. 64-A/2008, of 31.12 (LOE 2009), or the amendments carried out by article 235 of Law no. 83-C/2013, of 31.12 (LOE 2014), the exemption from IMT and Stamp Tax granted ab initio to the Claimant ended up lacking support in Law.

  10. … by virtue of this not having managed to demonstrate to the Tax Authority, as it was incumbent upon it to do, having regard to the provisions of no. 2 of article 14 of the LGT, that there was effective allocation of the property to rental for permanent residence.

  11. The same applies as regards the exemption from Stamp Tax, since the Claimant equally failed to demonstrate that the transmission of the property in 2016 occurred due to the conversion of the right of ownership into a rental right or that the purchase option right was exercised by the lessee.

  12. Thus, and as explained by Nuno de Oliveira Garcia in proceeding no. 710/2015-T of the CAAD "The benefit in question did not cease or lapse; it was merely regulated, with an expressed period of holding being introduced and the condition of actual rental being concretized, which cannot even be considered disproportionate since we understand that for the compliance with the special regime in question – even in the initial version of paragraph a) of no. 7 of article 8 of the State Budget Law for 2009 – a mere declared intention at the time of acquisition of the property should not suffice, with actual rental for permanent residence being necessary. That – actual rental for permanent residence – is the presupposition of the benefit, whereby, and in accordance with article 12 of the EBF, one cannot even state that the constitution of the right to the benefit occurred by the Claimant, contrary to what it invokes in its initial request, (…) This understanding is reinforced by the use of the word 'exclusively' in the wording of paragraph a) of no. 7 of article 8 of the Special Regime."

  13. In fact, having regard to the facts given as proven, we are of the opinion that the collections in question do not warrant consideration for purposes of a "retroactivity test", but solely and exclusively because the fraction in question was transferred, it not being known, as not alleged and consequently not proven, whether it fulfilled its purpose – allocation to permanent residential rental.

  14. In light of the foregoing, having in mind that the acts of collection of IMT and Stamp Tax reviewed in the present proceedings were effected under the provisions of paragraph a) of no. 7 and no. 8 of article 8 of the special regime – tax – of FIIAH, whose wording has remained unchanged since its approval, maintaining its presuppositions at the date of acquisition of the properties by the Fund, it is the understanding of the Arbitral Tribunal that the collection acts in question are legal, by virtue of the fact that the property was not given the destination [rental for permanent residence] required by law, and due to its subsequent transfer.

  15. Proceeding, in the direction of the analysis of the issue raised by the Claimant regarding the retroactivity or otherwise of the norms introduced by article 236 of Law no. 83-C/2013, of 31 December, under the heading "Transitional Provision within the scope of the special regime applicable to FIIAH and SIIAH"

  16. Now, the Budget Law 2014, as we have already noted, added to article 8 nos. 14 to 16, in the terms that we retake here:

"14 - For purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residence whenever they are the subject of a rental contract for permanent residence within three years from the moment they became part of the fund's assets, with the taxable person being required to communicate and provide proof to the AT of the respective effective rental, within 30 days following the end of said period.

15 - When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, in which case the taxable person must request from the AT, within 30 days following the end of said period, the collection of the respective tax.

16 - If the properties are transferred, with the exception of the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the expiration of the period provided for in no. 14, the taxable person must likewise request from the AT, prior to the transfer of the property or the liquidation of the FIIAH, the collection of the tax due in accordance with the previous number."

  1. In fact, from the reading of these legal provisions it appears that none of the situations specifically provided for therein (or at least, no facts were alleged in that sense) have application in the case in question, since, the transitional provision provided for in article 236 of the Budget Law 2014 relating to the provisions of nos. 14 to 16 of article 8, whose provision is inapplicable to the present situation, the discussion of the retroactivity of the norm in question has no place within the scope of the present proceeding. Resulting, thus, the failure to appreciate the exceptions invoked by the Respondent being procedurally futile.

  2. In light of all the foregoing, it is the understanding of this Tribunal that the claim of the ora Claimant is devoid of foundation.

VI – DECISION

By the factual and legal grounds set out above, it is decided, thus, by the dismissal of the request for declaration of illegality of the acts of collection of IMT and Stamp Tax nos.… and no.…, respectively, in the total amount of €1,633.77 (one thousand, six hundred and thirty-three euros and seventy-seven cents), with the same being maintained in the legal order.

The value of the proceeding is fixed at €1,633.77, in accordance with article 97-A, no. 1, a), of the Code of Procedure and Tax Process, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The amount of costs is fixed at €306.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was entirely dismissed, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the cited Regulation.

Let it be notified.

Lisbon, 30 June 2017.

The Arbitrator

(Jorge Carita)

Frequently Asked Questions

Automatically Created

What is the special IMT and Stamp Tax regime for FIIAH housing rental investment funds?
The special FIIAH regime provides IMT and Stamp Tax exemptions for properties intended for residential rental. Article 8(14) of Law 83-C/2013 requires properties to be subject to a permanent residence rental contract within three years of entering the fund's assets to maintain exemptions. If properties are not rented within this period, transferred, or the fund is liquidated before the three-year deadline, the fund must request tax collection from the Tax Authority within thirty days.
How does the transitional provision of Article 236 of Law 83-C/2013 affect FIIAH tax exemptions?
Article 236 of Law 83-C/2013 extends the FIIAH tax regime to properties acquired before January 1, 2014, but controversially counts the three-year rental requirement from January 1, 2014, rather than the original acquisition date. This transitional provision was challenged as unconstitutional for violating the non-retroactivity principle under Article 103(3) of the Portuguese Constitution, as it imposed new conditions on previously granted tax exemptions that were definitively established in the taxpayer's legal sphere.
Can the Tax Authority retroactively charge IMT and Stamp Tax on properties acquired by FIIAH funds?
The arbitral tribunal's competence was contested by the Tax Authority, which argued that constitutional review is reserved exclusively to the Constitutional Court under Article 281(2)(a) of the Portuguese Constitution, raising an exception of material incompetence. The Tax Authority also claimed passive illegitimacy, arguing it is legally bound to apply valid legislation enacted by the Assembly of the Republic and cannot refuse application of norms based on alleged unconstitutionality, making it an improper party to defend against constitutional challenges.
What are the legal grounds for arbitral challenge of IMT and IS assessments under the FIIAH regime?
FIIAH funds can challenge IMT and IS assessments through CAAD arbitration under Decree-Law 10/2011 (RJAT). Legal grounds include defects of error regarding legal or factual presuppositions, violation of law, and unconstitutionality claims. However, the tribunal's jurisdiction over constitutional issues is limited, as substantive constitutional review is reserved to the Constitutional Court, though arbitral tribunals may decline to apply norms they find unconstitutional while not formally declaring them invalid.
What was the outcome of CAAD Process 616/2016-T regarding FIIAH fund tax liquidations?
The excerpt provided does not include the final decision of Process 616/2016-T. The case involved collection acts for €907.65 (IMT) and €726.12 (IS) issued on July 27, 2016. The arbitral tribunal was constituted on December 30, 2016, and dispensed with oral hearings and pleadings for procedural economy. The claimant sought annulment of the collections on constitutional grounds, while the respondent raised preliminary objections regarding competence and passive illegitimacy.