Process: 618/2016-T

Date: March 27, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 618/2016-T) addresses whether Article 236 of Law 83-C/2013 unconstitutionally imposed retroactive tax obligations on Real Estate Investment Funds for Residential Rental (FIIAH). The claimant fund acquired property before January 1, 2014, benefiting from IMT and Stamp Duty exemptions under Article 8(7)(a) and 8(8) of the FIIAH Tax Regime. These exemptions were definitively recognized at acquisition with no expiration conditions. However, Article 236 retroactively applied a new three-year expiration period, calculated from January 1, 2014, to properties already in the fund's portfolio. When this period expired, the Tax Authority issued IMT and Stamp Duty assessments. The claimant argued this violates Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax legislation, as the exemptions had crystallized in the legal order without any statutory expiration mechanism. The fund management company contended that imposing supervening expiration conditions on definitively acquired tax rights constitutes authentic retroactivity, not mere retrospectivity. The case presents fundamental questions about constitutional limits on legislative power to modify tax benefits already incorporated into taxpayers' legal positions. The claimant sought nullity (or alternatively, annulment) of the assessments, reimbursement of amounts paid, and compensatory interest. The Tax Authority raised preliminary exceptions regarding material jurisdiction and passive legitimacy. This decision has significant implications for investment fund taxation, protection of acquired rights, and the temporal application of tax reform legislation affecting previously crystallized tax positions.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A… – Investment Fund Management Company, S.A., with registered office at…, no.…–…, …–… Lisbon (hereinafter referred to as the "Claimant") – in its capacity as manager of the real estate investment fund "B…– Real Estate Investment Fund Closed for Residential Rental" ("B…"), registered with the Securities Commission, with the Tax Identification Number…–, in the face of the Property Transfer Tax (IMT) assessment no.… and the Corporate Income Tax (IS) assessment no.…, filed, on 14/10/2016, a request for constitution of an arbitral tribunal and for arbitral decision, pursuant to the provisions of Article 2, No. 1, paragraph a), of Decree-Law No. 10/2011, of 20/1 (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LFATM"), in which the Tax and Customs Authority (AT) is required, seeking that there be "declared the nullity [or, should it not be understood as such, the voidability] of the [aforementioned] assessments, based on the [...] unconstitutionality" of "Article 236 (Transitional Norm within the Special Regime Applicable to REIFRHs and RESIRHs) provided by Law No. 83-C/2013, of 31 December – insofar as it determines the application of the current Tax Regime of REIFRHs 'to real property that has been acquired by REIFRHs before 1 January 2014, calculating, in those cases, the three-year period provided in No. 14 from 1 January 2014' – constitutes a new regime of expiry of the exemptions provided in No. 7, paragraph a) and No. 8 of Article 8 (Tax Regime) of the Tax Regime of REIFRHs, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in Article 103 (Tax System), No. 3, of the Constitution of the Portuguese Republic". The Claimant further considers that it should be reimbursed "for the entire amount paid by virtue of the Assessments subject to this request for arbitral decision, plus, pursuant to Article 43 (Undue Payment of Tax Obligation) of the General Tax Law, the indemnification interest that may be due until the date of such reimbursement."

1.2. On 30/12/2016 the present Singular Arbitral Tribunal was constituted.

1.3. Pursuant to Article 17, No. 1, of the LFATM, the AT was served, as the respondent party, to submit its reply, in accordance with the said article. The AT filed its reply on 6/2/2017, having argued for the total lack of merit of the Claimant's request. In its reply, a dilatory exception of lack of material jurisdiction and a dilatory exception of lack of passive legitimacy were also raised.

1.4. The Claimant, having been notified of the AT's reply, responded, in writing, to the exceptions raised, in a pleading of 2/3/2017, which was served on the Respondent.

1.5. Considering that the parties had already submitted written statements on any possible exceptions, the present Tribunal considered, pursuant to Article 16, paragraph c), of the LFATM, that the meeting provided for in Article 18 of the LFATM was dispensable and that the proceedings should proceed to decision. By order of 16/3/2017, the date of 27/3/2017 was set for the pronouncement of the arbitral decision.

1.6. The Arbitral Tribunal was properly constituted, is materially competent, the proceedings are not affected by defects that invalidate them, and the Parties have legal personality and capacity, being properly legitimized.

II – Allegations of the Parties

2.1. The herein Claimant alleges, in its initial petition, that: a) "the assessments [in question] are affected by illegality due to violation of the provisions of Article 103 (Tax System), No. 3, of the Constitution of the Portuguese Republic and should, consequently, be declared null"; b) "IMT is a tax of single obligation [...]. This qualification is relevant here insofar as the IMT and IS exemptions, contained, respectively, in Numbers 7, paragraph a), and 8 of Article 8 (Tax Regime) of the Tax Regime of REIFRHs, were recognized upon request of the B…, pursuant to Article 10 (Recognition of Exemptions) of the IMT Code, at a moment prior to the entry of the relevant real property into the B…'s assets. That is, at the moment when the real property – object of the Assessments – entered into the B…'s assets, the IMT and IS exemptions provided, respectively, in Numbers 7, paragraph a), and 8 of Article 8 (Tax Regime) of the Tax Regime of REIFRHs were definitively crystallized in the tax and legal order"; c) "effectively, the fact subject to taxation is, both for IMT purposes and for IS purposes, the acquisition of ownership of the relevant real property by the B…. And the IMT and IS exemptions were not, at the date when they entered the B…'s assets, conditioned by the subsequent occurrence of any facts or circumstances, nor, furthermore, subject to any expiry regime"; d) "not being [...] legally provided, at the moment of recognition of the exemption, any facts or circumstances on which the expiry of the recognized exemption depended, it is manifest that the supervenient imposition of these facts or circumstances to exemptions crystallized in the tax and legal order of the Claimant is affected by unconstitutionality, due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103 (Tax System), No. 3, of the Constitution of the Portuguese Republic"; e) "Article 236 (Transitional Norm within the Special Regime Applicable to REIFRHs and RESIRHs) of Law No. 83-C/2013, of 31 December [...], by extending the application of the current Tax Regime of REIFRHs 'to real property that has been acquired by REIFRHs before 1 January 2014, calculating, in those cases, the three-year period provided in No. 14 from 1 January 2014' - is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined. Indeed, the extension enshrined therein configures a new regime of expiry of the exemptions provided in Numbers 7, paragraph a) and 8 (Tax Regime) and not a mere elaboration of a criterion previously provided"; f) "in the case sub judice there is no doubt whatsoever that the tax facts that the new law intends to regulate have already produced all their effects under the old law"; g) "it is here necessary to clarify whether the unconstitutionality now alleged by [the] Claimant should have as a consequence the voidability or the nullity of the Assessments [...]. [...]. Considering that the principle of fiscal non-retroactivity bears the character of a fundamental right, endowed with the legal regime protective of this right, its disrespect gives rise to the nullity of the act, in the present case, the nullity of the Assessments"; h) "the admissibility of challenging the defect of nullity without time limit dependence does not remove the jurisdiction of the Arbitral Tax Tribunal, in particular, by literal interpretation of Article 10 (Request for Constitution of the Arbitral Tribunal) of the LFATM. Indeed, the cited Article 10 (Request for Constitution of the Arbitral Tribunal) of the LFATM should not be interpreted as applying exclusively to situations in which acts subject to time-limited challenge are involved"; i) "without conceding and merely as a precautionary matter of legal representation, admitting, subsidiarily, that the defect (abstract illegality) of the Assessments determines their voidability (and not nullity), the Assessments should be annulled accordingly, pursuant to Articles 10, No. 1, paragraph a), of the LFATM and Article 102, No. 1, paragraph a), of the Tax Procedure and Process Code."

2.2. By the above, the herein Claimant intends, in summary: "(I) [that] the nullity of the Assessments [be] declared based on their unconstitutionality (abstract illegality); subsidiarily, should it not be understood as such, the Assessments [be] annulled"; "(II) [to be] reimbursed [...] for the entire amount paid by virtue of the Assessments subject to this request for arbitral decision, plus, pursuant to Article 43 (Undue Payment of Tax Obligation) of the General Tax Law, the indemnification interest that may be due until the date of such reimbursement."

2.3. For its part, the AT alleges, in its response, that: a) "[the] Claimant invokes [...] that the assessments are affected by abstract illegality [...]. However, should this thesis of [the] Claimant be accepted, then the Arbitral Tribunal lacks material jurisdiction to assess, in the abstract, the constitutionality of the norm in question, as petitioned"; b) "if the issue in the present proceedings is not a situation of possible non-application of a norm due to any illegality occurring in its application to concrete facts, as the Claimant now argues, but rather its own (intrinsic) illegality/unconstitutionality, then it is important to conclude that the Arbitral Tribunal has no jurisdiction to assess this issue, given that abstract review of the constitutionality of norms is sought, a matter constitutionally reserved for the Constitutional Court, pursuant to paragraph a) of No. 2, of Article 281 of the CRP. [...]. Thus, [...], it must be concluded that it is impossible for the present Arbitral Tribunal to decide the present dispute, inasmuch as the dilatory exception of lack of material jurisdiction is verified, from which the dismissal of the Respondent from the instance follows, pursuant to the combined provisions of Articles 278, No. 1, paragraph a) and 576, Nos. 1 and 2 of the CPC, applicable ex vi Article 29, No. 1, paragraph e) of the LFATM"; c) "being involved an act emanating from the Assembly of the Republic in the typical form of a legislative act, the Tribunal should always declare the dismissal of the Respondent from the instance, given the dilatory exception of lack of passive legitimacy demonstrated in the present arbitral proceedings, pursuant to Articles 278, No. 1, paragraph d) and 576, Nos. 1 and 2 of the CPC, applicable ex vi Article 29, No. 1, paragraph e) of the LFATM"; d) the "Claimant argues that the AT should not have proceeded with the assessments sub judice, as such tax acts are based on Article 236 of the Tax Regime of REIFRHs, which allegedly suffers from unconstitutionality due to violation of the principle of non-retroactivity of tax law, pursuant to Article 103, No. 3 of the CRP. However, and without prejudice to what is developed below regarding the non-existence of the unconstitutionality defect alleged by the Claimant, it is necessary to point out here, from the outset, that the action of the AT, contrary to what the Claimant intends, could not have been different"; e) "pursuant to No. 2 of Article 266 of the CRP, the Administration is obligated to act in accordance with the principle of legality, such principle being concretized at the infra-constitutional level in No. 1 of Article 3 of the Code of Administrative Procedure (CAP) [...]. That is, from such legal impositions it follows that administrative bodies and agents do not have competence to decide on the non-application of norms regarding which doubts about constitutionality are raised"; f) "from what is stated above it follows that the Administration is subject to law and to the law, and its bodies and agents should be the first to comply with it; it cannot, therefore, be required of it to pronounce on the options of the legislator, as these, once translated into law, are the normative discipline within which the same exercises its attributions in the pursuit of the public interest"; g) "in sum, the AT 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 provided in Articles 266, No. 2 of the CRP, 3, No. 1 of the CAP and 55 of the GTL"; h) "Article 102 of Law No. 64-A/2008, of 31 December (State Budget for 2009), approved a special regime applicable to real estate investment funds for residential rental (REIFRHs) and real estate investment companies for residential rental (RESIRHs). The regime provided therein would apply to REIFRHs or RESIRHs constituted during the five years following the entry into force of the said law and to real property acquired by them in the same period. With respect to the tax regime specifically provided therein, it is necessary to note, for what now matters, the provisions of Article 8, No. 7, paragraph a), relating to the exemption for IMT purposes and Article 8, No. 8, relating to the exemption for Stamp Duty purposes"; i) "pursuant to Article 8, No. 7, paragraph a), the following are exempt from IMT: 'The acquisitions of urban real property or autonomous fractions of urban real property intended exclusively for rental for permanent housing, by the investment funds referred to in No. 1'. Such exemption applying, by force of the provisions of No. 1, to REIFRHs constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and with observance of the conditions provided in Articles 1 to 7 of their respective legal regime. For its part, pursuant to Article 8, No. 8, 'All acts practiced are exempt from stamp duty, provided they are connected with the transmission of urban real property intended for permanent housing that occurs by force of the conversion of the right of ownership of such real property into a right of rental thereon, as well as with the exercise of the purchase option provided for in No. 3 of Article 5'"; j) "Law No. 83-C/2013, of 31 December (State Budget for 2014), amended the wording of the aforementioned Article 8, adding Numbers 14 to 16 [...]. Furthermore, Law No. 83-C/2013, of 31 December, also enshrined, in its Article 236, the following transitional norm [...]"; k) "indeed, No. 14 of Article 8 of the Tax Regime of REIFRHs served to specify the meaning of the expression 'urban real property intended exclusively for rental for permanent housing', as pursuant to the provisions therein, 'it is considered that urban real property is intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment in which it entered the fund's assets'. Alongside such specification, with the introduction of Nos. 15 and 16 in the said Article 8, a regime of termination of the benefit was provided for in case the legal requirement contained in No. 14 is not observed"; l) "[the] Claimant argues that the assessments in question are affected by illegality due to violation of the provisions of Article 103 (Tax System), No. 3, of the CRP, and should, as a consequence, be declared null. [...]. However, as will be better demonstrated, the Claimant's arguments are manifestly without merit"; m) "first of all, it should be noted that, at the date of creation of the tax regime applicable to REIFRHs, with Law No. 64-A/2008, of 31 December, the exemptions in question, both for IMT purposes and for Stamp Duty purposes, respectively required: (i) that the acquisition of the real property was exclusively intended for 'rental for permanent housing' and (ii) that the transmission had as its object 'real property intended for permanent housing that occurs by force of the conversion of the right of ownership of such real property into a right of rental thereon, as well as with the exercise of the purchase option provided for in No. 3 of Article 5'. That is, the taxable persons who wished to benefit from the said exemptions always had, from the beginning of the tax regime applicable to REIFRHs, to comply with the prerequisite that such real property be intended exclusively for rental for permanent housing. Consequently, the Claimant lacks grounds when it states that the exemptions in question were not conditioned by any facts or circumstances, and, consequently, the argument that it constructs starting from such incorrect premise is equally affected by error. [...] 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, served only to elaborate the criterion already required"; n) "it is to be concluded, thus, that, with the changes introduced, the ratio of the enshrined exemptions was not altered, and it should be emphasized that the immediate extinction of the benefit was not determined in case the said rental contract was not entered into, as a fairly extended period (of three years) was granted for that purpose"; o) "given the alienation of the real property in 2016, it follows unequivocally that [the] Claimant could, in any case, not benefit from the requested exemption"; p) "the exemptions in question did not simply cease to be in force: what occurred, merely, was that criteria were established to specify a legal requirement provided in an indeterminate manner"; q) "it is manifest that, from the beginning of the regime, the tax benefits in question applicable to REIFRHs always depended on the allocation of the real property to rental for permanent housing, a legal requirement that the AT, within the scope of its inspection powers, could always assess, in order to conclude whether the benefit persisted or, rather, whether the standard system of taxation was restored"; r) "contrary to what [the] Claimant argues, there is no introduction ex novo of a regime of expiry of the benefit, and even less is there any frustration of the expectations of the taxable persons or violation of the principle of non-retroactivity of tax law"; s) "as it cannot be imputed to the AT's services an error that, in itself, determined the payment of a tax debt in an amount greater than legally due - since it was not within their discretion to decide differently from how they decided - it can only be concluded that indemnification interest is not due pursuant to Article 43 of the GTL."

2.4. The AT concludes, finally, that: "(i) the dilatory exception of lack of material jurisdiction should be recognized as verified, from which the dismissal of the Respondent from the instance follows, pursuant to the combined provisions of Articles 278, No. 1, paragraph a) and 576, Nos. 1 and 2 of the CPC, applicable ex vi Article 29, No. 1, paragraph e) of the LFATM; or (ii) the Tribunal should declare the dismissal of the Respondent from the instance, given the dilatory exception of lack of passive legitimacy demonstrated in the present arbitral proceedings, as set forth above; or, should it not be understood thus (iii) the present request for arbitral decision should be judged without merit as not proven and, consequently, the Respondent absolved of all claims, as stated above, with the due and legal consequences; or still, should it not be understood thus, (iv) it is requested, by appeal to the provisions of Article 280, No. 3, of the CRP and Article 72, No. 3, of the Constitutional Court Law, that the Public Ministry be notified of the learned arbitral decision."

III – Established, Unestablished Facts and Respective Grounds

3.1. The following facts are considered established:

i) The herein Claimant requested from the AT the assessment of IMT and IS on the acts of alienation of real property by "B…", as follows: real property U-… located on Rua…, no.…, …, inscribed in the urban real property matrix of the Union of Parishes of … (…, …, … and …); IMT assessment no.… and IS assessment no.…, in the respective amounts of €283.40 and €226.72 (added together, they correspond to the value in question: €510.12) – see Doc. 1 attached.

ii) The real property in question was acquired on 18/12/2012, benefiting from the IMT and IS exemptions contained, respectively, in No. 7, paragraph a), and No. 8 of Article 8 of the special regime applicable to REIFRHs, having been alienated in July 2016.

iii) The above-mentioned assessments were paid by the Claimant on 28/7/2016, as can be seen from the reading of Doc. 2 attached to the present proceedings.

iv) Dissatisfied with the said assessments, the Claimant filed its request for arbitral decision on 14/10/2016.

3.2. There are no unestablished facts relevant to the decision of the case.

3.3. The facts considered pertinent and established (see 3.1) are grounded in the analysis of the positions set forth by the parties and the documentary evidence filed in the proceedings.

IV – On the Law

In the case under analysis, there are two disputed legal issues: 1) to know whether the IMT and IS assessments are illegal, because carried out under Article 236 of Law 83-C/2013, of 31/12, which the Claimant considers unconstitutional due to violation of the provisions of Article 103 of the CRP (and, furthermore, null due to alleged violation of the essential content of a fundamental right, pursuant to Article 133, No. 2, paragraph d), of the Code of Administrative Procedure); and 2) to know whether indemnification interest is due to the Claimant.

Let us proceed, then.

  1. The herein Claimant alleges that the assessments in question are illegal because carried out under Article 236 of Law No. 83-C/2013, of 31/12 (State Budget for 2014) – an article which the Claimant considers unconstitutional due to violation of the said Article 103 of the CRP.

In its view, "Article 236 (Transitional Norm within the Special Regime Applicable to REIFRHs and RESIRHs) of Law No. 83-C/2013, of 31 December (State Budget for 2014), by extending the application of the current Tax Regime of REIFRHs 'to real property that has been acquired by REIFRHs before 1 January 2014, calculating, in those cases, the three-year period provided in No. 14 from 1 January 2014' – is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined. Indeed, the extension enshrined therein configures a new regime of expiry of the exemptions provided in Numbers 7, paragraph a) and 8 (Tax Regime) and not a mere elaboration of a criterion previously provided." By the above, the herein Claimant concludes that "in the case sub judice there is no doubt whatsoever that the tax facts that the new law intends to regulate have already produced all their effects under the old law."

It does not appear, however, that this is the issue at hand.

First and foremost, it is appropriate to observe Law No. 64-A/2008, of 31/12, which approved the special regime applicable to REIFRHs. In that regime it was provided, in particular: in No. 7 of Article 8, that the following were exempt from IMT: "the acquisitions of urban real property or autonomous fractions of urban real property intended exclusively for rental for permanent housing" by the said funds; and, in No. 8 of that same article, that the following were exempt from Stamp Duty: "all acts practiced, provided they are connected with the transmission of urban real property intended for permanent housing that occurs by force of the conversion of the right of ownership of such real property into a right of rental thereon."

Law No. 83-C/2013, of 31/12, amended the wording of the said Article 8, adding Numbers 14 to 16, which are reproduced here:

"14 - For the purposes of the provisions of Nos. 6 to 8 of the said Article 8, it is considered that 'urban real property is intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment in which it entered the fund's assets, with the taxable person required to communicate and provide proof to the AT of the respective effective rental, within 30 days following the end of the said period.

15 - When the real property has not been the subject of a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in Nos. 6 to 8 cease to have effect, and in that case the taxable person must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 - Should the real property be alienated, with the exception of the cases provided for in Article 5, or should the REIFRH be 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 alienation of the real property or the liquidation of the REIFRH, the assessment of the tax due pursuant to the preceding number."

In Article 236 of the said Law No. 83-C/2013, of 31/12, the following transitional norm was also enshrined:

"1 - The provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to REIFRHs and RESIRHs, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, apply to real property acquired by REIFRHs from 1 January 2014 onwards.

2 - Without prejudice to what is provided in the preceding number, the provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to REIFRHs and RESIRHs, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, equally apply to real property acquired by REIFRHs before 1 January 2014, calculating, in those cases, the three-year period provided for in No. 14 from 1 January 2014."

From this it is concluded that the said Law established a transitional period for the application of legal amendments, with a view to, according to what the Respondent states (see § 83 and 86 of the reply), "in favor of legal certainty and the principle of protection of legitimate expectations, and in the spirit of the legislator, when creating the regime, [...] serving only to elaborate the criterion already required [...]. Being certain that, in any case, given the alienation of the real property in 2016, it is unequivocal that the Claimant could not [...] benefit from the requested exemption."

In the same sense, Administrative Decision dated 14/3/2016, rendered in proceedings 398/2015-T, emphasizes that "the obligation to allocate the real property to residential rental is not a requirement of the amendments introduced by the State Budget for 2014, but rather a requirement of the tax regime of REIFRHs from the beginning, indeed a natural consequence of the motivations that led to the creation of these funds. However, this was not the case in question [...]. The IMT assessments made [...] were not based on its retention in the fund for a period equal to or greater than 3 years without allocation to rental for permanent housing. [...]."

Indeed, as is also stated in the Administrative Decision dated 22/4/2016, rendered in proceedings 691/2015-T: "The State Budget for 2014 certainly establishes a new requirement for the exemption: if allocation to rental for permanent housing does not occur within the 3-year period following the entry of the real property into the fund, the fund must request the assessment of the IMT that was not assessed. However, this was not the case in question [...]. The IMT and Stamp Duty assessments in question were not based on its retention in the fund for a period equal to or greater than 3 years without allocation to rental for permanent housing. [...]. In fact, the assessments in question, as appears from the assessment notes filed in the proceedings, were based on the fact that the real property was given 'a purpose different from that on which the benefit was based'. Thus, we understand that retroactivity, or lack thereof, of the norm applied is not at issue."

In fact, it is sufficiently established that the real property in question was alienated in 2016, with the consequent allocation thereof to a purpose different from that for which the exemptions were granted. This is not, therefore, a matter of a time period, as the herein Claimant alleged.

In this respect, and as is also well noted in the Administrative Decision dated 2/5/2016, rendered in proceedings 689/2015-T, "the alienation of the real property would always determine the expiry of the exemption by application of the provisions of No. 3 of Article 14 of the REIFRH Framework, therefore not being at issue, in the situation sub judice, any retroactive application of a norm that introduces a new regime of expiry of the exemptions, nor is there injury to the expectations of the Claimant or aggravation of its tax position, whereby we understand that the IMT and Stamp Duty assessments in question are legal. The analysis of the issue raised by the Claimant regarding the alleged retroactivity of the regime provided for in Article 236 of the State Budget Law for 2014 is thus prejudiced, insofar as, as has been demonstrated above, the circumstances that gave rise to the tax assessments in question are in no way related to the amendments arising from the said article, only to the alienation of the real property and consequent allocation to a purpose different from that for which the IMT and Stamp Duty exemptions were granted."

For the reasons noted, with which we agree, it is concluded – also in the present case –, that the analysis of the issue of the alleged retroactivity of the regime contained in Article 236 is prejudiced, and that there has been no unjustified injury to the expectations of the herein Claimant or an unjustified aggravation of its tax position as a result of the assessments in question. In these terms, it is concluded, consequently, that the IMT and IS assessments in question should be entirely maintained in the legal order.

It should be noted, finally, and as a final observation, that, in the present case, the (also alleged by the Claimant) nullity due to violation of "essential content of a fundamental right" (see § 49 and § 50 of the initial petition) would never be at issue, as, according to the uniform understanding of the case law of the Supreme Administrative Court, the defect of violation of law due to error in the legal presuppositions (which is what could be at issue here) generates mere voidability, unless the tax act were to contravene the content of a fundamental right (a situation which, clearly, is not at issue here) – which does not occur even if there has been a violation of the principles of tax legality or non-retroactivity of tax law (see, in this respect and by way of mere example, the following Supreme Administrative Court Judgments: No. 1709/03, of 28/1/2004; No. 1938/03, of 3/3/2004; No. 1259/04, of 22/5/2005; No. 669/05, of 9/11/2005; No. 612/05, of 23/11/2005; No. 231/13, of 26/6/2013; No. 481/13, of 26/2/2014; No. 1916/13, of 12/3/2014; No. 703/14, of 21/1/2015).

See, also, in the same sense, the following excerpt from the Judgment of the Central Administrative Court of 26/3/2015 (proceedings 00354/08.0BEPRT): "The Appellant [...] alleges that the tax in question is null due to [...] violation of the essential content of a fundamental right. It follows from the provisions of Article 133, Nos. 1 and 2, paragraph d), of the Code of Administrative Procedure applicable ex vi of 2, paragraph c), of the GTL, that null are the acts to which any of the essential elements are lacking or for which the law expressly provides for this form of invalidity, namely acts that violate the essential content of a fundamental right. The Appellant has no grounds. Acts that violate a fundamental right must be those that contend with the rights, freedoms and guarantees of citizens; not those that contend only with the principle of legality, as happens in the case of the proceedings. [...] it is established case law in tax litigation that the nullity of a norm on which an assessment act is based does not imply the nullity thereof, generating only a situation of abstract illegality of the assessment [...] (see in that sense, among many others, the judgments of the Supreme Administrative Court of 25/05/2004, proceedings No. 208/04, 9/11/2005, proceedings 669/05, 7.05.2008, proceedings No. 1034/07, of 5.07.2007, proceedings No. 479/06, of 16/09/2009, proceedings No. 0418/09, and of 23/10/2013, proceedings No. 0579/13). Thus, the tax act that applies allegedly unconstitutional norms [...] does not give rise to the nullity of the assessment, but generates mere voidability, with the defect of violation of law due to error in the legal presuppositions being at issue."

  1. Pursuant to Article 43, No. 1, of the GTL, indemnification interest is due when it is determined, in administrative claim or judicial challenge, that there has been an error attributable to the services from which payment results of the tax debt in an amount greater than legally due. It is, therefore, a necessary condition for the award of said interest the demonstration of the existence of error attributable to the services. In that sense, see, for example, the following judgments: "The right to indemnification interest provided for in No. 1 of Article 43 of the GTL [...] depends on having been established in the proceedings that that act is affected by error regarding the factual or legal presuppositions attributable to the AT." (Supreme Administrative Court Judgment of 30/5/2012, proceedings 410/12); "The right to indemnification interest provided for in No. 1 of Article 43 of the General Tax Law presupposes that the proceedings determine that in the assessment 'there was error attributable to the services', understood as the 'error regarding the factual or legal presuppositions attributable to the Tax Administration'" (Supreme Administrative Court Judgment of 10/4/2013, proceedings 1215/12).

Now, given that there has been no error attributable to the services, as follows from what was said in 1), it is concluded that the claim for payment of indemnification interest to the Claimant is without merit.

V – DECISION

In view of the above stated, it is decided:

  • To judge the request for arbitral decision without merit, with the assessment acts now impugned remaining entirely in the legal order, and accordingly absolving the respondent entity from the claim.

  • To judge the claim also without merit insofar as it concerns the recognition of the right to indemnification interest in favor of the claimant.

The value of the proceedings is fixed at €510.12 (five hundred and ten euros and twelve cents), pursuant to Article 32 of the Code of Administrative Procedure and Tax Process (CPTA) and Article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by virtue of the provisions of Article 29, No. 1, paragraphs a) and b), of the LFATM, and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs to be borne by the Claimant, in the amount of €306.00 (three hundred and six euros), pursuant to Table I of the RCPAT, and in compliance with the provisions of Articles 12, No. 2, and 22, No. 4, both of the LFATM, and the provisions of Article 4, No. 4, of the cited Regulation.

Notify.

Lisbon, 27 March 2017.

The Arbitrator

(Miguel Patrício)

Text drafted by computer, pursuant to the provisions of Article 131, No. 5, of the Code of Civil Procedure, applicable by reference of Article 29, No. 1, paragraph e), of the LFATM.

The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

Are FIIAH real estate investment funds exempt from IMT and Stamp Duty on property acquisitions under Portuguese tax law?
Yes, under the FIIAH Tax Regime (Article 8), these investment funds enjoyed exemptions from IMT (Property Transfer Tax) on property acquisitions under paragraph 7(a) and from Stamp Duty under paragraph 8. These exemptions were recognized pursuant to Article 10 of the IMT Code at the moment of acquisition, and prior to January 1, 2014, contained no expiration conditions or temporal limitations.
Does Article 236 of Law 83-C/2013 violate the constitutional principle of non-retroactivity of tax legislation?
The claimant argues Article 236 violates Article 103(3) of the Portuguese Constitution by retroactively imposing a three-year expiration regime on tax exemptions that had already crystallized without expiration conditions. Since the tax facts (property acquisitions) had produced all effects under the prior law with definitive exemptions, applying new expiration rules to past transactions constitutes prohibited authentic retroactivity rather than permissible retrospective application.
What happens to FIIAH tax exemptions for properties acquired before January 1, 2014 under the transitional regime?
Article 236 of Law 83-C/2013 extended the new FIIAH tax regime retroactively to properties acquired before January 1, 2014, calculating the three-year exemption period from January 1, 2014 rather than the original acquisition date. This caused exemptions on pre-2014 acquisitions to expire on December 31, 2016, triggering IMT and Stamp Duty assessments on properties that were acquired under an unconditional exemption regime.
Can taxpayers challenge IMT and Stamp Duty liquidations through CAAD tax arbitration proceedings?
Yes, taxpayers can challenge IMT and Stamp Duty assessments through CAAD (Centro de Arbitragem Administrativa) under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT). The arbitral tribunal has material jurisdiction over such disputes, even when constitutional arguments are raised. This case confirms CAAD's competence to review assessments based on alleged unconstitutionality of underlying tax legislation.
What is the three-year deadline for FIIAH exemption expiration and how is it calculated under the new regime?
Under the revised FIIAH regime (Article 8, paragraph 14), tax exemptions expire after three years. For properties acquired before January 1, 2014, Article 236's transitional rule calculated this three-year period starting from January 1, 2014, not from the original acquisition date. This meant all pre-2014 acquisitions faced potential exemption expiration on December 31, 2016, regardless of their actual acquisition date.