Summary
Full Decision
Arbitral Decision (consult full version in PDF)
The arbitrators Counselor Jorge Lopes de Sousa (arbitrator-president), Dr. Jorge Carita and Dr. Leonardo Marques dos Santos (arbitrators assessors), designated by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 25-02-2019, agree as follows:
1. Report
A... - REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A. (hereinafter "Claimant"), holder of tax identification number..., with registered office at ..., ..., ..., ..., ...-... Lisbon, in its capacity as management company and in representation of the CLOSED REAL ESTATE INVESTMENT FUND B... (hereinafter "Fund"), holder of tax identification number ..., (hereinafter designated as "Fund") came, pursuant to Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Tribunal.
The Claimant requests the examination of the legality and annulment of the tax assessment acts for the Municipal Tax on Transfers of Immovable Property ("IMT") No.s ..., ..., ..., ... and ..., issued by the Tax and Customs Authority ("AT") on 28-11-2018.
The Claimant further requests the reimbursement of the amount paid (€ 3,575,000.09) plus indemnity interest.
The defendant is the TAX AND CUSTOMS AUTHORITY.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 10-12-2018.
Pursuant to the provision in subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Arbitrators who were initially designated by the Ethics Council communicated acceptance of the appointment, within the applicable period.
On 04-02-2019 the parties were duly notified of this designation, having manifested no intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11 paragraph 1 subparagraphs a) and b) of RJAT and articles 6 and 7 of the Ethics Code.
Thus, in conformity with the provision in subparagraph c) of paragraph 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 25-02-2019.
The Tax and Customs Administration was notified in accordance with article 17 of RJAT, but stated that it submits no Response.
By order of 18-03-2019, the meeting provided for in article 18 of RJAT and arguments was waived and a date for the decision was indicated.
The arbitral tribunal was regularly constituted, in accordance with the provision in articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.
The Parties are duly represented, enjoy legal standing and capacity and are legitimate (articles 4 and 10, paragraph 2, of the same decree-law and article 1 of Order No. 112-A/2011, of 22 March).
The proceedings are free from nullities.
2. Factual Matters
2.1. Established Facts
The following facts are considered established:
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The Fund, represented and managed by the Claimant, constitutes a closed real estate investment fund;
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The Claimant, in its capacity as management company, acquires, through the legal mechanism of representation, immovable property in representation of real estate investment funds, which are intended to form part of the assets of these funds;
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The Claimant, in representation of the Fund, acquired, by public deed of purchase and sale executed on 29-11-2018, the following properties, indicated in document No. 6 attached with the request for arbitral ruling, the content of which is hereby reproduced:
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With respect to the acquisition of said immovable properties, the following assessments of Municipal Tax on Transfers of Immovable Property ("IMT") were issued by the Tax and Customs Authority on 28 November 2018:
– No. ..., in the amount of € 404,083.36;
– No. ..., in the amount of € 517,833.36;
– No. ..., in the amount of € 1,535,983.36;
– No. ..., in the amount of € 476,666.65; and
– No. ..., in the amount of € 641,333.36
(documents No.s 1 to 5 attached with the request for arbitral ruling, the content of which is hereby reproduced)
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The assessed amounts were paid by the Fund on 28-11-2018 (document No. 7 attached with the request for arbitral ruling, the content of which is hereby reproduced);
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On 08-12-2018, the Claimant submitted the request for arbitral ruling that gave rise to the present proceedings.
2.2. Unestablished Facts and Justification of the Decision on Factual Matters
There are no facts relevant to the decision of the case that have not been established.
The established facts are based on documents submitted by the Claimant whose correspondence to reality is not contested by the Tax and Customs Authority.
No administrative file was submitted.
3. Matters of Law
The Claimant represents a closed real estate investment fund that acquired immovable property in 2018, and IMT was assessed by the Tax Administration with respect to the acquisitions.
Article 1 of Decree-Law No. 1/87, of 3 January, establishes that "acquisitions of immovable property made for a real estate investment fund by its respective management company are exempt from transfer tax (sisa)".
The Claimant argues that the acquisitions of the properties made are exempt from IMT, because this exemption applies to them, and it was not revoked on the date when it made the acquisitions of the properties referred to in the impugned assessment.
Decree-Law No. 1/87 refers to transfer tax (sisa) and not to IMT, but Decree-Law No. 287/2003, of 12 November, which reformed property taxation, repealed in its article 31, paragraph 3, the Code of Municipal Tax on Transfers and the Code on Succession or Gift Tax, but established in article 28, paragraph 2, that "all legal texts that mention Code of Municipal Tax on Transfers and the Code on Succession and Gift Tax, municipal transfer tax or tax on succession and gifts shall be understood as referring to the Code of Municipal Tax on Transfers of Immovable Property (CIMT), the Stamp Duty Code, the municipal tax on transfers of immovable property (IMT) and stamp duty, respectively".
Paragraph 6 of article 31 of Decree-Law No. 287/2003 establishes that "the tax benefits relating to the local property tax, now referring to IMI, and those relating to the municipal transfer tax established in legislation outside the Code approved by Decree-Law No. 41969, of 24 November 1958, and in the Tax Benefits Statute, which shall henceforth refer to IMT, remain in force".
The acquisitions referred to fall within the provision of said article 1 of Decree-Law No. 1/87, so that, if this rule remains in force, the exemption, referring to IMT, shall apply by virtue of these provisions of Decree-Law No. 287/2003.
The essential issue to be decided is, therefore, whether article 1 of Decree-Law No. 1/87 was or was not repealed, in particular by Law No. 53-A/2006, of 29 December.
3.1. Regime for Cessation of Force of Law
The general regime for cessation of force of law is provided for in article 7 of the Civil Code, which establishes the following:
Article 7
Cessation of Force of Law
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Where not intended to have temporary force, a law ceases to have force only if repealed by another law.
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Repeal may result from express declaration, from incompatibility between the new provisions and the preceding rules, or from the fact that the new law regulates the entire subject matter of the previous law.
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A general law does not repeal a special law, except if such is the unequivocal intention of the legislator.
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Repeal of the repealing law does not effect the revival of the law repealed by it.
No temporary force was provided for article 1 of Decree-Law No. 1/87, so that any cessation of its force can only result from repeal (express or tacit) by another law, as follows from paragraph 1 of this article 7 of the Civil Code.
3.1.1. Express Repeal
Express repeal did not occur, in particular before or with the approval of the Tax Benefits Statute (EBF), by Decree-Law No. 215/89, of 1 July.
In fact, the approval of the EBF was preceded by a global reassessment of tax benefits, which was initiated by Law No. 2/88, of 26 January (State Budget for 1989), which in its article 49 repealed various tax benefits, including that provided for in article 7 of Decree-Law No. 1/87, but not that provided for in article 1, which is at issue here.
The list of expressly repealed tax benefits was subsequently completed by Decree-Law No. 485/88, of 30 December, which also does not include the tax benefit provided for in said article 1 of Decree-Law No. 1/87.
After the approval of the EBF, there is also no law that expressly repeals said article 1 of Decree-Law No. 1/87.
In particular, express repeal was proposed by the Government in article 81, paragraph 3, of the Draft State Budget for 2007 (Bill No. 99/X), in a list of tax benefits to be repealed, but it was not included in the approved Budget Law (Law No. 53-A/2006, of 29 December), although express repeal of other tax benefits was maintained (in article 87).
It is thus unequivocal that article 1 of Decree-Law No. 1/87 was not expressly repealed.
3.2. Tacit Repeal
In the absence of express repeal, any repeal of said article 1 of Decree-Law No. 1/87 could only result from tacit repeal, resulting from "incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the previous law".
The EBF, in its initial wording (Decree-Law No. 215/89, of 1 July), does not include any provision on property taxes relating to real estate investment funds, so it cannot be understood to have regulated the entire subject matter of the previous law.
Moreover, the fact already mentioned that the EBF was preceded by express repeal of tax benefits, which included one of those provided for in Decree-Law No. 1/87, but not that provided for in its article 1, imposes the conclusion that this tax benefit was not intended to be repealed.
Decree-Law No. 189/90, of 8 June, added to the EBF article 56 relating to "Real Estate Investment Funds", establishing that "property integrated in real estate investment funds is exempt from local property tax". Law No. 39-B/94, of 27 December, amended the wording of this article to "property integrated in real estate investment funds and equivalent funds, in pension funds constituted in accordance with national legislation and in retirement savings funds is exempt from local property tax".
With the renumbering carried out by Decree-Law No. 198/2001, of 3 July, this article 56 became article 46.
Law No. 32-B/2002, of 30 December, gave article 46 the following wording: "Property integrated in real estate investment funds and equivalent funds, in pension funds and in retirement savings funds, which are constituted and operate in accordance with national legislation, is exempt from local property tax".
With Law No. 53-A/2006, of 29 December, article 46 of the EBF came to cover tax benefits under IMT, relating to property integrated in real estate investment funds.
This article 46 was amended to have the following wording:
1 - Property integrated in real estate investment funds, pension funds and retirement savings funds which are constituted and operate in accordance with national legislation is exempt from municipal property tax (IMI) and municipal tax on transfers of immovable property (IMT).
2 - Property integrated in mixed or closed real estate investment funds with private subscription by non-qualified investors or by financial institutions on behalf of such investors do not benefit from the exemptions referred to in the preceding paragraph, with IMI and IMT rates being reduced by half.
With Decree-Law No. 108/2008, of 26 June, this article 46 became article 49 of the EBF.
This article 49 was successively amended by Law No. 3-B/2010, of 28 April, by Law No. 55-A/2010, of 31 December, by Law No. 83-C/2013, of 31 December, and came to be repealed by Law No. 7-A/2016, of 30 March.
In any of the wordings referred to, article 49 only relates to property integrated in real estate investment funds, making no reference to IMT relating to their acquisition.
In this context, it cannot be understood that tacit repeal of article 1 of Decree-Law No. 1/87 occurred, since the entire subject matter provided for in it, in particular that relating to benefits concerning acquisition of property by real estate investment funds, was not regulated by any subsequent law.
On the other hand, no provision is found that is incompatible with that tax benefit, as the Claimant argues, "whereas the IMT exemption provided for in paragraph 1 of DL 1/87 applies to situations where the Fund is in the capacity of purchaser, i.e., when it acquires property to form part of its assets, the exemption of article 46 of the EBF applies to situations where the Fund is in the position of seller, i.e., when it proceeds to sell property that already forms part of its assets".
In fact, acquisitions of immovable property made for a real estate investment fund referred to in article 1 of Decree-Law No. 1/87 are not covered by article 46 of the EBF.
Furthermore, the existence of benefits relating to the acquisition of property concurrently with benefits relating to its transfer is expressly provided for in the urban rehabilitation incentives regime, in subparagraphs b) and c) of article 45 of the EBF in the wording introduced by Law No. 114/2017, of 29 December (and was previously provided for in paragraph 2 of article 45 and in paragraph 8 of article 71), which demonstrates that, from a legislative perspective, there is no obstacle to the cumulation of benefits relating to acquisition with benefits concerning transfer of property.
Thus, there being no incompatibility between benefits for acquisition of property with benefits for its transfer, the regime of said article 46 (later article 49) is not incompatible with the maintenance of the exemption for acquisition of property by real estate investment funds.
Therefore, it cannot be concluded that article 46 of the EBF regulates the entire subject matter of exemptions for real estate investment funds, being perfectly acceptable that it introduced a new exemption, the previously existing one subsisting.
Thus, as was understood in the arbitral award rendered in case No. 544/2016-T, "the exemptions under analysis are substantially and structurally different and independent of each other, and cannot in any way be considered contrary, contradictory or logically irreconcilable. And even less can they be regarded as legally and economically incompatible. Each one preserves its own utility independently of what may happen to the other".
Moreover, and decisively, the fact already referred to that express repeal of Decree-Law No. 1/87 was included in the draft State Budget for 2007, and the proposal was not approved, corroborates the conclusion that repeal of its article 1 was not intended. In fact, it being necessary to presume that the legislator was able to express his intention in adequate terms (article 9, paragraph 3, of the Civil Code), the omission in Law No. 53-A/2006 of the express repeal that had been proposed has, objectively, the effect of expressing that repeal of that rule was not intended, as the adequate form of expressing a hypothetical intention of repeal was to refer to it expressly, approving the proposal, and not to obscure it with silence, which, in this context, is adequate to express the intention of rejection of the proposed repeal.
Therefore, it must be concluded that article 1 of Decree-Law No. 1/87, of 3 January, was not tacitly repealed, nor was it repealed in 2018, when the acquisitions in question were made. ( [1] )
Confirming the non-repeal of Decree-Law No. 1/87 until 2018, Law No. 71/2018, of 31 December (State Budget for 2019), expressly repealed that Decree-Law, in its article 319.
Consequently, the impugned assessment is vitiated by a violation of law that justifies its annulment, pursuant to article 163, paragraph 1, of the Code of Administrative Procedure, subsidiarily applicable in accordance with article 2, subparagraph c), of the General Tax Law.
4. Reimbursement of Amounts Paid and Indemnity Interest
The assessed amounts were paid by the Fund on 28-11-2018.
The Claimant requests reimbursement of the tax unduly paid, plus indemnity interest.
4.1. Reimbursement of Amounts Paid
In accordance with the provision in subparagraph b) of article 24 of RJAT, the arbitral decision on the merits of the claim insofar as it is not subject to appeal or impugnation binds the Tax Administration from the end of the period provided for appeal or impugnation, and the latter must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of judgments of tax courts, "restore the situation that would exist if the tax act subject to the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose", which is in line with the provision in article 100 of the General Tax Law [applicable by virtue of the provision in subparagraph a) of paragraph 1 of article 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of a claim, judicial impugnation or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of indemnity interest, where applicable, from the end of the period of execution of the decision".
Although article 2, paragraph 1, subparagraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of arbitral courts functioning in CAAD, making no reference to condemnatory decisions, it should be understood that the competencies thereof comprehend the powers that, in judicial impugnation proceedings, are attributed to tax courts, and this is the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it is proclaimed, as the first guideline, that "the tax arbitral process should constitute an alternative procedural means to judicial impugnation proceedings and to action for recognition of a right or legitimate interest in tax matters".
The judicial impugnation process, although essentially a process of annulment of tax acts, admits condemnation of the Tax Administration to the payment of indemnity interest, as may be inferred from article 43, paragraph 1, of the General Tax Law, in which it is established that "indemnity interest is due when it is determined, in gracious complaint or judicial impugnation, that there was error attributable to the departments resulting in payment of the tax debt in an amount greater than that legally due" and from article 61, paragraph 4, of the Tax Procedure and Process Code (in the wording given by Law No. 55-A/2010, of 31 December, which corresponds to paragraph 2 in the initial wording), which states "if the decision that recognized the right to indemnity interest is judicial, the payment period runs from the beginning of the period of its voluntary execution".
Thus, paragraph 5 of article 24 of RJAT, when stating that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be understood as permitting recognition of the right to indemnity interest in arbitral proceedings.
Moreover, since the right to indemnity interest depends on the existence of a right to a sum to be reimbursed, from this competence to decide on the right to indemnity interest it may be inferred that it extends to examination of the right to reimbursement.
The assessment must be annulled, so the Fund represented by the Claimant is entitled to be reimbursed the amount of € 3,575,000.09, unduly paid.
4.2. Indemnity Interest
Article 43 of the General Tax Law establishes the regime for indemnity interest, in the following terms, insofar as relevant here:
Article 43
Undue Payment of Tax Obligation
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Indemnity interest is due when it is determined, in gracious complaint or judicial impugnation, that there was error attributable to the departments resulting in payment of the tax debt in an amount greater than that legally due.
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There is also considered to be error attributable to the departments in cases where, although the assessment was made on the basis of the taxpayer's declaration, the latter followed, in its completion, the generic guidance of the tax administration, duly published.
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Indemnity interest is also due in the following circumstances:
a) When the legal period for voluntary restitution of taxes is not met;
b) In case of annulment of the tax act by initiative of the tax administration, from the 30th day after the decision, without processing of the credit note;
c) When revision of the tax act at the taxpayer's initiative takes place more than one year after such request, unless the delay is not attributable to the tax administration.
The assessment was impugned within the legal period for impugnation, in particular within the period provided for in article 10, paragraph 1, subparagraph a), of RJAT.
The error affecting the assessment is attributable to the Tax and Customs Authority that performed it.
Consequently, the Fund represented by the Claimant is entitled to indemnity interest, pursuant to article 43, paragraph 1, of the General Tax Law and article 61 of the Tax Procedure and Process Code from the date of undue payment (28-11-2018), until it is reimbursed.
Indemnity interest is due at the legal default rate, pursuant to articles 43, paragraphs 1, and 35, paragraph 10 of the General Tax Law, article 24, paragraph 1, of RJAT, article 61, paragraphs 3 and 4, of the Tax Procedure and Process Code, article 559 of the Civil Code and Order No. 291/2003, of 8 April (or such other order(s) as may alter the legal rate), from the date of payment until full reimbursement.
5. Decision
In accordance with the foregoing, this Arbitral Tribunal agrees:
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To judge the request for arbitral ruling well-founded;
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To annul the IMT assessments
– No. ..., in the amount of € 404,083.36;
– No. ..., in the amount of € 517,833.36;
– No. ..., in the amount of € 1,535,983.36;
– No. ..., in the amount of € 476,666.65; and
– No. ..., in the amount of € 641,333.36;
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To judge the request for reimbursement of the amount of € 3,575,000.09 well-founded and to condemn the Tax and Customs Authority to pay it to the Claimant;
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To judge the request for indemnity interest well-founded and to condemn the Tax and Customs Authority to pay it to the Claimant, calculated on the amount of € 3,575,000.09, in the terms referred to in section 4.2 of this award.
6. Value of the Case
In accordance with the provision in articles 296, paragraph 1, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Tax Procedure and Process Code and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Cases, the value of the case is fixed at € 3,575,000.09.
7. Costs
In accordance with article 22, paragraph 4, of RJAT, the amount of costs is fixed at € 45,594.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Cases, to be borne by the Tax and Customs Authority.
Lisbon, 20-03-2019
The Arbitrators
(Jorge Lopes de Sousa)
(Jorge Carita)
(Leonardo Marques dos Santos)
[1] Moreover, this is an understanding that was expressly adopted in 2009, in the Report of the Group for the Study of Tax Policy Competitiveness, Efficiency and Justice of the Tax System, prepared within the framework of the State Secretariat for Tax Affairs, in which Decree-Law No. 1/87, of 3 January, is listed among the legislation then considered to be in force (page 412).
This Report, which was considered at Parliamentary Hearing No. 3COF-XI:
https://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheAudicao.aspx?BID=87515 and is published on the Portuguese Parliament website at:
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