Summary
Full Decision
ARBITRAL DECISION
The arbitral court decides as follows:
I – Report
1. The Closed Real Estate Investment Fund A…, represented by its management company B… – Real Estate Investment Funds Management Company, S.A., with the tax identification number …, with registered office at …, no. …, …, …-… Lisbon, filed a request for the constitution of an arbitral tribunal, pursuant to the provisions of article 2, no. 1, paragraph a), and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax assessment act for Municipal Tax on Onerous Real Estate Transfers (IMT), in the total amount of € 485,126.48, relating to the acquisition of a real estate property on 25 October 2017.
The request is based on the following grounds.
The Fund constitutes a closed real estate investment fund that is managed by the Applicant and whose activity is regulated by the General Regime of Collective Investment Undertakings, approved by Law no. 16/2015, of 24 February.
In the exercise of its activity, the Applicant acquires real estate properties, on behalf of real estate investment funds, which are integrated into the assets of the real estate investment funds under its management.
In October 2017, the Applicant, on behalf of the Fund, acquired, by public deed of sale and purchase, a real estate property, located in the parish of …, municipality of …, acquisition which was subject to and taxed under IMT.
However, the said acquisition is covered by the exemption provided for in article 1 of Decree-Law no. 1/87, of 3 January, which states "acquisitions of immovable property made for a real estate investment fund by the respective management company are exempt from surtax", and this provision was excepted and maintained in force by Decree-Law no. 287/2003, of 12 November, which reformed the taxation of assets and approved the creation of IMT and IMI, and, in particular, by the provisions of no. 2 of article 28 and no. 6 of article 31 of that decree-law.
The Tax Authority, in its response, argues that Closed Real Estate Investment Funds have come to benefit from a special taxation regime in IRS, IRC, IMI and IMT provided for in various provisions of the Tax Benefits Statute (EBF), namely, in its articles 22 to 49 (previously 46), which systematically call into question the maintenance of the exemption provided for in Decree-Law no. 1/87. Furthermore, tax exemption provisions, by their exceptional nature, are underpinned by a set of relevant extra-fiscal public interests, so it is only in view of these interests that it is possible to depart from the standard taxation regime.
It concluded for the dismissal of the request.
2. Witness evidence production was not requested and, following the proceedings, the meeting referred to in article 18 of the RJAT was waived, as well as the presentation of arguments.
3. The request for the constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority in accordance with applicable rules.
Pursuant to the provisions of paragraph a) of no. 2 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 as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.
The parties were properly and timely notified of this appointment and expressed no intention to refuse it, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provisions of paragraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 7 February 2018.
The arbitral tribunal was regularly constituted and is materially competent, in view of the provisions of article 2, no. 1, paragraph a), and article 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties possess legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same decree-law and article 1 of Regulation no. 112-A/2011, of 22 March).
The proceedings are free from defects and no exceptions have been raised.
It is appropriate to examine and decide.
II – Grounds
Factual Matters
4. The factual matters relevant to the decision of the case are as follows:
a) The Closed Real Estate Investment Fund A…, managed by the Applicant, is a closed real estate investment fund whose activity is regulated by the General Regime of Collective Investment Undertakings, approved by Law no. 16/2015, of 24 February.
b) In October 2017, the Applicant, on behalf of the Fund, acquired, by public deed of sale and purchase, a real estate property, located in the parish of …, municipality of …, registered in the urban real estate register under article U- ….
c) The Tax Authority issued the IMT assessment act no. …, in the amount of € 485,126.48.
d) The Applicant proceeded to pay the tax.
The Court formed its conviction regarding the proven facts based on the documents attached to the petition and those contained in the administrative file presented by the Tax Authority with its response.
Question of Law
5. The Applicant contends that the acquisition of a real estate property made for the Closed Real Estate Investment Fund is covered by the IMT exemption, originally provided for in article 1 of Decree-Law no. 1/87, of 3 January, as an exemption from surtax, and which was excepted by article 28, no. 2, of Decree-Law no. 287/2003, of 12 November, and maintained in force by article 31, no. 6, of that decree-law.
The Tax Authority argues, however, that the aforementioned provision of article 31, no. 6, of Decree-Law no. 287/2003, which maintained in force the tax benefits relating to the municipal surtax, now referring them to IMT, does not imply that this exemption is still maintained today, taking especially into account that real estate funds have since been covered by a specific regime of tax benefits regarding IMT.
The question which arises is, therefore, whether the subsequent legislative evolution brought about the cessation of the provision of article 1 of Decree-Law no. 1/87.
Decree-Law no. 1/87 provides, in its article 1, that "acquisitions of immovable property made for a real estate investment fund by the respective management company are exempt from surtax". The provision emerged as a result of the regulation of real estate investment funds, carried out by Decree-Law no. 246/85, of 12 July, and, as is apparent from its preamble, it was intended to establish an adequate fiscal framework for the creation of such funds, to which the Government recognises an important contribution to savings formation and mobilisation of investments in the real estate sector, with positive effects on construction and real estate rental markets.
Meanwhile, Decree-Law no. 287/2003, of 12 November, which reformed the taxation of assets, approving in annex the Code of Municipal Tax on Immovable Property (CIMI), and the Code of Municipal Tax on Onerous Real Estate Transfers (CIMT), determined, in its article 28, no. 2, that references in legal texts to the municipal surtax are to be considered as referring to the Code of Municipal Tax on Onerous Real Estate Transfers.
Furthermore, the same decree-law, in article 31 – which included various repealing provisions – excepted, in its no. 6, the maintenance in force of tax benefits relating to the municipal surtax established in separate legislation.
Thus, in accordance with the combined interpretation of the cited provisions of articles 28 and 31, no. 6, of Decree-Law no. 287/2003, exemptions from surtax contained in any separate laws should be considered as referred to IMT, and, on the other hand, acquisitions of immovable property made for a real estate investment fund would continue to be exempt from IMT by virtue of the provision of article 1 of Decree-Law no. 1/87.
Following the creation of the surtax exemption regarding the acquisition of immovable property for real estate investment funds, in 1987, Decree-Law no. 215/89, of 1 July, came to approve the Tax Benefits Statute, with the clear purpose of systematising the general principles to which the granting of benefit situations should be subject. The EBF emerged as a result of the reform of personal income tax (CIRS), corporate income tax (CIRC) and municipal tax (CA), which had already introduced some structural mechanisms for tax relief, so the Statute was intended to characterise some other situations of less structural character but which were marked by relative stability, leaving for future State budget laws benefits with markedly cyclical purposes or which required more frequent regulation (see the respective preamble).
In the original version of the EBF, and regarding real estate management and investment companies, only a specific fiscal regime of taxation regarding IRC was contemplated and, for IRS purposes, regarding profits distributed by such companies to their respective partners (article 26). This regime was maintained with various amendments and came to transition to article 22 with Law no. 109-B/2001, of 27 December, under the heading "Investment Funds", which was also subject to various legislative amendments.
It is the new wording given to article 46 of the EBF by the State Budget Law for 2003 (Law no. 32-B/2002, of 30 December) that provides, for the first time, a tax exemption regime in favour of real estate investment funds regarding municipal tax, in the following terms:
Real estate properties integrated in real estate investment funds and equivalent, in pension funds and in savings-pension funds, which are constituted and operated in accordance with national legislation, are exempt from municipal tax.
Following the reform of asset taxation, approved by the aforementioned Decree-Law no. 287/2003 – which repealed the Code of Municipal Tax – this article 46, in the wording given by the State Budget Law for 2007 (Law no. 53-A/2006, of 29 December) came to establish the exemption from municipal tax on immovable property (IMI) and municipal tax on onerous real estate transfers (IMT) for real estate properties integrated in real estate investment funds, under the same conditions already contained in the previous wording of the provision, and Decree-Law no. 108/2008, of 26 June, maintained this same exemption in the same terms.
Law no. 3-B/2010, of 28 April, also being a budget law, through new wording given to article 49 of the EBF, came to exempt from municipal tax on immovable property and municipal tax on onerous real estate transfers only "real estate properties integrated in open real estate investment funds", and the State Budget Law for 2012 (Law no. 55-A/2010, of 31 December) extended this exemption to "real estate properties integrated in open or closed real estate investment funds with public subscription".
Law no. 83-C/2013, of 31 December, amending this article 49, suppressed the exemption, coming to provide for the reduction to half of the rates of municipal tax on immovable property and municipal tax on onerous real estate transfers applicable to real estate properties integrated in open or closed real estate investment funds with public subscription.
Article 49 of the EBF was repealed by article 215, no. 1, paragraph g), of Law no. 7-A/2016, of 30 March.
6. From the legislative evolution just described emerges the idea that the tax benefits granted to real estate investment funds do not have a systematic character, assuming instead a markedly cyclical nature, thus justifying that successive amendments to the legal regime have been established, as a rule, by means of budget laws.
It suffices to note that it began by providing for exemption from municipal tax – and from IMI and IMT – regarding real estate properties integrated in any type of real estate fund, and then this exemption was restricted to real estate properties integrated in open real estate investment funds. Later the exemption was restored regarding real estate properties integrated in open or closed real estate investment funds with public subscription, until the tax benefit was transformed into a reduction in the rate of tax applicable and, finally, it was suppressed.
It is not possible to see, therefore, in the approval of the EBF and in the multiple amendments to that Statute a general criterion that allows defining a stable fiscal regime that could override other separate provisions that already subsisted in the legal order.
Furthermore, it is important to note that the scope of application of the exemption initially created by Law 53-A/2006, through the amendment of article 46 of the EBF – which came to provide for exemption from IMI and IMT regarding real estate properties integrated in real estate investment funds – is not coincident with that of the exemption contemplated in article 1 of Decree-Law no. 1/87, which refers to acquisitions of immovable property made for a real estate investment fund by the respective management company. In fact, as a result of the new provision of article 46 of the EBF, real estate properties already integrated in real estate funds came to be exempt from IMT, whereas the exemption referred to in the 1987 decree-law covered acquisitions of immovable property made by management companies of real estate investment funds to be integrated into the assets of such funds. This means that the EBF came to expand the exemption, covering not only situations in which the fund was in the position of acquirer of the immovable property, but also those in which the fund acts in the position of alienator of the immovable property (see in this sense, the arbitral award in Case no. 544/2016, in which the same question was analysed).
7. It now falls to address the question of whether the provision of article 1 of Decree-Law no. 1/87 is repealed by any of the provisions of the EBF that came to regulate the exemption from IMT regarding real estate investment funds or whether there was a repeal of the system as a result of the new overall regulation of the matter of tax benefits.
As follows from article 7, no. 2, of the Civil Code, the repeal of the law "may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the circumstance that the new law regulates the entire matter of the preceding law".
Repeal is express when a law identifies, in an explicit declaration, the subject of cessation of effectiveness of a previous law. Tacit repeal occurs when, in view of the silence of the legislature on the identification of the repealed provisions, there is recorded an incompatibility of content between the provisions of a new law and those of a chronologically preceding legislative act. Global repeal occurs when a complex set of norms comes to be, in its entirety, subject to a discipline different from that which previously prevailed, independent of the problem of its compatibility with the rules previously in force (see Baptista Machado, Introduction to Law and the Legitimising Discourse, Coimbra, 1993, pages 165-166; Carlos Blanco Morais, Reinforced Laws – Reinforced Laws of Procedure Within the Scope of the Structuring Criteria of Relations Between Legislative Acts, Coimbra, 1998, pages 338, 341 and 343).
Express repeal does not raise special difficulties. It consists of a declaration made in the new law and may be limited to extinguishing the effectiveness of the old law or to resuming a previous legal regime that had been repealed by it, or be accompanied by constitutive or modifying effects, as occurs when the repealing law institutes a new normative complex or operates the modification of the previous legal regime.
Tacit repeal occurs to the extent that there is a contradiction existing between the preceding law and the new law, for where such contradiction does not occur it is possible for coexistence or interpenetration between the two laws.
Global repeal has in common with tacit repeal the fact that it operates in the possible silence of the legislature, which may say nothing about the suppression of preceding laws, but differs from it by the fact that it does not necessarily record a general incompatibility of commands between the old law and the new law. The ratio of this mode of repeal is anchored essentially in reasons associated with updating the process of legal innovation or to policies of systematisation and legislative consolidation (Carlos Blanco Morais, op. cit., page 344).
8. Applying the principles just enunciated to the situation sub judice, it is easily concluded that the provision of article 1 of Decree-Law no. 1/87 cannot be considered as repealed.
It is established that the provision of article 1 of Decree-Law no. 1/87 was not the subject of express repeal. And, as has been intimated, there is no incompatibility between this provision and that which came to be introduced in the EBF (article 46 later renumbered as article 49), since these provisions contain different scopes of application and the latter merely extended the exemption already established by the 1987 decree-law.
The possibility of a systemic repeal having occurred is also ruled out. As has been explained, the EBF, in its original version, and regarding real estate management and investment companies, merely established a specific fiscal regime regarding IRC and IRS (article 26 later renumbered as article 22). And only much later, through budget laws, did it come to provide, regarding real estate funds, through the new wording given to article 46 (later renumbered as article 49), exemption regarding the taxation of assets by reference to municipal tax and, later, to IMI and IMT (Laws no. 32-B/2002, of 30 December, and 53-A/2006, of 29 December). This regime underwent further successive amendments until the tax benefit came to consist in the reduction to half of the rates of tax on immovable property and tax on onerous real estate transfers (Law no. 83-C/2013, of 31 December) and was finally extinguished by the repeal of article 49 carried out by Law no. 7-A/2016, of 30 March.
It is thus verified that, with the approval of the Tax Benefits Statute, the tax benefits with a structural character applicable to the financial system and capital markets, including here investment funds, focused on the taxation of income. The subsequent introduction of an exemption from IMI and IMT applicable to investment funds, in the category of tax benefits relating to immovable property, by merely amending an already existing provision, does not evidence any general criterion defining the regime of tax benefits regarding the taxation of assets and the subsequent legislative evolution reveals that the exemption was instituted for merely cyclical reasons and without a clear purpose of systematising the legal regime.
Under these circumstances, one cannot speak of a global repeal of article 1 of Decree-Law no. 1/87.
As is necessary to conclude, the tax assessment act for IMT relating to the acquisition of an immovable property by the Applicant as representative of the Real Estate Investment Fund is illegal due to violation of the provision of the aforementioned article 1 of Decree-Law no. 1/87.
Compensatory Interest
The Applicant further requests that the Tax Authority be condemned to pay compensatory interest, at the legal rate, calculated on the tax, until full reimbursement of the amount owed.
In accordance with the provision of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim for which no appeal or challenge is available binds the Tax Administration, in the exact terms of the success of the arbitral decision in favour of the taxpayer, obliging it to "restore the situation that would exist if the tax assessment act subject to the arbitral decision had not been practised, adopting the acts and operations necessary for that purpose". This is in line with the provision of article 100 of the LGT, applicable by virtue of the provision of paragraph a) of no. 1 of article 29 of the RJAT.
Further, in accordance with no. 5 of article 24 of the RJAT, "payment of interest, regardless of its nature, is due, as provided for in the General Tax Law and in the Code of Tax Procedure and Process", which refers to the provisions of articles 43, no. 1, and 61, no. 5, of both of these laws, implying the payment of compensatory interest from the date of unduly paid tax until the date of processing of the respective credit note.
There is thus occasion, following the declaration of illegality of the IMT assessment act, for the payment of compensatory interest, in accordance with the provisions cited in articles 43, no. 1, of the LGT and 61, no. 5, of the CPPT, calculated on the amount that the Applicant unduly paid, at the rate of legal interest (articles 35, no. 10, and 43, no. 4, of the LGT).
III – Decision
The court decides as follows:
a) To find in favour of the request for arbitral pronouncement and to annul the tax assessment act for municipal tax on onerous real estate transfers no. ….
b) To condemn to the payment of compensatory interest from the payment of the tax until the date of issuance of the credit note, in accordance with articles 43 of the LGT and 61 of the CPPT.
Value of the Cause
The Applicant indicated as the value of the cause the amount of € 485,126.48, which was not contested by the Respondent, and corresponds to the value of the assessment to which it was sought to object (article 97, no. 1, paragraph a), of the CPPT).
Costs
In accordance with articles 12, no. 2, and 24, no. 4, of the RJAT, and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I annexed to that Regulation, the amount of costs is fixed at € 7,650.00 (seven thousand six hundred and fifty euros), which shall be borne by the Respondent.
Notify.
Lisbon, 24 May 2018.
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitrator Panellist
Jorge Bacelar Gouveia
The Arbitrator Panellist
Ana Cabral Basto
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