Summary
Full Decision
ARBITRAL DECISION
They agree in Arbitral Court
I – Report
1. A..., S.A., with the tax identification number..., with registered office at Rua ... no.... ..., ... floor, ...-...Lisbon, filed a request for constitution of an arbitral tribunal, under the provisions of articles 2, no. 1, paragraph a), and 10 and following of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax act of assessment of Municipal Tax on Onerous Transfers of Immovable Property (IMT), in the global amount of € 2,616,250.00, relating to the acquisition of an immovable property on 27 January 2015, as well as of the act of tacit rejection of the request for official review filed against that tax act, further requesting condemnation to payment of compensatory interest.
The request is based on the following grounds.
The Claimant is a public company whose corporate purpose includes, among other activities, the operation of hotel activities and units.
On 27 January 2015, it acquired from the Open Real Estate Investment Fund B..., through the execution of a purchase and sale contract in the form of a public deed, the immovable property ..., located at ..., no...., with the fiscal property value of € 21,472,440.00.
At the date of execution of the said purchase and sale contract, B..., the seller of the property, was an open real estate investment fund, established to operate in accordance with the terms stipulated in the Legal Framework of Real Estate Investment Funds, approved by Decree-Law no. 60/2002, of 20 March.
In the said contract, the parties agreed on the price of € 40,250,000.00, and the Tax Authority issued, on 22 January 2015, the collection document no...., which resulted in an amount payable in the form of IMT of € 2,616,250.00.
However, at the date of acquisition of the property by the Claimant, the rule of partial exemption provided for in no. 1 of article 49 of the EBF was in force, as amended by Law no. 83-C/2013, of 31 December, insofar as the acquired property was integrated into an open real estate investment fund, whereby the rates of municipal tax on properties and municipal tax on onerous transfers were reduced to half.
Thus, tax was due in the amount of € 1,308,125.00 and not in the amount of € 2,616,250.00, because the applicable rate was 3.25%, and not 6.5%, by virtue of the provision established in the said provision of article 49 of the EBF, in the wording in force at the date of acquisition of the property.
Concluded in favour of the merits of the arbitral request.
The Tax Authority, in its response, argues that the fact that article 31, no. 3, of Decree-Law no. 287/2003, of 12 November, which repealed the Code of Municipal Tax on Transfer and Tax on Succession and Gifts, states that references in legal texts to those taxes are considered to be made to the IMT Code does not have the effect of maintaining the exemption of IMT for acquisitions of properties made by all investment funds.
If the exemption of IMT from acquisitions of properties made by real estate investment funds since 1987, under article 1 of Decree-Law no. 1/87, as well as from acquisitions made by third parties of properties of investment funds, by virtue of the provision of article 49 of the EBF (which was subsequently repealed by Law no. 7-A/2016, of 30 March), were to apply, real estate investment funds would be doubly favoured, generating a situation of inequality vis-à-vis the remaining participants in the real estate market, both in the acquisition of properties and in the sale of properties to third parties.
Concludes in favour of the rejection of the request.
2. In the course of the proceedings, the meeting referred to in article 18 of the RJAT was dispensed with, as well as the production of the testimonial evidence indicated by the Claimant, the case being referred for submissions within the successive period of ten days.
In its submissions, the Claimant maintained its previous position. The Tax Authority did not make counter-submissions.
3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority in accordance with regulatory procedures.
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 Ethics Council appointed as arbiters of the collective arbitral tribunal the signatories, who communicated acceptance of the charge within the applicable period.
The parties were duly and appropriately notified of this appointment and did not manifest an 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 provision 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 25 February 2019.
The arbitral tribunal was regularly constituted and is materially competent, in light of the provision of articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same diploma and 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings are not subject to nullities and no exceptions were raised.
It is incumbent to assess and decide.
II – Reasoning
Factual Matter
4. The factual matter relevant to the decision of the case is as follows:
a) The Claimant is a public company whose corporate purpose includes, among other activities, the operation of hotel activities and units.
b) On 27 January 2015, it acquired from the Open Real Estate Investment Fund B..., through the execution of a purchase and sale contract in the form of a public deed, the immovable property ..., located at ..., no...., for the price of € 40,250,000.00;
c) The Tax Authority issued, on 22 January 2015, the tax act of assessment of IMT, under no...., in the amount of € 2,616,250.00.
d) The Claimant paid the tax;
e) On 24 May 2018, the Claimant filed a request for official review of the assessment act which was not subject to decision within the legally prescribed period.
The Tribunal formed its conviction regarding the proven facts on the basis of the documents attached to the petition and those contained in the administrative proceedings submitted by the Tax Authority with its response.
Question of Law
5. The Claimant requests that the acquisition of an immovable property from an Open Real Estate Investment Fund falls within the partial exemption from Municipal Tax on Onerous Transfers of Immovable Property in accordance with no. 1 of article 49 of the Tax Benefits Statute, as amended by Law no. 83-C/2013, of 31 December, whereby IMT should have been assessed at the rate of 3.25%, not 6.5%, corresponding to the global amount of € 1,308,125.00.
The Tax Authority argues that the exemption originally provided for in article 1 of Decree-Law no. 1/87, of 3 January, as an exemption from transfer tax, is no longer in force and that the attribution to real estate investment funds of IMT exemption relating to acquisitions of properties they make, as well as to sales of properties by investment funds to third parties, entailing a double benefit, would generate a situation of inequality in relation to other participants in the real estate market.
The question raised is, therefore, whether article 49, no. 1, of the Tax Benefits Statute contemplated the intended reduction to half of the rates on IMT and whether it remained in force at the date of sale of the property to the Claimant, justifying an analysis of the legislative evolution subsequent to 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 its management company are exempt from transfer tax". The provision arises in the sequence of the regulation of real estate investment funds, carried out by Decree-Law no. 246/85, of 12 July, and, as is evident from its preamble, aimed to define an appropriate tax framework for the creation of these funds to which the Government recognizes an important contribution to the formation of savings and mobilization of investments in the real estate sector, with positive effects on construction and the real estate rental market.
Meanwhile, Decree-Law no. 287/2003, of 12 November, which carried out the reform of the taxation of heritage, approving as an annex the Code of Municipal Tax on Immovable Property (CIMI), and the Code of Municipal Tax on Onerous Transfers of Immovable Property (CIMT), determined, in its article 28, no. 2, that references in legal texts to municipal transfer tax are to be considered as references to the Code of Municipal Tax on Onerous Transfers of Immovable Property.
Furthermore, the same diploma, in article 31 – which included various repeal provisions – provided, in no. 6, for the maintenance in force of tax benefits relating to municipal transfer tax 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, the exemptions from transfer tax contained in any separate diplomas should be considered as relating 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 established in article 1 of Decree-Law no. 1/87.
Following the creation of the exemption from transfer tax relating to the acquisition of properties 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 objective of systematizing the general principles to which the attribution of benefit situations should be subject. The EBF arose following the reform of the income tax for individuals (CIRS), the income tax for legal entities (CIRC) and the municipal contribution (CA), which had already introduced some structural mechanisms for tax relief, whereby the Statute aimed to characterize some other situations of less structural character but with relative stability, leaving to future State Budget Laws benefits with markedly cyclical purposes or that would require more frequent regulation (see the respective preamble note).
In the original wording of the EBF, and in relation to management and real estate investment companies, only a specific tax regime for corporate income tax purposes was provided and, for personal income tax purposes, regarding profits distributed by those companies to their respective shareholders (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 in the matter of municipal contribution, as follows:
Properties integrated in real estate investment funds and equivalent, in pension funds and in savings-retirement funds, which are established and operate in accordance with national legislation, are exempt from municipal contribution.
Following the reform of heritage taxation, approved by the said Decree-Law no. 287/2003 – which repealed the Municipal Contribution Code – this article 46, as amended by the State Budget Law for 2007 (Law 53-A/2006, of 29 December) came to establish the exemption from municipal tax on property (IMI) and municipal tax on onerous transfers of immovable property (IMT) for properties integrated in real estate investment funds, under the same conditions that already appeared 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, being also a budget law, through new wording given to article 49 of the EBF, came to exempt from municipal tax on property and municipal tax on onerous transfers of immovable property only "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 "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 instead to provide for the reduction to half of the rates of municipal tax on property and municipal tax on onerous transfers of immovable property applicable to properties integrated in open or closed real estate investment funds with public subscription.
No. 1 of this provision came to have the following wording:
"The rates of municipal tax on property and municipal tax on onerous transfers of immovable property applicable to properties integrated in open or closed real estate investment funds with public subscription, in pension funds and in savings-retirement funds which are established and operate in accordance with national legislation are reduced to half".
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, the idea emerges that the tax benefits attributed to real estate investment funds do not have a systematic character, instead assuming a markedly cyclical nature, thus justifying that successive amendments to the legal regime have been established, as a rule, through budget laws.
It suffices to note that it began by providing for the exemption of municipal contribution – and of IMI and IMT – in relation to properties integrated in any type of real estate fund, only to later restrict this exemption to properties integrated in open real estate investment funds. Later the exemption as to properties integrated in open or closed real estate investment funds with public subscription was restored until the tax benefit was transformed into a reduction of the applicable tax rate and, finally, was suppressed.
It is not possible therefore to see, in the approval of the EBF and the multiple amendments to this Statute, a general criterion that allows defining a stable tax regime that can 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 the exemption of IMI and IMT in relation to 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 its respective management company. In fact, by virtue of the new provision of article 46 of the EBF, properties already integrated in real estate funds came to be exempt from IMT, whereas the exemption referred to in the 1987 diploma covered acquisitions of immovable property made by management companies of real estate investment funds to become part of the assets of these funds. This means that the EBF came to broaden the exemption, covering not only situations in which the fund was in the position of property purchaser, but also those in which the fund acts in the position of property seller (see in this sense the arbitral award handed down in Case no. 544/2016, in which the same question was analyzed).
7. In light of the legislative evolution previously described, and as has been emphasized by arbitral jurisprudence, there is no reason to consider the repeal of article 1 of Decree-Law no. 1/87 verified, since this diploma was not subject to express repeal, nor is there any incompatibility between this rule and the one that 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 diploma (see, among others, the awards handed down in Cases nos. 622/2017, 316/2018, 326/2018 and 606/2018).
In any case, what is at issue is not the exemption provided for in that provision of the 1987 diploma, but rather the reduction to half of the IMT rates relating to onerous transfers of immovable property applicable to properties integrated in real estate investment funds referred to in article 49, no. 1, of the EBF, as amended by Law no. 83-C/2013, of 31 December.
In fact, as was noted, whilst the said 1987 diploma referred to acquisitions of immovable property made for a real estate investment fund, the reduction of applicable rates referred to in article 49 of the EBF covers transfers of properties integrated in real estate investment funds, covering both acquisitions and sales of properties.
In the present case, we are dealing with the sale to the Claimant, by a real estate investment fund, of a property that was integrated into its assets. The sale was carried out in 2015, still before the repeal of this article 49 took place, which only occurred through Law no. 7-A/2016, of 30 March.
The cited rule of article 49, no. 1, of the EBF, being in force at the date of the transaction, is also very clear in setting a reduction to half of the rates applicable to properties integrated in real estate investment funds, whereby the assessment act, by disregarding this tax benefit, violated this provision frontally.
There is no reason, on the other hand, to consider the violation of the principle of equality verified. As results from the preamble of Decree-Law no. 1/87, the tax exemption originally established in this diploma aimed to establish conditions for the creation of real estate investment funds in order thereby to induce positive effects on the construction industry and the real estate rental market. And this objective must have justified the exemption provided for in the EBF, later converted into a reduction of applicable rates.
There is therefore sufficient material grounds to establish a more favourable regime in transactions of properties integrated in real estate investment funds, which rules out from the outset the claimed violation of the principle of equality.
As must be concluded, the tax act of IMT relating to the acquisition of a property by the Claimant is illegal due to violation of the provision of the cited article 49, no. 1, of the EBF, in the wording of Law no. 83-C/2013, of 31 December.
Compensatory Interest
The Claimant further requests condemnation of the Tax Authority to payment of 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 shall apply binds the Tax Administration, in the exact terms of the merits of the arbitral decision in favour of the taxpayer, incumbent upon it to "restore the situation that would have existed had the tax act subject to the arbitral decision not been carried out, 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.
Still in accordance with no. 5 of article 24 of the RJAT "payment of interest, regardless of its nature, is due in accordance with the terms provided for in the General Tax Law and the Code of Tax Procedure and Process", which refers to the provision of articles 43, no. 1, of the LGT and 61, no. 5, of the CPPT, entailing the payment of compensatory interest from the date of improper payment of the tax until the date of processing of the respective credit note.
There is therefore place, following the declaration of illegality of the IMT assessment act, for the payment of compensatory interest, in accordance with the cited provisions of articles 43, no. 1, of the LGT and 61, no. 5, of the CPPT, calculated on the amount that the Claimant paid improperly, at the rate of legal interest (articles 35, no. 10, and 43, no. 4, of the LGT).
III – Decision
Terms in which it is decided:
a) To adjudge the request for arbitral pronouncement to be well-founded and to annul the tax act of assessment of municipal tax on onerous transfers of immovable property no...., as well as the act of tacit rejection of the request for official review;
b) To condemn to payment of compensatory interest from the payment of tax until the date of issue of the credit note, in accordance with articles 43 of the LGT and 61 of the CPPT.
Value of the Case
The Claimant indicated as the value of the case the amount of € 1,308,125.00, which corresponds to the value of the tax that would be due if the provision of article 49, no. 1, of the EBF were applied. However, in accordance with article 97-A, no. 1, paragraph a), of the CPPT, the value of the case, in the case of challenge to an assessment, is that of the amount whose annulment is sought. As the tax was fixed, in the assessment act, at € 2,616,250.00, the value of the case is fixed at that amount.
Costs
In accordance with articles 12, no. 2, and 22, no. 4, of the RJAT, and 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 € 33,660.00, which shall be borne by the Respondent.
Notify.
Lisbon, 13 May 2018
The President of the Arbitral Court
Carlos Fernandes Cadilha
The Arbitral Arbiter
Paulo Nogueira da Costa
The Arbitral Arbiter
A. Sérgio de Matos
Frequently Asked Questions
Automatically Created