Process: 631/2014-T

Date: November 7, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This arbitral tax case (Process 631/2014-T) addresses the IMI (Municipal Property Tax) exemption regime applicable to FIIAH (Closed Real Estate Investment Funds for Residential Rental) in Portugal. The claimant, a FIIAH fund managed by a real estate investment fund management company, challenged an IMI assessment of €245.07 for 2012 regarding a property in its portfolio. The fund argued it qualified for automatic, permanent IMI exemption under Article 8(6) of the Special Regime for FIIAH (established by Law 64-A/2008), contending the exemption depends only on properties being 'intended for' residential rental, not actually rented. The Tax Authority countered that exemption requires properties to be effectively rented through concluded lease contracts. The proceedings revealed complexity regarding the temporal application of tax benefits and legislative amendments. Law 83-C/2013 subsequently added paragraphs 14 and 15 to Article 8, granting FIIAH funds a three-year grace period from acquisition (or from January 1, 2014 for earlier acquisitions) to lease properties while maintaining exemption. The Tax Authority raised procedural exceptions including lis pendens (parallel administrative proceedings at the Administrative and Tax Court of Sintra) and material incompetence regarding property register corrections. The tribunal admitted correction of the initial claim, dismissed the incompetence exception, but suspended proceedings pending resolution of the prejudicial administrative action. This case illustrates critical interpretative issues surrounding subjective versus objective exemption conditions for specialized real estate investment vehicles and the temporal scope of tax benefits during legislative transitions.

Full Decision

ARBITRAL DECISION

I. REPORT

A... – CLOSED REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL, Tax Identification Number..., whose incorporation was authorized by the Executive Board of the Securities Market Commission on 18 January 2012, managed and represented by its managing company, B... – Real Estate Investment Fund Management Company, S.A., with registered office at ..., no.... –..., ...-... Lisbon, with the sole registration number and collective person identification..., registered at the Commercial Registry Office of Lisbon, with share capital of Five Hundred Euros (hereinafter referred to only as "Claimant"), filed a request for constitution of a sole arbitral tribunal, pursuant to the provisions of subparagraph a) of paragraph 1 of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), in which the Tax and Customs Authority is summoned (hereinafter referred to as TCA or Respondent), with a view to:

a) Declaration of illegality of the Municipal Tax on Real Estate ("IMI") assessment act relating to the year 2012, contained in the collection document no. 2012..., with respect to the property registered under article..., fraction..., in the extinct parish of ... and in the amount of €245.07 and consequent annulment, following the dismissal order of the administrative complaint that it filed against that assessment act;

b) that the respective property register be ordered to be corrected with the notation of the legal, automatic and permanent exemption from IMI as of 31 December 2012;

c) Condemnation of the Respondent Entity to payment of compensatory interest;

For this purpose, it alleges, in summary, that:

i. The aforementioned IMI assessment act is illegal by violation of the exemption provided for in paragraph 6 of article 8 of the Special Regime applicable to Closed Real Estate Investment Funds for Residential Rental (hereinafter referred to only as "RFIIAH"), approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, as it does not depend on the actual rental of residential properties that are part of the portfolio of "FIIAH";

ii. A... – Closed Real Estate Investment Fund For Residential Rental (hereinafter referred to only as A... FIAAH) enjoys a subjective, objective and automatic exemption from payment of IMI.

iii. Even if it is not understood thus, with the legislative amendment introduced by Law no. 83-C/2013, of 31 December, which added paragraphs 14 and 15 to article 8 of the RFIIAH, the legislator determined that all properties that comprise the assets of Real Estate Investment Funds for Residential Rental are exempt from IMI, having these a period of three years counted from the date of their respective acquisition (or from 01.01.2014 in case acquisition is prior) to be given for rental.

iv. The dismissal order of the administrative complaint that the Claimant filed against the IMI assessment at issue herein incurs in an error of interpretation of the law by making the exemption from IMI provided for in the previous wording of paragraph 6 of article 8 of the RFIIAH dependent on the fact that the urban property in question is actually rented for permanent housing when the legislator only requires that the properties be "intended for rental for permanent housing".

The arbitral tribunal was constituted on 2014-10-24, in accordance with the provisions of subparagraph c) of paragraph 1 of article 11 of the LRAT.

Duly notified, the Respondent Entity filed its response, in which it invokes, briefly, the following:

i. From the dismissal order of the request for recognition of exemption from IMI and notation of the acquisition of a set of autonomous fractions intended for rental for permanent housing (including the fraction in question in the present proceedings) deduced a special administrative action which is pending at the Administrative and Tax Court of … under no. .../13... …, and therefore it understands that the dilatory exception of lis pendens is verified;

ii. This dilatory exception, according to the respondent entity, prevents knowledge of the merits of the case, and the respondent entity should be absolved of the instance, pursuant to articles 576, paragraphs 1 and 2 and 577, subparagraph i) of the CPC, applicable ex vi article 29, paragraph 1, subparagraph e) of the LRAT;

iii. Insofar as the present request for arbitral decision concerns the request for correction of the property register, considering the provisions of article 2, paragraph 1 subparagraph a) and 4, paragraph 1, both of the LRAT, the exception of material incompetence of the present Arbitral Tribunal is verified to examine and decide such request, pursuant to articles 576, paragraphs 1 and 2 and 577, subparagraph i) of the CPC, applicable ex vi article 29, paragraph 1, subparagraphs a) and e) of the LRAT;

iv. It further challenged alleging that only urban properties belonging to its respective assets and that are objectively intended for rental for permanent housing are covered by the IMI exemption provided for in paragraph 6 of article 8 of the RFIIAH. What "only makes it possible to determine their concrete purpose at the moment they are given for rent through the conclusion of the respective contract"

It concludes to the legality of the challenged assessment, requesting that the exceptions invoked be judged substantiated and it be absolved of the instance or, if not so understood, requests absolution from all claims.

It attached the administrative instructing file and one document.

On 7 February 2015, the first and only meeting of the Arbitral Tribunal was held, at the headquarters of CAAD, pursuant to the terms and purposes provided for in article 18 of the LRAT. At this meeting, the Claimant requested the correction of subparagraph b) of its final request for arbitral decision, since that was inserted due to a clerical error, doing so later in the written pleadings.

In the written pleadings, the Claimant, in addition to requesting that subparagraph b) of its initial request be considered as not written, continuing the present proceedings only with regard to the request for declaration of illegality of the IMI assessment act, responds to the exception of lis pendens raised by the respondent entity, maintaining its position of the request for arbitral decision regarding the substantive question. It also attached one document.

For its part, the Respondent Entity maintained its position of the response, emphasizing the verification of the aforementioned exceptions of absolute material incompetence of this Tribunal and lis pendens, as well as everything it challenged regarding the merits of the case.

By order of 8 June 2015, with a view to examining the exception of lis pendens or eventually a prejudicial question, the Respondent Entity was notified to attach to the file the respective judicial certificate of the special administrative action pending at the Administrative and Tax Court of Sintra.

The respondent entity attached the said judicial certificate on 2015.08.20.

By order delivered on 2015.10.22, the correction of the initial request for arbitral decision for examination of the declaration of illegality of the IMI assessment act above identified was admitted and consequently the exception of absolute material incompetence of this tribunal was judged unfounded. The suspension of the present arbitral proceedings was further ordered until final judgment of the decision delivered in the special administrative action proceedings pending at the Administrative and Tax Court of Sintra under no. .../13...BESNT, in the 2nd Organizational Unit, as the latter is prejudicial in relation to the present proceedings, pursuant to paragraph 1 of art. 272, paragraph 1 of the CPC, ex vi, subparagraph e) of paragraph 1 of art. 29 of the LRAT, with the Claimant to attach the respective judicial certificate.

By order delivered on 2018.10.08, it was determined that, by official letter, the Administrative and Tax Court of Sintra, 2nd Organizational Unit, Case no. .../13... BESNT, be requested for information on whether a final decision has already been delivered therein and, if so, the sending of a certificate of judgment with note of final judgment. This was done.

By petition, dated 2018.10.12, the respondent entity attached a copy of the judgment delivered in the special administrative action proceedings identified, requesting that in light of the dilatory exception of res judicata, it be absolved of the instance, pursuant to article 576 and 277, subparagraph i) of the CPC, applicable ex vi article 29, paragraph 1, subparagraph e) of the LRAT, or if it is not so understood, the request for arbitral decision should be judged unfounded.

On 2018.10.23 a judicial certificate was attached to the present proceedings with full copy of the judgment delivered by the Administrative and Tax Court of Sintra, in the special administrative action proceedings which was pending at Organizational Unit 2, under case no. .../13...BESNT, which became final on 2018.07.11.

On the same day an order was delivered notifying the Claimant to state its position on the exception of res judicata and setting a date for delivery of the present arbitral decision. The Claimant did not state its position on the mentioned exception.

II. CASE MANAGEMENT

The Arbitral Tribunal was regularly constituted.

The parties are endowed with legal personality and capacity, are legitimate and are regularly represented, as provided for in articles 4 and 10 of the LRAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

The issue that arises and that must be examined and decided, as it prevents examination of the merits of the case, is whether the judgment delivered by the Administrative and Tax Court of … in the special administrative action proceedings which was pending at Organizational Unit 2, under case no. .../13... … forms res judicata before the present arbitral proceedings.

On this question and with relevance for the decision, the following facts are deemed proved:

  1. On 2013.08.30, the Claimant filed a special administrative action against the dismissal order of the recognition of the tax benefit of IMI provided for in paragraph 6 of article 8 of the Special Regime Applicable to Real Estate Investment Funds for Residential Rental, approved by art. 102 of Law no. 64-A/2008, of 31 December, delivered by the Head of the Finance Service of..., on 2013.04.19, requesting the annulment of that order, "with the legal consequences" – cf. judgment delivered by the Administrative and Tax Court of … in the special administrative action proceedings which was pending at Organizational Unit 2, under case no. .../13....... contained in the judicial certificate attached to the present arbitral proceedings, whose content is given as fully reproduced;

  2. The mentioned administrative action was based on the fact that the dismissal decision incurs in "an error of interpretation of the law on which the author's right is based by making the exemption from IMI enshrined by paragraph 6 of art. 8 of the special regime applicable to FIIAH (…) dependent on the fact that the urban properties in question are actually rented for permanent housing", when the legislator only requires that such properties be "intended for rental for permanent housing"", cf. judgment delivered by the Administrative and Tax Court of … in the special administrative action proceedings which was pending at Organizational Unit 2, under case no. .../13...... contained in the judicial certificate attached to the present arbitral proceedings, whose content is given as fully reproduced;

  3. On 2014.08.25, the Claimant filed the present request for arbitral decision seeking the declaration of illegality of the IMI assessment act relating to the year 2012 and consequent annulment, following the dismissal order of the administrative complaint that it filed against that assessment act delivered by the Head of the Administrative Justice Division of the Finance Directorate of …, cf. petition of request for arbitral decision contained in the CAAD case management system;

  4. The present request for arbitral decision is based on the fact that the IMI exemption provided for in paragraph 6 of article 8 of the Regime applicable to "FIIAH" derives from the "allocation and intended use of the properties for rental for permanent housing and not from the fact that, at each moment, such properties are actually rented or not", cf. request for arbitral decision available in the CAAD case management system;

  5. By judgment, which became final on 2018.07.11, the special administrative action was judged unfounded. According to the final part of that judgment, "[t]he rental contract referred to in the last item of the evidentiary list is irrelevant to the outcome of the present special administrative action, in which the question is the recognition of the right to exemption from IMI relating to the year 2012, being incapable of projecting its effects upon previous tax acts.

Pursuant to and on the grounds set out, it is decided to judge the present administrative action unfounded, as not proven and, consequently, to absolve the R. from the claim" (emphasis ours) – cf. judgment delivered by the Administrative and Tax Court of … in the special administrative action proceedings which was pending at Organizational Unit 2, under case no..../13...... contained in the judicial certificate attached to the present arbitral proceedings, whose content is given as fully reproduced.

Let us examine whether the judgment delivered by the Administrative and Tax Court of … in the special administrative action proceedings which was pending at Organizational Unit 2, under case no. .../13...... formed res judicata.

Pursuant to the provisions of article 580 of the CPC, applicable subsidiarily by virtue of the provisions of subparagraph e) of paragraph 1 of article 29 of the LRAT, the exception of res judicata presupposes the repetition of a cause, after the first has been decided by judgment which no longer admits ordinary remedy, thus aiming to prevent the tribunal from being placed in the alternative of contradicting or reproducing a prior decision.

Article 581 of the CPC provides that:

"1 - A cause is repeated when an action identical to another is filed regarding the parties, the claim and the cause of action.

2 - There is identity of parties when the parties are the same from the point of view of their legal capacity.

3 - There is identity of claim when in one and the other cause the same legal effect is intended to be obtained.

4 - There is identity of cause of action when the claim raised in the two actions proceeds from the same legal fact. In real actions the cause of action is the legal fact from which the real right derives; in constitutive and annulment actions it is the concrete fact or the specific nullity invoked to obtain the desired effect."

As results from the facts established between the aforementioned administrative action and the present arbitral proceedings, there is (i) identity of parties, given that the parties have the same legal capacity (ii), the cause of action is common, since the grounds of fact and law invoked in one and the other action are identical, proceeding from the same legal fact - violation of the exemption provided for in paragraph 6 of article 8 of the RFIIAH, (iii) identity of claim is also verified, although in one the annulment of the IMI assessment act of the year 2012 is sought and in the other the annulment of the administrative tax act above identified, the truth is that, as was stated in the judgment delivered by the Administrative and Tax Court of Sintra and already final, "at issue is the recognition of the right to exemption from IMI relating to the year 2012" (emphasis ours).

Indeed, although the tax acts challenged are different in one and the other action, the truth is that in both the same question is discussed, the same "object", since the material relationship underlying one and the other action is the same, and as has been recognized by jurisprudence "there is identity of object if there already exists a final judgment that examined the specific grounds of fact and law on which the claim for annulment of the impugned act is based" (Judgment of the Supreme Administrative Court, delivered in case no. 0419/11 on 07.11.2011, more recent available at www.dgci.pt).

It is thus unequivocal that in the present arbitral proceedings the same legal effect is sought that in the mentioned administrative action was already decided, which no longer admits remedy, and thus "identity of object" is verified.

Thus, there is no doubt that on the matter in question in the present arbitral proceedings the judgment delivered by the Administrative and Tax Court of … in the special administrative action proceedings which was pending at Organizational Unit 2, under case no. .../13......, already final, formed res judicata.

For the foregoing reasons, the dilatory exception of res judicata is deemed verified, which is to be examined of its own motion, pursuant to article 578 of the CPP, ex vi subparagraph e) of paragraph 1 of article 29 of the LRAT, and the Respondent Entity is absolved of the instance, pursuant to the provisions of articles 576 and 577, subparagraph i) both of the CPC, applicable ex vi, subparagraph e) of paragraph 1 of article 29 of the LRAT.

Consequently, examination of the claim for compensatory interest is prejudiced.

The value of the case is set at €245.07, in accordance with the provisions in subparagraph a) of paragraph 1 of art. 97-A of the CPPT, applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of the RAJT and paragraph 2 of art. 3 of the Regulation on Costs in Tax Arbitration Proceedings.

The arbitration fee is set at €306.00, pursuant to Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be borne entirely by the Claimant, pursuant to articles 12, paragraph 2, and 22, paragraph 4, both of the LRAT, and article 4, paragraph 4, of the said Regulation.

Notify.

Lisbon, 7 November 2018.

The Arbitrator,

Conceição Pinto Rosa

Frequently Asked Questions

Automatically Created

Are FIIAH (Closed Real Estate Investment Funds for Residential Leasing) automatically exempt from IMI property tax in Portugal?
Yes, FIIAH funds benefit from automatic IMI exemption under Article 8(6) of the Special Regime for FIIAH. The claimant argued this is a subjective, objective, and automatic exemption that does not depend on properties being effectively rented. However, the Tax Authority contested this interpretation, arguing exemption requires actual rental through concluded lease contracts. The legislative framework suggests the exemption attaches to the fund's special status and the intended purpose of properties, though the precise conditions were disputed in this arbitral proceeding.
Does the IMI exemption for FIIAH funds depend on the properties being effectively rented out for housing?
This was the central legal dispute in the case. The FIIAH fund argued the IMI exemption under Article 8(6) of the RFIIAH regime requires only that properties be 'intended for rental for permanent housing' (destinados a arrendamento para habitação permanente), not that they be actually rented. The Tax Authority took the opposing view, maintaining that exemption depends on properties being effectively given for rent through concluded lease contracts. The tribunal's final determination on this interpretative question was suspended pending resolution of parallel administrative proceedings that constituted a prejudicial issue.
What changes did Law 83-C/2013 introduce regarding IMI exemption for FIIAH fund properties?
Law 83-C/2013 of December 31, 2013, added paragraphs 14 and 15 to Article 8 of the RFIIAH regime, introducing a significant grace period mechanism. Under this amendment, all properties comprising FIIAH fund assets are exempt from IMI, with funds granted a three-year period from the respective acquisition date (or from January 1, 2014, if acquisition occurred earlier) to lease the properties for residential purposes. This legislative change clarified and liberalized the exemption regime, explicitly addressing the temporal gap between property acquisition and actual rental that was at the heart of disputes like this arbitral case.
What is the deadline for FIIAH funds to lease acquired properties to maintain the IMI tax exemption?
Following the amendments introduced by Law 83-C/2013, FIIAH funds have a three-year deadline from the date of property acquisition to lease acquired properties for residential rental purposes while maintaining IMI exemption. For properties acquired before the law's effective date, the three-year period is calculated from January 1, 2014. This grace period recognizes the practical realities of real estate investment fund operations, where properties may require renovation, administrative processing, or market conditions may delay immediate rental, without prejudicing the fund's tax-exempt status during this transition period.
Can FIIAH funds claim compensatory interest (juros indemnizatórios) after a successful challenge of an illegal IMI assessment?
Yes, the claimant expressly requested condemnation of the Tax Authority to payment of compensatory interest (juros indemnizatórios) as part of the relief sought in the arbitral proceedings. Under Portuguese tax law, when tax assessments are annulled as illegal, taxpayers are entitled to compensatory interest on amounts unduly paid or withheld. However, the tribunal's substantive analysis of this claim was suspended pending resolution of the prejudicial administrative proceedings. The right to compensatory interest would crystallize upon successful annulment of the illegal IMI assessment, calculated from the payment date until restitution.