CAAD 64/2016-T: IMT and Stamp Tax Exemption for FIIAH – Fiscal Retroactivity Prohibition

ARBITRAL DECISION

I – Report

1. On 3.02.2016, A…, S.A., with registered office at …, no. …–…, in Lisbon, with tax identification number …, requested of CAAD the constitution of an arbitral tribunal, pursuant to art. 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "LFATM"), in which the Tax and Customs Authority is defendant, with a view to the declaration of nullity or, should that not be understood to be the case, to the annulment, of the following assessments relating to the acquisition of the fraction…, of the urban property registered in the matrix under the article … of the Parish of … and …:

a) IMT (Municipal Tax on Onerous Real Estate Transactions) assessment, in the amount of € 26,402.75, to which corresponds document no. …

b) Stamp duty assessments, in the amount of € 3,743.80 to which corresponds document no. …

The Claimant further petitions for the reimbursement of the amount of the assessments, which it considers to have paid unduly, as well as the respective indemnity interest.

1. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified to the Tax and Customs Authority.
   Pursuant to the terms and for the purposes of the provision in no. 1, art. 6, of the LFATM, by decision of the President of the Ethics Council, duly communicated to the parties, within the legally applicable time limits, the undersigned was designated as arbitrator, who communicated to the Ethics Council and to the Centre for Administrative Arbitration the acceptance of the assignment within the regularly applicable time limit.
   The Arbitral Tribunal was constituted on 19-02-2016.

2. Verifying the absence of any situation provided for in art. 18, no. 1, of the LFATM, which would make necessary the arbitral meeting provided therein, the holding of the same was dispensed with.

3. The grounds presented by the Claimant, in support of its claim, were, synthetically, the following:

• Law no. 64-A/2008, of 31 December (State Budget for 2009), which approved the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental established in article 8 the tax regime applicable to REIFRH (Real Estate Investment Funds for Residential Housing) as regards the Municipal Tax on Onerous Real Estate Transactions, having defined in number 7 of the cited article 8 that:

"Are exempt from IMT:

a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in no. 1;

(…)

• Law no. 83-C/2013, of 31 December (State Budget for 2014) added to article 8 of the Tax Regime of REIFRH numbers 14 to 16, with the following text:

«14 – For the purposes of the provisions in nos. 6 to 8, it is considered that urban properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within three years counted from the moment in which they became part of the fund's patrimony, the taxpayer being required to communicate and provide proof to the AT of the respective actual rental, within 30 days following the end of the said period.

15 – When the properties have not been the subject of a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 cease to have effect, the taxpayer being required in that case to request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 – Should the properties be alienated, with the exception of the cases provided for in article 5, or should the REIFRH be the subject of liquidation, before the expiry of the period provided for in no. 14, the taxpayer is equally required to request from the AT, before the alienation of the property or the liquidation of the REIFRH, the assessment of the tax due pursuant to the preceding number.»

• Law no. 83-C/2013, of 31 December further enshrined in its article 236 the following transitional regime:

«1 – The provision in nos. 14 to 16 of article 8 of the special regime applicable to REIFRH and REISRH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, is applicable to properties that have been acquired by REIFRH as from 1 January 2014.

2 – Without prejudice to the provision in the preceding number, the provision in nos. 14 to 16 of article 8 of the special regime applicable to REIFRH and REISRH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, is equally applicable to properties that have been acquired by REIFRH before 1 January 2014, the three-year period provided for in no. 14 being counted, in those cases, as from 1 January 2014.»

• Based on the above-cited provisions, in particular those resulting from the amendments

made to the Tax Regime of REIFRH, the now Claimant requested from the Tax Authority the assessment of IMT and Stamp Duty object of the present request for arbitral pronouncement, the assessments being paid by the Claimant on 30 December 2015.

• The tax acts refer to urban property that was part of the patrimony of Fund B... Rental, on the date of entry into force of Law no. 83-C/2013, of 31 December (State Budget for 2014), that is, those covered by the above-cited article 236.

• The IMT and stamp duty exemptions, contained, respectively, in numbers 7, paragraph a), and 8 of art. 8 of the Tax Regime of real estate investment funds for residential rental, had been recognized at the request of the Claimant pursuant to art. 10 of the IMT Code, at a moment prior to the entry of the property into Fund B….

• The fact subject to taxation is, both under IMT and under Stamp Duty, the acquisition of ownership of the relevant properties by Fund B…, the IMT and Stamp Duty exemptions, at the date they entered the patrimony of Fund B…, not being conditioned to the subsequent verification of any facts or circumstances, nor, likewise, subject to any regime of expiry.

• Thus it is manifest that the imposition after the tax facts of any facts or circumstances conditioning the exemption suffers from unconstitutionality by violation of the principle of non-retroactivity of tax law, enshrined in art. 103, no. 3, of the Constitution of the Portuguese Republic.

1. The ATA – Tax and Customs Administration, called upon to pronounce itself, contested the claim of the Claimant, defending itself, in summary, with the following grounds:

• As results from the respective description of the assessments in question, relating to the acquisition of the property in question, IMT and Stamp Duty were assessed pursuant to article 235 of Law no. 83-C/2013, of 31 December [which added no. 16 to article 8 of Law 64-A/2008, of 31 December], by force of the execution of a deed of purchase and sale, as such fact determines that the property was given a destination different from that upon which the benefit was based, the exemption expiring.

• No. 14 of article 8 of the Tax Regime of REIFRH came to specify the meaning of the expression "urban properties intended exclusively for rental for permanent housing", in that, pursuant to its terms, "it is considered that urban properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within three years counted from the moment in which they became part of the fund's patrimony".

• Being that, alongside such specification, with the introduction of nos. 15 and 16 in the said article 8, a regime of cessation of the benefit came to be provided in the case of non-observance of the legal requirement contained in no. 14.

• In the case in question, with respect to the property to which the assessments object of the present case refer and which was part of the Fund on the date of entry into force of Law 83-C/2013, of 31 December, the Claimant requested from the AT the assessments of IMT and Stamp Duty, in view of the changes introduced to the tax regime of REIFRH, in that, at the end of 2015, it alienated it to third parties, thereby giving it a destination different from that which was supposed: residential rental.

• Taxpayers who wished to benefit from the said exemptions, always had, since the beginning of the tax regime applicable to REIFRH, to comply with the requirement that such properties be intended exclusively for rental for permanent housing.

• Therefore, the Claimant's assertion that the exemptions in question were not conditioned by any facts or circumstances lacks foundation, and, consequently, the argumentation it constructs starting from such incorrect premise is equally tainted with error.

• The new wording introduced by Law no. 83-C/2013, of 31 December, in favour of legal certainty and the principle of protection of legitimate expectations, and in line with the spirit of the legislator, when creating the regime, came only to clarify the criterion already required.

• The exemptions in question did not simply cease to be in force: what happened, only, was that criteria were established to specify a legal requirement provided in indeterminate form.

• On the other hand, the cessation of a tax benefit may always take place, for example, should it be found, in a concrete case, through inspection, that the respective requirements are not met, to which is added, further, article 14, no. 2, of the Tax Benefits Statute provides that:

"when the tax benefit concerns the acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those are alienated or given another destination without authorization of the Minister of Finance, without prejudice to other penalties or different regimes established by law"

• The action of the defendant entity is always bounded by its subordination to the law, not being able to disapply a norm on the basis of its unconstitutionality, should such unconstitutionality be verified, which by mere academic hypothesis is conceded.

• Thus the request for payment of indemnity interest is unfounded as there is no error in the action of the defendant entity, much less an error attributable to the services, thus excluding the application of article 43 of the General Tax Law.

1. The parties presented written submissions, having, in essence, sustained the positions already exposed in the pleadings.

With the submissions the Claimant attached to the case a legal opinion authored by Professors Dr. C… and Doctor D….

1. The tribunal is materially competent and is regularly constituted pursuant to the LFATM.

The parties have legal personality and capacity, are legitimate and are legally represented.

The case does not suffer from defects that would invalidate it.

1. It is necessary to resolve the following questions:

a) Whether the assessments object of the present case are unlawful.

b) In the affirmative case, whether the Claimant should be recognized as having the right to reimbursement of the taxes allegedly paid, as well as indemnity interest on such amounts.

II – The Relevant Facts

1. The following facts are considered proved:

2. The defendant proceeded, on 30.12.2015, to the following assessments, having as taxpayer the Claimant:

a) IMT assessment, in the amount of € 26,402.75, to which corresponds document no. …

b) Stamp duty assessments, in the amount of € 3,743.80 to which corresponds document no. …

1. The fraction "S" of the urban property registered in the matrix under the article … of the Parish of … and …, to which the tax acts in question refer, was part of the patrimony of the Claimant on the date of entry into force of Law no. 83-C/20133, of 31 December, having been acquired for onerous consideration on an earlier date.

2. The IMT and stamp duty exemptions, contained, respectively, in numbers 7, paragraph a), and 8 of art. 8 of the Tax Regime of real estate investment funds for residential rental, had been recognized at the request of the Claimant pursuant to art. 10 of the IMT Code, at a moment prior to the entry of the fraction in question into Fund B…, as a Real Estate Investment Fund for Residential Rental.

3. The following appears in the IMT assessment in question:

4. The following appears in the stamp duty assessment in question:

5. The tax obligations to which the assessments refer were paid on 30 December 2015.

With interest for the resolution of the case, within the scope of the facts alleged by the parties, there are no unproved facts.

1. The Tribunal's conviction as to the resolution of the facts was based on the documents contained in the case, as well as on the pleadings presented, and further on the circumstance that there occurs total agreement between the parties regarding the same, the disagreement being confined to matters of law.

III – Applicable Law

1. Law no. 64-A/2008, of 31 December, approved the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental.

In its article 8 the tax regime applicable to real estate investment funds was established. With respect to the Municipal Tax on Onerous Real Estate Transactions, the following was established in no. 7 of the said art. 8:

"7 – Are exempt from IMT:

a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in no. 1;

b) The acquisitions of urban properties or of autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the purchase option to which no. 3 of article 5 refers by the tenants of the properties that form part of the patrimony of the investment funds referred to in no. 1."

For its part, Law 83-C/2013, of 31 December, added to the said art. 8 numbers 14 to 16 with the following wording:

"14 – For the purposes of the provisions in nos. 6 to 8, it is considered that urban properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within three years counted from the moment in which they became part of the fund's patrimony, the taxpayer being required to communicate and provide proof to the AT of the respective actual rental, within 30 days following the end of the said period.

15 – When the properties have not been the subject of a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 cease to have effect, the taxpayer being required in that case to request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 – Should the properties be alienated, with the exception of the cases provided for in article 5, or should the REIFRH be the subject of liquidation, before the expiry of the period provided for in no. 14, the taxpayer is equally required to request from the AT, before the alienation of the property or the liquidation of the REIFRH, the assessment of the tax due pursuant to the preceding number."

Law 83-C/2013, of 31 December, further enshrined in its article 236, the following transitional regime:

"1 – The provision in nos. 14 to 16 of article 8 of the special regime applicable to REIFRH and REISRH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, is applicable to properties that have been acquired by REIFRH as from 1 January 2014.

2 – Without prejudice to the provision in the preceding number, the provision in nos. 14 to 16 of article 8 of the special regime applicable to REIFRH and REISRH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, is equally applicable to properties that have been acquired by REIFRH before 1 January 2014, the three-year period provided for in no. 14 being counted, in those cases, as from 1 January 2014."

1. In view of this legislative framework, the legal question that must be resolved is whether, in light of no. 2, art. 236, of Law 83-C/2013, of 31 December, and nos. 14, 15 and 16 of Law no. 64-A/2008, of 31 December, in the wording given by that statute, the acquisition of the property in question, which occurred before 1 January 2014, can be taxed by reason of the property having been sold before the expiry of the three-year period counted as from 1 January 2014 and, on the other hand, in the affirmative case, whether such legal solution is in conformity with art. 103, no. 3, of the Constitution of the Portuguese Republic, which provides that "No one may be obliged to pay taxes (…) that have a retroactive nature (…)"

2. It is indubitable that, in light of the ordinary norms transcribed, a Real Estate Investment Fund for Residential Rental which, as from 1.01.2014, sells a property acquired in an earlier year, which has benefited from an exemption by reason of the property being intended for rental for permanent housing, and which sells it before three years have elapsed after 1.01.2014, becomes subject to tax by force of Law 83-C/2013, of 31 December.[1]

It should be noted that, in the case sub judice, the tax fact in question (the acquisition of ownership by the Claimant) occurred entirely under the old law.

It is also indubitable that the tax fact in question becomes subject to taxation in light of Law 83-C/2013, of 31 December, but was not subject to it under Law no. 64-A/2008, of 31 December, in its original wording.

1. Sérgio Vasques writes that "The affirmation of the express prohibition of art. 103, no. 3, of the Constitution of the Republic, serves essentially to make clear that retroactivity, strong or weak, is in principle forbidden to the tax legislator, who may only resort to it on an exceptional basis. In light of art. 103, no. 3, of the CRP, a retroactive tax law will always appear, and at the outset, to be unconstitutional law, it not being necessary any case-by-case weighing to arrive at this first conclusion. But this does not prevent that, in a second moment, we conclude that legal certainty must [be] sacrificed to other constitutional values that in the concrete case prove to be more relevant and that in exceptional circumstances it be considered legitimate for retroactive tax law, as may happen in case of war, natural catastrophe, epidemic or serious financial crisis".[2]

Further in the doctrine, Ana Paula Dourado tells us that "In the cases of taxes of single obligation (for example, the purchase and sale of real property, subject to IMT) the prohibition of retroactivity implies respect for past tax facts, that is, the non-application of the new law to those facts, as the tax obligation arose and is concluded."[3]

1. In line with the qualified doctrine just cited, one may read in Decision no. 617/2012, of 19 December 2012, Case no. 150/12, of the Constitutional Court:

"In effect, the fact giving rise to the tax obligation (…) indubitably occurs before the publication of the new law, it not being possible to understand that one is faced with a complex tax-legal fact of successive formation.

The application of the new law to this fact occurring prior to its approval involves, therefore, an authentic retroactivity.

What is relevant, in light of the constitutional principles enunciated, is not the moment of assessment of a tax, but rather the moment in which the act occurs that determines the payment of that tax. It is that act which will give rise to the constitution of a tax obligation, therefore it is at that time, in obedience to the principle of legality, in the aspect grounded on the principle of protection of legitimate expectations, that it is required, as a preventive measure, that the law providing for the creation or aggravation of that tax already be in force, so that the citizen may consider the tax consequences of his conduct.

(…)

Now, having the fact giving rise to the tax obligation already occurred before it was aggravated by new law, the reasons which presided over the establishment of the rule of prohibition of retroactivity in this domain are entirely present, as it is important to prevent the abstract risk that the law published with retroactive effect cause unreasonable financial burdens, from the impossibility in which the affected taxpayers found themselves, bound to such facts already occurred, to foresee and provide for their tax consequences, determined by future law."

1. In accordance with the foregoing, and in line with the cited doctrine and case law, it is unequivocal that no. 2, art. 236 of Law 83-C/2013, of 31 December, in conjunction with no. 16 of art. 8 of Law no. 64-A/2008, of 31 December, in the wording of Law 83-C/2013, establishes a retroactive taxation (authentic retroactivity), violating art. 103, no. 3, of the Constitution of the Portuguese Republic, therefore the tribunal cannot fail to disapply the same, in obedience to the norm enshrined in art. 204 of the CRP.[4]

2. In essence in the sense just stated, write Professors José Xavier de Basto and Paulo Mota Pinto, in the mentioned opinion attached to the case:

"In prescribing the application of norms that restricted exemptions – the new nos. 14 to 16 of article 8 of the regime of REIFRH, with the consequent effect of "broadening" of the scope – to acquisitions for onerous consideration of real property and acts and related contracts prior to its entry into force, which were not subject to IMT and stamp duty at the date of their execution and became subject as a result of that special transitional provision, the norm of no. 2 of article 236 of the State Budget Law for 2014 is thus a retroactive tax norm, and one which is characterized by authentic retroactivity.

This is not obstructed by any allegation to the effect that the said restriction of the exemption would have aimed only to verify the purpose of rental of the acquisitions, since such a requirement of the exemption did not exist – was not made concrete and embodied in a period provided for in law – at the moment in which the relevant tax facts (the acquisition of the properties and the acts and related contracts) were completed. Just as it is irrelevant that the three-year period is provided to count only as from the entry into force of the State Budget Law for 2014, since such a requirement of the exemption (the period) was not even required at the moment in which the relevant tax facts were executed.

The norm of article 236, no. 2, of the State Budget Law of 2014 thus attributes retroactive effects to the restriction of exemptions effected by article 235 of the same Law, as it orders the application of the new requirements of the exemptions – rental and non-alienation within a period of 3 years, under penalty of these ceasing to have effect – to acquisitions and to acts (that is, to facts that are already complete) prior to its entry into force.

(…)

Having reached the preceding conclusion, it is also necessary to conclude for the unconstitutionality, by violation of the constitutional prohibition of tax with a retroactive nature, contained in article 103, no. 3, of the Constitution, of the norm of article 236, no. 2, of the State Budget Law for 2014, insofar as it provides for the application of the changes to the exemptions of IMT and stamp duty of REIFRH to tax facts (acquisition of properties) prior to its entry into force."

1. The defendant, although defending the constitutional conformity of art. 236, no. 2, of the State Budget Law of 2014, and the expiry of the assessments in light of this Law, further sustains, subsidiarily, the legality of the assessments, by expiry of the exemptions, also in light of the tax regime applicable before the entry into force of Law 83-C/2013, of 31 December.

2. The defendant sustains that taxpayers who wished to benefit from the said exemptions, always had, since the beginning of the tax regime applicable to REIFRH, to comply with the requirement that such properties be intended exclusively for rental for permanent housing, and that, in the case in question, with respect to the property to which the assessments object of the present case refer, the Claimant, at the end of 2015, alienated it to third parties, thereby giving it a destination different from that of residential rental, which constituted a condition of the exemptions in question, and that the new wording introduced by Law no. 83-C/2013, of 31 December, in favour of legal certainty and the principle of protection of legitimate expectations, and in line with the spirit of the legislator, when creating the regime, came only to clarify the criterion already required.[5]

Let us appraise this argument of the defendant.

1. Pursuant to no. 7, of art. 8 of the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental, approved by Law no. 64-A/2008, of 31 December, there were exempt from IMT:

a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in no. 1

(…).

This norm can be, with interpretive utility, compared with art. 9 of the IMT Code which establishes that "Are exempt from IMT the acquisitions of urban property or of autonomous fraction of urban property intended exclusively for own and permanent housing whose value which would serve as the basis for assessment does not exceed € 92 407".

For its part, number 7 of art. 11 of the same code establishes that:

"No longer benefit equally from the exemption and reduction of rates provided in article 9 and in paragraphs a) and b) of no. 1 of article 17 the following situations:

a) When the goods are given a destination different from that upon which the benefit was based, within six years counting from the date of acquisition, except in case of sale;

b) When the properties are not applied to own and permanent housing within six months counting from the date of acquisition."

It thus results clearly that for the legislator "to intend a property exclusively for housing" does not equate to "to apply", as otherwise it would not be understood why a period would be required for such application, under penalty of loss of exemption.

On the other hand, by imposing a period within which a change in the destination of the property, implies also the loss of the exemption, the legislator recognizes that, in the absence of such a period, a change of destination would not imply the loss of the exemption.

The word "intend" expresses the intention of the taxpayer at the moment of the tax fact and which, declared before the defendant, is legally presumed to be true pursuant to art. 75, no. 1, of the General Tax Law, without prejudice to the Tax Administration being able to rebut such presumption in general terms.

Addressing numbers 7 and 8 of art. 8 of the Regime of REIFRH, resulting from Law no. 64-A/2008, of 31 December, the distinguished authors of the opinion cited above tell us:

"According to these norms, it sufficed, therefore, for the exemption of IMT, that it be acquisitions, by REIFRH, of urban properties or fractions of urban properties intended exclusively for rental for permanent housing – namely, nothing was provided regarding the need for maintenance of the properties in the patrimony of REIFRH for a certain period, or regarding the need for actual conclusion of the rental contract also within a determined period. If, therefore, a REIFRH acquired properties intended for residential rental – counting as such for the purposes of the rules on the composition of its patrimony–, such acquisition would benefit from the IMT exemption, even if, for example due to market difficulties, it would not be able to realize the rental during a certain period, or should it come to alienate the property. Which is understandable: the legislator wanted to encourage the acquisition of properties for rental by REIFRH and their placement on the market, providing for that purpose the exemption of IMT, but without placing upon REIFRH the risk, under penalty of loss of the benefit consisting of the exemption, of not being able to rent the properties, or of not being able to alienate them, as the new law came to provide (…)"[6]

In light of the foregoing, it cannot be concluded that, within the scope of art. 8 of the Regime of REIFRH, resulting from Law no. 64-A/2008, of 31 December, before the amendments introduced by Law no. 83-C/2013, of 31 December, the exemptions in question expired.

1. It should further be added that such conclusion is not obstructed, contrary to what the defendant also alleges, by article 14, no. 2, of the Tax Benefits Statute, of the following tenor:

"when the tax benefit concerns the acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those are alienated or given another destination without authorization of the Minister of Finance, without prejudice to other penalties or different regimes established by law".

First and foremost, it is to be noted that, being a requirement for the extinction of the tax benefit the circumstance that the property was given "another destination without authorization of the Minister of Finance", the absence of such authorization of the Minister of Finance does not constitute a ground of the tax act, nor is such alleged by the defendant in this case.

Furthermore, the defendant does not invoke any norm that establishes the requirements of such authorization, nor the attribution of competence to the Minister of Finance for the granting thereof.

In our view, article 14, no. 3, of the Tax Benefits Statute should be brought close to the regime of exemption of the following paragraphs of art. 6 of the IMT Code:

d) (Public utility bodies of administrative nature and mere public utility, as to goods intended, direct and immediately, for the realization of their statutory purposes).

e) (Private institutions of social solidarity and entities legally equivalent thereto, as to goods intended, direct and immediately, for the realization of their statutory purposes).

f) (Acquisitions of goods for religious purposes, effected by religious corporate bodies, as such registered, pursuant to the law regulating religious freedom).

g) (The acquisitions of properties individually classified as of national interest, public interest or municipal interest, pursuant to the applicable legislation),

h) (The acquisitions of goods situated in economically disadvantaged regions, when effected by commercial or civil companies in commercial form, which intend them for the exercise, in those regions, of agricultural or industrial activities considered to be of superior economic and social interest).

i) (Acquisitions of goods by associations of physical culture, when intended for facilities not normally usable in spectacles with paid admission).

With respect to these exemptions, article 11 of the same code establishes that:

"1 – Cease to have effect the exemptions to which paragraphs d), e), f), h) and i) of article 6 refer when the goods are alienated or given another destination without prior authorization of the Minister of Finance.

2 – The authorization provided for in the preceding number shall only be granted when the impossibility is verified or the inconvenience is recognized of the goods being given the original destination and the new destination of those goods or of those acquired with the product of their sale justify equally the exemption.

(…)".

None of this was provided with respect to the exemptions to which the present case relates. Neither the expiry of the benefit, nor the possible ministerial authorization which would prevent such expiry and, consequently, nor the possible grounds for the hypothetical authorization.

For the reasons exposed, this argument of the defendant is manifestly also unfounded.

1. For all that has been stated, and in particular by the disapplication of no. 2, art. 236 of Law 83-C/2013, of 31 December, in conjunction with no. 16 of art. 8 of Law no. 64-A/2008, of 31 December, in the wording of Law 83-C/2013, on the ground of its unconstitutionality, as art. 204 of the Constitution of the Portuguese Republic requires, it is concluded that the tax assessments in question lack legal basis, which has as a consequence the annulment thereof.[7]

2. The Claimant further asked for the condemnation of the defendant to refund the amounts paid corresponding to the assessment object of the present case, as well as the respective indemnity interest.

Let us see.

In accordance with the provision in paragraph b) of article 24 of the LFATM, the arbitral decision on the merits of the claim, to which no appeal or challenge is available, binds the tax administration as from the end of the period provided for challenge or appeal, such administration being required, in the exact terms of the success of the arbitral decision in favour of the taxpayer and until the end of the period provided for voluntary execution of decisions of tax court judgments, to "restore the situation that would have existed if the tax act object of the arbitral decision had not been executed, adopting the acts and operations necessary for that purpose", which is in harmony with the provision in article 100 of the General Tax Law [applicable by force of the provision in paragraph a) of no. 1 of article 29 of the LFATM] which establishes that "the Tax Administration is obliged, in case of total or partial success of a complaint, judicial challenge or appeal in favour of the taxpayer, to the immediate and full restoration of the legality of the act or situation object of the dispute, comprehending the payment of indemnity interest, if applicable, as from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of the LFATM uses the expression "declaration of unlawfulness" to define the competence of the arbitral tribunals operating at CAAD, not making reference to condemning decisions, it should be understood that included in its competences are the powers which in proceedings for judicial challenge are attributed to tax courts, this being the interpretation that accords with the sense of the legislative authorization on which the Government based itself to approve the LFATM, in which is proclaimed, as the first directive, that "the arbitral tax process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".[8]

The judicial challenge process, although essentially a process of annulment of tax acts, admits condemnation of the Tax Administration in the payment of indemnity interest, as results from article 43, no. 1, of the General Tax Law, in which it is established that "indemnity interest is due when it is determined, in gracious recourse or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due" and from article 61, no. 4 of the Code of Tax Procedure and Process (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which provides that "if the decision recognizing the right to indemnity interest is judicial, the period for payment is counted from the beginning of the period of its voluntary execution".

Thus, no. 5 of article 24 of the LFATM in stating that "payment of interest is due, regardless of its nature, in the terms provided in the general tax law and in the Code of Procedure and Tax Process" should be understood as allowing recognition of the right to indemnity interest in the arbitral process.

In the case in question, it is manifest that, as a result of the unlawfulness of the assessment acts, there is place for refund of the tax, by force of the referred articles 24, no. 1, paragraph b), of the LFATM and 100 of the General Tax Law, as such is essential to "restore the situation that would have existed if the tax act object of the arbitral decision had not been executed".

With respect to indemnity interest, it remains to appraise this claim in light of article 43 of the General Tax Law.

Article 43, no. 1, provides that "Indemnity interest is due when it is determined, in gracious recourse or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due".

We endorse the understanding of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa who maintain that "The error attributable to the services which executed the assessment is demonstrated when they proceed to gracious recourse or judicial challenge of that same assessment and the error is not attributable to the taxpayer" (GENERAL TAX LAW, Annotated and Commented, Written Encounters, 4th Edition, 2012, p. 342).

In the case sub judice, the error from which the assessments, now annulled, arose not being attributable to the Claimant, the claim for condemnation of the defendant as to indemnity interest cannot fail to proceed.

Thus, the Tax and Customs Authority should give effect to the present decision, pursuant to article 24, no. 1, of the LFATM, refunding the amounts paid by the Claimant with respect to the annulled assessments, with indemnity interest, at the legal rate.

Indemnity interest is due from the date of payment until that of the processing of the credit note, in which it is included (article 61, no. 5, of the Code of Tax Procedure and Process).

IV – Decision

Thus, the arbitral tribunal decides, judging the claim for arbitral pronouncement to be well-founded:

a) To decree the annulment of the assessments object of the present case.

b) To condemn the defendant to refund to the claimant the amounts paid with indemnity interest at the legal rate, counted from the date of payment by the claimant until that of the processing of the credit note.

Value of the case: € 30,146.75 (thirty thousand one hundred and forty-six euros and seventy-five cents) pursuant to the provision in art. 306, no. 2, of the Code of Civil Procedure and 97-A, no. 1, paragraph a), of the Code of Tax Procedure and Process and 3, no. 2, of the Regulations on Costs in Arbitration Proceedings.

Costs by the defendant, in the amount of € 1,836.00 (one thousand eight hundred and thirty-six euros), pursuant to no. 4 of art. 22 of the LFATM.

Notify.

Lisbon, CAAD, 16 November 2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] And this is so, moreover, independently of whether three years have already elapsed since the date in which the property had been acquired by the fund.

[2] MANUAL DE DIREITO FISCAL, Almedina, 2011, p. 295.

[3] DIREITO FISCAL, Lessons, Almedina, 2015, p. 175

[4] What has just been stated corresponds, in essence, to the reasoning of the arbitral decision rendered on 20-05-2016, in Case 683/2015-T, in which the undersigned was the arbitrator.

[5] Among other arbitral decisions in this sense, one may read in the arbitral decision rendered in Case 708/20015-T that "it would be poorly understood that the legal-tax framework of REIFRH could be interpreted, in the segment to which paragraph a) of no. 7 and no. 8 of article 8 refers – article 104 of the 2009 State Budget Law – as not binding REIFRH to the effectuation of permanent residential rental with respect to the properties acquired for such purpose by REIFRH."

[6] Emphasis ours.

[7] And not declaration of nullity, given that, in the case sub judice, there is no indication of the occurrence of violation "of the essential content of a fundamental right".

As may be read in the summary of the Decision of 23.10.2013, rendered in Case 0579/13 (Reporter Isabel Marques da Silva) "The assessment act executed in application of a null, non-existent or unconstitutional municipal decision suffers from abstract unlawfulness – articles 286, no. 1, paragraph a) of the Code of Civil Procedure and 204, no. 1 of the Code of Tax Procedure and Process –, which, in cases of coercive collection, may be invoked until the end of the period for opposition to tax execution, even if subsequently to the period for challenge of acts open to challenge, but never, consequently, at any time." (emphasis ours).

On this question Jorge Lopes de Sousa also tells us that "There are, however, grounds that may be invoked both as a ground for opposition to tax execution and for judicial challenge.

(…)

The cases of norms that violate norms of superior hierarchy such as constitutional norms fall within this. (…)

The unlawfulness is abstract because. Affecting the very law, it does not depend on the act which applies it concretely.

Being provided for as a ground for opposition to tax execution, this abstract unlawfulness also constitutes a defect of violation of law, as the assessment will have made application of a norm that is not valid in light of a rule of superior hierarchy." (CODE OF TAX PROCEDURE AND PROCESS Annotated, 4th Ed., Vislis, 2003, p. 443-444, emphasis ours).

[8] On this question see Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, pp. 110-116).