Summary
Full Decision
ARBITRAL DECISION
The arbitrator Dr. José Joaquim Monteiro Sampaio e Nora designated by the Deontological Council of the Administrative Arbitration Centre as sole arbitrator on 28 February 2019, issues the following arbitral decision:
I. REPORT:
A...– REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, S.A., with tax identification number ... and headquarters at ..., ..., no...., ..., ...-... Lisbon, in its capacity as management company and in representation of B...– CLOSED REAL ESTATE INVESTMENT FUND, with tax identification number ... and headquarters at the same address, under the provisions of article 2(1)(a) and articles 10(1) and 10(2), all of Decree-Law no. 10/2011, of 20 January ("Legal Framework for Arbitration in Tax Matters" or "RJAT") and articles 1 and 2 of Order no. 112-A/2011, of 22 March, came to request the CONSTITUTION OF AN ARBITRAL TRIBUNAL for the purpose of obtaining a declaration of illegality of the tax assessment act for Municipal Tax on Onerous Real Estate Transfers ("IMT") no...., issued by the Tax and Customs Authority ("AT") on 19 November 2018, in the amount of € 54,795.00, on the grounds of error in the factual and legal assumptions, on the understanding that the real estate acquisition operations carried out by a management company for the assets of (in representation of) real estate investment funds managed and administered by the same are exempt from IMT with the consequent condemnation of the AT to return to the Claimant the tax improperly assessed and paid by it, with the condemnation of the AT to payment of compensatory interest, at the legal rate of 4%, calculated from the date of improper payment to full reimbursement to the Claimant of the amount improperly paid.
The TAXATION AND CUSTOMS AUTHORITY is the Respondent.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 20-12-2018.
Pursuant to article 6(2)(a) and article 11(1)(b) of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as sole arbitrator, who communicated acceptance of the appointment within the applicable period.
On 20-12-2018 the parties were duly notified of this designation, having manifested no wish to refuse the designation of the arbitrator, in accordance with the combined provisions of article 11(1)(a) and (b) of RJAT and articles 6 and 7 of the Deontological Code.
Thus, in accordance with the provision in article 11(1)(c) of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 28-2-2019.
The Tax and Customs Authority did not submit a response, having declared by request of 18-3-2019 to waive that right.
By arbitral order of 25-3-2018, the meeting provided for in article 18 of RJAT was dispensed with and, because the questions raised are sufficiently debated in the various case law that has been produced by Tribunals constituted within the scope of CAAD, the parties were dispensed from submitting final submissions given their lack of necessity (cf. article 18-2 of RJAT), informing the parties that the deadline for issuing and notifying the final decision would be 2 May 2019. The Claimant must duly comply with the provision in article 4-3 of the Regulation of Costs in Tax Arbitration Proceedings, that is, payment, before the decision and in the regulatory form, of the remainder of the arbitration fee.
II. SANITATION ORDER:
The Arbitral Tribunal was regularly constituted, in accordance with the provisions of articles 2(1)(a) and 10(1) of Decree-Law no. 10/2011, of 20 January, is competent ratione materiae, the parties have legal personality and capacity and have standing (articles 4 and 10(2) of the same decree-law and article 1 of Order no. 112-A/2011, of 22 March) and are duly represented, with no other exceptions or nullities of official knowledge that should be addressed.
III. FACTS PROVEN:
In light of the documents submitted by the claimant, the following facts are considered proven:
a) B...– Closed Real Estate Investment Fund is a closed real estate investment fund, whose activity is currently regulated pursuant to the General Regime for Collective Investment Undertakings, approved by Law no. 16/2015, of 24 February. (internal regulation at https://web3.cmvm.pt/sdi/fundos/docs/....)
b) As stated in point 2, subsection (a) of that Internal Regulation, the Fund is managed by the company The Fund is managed by A...– Real Estate Investment Fund Management Company S.A., with headquarters at ..., ..., ..., room..., ...-... Lisbon (parish of ..., municipality of Lisbon).
c) As also stated in point 2, subsection (d) I of that Internal Regulation, that company has as its purpose, among others, "to manage and administer the Fund, performing all acts and operations necessary for the proper implementation of the Fund's investment policy, in particular, the management of the Fund's assets, including the selection, acquisition and disposal of assets, fulfilling the formalities necessary for their valid and regular transfer and the exercise of rights related to them and the management of the risk associated with the Fund's investment, including its identification, assessment and monitoring".
d) The Claimant A...– Real Estate Investment Fund Management Company, S.A. is a public limited company whose object is "the administration, in representation of the participants, of one or more real estate investment funds" (permanent certificate with access code ...)
e) On 20 November 2018, by public deed executed at the Notarial Office in charge of notary C..., recorded from pages twenty-two to pages twenty-seven verso of the book of notes for miscellaneous deeds two hundred and twenty-A, the Claimant, in representation of the Fund B...– Closed Real Estate Investment Fund, declared acquired for the said fund the ownership right of the real estate properties registered with the different fractions corresponding to the property registration articles U-...-AP, U-...-AQ, U-...-BA, U-...-BB, U-...-BC, U-...-CV and U-...-CX all of the urban property called "...", located at Street ..., numbers ... and ... and Street ..., number ..., parish of ..., municipality of Lisbon, described in the Real Estate Registration Conservatory of Lisbon under number ..., subject to the horizontal property regime pursuant to the entry corresponding to presentation fourteen of nine March one thousand nine hundred and ninety-five, which the selling fund identified there declared to sell (public deed attached under no. 2 with the arbitration petition)
f) For this acquisition of real estate fractions, referred to in the preceding subsection, IMT was assessed by the respondent, with the assessment note being issued with document identification number..., the total amount of tax to be paid being € 54,795.00 (assessment note attached under no. 1 with the arbitration petition)
g) The amount of tax referred to in the preceding subsection was paid by the claimant on 20-11-2018.
h) The petition of the present arbitration request was filed on 19-12-2018.
With interest for the decision of the present proceedings, no other fact was proven.
IV. QUESTIONS TO BE DECIDED
1. Considering the facts proven and the legal matters contained in the request for arbitral pronouncement presented by the Claimant, the only question to be decided is whether the act of assessment of IMT to the fund represented by the present claimant and resulting from the acquisition of the fractions of the real estate referred to in subsection (e) of the facts proven is legal. And concluding by its illegality, to decide its annulment and consequent restitution of the value of that assessment paid by the claimant, plus legal interest.
2. The Claimant contends that the real estate transaction it carried out benefits from the IMT exemption established in article 1 of Decree-Law no. 1/87, of 3 January, which establishes that "acquisitions of real estate properties carried out for a real estate investment fund by its respective management company are exempt from Sisa".
In its understanding, the legislator intended to maintain, in the context of IMT, the exemptions applicable to sisa; and the exemption was not revoked by express law, nor tacitly; in particular, it was not revoked by article 46 of the Tax Benefits Statute (EBF).
And, therefore, the impugned assessment is illegal.
It invokes, in support of its understanding, the case law of this Administrative Arbitration Centre.
Finally, noting that there was erroneous interpretation of the law on the part of the AT, the Claimant seeks to be paid compensatory interest accruing on the amount improperly assessed, paid by it in due time.
3. The AT, having not exercised the right to respond, has not explained its position.
But, that it is the opposite of that of the Claimant, immediately results from the fact that it carried out the impugned assessment, and has not proceeded with the respective official reviews.
That is, for the Respondent, the exemption that the Claimant claims to enjoy does not exist. And it does not exist - we know this from what in other cases it has argued in arbitral tribunals, of which this tribunal has knowledge by virtue of the exercise of its functions (article 412, paragraph 2 of the Code of Civil Procedure) because it was tacitly revoked by article 46 of the EBF, which would have replaced the exemption that acquisitions made by Real Estate Investment Funds benefited from with an exemption relating to disposals carried out by the same Funds.
Thus, it is to be assumed that, for the AT, there is no error attributable to it, and the Claimant's claim regarding compensatory interest will lack foundation.
4. What follows is a transcription, with necessary amendments, of passages from the decision handed down in case no. 478/2018 of this CAAD, which, for convenience, we will follow, but which corresponds to the sense of the unanimity of the decisions we know of from this Tax Arbitration Centre on this question.
5. We know, from what was established in the matter of facts, the nature of the tax payer, the occurrence of the tax event and that of the tax act questioned. The precise date of occurrence of that tax event was fixed, with the celebration of the respective deed of purchase and sale occurring on 20 November 2018, as results from the fact proven contained in subsection (e) of the facts proven.
It is factuality that, beyond being uncontroverted, in the absence of a response from the AT, is demonstrated by the documents attached to the proceedings.
The question that arises for us is, therefore, that of the (non-)existence of a norm preventing taxation: the Claimant contends that there is no taxation because it benefits from a norm that grants it exemption; the AT, having proceeded with the identified assessment, will understand that the exemption norm is not in force.
The norm in question is that of article 1 of Decree-Law no. 1/87, of 3 January.
Article 7 of the Civil Code establishes:
"1. When it is not intended to have temporary force, a law only ceases to be in force if it is revoked by another law.
2. Revocation may result from express declaration, from incompatibility between the new provisions and the preceding rules or from the fact that the new law regulates the entire subject matter of the previous law".
Already in light of the regime prior to the current Civil Code (that of 1867, in its singular systematics, did not address the matter) taught the Professors Pires de Lima and Antunes Varela, in the Fundamental Notions of Civil Law (5th edition, Coimbra, 1961, page 109 et seq.), that "A law may cease to be in force either because it has been revoked or because it has become obsolete. (...) One speaks of the obsolescence of the law when it ceases to be in force due to some circumstance inherent to the law itself, independently, therefore, of a new manifestation of the legislator's will".
The obsolescence of the law results, more frequently, from it itself establishing its period of force (when that period expires), or from aiming to achieve a particular objective (when this is achieved), or from being a transitional law (when the state of affairs that serves as its assumption is terminated).
Regarding revocation, the cited Authors state that "(...) it results from a new manifestation of the legislator's will, contrary to that which served as the basis for the law's force".
Revocation may be express – the new law points out the provisions it wants to revoke – or tacit – the old law is incompatible with the new, the most recent legislative choice prevailing.
They clarify, finally, that "Incompatibility between the two laws may result from a direct and substantial conflict existing between their respective precepts or from the fact that the new law establishes a new, complete, regime for the relations in question".
Already much earlier, in 1922, Professor José Tavares – The Fundamental Principles of Civil Law, Coimbra, 1922, volume I, page 167 – wrote that "The incompatibility of two or more legal provisions occurs when they are so antinomical, opposed, or contrary, that it becomes impossible to execute them simultaneously. In such circumstances, the last one cannot fail to prevail, because it is that which represents the legislator's will".
Distant though these teachings are, they remain current today, continuing to be adopted by contemporary doctrine and case law.
6. In the present case, there are no signs or legal provisions from which it results that Decree-Law no. 1/87 has become obsolete. It is important, therefore, to know whether it was revoked.
Even here a distinction must be made, as at the time of the tax event and the assessment, no norm is known that expressly terminated the force of Decree-Law no. 1/87.
Thus, what is important to decide is whether tacit revocation occurred.
7. In article 1 of Decree-Law no. 1/87, of 3 January, it was established that "acquisitions of real estate properties carried out for a real estate investment fund by its respective management company are exempt from Sisa".
The Code of Sisa and Tax on Successions and Gifts (CSISSD), approved by Decree-Law no. 41969, of 24 November 1958, was then in force. In the wording given by Decree-Law no. 223/82, of 7 June, sisa was levied "on transfers, by onerous title, of the right of ownership or of fractional figures of that right, on real estate properties".
Using the legislative authorization given by Law no. 26/2003, of 30 July, Decree-Law no. 287/2003, of 12 November, was published, which approved the Code of IMT.
The preceding legal texts that referred to sisa came to be considered as referring to IMT, as determined by article 28, paragraph 2 of Decree-Law no. 287/2003; and article 31, revoking the CSISSD, expressly maintained in force "(...) the tax benefits (...) concerning the municipal sisa tax established in legislation outside the Code approved by Decree-Law no. 41969, of 24 November 1958, and in the Tax Benefits Statute, which are now reported to IMT".
Up to this moment it seems safe that real estate investment funds enjoyed IMT exemption on acquisitions of real estate properties.
8. In 2006, Law 53-A/2006, of 29 December, amended article 46, paragraph 1 of the EBF, which came to provide that there were exempt from IMT "onerous transfers of real estate properties integrated in real estate investment funds (...)".
Real estate properties integrated in a fund are no more than those which that fund has already acquired – which leads to the conclusion that, this time, the exemption referred to disposal and not acquisition.
Article 81, paragraph 3, subsection (e) of Draft Law no. 478/2006, of 13 October – Draft State Budget Law for 2007 – expressly revoked Decree-Law no. 1/87, of 3 January, but such revocation did not come to be enshrined in the State Budget Law for 2007 – Law no. 53-A/2006, of 29 December.
It is true that non-adoption, by the State Budget Law for 2007, of that proposal, does not constitute a conclusive argument, since it can have two meanings.
One is that the legislator did not wish to revoke Decree-Law no. 1/87, of 3 January, as it intended to keep it in force.
Another is that the legislator understood that it should not expressly revoke the said Decree-Law no. 1/87 as it considered that it was no longer then in force, which would make revocation redundant (and even incorrect, as legislative technique) revocation.
But this second hypothesis is not plausible and does not favor the AT's thesis: it is that it was in the State Budget Law for 2007 that the legislator amended article 46, paragraph 1 of the EBF, establishing the (new) IMT exemption for real estate investment funds "constituted and operating in accordance with national legislation".
That is: if the legislator, in establishing the new tax benefit, wanted to extinguish the prior one, by substitution, that was the appropriate moment to say that Decree-Law no. 1/87 was revoked.
For the two benefits are distinct from one another, so it is inconceivable that that of the 2006 Law would replace, without more, that of the 1987 Decree-Law.
The legislator of 1987 exempted (in a contemporary reading) from IMT "(...) acquisitions of real estate properties carried out for a real estate investment fund by its respective management company".
That of 2006 exempted from IMT "onerous transfers of real estate properties integrated in real estate investment funds (...)".
Whereas in 1987 one spoke of acquisitions, clearly not covering disposals, in 2006 one speaks of transfers (which can be either acquisitions or disposals), being by the addition of the term "integrated in" that one concludes that the reference is limited to disposals. What is already "integrated in" cannot be acquired again, but only disposed of, by the "integrator"; reflexively, what is not yet "integrated in" cannot be disposed of by the one who does not integrate it, can only be acquired to come to be "integrated in".
It seems, therefore, clear, not only that the legislator of 1987 benefited acquisitions by real estate investment funds, but also that the legislator of 2006 favored disposals by those same funds.
One and the other benefit, distinct as they are, do not mutually exclude each other, do not contradict each other, are not antinomical, can both be applied without any incoherence.
And one cannot claim that the legislator of 2006, in establishing a benefit relating to disposals, established a complete regime of tax benefits in favor of real estate investment funds and revoked, with that integral treatment of the matter, the benefit in force since 1987.
In summary, the legislator of Law no. 53-A/2006, in rejecting the Government's proposal to expressly revoke Decree-Law no. 1/87, knew that:
- that Decree-Law was in force;
- the benefit which, by article 82, he introduced in article 46 of the EBF, was cumulative with that of article 1 of Decree-Law no. 1/87;
- Law no. 53-A/2006 did not contain an integral regime of tax benefits granted to real estate investment funds;
Therefore, it cannot be concluded, from that rejection of the Government's proposal, but that it wished to maintain the benefit granted by Decree-Law no. 1/87.
9. On the other hand, there is nothing in the legislative evolution that has occurred since the approval of the EBF by Decree-Law 215/89, of 1 July, and in the successive State Budget Laws, that can be qualified as a systematization of the regime of tax benefits in the context of taxes on the assets of real estate investment funds, in such a way that it can be claimed that at some point the legislator created a new, complete regime, incompatible with the subsistence of Decree-Law no. 1/87. Nor is there any specific norm that shows itself irreconcilable with this decree-law. As seen, article 46 (later 49) of the EBF, in the wording given to it by the 2003 State Budget Law, is harmonizable with article 1 of Decree-Law no. 1/87.
10. What has been stated is sufficient to support the decision to be issued below.
But it is also important to add that the question that comes before this tribunal has been brought before arbitral tribunals within the scope of CAAD on other occasions, and decided by them, at least ten times.
All these decisions were in the sense advocated by the Claimant.
There is, therefore, formed in the arbitral tribunals, a strong jurisprudential current, convergent and without dissents, that flows in the direction of maintaining in the legal order of article 1 of Decree-Law no. 1/87, of 3 January after Law no. 53-A/2006, of 29 December.
What is not without significance, and should be taken into account, in reinforcement of the reasons adduced, in view of the command of article 8 of the Civil Code, which determines that "(...) the judge will take into consideration all cases that deserve analogous treatment, in order to obtain a uniform interpretation and application of the law".
11. In the meantime, Law no. 71/2018, of 31 December, which approved the State Budget for 2019, came into force.
It provides, in article 319:
"The following are revoked (...) articles 1 and 8 of Decree-Law no. 1/87, of 3 January, which creates tax incentives for the constitution of real estate investment funds".
This provision leaves no doubt as to the correctness of what has been stated here.
The said article 1 of decree-law no. 1/87 remained in force until its revocation by Law no. 71/2018, that is, it had not until then been expressly or tacitly revoked.
12. Consequently, it was in full force when the real estate acquisitions occurred that led to the assessment impugned and maintained by the AT, in not proceeding with its official review, so that the said assessment is illegal and cannot subsist in the legal order.
To admit the contrary would be to impute to the legislator of 2018 a glaring error, expressly revoking a norm that was already non-existent in the legal system, so that it is proven that the tax assessed was paid before the approval and entry into force of Law no. 71/2018, of 31 December, its annulment should be declared.
V. COMPENSATORY INTEREST:
The claimant also petitions for the condemnation of the respondent in the payment of compensatory interest, calculated on the totality of the tax paid – subsection (f) of the facts proven - from the date on which the tax assessed and now annulled was paid until the date on which the improperly paid amount comes to be reimbursed to the claimant, such interest due and accruing, from that date.
Regarding compensatory interest, article 43, paragraph 1 of the LGT prescribes that "compensatory interest is due when it is determined, in a friendly reclamation or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due."
In the case now under review, the error that affects the impugned assessment is exclusively attributable to the respondent AT, which assessed the tax without any factual or legal support and even against express law, so that there can be no doubt that the claimant has the right to receive compensatory interest.
For, pursuant to article 24(b) of RJAT, article 35, paragraph 10 and article 43, paragraph 1 of the General Tax Law and article 61, paragraph 5 of the Code of Tax Procedure and Process, the respondent incurred in error attributable to it when proceeding with the assessment, so it must pay the Claimant compensatory interest on the amount paid, at the legal rate, from its payment to the restitution of the tax.
Therefore, the present claimant has the right to be reimbursed with respect to the amount it improperly paid and, further, to be indemnified for the improper payment through the payment of compensatory interest, by the respondent, from the date of payment of the amount, to reimbursement, at the default legal rate, pursuant to article 43, paragraphs 1 and 4 and article 35, paragraph 10 of the LGT, article 559 of the Civil Code and Order no. 291/2003, of 8 April.
VI - DECISION
In these terms, and with the grounds set forth, the Arbitral Tribunal decides:
a) To find the claim for declaration of illegality of the impugned IMT assessment and relating to the acquisition of real estate properties by the represented fund, by deed of 20 November 2018, entirely well-founded, which is hereby annulled for all due and legal effects
b) To condemn the Tax and Customs Authority to reimburse the claimant the amount of tax improperly paid, which amount is increased by compensatory interest, at the legal rate in force.
c) To condemn the Respondent in the costs of the present proceedings, as the unsuccessful party.
Value of the proceedings: In accordance with article 306, paragraph 2 of the Code of Civil Procedure, article 97-A, paragraph 1(a) of the CPPT and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is fixed at € 54,795.00.
Costs: Pursuant to article 22, paragraph 4, of RJAT, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, I fix the amount of costs at € 2,142.00, to be borne by the Respondent (AT).
Lisbon, 22 April 2019,
The Arbitrator
José Joaquim Sampaio e Nora
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