Process: 656/2016-T

Date: May 3, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 656/2016-T) addresses the constitutional validity of retroactive application of tax obligations to Real Estate Investment Funds for Residential Leasing (FIIAH). A FIIAH fund acquired property in 2013 benefiting from IMT and Stamp Tax exemptions under the original legal framework. When the fund sold the property in 2016, the Tax Authority assessed IMT and Stamp Tax totaling €2,162.93, applying Article 236(2) of Law 83-C/2013 (2014 State Budget). This transitional provision retroactively imposed a three-year holding requirement on properties acquired before January 1, 2014, causing previously unconditional exemptions to expire. The fund challenged these assessments, arguing the retroactive application violated Article 103 of the Portuguese Constitution prohibiting retroactive tax laws. The Tax Authority raised preliminary exceptions claiming the arbitral tribunal lacked material competence to review constitutionality and lacked passive legitimacy. The tribunal ruled it was competent to decide, clarifying that while it cannot declare norms unconstitutional in abstract, it can assess whether applying a potentially unconstitutional norm to specific tax assessments renders those assessments illegal. The tribunal also confirmed the Tax Authority's passive legitimacy. This decision establishes important precedents regarding CAAD's jurisdiction over cumulative tax claims (IMT and Stamp Tax together), the tribunal's competence to evaluate constitutional compliance in concrete cases, and the scope of transitional provisions affecting real estate investment fund taxation in Portugal.

Full Decision

ARBITRAL DECISION

1. Report

On 31 October 2016, A…, S.A., Taxpayer No. …, with registered office at Ave. …, No. … – …, in Lisbon, in its capacity as managing company of the closed real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental, with tax identification number …, hereinafter designated as Claimant, filed a request for the constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), in which it requested the declaration of illegality of the tax acts of assessment of Municipal Tax on Onerous Transfers of Real Property (IMT) and Stamp Tax (IS), respectively, documents nos. … and …, in the total amount of € 2,162.93, requesting that their nullity be declared or, subsidiarily, their annulment, as well as the reimbursement of the amounts of tax paid, plus the compensatory interest due until the date of reimbursement.

The Claimant did not proceed to appoint an arbitrator, and therefore, under the provisions of Article 6(2)(a) and Article 11(1)(b) of the RJAT, the President of the CAAD Deontological Council designated the undersigned as arbitrator, who communicated acceptance of the appointment within the applicable time frame.

On 04-01-2017, the parties were notified of this appointment and expressed no intention to refuse it.

In accordance with the provisions of Article 11(1)(c) of the RJAT, the Arbitral Tribunal was constituted on 19-01-2017.

On 27-02-2017, the Tax Authority, hereinafter designated as Respondent or TA, duly notified for this purpose, filed its reply defending itself by exception and by opposition.

Consequently, the tribunal invited the Claimant to make submissions, if it so wished, regarding the exceptions raised.

The Claimant made submissions on the lack of merit of the exceptions on 14-03-2017.

The Parties agreed to dispense with the arbitral tribunal meeting provided for in Article 18 of the RJAT.

The Tribunal afforded the Parties the opportunity to submit written submissions, which the Parties did, maintaining the positions set forth in the claim and the reply.

2. Subject Matter of the Case

2.1 Position of the Claimant

The Claimant contends that the assessments which are the subject of its claim, better identified above, are illegal, having been effected under Article 8(16) of the Tax Framework for Real Estate Investment Funds for Residential Rental, approved by Law No. 64-A/2008, of 31 December, abbreviated as the Tax Framework for FIIAH, applicable by virtue of the legislative amendment undertaken by Article 236(2) - (Transitional Provision within the scope of the Special Framework applicable to FIAH and SIAH) - of Law No. 83-C/2013, of 31 December which approved the State Budget for 2014, a provision which is vitiated by unconstitutionality due to violation of the principle of non-retroactivity of tax law, provided for in Article 103(3) of the Constitution of the Portuguese Republic (CRP).

In fact, the Claimant alleges that, as a result of the aforementioned legislative amendment, on 23-08-2016, it requested from the TA the assessment of IMT and IS by virtue of the alienation by the Fund of the urban property, registered in the urban property register of the parish of …, Municipality of ..., under article …, fraction "R", real estate which it had acquired in 2013, benefiting from the exemption of IMT and IS.

The Claimant argues that, with the entry of the property into its patrimony in 2013, the exemptions of IMT and IS became permanently crystallized in the legal order, since at the date of acquisition, they were not conditioned upon the subsequent occurrence of any facts or circumstances, nor were they subject to any regime of expiration.

For this reason, the assessments to which Article 236 of Law No. 83-C/2013, of 31 December applies, insofar as it determines the application of the FIAH framework "to properties that have been acquired by FIAH before 1 January 2014, counting, in those cases, the three-year period provided for in No. 14 from 1 January 2014", are null, or, if this is not the case, voidable, due to violation of the principle of non-retroactivity of tax law, provided for in Article 103 of the CRP, insofar as the application of this article constitutes a new regime of expiration of the exemptions provided for in Article 8(7)(a) and No. 8 of the Tax Framework for FIAH.

To substantiate its claim, the Claimant accompanied its request with a legal opinion from Professors Dr. C… and Dr. D… "On the constitutionality of Article 236(2) of Law No. 83-C/2013, of 31 December (application to prior acquisitions of the amendments to IMT and Stamp Tax for Real Estate Investment Funds for Residential Rental)"

2.2 Position of the Respondent

In reply to the claim of the Claimant, the TA defends itself by opposition, arguing that the Administration is bound by the principle of legality, and is prohibited from refusing to apply a norm or from failing to comply with the law by invoking or questioning its constitutionality.

It further adds that the defect pointed out by the Claimant, for alleged violation of Article 103 of the CRP, does not give rise to nullity, as the legal sanction that falls upon an invalid administrative act is its voidability, nullity only occurring when it lacks one of its essential elements or when the law expressly sanctions with this form of invalidity. This understanding is upheld by established jurisprudence in various judgments.

It further refers that the declaration of nullity appears to be reserved for those acts that violate the essential content of a fundamental right, contending with rights, freedoms and guarantees of citizens, but not those that contend with the principle of legality, as is the case in this action.

Finally, it argues that, on the basis that the assessments in question are based on the fact that the property was given a different destination from that on which the benefit was based, the expiration of the exemption would always occur, since it would no longer be possible for the Claimant to assign it to the purpose pursued by the benefit in question.

It defends itself by exception by invoking the material incompetence of the Arbitral Tribunal to assess the "abstract illegality of the assessments", as well as the passive illegitimacy of the Respondent.

3. Preliminary Proceedings

3.1 Material Incompetence of the Arbitral Tribunal

The Respondent alleges that the tribunal does not have competence to assess or declare the (un)constitutionality of Article 236 of Law No. 83-C, of 31 December, given that abstract review of the legality of constitutionality is reserved to the Constitutional Court.

Called upon to rule on the invoked exception, the Claimant came to assert that it intends for the Arbitral Tribunal to declare the nullity, or subsidiarily, the voidability, of the assessments put in issue on the ground that they are based on the application of a norm that violates the CRP and the law.

Now, in accordance with consolidated arbitral jurisprudence, the reasoning of which is upheld, the Arbitral Tribunal does not have competence to declare the (un)constitutionality of the norm in question, nor is that the request of the Claimant, but it may rule on its application to the case sub judice, assessing the legality of that application.

Thus, the Tribunal is materially competent to know the illegality of the assessments which are the subject of the action.

3.2 Passive Illegitimacy of the Respondent

The Respondent further invokes that, if the Claimant's claim consists of abstract review of constitutionality, it would always be a party lacking passive legitimacy in the case, since being bound by the principle of legality it cannot refuse to apply any norm on the ground of its unconstitutionality or illegality, and therefore the Claimant's claim conflicts with its powers.

In reply to the exceptions, the Claimant came to clarify that what is at issue is solely the question of whether it was obliged to assess IMT and IS under a norm whose illegality is raised and not, contrary to what the TA alleged, the obligation of compliance with such norm by the Respondent.

Moreover, the Respondent, in its capacity as the active subject of the tax legal relationship, is naturally a party with legitimate interest in the present request for arbitral ruling.

Article 30(1) and (2) of the Civil Procedure Code, applicable pursuant to Article 29(1)(e) of the RJAT, provides that: "1. The plaintiff is a party with legitimate interest when it has direct interest in suing; the defendant is a party with legitimate interest when it has direct interest in defending. 2. The interest in suing is expressed by the usefulness derived from the success of the action and the interest in defending by the harm that would arise from such success (…)."

Article 9(1) and (4) of the Tax Procedure Code (CPPT), applicable pursuant to Article 29(1)(a) of the RJAT, provides that the TA has legitimacy to intervene in the tax procedure and in tax judicial proceedings.

Indeed, as expounded by the leading doctrine: "(…) from No. 4 of Article 9 of the CPPT it can be concluded that all persons who have legitimacy to intervene in the tax procedure also have legitimacy to intervene in tax judicial proceedings.

Now, in this case, we are faced with the invocation of the illegality of acts of assessment of taxes practiced by the Respondent, as to which the Tribunal has competence, and not with abstract review of constitutionality, and therefore it is necessary to conclude that the Respondent has passive procedural legitimacy.

Reasons for which, it is declared that the Respondent has passive legitimacy in the present case, thus ruling that the invoked exception lacks merit.

3.3 Cumulation of Claims

The fact that the request for arbitral ruling concerns different taxes (IMT and IS) does not preclude the consideration of the claim, as in both cases the factual and legal grounds are identical and the success of the claims depends on the interpretation of the same principles and rules of law.

Accordingly:

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to Articles 2(1)(a), 5 and 6(1) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March.

There are no nullities, exceptions or preliminary questions that preclude immediate consideration of the merits of the case.

Wherefore, there is no obstacle to the consideration of the merits of the case.

All having been considered, it is necessary to rule.

4. Decision

4.1 Factual Matters

4.1.a Findings of Fact

With relevance to the decision on the merits, the Tribunal considers the following facts to be proved:

  1. The closed real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental" was, at the date of the assessments sub judice, the owner of the urban property which was the subject of those same assessments.

  2. The property was acquired by the Fund on 30-12-2013, benefiting from exemption of IMT and IS pursuant to Article 8(7)(a) of the legal framework of FIAH.

  3. In August 2016 the Claimant requested from the Respondent the assessment of IMT and IS, (…) because the aforementioned fraction will be alienated." (cf. doc. no. 1).

  4. The assessments of IMT and IS were effected in the total amount of € 2,163.93, of which € 1,280.93 for IMT and € 882.00 relating to IS (cf. doc. no. 1)

  5. The assessments were paid by the Claimant on 23 August 2016 (cf. doc. no. 2)

4.1.b Findings Not Proven

With relevance to the decision, there are no facts that should be considered as not proved.

4.3 Grounds for the Factual Matters Proved and Not Proved

Regarding factual matters, the Tribunal does not have to rule on everything that was alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish between matter proved and matter not proved (cf. Article 123(2) of the CPPT and Article 607(3) of the CPC, applicable pursuant to Article 29(1)(a) and (e) of the RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. previous Article 511(1) of the CPC, corresponding to current Article 596, applicable pursuant to Article 29(1)(e) of the RJAT).

Thus, taking into account the positions assumed by the parties and the documentary evidence filed in the case, the facts listed above were considered proved, with relevance for the decision, being moreover not contested by the parties.

5. Question to be Decided

The question at issue in the present arbitral tax proceedings consists in determining whether the assessments of IMT and IS, under scrutiny, are illegal because they were made under Article 236 of Law No. 83-C/2013, of 31/12, which the Claimant considers to be unconstitutional due to violation of Article 103 of the CRP.

6. Law

It is therefore necessary to assess the legality of the assessments of IMT and IS sub judice.

The question that must be decided in the present case has already been subject to analysis and decision in earlier arbitral proceedings, the grounds of which will be followed closely, also because there is no apparent reason to decide differently.

For a complete analysis of the situation in question, it is necessary to have present the tax legal framework applicable to Real Estate Investment Funds, more specifically the wording of Article 8 of the Legal Framework of FIAH, approved by Law No. 64-A/2008, of 31 December (State Budget for 2019), in the part with relevance to the present case.

Regarding the tax framework then provided, the provisions of Article 8(7)(a), relating to the exemption in the context of IMT and No. 8 of the same article, relating to the exemption in the context of IS, are relevant for the analysis of the assessments under scrutiny.

Under Article 8(7)(a), the following are exempt from IMT: "(…) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent residence, by investment funds referred to in No. 1; (underlined)

And No. 8 of Article 8 provided that: «All acts performed are exempt from stamp tax, provided that they are connected with the transmission of urban properties intended for permanent residence which occurs by virtue of the conversion of the right of ownership of such properties into a right of rental over them, as well as with the exercise of the purchase option provided for in No. 3 of Article 5». (underlined)

From the reading of the provisions that have been transcribed, it is apparent that the obligation to assign the property to residential rental is a requirement of the general FIAH framework ab initio.

Subsequently, Law No. 83-C/2013, of 31 December added to Article 8 of the legal framework of FIIAH the following numbers:

«14. For purposes of the provisions of Nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residence whenever they are the subject of a rental contract for permanent residence within three years counted from the moment they became part of the fund's patrimony, and the taxpayer must notify and provide proof to the TA of the respective effective rental, within 30 days following the end of the said period.

  1. When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in Nos. 6 to 8 cease to have effect, and in that case the taxpayer must request from the TA, within 30 days following the end of the said period, the assessment of the respective tax.

  2. If the properties are alienated, except in the cases provided for in Article 5, or if the FIIAH is subject to liquidation, before the end of the period provided for in No. 14, the taxpayer must likewise request from the TA, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax due under the previous number».

Furthermore, Law No. 83-C/2013, of 31 December provided a transitional provision (Article 236) within the scope of the special regime applicable to FIIAH which provides as follows:

«1. The provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, are applicable to properties that have been acquired by FIIAH from 1 January 2014.

  1. Without prejudice to the provisions of the previous number, the provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, counting, in those cases, the three-year period provided for in No. 14 from 1 January 2014».

As mentioned above, the property which is the subject of the assessments was acquired in 2013, benefiting from the exemption of IMT, pursuant to Article 8(7)(a) of the legal framework of FIAH, as well as from the exemption of IS pursuant to No. 8 of this Article 8, because it was intended for residential rental.

Now, the property benefited from the exemptions at the time of acquisition because it was intended for residential rental; however, the same property was alienated in 2016, with the Claimant requesting the assessment of IMT and IS, under Article 236 of Law No. 83-C/2013, of 31 December, because, as declared at the time of requesting the assessments, the property was to be alienated.

The Claimant considers unconstitutional, due to violation of the principle of non-retroactivity of tax law, Article 236 of Law No. 83-C/2013, of 31 December because, in its opinion, it establishes a new prerequisite for the exemption of IMT and IS: the assignment to residential rental within three years of entry into the fund and that such properties (…) are the subject of a rental contract for permanent residence within three years.

But with due respect for contrary opinion, the Claimant is not correct, since the assessment was not requested because the property did not remain for a period equal to or greater than 3 years in the fund's ownership without being assigned to permanent residential rental, but rather because it was alienated, as indeed follows from the documentation filed in the case.

As can be read from arbitral decision No. 689/2015, available at www.caad.org.pt.: "The fact that the Claimant proceeded to alienate the property which, upon acquiring, it declared would assign to the purpose that allowed it to be recognized – as it was – the exemption of IMT and IS, would always determine, even if the added number 16 did not expressly provide for it, the expiration of such exemptions, by effect of the provision in Article 12 and No. 3 of Article 14 of the Tax Benefits Statute (former No. 12(3), in the wording of the Tax Benefits Statute that was in force prior to its republication by Decree-Law No. 108/2008, of 26/06), according to which "When the tax benefit relates to the acquisition of property intended for the direct achievement of the purposes of the acquirers, it ceases to have effect if they are alienated or given another destination without authorization from the Minister of Finance, without prejudice to the other sanctions or different regimes established by law.".

The Claimant neither alleged nor, all the more so, demonstrated having obtained the authorization provided therein, or any other circumstance that would prevent the granted exemptions from ceasing to have effect as a consequence of the alienation.

It is for this reason that, as we have already advanced above, we understand that the question of alleged unconstitutionality of the added provisions does not arise in the present case, insofar as, in the part corresponding to the alienation of the property, No. 16 of Article 8 of the Legal Framework of FIIAH merely reiterates what already resulted from the provision in the Tax Benefits Statute.

Which, moreover, is understandable, having regard to the ratio of the grant of tax benefits.

The ratio for the grant of the tax benefit regarding IMT and IS to FIIAH is clearly its assignment to permanent residential rental - "The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent residence, by investment funds..." – and therefore the consequence of its being given a different destination is that the exemption could not have been granted, and legality must be restored, with the assessment of the taxes that, had it not been for the declaration of intention made at the time of acquisition, would have been assessed.

Which the Claimant acknowledged, all the more so as this is exactly what appears in the declarations made by the Claimant itself for assessment of IMT and IS.".

Also, on this matter, note the content of Arbitral Decision No. 709/2015-T:

"For compliance with the provision in Article 8(7)(a) of the special regime applicable to real estate investment funds for residential rental (FIIAH) it is not sufficient to have a declared intention at the time of acquisition of the property but rather an actual assignment to permanent residential rental.

Now, the Claimant does not demonstrate in any way in this proceeding the fulfillment of that requirement.

[…] We thus understand that the issue of retroactivity or otherwise of the law is not at stake, nor is there injury to the expectations of the Claimant or worsening of its tax position. The ratio for the grant of a tax benefit regarding IMT to FIIAH was established clearly from the outset - "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence, by investment funds...".

Having regard to all the above, given that the property was acquired in 2013 pursuant to Article 8(7)(a) of the legal framework of FIIAH, and alienated in 2016, thus necessarily ceasing to have as its destination residential rental, and it having not been demonstrated that there was a transmission by virtue of the conversion of the right of ownership into a right of rental or that the right of purchase option was exercised, in practice it is verified that the issue is not one of retroactivity of the norm applied, but rather the fact that, with the alienation of the property, it was given a different destination than the assignment to residential rental.

And we cannot reach a different conclusion because documents were filed in which the assessment of IMT and IS is requested by virtue of the alienation of the property, under No. 16 of Article 18 of the legal framework of FIIAH, approved by Article 62 of Law No. 64-A/2008 of 31 December, "ex vi" Article 236 of Law 83-C of 2013 of 31 December.

Properly speaking, such documents do not prove the assignment of the property to residential rental; rather, on the contrary, they prove that the property was alienated without having fulfilled the purpose for which it was acquired.

In sum, the Claimant does not prove, in this proceeding, the fulfillment of the legal requirement (assignment of the property to permanent residential rental), an essential prerequisite for the grant of the tax benefit in question.

Wherefore, the issue of retroactivity of the norm applied is not at stake, nor is there injury to the legitimate expectations of the Claimant or worsening of its tax position.

In accordance with the tax benefits regime then in force: "When the tax benefit relates to the acquisition of property intended for the direct achievement of the purposes of the acquirers, it ceases to have effect if they are alienated or given another destination without authorization from the Minister of Finance (…)"

From which it follows that the assessments result from the property being given a different destination (acquired with a view to residential rental).

For all the above reasons, it must be concluded that the assessments of IMT and IS under scrutiny are legal pursuant to Article 8(7)(a), as well as to No. 8 of Article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH).

Consequently, the request for reimbursement of the amounts of tax paid and the request for the condemnation of the Respondent to the payment of compensatory interest is denied.

7. Decision

In these terms, in accordance with the above, the decision is as follows:

a) To rule that the requests for declaration of nullity of the impugned assessments on the ground of unconstitutionality of the provision contained in Article 236 of Law No. 83-C/2013, of 31/12, as well as the annulment of the same on the same ground, lack merit;

b) To rule that the requests for restitution of tax paid, as well as the request for payment of compensatory interest pursuant to Article 43 of the LGT, lack merit.

8. Value of the Case

The value of the case is fixed at € 2,162.93 pursuant to Article 97-A(1)(a) of the Tax Procedure and Process Code, applicable by virtue of Article 29(1)(a) and (b) of the RJAT and No. 2 of Article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

9. Costs

The amount of the arbitration fee is fixed at € 612.00, pursuant to Table I of the Regulations on Costs of Tax Arbitration Proceedings, to be borne by the Claimant, since the claim was entirely without merit, pursuant to Articles 12(2) and 22(4), both of the RJAT, and Article 4(4) of the said Regulations.

Register and notify.

Notify likewise the Public Prosecution Service, as requested by the Tax Authority.

Lisbon 3 May 2017

The Arbitrator

(Cristina Coisinha)

Text prepared by computer pursuant to the provision in Article 131(5) of the CPC, applicable by reference from Article 29 of the RJAT.

The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] CAAD Decisions nos. 133/2016-T, 164/2016-T

[2] Article 2(1)(a) of the RJAT

[3] Jorge Lopes de Sousa, in Tax Procedure and Process Code, annotated and commented, 6th ed., 2011, page 124

[4] Article 3(1) of the RJAT

[5] Decisions nos. 398/2015/; 689/2015-T; 709/2015-T; 735/2015-T; 133/2016-T; 164-T/2016; 166/2016-T; 231/2016-T; 617/2016-T, available at www.caad.org.pt.

[6] Cf. docs. nos. 1 and 2

[7] Cf. Article 35 of the Claim

Frequently Asked Questions

Automatically Created

What IMT and Stamp Tax exemptions apply to Portuguese Real Estate Investment Funds for Residential Leasing (FIIAH)?
Under the Tax Framework for FIIAH (Law 64-A/2008), real estate investment funds for residential leasing originally benefited from full exemptions from IMT and Stamp Tax on property acquisitions intended for residential rental purposes. These exemptions applied under Article 8(7)(a) and (8) when properties were acquired and allocated to the fund's statutory residential leasing objective. However, Article 236(2) of Law 83-C/2013 (2014 State Budget) retroactively modified this regime by imposing a three-year minimum holding period, even for properties acquired before January 1, 2014. If a FIIAH disposes of property before completing three years from January 1, 2014, the previously granted exemptions expire and the taxes become due. Article 8(16) of the FIIAH Tax Framework also provides that exemptions cease when property is given a destination different from that justifying the benefit.
Can the CAAD Tax Arbitration Tribunal rule on cumulative claims involving both IMT and Stamp Tax liquidations?
Yes, the CAAD Tax Arbitration Tribunal has material competence to rule on cumulative claims involving both IMT and Stamp Tax liquidations arising from the same factual situation. In Process 656/2016-T, the tribunal explicitly accepted jurisdiction over a combined claim challenging both IMT assessment (document …) and Stamp Tax assessment (document …) totaling €2,162.93. The Respondent's exception alleging material incompetence was rejected regarding the tribunal's ability to assess legality of tax assessments. While CAAD cannot perform abstract constitutional review reserved to the Constitutional Court, it can evaluate whether applying specific legal provisions to concrete tax assessments results in illegal liquidations. This includes assessing whether assessments based on potentially unconstitutional norms violate taxpayer rights, making cumulative claims involving multiple related tax types fully within CAAD's jurisdiction when they arise from unified transactions.
What transitional rules under Article 236 of the 2014 State Budget affect FIIAH tax obligations in Portugal?
Article 236(2) of Law 83-C/2013 (2014 State Budget) established critical transitional rules affecting FIIAH tax obligations by mandating retroactive application of the revised FIIAH framework to properties acquired before January 1, 2014. Specifically, this provision required applying the three-year holding period requirement contained in Article 8(14) of the FIIAH Tax Framework to properties already held by funds, with the three-year period counting from January 1, 2014 rather than the original acquisition date. This meant FIIAH funds that acquired properties in 2013 or earlier with unconditional IMT and Stamp Tax exemptions became subject to a new expiration regime: if they disposed of properties before December 31, 2016, the exemptions would expire and the taxes would become payable. The Claimant in this case argued this retroactive application violated Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws, because exemptions that were definitive when granted in 2013 were subsequently conditioned on future compliance with holding periods not originally required.
How can a FIIAH fund challenge illegal IMT and Stamp Tax assessments through tax arbitration in Portugal?
A FIIAH fund can challenge illegal IMT and Stamp Tax assessments through tax arbitration by filing a request for constitution of an arbitral tribunal under Articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The fund's managing company, acting in representation of the fund, must submit the arbitration request identifying the contested tax acts (liquidation document numbers and amounts), specifying the legal grounds for illegality, and requesting the desired relief (declaration of nullity, annulment, reimbursement, and compensatory interest). The fund can invoke substantive illegality grounds including unconstitutionality of applied provisions, violation of constitutional principles (such as non-retroactivity under Article 103 CRP), incorrect application of exemption regimes, or failure to meet legal requirements for tax assessment. Claimants may submit supporting legal opinions and documentation. The process involves appointment of arbitrators, filing of the Tax Authority's reply, opportunities for submissions on exceptions raised, and ultimately an arbitral decision with full legal effect equivalent to judicial judgments.
Are FIIAH funds entitled to reimbursement and compensatory interest when IMT and Stamp Tax liquidations are annulled?
Yes, FIIAH funds are entitled to reimbursement of illegally paid taxes plus compensatory interest when IMT and Stamp Tax liquidations are annulled by arbitral decision. In Process 656/2016-T, the Claimant explicitly requested 'reimbursement of the amounts of tax paid, plus the compensatory interest due until the date of reimbursement' as part of its arbitration claim. This follows the general principle under Portuguese tax law that when tax assessments are declared null or annulled, the Tax Authority must reimburse amounts unduly paid. Compensatory interest accrues automatically under Article 43 of the General Tax Law (LGT) to compensate taxpayers for the State's retention of funds to which it was not entitled, calculated from the payment date until actual reimbursement. The interest rate and calculation methodology are established by law. This reimbursement obligation with interest applies regardless of whether the annulment is based on nullity (fundamental invalidity) or voidability (standard invalidity), ensuring full restoration of the taxpayer's financial position when administrative tax acts are found illegal.