Process: 657/2016-T

Date: March 20, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 657/2016-T examines a critical constitutional challenge to the transitional regime governing FIIAH (Closed Real Estate Investment Funds for Residential Leasing) tax exemptions. A fund managing company contested IMT (Municipal Property Transfer Tax) and Stamp Duty assessments totaling €9,639.24 after selling a property acquired before January 1, 2014. The claimant argued that Article 236(2) of Law 83-C/2013 unconstitutionally applied retroactive taxation by establishing a three-year holding period counted from January 2014 for properties already held by FIIAH funds, violating Article 103(3) of the Portuguese Constitution's prohibition on retroactive tax laws. The Tax Authority raised jurisdictional defenses, asserting that arbitral tribunals lack competence to declare constitutional invalidity and claiming absence of passive standing since tax authorities cannot refuse to apply legislation. On the merits, the Authority contended the provision merely clarified a compliance timeline for existing exemption requirements without creating new substantive conditions, thus avoiding retroactivity concerns. The dispute centers on whether transitional rules modifying exemption expiration periods for pre-existing property holdings constitute impermissible retroactive taxation or legitimate prospective regulation. The case highlights tensions between taxpayer legitimate expectations in investment fund tax benefits and legislative authority to reform special tax regimes. Secondary issues include the proper classification of potentially unconstitutional tax acts—whether such defects produce nullity affecting fundamental rights or mere voidability—and entitlement to compensatory interest upon successful challenge, with the Authority arguing principle of legality compliance precludes interest liability.

Full Decision

ARBITRAL DECISION

1. STATEMENT OF FACTS

1.1 A…, S.A., taxpayer no. …, with registered office at …, no. …, Lisbon, in its capacity as managing company of B… – CLOSED REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL LEASING, taxpayer no. …, filed on 3 November 2016 a request for constitution of an arbitral tribunal, pursuant to article 2, paragraph 1, letter a) of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT).

1.2. The TAX AND CUSTOMS AUTHORITY is the respondent in these proceedings.

1.3 The Deontological Council of the Administrative Arbitration Center (CAAD) appointed the undersigned arbitrator to constitute the Single Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 19 January 2017.

1.4 The request for arbitral decision concerns the assessment of Transfer Tax no. …, in the amount of €7,833.87, and the assessment of Stamp Duty no. …, in the amount of €1,805.37, both relating to the autonomous fraction designated by the letters … of the property registered in the urban property matrix under article … of the union of the parishes of …, …, … and …, municipality of Oeiras, assessments and property which are better identified in the claimant's request and in the documents attached thereto, to which reference is made here.

The claimant requests that the Tribunal determine whether article 236, paragraph 2 (Transitional Rule within the scope of the Special Regime Applicable to FIIAH and SIIAH) provided for by Law no. 83-C/2013, of 31 December - to the extent that it determines the application of the current Tax Regime of FIIAH to properties acquired by FIIAH before 1 January 2014, in which cases the period of three years provided for in paragraph 14 shall be counted from 1 January 2014 - constitutes a new regime of expiration of the exemptions provided for in paragraphs 7, letter a) and 8 of article 8 (Tax Regime) of the Tax Regime of FIIAH, and whether, to that extent, it reveals a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, enshrined in article 103, paragraph 3, of the Constitution of the Portuguese Republic, which, in its view, leads to its unconstitutionality.

The claimant invokes the illegality of the assessments on the basis of their unconstitutionality which, it believes, leads to their nullity, which it requests the Tribunal to declare, or to their voidability, for which reason it alternatively requests that the assessments be annulled.

The claimant believes that the assessments in dispute are, as a consequence, affected by a defect that results in nullity, under letter d) of paragraph 2 of article 133.2 of the Administrative Procedure Code (CPA) because they violate the essential content of a fundamental right.

In any event, the claimant also believes that the assessments shall be voidable, as illegal, on the same grounds.

Furthermore, the claimant petitions for the respondent to be condemned to reimbursement of the amounts paid by virtue of the assessments in dispute, plus compensatory interest on all amounts paid, accrued until the date of reimbursement.

1.5 The TAX AND CUSTOMS AUTHORITY replied on 20 February 2017, defending itself by exception and by substantive objection.

By way of exception, the respondent argued that the Arbitral Tribunal does not have jurisdiction to determine or declare the constitutionality or unconstitutionality of article 236 of Law 83-C/2013, of 31 December, as the claimant would essentially request.

By way of exception, the respondent further invoked the "lack of passive standing of the respondent" sustained, in its view, on the fact that the Tax Administration cannot "refuse to apply rules on the grounds of their unconstitutionality or illegality, as it is subject to the principle of legality", "From which it follows that the claim raised by the claimant conflicts with the powers of the respondent and with its binding to the law and to the Constitution". From which, it concludes, the very unconstitutionality of a legal rule cannot be the subject of direct challenge before the Administrative and Tax Courts and, consequently, before the Arbitral Tribunal, which, in its view, determines that "where a normative act emanated from the Assembly of the Republic in the typical form of a legislative act is at issue, the Tribunal should always declare the respondent absolved of the instance, given the dilatory exception of lack of passive standing demonstrated in these arbitral proceedings, pursuant to articles 278, paragraph 1, letter d) and 576, paragraphs 1 and 2 of the CPC, applicable ex vi article 29, paragraph 1, letter e) of the RJAT".

The respondent also defended itself substantively, on the one hand, by reiterating what it had already alleged by way of exception, regarding the "impossibility of the Tax Administration refusing to apply a legal rule on the grounds of unconstitutionality" and, on the other hand, by sustaining the accordance with the Constitution of the rule in dispute.

It alleges that the law in question is not affected by retroactivity, as it has not established any new requirement for the application of the exemption provided for in the tax regime of FIIAH, but has merely granted a period for compliance with a requirement already underlying the regime itself, a period that begins only after the new law enters into force.

It is not, therefore, a matter of altering the assumptions, conditions of attribution or recognition of a tax benefit, but solely and exclusively of implementing that regime, regulating the period of time for purposes of verification of compliance with a requirement previously established.

It adds that, in the case at hand, the tax assessments in dispute are based on the fact that the claimant alienated the property, thereby giving it a different destination from that on which the benefit was based.

Furthermore, regarding the alleged nullity of the assessment acts, it states that in the Portuguese legal-administrative order the general regime of invalidity of acts is, for reasons of legal certainty, mere voidability, including for those based on illegal or unconstitutional deliberations, with the Supreme Administrative Court having pronounced itself in that same sense.

The respondent states that the declaration of nullity appears reserved for those acts that violate the essential content of a fundamental right, contending with the rights, freedoms and guarantees of citizens, but not those that contend with the principle of legality, as is, it says, the case in these proceedings.

The acts at issue, being, without it being conceded, violations of the principle of tax legality, would thus be voidable, but not null. It being certain that, it continues, the acts in question are not illegal and, therefore, do not suffer from any defect that would import even their voidability, to the extent that, it reiterates, "the assessments at issue on the fact that the property was given 'a different destination from that on which the benefit was based' then, contrary to what the claimant intends, not only is the retroactivity of the legal rule better identified by itself in the opening of the arbitral request not at issue, but also there is no lesion of its expectations".

It believes, finally, that, even if the claimant's requests were to succeed, compensatory interest would not in any case be due, as it cannot, in its view, be imputed any error of fact or law, bound as it is to the principle of legality, and the prerequisites of article 43 of the General Tax Law not being verified.

Wherefore the respondent concludes that the requests should be judged unfounded and ends by requesting that "should the Tribunal come to accept the claimant's claim and, inherently, refuse the application of article 236 of the Regime applicable to FIIAH, on grounds of unconstitutionality, it is requested, by appeal to the provision of article 280, paragraph 3 of the CRP and article 72, paragraph 3 of the Constitutional Court Act, that notification be made to the Attorney General of the learned arbitral decision, so that the latter may comply with its legal prerogatives".

1.6. On the same date, the respondent came before the Tribunal to request dispensation from the meeting provided for in article 18 of the RJAT and, likewise, to inform that "as no prior administrative procedure has occurred in these proceedings, there is no administrative file to be presented by the respondent under article 17, paragraph 2, of the RJAT."

1.7 The Tribunal issued, on 22 February 2017, an order dispensing with the meeting of the arbitral tribunal provided for in article 18 of the RJAT and inviting the parties to, if willing, submit arguments, in successive periods of ten days, and likewise inviting the claimant to respond, in arguments, to the matter of exception raised by the respondent.

1.8. The claimant came, on 6 March 2017, to submit arguments, in which it responded to the exceptions raised by the respondent.

It sustains, regarding the alleged exception of lack of jurisdiction of the Tribunal, that this is based on an incorrect interpretation of the request for arbitral decision, in which no abstract constitutionality review of the rule of article 236 of Law 83-C/2013, of 31 December is requested, but rather the assessment of the legality of the assessment is at issue, based on the unconstitutionality of the rule on which they are based, which are different matters, and that the arbitral tribunal would not have jurisdiction to assess that question, but does, in the claimant's view, to assess this one.

As for the invoked exception of lack of passive standing of the claimant, it alleges that it has difficulty understanding, from the respondent's arguments, the justification for such putative lack of standing and sustains that it is a properly constituted party.

Furthermore, it pleads for the thesis it defends in its request for arbitral decision.

1.9 The respondent came to submit its arguments on 14 March 2017, maintaining the positions previously expressed.

2. PRELIMINARY MATTERS

The Tribunal was regularly constituted.

However, the respondent raised the Tribunal's lack of jurisdiction and its lack of passive standing, matters which are of priority consideration, and thus it falls to decide:

A) ON THE ALLEGED LACK OF MATERIAL JURISDICTION OF THE ARBITRAL TRIBUNAL

The respondent, by way of exception, asserts that the Tribunal is not competent to decide on the constitutionality or unconstitutionality of the rules which, in the claimant's view, gave rise to the assessments in dispute.

It is true that the claimant subsumed its request for arbitral decision to the claim that the Tribunal determine "whether article 236 (Transitional Rule within the scope of the Special Regime Applicable to FIIAH and SIIAH) provided for by Law no. 83-C/2013, of 31 December - to the extent that it determines the application of the current Tax Regime of FIIAH 'to properties acquired by FIIAH before 1 January 2014, in which cases the period of three years provided for in paragraph 14 shall be counted from 1 January 2014' - constitutes a new regime of expiration of the exemptions provided for in paragraphs 7, letter a) and 8 of article 8 (Tax Regime) of the Tax Regime of FIIAH, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, enshrined in article 103 (Tax System), paragraph 3, of the Constitution of the Portuguese Republic".

It appears evident to the Tribunal that the Arbitral Tribunal would not have jurisdiction for such a declaration of conformity or non-conformity of the rules at issue with the Constitution of the Portuguese Republic.

However, in truth, that is not what the claimant petitions for, but only that the Arbitral Tribunal pronounce itself on the application of the said rules to the concrete facts submitted to its consideration, evaluating whether or not such application is legal.

The Tribunal is, to that extent, materially competent, and the exception raised by the respondent is judged unfounded.

B) ON THE ALLEGED LACK OF PASSIVE STANDING OF THE RESPONDENT

The respondent further alleges its "lack of passive standing" sustained, in its view, on the fact that the Tax Administration cannot "refuse to apply rules on the grounds of their unconstitutionality or illegality, as it is subject to the principle of legality", "From which it follows that the claim raised by the claimant conflicts with the powers of the respondent and with its binding to the law and to the Constitution".

From which, it concludes, the very unconstitutionality of a legal rule cannot be the subject of direct challenge before the Administrative and Tax Courts and, consequently, before the Arbitral Tribunal, which, in its view, determines that "where a normative act emanated from the Assembly of the Republic in the typical form of a legislative act is at issue, the Tribunal should always declare the respondent absolved of the instance, given the dilatory exception of lack of passive standing demonstrated in these arbitral proceedings, pursuant to articles 278, paragraph 1, letter d) and 576, paragraphs 1 and 2 of the CPC, applicable ex vi article 29, paragraph 1, letter e) of the RJAT".

Now, the reasons invoked by the respondent to sustain its lack of passive standing are nothing more than those it alleged in support of its thesis of lack of jurisdiction of the Arbitral Tribunal, which has already been decided above.

As stated above, it is not the abstract review of the constitutionality of the rule at issue in these proceedings and only such could lead to the Tribunal's lack of jurisdiction and, eventually, to the lack of passive standing of the respondent. What is at issue in these proceedings is, reiterated, the application of the said rules to the concrete facts submitted to its consideration, evaluating whether or not such application is legal.

To that extent, the exception of lack of passive standing raised by the respondent is judged unfounded.

The Tribunal is, therefore, competent ratione materiae, in accordance with article 2.9 of the RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented.

The proceedings do not suffer from any defects that would invalidate them.

3. FACTUAL FINDINGS

As relevant to the merits of the decision, the Tribunal considers the following facts to be proven:

1) The claimant was owner of the autonomous fraction designated by the letters … of the property registered in the urban property matrix under article … of the union of the parishes of …, …, … and …, municipality of Oeiras.

2) The property was acquired benefiting from the exemptions of Transfer Tax and Stamp Duty contained, respectively, in paragraphs 7, letter a), and 8 of article 8 of the Tax Regime of FIIAH, which were recognized upon application, in accordance with article 10 of the Transfer Tax Code.

3) The claimant presented, on 10.08.2016, a declaration for assessment of Transfer Tax and Stamp Duty, requesting payment of the Transfer Tax and Stamp Duty on the factual ground of its intention to alienate the property and, on the legal ground, on the provision of paragraph 16 of article 8 of the FIIAH Regime, applicable ex vi of article 236 of Law no. 83-C/2013, of 31 December (Transitional Rule within the scope of the Special Regime Applicable to FIIAH and SIIAH).

4) Such declarations gave rise to the assessment of Transfer Tax no. …, in the amount of €7,833.87, and the assessment of Stamp Duty no. …, in the amount of €1,805.37, which the respondent paid on 11.08.2016.

Facts Not Proven

No essential facts, with relevance to the assessment of the merits of the case, which were not proven, were found.

Reasoning on the Factual Findings

The conviction regarding the facts given as proven was based on the documentary evidence submitted by the claimant, the authenticity and correspondence to reality of which were not contested by the respondent.

4. ISSUES FOR DECISION

Having considered above the exceptions raised by the respondent, the issue under consideration by the Tribunal is to determine the legality of the Transfer Tax and Stamp Duty assessments sub judice and to decide on the consequences of their possible illegality and, consequently, the legality of the Transfer Tax and Stamp Duty assessments sub judice.

Let us see:

Article 102 (rule inserted in Chapter X, under the heading "Tax Benefits") of Law no. 64-A/2008 of 31 December approved the special regime applicable to real estate investment funds for residential leasing (hereinafter "FIIAH").

According to paragraph 7 of its article 8 of FIIAH, the following are exempt from Transfer Tax:

"a) The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for leasing for permanent residence, by the investment funds referred to in paragraph 1;

b) The acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent residence, as a result of the exercise of the option to purchase referred to in paragraph 3 of article 5 by the tenants of the properties that form part of the assets of the investment funds referred to in paragraph 1."

Article 235 of Law 83-C/2013, of 31 December (State Budget for 2014) introduced three additional paragraphs to the said article 8:

"14 – For purposes of the provisions of paragraphs 6 to 8, urban properties are considered to be intended for leasing for permanent residence whenever they are the subject of a lease contract for permanent residence within three years from the moment in which they entered the assets of the fund, and the taxpayer must communicate and provide proof to the Tax Authority of the respective effective leasing, within 30 days following the expiry of the said period. 15 – When properties have not been the subject of a lease contract within the three-year period provided for in the previous paragraph, the exemptions provided for in paragraphs 6 to 8 shall lapse, and in that case the taxpayer must request from the Tax Authority, within 30 days following the expiry of the said period, the assessment of the respective tax. 16 – If the properties are alienated, with the exception of the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the expiry of the period provided for in paragraph 14, the taxpayer must likewise request from the Tax Authority, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax due under the previous paragraph."

In article 236 the following transitional provision is contained: "The provisions of paragraphs 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, shall apply to properties acquired by FIIAH from 1 January 2014. 2 - Without prejudice to the provision of the preceding paragraph, the provisions of paragraphs 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, shall equally apply to properties acquired by FIIAH before 1 January 2014, in which cases the period of three years provided for in paragraph 14 shall be counted from 1 January 2014."

It is against this transitional rule that the claimant objects, considering it unconstitutional, for violation of the principle of non-retroactivity of tax law, enshrined in article 103, paragraph 3, of the CRP, to the extent that, in its view, it constitutes a new regime of expiration of the exemptions.

Upon examination, it results from the facts proven that the property in question was acquired by the claimant benefiting from exemption of Transfer Tax under letter a) of paragraph 7 of article 8 of the legal regime of FIIAH.

Such rule requires that the property be intended for leasing for permanent residence so that it may benefit from such exemption.

That is, the obligation to intend the property for residential leasing is not a requirement of the amendments introduced by articles 235 and 236 of Law 83-C/2013, of 31 December, but rather a requirement of the tax regime of FIIAH.

It is the natural consequence of the motivations that led to the creation of a temporary special regime applicable to these Funds, linked to the economic crisis and the consequent increased difficulty of individuals and families in paying instalments of loan contracts concluded for the acquisition of own permanent residence, thus intending the regime to address situations of difficulty and encourage leasing for own permanent residence.

The State Budget for 2014 does, to be sure, establish new rules for the exemption: if the allocation to leasing for permanent residence does not occur within the period of 3 years after the entry of the property into the Fund and, also if the FIIAH is subject to liquidation, before the expiry of that period, the purchaser must request the assessment of the Transfer Tax that was not assessed.

The claimant alleges that it was for this reason alone – and for application of these rules, which it considers unconstitutional - that it proceeded to make the declarations that gave rise to the assessments in dispute.

It does not escape the Tribunal that the claimant intends to circumscribe the scope of consideration of the question sub judice to the constitutionality of the rule and seeks to have the Tribunal thereby prevented from being able to assess the legality of the assessment through application of the provision, regarding the expiration of the exemption, in the Tax Benefits Statute, thereby forcing the resort to the Constitutional Court.

Well, let us see:

Note that, from the outset, the assessments of Transfer Tax and Stamp Duty effected as regards the autonomous fraction described did not have as their basis its maintenance in the fund for a period equal to or greater than 3 years without there having been allocation to leasing for permanent residence.

The assessments at issue, as indeed appears from the assessment notes attached to the file, were based on the fact, in the words of the claimant itself, that it had decided to alienate the autonomous fraction.

Which, for purposes of the provision of the Tax Benefits Statute, corresponds to the confessed intention of giving it a different destination from that on which the benefit was based, thus causing the exemption to expire.

The fact that alienation of the property causes the exemption to expire is not, as shall be explained hereinafter, a new fact, resulting from the addition made by the State Budget for 2014.

New would be, at most, the obligation for the purchaser to request the assessment of the taxes that were not assessed prior to the alienation.

A provision that is not only merely procedural, but is not even at issue in these proceedings, given that this was precisely what the claimant did and the consequence would always be, as we shall see results from the Tax Benefits Statute, that the taxes would be assessed ex officio by the Treasury (plus the interest and penalties provided for in law), once the alienation was ascertained.

The alienation of the property in question by the claimant determines the expiration of the exemption because it was given by the claimant a different destination from that which had determined the granting of the benefit.

In truth, for compliance with letter a) of paragraph 7 of article 8, it is not enough to have a declared intention at the time of acquisition of the property, but an effective allocation to leasing for permanent residence.

It is not, therefore, true that the facts or circumstances on which the expiration of the exemption depended were not already legally provided for, at the moment of recognition of the exemption, at least as regards the circumstances that actually occurred: the alienation of the property.

In truth, the granting of a benefit depended already – and always depends – on the effective verification of its respective prerequisites, in accordance with article 12 of the Tax Benefits Statute (article 11), in the version of the Tax Benefits Statute that was in force prior to its republication by Decree-Law no. 108/2008, of 26/06).

The fact that the claimant proceeded to alienate the property which, upon acquiring, it declared would allocate in such a way as to allow it to be recognized – as it was – exemption of Transfer Tax and Stamp Duty, would always determine, even if the added paragraph 16 did not expressly provide for it, the expiration of such exemptions, by effect of the provision of article 12 and paragraph 3 of article 14 of the Tax Benefits Statute (former article 12, paragraph 3, in the version 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 concerns the acquisition of goods intended for the direct realization of the purposes of the acquirers, it shall cease if they are alienated or given another destination without authorization from the Minister of Finance, without prejudice to other sanctions or different regimes established by law."

The claimant neither alleged nor, by greater reason, demonstrated having obtained the authorization there provided for, or any other circumstance that would prevent the granted exemptions from ceasing as a consequence of the alienation.

It is not, on the other hand, true that the special regime applicable to real estate investment funds for residential leasing (FIIAH) and to real estate investment companies for residential leasing (SIIAH), which, in its article 8, creates the exemption, sets aside the application of the said articles of the Tax Benefits Statute, given that nothing in the regime of the Funds – prior to the entry into force of the paragraph whose retroactive application the respondent puts in issue – set aside the application of those provisions, which are general.

It appears to us, therefore, evident that, in the part corresponding to the alienation of the property, paragraph 16 of article 8 of the Legal Regime of FIIAH merely reiterates what already resulted from the provision of the Tax Benefits Statute.

Wherefore we understand that the rule in question, in that part, does not establish any new, substantial regime of expiration of the benefit, but rather procedural rules relating to the moment and manner of assessment of the taxes.

It is not, therefore, true what the claimant alleges: the granting of the benefit does not constitute an act that remains permanently crystallized in the tax and legal order.

In truth, the ratio for the attribution of the tax benefit as regards Transfer Tax and Stamp Duty to FIIAH is, clearly, its allocation to leasing for permanent residence — "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for leasing for permanent residence, by the investment funds...".

Wherefore the consequence of giving it a different destination would always be that the expiration of the exemption, with it being necessary to restore legality, assessing the taxes that, were it not for the declaration of intention made at the time of acquisition, would have been assessed.

Concluding, it is not true that there were not "legally provided for, at the moment of recognition of the exemption, any facts or circumstances on which the expiration of the recognized exemption depended", an argument on which the claimant entirely bases its thesis of the unconstitutionality of the rule (cf. article 41 of the request for arbitral decision).

The learned Opinion which the claimant attaches and of which it intends to make use pronounces itself, to be sure, in favour of the unconstitutionality of the rule, but in a situation different from that which occurred here, circumscribing itself to those cases in which the expiration of the exemption occurs because the property acquired with exemption has not been intended for leasing within the period – that being, new – fixed by the rule whose unconstitutionality is invoked.

The case at issue is manifestly different. The assessment of Transfer Tax and Stamp Duty did not originate in the course of this period without the Fund having allocated the fraction to leasing. Moreover, it occurred because of the fact that the fraction was alienated.

And, for that case, the rule in dispute establishes even a more favourable regime: the exemption only expires, now, if the property is alienated before the expiry of the period of three years. Without this rule, by mere application of the provision of the Tax Benefits Statute, the exemption would expire whenever the property was alienated, without prejudice, naturally, to the periods of expiration of the right to assessment of the tax.

The rule in dispute is not, therefore, in the part that applies to the case at issue, a rule that restricts the scope of application of the exemption, but rather a rule that allows, after three years have elapsed from the acquisition, the property to be sold without the exemption expiring.

Otherwise, the alienation of the fraction would always determine the expiration of the exemption by application of the provision of paragraph 3 of article 14 of the Tax Benefits Statute, and it is not, therefore, at issue, in the situation sub judice, any application retroactive of a rule that introduces a new regime of expiration of the exemptions, nor is there any lesion of the expectations of the claimant or aggravation of its tax position, wherefore we understand thus that the assessments of Transfer Tax and Stamp Duty in dispute are legal.

We understand, therefore, that the rule in dispute does not suffer from unconstitutionality and, consequently, that the assessments impugned are legal.

In this sense, see, among others, the decision rendered in case 398/2015-T which ran its course in the CAAD: "In the specific case – alienation of properties that were never allocated to leasing for permanent residence by the fund – this paragraph 16, combined with paragraph 15, does not alter the substance or requirements of the exemption established by letter a) but has a more procedural/operative nature – reading that if there is alienation of properties that have not been the subject of a lease contract, the exemptions cease (namely that of letter a) of paragraph 7), and the taxpayer must request the assessment of the respective tax. Concluding, we maintain that there is no issue of retroactivity or not of the law, nor is there any lesion of the expectations of the claimant or aggravation of its tax position, wherefore we understand thus that the assessment of Transfer Tax at issue is legal."

Likewise, the decision rendered in cases 684/2015-T, 688/2015-T, 690/2015-T, 691/2015-T, all in this CAAD, among many others in the same sense and with identical reasoning.

As regards, now, the invoked nullity of the assessment: having decided above on the constitutionality of the rule, the analysis of the question proposed by the claimant is moot, which is whether an assessment based on an unconstitutional rule is non-existent, null or merely voidable.

Having decided on the legality of the assessments in dispute, the consideration of the consequences of a possible illegality is likewise moot, as is the request for condemnation to compensatory interest.

6. DECISION

In light of the foregoing, it is decided that the claimant's requests are judged wholly unfounded.

* * *

The value of the case is fixed at €9,439.24 (nine thousand, four hundred and thirty-nine euros and twenty-four cents) in accordance with the provision of articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Procedures (RCPAT), 97-A, paragraph 1, letter a) of the Tax and Customs Procedure Code and 306 of the CPC.

The amount of costs is fixed at €918.00 (nine hundred and eighteen euros) under article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, to be borne by the claimant, in accordance with the provision of articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Let notification be made.

Porto, 20 March 2017

The Arbitrator

(Eva Dias Costa)

Text prepared by computer, in accordance with article 131, paragraph 5 of the Civil Procedure Code, applicable by remission of article 29, paragraph 1, letter e) of the RJAT.

Frequently Asked Questions

Automatically Created

What are the IMT and Stamp Tax exemptions applicable to FIIAH real estate investment funds under Portuguese law?
Under Portuguese law, FIIAH funds benefit from IMT and Stamp Duty exemptions on property acquisitions intended for residential leasing under Article 8(7)(a) and 8(8) of the FIIAH tax regime. These exemptions apply when properties are destined for the fund's statutory leasing purpose. The regime originally required maintaining this designated use, with exemptions expiring if properties received different destinations. Article 236(2) of Law 83-C/2013 introduced a transitional rule establishing that for properties acquired before January 1, 2014, the three-year holding period under paragraph 14 would be counted from that date forward, creating timing requirements for previously acquired assets.
Does Article 236 of Lei 83-C/2013 violate the principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
The claimant argued Article 236 violates Article 103(3) of the Portuguese Constitution by retroactively imposing new expiration conditions on tax exemptions already granted for properties acquired before the law's enactment. This constitutes improper retroactive taxation by altering the legal consequences of completed transactions. The Tax Authority countered that the provision is not retroactive because it establishes only a compliance period beginning after the law's entry into force, without changing the substantive exemption requirements themselves. The Authority maintained that the three-year period merely implements an existing requirement rather than creating new conditions, and counting forward from 2014 respects the prohibition on retroactivity by applying only prospectively.
How does the CAAD arbitral tribunal assess the transitional regime for FIIAH property acquisitions made before January 1, 2014?
The CAAD tribunal must evaluate whether Article 236's transitional regime imposes genuinely new legal consequences on past acquisitions (constituting prohibited retroactivity) or simply provides an implementation timeline for existing requirements (permissible prospective regulation). The analysis focuses on whether requiring a three-year holding period counted from 2014 for properties already held changes the original exemption's substantive conditions or legitimate expectations. The tribunal faces preliminary jurisdictional questions about its competence to assess constitutional validity and whether the Tax Authority possesses passive standing when bound by the legality principle. The evaluation requires distinguishing between retroactive application of new substantive tax obligations to completed transactions versus transitional rules providing compliance periods for ongoing legal relationships.
What are the legal consequences of unconstitutional tax assessments — nullity or annulability — under Portuguese administrative law?
The claimant contended that unconstitutional tax assessments suffer from nullity under Article 133(2)(d) of the Administrative Procedure Code because violating constitutional tax principles affects the essential content of fundamental rights. Nullity represents the most severe invalidity, requiring no judicial declaration and immune to validation. The Tax Authority argued Portuguese administrative law establishes voidability as the general invalidity regime for legal certainty, with nullity reserved exclusively for acts violating the core content of fundamental rights related to freedoms and guarantees—not mere legality principles. Even unconstitutional assessments would be merely voidable, requiring timely challenge. The Authority distinguished between violations directly affecting constitutional rights versus procedural or competence defects, asserting tax legality breaches fall within the voidability category requiring judicial annulment rather than automatic nullity.
Can a FIIAH fund claim reimbursement and compensatory interest after successfully challenging IMT and Stamp Tax liquidations?
Upon successfully challenging the IMT and Stamp Duty assessments, FIIAH funds are entitled to reimbursement of amounts paid plus compensatory interest under Article 43 of the General Tax Law (LGT), which applies when taxpayers suffer financial harm from illegal administrative acts. The claimant specifically requested compensatory interest accrued until reimbursement. However, the Tax Authority contested interest liability, arguing that when administrative bodies apply legally binding provisions while respecting the legality principle, Article 43's prerequisites are not satisfied—namely, no attributable error of fact or law exists when officials correctly apply valid legislation. The outcome depends on whether successfully proving unconstitutionality establishes the requisite imputable error, or whether good-faith application of facially valid laws insulates the administration from interest obligations despite subsequent invalidity determinations.