Stamp Tax on Real Estate Investment Fund: CAAD Case 663/2018-T on Article 7(1)(e) CIS and TGIS Schedules 17

ARBITRAL DECISION

I- REPORT

1. A... CLOSED REAL ESTATE INVESTMENT FUND (hereinafter referred to as the Claimant, Taxpayer or Fund), represented by B... Real Estate Investment Funds Management Company, S.A., submitted on 2018-12-21 a request for arbitral pronouncement, pursuant to the provisions of paragraph a) of item 1 of article 2 and article 10, item 1, paragraph a) of Decree-Law No. 10/2011, of 20 January (hereinafter referred to as RJAT), in which the Tax and Customs Authority (hereinafter referred to as AT or Respondent) is called upon to declare the illegality of the act of tacit dismissal of an ex officio review procedure, and consequent partial annulment of the acts of stamp duty assessment, with reference to the years 2014 and 2015, in the amount of €29,174.21.

2. The request for the constitution of a Tax Arbitral Court was accepted by His Excellency the President of CAAD, and notified to the Respondent in accordance with the law, on 2018-12-21.

3. Pursuant to and for the purposes of paragraph a) of item 2 of article 6 of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties, within the prescribed periods, the undersigned was appointed as arbitrator, and communicated to that Council the acceptance of the assignment within the period provided for in article 4 of the Code of Ethics of the Centre for Administrative Arbitration.

4. On 2019-02-18, the parties were notified of that appointment, and did not manifest any intention to refuse the arbitrator's appointment, in accordance with the combined provisions of article 11, item 1, paragraphs a) and b) of RJAT, in the wording conferred upon them by Law No. 66-B/2012, of 31 December.

5. The Singular Arbitral Tribunal was constituted on 2019-02-28 in accordance with the requirement of paragraph c) of item 1 of article 11 of RJAT, in the wording conferred upon it by article 228 of Law No. 66-B/2012, of 31 December.

6. Duly notified for such purpose, by order issued on 2019-02-28, the Respondent presented on 2019-04-03 its response, and on that same date proceeded to attach the administrative file to the proceedings.

7. By order of 2019-04-03, duly notified to the parties, which justified, among other things, the waiver of the hearing referred to in article 18 of RJAT, and the presentation of final submissions, the probable deadline for the issuance and notification of the final decision was set as the third of May, two thousand and nineteen.

8. On 2019-04-16, the Claimant presented three documents which, admitted by order issued on that same day, were notified to the Respondent for it to comment thereon.

9. The Respondent came on 2019-04-29, through a request filed in the proceedings, to comment on the attachment of the same, and requested a period of not less than ten days to comment thereon.

10. By order issued on 2019-04-30, such period was granted, and consequently the deadline for issuance of the decision and its notification to the parties was rescheduled to the twenty-fifth of May of two thousand and nineteen.

11. The Tax and Customs Authority came on 2019-05-10 to comment on the documents attached by the Claimant.

12. In support of its request, the Claimant invoked in summary, and with relevance to what matters here the following (mentioned mostly by transcription):

12.1. that it is a "closed real estate investment fund with accumulation" and its activity is now regulated by the General Regime of Collective Investment Undertakings, approved by Law No. 16/2015, of 24 February (see article 23 of the request for arbitral pronouncement and document No. 3 attached thereto),

12.2. "(...) in pursuit of its objectives and within the scope of the activity it develops, the Fund has resorted to financing from C... (see article 27 of the request for arbitral pronouncement),

12.3. the lending credit institution (...) in its capacity as the taxpayer of the tax, assessed and paid the Stamp Duty owed with reference to that contract (...) through the corresponding tax payment slips (see article 28 of the request for arbitral pronouncement and document 2 attached thereto),

12.4. (...) pursuant to the provisions of the law, that institution passed on the Stamp Duty assessed to the Fund (...) and the Fund bore it entirely, [in the amount of €29,174.21] (see article 29 of the request for arbitral pronouncement and document No. 4 attached thereto),

12.5. The Claimant further makes various considerations of law regarding the applicability of the exemption provided for in paragraph e) of item 1 of article 7 of the CIS, basing its thesis fundamentally on the subjective scope thereof, arguing for the qualification of the FUND as a "financial institution" in accordance with European Union legislation in order to benefit from said (objective) provision of the exemption in question.

12.6. The Claimant also invokes an opinion issued by the Centre for Fiscal and Customs Status, as well as binding information sought in circumstances of a factual situation similar to that underlying these proceedings,

12.7. To conclude, as appears from its request, that "the illegality of the decision of dismissal (tacit) in the context of Ex Officio Review be declared (...); that "the tax acts of Stamp Duty be partially annulled, because illegal, due to manifest error in the factual and legal prerequisites, in the amount of €29,174.21"; that the Fund be reimbursed the amount of Stamp Duty unduly borne (...); and "that the Tax and Customs Authority be condemned to pay indemnity interest, at the legal rate, calculated from the moment of (unduly) payment of the amount of €29,174.21, until full reimbursement of the amount owed and calculated on the tax".

1. As stated, on 2019-04-03 the Tax and Customs Authority attached the administrative file to the proceedings (PA) and presented its response, from which it appears in very brief summary, and insofar as it is relevant here, that;

13.1. In essence (and as will be expanded below), it does not diverge from the position conveyed by the FUND, in the various aspects on which it bases its request, questioning, instead, that the same "does not prove" that we are dealing with a loan contract between the lending entity/taxpayer of the tax and the Claimant, in order for the exemption provided for in paragraph e) of item 1 of article 7 of the CIS to apply,

13.2. It invokes article 74 of the General Tax Law and cites the Judgment of the Supreme Administrative Court of 27/07/2012 (case No. 0982/11) to reaffirm that it is the Claimant "that bears the burden of proving unequivocally the facts alleged by it" which, in its perspective, the FUND has not managed to achieve.

13.3. It further argues for the absence of any ground that determines the obligation to pay indemnity interest.

13.4. No other relevant facts appear to have been raised by the Tax and Customs Authority insofar as is relevant to the decision.

13.5. The Respondent thus concludes its response pleading in the sense that "the present request for arbitral pronouncement should be judged as unsubstantiated and, consequently, the Respondent should be absolved of all requests, in the terms petitioned above, all with the due and legal consequences."

1. The Singular Arbitral Tribunal is materially competent, and is regularly constituted pursuant to the provisions of articles 2, item 1, paragraph a), 5 and 6, item 1 of RJAT.

2. The parties have legal personality and capacity, are legitimate and are duly and legally represented (articles 3, 6 and 15 of the Code of Tax Procedure and Process, ex vi, article 29, item 1, paragraph e) of RJAT).

3. The proceedings are not subject to nullities, and no exceptions that should be addressed have been raised.

II- GROUNDS

A. FACTUAL MATTERS

A.1. Facts taken as proven

i. The Claimant is constituted as a closed real estate investment fund, with authorization from CMVM on 06/07/2005 having commenced its activity on 15/07/2005, to which corresponds the CAE code "64300 - Trusts, funds and similar financial entities" and, as secondary CAE "6810 - Purchase and sale of real estate",

ii- The depositary of its assets and its marketing entity is "C..., S.A.", being registered with CMVM as a financial intermediary since 29/07/1991,

iii- The FUND has resorted to financing from "C..., S.A." under a "credit facility contract on current account, concluded on 20/03/2013 and amended on 23/12/2014,

iv- Between June 2014 and June 2015, the Claimant contracted bank financing from said bank,

v- With respect to that period "C..., S.A." assessed the stamp duty owed for such operations under the provisions of item 17 of TGIS, having passed it on to the Claimant,

vi- On 20/06/2018 the Claimant submitted to the Tax and Customs Authority a request for ex officio review, aimed at annulling the tax acts for assessing stamp duty with reference to item 17 of the respective schedule annexed to the CIS, on which tacit dismissal was formed,

vii- On 2018-12-21, the Claimant through its legal representative "B... - Real Estate Investment Funds Management Company" directed to CAAD a request for the constitution of an arbitral tribunal which originated the present proceedings. (see the procedural management computer system of CAAD).

A.2. Facts taken as not proven

There are no material facts relevant to the decision that should be considered as not proven.

A.3. Grounds for the factual matters taken as proven and not proven

With respect to the factual matters, the tribunal does not have to pronounce on everything that was alleged by the parties, but rather it has the duty to select the facts that matter for the decision and to distinguish between proven and unproven matters (see article 123, item 2 of CPPT and articles 607, item 3 of the Code of Civil Procedure, applicable ex vi article 29 item a) and e) of RJAT).

Thus, the material facts relevant to the judgment of the case are chosen based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s). (see article 596 of the Civil Code, applicable ex vi article 29, item 1, paragraph e) of RJAT).

Therefore, taking into account the positions assumed by the parties in light of article 110, item 7 of CPPT, the documentary evidence and the attached PA, the facts listed above are considered proven, with relevance to the decision.

B- ON THE LAW

The Claimant in its request for pronouncement raises various questions, with different depths, which are reduced to: (i) arbitrability in this forum, of acts of tacit dismissal arising from requests for ex officio review of tax acts, (ii) the nature and qualification of the "FUND" as a "financial institution" so as to benefit from the exemption of stamp duty provided for in paragraph e) of item 1 of article 7 of the CIS, and (iii) its legitimacy for the underlying request for arbitral pronouncement.

Let us then see;

In light of the content of the response produced by the AT, and as already signaled, it seems legitimate to conclude that the questions raised by the Claimant, above identified, do not constitute controversial matters, since in defense of its thesis, leading to the rejection of the request, it argues, fundamentally, arguments relating to evidence, the non-fulfillment of the respective burden by the Claimant, privileging and drawing conclusions as a result of the scarcity or absence of documentary evidence that support the request formulated by it.

Indeed, no other conclusion seems to be drawn from what is set forth, namely under articles 15, 16 and 20, of the response, which are retaken here:

Article 15

"(... it is understood that the Respondent, as holder of the SD burden, has procedural and procedural legitimacy to review the legality of tax acts assessing stamp duty, as holder of a legally protected interest, considering that it is in its patrimonial sphere that the passing on of the tax operates under paragraph a) of item 4 of article 18 of LGT, in accordance with the provisions of the latter part of article 9, item 1 of CPPT and with article 65 of LGT, corroborated by item 2 of article 54 of LGT".

Article 16

"Also the procedural means used appears to be correct, since article 78 of LGT generically regulates the prerequisites of the duty to review tax acts regardless of whether such review results from the initiative of the taxpayer or the AT (ex officio review)"

Article 20

"Indeed the Respondent is correct when it affirms that the AT has understood that real estate investment funds are qualified as financial institutions, in accordance with European Union legislation, and as such would be exempt from stamp duty under paragraph n) of item 1 of article 7 of the CIS, with respect to commissions charged when directly intended for the granting of credit within the scope of the activity exercised by the credit institutions referred to therein."

In any event, even though necessarily synthetically, the following considerations will always be made.

(i) arbitrability in this forum, of acts of tacit dismissal arising from requests for ex officio review of tax acts.

Regarding the material competence of the tax arbitral tribunal to hear acts of express or tacit dismissal of requests for ex officio review, based on article 78 of LGT, this tribunal shares, with all due respect, what is said in the scope of case No. 47/2012 of 2012-09-28, handed down under the aegis of CAAD:

"Article 2 of RJAT makes no express reference to these acts, unlike what occurs with the law of legislative authorization on which the Government based itself to approve RJAT (article 124 of Law 3-B/2010 of 28 April), which refers to requests for review of tax acts" and administrative acts that involve the assessment of the legality of assessment acts"

However, the expression "declaration of illegality of acts assessing taxes, self-assessment, withholding at source and payment on account" used in paragraph a) of item 1 of article 2 of RJAT, in a mere declarative interpretation, does not restrict the scope of arbitral jurisdiction to cases in which an act of one of those types is directly impugned. In fact, the illegality of assessment acts can be declared jurisdictionally as a corollary of the illegality of a second-instance act, which confirms an assessment act, incorporating its illegality.

"(....) Thus it is concluded from what has been set forth that by virtue of paragraph a) of item 1 of RJAT, cases are not excluded in which the declaration of illegality results from the illegality of a second-instance act and consequently the material scope of paragraph a) of item 1 of RJAT will also cover cases in which the second-instance act is that of dismissal of a request for review of the tax act (...)"

In light of what has been set forth and cited, there is no doubt as to the material competence of this tribunal to assess and decide the underlying request, a question which, moreover, as mentioned, is not even controversial given the absence of any pronouncement in this regard by the Tax and Customs Authority.

The same applies, moreover, to the question marked above,

(ii)- the nature and qualification of the "FUND" as a "financial institution" so as to benefit from the exemption of stamp duty provided for in paragraph e) of item 1 of article 7 of the CIS.

With respect to this segment, it should be noted, as a preliminary point, that stamp duty applies to the loans of which the FUND benefited from the lending entity - C..., S.A. - in accordance with items 17, 17.1 and 17.3 of TGIS;

"financial operations"

"(...) use of credit, in the form of funds, merchandise and other values, by virtue of the grant of credit of any kind (...)"

"operations carried out by or with the intermediation of credit institutions, financial companies or other entities assimilated to them and any other financial institutions"

While paragraph e) of item 1 of article 7 of the CIS provides that the following are exempt from the tax: "interest and commissions charged, guarantees provided and, also, the use of credit granted by credit institutions, financial companies and financial institutions to venture capital companies, as well as to companies or entities whose form and purpose fill the types of credit institutions, financial companies and financial institutions provided for in European Union legislation, both domiciled in the Member States of the European Union or in any State, with the exception of those domiciled in a territory with privileged tax regime, to be defined by order of the Minister of Finance"

Adding further, item 7 of the same article that "the provision of paragraph e) of item 1 only applies to guarantees and financial operations directly intended for the granting of credits, within the scope of the activity exercised by the institutions referred to in that paragraph"

Regarding the beneficiary actors of the exemption in question, and which underlies the Claimant's request [("the present Request for Arbitral Pronouncement is based (solely) on the analysis and interpretation of the subjective scope of the Stamp Duty exemption (...)]" it appears pertinent to update the definition of what should be understood as "financial companies and financial institutions provided for in European Union legislation" (in the terminology of paragraph e) of item 1 of article 7 of the CIS).

Now,

Regarding this question, the Claimant invokes, among other things, Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015, concluding very synthetically that "the lending entity is qualified as a "credit institution" and (....) the Fund, in its capacity as borrower, constitutes a "financial institution", in accordance with the provisions" of European Union legislation.

Now,

In light of the agreement of the AT with respect to the understanding just conveyed, this tribunal does not see any need to issue any pronouncement on the matter in question, other than to subscribe without reservation the unanimous positions conveyed by the parties,

The Claimant also invokes regarding the scope of the exemption underlying here as applied to "real estate investment funds" and insofar as it is relevant here, binding information that was intended for a situation similar to that arising from the factuality of these proceedings.

Notwithstanding that it is binding information, sought under the provisions of article 68 of the General Tax Law and obviously without universal scope, the AT in the response it produced expresses its agreement with respect to the understanding that flows from it, and more specifically, the binding information provided in the scope of case No. 2017... - IVE No..., with an order of agreement dated 7 July 2017 by the Director General of the Tax and Customs Authority. (see article 20 of the response already cited above).

Here too there are no divergences between the parties as to the understanding in question, and this tribunal adopts the same, concluding and appropriating the conclusion drawn from the doctrinal report in question that:

"The real estate investment fund... is qualified as a financial institution, in accordance with European Union legislation, and as such shall be exempt from stamp duty under paragraph e) of item 1 of article 7 of the CIS with respect to commissions charged when directly intended for the granting of credit within the scope of the activity exercised by the institutions and entities referred to therein".

(iii)- as to the legitimacy of the FUND to submit the underlying request for pronouncement

This being neither the appropriate forum to carry out the legal demarcation or analytical distinction between the various "categories" of taxpayers or analysis of tax substitution without withholding at source, it is noted, uncontroversially, that we are dealing with a phenomenon of legal passing on, understood in this simple sense as "the transfer of the tax that legally falls on one taxpayer, to another with whom this person has economic relations".

In other words, in the passing on "(...) there is a taxpayer of the tax who is the one who will pay it to the State, and a taxpayer of a legal obligation, not before the State, but before the taxpayer, charged to the holder of tax capacity"

With respect to this segment, and reiterating what has been said, the AT does not question the legitimacy of the FUND either in procedural terms or in the scope of the request for arbitral pronouncement.

Recovering the content expressed in article 15 of the response:

"(....) it is understood that the Claimant, as holder of the SD burden, has procedural and procedural legitimacy to review the legality of tax acts assessing stamp duty, as holder of a legally protected interest, considering that it is in its patrimonial sphere that the passing on of the tax operates, under paragraph a), of item 4 of article 18 of LGT, in accordance with the provisions of the latter part of article 9, item 1 of CPPT and with article 65 of LGT, corroborated by item 2 of article 54 of LGT".

No position other than adherence to that subscribed by the parties can be adopted.

As emphasized, the Tax and Customs Authority states in its pleading, among other things, that notwithstanding the reference made by the Claimant as to the existence of a loan contract, such document "is not attached by the Claimant" (see article 8 of the response).

Notwithstanding its late attachment, the Claimant proceeded on 2019-04-16 to attach a credit facility contract on current account, concluded on 20 March 2013 between C..., S.A. and the Claimant, to the amendment thereto, dated 23 December 2014, and to a statement issued by C..., S.A., dated 11 April 2019, where the lending entity states that it proceeded between June 2014 and June 2015 to assess stamp duty.

The Claimant, in instructing its request for arbitral pronouncement, attached five documents, relevant to what matters here are those numbered under Nos. 2 and 4.

With respect to the first of those indicated, it consists of a statement issued by "C..., S.A." where it states that it concluded a loan contract with the Fund on 20/03/2013 and amended on 23/12/2014, and document No. 4 refers to the debit movements by the lending entity to the Claimant where the respective values of the assessed tax are reflected with the identification of the respective payment slips.

Contrary to the position adopted by the AT, it appears to this tribunal that from the documents in question (attached with the request for arbitral pronouncement and on 16/4/2019) it is not possible to establish that there was not indeed a loan contract in the modality of "credit facility on current account" between the lending bank and the entity receiving the loan (Fund).

Not questioning the truthfulness of the documents in question, the tribunal's conviction is based, among other things, on the principle of free appraisal of evidence, based "(...) with respect to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its life experience and knowledge of people (see article 607, item 5, of the Civil Code, in the wording of Law No. 41/2013 of 26/6)"

"(...) Only when the probative force of certain means is pre-established by law (e.g. the full probative force of authentic documents - see article 371, of the Civil Code) does the principle of free appraisal not dominate the appraisal of evidence produced" [(see the Judgment already cited of TCAS of 2019-02-14)].

In light of what has been set forth, concluding this tribunal (which moreover is in line with the positions subscribed by both parties) by the qualification of the Claimant/FUND as a financial institution under the norms of European Union financial law, it should be considered exempt in accordance with the provisions of paragraph e) of item 1 of article 7 of the CIS, from stamp duty levied on credits, interest and commissions charged to it by the lending entity "C..., S.A.", proceeding accordingly, the arbitral request, declaring the illegality and annulment of the acts for assessing stamp duty here in question, and consequently annulling the tacit dismissal of the request for ex officio review.

III- INDEMNITY INTEREST

In accordance with the provisions of paragraph b) of article 24 of RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge shall lie, binds the tax administration, from the end of the period for appeal or challenge, and this administration, in the precise terms of the success of the arbitral decision in favor of the taxpayer, and until the end of the period for voluntary execution of the decisions of tax judicial courts, "shall restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for such purpose", which is in harmony with the provision of article 100 of LGT, applicable ex vi paragraph a) of item 1 of article 29 of RJAT, which provides:

Article 100

Effects of decision favorable to the taxpayer

The tax administration is obliged, in case of total or partial success of the claim, challenge or appeal in favor of the taxpayer, to immediately and fully restore the act or situation subject to the dispute, including the payment of indemnity interest, if applicable, from the period of execution of the decision.

Although article 2, item 1, paragraphs a) and b) of RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals functioning under the aegis of the Centre for Administrative Arbitration (CAAD), making no mention of condemnatory decisions, it should be understood that they comprise in their competencies the powers that in judicial review proceedings are attributed to tax tribunals, and this is the interpretation that harmonizes and aligns with the sense of legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as a first directive, that "the tax arbitration process should constitute an alternative procedural means to the judicial review process and to the action for the recognition of a right or legitimate interest in tax matters".

Item 5 of article 24 of RJAT when stating that "payment of interest is due regardless of its nature, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process", should be interpreted in the sense of allowing the review of the right to indemnity interest in the tax arbitration process.

Indemnity interest has a remedial function for damage, that damage resulting from the fact that the taxpayer was unlawfully deprived of a certain sum, during a given period of time, aimed at placing him in the situation in which he would have been had he not made the payment that was unduly demanded of him.

In light of what has been set forth, and in light of the decision direction regarding the merits of the case, already signaled, this singular arbitral tribunal decides to condemn the Respondent to the payment of indemnity interest calculated from the date of the payments made until their full reimbursement.

IV- DECISION

In harmony with the foregoing, this Singular Arbitral Tribunal decides:

a- to fully uphold the request for arbitral pronouncement, declaring the illegality and annulment of the acts for assessing stamp duty here in question, corresponding to the months of June 2014 to June 2015;

b- to annul, consequently, the act of tacit dismissal of the request for ex officio review;

c- to uphold the request for reimbursement of the sums paid, as well as indemnity interest;

d- to condemn the Tax and Customs Authority to the payment of the costs of the proceedings.

V- VALUE OF THE PROCEEDINGS

In accordance with the provisions of articles 206, items 1 and 3 of the Code of Civil Procedure, approved by Law No. 47/2013, of 26 June, 97-A, item 1, paragraph a) of the Code of Tax Procedure and Process, and article 3, item 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is set at €29,174.21 (twenty-nine thousand, one hundred and seventy-four euros, and twenty-one cents).

VI- COSTS

Pursuant to the provisions of articles 12, item 1, 22, item 4, of RJAT, and articles 2 and 4 of the Regulation of Costs in Arbitration Proceedings, and Table I attached hereto, the amount of costs is set at €1,530.00 (one thousand five hundred and thirty euros).

NOTIFY

Text prepared in computer format, in accordance with the provisions of article 131 of the Code of Civil Procedure, applicable by reference to article 29, item 1, paragraph e) of the Legal Regime of Tax Arbitration, with blank verses and revised by the arbitrator.

[The drafting of this decision is governed by the spelling prior to the 1990 Orthographic Agreement, except with respect to transcriptions made].

Twenty-first of May, two thousand and nineteen

The Arbitrator,

(José Coutinho Pires)