Process: 676/2016-T

Date: March 30, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

In Process 676/2016-T, a closed real estate investment fund for residential leasing (FIIAH) challenged IMT assessments of €30,438.15 and Stamp Tax assessments of €4,147.34 before the CAAD arbitral tribunal. The fund argued that Article 236 of Law 83-C/2013 (2014 State Budget) unconstitutionally revoked tax exemptions retroactively. Originally, FIIAH benefited from IMT and Stamp Tax exemptions on property acquisitions intended for residential leasing under the special regime. Law 83-C/2013 introduced Article 8(14) defining qualifying properties as those leased for permanent housing within three years of acquisition. Crucially, the transitional provision in Article 236 applied this new three-year requirement retroactively to properties acquired before January 1, 2014, counting the period from that date. The fund contended this violated the constitutional principle of non-retroactivity of tax law enshrined in Article 103(3) of the Portuguese Constitution. The taxpayer paid the assessments in August 2016 and sought arbitration requesting declaration of illegality, tax refunds, default interest, and procedural costs. The case raises fundamental questions about the State's power to retrospectively modify tax exemption regimes for closed-end investment vehicles, the temporal limits of fiscal legislation, and protection of legitimate taxpayer expectations. The tribunal was constituted in November 2016 with sole arbitrator Rita Guerra Alves. This decision holds significant implications for real estate investment funds, institutional investors, and the broader application of constitutional tax principles to transitional provisions affecting previously granted tax benefits in Portuguese tax law.

Full Decision

ARBITRAL DECISION

I - REPORT

A - IDENTIFICATION OF THE PARTIES

Applicant: A… – Closed Real Estate Investment Fund for Residential Leasing, with domicile located at …, no. …–…, …-… Lisbon, bearing the tax identification number of a collective person NIPC: …, represented in this act by B… – Real Estate Investment Funds Management Company, S.A., with domicile located at …, no. … –…, …-… Lisbon, bearing the tax identification number of a collective person NIPC: …, hereinafter referred to as the Applicant or taxpayer.

Respondent: Tax and Customs Authority, hereinafter referred to as the Respondent or AT.

The Applicant presented a request for constitution of an Arbitral Tribunal in tax matters and a request for an arbitral ruling, pursuant to the provision in paragraph a) of no. 1 of article 2 and paragraph a) of no. 1 of article 10, both of Decree-Law no. 10/2011, of January 20 (Legal Regime of Arbitration in Tax Matters, hereinafter briefly referred to as LRAT).

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD, and in compliance with the provision in paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012, of December 31, the Sole Arbitral Tribunal was regularly constituted on 2016-11-11, to examine and decide on the object of the present case, and the Tax and Customs Authority was automatically notified on 2016-11-11, as appears in the respective minutes.

The Applicant did not proceed to appoint an arbitrator, therefore, pursuant to the provision in no. 1 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012, of December 31, the Deontological Council appointed Rita Guerra Alves as Arbitrator, the appointment having been accepted by her in accordance with legal provisions.

On 2017-01-11, the parties were duly notified of such appointment, and did not manifest a will to refuse the appointment of the arbitrators, in accordance with article 11 no. 1, paragraphs a) and b) of the LRAT and Articles 6 and 7 of the Deontological Code.

B - REQUEST

  1. The Applicant hereby petitioned the declaration of illegality of the following tax assessment acts:

1.1. In respect of Municipal Tax on Onerous Real Estate Transfers (IMT) no. … in the amount of €30,438.15;

1.2. In respect of Stamp Tax: no. …, in the amount of €4,147.34;

1.3. As well as the condemnation of the AT to refund the Applicant the tax paid, as well as default interest and procedural costs.

C - CAUSE OF ACTION

  1. To substantiate its request for an arbitral ruling, the Applicant alleged, with a view to the declaration of illegality of the tax assessment acts, the following:

2.1. Whether article 236 (Transitional Provision within the Scope of the Special Regime Applicable to REIT for Residential Leasing and Real Estate Investment Societies for Residential Leasing) of Law no. 83-C/2013, of December 31 - insofar as it determines the application of the current Tax Regime of REIT for Residential Leasing "to properties that have been acquired by REIT for Residential Leasing before January 1, 2014, counting, in such cases, the three-year period provided for in no. 14, from January 1, 2014", constitutes a new regime of expiration of the exemptions provided for in no. 7, paragraph a) and no. 8 of article 8 (Tax Regime) of the Tax Regime of REIT for Residential Leasing, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, enshrined in article 103 (Tax System), number 3, of the Constitution of the Portuguese Republic.

2.2. The Applicant requested from the Tax Authority the assessment of IMT and Stamp Tax, contested herein.

2.3. The Applicant alleges that the assessments were paid on August 11, 2016.

2.4. The assessments made pursuant to article 8 (Tax Regime) of the Tax Regime of REIT for Residential Leasing, as amended by Law no. 83-C/2013, of December 31 (State Budget for 2014) and article 236 (Transitional Provision within the scope of the special regime applicable to REIT and REASHL), number 2 of the same law.

2.5. No. 14 of article 8 (Tax Regime) of the Tax Regime of REIT for Residential Leasing, transcribed above, concretized in an unequivocal manner, and for the first time, the meaning of the expression "properties [are] intended for lease for permanent housing".

2.6. The Applicant argues that in the aforementioned legal provision, it was established that, for the purposes of the Tax Regime of REIT for Residential Leasing, "properties [---] intended for lease for permanent housing", are the urban properties [and autonomous portions] "that are subject to a lease agreement for permanent housing within three years from the moment they entered the fund's assets".

2.7. The introduction of this definition of "properties [---] intended for lease for permanent housing" was accompanied by the concretization of the circumstances under which properties forming part of the assets of REIT for Residential Leasing cease to benefit from the exemption regime provided for in numbers 6 to 8 of the Tax Regime of REIT for Residential Leasing (a regime of expiration of exemptions).

2.8. Thus, if properties forming part of the assets of REIT for Residential Leasing have not been the subject of a lease agreement within the three (3) year period, counted from the date of their entry into that patrimony, the taxpayer must request from the Tax Authority, within thirty (30) days following the end of the aforementioned period, the assessment of the respective tax.

2.9. Likewise, the taxpayer must proceed in the case of: (i) the properties being alienated by the REIT for Residential Leasing or (ii) the REIT for Residential Leasing being liquidated, in both cases, before the expiration of the three (3) year period, counted from the date of entry of the relevant properties into the patrimony of the REIT for Residential Leasing.

2.10. The Applicant alleges that article 236 (Transitional Provision within the scope of the special regime applicable to REIT and REASHL) of Law no. 83-C/2013, of December 31 (State Budget for 2014), came to extend the application of the above regime "to properties that have been acquired by REIT before January 1, 2014, counting, in such cases, the three-year period provided for in no. 14, from January 1, 2014".

2.11. The amendments introduced by Law no. 83-C/2013, of December 31 (State Budget for 2014) to the Tax Regime of REIT for Residential Leasing raise legitimate but perplexing questions to the managing companies of REIT for Residential Leasing, which intend to fulfill their obligations before the Tax Authority.

2.12. Not exhausting the questions raised, the Applicant understands that the amendments to the Tax Regime of REIT for Residential Leasing assume particular relevance within the framework of obligatory taxes, in the case at hand, IMT and Stamp Tax, when they have as their object the properties that formed part of the patrimony of REIT for Residential Leasing, on the date of entry into force of Law no. 83-C/2013, of December 31 (State Budget for 2014), that is, those covered by the aforementioned article 236 (Transitional Provision within the scope of the special regime applicable to REIT and REASHL).

2.13. If the Tax Regime of REIT for Residential Leasing had not been amended (cf. articles 235 (Amendment to the tax regime of funds and real estate investment societies for residential leasing) and article 236 (Transitional Provision within the Scope of the Special Regime Applicable to REIT and REASHL) of Law no. 83-C/2013, of December 31), the Applicant would never have requested the Assessments.

2.14. The Applicant argues that the present request for an arbitral ruling is thus limited to the analysis of the legality of the Assessments that are based exclusively on the norms invoked by the Applicant and not in light of any other legal norms.

2.15. The Applicant understands, for the reasons which it will proceed to explain below, that the Assessments suffer from illegality by violation of the provision in article 103 (Tax System), number 3, of the Constitution of the Portuguese Republic and must, consequently, be declared null (or, subsidiarily, voidable).

2.16. This qualification is relevant here, insofar as the exemptions from IMT and Stamp Tax, provided, respectively, in numbers 7, paragraph a), and 8 of article 8 (Transitional Regime) of the Tax Regime of REIT for Residential Leasing, were recognized at the request of Fund A…, pursuant to article 10 (Recognition of exemptions) of the IMT Code, at a moment prior to the entry of the relevant properties into the patrimony of Fund A….

2.17. That is, at the moment when the properties - object of the assessments - entered the patrimony of Fund A…, the exemptions from IMT and Stamp Tax provided, respectively, in numbers 7, paragraph a), and 8 of article 8 (Transitional Regime) of the Tax Regime of REIT for Residential Leasing were definitively crystallized in the tax legal order.

2.18. The exemptions from IMT and Stamp Tax were not, on the date they entered the patrimony of Fund A..., conditioned by the subsequent verification of any facts or circumstances nor, likewise, subject to any regime of expiration.

2.19. Nothing prevents the legislator from opting for the modification of the Tax Regime of REIT for Residential Leasing through the imposition of certain conditions whose verification (or non-verification) depends on the expiration of the same - as now appears to be the case.

2.20. However, not being legally provided for, at the moment of recognition of the exemption, any facts or circumstances upon which depended the expiration of the recognized exemption. It is manifest that the subsequent imposition of these facts or circumstances to exemptions crystallized in the tax legal order of the Applicant suffers from unconstitutionality, by violation of the principle of non-retroactivity of tax law, enshrined in article 103 of the Constitution of the Portuguese Republic.

2.21. The Applicant argues that article 236 (Transitional Provision within the scope of the special regime applicable to REIT and REASHL) of Law no. 83-C/2013, of December 31 (State Budget for 2014), by extending the application of the current Tax Regime of REIT for Residential Leasing "to properties that have been acquired by REIT before January 1, 2014, counting, in such cases, the three-year period provided for in no. 14 from January 1, 2014", is violating in a direct and unequivocal manner the principle of non-retroactivity of tax law constitutionally enshrined. Indeed, the extension established therein configures a new regime of expiration of the exemptions provided for in numbers 7, paragraph a) and 8 of article 8 (Tax Regime) and not a mere specification of a criterion previously provided for.

2.22. And that the violation of the principle of retroactivity, now invoked, takes into account the understanding that has been followed by the Constitutional Court, according to which the prohibition of retroactivity, in the field of tax law, is directed only at authentic retroactivity, covering only the cases in which the taxable event that the new law intends to regulate has already produced all its effects under the old law; excluded from its scope of application are situations of retrospecitivity or improper retroactivity, that is, those situations in which the law is applied to past events but whose effects still persist in the present, as occurs when tax norms produce a worsening of the tax position of taxpayers in relation to taxable events that did not occur entirely within the scope of the old law and continue to form themselves, still during the course of the same fiscal year, under the new law.

2.23. The Applicant alleges that in the case sub judice there is no doubt that the taxable events that the new law intends to regulate have already produced all their effects under the old law.

2.24. The Applicant supports the nullity of the Assessments, and the unconstitutionality should result in the voidability or nullity of the assessments.

2.25. The Applicant further alleges, subsidiarily, that the defect (abstract illegality) of the Assessments determines their voidability (and not nullity), and that the assessments should be annulled in accordance, pursuant to articles 10, no. 1, paragraph a) of the LRAT and article 102, no. 1, paragraph a) of the Code of Tax Procedural Law.

2.26. The Applicant concludes by alleging that, the Assessments being based on article 8, number 16, of the Tax Regime of REIT for Residential Leasing, (applicable ex vi article 236 (Transitional Provision within the Scope of the Special Regime Applicable to REIT and REASHL), number 2, of Law no. 83-C/2013, of December 31) and the latter provision being unconstitutional by violation of the principle of non-retroactivity of tax law, enshrined in article 103 (Tax System), number 3, of the Constitution of the Portuguese Republic, the assessments suffer from abstract illegality.

D - RESPONDENT'S REPLY

  1. The Respondent, duly notified for this purpose, presented timely its reply in which, in brief summary, alleged the following:

3.1. It thus appears evident that as from January 1, 2014, the exemption from IMT of the real estate integrated in the Fund, with a view to rental, was extended until 2015, however for the purpose of compliance with the requirement of allocation of the real estate to housing, proof of the existence of a lease agreement for permanent housing began to be required.

3.2. The Respondent alleges that the aforementioned law regulated the application over time of the amendments introduced in the following terms having established that these amendments apply: a) To properties that have been acquired by REIT for Residential Leasing from January 1, 2014; b) To properties that have been acquired by REIT for Residential Leasing before January 1, 2014 and the three-year period is counted from 01.01.2014;

3.3. That is, the law establishes a transitional period for the application of the amendments in such a way that the new requirement established in the law is only assessed for the future.

3.4. A different situation would be if the legislator had not established this transitional period, causing all ongoing exemptions that did not comply, did not prove that they possessed the legal requirements to expire.

3.5. It is important first to note that the law did not establish any new requirement, but merely granted a period for compliance with that requirement.

3.6. A period that only begins after the entry into force of the new law.

3.7. It is not a matter of altering the assumptions, conditions for granting or recognition of a tax benefit, but only of a period of time for the purpose of proving compliance with a requirement previously established.

3.8. We are not in the context of a situation of recognition of rights, but only of procedures for proof of rights, whose attribution was previously regulated.

3.9. However, and without prejudice to what is developed below, regarding the absence of the defect of unconstitutionality imputed by the Applicant, it must be stated here from the outset that the performance of the AT, contrary to what the Applicant intends, could not have been different.

3.10. Pursuant to no. 2 of article 266 of the CRP, the administration is obliged to act in accordance with the principle of legality.

3.11. Being such principle concretized at the infraconstitutional level in no. 1 of article 3 of the Code of Administrative Procedure (CAP), which in turn determines that: "The organs of Public Administration must act in obedience to the law and to the law, within the limits of the powers conferred upon them and in accordance with the purposes for which such powers were conferred upon them".

3.12. That is, from such legal impositions, it follows that administrative organs and agents do not have competence to decide on the non-application of norms relative to which doubts of unconstitutionality are raised.

3.13. Contrary to the Courts which, pursuant to article 204 of the CRP, are prevented from applying unconstitutional norms, being assigned the competence for diffuse and concrete supervision of constitutional compliance.

3.14. For our part, we understand that the principle of legality in the internal sense or foundational legality encompasses all activity of the Public Administration, which follows, in particular, from the provision in no. 8 of Article 112 of the Constitution of the Portuguese Republic, which requires that every administrative regulation – whether of essentially aggressive content or of essentially service content – is founded on the law. Now, if this occurs as to the more relevant performance of the Public Administration, it should be considered that the same requirement of law-foundation is present in the remaining manifestations of this performance.

3.15. Thus, synthetically, from the foregoing, it follows that the Administration is subject to the law and to the law and its organs and agents must be the first to comply with it;

3.16. Therefore, and in summary, the AT could not/cannot refuse to apply a norm or fail to comply with the law, invoking or questioning its constitutionality, as it is subject to the principle of legality, as established in articles 266 no. 2 of the CRP, 3 no. 1 of the CAP and 55 of the LGT;

3.17. Regarding the alleged unconstitutionality, the Respondent pronounced itself in the following sense:

3.18. That is, it suffers from unconstitutionality by violation of the principle of non-retroactivity of tax law; Therefore we would be faced with a circumstance of authentic retroactivity, insofar as the taxable events that the new law intends to regulate have already produced all their effects under the old law.

3.19. That is, the taxpayers who wished to benefit from the aforementioned exemptions always had to, from the beginning of the tax regime applicable to REIT for Residential Leasing, comply with the assumption that such properties were intended exclusively for lease for permanent housing.

3.20. Therefore, the Applicant lacks reason when it states that the exemptions in question were not conditioned by any facts or circumstances, and consequently the argumentation that it builds on the basis of such incorrect assumption is equally affected by error.

3.21. It should be concluded, therefore, that with the amendments introduced, the ratio of the established exemptions was not altered, it being stressed that the immediate extinction of the benefit was not determined in the case that the aforementioned lease agreement was not executed, as a fairly extended period of three years was granted for that purpose.

3.22. All the more so since such amendments took care to respect the principle of legal certainty and protection of legitimate expectations.

3.23. In fact, and without identifying the legal harm that the aforementioned norm caused to the Applicant, given that, as seen, alienation presupposes allocation to a purpose distinct from leasing, in accordance with the cited normative provision, regarding properties acquired before January 1, 2014, in order for allocation to permanent housing to be considered realized, lease agreements for permanent housing would have to be executed within three years following.

3.24. Therefore, it can easily be inferred that the exemptions in question did not simply cease to apply: what occurred was only that criteria were established to concretize a legal requirement previously provided for in an indeterminate manner.

3.25. Need for legislative intervention which is understandable, given that, as follows from article 2, no. 1 of the EBF, tax benefits are exceptional measures instituted for the protection of extrabudgetary public interests that are superior to those of the taxation they prevent.

3.26. Thus, being in question the concrete alienation of the real estate, it is noted that, in case of expiration of the exemption, pursuant to article 14, no. 2, of the EBF, article 8, no. 16 of the regime merely concretizes an anti-abuse measure, that is, specifying that properties that do not remain in portfolio with allocation exclusively to residential leasing, were not acquired for such purpose.

3.27. What the new law came to do was merely densify criteria already provided for in the old law, namely: (i) the concept of allocation to leasing for permanent housing, stipulating a period more than sufficient for taxpayers to be able to adapt, gathering an unequivocal means of proof (lease agreement), (ii) as well as the specification of the situations in which the alienation of the real estate intended for leasing does not cause the expiration of the exemption in accordance with what was previously provided for in the EBF.

3.28. The Respondent concludes by alleging that the present request for an arbitral ruling should be judged unfounded for lack of proof, and consequently the Respondent be absolved of all requests, in the manner above petitioned, all with the due and legal consequences.

E - PRELIMINARY ORDER

  1. The request for an arbitral ruling is timely since it was presented within the period provided for in paragraph a) of no. 1 of article 10 of the LRAT.

  2. The parties enjoy legal personality and capacity, are interested parties as to the request for an arbitral ruling and are duly represented, in accordance with the provisions of articles 4 and 10 of the LRAT and article 1 of Ordinance no. 112-A/2011, of March 22.

  3. The Arbitral Tribunal is materially competent, pursuant to articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of January 20, as to the examination of the request for an arbitral ruling formulated by the Applicant.

  4. The cumulation of requests is legal, as the requirements established in article 3, no. 1 of the LRAT are satisfied, that is, the merits of the requests depends essentially on the assessment of the same factual circumstances and the interpretation and application of the same principles or rules of law.

  5. Both parties agree to the waiver of the hearing provided for in article 18 of the LRAT.

  6. No exceptions were raised that require consideration.

  7. The case does not suffer from defects or nullity that invalidate it, therefore it is now necessary to rule on the merits of the request.

F - STATEMENT OF FACTS

  1. Before proceeding to the examination of these issues, it is necessary to present the factual matter relevant to their understanding and decision, the documentary evidence, and taking into account the facts alleged.

  2. On matters of relevant fact, this tribunal deems the following facts established:

12.1. The Applicant is a Closed Real Estate Investment Fund for Residential Leasing.

12.2. The Applicant proceeded on November 19, 2013, on the date of acquisition of the Property, to indicate that the property was intended for leasing, benefiting from the Exemption provided for in the regime of REIT for Residential Leasing and REASHL, Law no. 64-A/2008, of December 31.

12.3. The Applicant proceeded in the year 2016 to alienate the aforementioned Property, and requested from the Tax Authority the assessment of IMT, which resulted in the assessment with no. … in the amount of €30,438.15, and requested from the Tax Authority the assessment of Stamp Tax, which resulted in the assessment with no. …, in the amount of €4,147.34.

12.4. The Assessments were paid by the Applicant on August 11, 2016.

G - UNPROVEN FACTS

  1. Of the facts with interest for the decision of the case, contained in the challenge, all those that are the object of concrete analysis were not proven, those not contained in the factuality described above.

H - ISSUES TO BE DECIDED

  1. Bearing in mind the positions of the parties assumed in the arguments presented, the following central issues to be decided constitute those which must now be examined and decided:

  2. Alleged by the Applicant:

15.1. The declaration of illegality of the tax assessment acts in respect of Municipal Tax on Onerous Real Estate Transfers (IMT) and Stamp Tax, which established a total tax to be paid of € 34,585.49 (thirty-four thousand five hundred and eighty-five euros and forty-nine cents).

J - LEGAL MATTERS

  1. The controversial issue in the present arbitral action consists of examining whether the assessments of IMT and Stamp Tax, which are the object of the request for an arbitral ruling, suffer or not from illegality.

  2. The cause of action is the unconstitutionality (abstract illegality) of the transitional law provision contained in no. 2 of article 236 of Law no. 83-C/2013, of December 31, which determines the retroactive application of the amendments introduced by article 235 of the same Law, to article 8, of the Special Regime of REIT for Residential Leasing, in particular its no. 16, pursuant to which the disputed assessments were issued.

  3. Before the positions assumed by the parties, it is incumbent upon this Arbitral Tribunal, first, to analyze the Special Regime applicable to REIT for Residential Leasing and REASHL, the amendments introduced by the State Budget Law for 2014.

  4. Regarding the regime here in question of REIT for Residential Leasing and REASHL, Law no. 64-A/2008, of December 31 came to approve "the special regime applicable to real estate investment funds for residential leasing (REIT for Residential Leasing) and real estate investment societies for residential leasing (REASHL)", providing that "the regime (…) is applicable to REIT for Residential Leasing or REASHL constituted during the five years following the entry into force of the present law and to properties acquired by them in the same period", a period that ran between January 1, 2009 and December 31, 2013.

  5. As provided for in the legal regime, "REIT for Residential Leasing are constituted in the form of closed funds of public subscription or of private subscription" and "after the first year of activity the value of the total assets of the REIT for Residential Leasing must reach the minimum amount of (euro) 10 million (…)", being that "when constituted with the use of public subscription" must "have at least 100 participants, whose individual participation cannot exceed 20% of the value of the total assets of the fund".

  6. Additionally, the aforementioned regime states that "Borrowers of residential credit contracts who proceed to alienate the real estate object of the contract to a REIT for Residential Leasing may execute with the fund's managing entity a lease agreement" being that "prior to the execution of the contract of transfer of ownership of the real estate to the REIT for Residential Leasing, the respective managing entity provides to the alienator (…) information on the essential elements of the transaction, such as the price of the transaction, including, also, if applicable, the value of the rent, the respective conditions of adjustment and the criteria for fixing the price and the general terms of the exercise of the purchase option"

  7. And "The leasing (…) constitutes the lessee with a right of purchase option of the real estate to the fund, capable of being exercised until December 31, 2020", which "(…) can only be transmitted by death of the holder"

  8. Law no. 64-A/2008, of December 31, provides for the Tax Regime and the respective following exemptions, of relevance for the present proceedings:

"Article 8

Tax Regime

7 - The following are exempt from IMT: a) The acquisitions of urban real estate or autonomous portions of urban real estate intended exclusively for leasing for permanent housing, by the investment funds referred to in no. 1; b) The acquisitions of urban real estate or autonomous portions of urban real estate intended for permanent housing of the owner, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the lessees of the real estate that form part of the patrimony of the investment funds referred to in no. 1.

8 - All acts executed are exempt from stamp tax, insofar as they are connected with the transfer of urban real estate intended for permanent housing that occurs as a result of the conversion of the right of ownership of such real estate into a right of leasing on the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5"

  1. As follows from no. 7 paragraph a), properties intended exclusively for leasing for permanent housing benefit from the exemption.

  2. Similarly, if a different purpose is given in accordance with this legal and tax regime, the exemption ceases to apply, and the taxpayer must assess the tax due.

  3. Additionally, the State Budget Law for 2014 (Law no. 83-C/2013, of December 31) introduced amendments to numbers 14, 15 and 16 of article 8, which it did in the following terms:

"14 - For the purposes of the provisions in numbers 6 to 8, it is considered that urban properties are intended for leasing for permanent housing whenever they are subject to a lease agreement for permanent housing within three years counted from the moment they entered the fund's assets, the taxpayer being obliged to communicate and provide proof to the AT of the respective actual leasing, within 30 days following the end of the aforementioned period.

15 - When properties have not been the subject of a lease agreement within the three-year period provided for in the previous number, the exemptions provided for in numbers 6 to 8 cease to have effect, in which case the taxpayer must request from the AT, within 30 days following the end of the aforementioned period, the assessment of the respective tax.

16 - If properties are alienated, with the exception of the cases provided for in article 5, or if the REIT for Residential Leasing is subject to liquidation, before the expiration of the period provided for in no. 14, the taxpayer must likewise request from the AT, before the alienation of the property or the liquidation of the REIT for Residential Leasing, the assessment of the tax due in accordance with the previous number."

  1. And it also established, in its article 236, a transitional regime applicable to REIT for Residential Leasing and REASHL, in the following terms:

"Article 236

Transitional Provision within the Scope of the Special Regime Applicable to REIT for Residential Leasing and REASHL

1 - The provision in numbers 14 to 16 of article 8 of the special regime applicable to REIT for Residential Leasing and REASHL, approved by articles 102 to 104 of Law no. 64-A/2008, of December 31, is applicable to properties that have been acquired by REIT for Residential Leasing from January 1, 2014.

2 - Notwithstanding the provision in the previous number, the provision in numbers 14 to 16 of article 8 of the special regime applicable to REIT for Residential Leasing and REASHL, approved by articles 102 to 104 of Law no. 64-A/2008, of December 31, is equally applicable to properties that have been acquired by REIT for Residential Leasing before January 1, 2014, counting, in such cases, the three-year period provided for in no. 14 from January 1, 2014."

  1. Indeed, if in the version given by Law no. 64-A/2008, of December 31, it was stated that "the acquisitions of urban real estate or autonomous portions of urban real estate intended exclusively for leasing for permanent housing are exempt from IMT", without clarifying the concepts implicit therein, with Law no. 83-C/2013, of December 31 it was clarified that "it is considered that urban properties are intended for leasing for permanent housing whenever they are subject to a lease agreement for permanent housing within three years counted from the moment they entered the fund's assets".

  2. It follows from the foregoing that one of the requirements of the exemption is the allocation of the real estate, in exclusivity, to leasing, under penalty of losing the granted tax benefit. The necessity of a REIT for Residential Leasing to allocate to leasing for permanent housing the real estate acquired with the benefit of the IMT and Stamp Tax exemption is not an innovation of the State Budget Law for 2014.

  3. A requirement which results expressly from Law 64-A/2008 and is not a new requirement that follows from the amendments introduced to the regime by Law 83-C/2013.

  4. As follows from the statement of facts and the position assumed by the parties, it follows unequivocally that the Applicant proceeded to alienate the real estate on which the exemptions rested, and thus gave it a different purpose.

  5. Now, having the Applicant proceeded to alienate the real estate in the year 2016, it can be concluded that the Applicant did not give the real estate the purpose of leasing that, in exclusivity, the Law imposed on it in order to benefit from the granted tax benefits, both within the scope of Law 64-A/2008 and within the scope of Law 83-C/2013.

  6. If properties forming part of the assets of REIT for Residential Leasing have not been the subject of a lease agreement, namely alienated, counting from the date of their entry into the fund's assets, the exemptions provided for in respect of IMI, IMT and Stamp Tax cease to have effect (expire), "the taxpayer in that case being obliged to request from the AT, within 30 days following the end of the aforementioned period, the assessment of the respective tax assessed".

  7. In the case sub judice, the property was alienated, without having been allocated to permanent residential leasing. Therefore, the problem is not related to the time period.

  8. In our understanding, and following the jurisprudence of the Arbitral Tribunals rendered in CAAD, which have already pronounced themselves in various identical cases, for which we defer, respectively in cases no. 683/2015-T, 684/2015-T, 688/2015-T, 689/2015-T, 690/2015-T, 691/2015-T, 57/2016-T, 734/2015-T, 732/2015-T, 730/2015-T, 331/2016-T, 269/2016-T, 165/2016-T, 164/2016-T, 163/2016-T, 125/2016-T, 126/2016-T, 133/2016-T, 162/2016-T, 61/2016-T, 62/2016-T, 63/2016-T, 76/2016-T, 85/2016-T, 93/2016-T.

  9. And as decided in the Award no. 76/2016-T, "Within this framework, it is our understanding that no. 16 of article 8 of the special regime applicable to REIT for Residential Leasing and REASHL, applied in conjunction with the provision in no. 15 of the same article, produces no alteration in the substance and/or in the requirements of applicability of the exemptions established by numbers 7 and 8 of the same article 8, with respect to the disputed assessments of IMT and Stamp Tax. Indeed, contrary to what the Applicant advocates, it is not correct to say that there were not already legally provided for, at the moment of recognition of the exemption, facts or circumstances upon which depended the respective expiration, at least as regards the circumstance that occurred in this case: the alienation of the real estate. In fact, the fact that the Applicant proceeded to alienate the aforementioned urban real estate which, upon acquiring, it declared that it would allocate in order to allow itself to be recognized – as it was – the exemption from IMT and Stamp Tax, would always determine – even if the aforementioned no. 16 had not been added to the aforementioned article 8, nor did the transitional provision of article 236 of Law no. 83-C/2013, of December 31 exist – the expiration of such exemptions, by effect of the provision in no. 3 of article 14 of the EBF. Thus, in the situation sub judice, the retroactive application of any norm that came to introduce a new regime of expiration of the exemptions from IMT and Stamp Tax provided for in numbers 7 and 8 of article 8 of the special regime applicable to REIT for Residential Leasing and REASHL is not in question. Consequently, the knowledge of the issue relating to the alleged retroactivity of the transitional regime provided for in article 236 of Law no. 83-C/2013, of December 31 is prejudiced, since, as referred to above, the conditions that gave rise to the disputed assessments of IMT and Stamp Tax have no relationship with the addition of numbers 14, 15 and 16 to article 8 of the special regime applicable to REIT for Residential Leasing and REASHL, carried out by article 235 of the cited Law no. 83-C/2013, but only with the alienation of the aforementioned urban real estate for purposes different from those for which the exemptions from IMT and Stamp Tax were granted."

  10. Thus, where there is an alienation of the real estate, the taxpayer gave the real estate a purpose distinct from leasing, losing the right to the Exemption.

  11. Faced with the foregoing, we cannot reach any other conclusion, that is, if the real estate was alienated, it ceased to comply with the purpose that had been declared in the acquisition document, and the Applicant ceased to enjoy the granted tax benefits upon its acquisition.

  12. Not verifying the assumptions on which the tax benefit granted at the time of acquisition of the real estate was based, by virtue of it being alienated and given a purpose different from leasing for permanent housing, there is a place for the payment of the Tax of IMT and Stamp Tax, and the assessments here contested are legal.

  13. In these terms, the tax acts here contested do not suffer from defect, and the Arbitral Tribunal decides to judge the request for an arbitral ruling unfounded, absolving the AT from the request.

L - REGARDING INDEMNITY INTEREST

  1. As for the Applicant's request for payment of indemnity interest, being the Applicant's request unfounded and there having been no error imputable to the services, it is concluded that the request for payment of indemnity interest to the Applicant is unfounded.

M - DECISION

In accordance with the grounds of fact and law set forth, this Arbitral Tribunal decides:

a) To judge unfounded the request for declaration of illegality of the tax assessment acts in respect of Municipal Tax on Onerous Real Estate Transfers (IMT) no. … in the amount of €30,438.15, and in respect of Stamp Tax: no. …, in the amount of €4,147.34, which established a total tax to be paid of € 34,585.49 (thirty-four thousand five hundred and eighty-five euros and forty-nine cents).

b) To judge unfounded the request for recognition of the right to indemnity interest in favor of the Applicant.

The amount of the case is fixed at € 34,585.49 of the assessment amount taking into account the economic value of the case assessed by the amount of the disputed tax assessments, and in accordance the costs are fixed at the respective amount of 1,836.00€ (one thousand eight hundred and thirty-six euros), at the charge of the Applicant in accordance with article 12, no. 2 of the Tax Arbitration Regime, article 4 of RCPAT and Table I attached to the latter. – no. 10 of article 35, and numbers 1, 4 and 5 of article 43 of the LGT, articles 5, no. 1, paragraph a) of RCPT, 97-A, no. 1, paragraph a) of CPPT and 559 of the CPC).

Notify.

Lisbon, March 30, 2017

The Arbitrator

Rita Guerra Alves

Frequently Asked Questions

Automatically Created

Are real estate investment funds (FIIAH) exempt from IMT and Stamp Tax on property acquisitions for residential leasing?
Yes, real estate investment funds for residential leasing (FIIAH) were originally exempt from IMT and Stamp Tax on property acquisitions under Articles 7(a) and 8 of their special tax regime. However, Law 83-C/2013 conditioned this exemption on properties being leased for permanent housing within three years of acquisition, with exemptions expiring if this requirement is not met.
Is the transitional provision in Article 236 of Law 83-C/2013 unconstitutional for retroactively revoking FIIAH tax exemptions?
The fund argued Article 236 is unconstitutional because it retroactively applied the new three-year leasing requirement to properties already acquired before January 1, 2014, violating Article 103(3) of the Portuguese Constitution which prohibits retroactive tax laws. The transitional provision effectively created new grounds for exemption expiration for past acquisitions that were exempt when originally purchased.
How can a FIIAH challenge IMT and Stamp Tax assessments through tax arbitration at CAAD?
A FIIAH can challenge IMT and Stamp Tax assessments through CAAD by filing an arbitration request under Article 2(1)(a) and Article 10(1)(a) of Decree-Law 10/2011. The process involves requesting constitution of an arbitral tribunal, which is accepted by CAAD's President, followed by arbitrator appointment and formal proceedings with the possibility to request refunds, default interest, and costs.
What are the legal consequences of retroactive application of tax law changes to closed-end real estate investment funds in Portugal?
Retroactive application of tax law changes to closed-end real estate investment funds can trigger constitutional challenges based on the non-retroactivity principle (Article 103(3) CRP), create liability for previously exempt taxes, require fund managers to request assessments within 30 days of non-compliance, and potentially undermine investor confidence and the stability of tax incentive regimes designed to promote residential leasing markets.
Can taxpayers obtain a refund of IMT and Stamp Tax paid under an unconstitutional transitional provision?
Yes, taxpayers can potentially obtain refunds of IMT and Stamp Tax paid under an unconstitutional transitional provision by successfully challenging the assessments through tax arbitration at CAAD or judicial courts, requesting declaration of illegality of the tax acts, reimbursement of taxes paid, plus default interest calculated from payment date, and recovery of procedural costs incurred in the legal challenge.