Process: 689/2015-T

Date: May 2, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 689/2015-T) addresses whether Article 236 of Law 83-C/2013 violates constitutional principles of non-retroactivity when applied to real estate investment funds (FIIAH). The applicant, a FIIAH fund manager, challenged IMT assessments of €1,521.46 and Stamp Tax of €978.21 on a property acquired with tax exemptions before January 1, 2014. The fund argued that Article 236's transitional provision unconstitutionally applies retroactive tax law by counting the mandatory three-year holding period from January 1, 2014 (when the new law took effect) rather than from the original acquisition date, effectively creating new extinction conditions for previously granted exemptions under Article 8(7)(a) and 8(8) of the FIIAH Tax Regime. The Tax Authority contended the arbitral tribunal lacks jurisdiction to declare unconstitutionality, that any violation would render acts merely annullable rather than null, and that Article 236 is not retroactive but simply established a compliance period for pre-existing requirements. The Authority argued the provision did not change exemption requirements but only regulated the timeframe for proving compliance with conditions already inherent to the regime. The case raises fundamental questions about the scope of arbitral jurisdiction in constitutional matters, the distinction between substantive retroactivity and procedural timing rules in tax law, and the proper classification of administrative act invalidity when constitutional principles are allegedly violated in the context of investment fund taxation.

Full Decision

ARBITRAL DECISION

REPORT

1.1 A…—…, S.A., taxpayer no. …, with registered office at Avenue …, no. …, Lisbon, in its capacity as manager of the B…—…, taxpayer no. …, requested the constitution of an arbitral tribunal, pursuant to Article 2, No. 1, paragraph a), and Article 10, both of Decree-Law No. 10/2011, of 20 January (hereinafter RJAT).

1.2 The PORTUGUESE TAX AND CUSTOMS AUTHORITY is the Respondent in the proceedings.

1.3 The Ethics Council of the Administrative Arbitration Center (CAAD) appointed the undersigned arbitrator to form the Singular Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on 01 February 2016.

1.4 The request for an arbitral decision concerns the assessment of IMT number …, in the amount of 1,521.46€, and the assessment of IS number …, in the amount of 978.21€, both relating to the property that was owned by the Applicant, registered in the urban property register under article ….º of the parish and municipality of ..., assessments and property that are better identified in the Applicant's request and in the documents attached thereto, to which reference is made here.

The Applicant invokes the illegality of the assessments based on their unconstitutionality which, in its understanding, leads to their respective nullity, which it seeks to be declared by the Tribunal, or to their annulability, whereby it alternatively requests the assessments be annulled.

The Applicant further petitions the condemnation of the Respondent to the reimbursement of the amounts paid by virtue of the assessments in question, increased by compensatory interest on all amounts paid accrued up to the date of reimbursement.

The Applicant bases its request on the allegation that Article 236 (Transitional Norm within the Special Regime Applicable to FIIAH and SIIAH) provided by Law No. 83 – C/2013, of 31 December - insofar as it determines the application of the current Tax Regime of FIIAH to properties that were acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided for in No. 14 from 1 January 2014 - constitutes a new extinction regime for the exemptions provided for in No. 7, paragraph a) and No. 8 of Article 8 (Tax Regime) of the Tax Regime of FIIAH and reveals a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in Article 103, No. 3, of the Constitution of the Portuguese Republic, which, in its understanding, leads to its unconstitutionality.

The Applicant understands that the assessments in question are, consequently, affected by a defect that has the consequence of nullity, pursuant to paragraph d) of No. 2 of Article 133 of the Code of Administrative Procedure (CPA) because they violate the essential content of a fundamental right.

Being that, it also understands that the assessments shall, in any event, be annulable, for illegality, on the same grounds.

1.5 The PORTUGUESE TAX AND CUSTOMS AUTHORITY responded, defending itself by exception and by rebuttal.

By exception it defended itself stating that the Arbitral Tribunal does not have jurisdiction to assess or declare the constitutionality or unconstitutionality of Article 236 of Law 83-C/2013, of 31 December, as fundamentally the Applicant would seek.

It defended itself by rebuttal sustaining that in the Portuguese administrative-legal order the general regime of invalidity of acts is, for reasons of legal certainty, mere annulability, including for those enacted on the basis of illegal or unconstitutional decisions, 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 it contends is the case in the proceedings.

The acts in question, being, without conceding the point, violators of the principle of tax legality, would, thus, be annulable, but not null.

It adds that the law in question is not affected by retroactivity, having established no new requirement for application of the exemption provided for in the tax regime of FIIAH, but only having granted a period for compliance with a requirement already underlying the regime itself, a period that only begins after the new law comes into force.

It is not, therefore, a matter of altering the assumptions, conditions for attribution or recognition of a tax benefit, but only and solely of regulating the period of time for purposes of proving compliance with a requirement previously established. Whereby the Respondent understands that the norm in question is not unconstitutional.

Whereby the Respondent concludes that the Applicant's requests should be judged unfounded.

1.6 Notified to pronounce itself on the exception raised by the Respondent, the Applicant came to clarify that it does not seek for the Tribunal to appreciate in the abstract the constitutionality of the invoked norms, solely that the Tribunal assess the illegality of the assessment resulting from their application to the concrete case.

1.7 Notified of the Tribunal's intention to dispense with the meeting of the arbitral tribunal provided for in Article 18 of the RJAT, the parties did not come to object.

1.8 The Respondent came before the proceedings, on 06.04.2016, to request the joining of an Arbitral Decision rendered in Case 398/2015-T and, on 21.04.2016, came again to request the joining of another decision, this time rendered in Case 688/2015-T, alleging that both appreciated issues, in its understanding, in all respects identical to those of the present proceedings.

The Applicant, duly notified, did not pronounce itself.

PRELIMINARY EXAMINATION

The Tribunal was properly constituted and is competent ratione materiae, in conformity with Article 2 of the RJAT.

The parties have legal personality and capacity, prove themselves legitimate and are properly represented.

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

  1. FACTS OF THE CASE

With relevance for the decision on the merits, the Tribunal considers the following facts as proven:

  1. The Applicant was the owner of the property registered in the urban property register of the parish and municipality of ... under article ….º, better identified above and in the Applicant's request and documents 1 and 2 attached thereto.

  2. The property was acquired benefiting from the exemptions from IMT and IS contained, respectively, in Nos. 7, paragraph a), and 8 of Article 8 of the Tax Regime of FIIAH, which were recognized upon request, pursuant to Article 10 of the IMT Code.

  3. The Applicant submitted, on 25.08.2015, a declaration for assessment of IMT and IS, requesting the payment of IMT and Stamp Duty based on its intention to dispose of the property and, consequently, to give it a destination different from that on which the benefit was based, with the consequent extinction of the exemption.

  4. Such declarations gave rise to the assessment of IMT number …, in the amount of 1,521.46€, and to the assessment of IS number …, in the amount of 978.21€, which the Respondent paid on 25.08.2015.

Facts Not Proven

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

Reasoning on the Facts of the Case

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

  1. QUESTIONS TO BE DECIDED

Two are the questions to be decided in the present proceedings:

A) To determine on the exception of the challengeability of acts due to lack of jurisdiction of the Arbitral Tribunal;

B) To assess the legality of the IMT and IS assessments sub judice and to decide on the consequences of their eventual illegality;

A) REGARDING THE ALLEGED MATERIAL INCOMPETENCE OF THE ARBITRAL TRIBUNAL

The Respondent, by exception, affirms that the Tribunal is not competent to decide on the constitutionality or unconstitutionality of the norms which, in the Applicant's understanding, gave rise to the assessments in question.

It is true that the Applicant subsumes its request for an arbitral decision to the claim that the Tribunal assess "whether Article 236 (Transitional Norm within the Special Regime Applicable to FIIAH and SIIAH) provided by Law No. 83 – C/2013, of 31 December - insofar as it determines the application of the current Tax Regime of FIIAH «to properties that were acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided for in No. 14 from 1 January 2014» - constitutes a new extinction regime for the exemptions provided for in No. 7, paragraph a) and No. 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, embodied in Article 103 (Tax System), No. 3, of the Constitution of the Portuguese Republic".

The Arbitral Tribunal would not have, it seems to us evident, jurisdiction for such a declaration of conformity or nonconformity of the norms in question with the Constitution of the Portuguese Republic.

However, in truth, that is not what the Applicant petitions, as it came, indeed, after being invited, to clarify, solely that the Arbitral Tribunal pronounce itself on the application of the cited norms to the concrete facts submitted to its appreciation, evaluating the legality or otherwise of such application.

The Tribunal is, to this extent, materially competent, and the exception invoked by the Respondent is judged unfounded.

B) REGARDING THE LEGALITY OF THE IMT AND STAMP DUTY ASSESSMENTS IN QUESTION

It is necessary then to decide on the merits of the request for an arbitral decision on the IMT and IS assessments sub judice.

Let us see:

Article 102 (norm 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 rental (hereinafter "FIIAH").

According to No. 7 of its Article 8 of the FIIAH, the following are exempt from IMT:

"a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in No. 1;

b) The acquisitions of urban properties or of autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the option to purchase referred to in No. 3 of Article 5 by tenants of the properties that make up the assets of the investment funds referred to in No. 1."

Article 235 of 83-C/2013, of 31 December (Budget Law for 2014) came to introduce three more numbers to the referred Article 8:

"14 — For purposes of the provisions of Nos. 6 to 8, urban properties are deemed to be intended for rental for permanent housing whenever they are subject to a rental contract for permanent housing within three years from the moment they became part of the fund's assets, and the taxable person must communicate and provide proof to the TA of the respective effective rental, within 30 days following the end of the said period. 15 — When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in Nos. 6 to 8 cease to have effect, and in that case the taxable person must request from the TA, within 30 days following the end of the said period, the assessment of the respective tax. 16 — In the event that the properties are disposed of, with the exception of cases provided for in Article 5, or in the event that the FIIAH is subject to liquidation, before the expiry of the period provided for in No. 14, the taxable person must equally request from the TA, before the disposition of the property or the liquidation of the FIIAH, the assessment of the tax due pursuant to the previous number."

Article 236 contains the following transitional provision: "The provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, shall apply to properties that were acquired by FIIAH as from 1 January 2014. 2 - Notwithstanding the provisions of the previous number, the provisions of Nos. 14 to 16 of Article 8 of the special regime applicable to FIIAH and SIIAH, approved by Articles 102 to 104 of Law No. 64-A/2008, of 31 December, shall equally apply to properties that were acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided for in No. 14 from 1 January 2014."

It is against this transitional norm that the Applicant objects, considering it unconstitutional, for violation of the principle of non-retroactivity of tax law, embodied in Article 103, No. 3, of the CRP, insofar as, in its understanding, it constitutes a new extinction regime for the exemptions.

Assessing, it results from the proven facts that the property in question was acquired by the Applicant benefiting from exemption from IMT under paragraph a) of No. 7 of Article 8 of the legal regime of FIIAH.

Such norm requires that the property be intended for rental for permanent housing in order to benefit from such exemption.

That is, the obligation to intend the property for residential rental is not a requirement of the amendments introduced by Articles 235 and 236 of 83-C/2013, of 31 December, but rather a requirement of the FIIAH tax regime. It is the natural consequence, as the Respondent well alleges, of the motivations that led to the creation of a special temporary regime applicable to these Funds, linked to the economic crisis and the resulting increased difficulty of individuals and families in meeting the installment payments of mutual loan contracts entered into for the acquisition of own permanent housing, whereby the regime seeks to address situations of difficulty and to encourage rental for own permanent housing.

The Budget Law for 2014 comes, it is true, to establish new rules for the exemption: in the event that the allocation to rental for permanent housing does not occur within the 3-year period following the entry of the property into the Fund and, also in the event that the FIIAH is subject to liquidation, before the expiry of that period, the acquirer must request the assessment of the IMT that was not assessed.

This was not, however, the reason why the Applicant proceeded with the declarations that gave rise to the assessments in question, which is clearly drawn from the analysis of the documents attached, despite the Applicant's argument suggesting otherwise.

The IMT assessments made with regard to the properties described above were not based on their retention in the fund for a period equal to or greater than 3 years without allocation to rental for permanent housing.

The assessments in question, as indeed results from the assessment notes attached to the proceedings, were based on the fact, in the words of the Applicant itself, that the properties were given "a destination different from that on which the benefit was based", "causing the exemption to cease to have effect".

The fact that the disposition of the property causes the exemption to cease to have effect is not, as will be explained below, a new fact resulting from the addition made by the Budget Law for 2014. What will be new, at most, is the obligation of the acquirer to request the assessment of the taxes that were not assessed before the disposition. A provision that is not only merely procedural, but is not even in question in the present proceedings, given that it was precisely this that the Applicant 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 Tax Authority (increased by the interest and penalties provided for by law), once the disposition was established.

It seems to us, therefore, evident that the question sub judice is not connected with the eventual unconstitutionality, for violation of the prohibition of retroactivity of tax law, of the numbers added to Article 8 by the Budget Law of 2014.

In fact, the disposition of the property in question by the Applicant determines, as it itself recognized in the declarations for assessment of IMT and IS, the cessation of the exemption, because it was given a destination different from that which had determined the granting of the benefit.

For compliance with paragraph a) of No. 7 of Article 8, it is not sufficient to have a declared intention at the time of acquisition of the property, but an effective allocation to rental for permanent housing.

It is not, therefore, true, that, as the Applicant affirms, the facts or circumstances on which the cessation of the exemption depended were not already legally foreseen at the time of recognition of the exemption, at least with respect to the circumstances that effectively occurred: the disposition of the property.

In truth, the granting of a benefit already depended – and always depends – on the effective verification of its respective conditions, pursuant to Article 12 of the EBF (Article 11, in the version of the EBF that was in force prior to the republication thereof by Decree-Law No. 108/2008, of 26/06).

The fact that the Applicant proceeded with the disposition of the property which, upon acquisition, it declared it would allocate so that it would be recognized – as it was – for exemption from IMT and IS, would always determine, even if the added number 16 did not expressly provide for it, the cessation of such exemptions, by effect of the provision of Article 12 and No. 3 of Article 14 of the Tax Benefits Statute (former 12, No. 3, in the version of the EBF that was in force prior to the republication thereof by Decree-Law No. 108/2008, of 26/06), according to which "When the tax benefit relates to the acquisition of assets intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those assets are disposed of or given another destination without authorization from the Minister of Finance, without prejudice to the remaining sanctions or different regimes established by law."

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

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

What, moreover, is well understood, considering the rationale for the granting of tax benefits.

The rationale for attribution of the tax benefit regarding IMT and IS to FIIAH is, clearly, its allocation to rental for permanent housing — "The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds..." – whereby the consequence of it being given a different destination is that the exemption could not have been granted, and it is necessary to restore legality, by assessing the taxes which, were it not for the declaration of intention made upon acquisition, would have had to be assessed.

Which the Applicant recognized, all the more so since this is precisely what appears in the declarations made by the Applicant itself for assessment of IMT and IS.

In conclusion, the disposition of the property would always determine the cessation of the exemption by application of the provision of No. 3 of Article 14 of the EBF, whereby there is not, therefore, in question, in the situation sub judice, any retroactive application of a norm that comes to introduce a new extinction regime for exemptions, nor does there exist any injury to expectations of the Applicant or aggravation of its tax position, whereby we thus understand that the assessments of IMT and Stamp Duty in question are legal.

The analysis of the question raised by the Applicant as to the alleged retroactivity of the regime provided for by Article 236 of the Budget Law for 2014 is, accordingly, moot, insofar as, as was demonstrated above, the conditions that gave rise to the tax assessments in question are in no way related to the additions made by the said article, solely with the disposition of the property and the consequent allocation to a purpose different from that for which the exemptions from IMT and Stamp Duty were granted.

Having decided on the legality of the assessments in question, the determination of the consequences of an eventual illegality is likewise moot, as is the request for condemnation to compensatory interest.

  1. DECISION

In view of the foregoing, it is decided that the requests of the Applicant are judged totally unfounded.

The value of the proceedings is fixed at 2,499.67 € (two thousand, four hundred ninety-nine euros and sixty-seven cents) in accordance with the provision of Articles 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, No. 1, paragraph a) of the CPPT and 306 of the CPC.

The amount of costs is fixed at 612.00 € (six hundred twelve euros) under Article 22, No. 4 of the RJAT and Table I attached to the RCPAT, charged to the Applicant, in accordance with the provision of Articles 12, No. 2 of the RJAT and 4, No. 4 of the RCPAT.

Let notification be made.

Porto, 02 May 2016

The Arbitrator

(Eva Dias Costa)

Text prepared by computer, pursuant to Article 131, No. 5 of the Code of Civil Procedure, applicable by reference of Article 29, No. 1, paragraph e) of the RJAT.

Frequently Asked Questions

Automatically Created

What is the special tax regime for FIIAH real estate investment funds regarding IMT and Stamp Tax exemptions in Portugal?
The special tax regime for FIIAH (Real Estate Investment Funds and Companies) provides exemptions from IMT (Property Transfer Tax) under Article 8(7)(a) and from Stamp Tax under Article 8(8) of the FIIAH Tax Regime. These exemptions apply to property acquisitions by qualifying funds and are granted upon request pursuant to Article 10 of the IMT Code. The exemptions are conditional and subject to compliance with specific requirements, including maintaining the property for investment purposes consistent with the fund's objectives. Under Article 8(14), properties must generally be held for at least three years to maintain the exemption benefit, with the exemption being extinguished if the property is given a destination different from that on which the benefit was originally based.
Does Article 236 of Law 83-C/2013 violate the constitutional principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
The applicant argued that Article 236 of Law 83-C/2013 violates Article 103(3) of the Portuguese Constitution, which enshrines the principle of non-retroactivity of tax law. The fund contended that by counting the three-year holding period from January 1, 2014 for properties acquired before that date (rather than from the actual acquisition date), the provision retroactively creates new extinction conditions for previously granted exemptions, constituting genuine retroactivity prohibited by constitutional law. However, the Tax Authority defended that Article 236 is not retroactive because it established no new requirements for the exemption but merely granted a compliance period for requirements already inherent to the FIIAH regime, with this period beginning only after the new law's entry into force, making it a prospective procedural rule rather than substantive retroactive taxation.
Can FIIAH funds challenge IMT and Stamp Tax liquidations through CAAD tax arbitration proceedings?
Yes, FIIAH funds can challenge IMT and Stamp Tax liquidations through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings. The applicant requested arbitration under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT - Legal Regime of Tax Arbitration). However, the Tax Authority raised a jurisdictional exception, arguing that arbitral tribunals lack competence to declare the constitutionality or unconstitutionality of legal provisions in abstract terms. The applicant clarified it was not seeking abstract constitutional review but rather requesting the tribunal to assess the illegality of the specific tax assessments resulting from the application of allegedly unconstitutional norms to the concrete case, which falls within the material jurisdiction of tax arbitration tribunals under the RJAT framework.
What is the three-year deadline under Article 8(14) of the FIIAH Tax Regime for maintaining property tax exemptions?
Article 8(14) of the FIIAH Tax Regime establishes a three-year deadline for maintaining property tax exemptions. This provision requires that properties acquired with IMT and Stamp Tax exemptions under the FIIAH regime must be held for at least three years to preserve the tax benefit. The critical issue in this case involves Article 236 of Law 83-C/2013, a transitional provision that determined how this three-year period is calculated for properties acquired before January 1, 2014. According to Article 236, for pre-2014 acquisitions, the three-year period begins counting from January 1, 2014 (the effective date of the new law) rather than from the original acquisition date. This means that even properties acquired years before 2014 would need to be held until at least January 1, 2017 to maintain their exemptions under the transitional regime.
Are IMT and Stamp Tax assessments on properties acquired by FIIAH before January 1, 2014 subject to the transitional rules of Law 83-C/2013?
Yes, IMT and Stamp Tax assessments on properties acquired by FIIAH before January 1, 2014 are subject to the transitional rules of Law 83-C/2013, specifically Article 236. This transitional provision determines that the current FIIAH tax regime applies to properties acquired before January 1, 2014, with the three-year holding period under Article 8(14) counting from January 1, 2014 rather than from the original acquisition date. In this case, the property was acquired before 2014 with recognized exemptions, but when the fund intended to dispose of it in 2015, the Tax Authority applied Article 236's transitional framework, resulting in the IMT and Stamp Tax assessments. The applicant contested this application as unconstitutionally retroactive, while the Tax Authority maintained that the transitional provision lawfully regulated the compliance period for pre-existing requirements without creating new substantive tax obligations.