Process: 690/2015-T

Date: July 14, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses the jurisdictional competence of tax arbitral tribunals and the retroactive application of fiscal legislation affecting IMT and Stamp Tax exemptions for FIIAH (Closed Real Estate Investment Funds for Residential Rental). The case involves A... S.A., managing B... FIIAH, challenging IMT assessment of €22,592.75 and Stamp Duty of €3,362.80 on property disposal following amendments introduced by Article 236 of Law 83-C/2013.

The Claimant argued that tax exemptions under Article 8(7)(a) and 8(8) of the FIIAH tax regime became permanently crystallized upon property acquisition, as they were not subject to subsequent conditions or expiry regimes. The Claimant contended Article 236 violated the constitutional principle of non-retroactivity of fiscal law (Article 103(3) CRP) by creating an expiry regime for previously unconditional exemptions, rendering the assessments null or voidable. Reimbursement plus compensatory interest was requested.

The Tax Authority raised a preliminary jurisdictional exception, arguing the arbitral tribunal lacked competence to assess constitutionality, as abstract constitutional review is reserved to the Constitutional Court under Article 281 CRP. On the merits, the Respondent argued Article 236 merely established compliance timeframes for existing requirements rather than creating new prerequisites, thus not violating non-retroactivity principles. Additionally, the Respondent contended that even if the norm were unconstitutional, acts based thereon would be voidable (not null), and no compensatory interest would be due since the Tax Authority was legally bound to apply the law.

The tribunal rejected the jurisdictional exception, clarifying it was not conducting abstract constitutional review but rather assessing the validity of tax assessments based on potentially unconstitutional norm application—a matter within its material competence under RJAT. The tribunal found the cumulation of IMT and Stamp Tax claims admissible given the identity of factual circumstances and legal principles involved, confirming its jurisdiction to proceed with the substantive analysis.

Full Decision

ARBITRAL DECISION

  1.  REPORT

1.1. A… S. A., in its capacity as manager of B… – Closed Real Estate Investment Fund for Residential Rental, taxpayer no. …, with registered office at …, no. …–…, … –… Lisbon, hereinafter designated as the Claimant, filed on 20/11/2015 a request for arbitral decision, in which it requests that the nullity of the assessments of Municipal Tax on Onerous Transfers of Real Property (IMT) and Stamp Duty be declared or, subsidiarily, their annulment and the reimbursement of the amounts of tax paid, plus compensatory interest.

1.2. The Honourable President of the Ethics Council of the Centre for Administrative Arbitration (CAAD) appointed on 15/01/2016 as arbitrator Francisco Nicolau Domingos.

1.3. On 01/02/2016 the arbitral tribunal was constituted.

1.4. In compliance with the provision of article 17, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January (RJAT), the Respondent was notified on 01/02/2016 to, if it so wished, submit a reply, request the production of additional evidence and to submit the administrative process (PA).

1.5. On 03/03/2016 the Respondent submitted its reply, in which it invokes the tribunal's lack of jurisdiction to conduct an abstract assessment of constitutionality and contends that the request should be judged as unfounded.

1.6. By order of 23/05/2016 the Claimant was invited to comment on the exception raised by the Respondent.

1.7. The Claimant on 25/05/2016 commented on the exception, arguing for its dismissal.

1.8. The tribunal on 27/05/2016 considered that there was no obstacle to the exception raised being addressed in the final decision and since no production of any evidence was requested, it decided to dispense with holding the meeting referred to in article 18, no. 1 of the RJAT, on the basis of the principle of the autonomy of the arbitral tribunal in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable time frame, a decision on the merits of the claims made, cf. article 16, subparagraph c) of the RJAT, it granted a time period for the parties, if they so wished, to submit their final written arguments and set a time period for issuing the arbitral decision.

1.9. The Claimant submitted its final written arguments on 03/06/2016 and attached to the case file a legal opinion, maintaining, finally, entirely the position set forth in its request for arbitral decision.

1.10. The Respondent attached to the case file on 17/06/2016 its final arguments, arguing for the dismissal of all requests.

  1.  SUBJECT MATTER OF THE PROCEEDINGS

The Claimant begins by alleging that, as a result of the legislative amendment undertaken by Law no. 83-C/2013, of 31 December, it requested from the Tax Authority the assessment of IMT and Stamp Duty arising from the disposal by Fund B… of the real property that is the subject matter of these proceedings, with € 22,592.75 being assessed as IMT and € 3,362.80 as Stamp Duty.

        Subsequently, it invokes the illegality of the assessments, given that they apply an unconstitutional norm, which leads to their nullity, or, if that is not accepted, to their voidability.             To justify this request it alleges that, with the entry of the real property into the Claimant's patrimony, the exemptions from IMT and Stamp Duty, provided for in article 8, nos. 7, subparagraph a) and no. 8 of the tax regime for FIIAH, became permanently crystallized in the legal order, since, at the date of acquisition, they were not subject to the subsequent verification of any facts or circumstances, nor to any regime of expiry.

        Therefore, it adds that the assessments suffer from unconstitutionality resulting from the violation by article 236 of Law no. 83-C/2013, of 31 December of the principle of non-retroactivity of fiscal law, provided for in article 103, no. 3 of the Constitution of the Portuguese Republic (CRP), by creating a regime of expiry of the exemptions provided for in article 8, no. 7, subparagraph a) and no. 8 and not a refinement of a criterion previously provided for.

It concludes by petitioning for the Respondent to be condemned to reimburse the amounts of tax paid, plus compensatory interest.

The Respondent, in its reply, defends itself by exception, contending that the arbitral tribunal lacks jurisdiction to assess or declare the (un)constitutionality of article 236 of Law no. 83-C/2013, of 31 December, since such jurisdiction "…for abstract review of legality and constitutionality is reserved to the Constitutional Court as established in article 281 of the CRP", whereby such preliminary exception would obstruct the continuation of the proceedings.

It also defends itself by impugning when it affirms that, as a general rule, the consequence resulting from the invalidity of acts is voidability, even if they are performed on the basis of unconstitutional norms. Thus, nullity is reserved for acts that violate the essential content of a fundamental right, which it contends is not the case, inasmuch as, in theory, there could indeed be a violation of the principle of legality.

It adds that article 236 of Law no. 83-C/2013, of 31 December did not establish any new requirement, only granted a time period for compliance with that requirement, which only begins with the entry into force of the new law. That is, it contends that such norm is not altering the prerequisites and conditions for the allocation or recognition of a tax benefit, but only providing for the time period for the purpose of proving compliance with a previously established requirement. Therefore it argues that, if that is the case, there is no violation of the principle of non-retroactivity of fiscal law, provided for in article 103, no. 3 of the CRP and, as such, the above-mentioned norm is not unconstitutional.

Finally, it argues that, even if the above-described arguments were unfounded, the taxpayer would never have the right to compensatory interest, since the Tax Authority's binding obligation to the law required that the norm be applied, even if unconstitutional.

  1.   PRELIMINARY ISSUE AND CASE MANAGEMENT

The Respondent, in its reply, contends that the tribunal lacks jurisdiction to assess or declare the (un)constitutionality of article 236 of Law no. 83-C/2013, of 31 December, since abstract review of legality and constitutionality is reserved to the Constitutional Court.

When invited to comment on such exception, the Claimant stated that the tribunal's lack of jurisdiction exception is based on an incorrect interpretation of the request for arbitral decision, inasmuch as what is reflected in that procedural document is the claim that the nullity be declared or, subsidiarily, the voidability of the assessments challenged on the ground that they are based on the application of a norm that violates the CRP and the law.

Will the Respondent be correct?

In this regard it is unquestionable to admit that the application of a materially unconstitutional norm in the context of an assessment of a tax determines its annulment, due to suffering from the defect of violation of law arising from error regarding the legal prerequisites.

Now, what the Claimant calls into question is the application of a norm that it deems unconstitutional, article 236 of Law no. 83-C/2013, of 31 December and not the abstract review of legality and constitutionality.

Thus, the tribunal is materially competent, with the exception raised by the Respondent being deemed unfounded.

The cumulation of claims underlying these proceedings is admissible, since there is an identity between the factual matter and the admissibility of the claims depends on the interpretation of the same principles and rules of law, cf. article 3, no. 1 of the RJAT.

Thus, the proceedings do not suffer from nullities, the arbitral tribunal is duly constituted and is materially competent to hear and decide the claims, with the conditions consequently being met for issuing the final decision.

  1. FACTS

4.1. Facts Deemed Proven

4.1.1. The Claimant acquired on 05/08/2013 the autonomous fraction «AP» of the property registered in the land register under no. …, Union of Parishes of … and …, located at Avenue … …, Block…, …..

4.1.2. The Claimant is a management company of the real estate investment fund called «B… – Closed Real Estate Investment Fund for Residential Rental», registered with the Securities Market Commission (CMVM) with tax identification no. … .

4.1.3. The Claimant declared on 26/08/2015 to the Tax Authority that it would execute a deed of sale and purchase on 26/08/2015 and that the property would be given a different purpose than that on which the benefit was based.

4.1.4. Thus, the assessment of IMT was € 22,592.75 (no. …) and Stamp Duty was € 3,362.80 (no. …).

4.1.5. The amount of the above-mentioned assessments was paid on 27/08/2015.

4.2. Facts Not Deemed Proven

There are no other facts with relevance to the arbitral decision that have not been deemed proven.

4.3. Grounds for the Facts Deemed Proven

        The facts deemed proven are based on the documents used for each of the facts alleged and whose authenticity was not called into question.
  1. LEGAL MATTERS

The tribunal must first address the (il)legality of the assessments of IMT and Stamp Duty.

To this end, it is necessary to state that the legal regime for Real Estate Investment Funds for Residential Rental (FIIAH) was approved by Law no. 64-A/2008, of 31 December.

Article 8 of such regime enshrined the regulatory provisions of a tax nature. In particular and within the scope of property taxation, article 8, no. 7 provided that the following are exempt from IMT:

«a) The acquisitions of urban properties or 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 autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the lessees of the properties that form part of the patrimony of the investment funds referred to in no. 1».

It happens that Law no. 83-C/2013, of 31 December added to article 8 of the legal regime for FIIAH the following numbered paragraphs:

«14. For the purposes of nos. 6 to 8, urban properties are considered intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within three years from the moment they became part of the fund's patrimony, the taxpayer being required to communicate and provide proof to the Tax Authority of the actual rental, within 30 days following the expiry of the said period.

  1. When the properties have not been the subject of a rental contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in nos. 6 to 8 cease to have effect, the taxpayer being required in that case to request from the Tax Authority, within thirty days following the expiry of the said period, the assessment of the respective tax.

  2. Should the properties be disposed of, with the exception of cases provided for in article 5, or should the FIIAH be subject to liquidation, before the period provided for in no. 14 has elapsed, the taxpayer is equally required to request from the Tax Authority, before the disposal of the property or the liquidation of the FIIAH, the assessment of the tax due pursuant to the preceding paragraph».

Furthermore, Law no. 83-C/2013, of 31 December provided for a transitional norm (article 236) within the scope of the special regime applicable to FIIAH that provides the following:

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

  1. Without prejudice to what is provided for in the preceding paragraph, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, with the three-year period provided for in no. 14 being counted, in those cases, from 1 January 2014».

The norm that the Claimant deems unconstitutional, due to violation of the principle of non-retroactivity of fiscal law, is article 236 of Law no. 83-C/2013, of 31 December, because, in its view, it establishes a new regime of expiry of the exemptions, when it requires proof of the allocation of properties that form part of the funds to residential rental, within 3 years, with this period being counted from 1 January 2014 in relation to those properties acquired before that date.

First and foremost, let us conduct a brief analysis of the teleology underlying the normative provision for FIIAH. Now, in the face of the crisis that erupted in 2008 and extended to the real estate sector, the legislator saw fit to create such instruments as vehicles for promoting the residential rental market and to establish an alternative solution to the problem of distressed housing credit, thereby protecting the public interest.

On the other hand, article 235 of Law no. 83-C/2013, of 31 December establishes new requirements for the exemption, the obligation of the FIIAH to request the assessment of the IMT that was not paid, should the allocation to rental for permanent housing not occur in the period of three years following the entry of the property into the fund and in the event of it being subject to liquidation.

        However, as results from the facts deemed proven, that is not the issue raised in these proceedings, that is, the maintenance of the property identified above in Fund B… for a period equal to or greater than three years without it having been allocated to rental for permanent housing, but the fact that it was given a different purpose than that on which the benefit was based.

In fact, the legislator, within the scope of the tax regime for FIIAH, exempted from IMT and Stamp Duty urban properties intended for rental for permanent housing, that is, those that were acquired for that purpose. Strictly speaking, if the teleology underlying the institution of FIIAH consisted in providing instruments for promoting the residential rental market, it made perfect sense that its tax regime would establish an exemption that required that allocation, and Law no. 64-A/2008, of 31 December already provides that the same exists in relation to properties "…intended exclusively for rental for permanent housing…".

Thus, it is not possible to conclude that the requirement to allocate the property to rental for permanent housing constitutes a requirement introduced by Law no. 83-C/2013, of 31 December. Such obligation was already expressly and specifically stated in article 8, nos. 7 and 8 of the legal regime for FIIAH in its original version.

In fact, article 14, no. 3 of the Tax Benefits Code (EBF), which in the structure of such instrument is located in the general part, similarly points in that direction by providing that: «When the tax benefit concerns the acquisition of goods intended for the direct accomplishment of the acquirer's purposes, it ceases to have effect if such goods are disposed of or given a different purpose without authorization from the Minister of Finance, without prejudice to other penalties or different regimes established by law».

        These are the reasons that lead us to conclude that the effects resulting from the disposal of the property set out in article 8, no. 16 of the legal regime for FIIAH are not novel in character, since they already resulted from article 8, nos. 7 and 8 of the said legal regime and from the EBF and, thus, the unconstitutionality of such a norm is not called into question in the present instance.

More, the property referred to above was acquired by the Claimant on 05/08/2013, it benefited from the content of article 8, nos. 7, subparagraph a) and no. 8 of the Legal Regime for FIIAH, given the statement at the time of purchase that it was intended for rental for permanent housing.

In parallel, it happens that, in the present case, in the statements made with a view to the assessments challenged by the Claimant there is express mention that they have as their basis the fact that a different purpose was given than that on which the benefit was based.

And we do not reach a different conclusion based on the fact that the Claimant submitted a document in which it requests the assessment of IMT and Stamp Duty, even though it expressly states in it that the norm leading to the aforementioned request is illegal and unconstitutional. In fact, such request does not concern the property that is the subject matter of these proceedings and if the statement that justified the assessment of IMT and Stamp Duty (submitted together as document 1 in the request for arbitral decision) had as its basis any other ground different from the allocation of the property to a purpose other than rental, it was solely up to the Claimant to provide such proof. With no different evidence in the case file, it must be concluded that the basis of the challenged assessments consisted in the fact that Fund B… intended to give the property a purpose different from rental for permanent housing.

Therefore, what is at issue in these proceedings consists in the fact that the use on which the exemption was based, the allocation to rental for permanent housing, was not given effect to, and not a matter of time period. This removes the question of violation of the principle of non-retroactivity of fiscal law.

In summary, the allocation of the tax benefit does not require mere declared intention, at the time of execution of the deed of sale and purchase, to allocate the property to permanent residential rental, but actual allocation. Now, if the Claimant manifested that intention but did not proceed to such allocation, or at least does not prove it in these proceedings, its claim must be dismissed. Or, in other words, the assessments result, as appears from the Claimant's own statements, from the fact that a different purpose was given to the property.

Thus, there is no violation of the principle of non-retroactivity of fiscal law or worsening of the Claimant's fiscal position.

For this combination of reasons, the assessments challenged by the Claimant are legal and, consequently, the requests for reimbursement of the amounts of tax paid and the request for the Respondent to be condemned to pay compensatory interest are denied.

  1. DECISION

In these terms and with the grounds set out above, it is decided that the request for arbitral decision is wholly unfounded, with the assessments remaining in the legal order, with all legal consequences.

  1. VALUE OF THE CASE

The value of the case is set at € 25,955.55, pursuant to article 97-A of the Code of Administrative Court Procedure (CPPT), applicable by force of article 29, no. 1, subparagraph a) of the RJAT and article 3, no. 2 of the Rules on Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne entirely by the Claimant, in the amount of € 1,530, cf. article 22, no. 4 of the RJAT and Table I annexed to the RCPAT.

Notify.

Lisbon, 14 July 2016

The Arbitrator,

(Francisco Nicolau Domingos)

Frequently Asked Questions

Automatically Created

What is the scope of arbitral tribunal jurisdiction over IMT and Stamp Tax disputes involving real estate investment funds?
Arbitral tribunals have material jurisdiction to assess the validity of IMT and Stamp Tax liquidations affecting FIIAH funds, including examining whether assessments violate constitutional principles. While abstract constitutional review is reserved to the Constitutional Court under Article 281 CRP, tax arbitral tribunals are competent to determine whether specific tax assessments suffer from illegality due to application of potentially unconstitutional norms. This distinction was confirmed in Process 690/2015-T, where the tribunal rejected the Tax Authority's jurisdictional exception, clarifying that evaluating whether an assessment is based on an unconstitutional norm differs from abstract constitutional review. The tribunal's competence extends to declaring nullity or annulment of IMT and Stamp Tax assessments when they result from violation of constitutional principles such as non-retroactivity of fiscal law under Article 103(3) CRP.
How does Article 236 of Law 83-C/2013 affect IMT and Stamp Tax exemptions for FIIAH housing rental funds?
Article 236 of Law 83-C/2013 (Budget Law for 2014) introduced significant changes affecting FIIAH tax exemptions by establishing an expiry regime for benefits previously granted under Article 8(7)(a) and 8(8) of the FIIAH tax regime. The provision required compliance with certain conditions within specified timeframes, effectively creating temporal limitations on exemptions that were originally granted without subsequent verification requirements. This legislative amendment triggered IMT and Stamp Tax assessments on property disposals by FIIAH funds that had previously enjoyed unconditional exemptions. The controversy centers on whether Article 236 merely clarified compliance procedures for existing requirements or substantively altered the exemption regime by imposing new conditions retroactively, thereby potentially violating constitutional protections against retroactive fiscal legislation.
Can retroactive fiscal legislation apply to IMT and Stamp Tax liquidations on property transfers by FIIAH funds?
The retroactive application of fiscal legislation to IMT and Stamp Tax liquidations on FIIAH property transfers is constitutionally restricted by Article 103(3) CRP, which prohibits retroactivity of tax laws. The key issue is whether Article 236 of Law 83-C/2013 created new substantive requirements or merely established procedural compliance timeframes. If Article 236 introduced an expiry regime for exemptions that were previously unconditional and permanently crystallized in the legal order upon property acquisition, such retroactive application would violate constitutional non-retroactivity principles. However, if the provision merely set deadlines for proving compliance with pre-existing requirements without altering substantive conditions, retroactive application might be permissible. The distinction determines whether IMT and Stamp Tax assessments based on Article 236 are constitutionally valid or suffer from illegality warranting nullity or annulment.
What are the grounds for requesting annulment of IMT and Stamp Tax assessments related to FIIAH property disposals?
Grounds for requesting annulment of IMT and Stamp Tax assessments on FIIAH property disposals include: (1) nullity based on violation of constitutional principles, particularly Article 103(3) CRP's prohibition on retroactive fiscal legislation, when assessments apply norms that retroactively eliminate or restrict previously crystallized tax exemptions; (2) voidability arising from violation of law due to error in legal prerequisites, when assessments are based on materially unconstitutional norms; (3) improper application of Article 236 of Law 83-C/2013 if it creates new substantive requirements rather than merely procedural compliance timeframes; and (4) violation of legitimate expectations and legal certainty when exemptions granted under Article 8(7)(a) and 8(8) of the FIIAH regime are subsequently revoked. The distinction between nullity and voidability depends on whether the unconstitutional norm violates the essential content of a fundamental right.
Are compensatory interest (juros indemnizatórios) available when IMT and Stamp Tax liquidations for FIIAH funds are annulled?
Compensatory interest (juros indemnizatórios) availability when IMT and Stamp Tax liquidations for FIIAH funds are annulled is disputed. Claimants argue that successful annulment of assessments based on unconstitutional norms entitles them to reimbursement of taxes paid plus compensatory interest for the period funds were improperly retained. However, the Tax Authority contends that compensatory interest is not due even when assessments are based on unconstitutional norms, because the Tax Authority's binding obligation to apply existing legislation (even if subsequently found unconstitutional) means there was no culpable delay or improper retention. The resolution depends on whether the Tax Authority's strict application of legislation later deemed unconstitutional constitutes legitimate exercise of legal duty or improper deprivation of taxpayer funds warranting compensatory interest under general principles of administrative liability and Article 43 LGT.