Process: 691/2015-T

Date: April 22, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitration case involves a real estate investment fund for residential rental (FIIAH) challenging IMT and Stamp Duty assessments totaling €4,384.19 under Article 236 of the 2014 State Budget Law (Law 83-C/2013). The fund acquired property in 2014 benefiting from IMT exemption under the special FIIAH regime, but when it sold the property in 2015, the Tax Authority assessed IMT (€3,128.97) and Stamp Duty (€1,255.22) retroactively. The applicant argued Article 236 is unconstitutional for violating the principle of non-retroactivity of tax laws (Article 103(3) of the Portuguese Constitution) and that the assessments are null for violating fundamental rights. The Tax Authority raised jurisdictional exceptions, arguing that the arbitral tribunal lacks competence to rule on constitutionality matters, which are reserved to the Constitutional Court. On the merits, the AT contended that Article 236 is not retroactive because it merely regulated a compliance period for a pre-existing requirement rather than creating new conditions for the exemption. The AT further argued that even if illegal, the assessments would be merely voidable rather than null, as nullity is reserved for violations of the essential content of fundamental rights. The case raises critical questions about the scope of tax arbitration jurisdiction, the temporal application of tax benefit requirements for investment funds, and the distinction between unconstitutional retroactivity and legitimate transitional provisions in tax law.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1. The Applicant A… – …, S.A. (Applicant), taxpayer no. … in its capacity as manager of the real estate investment fund B… – …, taxpayer no. …, with registered office at Avenue …, …, in Lisbon, filed on 20/11/2015 a request for an arbitral ruling for the purpose of examination and declaration of illegality of the acts of assessment of Real Estate Transfer Tax (IMT) and Stamp Duty, in the total amount of € 4,384.19 (four thousand three hundred and eighty-four euros and nineteen cents) on a real estate property of which it is the owner.

1.2. The Esteemed President of the Ethics Council of the Administrative Arbitration Center (CAAD) appointed, on 21/12/2015, as sole arbitrator the signatory of this decision.

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

1.4. In compliance with the provision in no. 1 of article 17 of the Legal Regime of Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified on 01/02/2016, to, if it so wished, submit a reply and request the production of additional evidence.

1.5. On 03/03/2016 the AT submitted a reply, defending itself by way of exception and objection, in which it also requested dispensation from attaching the administrative file.

1.6. On 03/03/2016 the arbitral tribunal invited the Applicant to submit a reply regarding the exception of lack of jurisdiction of the arbitral tribunal raised by the AT.

1.7. On 15/03/2016 the Applicant submitted a reply to the exception of lack of jurisdiction of the arbitral tribunal.

1.8. On 16/03/2016 the arbitral tribunal decided to dispense with the holding of the meeting referred to in no. 1 of article 18 of the RJAT, on the grounds of the principle of autonomy of the arbitral tribunal in conducting the proceedings, inviting both parties to, if they so wished, submit optional written submissions and scheduled the date for delivery of the final decision.

1.9. On 12/04/2016 the AT submitted written submissions.

1.10. The Applicant did not submit written submissions.

1.11. On 21/04/2016, the AT requested the attachment to the case file of an arbitral decision, in which it is concluded that the assessments of IMT and Stamp Duty which are the subject of the respective request for an arbitral ruling are not subject to any illegality, and therefore the analysis of the alleged retroactivity of the regime provided for in article 236 of the State Budget Law for 2014 should be considered as moot, and likewise, the analysis of the question of whether the assessments in dispute are null or voidable.

  1. CASE MANAGEMENT

The arbitral tribunal was regularly constituted and is materially competent.

The parties possess legal personality and capacity and are legitimate parties, with no defects in representation.

The proceedings do not suffer from any defects affecting their validity.

Accordingly, the conditions are met for the final decision to be delivered.

  1. POSITIONS OF THE PARTIES

There are two positions in confrontation: that of the Applicant, contained in the request for arbitral ruling, and that of the AT in its reply (and in the subsequent written submissions).

To substantiate its request, the Applicant argues that the assessments which are the subject of this petition are illegal since it considers that article 236 of Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, is unconstitutional, by violation of the provision in no. 3 of article 103 of the Constitution of the Portuguese Republic.

The Applicant further contends that the assessments challenged are null under the provision in paragraph d) of no. 2 of article 133 of the Code of Administrative Procedure (CPA) since they violate the essential content of a fundamental right, and as such, are challengeable at any time.

In another respect, the AT, defending itself by way of exception and objection, argues that the request for declaration of nullity of the disputed assessments should be dismissed as unfounded.

By way of exception, the AT argues 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.

It further argues that jurisdiction for abstract review of legality and constitutionality is reserved to the Constitutional Court, and therefore the arbitral tribunal is incompetent to carry out either an abstract review of the legality or the constitutionality of article 236 of Law 83-C/2013, of 31 December.

By way of objection, the AT argues that in the Portuguese administrative law system, the default regime of invalidity of acts is, for reasons of legal certainty, mere voidability, including for those carried out on the basis of illegal or unconstitutional deliberations, with the Supreme Administrative Court having pronounced itself in the same sense.

The AT further states that declaration of nullity appears to be reserved for those acts that violate the essential content of a fundamental right, in conflict with the rights, freedoms and guarantees of citizens, but not for those that conflict with the principle of legality, as is the case in the present proceedings.

To this extent, the acts in question, being, without this being conceded, in violation of the principle of tax legality, would thus be voidable, but not null.

On the other hand, the AT argues that the law in question is not affected by retroactivity, having not established any new requirement for the application of the exemption provided for in the special regime applicable to real estate investment funds for residential rental (FIIAH), but merely having granted a period for compliance with a requirement already underlying the regime itself, such period only commencing after the entry into force of the new law.

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

In light of the foregoing, the AT considers that the provision in question is not unconstitutional and that the present request for arbitral ruling should be declared unfounded.

  1. QUESTIONS TO BE DECIDED

In the present proceedings the questions to be decided are:

a) To rule on the exception of lack of jurisdiction of the arbitral tribunal;

b) To determine whether or not the assessments of IMT and IS carried out under article 236 of Law 83-C/2013, of 31 December (State Budget for 2014) are illegal.

  1. FACTUAL MATTERS

5.1. FACTS CONSIDERED PROVEN

Based on the documents submitted to the proceedings, it is established as proven that:

5.1.1. The real estate investment fund B… – ... was, at the date of the assessments in question, the owner of the real estate registered in the Union of Civil Parishes of …, … and …, under the land registry entry no. …;

5.1.2. The real estate in question was acquired in 2014, benefiting from IMT exemption under paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH), and was disposed of on 02/09/2015;

5.1.3. In accordance with what is mentioned in the request for arbitral ruling and in the reply given by the AT, the assessment of IMT, no. …, in the amount of € 3,128.97 (three thousand one hundred and twenty-eight euros and ninety-seven cents) and the assessment of Stamp Duty, no. …, in the amount of € 1,255.22 (one thousand two hundred and fifty-five euros and twenty-two cents) were carried out, which were paid;

5.1.4. These assessments were made under article 236 of Law 83-C/2013, of 31 December (State Budget for 2014).

5.2. FACTS NOT CONSIDERED PROVEN

There are no facts of relevance to the decision that have not been established as proven.

  1. LEGAL MATTERS

6.1. REGARDING THE LACK OF JURISDICTION OF THE ARBITRAL TRIBUNAL

Prior to considering the merits of the case, it is first necessary to rule on the exception of lack of jurisdiction of the arbitral tribunal raised by the AT.

As previously stated, the AT defends itself by way of exception, arguing that since the Applicant alleges the unconstitutionality of the provision applied in the assessments in question, the arbitral tribunal is not competent to decide on the constitutionality or unconstitutionality of legal provisions.

However, the arbitral tribunal will obviously not declare the (un)constitutionality of the provision in question, but solely pronounce itself on its concrete application to the concrete facts, evaluating whether or not such application is lawful, and therefore the arbitral tribunal is materially competent.

The argument invoked by the AT regarding the lack of jurisdiction of the arbitral tribunal thus fails, and therefore the exception in question is dismissed as unfounded.

6.2. REGARDING THE (IL)LEGALITY OF THE ACT OF ASSESSMENT OF IMT AND STAMP DUTY

It is therefore necessary to decide on the merits of the request for arbitral decision of the assessments of IMT and Stamp Duty in question.

As is well known, Law no. 64-A/2008, of 31 December, approved the special regime applicable to real estate investment funds for residential rental (FIIAH).

Under the provision in no. 7 of article 8, the following were exempt from IMT:

a) The acquisitions of urban real estate or autonomous portions of urban real estate intended exclusively for rental for permanent residential purposes, 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 residential use, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the tenants of the properties forming part of the assets of the investment funds referred to in no. 1.

Already the State Budget Law for 2014 altered the aforesaid article 8, in the following terms:

"14 - For the purposes of the provisions in nos. 6 to 8, urban real estate is considered to be intended for rental for permanent residential purposes whenever they are the subject of a lease contract for permanent residential purposes within a period of three years from the moment they became part of the fund's assets, with the taxpayer being required to notify and provide proof to the AT of the respective effective rental, within 30 days following the end of said period.

15 - When the real estate has not been the subject of a lease contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, and the taxpayer must in that case request the AT, within 30 days following the end of said period, to assess the respective tax.

16 - If the real estate is disposed of, with the exception of the cases provided for in article 5, or if the FIIAH is subject to liquidation, before the period provided for in no. 14 has elapsed, the taxpayer must likewise request the AT, prior to the disposal of the real estate or the liquidation of the FIIAH, to assess the tax due in accordance with the previous number." [emphasis ours].

As previously stated, the real estate in question was acquired by the real estate investment fund B… – ... in 2014, benefiting from IMT exemption under paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH).

This provision requires that the real estate be intended for rental for permanent residential purposes in order to benefit from said exemption.

To this extent, the obligation to designate the real estate for residential rental is not a requirement introduced by the State Budget Law for 2014, but rather a requirement of the special regime applicable to real estate investment funds for residential rental (FIIAH) ab initio, indeed, a natural consequence of the objectives and motivations that presided over the creation of these funds.

The State Budget for 2014 does, it is true, establish a new requirement for the exemption: if the designation for rental for permanent residential purposes does not occur within the period of 3 years after the real estate enters the fund, the fund must request the assessment of the IMT that was not assessed.

However, this was not the case in question, contrary to what appears to follow from the argumentation of the Applicant, as we shall see.

The assessments of IMT and Stamp Duty in question were not based on their retention in the fund for a period equal to or exceeding 3 years without there having been designation for rental for permanent residential purposes. As follows, indeed, from the documentation attached to the proceedings, the real estate was only in the fund for a few months.

In fact, the assessments in question, as follows from the assessment notices attached to the proceedings, were based on the fact that the real estate was given "a different destination from that on which the benefit was based".

Accordingly, we understand that the issue is not whether or not the applied provision is retroactive, which would be the case if, by way of example, the real estate remained in the fund for a period of 3 years without yet having been designated for rental for permanent residential purposes and, for that reason, IMT was assessed.

However, this is not what is at issue in the present case.

The real estate in question was disposed of without having fulfilled its purpose – designation for permanent residential rental. It is not, therefore, a matter of a time period. Once the real estate is disposed of, that purpose can no longer be fulfilled, and therefore the requirement established for the exemption from IMT to be applicable was not fulfilled.

For compliance with the provision in paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH), it is not sufficient to have a declared intention in the acquisition of the real estate but rather an actual designation for rental for permanent residential purposes.

However, the Applicant provides no proof whatsoever in these proceedings of the fulfilment of that requirement.

We understand, therefore, that the issue is not whether or not the law is retroactive, nor is there any injury to the legitimate expectations of the Applicant or aggravation of its tax position.

The rationale for the attribution of a tax benefit in the context of IMT to the FIIAH was clearly established from the beginning – "the acquisitions of urban real estate or autonomous portions of urban real estate intended exclusively for rental for permanent residential purposes, by the investment funds (...)".

For all the foregoing, we understand that the assessments of IMT and Stamp Duty in question are lawful under paragraph a) of no. 7 of article 8 of the special regime applicable to real estate investment funds for residential rental (FIIAH).

In conclusion, we understand that the issue is not whether or not the law is retroactive, nor is there any injury to the legitimate expectations of the Applicant or aggravation of its tax position, and therefore we understand that the assessments of IMT and Stamp Duty in question are lawful.

  1. DECISION

With the grounds set out above, the arbitral tribunal decides to dismiss the request for arbitral ruling as unfounded, with all legal consequences ensuing therefrom.

  1. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 4,384.19 (four thousand three hundred and eighty-four euros and nineteen cents), in accordance with article 97-A of the Code of Tax Procedure and Process (CPPT), applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne by the Applicant, in the amount of € 612.00 (six hundred and twelve euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with no. 2 of article 22 of the RJAT.

Let notice be given.

Lisbon, 22 April 2016

The Arbitrator,

(Hélder Filipe Faustino)

Text prepared on computer, in accordance with the provision in no. 5 of article 131 of the Code of Civil Procedure (CPC), applicable by reference from paragraph e) of no. 1 of article 29 of the RJAT. The preparation of the present decision follows the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the special IMT and Stamp Tax regime for FIIAH funds under Article 236 of Law 83-C/2013?
Article 236 of Law 83-C/2013 (2014 State Budget) established a compliance verification mechanism for the special regime applicable to real estate investment funds for residential rental (FIIAH). While FIIAH funds benefit from IMT and Stamp Duty exemptions under Article 8(7)(a) of the FIIAH regime when acquiring properties, Article 236 introduced a requirement to prove compliance with regime conditions within a specified timeframe. The Tax Authority argues this provision merely regulated the timing for demonstrating compliance with pre-existing requirements rather than creating new substantive conditions. However, applicants contend it operates retroactively by imposing assessments on properties acquired under the exemption regime before the law's enactment, effectively withdrawing previously granted tax benefits.
Can real estate investment funds challenge IMT and Stamp Tax assessments through tax arbitration at CAAD?
Yes, real estate investment funds can challenge IMT and Stamp Duty assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa). The arbitral tribunal confirmed it was regularly constituted and materially competent to hear the case. The parties possess legal personality, capacity, and legitimacy. However, the Tax Authority raised a jurisdictional exception arguing that while CAAD can review the legality of tax assessments, it lacks jurisdiction to conduct abstract review of constitutionality, which is reserved exclusively to the Constitutional Court. The tribunal must first resolve this preliminary jurisdictional question before addressing the merits. CAAD can apply the law and refuse to apply unconstitutional provisions in concrete cases (diffuse review), but cannot make abstract declarations of unconstitutionality.
Does the retroactivity of Article 236 of the 2014 State Budget Law affect IMT exemptions for FIIAH?
The retroactivity question is central to this dispute. The applicant argues Article 236 has unconstitutional retroactive effect by imposing tax assessments on property acquired in 2014 (when IMT exemption applied) and sold in 2015, violating Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The Tax Authority contests this, arguing Article 236 is not retroactive because it only established a compliance verification period that commenced after the law's entry into force in 2014. According to the AT, the provision did not alter the substantive requirements for the FIIAH exemption but merely regulated the procedural timeline for proving compliance with pre-existing conditions. The tribunal must determine whether imposing assessments on previously exempt transactions constitutes prohibited retroactivity or legitimate regulation of transitional compliance.
What are the grounds for illegality of IMT and Stamp Tax assessments on properties held by FIIAH funds?
The grounds for illegality include: (1) Constitutional violation - Article 236 allegedly violates Article 103(3) of the Portuguese Constitution by retroactively imposing taxes on transactions that benefited from exemption when executed; (2) Nullity under administrative law - the applicant argues the assessments are null under Article 133(2)(d) of the Code of Administrative Procedure for violating the essential content of fundamental rights, specifically the principle of tax legality and non-retroactivity. The Tax Authority counters that even if the assessments were based on an unconstitutional provision, they would be merely voidable (not null) under Portuguese administrative law, which reserves nullity for violations of the essential content of fundamental rights related to citizens' freedoms and guarantees, not mere illegality or unconstitutionality. The distinction matters because null acts can be challenged at any time, while voidable acts face time limitations.
How does the CAAD arbitral tribunal assess jurisdiction in IMT and Stamp Tax disputes involving FIIAH?
The CAAD arbitral tribunal assesses jurisdiction through a two-tier analysis. First, it confirms material competence over IMT and Stamp Duty disputes, which falls within CAAD's statutory scope under the Legal Regime of Tax Arbitration (RJAT). The tribunal found it was regularly constituted with proper party legitimacy. However, when the Tax Authority raised the exception of lack of jurisdiction to rule on constitutionality, the tribunal must distinguish between: (a) abstract constitutional review, which is exclusively reserved to the Constitutional Court, and (b) diffuse/concrete constitutional review, where ordinary courts and tribunals can refuse to apply unconstitutional provisions in specific cases without making abstract declarations. The tribunal invited the applicant to respond to this jurisdictional exception before proceeding to the merits, demonstrating procedural rigor in determining the boundaries of its competence. The resolution of this jurisdictional question determines whether the tribunal can address the constitutional arguments or must limit itself to legality review.