Process: 691/2016-T

Date: April 18, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 691/2016-T addresses the constitutional validity of Article 236 of Law 83-C/2013 regarding IMT and Stamp Tax exemptions for FIIAH (Real Estate Investment Funds for Residential Rental). A FIIAH fund challenged tax assessments totaling €1,170 after selling a property that initially benefited from tax exemptions under the special regime. The claimant argued that Article 236 violated the constitutional principle of non-retroactivity of tax law (Article 103 CRP) and sought nullity under Article 133 of the Administrative Procedure Code for breaching fundamental rights. The Tax Authority contended that Law 83-C/2013 did not establish new requirements but merely granted a compliance period, maintaining that exemptions always depended on allocating properties to residential rental. The key legal issue centers on whether the 2013 State Budget Law retroactively modified the FIIAH tax benefit regime. Law 64-A/2008 originally granted IMT and Stamp Tax exemptions for properties intended exclusively for residential rental. Law 83-C/2013 introduced paragraphs 14-16 to Article 8, requiring rental contracts within three years and mandating taxpayers to request tax assessment if this condition was not met. The tribunal must determine whether these amendments constitute impermissible retroactive taxation or legitimate clarification of existing obligations. This decision has significant implications for real estate investment funds, property taxation, and the interpretation of constitutional tax principles in Portugal.

Full Decision

CAAD:

Arbitral Decision

I – PROCEEDINGS REPORT

1 – A…, SA with registered office at … no. …-…-…-… Lisbon with NIPC[1]…, in its capacity as manager of the real estate investment fund –B…– Real Estate Investment Fund Closed for Residential Rental, registered with CMVM[2] with NIF[3]…, presented on 22/11/2016 a request for constitution of the arbitral tribunal, pursuant to the provisions of paragraph a) of no.1 of article 2nd, of no. 1 of article 3rd and of paragraph a) of no. 1 of article 10th, all of RJAT[4], with AT[5] being requested, with a view to ascertaining whether article 236th of Law 83-C/2013 of 31 December violates or not the principle of retroactivity of tax law, provided for in article 103rd of CRP[6] and consequently the nullity of the assessments of IMT[7] and IS[8] … and …, both of 2016, in the total amount of € 1 170,00, relating to the urban property registered in the respective matrix under article…, fraction … of the parish of …, municipality of Guimarães, or if not so decided, its annulment and consequently that said amount be refunded accompanied by compensatory interest pursuant to article 43rd of LGT[9].

2 – The request for constitution of the arbitral tribunal was made without exercising the option of designation of an arbitrator, and was accepted by His Excellency the President of CAAD[10] and automatically notified to AT on 22/11/2016.

3 – Pursuant to the provisions of no.2 of article 6th of RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties, within legally applicable time-limits, the sole arbitrator Arlindo José Francisco was designated, who communicated to the Deontological Council and to the Centre of Administrative Arbitration the acceptance of the appointment within the regularly stipulated period.

4 - The tribunal was constituted on 07/02/2017 in accordance with the provisions contained in paragraph c) of no. 1 of article 11th of RJAT, as amended by article 228th of Law no. 66-B/2012, of 31 December.

5 – With its request, the claimant seeks the declaration of nullity of the aforesaid assessments, based on their unconstitutionality or subsidiarily their annulment.

6- As already seen, in summary, the claimant bases its position on the fact that the aforesaid assessments are supported by article 236th of Law no. 83-C/2013 of 31 December, a provision which it considers to violate no. 3 of article 103rd of CRP.

7 – The claimant further considers that the challenged assessments are null pursuant to number 1 and 2 of article 133rd of CPA[11], a provision in force at the date of the aforesaid assessments, as they violate the essential content of a fundamental right, and are therefore contestable at any time.

8 – In its response, AT sustains that the legislator with the formulation contained in article 236th of Law 83-C/2013 did not establish any new requirement determining the lapse of the right to exemption, but merely granted a period for its fulfilment.

9 – AT further considers that the legislative amendment introduced by Law 83-C/2013 to the tax regime of FIIAH[12] did not modify the application of the tax benefits granted, which have always depended on the allocation of the properties to residential rental, with no retroactivity whatsoever here.

II - PROCEDURAL REVIEW

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2nd of RJAT.

The parties have legal personality and capacity, are shown to be legitimate and are regularly represented in accordance with articles 4th and 10th, no.2 of RJAT and article 1st of Order no. 112-A/2011, of 22 March.

The response of AT was filed on 10/03/2017, accompanied by a request seeking dispensation of the meeting provided for in article 18th of RJAT; the tribunal granted, by order of the same date, 10 days for the claimant to submit observations, which it did on 21/03/2017, agreeing with the dispensation of the meeting and of the submission of pleadings.

Accordingly, the proceedings being free from defects, the tribunal considered the conditions to be satisfied for the pronouncement of the final decision, fixing 18 April next for such purpose.

III- REASONING

1 – The questions to be resolved, with interest for the case, are the following:

a) To declare or not the nullity of the assessments here challenged based on their unconstitutionality or subsidiarily their annulment, as requested.

b) Should the tribunal declare their nullity or annulment, to declare whether their refund should be accompanied by compensatory interest pursuant to article 43rd of LGT.

2 – Findings of Fact

The relevant facts proven on the basis of the elements in the case file are the following:

a) The Real Estate Fund was, at the date of the assessments in question, the owner of the property registered in the urban property matrix under article …, fraction … of the parish of …, municipality of Guimarães, as already identified.

b) The aforesaid property, upon its acquisition, benefited from exemption of IMT and IS, pursuant to no. 7 paragraph a) and no. 8 of article 8th of the legal regime of FIIAH.

c) The assessments in question were materialized, at the request of the claimant, pursuant to article 236th of Law 83-C/2013 of 31 December and were paid on 16 February 2016.

d) AT based them on the fact that the property was given a different purpose from that which originated the tax benefit, as the property was sold.

There are no relevant facts for the decision that have not been established as proven.

3 – Legal Matters

3.1 As to the legality or otherwise of the assessments of IMT and IS effected pursuant to article 236th of Law 83-C/2013 of 31 December

The petition incorporates the conclusions of a legal opinion by His Excellencies Professor Doctor C… and Doctor D… who consider that no. 2 of article 236th of Law 83-C/2013 is unconstitutional. Although the arbitral tribunal does not have competence to declare or otherwise the unconstitutionality of the provision, which is the exclusive competence of TC[13], it falls to it to assess the application of the norms to the concrete facts sustaining the assessments challenged here, which is what it shall endeavor to do.

Law 64-A/2008 of 31 December established a special regime of tax benefits applicable to real estate investment funds for residential rental; in no. 7 of its article 8th it enshrines the exemption of IMT in the following terms:

a) "The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent habitation, 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 habitation, as a result of the exercise of the purchase option referred to in no. 3 of article 5th, by the tenants of properties that form part of the assets of the investment funds referred to in no. 1".

In turn, Law 83-C/2013 of 31 December amended article 8th of Law 64-A/2008 of 31 December in the following terms:

a) "14 – For purposes of the provisions of nos. 6 to 8, urban properties are considered to be intended for rental for permanent habitation whenever they are subject to a rental contract for permanent habitation within three years from the moment they came to form part of the fund's assets, and the taxpayer must communicate and provide proof to AT of the respective effective rental, within 30 days following the end of the aforesaid period.

b) 15 - When the properties have not been subject to a rental contract within the three-year period provided in the preceding number, the exemptions provided for in numbers 6 to 8 cease to have effect, and in that case, the taxpayer must request from AT, within 30 days following the end of the aforesaid period, the assessment of the respective tax.

c) 16 – Should the properties be disposed of, with the exception of the cases provided for in article 5th, or should the FIIAH be subject to liquidation, before the period provided in no. 14 has elapsed, the taxpayer must equally request from AT, before the disposal of the property or the liquidation of the FIIAH, the assessment of the tax due pursuant to the preceding number".

Taking into account the established facts, the property in question was acquired by the claimant benefiting from exemption of IMT and IS, pursuant to no. 7 paragraph a) and no. 8 of article 8th of the special regime applicable to real estate investment funds for residential rental, of Law 64-A/2008 of 31 December.

By this provision the claimant became obligated to allocate, exclusively, the acquired property to rental, under penalty of losing the tax benefit granted. It can be concluded from the outset that the requirement of exclusive allocation to rental flows from Law 64-A/2008 and not from the amendments introduced to the regime by Law 83-C/2013, which limited itself to establishing the 3-year period for the realization of the rental, which, not being verified within the said period, obliges the Fund to request the assessments of which it benefited from exemption upon acquisition, but in the future and not for the assessments challenged here.

Now, given that the claimant sold the property, it is necessary to conclude that it did not give it the destination of rental which, exclusively, the Law imposed on it in order to be able to benefit from the tax benefits granted upon acquisition.

The basis of the assessments here in question is supported by the different destination from that on which the tax benefit granted was based, and no other; now if the property was sold, it ceased to fulfill the destination which had been declared in the acquisition title, thereby losing the tax benefits granted upon acquisition.

And let there be no mention of crystallization of benefits; in fact, any tax benefit is subject to inspection by AT or other public entities competent for the control of verification of the assumptions that led to the granting of benefits and compliance with the requirements imposed for their granting, as flows from article 7 of EBF[14], and in the concrete case AT had the legal obligation to carry out the inspection, independently of the claimant's request and, upon verifying that a different destination had been given to the property, would have to proceed with the respective assessments of IMT and IS as is legally incumbent upon it.

As to the retroactive application of the provision of article 236th of Law 83-C/2013, we do not perceive, in the concrete case, the reason for evoking such grounds, insofar as the assessments in question, from the tribunal's standpoint, had nothing to do with the aforesaid provision, but solely with the fact that upon acquisition it was declared that it was intended for permanent residential rental and it came to be disposed of, thus not fulfilling the assumptions of the exemption granted; it is not sufficient that the intention be declared in the acquisition title, but rather its effective realization, which did not occur.

From the foregoing the tribunal considers that the assessments of IMT and IS in question result from the fact that the claimant did not observe the provision of paragraph a) of no. 7 of article 8th of the special regime applicable to real estate investment funds for residential rental, approved by Law no. 64-A/2008 of 31 December and not from the amendments introduced by Law 83-C/2013, as contended, wherefore there is no retroactive application here; what occurred was a destination different from that declared upon acquisition of the property, being therefore the assessments legal.

3.2 Request for Payment of Compensatory Interest

In view of the foregoing in item 3.1, the assessment of the question of compensatory interest requested becomes moot.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

a) To declare the request for arbitral pronouncement without merit, with all legal consequences.

b) To fix the value of the case at € 1 170,00 in accordance with the provisions contained in article 299th, no. 1, of CPC[15], article 97th-A of CPPT[16], and article 3rd, no.2, of RCPAT[17].

c) Costs charged to the claimant, pursuant to no.4 of article 22nd of RJAT, fixing the respective amount at € 306,00, in accordance with the provisions of table I referred to in article 4th of RCPAT.

Notify.

Lisbon, 18 April 2017

Text prepared by computer, pursuant to article 131st, no. 5 of CPC, applicable by reference of article 29th, no.1, paragraph e) of RJAT, with blank verses and reviewed by the tribunal.

The sole arbitrator,

Arlindo Francisco

[1] Acronym for Tax Identification Number of a Legal Entity

[2] Acronym for Securities Market Commission

[3] Acronym for Tax Identification Number

[4] Acronym for Legal Regime of Arbitration in Tax Matters

[5] Acronym for Tax and Customs Authority

[6] Acronym for Constitution of the Portuguese Republic

[7] Acronym for Municipal Tax on Onerous Transfers of Real Property

[8] Acronym for Stamp Duty

[9] Acronym for General Tax Law

[10] Acronym for Centre of Administrative Arbitration

[11] Acronym for Code of Administrative Procedure

[12] Acronym for Real Estate Investment Funds for Residential Rental

[13] Acronym for Constitutional Court

[14] Acronym for Tax Benefits Statute

[15] Acronym for Civil Procedure Code

[16] Acronym for Code of Tax Procedure and Process

[17] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Does Article 236 of Law 83-C/2013 violate the constitutional principle of non-retroactivity of tax law under Article 103 of the Portuguese Constitution?
Article 236 of Law 83-C/2013 introduced a transitional regime requiring FIIAH funds to comply with new rental placement timelines for properties acquired under previous legislation. The constitutional question is whether this provision violates Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The claimant argues it impermissibly applies new tax obligations to past transactions. The Tax Authority contends it merely established a compliance period for existing exemption conditions, not new substantive requirements. The arbitral tribunal lacks competence to declare unconstitutionality (exclusive to the Constitutional Court) but must assess whether the provision's application to the specific facts violates constitutional principles.
Are IMT and Stamp Tax (Imposto do Selo) exemptions applicable to FIIAH closed-end real estate investment funds for residential leasing?
IMT and Stamp Tax exemptions apply to FIIAH funds under Article 8 of Law 64-A/2008 for acquisitions of urban properties or fractions intended exclusively for residential rental. The exemption under paragraph 7(a) covers fund acquisitions, while paragraph 7(b) covers tenant purchases exercising purchase options. Law 83-C/2013 amended this regime by adding paragraphs 14-16, establishing that properties must be subject to rental contracts within three years of entering the fund's assets. If not rented within this period, exemptions cease and the taxpayer must request tax assessment within 30 days. The exemption depends on actual allocation to permanent residential rental, not mere intention.
Can FIIAH fund tax liquidations be declared null under Article 133 of the Portuguese Administrative Procedure Code for breaching fundamental rights?
The claimant invoked Article 133 of the Administrative Procedure Code (CPA), arguing the assessments are null because they violate the essential content of a fundamental right—specifically, the constitutional protection against retroactive taxation under Article 103 CRP. Under Article 133(1) and (2) CPA, administrative acts violating fundamental rights are null and contestable at any time. The tribunal must determine whether Article 236's application constitutes such a violation. The Tax Authority disputes this characterization, maintaining that the legislative amendment clarified existing requirements rather than creating new retroactive obligations, thus not infringing fundamental rights.
What is the special tax regime for FIIAH and SIIAH under Portuguese law and how was it amended by the 2013 State Budget Law?
The special tax regime for FIIAH (Real Estate Investment Funds for Residential Rental) and SIIAH (Real Estate Investment Companies for Residential Rental) was established by Law 64-A/2008 to incentivize residential rental markets through tax benefits. Original regime granted IMT and Stamp Tax exemptions for properties intended for permanent residential rental. Law 83-C/2013 (2013 State Budget) amended Article 8 by adding paragraphs 14-16, introducing objective criteria: properties must have rental contracts within three years of acquisition, with proof submitted to Tax Authority within 30 days after this period. Failure to meet this timeline triggers exemption cessation and requires taxpayers to request tax assessment within 30 days. This amendment aimed to ensure exemptions benefited actually rented properties, not merely held assets.
How does the CAAD arbitral tribunal handle requests for reimbursement with compensatory interest under Article 43 of the General Tax Law (LGT)?
CAAD arbitral tribunals have jurisdiction under Article 2 of the Tax Arbitration Legal Regime (RJAT) to review tax assessments. When declarations of nullity or annulment are granted, Article 43 of the General Tax Law (LGT) governs compensatory interest on refunds. The claimant requested that any refund of the €1,170 in IMT and Stamp Tax be accompanied by compensatory interest under this provision. Compensatory interest compensates taxpayers for the State's undue retention of amounts. The tribunal must first determine the legality of the assessments; only if nullity or annulment is declared does it proceed to determine whether compensatory interest applies, considering the legal basis for the original payment and whether the Tax Authority's actions were lawful at the time.