IMT and Stamp Tax Exemption for Real Estate Investment Funds (FIIAH) – Unconstitutionality of Retroactive Tax Law

ARBITRAL DECISION

I - REPORT

1. On 23 November 2015, A.... – Real Estate Investment Fund Management Company, S.A., with headquarters in ..., no. ... – ..., ... – ... ..., registered with the Commercial Registry Office of Lisbon under the single registration and tax identification number ... (hereinafter "Claimant"), in its capacity as managing company of the real estate investment fund "B... – Closed Real Estate Investment Fund for Residential Rental" registered with the Securities Market Commission, with tax identification number ... (hereinafter "Fund B..."), requested the establishment of an Arbitral Tribunal, presenting, in accordance with Article 2, paragraph 1, point a) of the Legal Regime for Tax Arbitration (LRTA), a Request for a Decision with a view to assessing the legality of assessments of IMT (in the amount of €27,764.75) and Stamp Duty (in the amount of €3,880.00), relating to the acquisition of a property registered with matrix U-...-..., of the parish of ... and ..., with a declaration of nullity or annulment of the tax acts and restitution of the amounts paid, as well as recognition of the right to compensatory interest. Two documents are attached.

2. In the request for an arbitral decision, the Claimant opted not to appoint an arbitrator. In accordance with paragraph 1 of Article 6 of the LRTA, by decision of the President of the Deontological Council, Maria Manuela do Nascimento Roseiro was appointed as sole arbitrator, who accepted the appointment within the legally prescribed period.

3. The parties being notified and there being no refusal of the said appointment (Article 11, points a) and b) of the LRTA and Articles 6 and 7 of the Deontological Code), the arbitral tribunal was constituted on 1 February 2016, in accordance with the provisions of point c) of paragraph 1 of Article 11 of the LRTA, and on the same date, an arbitral order was issued notifying the Tax and Customs Authority (TA or Respondent) in accordance with Article 17 of the LRTA.

4. On 4 March 2015, the Respondent presented a Response and requested waiver of the meeting provided for in Article 18 of the LRTA, and on 23 March, attached to the file a decision delivered in a similar case, to which the Claimant reacted by informing that such decision had been subject to an appeal to the Constitutional Court.

5. Following the Claimant's consent, the meeting provided for in Article 18 of the LRTA was waived, with a period of fifteen days set for the presentation of arguments, running successively, and 1 August 2016 designated as the date for communication of the arbitral decision.

6. With the arguments presented on 31 May and 14 June 2016, respectively, the Parties attached arbitral decisions invoked as confirming their respective theses. The Claimant also attached an example of a request and a Doctrinal Opinion.

7. Request for Arbitral Decision

The Claimant alleges, in summary (our responsibility):

a) Articles 102 to 104 of Law no. 64-A/2008, of 31 December (State Budget for 2009), approved the special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental, providing in Article 8 of the regime contained in Article 104 the "tax regime" of FIIAHs.

b) On the basis of the aforementioned Article 8, following the amendment by Law no. 83-C/2013, of 31/12 (State Budget for 2014), of paragraphs 14 to 16 and a transitional provision contained in Article 236 of this State Budget, the Claimant requested from the Tax Authority the assessment of IMT and Stamp Duty (SD), on account of the alienation by Fund B... of the property U-...-... located in ..., ..., ..., ..., registered in the urban property matrix of the Parish of ... and ....

c) Assessments were issued no. ..., of IMT, in the amount of €27,764.75, and no. ..., of Stamp Duty (SD), in the amount of €3,880.00.

d) Paragraph 14 added by Law no. 83-A/2013, clarified unequivocally, and for the first time, the meaning of the expression "urban properties intended for rental for permanent housing" as those which, for the purposes of the special regime, are subject to a rental contract for permanent housing within the period of three years counted from the moment they became part of the fund's assets.

e) The added norms also clarified the circumstances in which properties forming part of the assets of FIIAHs cease to benefit from the exemption regime provided for in paragraphs 6 and 8 of the Tax Regime of RIFs, providing that, in cases where properties forming part of the assets of FIIAHs have not been subject to rental within the 3-year period from the said entry, or in cases of alienation of properties by the FIIAH, or liquidation of the FIIAH itself, before the expiry of the 3 (three)-year period, counted from the date of entry of the relevant properties into the assets of the FIIAH, the taxable person shall request from the Tax Authority, within the 30 days following the expiry of the said period, the assessment of the respective tax.

f) Since IMT and Stamp Duty are taxes of single obligation, and it being verified that, on the date of entry into force of Law no. 83-C/2013, of 31/12, the property in question in the case was integrated in the assets of the Claimant and had been acquired with the exemptions provided for in paragraphs 7 and 8 of the Tax Regime of FIIAHs, recognized previously at the request of Fund B..., it must be understood that the exemptions became crystallized in the legal order.

g) Because the exemptions were not, on that date, conditioned by the verification of any subsequent facts or circumstances nor subject to any lapse regime, the subsequent imposition relating to exemptions crystallized in the legal order suffers from unconstitutionality by violation of the principle of non-retroactivity of tax law enshrined in Article 103 of the CRP.

h) The extension, provided for in Article 236 of the State Budget for 2014, of the application of the current FIIAH Regime to properties that were acquired before 1 January 2014 (...) establishes a new regime of lapse of the exemptions provided for in paragraphs 7, a) and 8 of Article 8, directly and unequivocally violating the said principle of non-retroactivity of tax law.

i) And because this principle of fiscal non-retroactivity has the character of a fundamental right, endowed with the protective legal regime of this right, its disregard results, according to cited doctrine, in the nullity (or even the legal non-existence) of the assessments, the challenge being able to be made at any time.

j) Thus, and even if it is considered that only annulability is at issue, the Request should be granted as to the illegality of the assessments, ordering the restitution of the amounts paid in the meantime plus compensatory interest.

8. The Response of the Respondent

The Respondent responded, in summary (our responsibility):

a) In accordance with paragraph 2 of Article 266 of the CRP, and paragraph 1 of Article 3 of the Administrative Procedure Code (APC), the administration is obliged to act in accordance with the principle of legality; administrative bodies and agents have no competence to decide on the non-application of norms regarding which doubts of constitutionality are raised (in this sense Opinions of the Attorney General nos. 52/84, 8/85, 56/92, 190/81, 90/83, 16/92, 60/95 and 4/96 and Ruling of the SAC of 21-01-2015).

b) And, even if a violation of Article 103, paragraph 3, of the CRP had been verified, the challenged acts are only subject to annulment and not non-existent or null, according to the doctrine and jurisprudence referred to.

However, there is no unconstitutionality by violation of Article 103 of the CRP, because:

c) Law no. 64-A/2008, of 31 December, approved a special regime applicable to FIIAHs and SIIAHs, constituted during the five years following the entry into force of the said law and to real estate acquired by them in the same period.

d) The regime approved by Law no. 64-A/2008, of 31 December, required that the beneficiaries of the exemptions in question, both in the context of IMT and in the context of Stamp Duty, would have to comply with the requirement that the properties covered were intended exclusively for rental for permanent housing, so that the Claimant has no reason when it affirms that the exemptions in question were not conditioned by any facts or circumstances.

e) The wording introduced by Law no. 83-C/2013, of 31/12, merely served to densify the criterion already required, but with the changes then introduced the rationale of the exemptions established was not altered, nor was the immediate extinction of the benefit determined, even granting a sufficiently extended period of three years for the celebration of the said rental contracts.

f) Considering the articles of the TBS, which provide for the exceptional character of benefits (Article 2, paragraph 1), the oversight of benefits by the TA (Article 7), the extinction of benefits (Article 14, paragraphs 1 and 2), paragraph 16 of Article 8 of the tax regime of these Funds, the new wording merely concretizes an anti-abuse measure.

g) In the case at hand, it follows from the alienation of the properties in the year 2015 that the Claimant could, in any case, not benefit from the exemptions in question because alienation presupposes allocation to a destination other than rental, regarding properties acquired before 1 January 2014.

h) It is not, therefore, an introduction ex novo of a regime of lapse of the benefit nor is there any frustration of the expectations of the taxable persons or violation of the principle of non-retroactivity of tax law.

i) And, since it was not within the discretion of the TA to decide differently from how it decided, no error can be imputed to its services that determined the payment of a tax debt in an amount higher than legally due, so that, in any case, there would be no place for payment of compensatory interest in accordance with Article 43 of the General Tax Code (cf. Rulings of the SAC of 21/01/2015, in case 703/14, and of 03/04/2015, in case 01529/2015).

9. Issues to be Decided

The decision of the present Request implies the assessment of the following issues:

A. Legality of the assessments of IMT and Stamp Duty made by the Respondent upon the alienation, by a Real Estate Investment Fund for Residential Rental (FIIAH), of a property previously acquired with the exemptions provided for in Article 8 of the special regime of FIIAHs, created by Law no. 64-A/2008, of 31 December (State Budget for 2009), evaluating in particular whether the application of norms added by Law no. 83-C/2013, of 31 December (State Budget for 2014), is at issue, in violation of Article 103 of the CRP.

B. Right to compensatory interest, in the event that the assessments in question are illegal.

10. Case Management

The Tribunal is substantively competent and is regularly constituted, in accordance with Articles 2, paragraph 1, point a), 5, paragraph 2, and 6, paragraph 1, of the LRTA.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10, paragraph 2, of the LRTA and Article 1 of Regulatory Decree no. 112-A/2011, of 22 March.

No exceptions were raised.

The case does not suffer from defects that would invalidate it.

Accordingly, the case proceeds to judgment on the merits.

II. GROUNDS

11. Proven Facts

11.1. The Claimant, designated as A... – Real Estate Investment Fund Management Company, S.A., is the managing company of the real estate investment fund "B... – Closed Real Estate Investment Fund for Residential Rental", abbreviated "Fund B...", registered with the Securities Market Commission with the tax number ... (Request and Response, Article 4).

11.2. On 5 August 2013, Fund B... acquired fraction EE of Article ... of the parish of..., current ... of the Union of parishes of ... and ... from the entity with NIF ..., and exemption was requested and granted in accordance with Article 10 of the IMT Code (Article 21 of the Request and doc. no. 1 attached with the Request).

11.3. Before the deed of sale and purchase referred to in the previous number, on 22 July 2013, the respective IMT assessment was made "enjoying tax benefit 92, FIIAH/SIIAH (Article 87 of the State Budget/09)"[1] (mention in doc. no. 1).

11.4. In 2015, the Claimant, before alienating the real estate referred to in 11.2, requested to pay IMT and Stamp Duty for the prior acquisition of the same, and the Respondent, on 25 August 2015, made assessment of these two taxes, in the amounts, respectively, of €27,764.75 (IMT) and €3,880.00 (SD) (Article 6 of the Request and Article 5 of the Response and doc. no. 1 attached with request).

11.5. In the assessment documents, it is mentioned, as regards IMT, that the assessment is due to lapse of the exemption, in accordance with paragraphs 1 and 2 of Article 34 of the IMT Code, due to change of destination on which the concession of the benefit was based, given the planned execution of a deed of sale of the property, to be made on 28 August 2015 (doc. no. 1).

11.6. The taxes assessed in accordance with the two previous numbers were paid on 26 August 2015 (Doc. no. 2).

12. Unproven Facts

The factual matter established is sufficient for the assessment of the legal issue, with no relevant unproven facts for the resolution of the present dispute.

13. Basis of Proof

The determination of the facts was made on the basis of the facts alleged by the parties and not contested, as well as on the documents attached to the file.

14. Application of Law

14.1. Type of Illegality Under Assessment

The Claimant invokes violation of Article 103 of the CRP, concluding that there is a situation of nullity or even non-existence.

We subscribe to the position that the assessment acts in question, even though they were based on a norm violating constitutional principles, as alleged, will be annullable and not null, since it is not a matter of violation of the content of a fundamental right (point d) paragraph 2 of Article 133 of the APC) but the assessment of the legality of tax acts in light of the legal regime of FIIAHs and the legal regime of tax benefits.

14.2. The Special Regime for FIIAHs and SIIAHs Created by the State Budget Law for 2009

In its Articles 102 to 104, Law no. 64-A/2008, of 31 December, approved a special regime applicable to real estate investment funds for residential rental (FIIAH) and real estate investment companies for residential rental (SIIAH) (Article 102), constituted during the five years following the entry into force of the same law and to real estate acquired by them in the same period (that is, between 1 January 2009 and 31 December 2013) (Article 103), ordering the application to their establishment and operation of the Legal Regime for Real Estate Investment Funds, approved by Decree-Law no. 60/2002, of 20 March (Article 104).[2]

Real Estate Investment Funds for Residential Rental (FIIAH)[3], in accordance with the provisions of Articles 1 to 4 of the regime approved by the State Budget for 2009:

• included in their name the expression "real estate investment funds for residential rental" or the abbreviation FIIAH, which only they (that is, with the characteristics of Articles 2 to 6) could adopt;

• the respective value of total assets was to reach, at the end of the first year, the minimum amount of €10 million and, when constituted with recourse to public subscription, have at least 100 participants, whose individual participation cannot exceed 20% of the value of the total assets of the fund, and the failure to comply with the said individual participation limit determined the immediate and automatic suspension of the right to the distribution of income of the FIIAH in the value of the participation exceeding that limit.

• as to the composition of the assets of the FIIAH, Article 46[4] of the Legal Regime for Real Estate Investment Funds is stated to be applicable, but at least 75% of its total assets consists of real estate, situated in Portugal, intended for rental for permanent housing.

Article 5 of the Regime established by Law no. 64-A/2008, provides that:

• Borrowers of housing credit contracts who proceed to alienate the real estate object of the contract to a FIIAH may celebrate with the managing entity of the fund a rental contract (paragraph 1);

• Prior to the celebration of the contract of transfer of ownership of the real estate to the FIIAH, the respective managing entity shall provide the alienator, on paper or other durable medium, information on the essential elements of the transaction, such as the price of the transaction, including, also, where applicable, the value of the rent, the respective conditions of updating and the criteria for fixing the price and the general terms of the exercise of the option to purchase (paragraph 2);

• The rental made by borrowers, under the terms provided for in paragraph 1, constitutes the tenant in a right to purchase the real estate from the fund, capable of being exercised until 31 December 2020, a right of purchase option which is only transferable by death of the holder (paragraphs 3 and 4);

• The said right of purchase option ceases if the tenant fails to comply with the obligation to pay rent to the FIIAH for a period exceeding three months (paragraph 5);

• The terms and conditions of the exercise of the option are regulated by ordinance of the government member responsible for the area of finance, which shall ensure the right of the alienator to repurchase the real estate from the FIIAH by reference to the updated value of alienation, as well as, in the case of non-exercise of the right of purchase option, the right to receive the difference between the value of the future alienation of the real estate and the updated value of its acquisition by the FIIAH.

Article 7 of the Regime provides for the creation of a Monitoring Committee (consisting of three independent persons) to verify compliance with the legal and regulatory regime applicable to the activity of FIIAHs, in particular observance of the legal regime and the principles of good governance that should govern the management of the FIIAH (for example, investment and financing policy of liabilities; respect, by the managing entity, of the rights of participants and tenants; compliance with information duties) and verification, in particular, of compliance by the FIIAH of the regime for exercise of the purchase option by the tenant.

Article 8 contains the "Tax Regime" providing for various exemptions. In addition to exemptions in CIT and PIT[5], the following are provided as to real estate:

• Exemption from Municipal Property Tax, while remaining in the portfolio of the FIIAH, of urban real estate, intended for rental for permanent housing, which form part of the assets of the funds.

• Exemption from IMT as to acquisitions of urban real estate or autonomous fractions of urban real estate intended exclusively for rental for permanent housing, by investment funds, as well as as to acquisitions of urban real estate or autonomous fractions of urban real estate intended for own and permanent housing, as a result of the exercise of the purchase option by tenants of real estate forming part of the assets of investment funds.

• Exemption from Stamp Duty as to all acts performed, provided they are connected with the transfer of urban real estate intended for permanent housing that occurs by virtue of the conversion of the right of property of such real estate into a right of rental on the same, as well as with the exercise of the purchase option provided for.

(underlining ours).

14.3. Amendments Introduced by the State Budget for 2014 and Their Application in Time

The State Budget for 2014 (approved by Law no. 83-C/2013, of 31 December) came, in its Article 235, to extend to FIIAHs constituted by 31 December 2015 the exemption from income in CIT provided for in paragraph 1 of Article 8 of the Regime and to add to the same article paragraphs 14 to 16, with the following wording:

"14 — For the purposes of the provisions of paragraphs 6 to 8, it is considered that urban real estate is intended for rental for permanent housing whenever it is subject to a rental contract for permanent housing within the period of three years counted from the moment it became part of the fund's assets, the taxable person being required to communicate and provide proof to the TA of the respective actual rental, within the 30 days following the expiry of the said period.

15 — When real estate has not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in paragraphs 6 to 8 cease to have effect, the taxable person being required in that case to request from the TA, within the 30 days following the expiry of the said period, the assessment of the respective tax.

16 — If the real estate is alienated, with the exception of cases provided for in Article 5, or if the FIIAH is subject to liquidation, before the expiry of the period provided for in paragraph 14, the taxable person shall likewise request from the TA, before the alienation of the real estate or the liquidation of the FIIAH, the assessment of the tax due in accordance with the previous number." (underlining ours)

And in Article 236, the State Budget for 2014 prescribed a transitional regime for FIIAHs and SIIAHs, to the effect that:

"1 — The provisions of paragraphs 14 to 16 of Article 8 of the special regime applicable to FIIAHs and SIIAHs, approved by Articles 102 to 104 of Law no. 64-A/2008, of 31 December, apply to real estate acquired by FIIAHs from 1 January 2014.

2 — Without prejudice to the provisions of the previous number, the provisions of paragraphs 14 to 16 of Article 8 of the special regime applicable to FIIAHs and SIIAHs, approved by Articles 102 to 104 of Law no. 64-A/2008, of 31 December, likewise apply to real estate acquired by FIIAHs before 1 January 2014, in which cases the three-year period provided for in paragraph 14 is counted from 1 January 2014."

As to the effects of the amendments introduced by Article 235 of the State Budget for 2014 (approved by Law no. 83-C/2013, of 31 December) in situations occurring during the validity of the wording of the State Budget Law for 2009, the Claimant understands that, in accordance with the original wording of Article 8 of the special regime for FIIAHs, the exemptions from IMT and SD were not, on the date the real estate was acquired by Fund B..., conditioned by the verification of any subsequent facts or circumstances nor subject to any lapse regime, and continue not to be, because the application of the extension, established by Article 236 of the State Budget for 2014, to acquisitions prior to 1 January 2014, represents a violation of the principle of non-retroactivity of tax law constitutionally enshrined in Article 103 of the CRP.

To the contrary, the Respondent understands that the regime approved by Law no. 64-A/2008, of 31 December, already required that the beneficiaries of the exemptions in question, both in the context of IMT and in the context of Stamp Duty, would have to comply with the requirement that the properties covered were intended exclusively for rental for permanent housing.

14.4. The Type of Benefits in Question and the Issue of Their Lapse

In assessing the situation in the case at hand, applying the principles of legal interpretation established, account must be taken of the rationale and context of the creation of the legal regime of FIIAHs created by the State Budget Law for 2009.

The specific conditions of the time when the law was created confirm what derives from the letter of the norm, interpreted in conjunction with other norms of the legal system. "When created, in 2008 (with effects from 1 January 2009), the tax regime described above stood out through its tax exemptions, as a 'measure to stimulate rental (...), with the objective of relieving the tax burden on owners and tenants', allowing families with housing loans, and with difficulty in paying the installment of their credit, to convert the respective installments into the payment of rent, by selling the respective real estate to the FIIAH, and by celebrating, with the managing entity of the fund (SIIAH), a rental contract on the same real estate, and still being able to maintain, until 2020, the option to purchase the real estate."[6]

Or, as stated in the learned opinion attached to the file by the Claimant, with its arguments, the FIIAH regime established "a mechanism that intended to protect the interest of borrowers of housing credits, with difficulties in compliance, in maintaining the possibility of acquisition of the real estate, over time (for which reason they were granted a right of purchase option), although they became immediately mere tenants of the FIIAH, to whom they sold the real estate in question" (cf. Article 5).

That is, everything suggests that the exemptions provided for in Article 8 of the Special Regime for FIIAHs were intended only for real estate acquired with that allocation materialized or to be materialized in the near future, in principle immediately upon the acquisition of the real estate by the Fund and integration into its respective assets.

Considering the provisional, conjunctural nature in itself of the "special regime applicable to real estate investment funds for residential rental (FIIAH)" approved by Law no. 64-A/2008 (Articles 102 to 104)[7], in particular through the granting of tax benefits (Article 8), it cannot but be understood that the benefits were only justified if the objectives outlined for the new legal figures of FIIAH were met and maintained.

It was not a matter of exempting the acquisition of real estate intended in the abstract for residential rental, but rather real estate that, in concrete terms, had to be allocated to that purpose. It was not intended to exempt FIIAHs with respect to any acquisition of real estate but only as to acquisitions of real estate actually intended for permanent residential rental.

Thus, it would appear as an exceptional situation, not intended by the legislator, that real estate acquired with express allocation for rental for permanent housing would not find themselves and remain in that situation.

And the fact that the exemption provided for sought to realize a higher extra-fiscal public interest than that of the taxation it prevents (paragraph 1 of Article 2 of the TBS), requires oversight of the situation (Article 7 of the TBS). It should be recalled that, certainly given the political and social relevance of the objectives of this special regime, it itself provides for oversight, by a permanent committee, of compliance with the legal and regulatory regime applicable to the activity of FIIAHs (paragraph 7 of Article 8 of the special regime).

One is thus faced with a tax benefit conditioned by the verification of requirements in the law, provided for since the original wording of the special regime of FIIAHs.

Faced with the evidence of the rationale of the norm, it is difficult to accept the conclusion that "the original wording of the exemptions did not require any requirement relating to actual rental, much less a period, being necessary only the purpose of its acquisition for rental"[8]. This thesis seems to contain a contradiction in terms, amounting to saying that the granting of exemption was for real estate to be allocated to rental but could also not be...

Although the Regime contained in Article 8 of the wording of the State Budget Law for 2009 specifies nothing about the period of time allowed for real estate acquired to be subject to the realization of the purpose "allocation for rental for permanent housing," such omission seems to be due to the fact that control difficulties were minimized, perhaps thinking that, since the transfers originated in the passage of the borrower to tenant would not find situations of non-allocation of acquired real estate to rental for permanent housing[9].

But the Tribunal does not subscribe to the thesis of the Claimant to the effect that the exemptions in question were not originally conditioned by any facts or circumstances, considering instead that in light of the wording of the regime approved by Law no. 64-A/2008, of 31 December, it cannot but be understood that the tax benefits would already then be subject to lapse insofar as non-observance of the obligations imposed, were imputable to the beneficiary (paragraph 2 of Article 14 of the TBS).

And would, therefore, also be applicable paragraph 3 of Article 14 of the TBS, which provides that "When the tax benefit relates to the acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those goods are alienated or given another destination without authorization of the Minister of Finance, without prejudice to other sanctions or different regimes established by law".

Because, being a tax benefit conditioned by the verification of requirements in the law, provided for since the original wording, the existing norms on the matter could not but be applied and which guarantee the unity of the legal system. The granting by law of an exemption, to be granted on the assumption of achieving a purpose, not subject to control of verification of the result, would indeed be an invitation to circumvention of the law, resulting in a violation of constitutional principles, in particular tax justice and equality.

Thus, it does not seem correct to say that "without the amendments to the Special Regime applicable to FIIAHs and SIIAHs of Law no. 83-C/2013, of 31 December, the Claimant would not have to, nor ever would, present any request for assessment of IMT and SD upon proceeding with the exchange of the real estate (...)" (§ 26 of the arguments).

And the statement that "The sole requirement of the exemption, on the date when the Claimant acquired the real estate in question and when such exemption was consumed, was that real estate acquired by FIIAHs be intended to be rented for permanent housing (...)" and only with the amendment to the Regime that came to provide that "the alienation of real estate owned by FIIAHs – or the liquidation of the FIIAH itself – before the expiry of the three-year period, counted from the entry of relevant real estate into the assets of the FIIAH (...) leads to the lapse of the exemption" is based on an incorrect reading of the concept "real estate intended for rental for permanent housing" (§ 27 of the arguments), as if actual allocation were not a requirement of the exemption, a condition whose absence leads to the lapse of the benefit.

In practice, the regime approved by the State Budget for 2009 could provide some insecurity and inequality in the application of the law, in cases where real estate benefiting from exemption were not immediately allocated to the purposes for which the exemption had been granted to them. That is, insofar as no period was provided for allocation to the stated purposes, it hindered the application of the segment of paragraph 2 of Article 14 of the TBS which provides for "lapse insofar as non-observance of the obligations imposed, is imputable to the beneficiary".

For example, situations could arise where, invoking the economic crisis and difficulties in renting, the funds benefiting from the exemption - granted expressly by law on the assumption of meeting certain requirements - would be able to continue to benefit from the tax benefit by always delaying the realization of the extra-fiscal purposes legally intended (and legitimizing the loss of tax revenue).

In this respect, the provision of the transitional norm contained in Article 235 of Law no. 83-C/2013, of 31/12, by fixing a period, quite extended, for allocation to the purposes (3 years) seems, in practice, to have even extended this period for real estate previously acquired by FIIAHs, by providing the possibility of allocation to rental for permanent housing within the period of (more) three years from January 2014[10].

But the law did not introduce the obligation to allocate to rental for permanent housing real estate previously acquired with exemptions granted because such obligation derived already, upon the acquisition of the real estate, from the tax regime provided for FIIAHs in Law no. 64-A/2008, of 31 December.

14.5. Conclusion as to the Situation in the Case

Thus, the case at hand must be resolved taking into account that:

• FIIAHs, constituted between 1 January 2009 and 31 December 2013, in accordance with applicable legislation, with assets consisting of at least 75% of real estate intended for rental for permanent housing, benefited from exemption from taxes on acquisition (IMT and Stamp Duty) and on ownership (Municipal Property Tax) of real estate acquired during that period and intended for allocation to rental for permanent housing.

• The benefits in question were granted in the case of borrowers of housing credit contracts who, within the same period, proceeded to alienate real estate object of the contract to a FIIAH, by celebrating with the managing entity of the fund a rental contract, constituting themselves in a right of purchase option of the real estate (from the FIIAH) capable of being exercised until 31 December 2020.

• It is in that context – with those requirements fulfilled – that the justification lies for the exemption from IMT on acquisitions of urban real estate or autonomous fractions of urban real estate, intended exclusively for rental for permanent housing, by investment funds, as well as on acquisitions of urban real estate or autonomous fractions of urban real estate, intended for own and permanent housing, as a result of the exercise of the purchase option by tenants of real estate forming part of the assets of investment funds.

• As well as the exemption from Stamp Duty on acts connected with the transfer of urban real estate intended for permanent housing that occurs by virtue of the conversion of the right of property of such real estate into a right of rental on the same, as well as in the exercise of the purchase option aforementioned.

In the case at hand, it is a matter of an assessment of IMT and SD made in 2015, at the moment of alienation of a real estate acquired in August 2013 (it is not known exactly to whom but does not appear to be a borrower of a housing credit), with exemption provided for in paragraph 7 of Article 8 of the Regime of FIIAHs, and in which no proof was made of (or even invoked) allocation to rental for permanent housing. And the alienation of the real estate was not realized to a tenant or with any conditionalism as to the destination of its allocation.

Thus, if the exemption granted, initially, on the acquisition of real estate acquired by a FIIAH were to be maintained in a case like this, the purpose of the law would be completely unattainable without corresponding loss of benefit. And, in situations of acquisition of real estate acquired by Real Estate Investment Funds for Residential Rental, these would benefit from exemption from IMT and Stamp Duty on acquisition and from Municipal Property Tax in the period elapsed until resale without the need for the real estate to actually be allocated to rental for permanent housing, the mere eventuality of their being able to be sufficient... That is, the granting of benefit would cease to be conditioned, the legal form of the acquiring entity being sufficient.

However, the benefits in respect of IMT, Stamp Duty, and Municipal Property Tax are not granted to Funds by reason of having a particular activity but granted to real estate, if and while intended, in concrete terms, for that activity. And, clearly determined after 2014, within a period and by minimum period provided for in the law.

In the present case, actual allocation of the real estate in question was not invoked but rather the mere quality of the acquiring Fund that proceeded to resale of real estate elapsed two years after its acquisition, of real estate that would have benefited from exemptions provided for in the law for real estate allocated to rental for permanent housing.

The Claimant states, in arguments[11], that when it requested payment of the taxes in question it invoked Article 236 of Law no. 83-C/2013, of 31 December, and not the allocation of the real estate "to a destination different from that on which the benefit was based".

However, it is certain that, based on the Claimant's declarations that it was going to alienate the real estate, the Respondent understood that there was lapse of the exemption due to change of destination of the real estate, basing the assessment on the allocation of the asset to a destination different from that on which the benefit was based.

No amendments made by Article 203 of Law no. 83-C/2013, of 31/12 (whose unconstitutionality, moreover, does not appear to us to be confirmed given the interpretation adopted above) are invoked but Article 34 of the IMT Code, which provides that taxable persons request the assessment of tax before the lapse of the respective exemption. Even if the Claimant had not requested prior assessment, the Respondent could, with the reasoning invoked, proceed to make the assessment, in accordance with Article 35 of the IMT Code.

Under these circumstances and with the grounds set out, the tribunal considers legal the assessment based on the lapse of exemption due to verification of the lack of requirements provided for in Article 104 of Law no. 64-A/2008, of 31/12.

Thus, and although it follows from the legal interpretation adopted above that the tribunal does not consider that the amendments to the FIIAH regime, made by Article 203 of Law no. 83-C/2013, of 31/12, constitute a violation of Article 103 of the CRP, as the basis of the assessment did not invoke, nor was it required to do so, the application of the norms added by the State Budget Law for 2014, a more in-depth legal assessment of the issue of their unconstitutionality is deemed unnecessary.

And, as the arbitral request is unmeritorious, so is the request for reimbursement of amounts paid, as well as for compensatory interest.

III. DECISION

1. In light of the above, the present Arbitral Tribunal decides:

a) To find the present request for a declaration of illegality of the assessment of IMT in the amount of €27,764.75 (twenty-seven thousand seven hundred sixty-four euros and seventy-five cents) and of the assessment of Stamp Duty in the amount of €3,880.00 (three thousand eight hundred eighty euros) unmeritorious.

b) To condemn the Claimant to pay the costs of the present proceedings.

16. Value of Case and Costs

The value of the case is fixed at €31,644.75 (thirty-one thousand six hundred forty-four euros and seventy-five cents) in accordance with Article 97-A, paragraph 1, of the Tax Procedure Code, applicable by virtue of Article 29, paragraph 1, a) of the LRTA and Article 3, paragraph 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

The amount of costs is fixed at €1,836.00 (one thousand eight hundred thirty-six euros), to the charge of the Claimant and calculated in accordance with Table I annexed to the Regulation on Costs in Tax Arbitration Proceedings, all in accordance with Articles 12, paragraph 2, and 22, paragraph 4, of the LRTA and Article 4 of the RCPAT.

Lisbon, 1 August 2016.

The Arbitrator

Maria Manuela Roseiro

[1] There appears to be a typographical error as it must have been intended to refer to Article 8, paragraph 7 (of the regime approved by Article 104 of the State Budget).

[2] With the amendments of the various legislative acts referred to in Article 100 of Law no. 64-A/2008, it was later amended and reissued by Decree-Law no. 71/2010, of 18 June.

[3] Article 9 provides that the regime provided for in the previous articles applies, with the necessary adaptations, to real estate investment companies (SIIAHs) that are to be constituted under special law and that comply with the provisions of the special regime applicable to FIIAHs.

[4] From the rules of Article 46 of the RIF Regime note the following: a) The development of construction projects cannot represent, in total, more than 50% of the total assets of the investment fund; b) The value of real estate cannot represent more than 25% of the total assets of the investment fund; c) The value of real estate rented, or subject to other forms of paid exploitation, to a single entity or to a group of entities that, under the law, are in a relationship of control or group, or that are controlled, directly or indirectly, by the same natural or legal person, cannot exceed 25% of the total assets of the investment fund; d) The investment fund may borrow up to a limit of 25% of its total assets.

[5] In paragraphs 1 to 5 exemptions are provided for in the context of PIT and CIT, in particular: exemption from CIT as to income of any nature obtained by FIIAHs constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and in compliance with the conditions provided for; exemption from PIT and CIT as to income relating to participation units in investment funds paid or made available to the respective holders (...) whether by distribution or redemption, excluding the positive balance between capital gains and capital losses resulting from the alienation of participation units; exemption from PIT as to capital gains resulting from the transfer of real estate intended for own housing to favor the investment funds, which occurs by virtue of the conversion of the right of property of such real estate into a right of rental.

[6] It is cited Decision delivered on 20 May 2016 in arbitral case no. 735/2015-T (no. 6.18.)

[7] Article 103 of Law no. 64-A/2008, provides that "the regime contained in the present section applies to FIIAHs or SIIAHs constituted during the five years following the entry into force of the present law and to real estate acquired by them in the same period" and paragraph 2 of Article 9 of the regime "The regime contained in the present section is in force until 31 December 2020, at which date the conversion of FIIAHs into real estate investment funds subject to the complete Legal Regime for Real Estate Investment Funds shall take place".

[8] As in the learned Opinion attached to the file by the respondent.

[9] Thus, and also contrary to the thesis of the Opinion attached to the file ("there is a clear difference between the verification of the purpose of the acquisition of real estate by FIIAHs, as a requirement of the exemptions originally provided and the restriction of these by the introduction of new requirements, as occurred in 2014"), it is believed that it is not appropriate to understand that the later clarification of periods and actions means that, in the original wording, actual allocation of the real estate to rental for permanent housing was not already an essential requirement for the granting of exemption.

[10] The expansion of benefits is also expressed in paragraph 1 of Article 8, for FIIAHs constituted by 31 December.

[11] Cf. § 20 to 23. As an "example" the claimant attached a request submitted in other cases, without providing any concrete data about the real estate in question in the case, resold two years after having been acquired with exemption granted on the assumption of its allocation to rental for permanent housing and not for resale (except by option of the previous tenant).