CAAD 694/2016-T: IMT & Stamp Tax FIIAH Exemptions Retroactivity

Process: 694/2016-T

Date: July 31, 2017

Tax Type: IMT Selo

Summary

CAAD arbitration case 694/2016-T addresses the controversial retroactive application of tax obligations to Real Estate Investment Funds for Residential Rental (FIIAH) regarding IMT and Stamp Tax exemptions. The fund acquired a property in December 2013 with recognized tax exemptions under Article 8(7) of the FIIAH regime for properties intended for permanent residential rental. However, Law 83-C/2013 subsequently introduced paragraphs 14-16 to Article 8, establishing a three-year deadline for properties to be subject to rental agreements and requiring tax assessment if this condition was not met. Article 236 applied this requirement retroactively to properties acquired before 1 January 2014. The fund challenged assessments totaling €6,617.88, arguing that both IMT and Stamp Tax are single-obligation taxes where the taxable event occurs at acquisition. The fund contended that exemptions were definitively crystallized when properties entered the fund's assets, and retroactive conditioning of these exemptions on future events violates Article 103(3) of the Portuguese Constitution regarding tax security and legitimate expectations. The core legal issue examines whether the Tax Authority can retroactively impose conditions on previously granted tax exemptions, essentially converting an unconditional exemption into a conditional one after the taxable event occurred. This case has significant implications for FIIAH tax planning, demonstrating tensions between fiscal policy objectives to ensure properties serve their intended social purpose and constitutional protections against retroactive taxation that undermines legal certainty in real estate investment structures.

Full Decision

ARBITRAL DECISION

I – REPORT

Request

A…, S.A., with registered office at …, n.°…, …, …-… Lisbon, registered at the Commercial Registry of Lisbon under the single registration and tax identification number … (hereinafter "Managing Entity"), 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 "Applicant"), filed, on 22-11-2016, pursuant to the provisions of section a) of no. 1 of art. 2º and art. 10º of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime of Arbitration in Tax Matters (RJAMT), a request for arbitral decision, in which AT - TAX AND CUSTOMS AUTHORITY is Respondent, hereinafter designated as Respondent, with a view to:

The declaration of nullity or, alternatively, the annulment of Municipal Property Transfer Tax assessment no.…, relating to the acquisition made on 09.12.2013, of fraction … of urban property in horizontal co-ownership registered under article … in the urban property matrix of the Union of Parishes of … and … of the municipality of Beja;
The declaration of nullity or, alternatively, the annulment of Stamp Tax assessment no.…, relating to the acquisition made on 09.12.2013, of fraction … of urban property in horizontal co-ownership registered under article … in the urban property matrix of the Union of Parishes of … and … of the municipality of Beja;
The reimbursement of amounts unduly paid relating to the contested assessments.

The Applicant alleges, in summary, the following:

With regard to the Municipal Property Transfer Tax (IMT), art. 8º, no. 7 of the Regime of Real Estate Investment Funds for Residential Rental (FIIAH) establishes:

The following are exempt from IMT:

Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residential purposes, by the investment funds referred to in no. 1;
Acquisitions of urban properties or autonomous fractions of urban properties intended for permanent own and residential purposes, as a result of the exercise of the purchase option referred to in no. 3 of art. 5º by tenants of properties that form part of the assets of the investment funds referred to in no. 1.
Law no. 83-C/2013, of 31 December, added to art. 8º of the FIIAH Regime nos. 14 to 16 with the following text:

14 - For the purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residential purposes whenever they are subject to a rental agreement for permanent residential purposes within the period of three years counted from the moment they became part of the fund's assets, the taxpayer being required to communicate and provide proof to AT of the respective actual rental within 30 days following the end of the said period.

15 - When the properties have not been subject to a rental agreement within the three-year period provided in the preceding number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, in which case the taxpayer being required to request from AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 - If the properties are transferred, with the exception of cases provided for in article 5º, or if the FIIAH is subject to liquidation, before the period provided for in no. 14 has elapsed, the taxpayer shall likewise request from AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax due pursuant to the preceding number.

The same Law established in its art. 236º the following transitional regime:

Article 236º

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

2 - Without prejudice to the provision of the preceding number, the provisions of nos. 14 to 16 of article 8º of the special regime applicable to FIIAH and SIIAH, approved by articles 102º to 104º of Law no. 64-A/2008, of 31 December, shall equally apply to properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in no. 14 being counted from 1 January 2014.

No. 14 of art. 8º above transcribed for the first time defined the meaning of the expression "urban properties intended for rental for permanent residential purposes", doing so as follows: "urban properties intended for rental for permanent residential purposes (...) are the urban properties (and autonomous fractions) that are subject to a rental agreement for permanent residential purposes within the three-year period counted from the moment they became part of the fund's assets;
Finally, article 236º (transitional provision within the special regime applicable to FIIAH and SIIAH) of Law no. 83-CI2013, of 31 December came to extend the application of the above regime "to properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in no. 14 being counted from 1 January 2014".
Based exclusively on the above provisions, the Applicant requested from the Tax Authority the assessment of IMT and stamp tax on the acquisition of the autonomous fraction identified by the letter AM of the urban property registered in the matrix under article … of the parish of … – Lisbon, resulting from this the assessment of IMT no.…, in the amount of €5.101,88, and the assessment of Stamp Tax no.…, in the amount of €1.516,00;
The assessments were made under article 8º, number 16, of the Tax Regime of FIIAH, (applicable by virtue of article 236º (Transitional Provision within the Special Regime applicable to FIIAH and SIIAH), number 2, of Law no. 83-C/2013, of 31 December;
If the Tax Regime of FIIAH had not been altered (Amendment to the tax regime of funds and companies for real estate investment for residential rental), and article 236º (Transitional Provision within the Special Regime applicable to FIIAH and SHAH), of Law no. 83-C/2013, of 31 December) the Applicant would never have requested the assessments.
Both taxes were paid on 14 July 2016;
The Applicant understands, for the reasons that it will hereinafter endeavor to explain, that the assessments are tainted by illegality for violation of the provisions of article 103º (Tax System), no. 3, of the Constitution of the Portuguese Republic and should, consequently, be declared null (or, alternatively, voidable);
IMT is a single-obligation tax;
Also Stamp Tax, when it taxes the "onerous acquisition or by donation of the right of property or of parceled figures of that right on immovable property, is a single-obligation tax.
This qualification is relevant here inasmuch as the exemptions from IMT and Stamp Tax, contained, respectively, in nos. 7, section a), and 8 of article 8º of the Tax Regime of FIIAH, were recognized at the request of Fund B…, pursuant to article 10º (Recognition of exemptions) of the IMT Code, at a moment prior to the entry of the relevant properties into the assets of Fund B….
That is to say, at the moment when the properties - subject of the assessments - entered into the assets of Fund B…, the exemptions from IMT and Stamp Tax provided, respectively, in nos. 7, section a), and 8 of article 8º of the Tax Regime of FIIAH were definitively crystallized in the tax legal order.
In fact, the fact subject to taxation is, both as regards IMT and as regards Stamp Tax, the acquisition of the property of the relevant properties by Fund B.... And,
The exemptions from IMT and Stamp Tax were not, at the date when they entered the assets of Fund B…, conditioned upon the subsequent verification of any facts or circumstances nor, furthermore, subject to any regime of lapse;
Not being legally provided for, at the moment of recognition of the exemption, any facts or circumstances upon which the lapse of the recognized exemption depends, it is manifest that the subsequent imposition of such facts or circumstances upon exemptions crystallized in the tax legal order of the Applicant is tainted by unconstitutionality, for violation of the principle of non-retroactivity of tax law, enshrined in article 103º no. 3 of the Constitution of the Portuguese Republic;
The interpretation of the principle of retroactivity, now invoked, takes into account the understanding that has been followed by the Constitutional Court according to which the prohibition of retroactivity, in the field of tax law, is directed only towards authentic retroactivity, encompassing only those cases in which the tax fact that the new law intends to regulate has already produced all its effects under the old law; excluded from its scope of application are situations of retrospectivity or improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects still continue in the present, as occurs when tax rules produce an increase in the tax burden of taxpayers in relation to tax facts that did not occur entirely in the sphere of the old law and continue to form themselves, still during the course of the same fiscal year, in the vigency of the new law (see Constitutional Court judgments no. 128/2009, 85/2010 and 399/2010, all accessible at www.tribunalconstitucional.pt);
Article 236º of Law no. 83-C/2013, of 31 December, in extending the application of the current Tax Regime of FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in no. 14 being counted from 1 January 2014" is violating in a direct and unequivocal manner the principle of non-retroactivity of tax law constitutionally enshrined. In effect, the extension established there constitutes a new regime of lapse of the exemptions provided for in nos. 7, section a) and 8 of article 8º (Tax Regime) and not merely a densification of a criterion previously provided for.
In the case sub judice there is no doubt whatsoever that the tax facts that the new law intends to regulate have already produced all their effects under the old law.
According to no. 1 of article 133º of the Administrative Procedure Code in force at the date of the assessments, "acts lacking any of the essential elements or for which the law expressly provides this form of invalidity" are null, being that no. 2 of the same provision exemplifies some situations in which this is considered verified, namely, with "acts that violate the essential content of a fundamental right - section d) of no. 2.
Making this concrete: the prevailing doctrine and the learned jurisprudence of the Supreme Administrative Court understand that not all acts that violate constitutional principles are null, only being those that violate the essential content of a fundamental right, that is, that clash with rights, freedoms and guarantees of citizens, and not those that clash with the principle of tax legality.
It is relevant to recall that the provision enshrined in article 103º, no. 3, of the Constitution of the Portuguese Republic determines that "no one can be obliged to pay taxes that have not been created in accordance with the Constitution (...)";
The fact that this constitutional provision has come to be interpreted by doctrine in the sense of establishing a right of resistance to illegal actions of the Administration is also relevant.
Considering that the principle of fiscal non-retroactivity bears the character of a fundamental right, endowed with the legal regime protective of this right, its disrespect results in the nullity of the act, in this case, the nullity of the assessments.
According to LOPES DE SOUSA, "the STA has been uniformly understanding that the unconstitutionality of norms on which the assessment was based is frameable in section a), of no. 1 of article 204º of the CPPT, as it affects the validity of the norms to which it refers, which is equivalent to their non-existence in the laws in force."
Now, pursuant to the provisions of article 102º no. 3, of the CPPT, when the ground of the challenge is nullity, judicial challenge may be deduced at any time.
The admissibility of challenging the defect of nullity without dependence on a deadline does not exclude the competence of the Arbitral Tax Court, namely, by literal interpretation of art. 10º of the RJAT.
In fact, the cited article 10º of the RJAT should not be interpreted in the sense of being exclusively applicable to situations in which acts whose challenge is subject to a deadline are at issue.
Admitting, subsidiarily, that the defect (abstract illegality) of the assessments determines their voidability (and not nullity), the assessments should be annulled accordingly, pursuant to articles 10º, no. 1, section a), of the RJAT and article 102º, no. 1, section a) of the Tax Procedure and Process Code.

Response of the Respondent

In its Response to the Applicant's request, the Respondent alleges, briefly, the following:

By way of exception:

Regardless of the defect that may be considered imputable to the assessments in question (which would be, if the same were illegal, which they are not, of mere voidability, as is explained below), the Applicant further invokes that the assessments are tainted by abstract illegality, cfr. art. 48º of the ppa.
However, should this thesis of the Applicant be accepted, then the Arbitral Court is materially incompetent to assess, in the abstract, the constitutionality of the provision in question, as petitioned.
In fact, attending to what is alleged by the Applicant, it results that the latter intends (after all) the non-application of the norm for its alleged illegality/unconstitutionality and not for any illegality occurring in its application to concrete facts.
Thus, if the issue in the present proceedings is not a situation of possible non-application of a norm for any illegality occurring in its application to concrete facts, as the Applicant now argues, but rather its own (intrinsic) illegality/unconstitutionality,
Then, it follows that the Arbitral Court does not have competence to assess this issue, since what is sought is the abstract review of the constitutionality of the norms, a matter constitutionally reserved to the Constitutional Court, pursuant to section a) of no. 2, of article 281º of the CRP.
Furthermore, on the other hand, in the context of the assessment of abstract review of constitutionality, the Respondent would always be an illegitimate party.
Because, as is well known, the Tax Administration cannot refuse to apply norms on the ground of their unconstitutionality or illegality, as it is subject to the principle of legality, as provided for in articles 266º no. 2 of the CRP, 3º no. 1 of the CPA and 55º of the LGT.
According to Gomes Canotilho/Vital Moreira "the Administration, in view of the hierarchy of sources and its direct subordination to the law, cannot refuse to apply a law or cease to comply with it by invoking or questioning its unconstitutionality".
Whence it is concluded that the claim raised by the Applicant collides with the powers of the Respondent and with its binding to the law and the Constitution, insofar as the assessment by 2, of article 281º of the CRP.
Thus, being at issue a normative act emanated from the Assembly of the Republic in the typical form of a legislative act, the Court should always declare the discharge of the Respondent from the instance, given the dilatory exception of passive illegitimacy demonstrated in the present arbitral proceedings, pursuant to articles 278º, no. 1, section d) and 576º, nos. 1 and 2 of the CPC, applicable ex vi article 29º, no. 1, section e) of the RJAT.

By way of defense on the merits:

The Applicant argues that AT should not have proceeded with the sub judice assessments, as such tax acts are based on article 236º of the Tax Regime of FIIAH, which allegedly is tainted by unconstitutionality for violation of the principle of non-retroactivity of tax law, pursuant to article 103º, no. 3 of the CRP.
However, the actions of AT, contrary to what the Applicant contends, could not have been different.
Pursuant to no. 2 of article 266º of the CRP, the Administration is obliged to act in accordance with the principle of legality, being that administrative bodies and agents do not have competence to decide on the non-application of norms in relation to which doubts about constitutionality are raised.
That is to say, bound by the principle of legality, AT cannot, by virtue thereof, disapply norms based on the interpretation it makes regarding their unconstitutionality.
Wherefore, and in sum, AT cannot refuse to apply a norm or cease to comply with the law by invoking or questioning its constitutionality, as it is subject to the principle of legality, as provided for in arts. 266º no. 2 of the CRP, 3º no. 1 of the CPA and 55º of the LGT.

Regarding the alleged unconstitutionality:

Law no. 64-A/2008, of 31 December (Budget Law for 2009), in its article 102º, approved a special regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH).
The regime provided for therein would apply to FIIAH or SIIAH constituted during the five years following the entry into force of the said law and to immovable property acquired by them in the same period.
With regard to the tax regime specifically provided for at the time, it is necessary to note, for what matters here, the provisions of article 8º, no. 7, relating to the exemption regarding IMT and article 8º, no. 8, relating to the exemption regarding Stamp Tax.
Pursuant to art. 8º, no 7, section a) the following are exempt from IMT "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residential purposes, by the investment funds referred to in no. 1".
Being applicable such exemption, by virtue of the provision of no. 1, to FIIAH constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and with observance of the conditions provided for in articles 1º to 7º of its respective legal regime.
For its part, pursuant to article 8º, no. 8, "The following are exempt from stamp tax all acts practiced, insofar as they are connected with the transfer of urban properties intended for permanent residential use that occurs due to the conversion of the right of property of such immovable property into a right of rental on the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5º"
Law no. 83-C/2013, of 31 December came to give new wording to the aforementioned article 8º, relating to the tax regime applicable to FIIAH, adding, namely, nos. 14 to 16, in the following terms:

"14 - For the purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residential purposes whenever they are subject to a rental agreement for permanent residential purposes within the period of three years counted from the moment they became part of the fund's assets, the taxpayer being required to communicate and provide proof to AT of the respective actual rental within 30 days following the end of the said period.

15 - When the properties have not been subject to a rental agreement within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, in which case the taxpayer being required to request from AT, within 30 days following the end of the said period, the assessment of the respective tax.

Furthermore, Law no. 83-C/2013, of 31 December also came to establish, in its article 236º, the following transitional provision:

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

No. 14 of article 8º of the Tax Regime of FIIAH came to concretize the meaning of the expression "urban properties intended exclusively for rental for permanent residential purposes", because, pursuant to the terms provided for therein, "it is considered that urban properties are intended for rental for permanent residential purposes whenever they are subject to a rental agreement for permanent residential purposes within the three-year period counted from the moment they became part of the fund's assets";
In tandem with such concretization, with the introduction of nos. 15 and 16 in the said article 8º, a regime of cessation of the benefit came to be provided for in the case of non-observance of the legal requirement contained in no. 14.
With regard to the property above identified, which was part of the Fund at the date of entry into force of Law 83-C/2013, of 31 December, the Applicant requested from AT the assessments of IMT and Stamp Tax, in light of the alterations introduced to the tax regime of FIIAH, in that, in 2016, the Applicant transferred it to third parties, conferring on it, thus, a destination different from that which would have been intended: residential rental.
Defending, now, the Applicant that the assessments in question are tainted by illegality for violation of the provisions of article 103º no. 3, of the CRP, and should, in consequence, be declared null.
It must be stated from the outset that the defect pointed out, for alleged violation of article 103º of the CRP, is not generative of nullity.
In fact, the sanction that falls on an invalid administrative act is its voidability (article 135º of the [former] CPA), nullity only occurring when it lacks one of its essential elements or when the law expressly sanctions it with this form of invalidity (article 133º of the [former] CPA).
This option of the legislator is perfectly understandable if we consider that the regime of nullity (which generates absolute incapacity to produce effects and the possibility of its judicial challenge at any time) has to be reconciled with the principles of certainty and stability, fundamental in administrative relations, so as not to jeopardize the effectiveness and security of this activity of the administration with its administered.
It happens that, even if the violation of the normative provision invoked by the Applicant is verified, particularly, article 103º, no. 3, of the CRP, the fact is that, as has been said, the impugned acts are only capable of annulment and never of their declaration of nullity;
And this is so because, considering that the legal provision of section d), of no 2 of article 133º of the CPA is only extendable to the violation of rights, freedoms and guarantees of Title II of Part I of the CRP, the case of the present proceedings does not have legal framework here – in this sense, cfr. judgment of the TCAN, of 03/02/2012, case: 00473/09.6BEPNF.
Finally, it is also necessary to clarify that the doctrinal citation contained in the arbitral request, by reference to the regime underlying article 204º, no. 1, section a) of the CPPT [with the heading "grounds for opposition to tax enforcement"], is manifestly out of context, resulting from this any understanding coincident with the "thesis of nullity" now defended by the Applicant;
This is because, attending not only to the short excerpt brought to the proceedings by the Applicant, but to the clarification by Jorge Lopes de Sousa on this matter, it is evident, from the start, that it is not possible to argue the defect of unconstitutionality at any time, as the Applicant contends.
In fact, from the citation indicated by the Applicant, which is reproduced below, it follows that unconstitutionality is not a defect capable of being invoked at all times, since the maximum deadline that is legally fixed is the deadline for filing opposition to tax enforcement:

"Thus, it must be concluded that, even with regard to null acts, it is within the freedom of conformity of the legislator, within constitutional limits, to define the respective regime of challenge, which does not have to be that of challengeability at any time. Therefore, if it is appropriate to attribute to the defect of abstract illegality of an assessment act the qualification of nullity, such does not imply that, legislatively, one has to ensure the possibility of its challenge at any time, being able to be, as it was, adopted the regime that results from the said arts. 203º, no. 1, and 209º, no. 1, section a), of the CPPT.

The STA has been uniformly understanding that the unconstitutionality of norms on which the assessment was based is frameable in section a) of no 1 of art. 204º of the CPPT, as it affects the validity of the norms to which it refers, which is equivalent to their non-existence in the laws in force.

However, all cases of norms whose validity is affected by violating rules of superior hierarchy are encompassed here, namely, besides constitutional norms, those of community or international law in force in Portugal and laws with reinforced value or even legislative norms of ordinary law when application is made of regulatory norms.

In these cases, even if the interested parties do not timely challenge the assessment acts, they will not be prevented from opposing the possible subsequent enforcement with the ground for such abstract illegality."

However, it is also important to note that, as the Illustrious Counselor mentions in annotation to article 124º of the CPPT, with the assessments having been paid, as occurs in the situation sub judice, it is not even possible to apply any extension of the deadline (that is, to argue unconstitutionality within the deadline for filing opposition to tax enforcement), because:

"In fact, from this provision it is concluded that the defect of unconstitutionality can be invoked as ground for opposition, as it generates illegality of the impugned act, until the end of the deadline for opposition to tax enforcement.

[...]

However, since this possibility of invoking defects beyond the deadline provided for in art. 102º, derived from the provision that provides for the grounds for opposition to tax enforcement, it will only exist in cases where there is tax enforcement, for, as is obvious, only when it exists can there be opposition. Therefore, in cases where there is no tax enforcement, because there has been voluntary payment, there will not be this extended deadline for invoking defects derived from unconstitutionality, so the rule that imposes the normal deadline will apply.

[...]

This provision, relating to the prohibition of coercive imposition of tax payment (only as to that coercive collection will someone be obliged to pay taxes) demands the admissibility of

In sum, in light of all the above, particularly attending to the cited jurisprudence, it is to be concluded that, even if there exists the defect imputable to the assessments in question, such is never generative of nullity, but only of voidability.

From the non-violation of article 103º, no. 3 of the CRP:

Firstly, it should be noted that, at the date of creation of the tax regime applicable to FIIAH, with Law no. 64-A/2008, of 31 December, the exemptions in question, both regarding IMT and regarding Stamp Tax, required, respectively:

(i) that the acquisition of the immovable property had as its exclusive destination "rental for permanent residential purposes" and,

(ii) that the transfer had as its object "properties intended for permanent residential use that occurs due to the conversion of the right of property of such immovable property into a right of rental on the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5º".

That is, the taxpayers who wished to benefit from the said exemptions, always had, from the beginning of the tax regime applicable to FIIAH, to comply with the presupposition that such properties were intended exclusively for rental for permanent residential purposes.
Wherefore, the Applicant's reasoning is without merit when it states that the exemptions in question were not conditioned by any facts or circumstances, and, consequently, the argumentation it constructs starting from such incorrect presupposition is equally affected by error.
After all, the new wording introduced by Law no. 83-C/2013, of 31 December, in favor of legal certainty and the principle of protection of legitimate expectations, and in keeping with the spirit of the legislator, when creating the regime, merely came to densify the criterion already required, stipulating "that urban properties are intended for rental for permanent residential purposes whenever they are subject to a rental agreement for permanent residential purposes within the three-year period.
It is to be concluded, thus, that, with the alterations introduced, the rationale of the established exemptions was not altered, and it should be underlined that the immediate extinction of the benefit was not determined in the case of non-celebration of the said rental agreement, since a quite extended deadline (of three years) was granted for this purpose, thereby respecting the principle of legal certainty and protection of legitimate expectations.
It being certain that, in any case, given the transfer of the properties in 2016, it results unequivocally that the Applicant could not, in any way, benefit from the exemption sought.
However, according to the Applicant, the unconstitutionality for violation of the principle of non-retroactivity of tax law would arise from the segment of article 236º, no. 2, of Law 83-C/2013, of 31 December, in determining the application of the alterations introduced "to urban properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in no. 14 being counted from 1 January 2014".
In truth - and noting without identifying what legal injury the referred provision caused to the Applicant, given that, as was seen, the transfer presupposes affectation to a destination other than rental -, given the provision of the cited normative precept, regarding properties acquired before 1 January 2014, in order to consider the affectation for permanent residential use as accomplished, there would have to be celebrated rental agreements for permanent residential purposes within the three years thereafter.
Whereby it is easily inferred that the exemptions in question did not simply cease to apply: what occurred, merely, was that criteria were established to concretize a legal requirement provided in indeterminate form.
On the other hand, and contrary to what the Applicant seems to believe, it should be noted that the cessation of a tax benefit can always take place, for example, if it is found, in a concrete case, by means of inspection, that the respective presuppositions are not met (see art. 7º no. 1 of the EBF).
Being that, as follows from article 14º, no. 1, of the EBF, "the extinction of tax benefits has as a consequence the automatic reinstatement of taxation-the rule".
To which is furthermore added the provision of article 14º, no. 2, of the EBF in which it is determined that "when the tax benefit relates to the acquisition of goods intended for the direct fulfillment of the purposes of the acquirers, it ceases to have effect if they are transferred or given another destination without authorization from the Minister of Finance, without prejudice to other sanctions or different regimes established by law".
Wherefore, all things considered and weighed, it is manifest that, from the beginning of the regime, the tax benefits in question applicable to FIIAH always depended on the affectation of the immovable property to rental for permanent residential purposes, a legal requirement that AT, within the scope of its inspection powers, could always assess, in order to conclude regarding the continuance of the benefit or, rather, the reinstatement of the rule taxation system.
Thus, being at issue the transfer of the immovable property without affectation thereof to rental for permanent residential purposes, such would always determine the lapse of the exemption, under article 14º, no. 2, of the EBF, being that article 8º, no. 16 of the regime merely came to concretize an anti-abuse measure, establishing that properties that do not remain in portfolio with exclusive affectation to residential rental were not acquired with such purpose.
Limiting, furthermore, such lapse to a period defined in the law as opposed to what occurred previously, by virtue of the application of the EBF.
The transfer of the immovable property has as a necessary consequence the lapse of the tax benefit granted for affectation to rental, immediately, by virtue of the provision of article 14º, no. 3 of the EBF, whose application (either explicitly or implicitly) not being noted therein, by even greater reason, is also not excluded.
Because, only by ignoring the legal imperative that determines the lapse of the tax benefit inherent in that article 14º, no. 3 of the EBF, is it possible to conclude that "according to the 2008 law, an immovable property could have been acquired for residential rental purposes, benefiting from the exemptions, but subsequently could have been transferred for unforeseen reasons" or further that "if it were not for the restriction introduced by no. 16, introduced by the 2013 Law, there could be no revocation or lapse of the exemptions, not even in the case of transfer of the immovable property".
In fact, being "the scope of the law to protect the rental funds and not for urban speculation", as is well referred to in the mentioned opinion (cfr. p. 22), it is not foreseen, then, how the provision of article 14º, no. 3 of the EBF can cease to be applied.
Finally, with regard to the issue of unconstitutionality, article 103º, no. 3, of the CRP provides that "No one can be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not carried out in accordance with the law".
It is an understanding endorsed by doctrine and case law that the said normative provision only prohibits authentic or proper retroactivity of tax law, encompassing only those cases in which the tax fact that the new law intends to regulate has already produced all its effects under the old law, excluding from its scope of application situations of retrospectivity or improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects still continue in the present, as occurs when the law is approved until the end of the year to which the tax corresponds (judgment of the Constitutional Court no. 399/2010).
In fact, it is true that the tax fact as regards IMT or Stamp Tax, for what matters here, is verified at the moment of acquisition of the immovable property.
However, this does not mean that, in the case of the present proceedings, one can conclude regarding the existence of a circumstance of retroactivity since the new law merely did not come to determine, and nothing more, that immovable properties previously acquired were to be subject to taxation as regards IMT and Stamp Tax.
What the new law came to do, rather, was merely to densify criteria already provided for in the old law, namely:

(i) the concept of affectation to rental for permanent residential purposes, stipulating a deadline more than sufficient for taxpayers to be able to adapt, gathering an unequivocal means of proof (rental agreement),

(ii) as well as the clarification of the situations in which the transfer of the immovable property intended for rental does not cause the exemption to lapse pursuant to what was then provided for in the EBF.

Terms in which, contrary to what the Applicant argues, there is no introduction ex novum of a regime of lapse of the benefit, and, even less is there any frustration of the expectations of taxpayers or violation of the principle of non-retroactivity of tax law.

Subsequent proceedings

By order of 16 May 2017, after obtaining the consent of the Parties, the Tribunal determined that the holding of the meeting provided for in article 18º of the RJAMT was not necessary.

The Parties were invited by the Tribunal to submit written arguments.

Arguments of the Applicant

In its arguments, the Applicant alleged, in summary:

With regard to the unconstitutionality of the provision on the basis of which the contested assessments were made, the Tax Authority argues that the alterations to the Tax Regime of FIIAH/SIIAH introduced by Law 83-C/2013, of 31 December did not come to establish a new regime of lapse of the tax benefit, but merely to densify criteria already provided for in the old law.
However, the exemptions from IMT and Stamp Tax that benefited, at the time, from the real estate investment funds for residential rental, at the moment of acquisition, were sufficient unto themselves with the acquisition for residential rental purposes, not depending on the consummation of the actual rental within a certain period nor on the non-transfer of the immovable property in that period.
Being so, the alterations to the Tax Regime of FIIAH/SIIAH introduced by Law 83-C/2013, of 31 December did indeed come to introduce new presuppositions that affect an exemption already crystallized in the legal order.
To that extent, the transitional provision that mandates the application of the regime resulting from such alterations to acquisitions occurring before the entry into force of the new provision violates the constitutional principle of prohibition of retroactivity of tax law.
As referred to in article 6º of the request for arbitral decision, the Applicant presented, in the case in question orally, a request asking for the assessment of IMT and Stamp Tax relating to the sale of the immovable property identified in the request for arbitral decision, acquired by the Applicant at a date earlier than 31 December 2013 benefiting from the exemption under "92 - FIIAH/SIIAH -Article 7 no. 7) -Acquisition by FIIAH/SIIAH (art. 87 of the Budget/09)", basing such request on the provision of article 236º (Transitional Provision within the Special Regime Applicable to FIIAH and SIIAH) provided by Law no. 83 - C/2013, of 31 December.
The assessment made was based on a declaration of the taxpayer, based exclusively on the legal provision invoked in the declaration of the taxpayer, and not on any other legal provision or interpretation of the law.
The taxpayer indicates in the request, in writing or orally, that it requests the assessment based on the provision of article 236º (Transitional Provision within the Special Regime Applicable to FIIAH and SIIAH) provided by Law no. 83 - C/2013, of 31 December.
Naturally, without the alterations to the Special Regime Applicable to FIIAH and SIIAH of Law no. 83 - C/2013, of 31 December, the Applicant would not have had to, nor would it ever have presented any request for assessment of IMT and Stamp Tax upon proceeding to the sale of the immovable property, and it is that undeniable fact of this claim.
The sole requirement of the exemption, at the date when the Applicant acquired the immovable property in question and at which such exemption was consummated, was that the properties acquired by FIIAH were intended to be rented for permanent residential purposes (cf. article 8º (Tax Regime), numbers 7 and 8 of the Tax Regime of FIIAH as worded at the date of recognition of the exemption).
Now, the alteration of the FIIAH Regime came to provide that the transfer of properties belonging to FIIAH - or the liquidation of the FIIAH itself - before the expiration of the 3 (three) year period, counted from the date of entry of the relevant properties into the assets of FIIAH, pursuant to no. 16 of article 8º (Tax Regime) of the Tax Regime of FIIAH, results in the lapse of the exemption.
These are indubitably and evidently new requirements that aim to establish a regime of lapse of exemptions non-existent at the date when the tax facts occurred and that affect an exemption already crystallized in the tax legal order of the Applicant.
Not being legally provided for, at the moment of recognition of the exemption, any facts or circumstances upon which the lapse of the exemption depends, it is manifest that the subsequent imposition of such facts or conditions upon exemptions crystallized in the tax legal order is tainted by unconstitutionality for violation of the principle of non-retroactivity of tax law.
The Applicant requested from Messrs. Professors Dr. C… and Doctor D…, the issuance of a legal opinion on the constitutionality of no. 2 of article 236º (Transitional Provision within the Special Regime Applicable to FIIAH and SIIAH) of Law no. 83-C/2013, of 31 December (cf. Doc. 3 of the Request for Arbitral Decision).
The said opinion (hereinafter briefly referred to as "Opinion") corroborates the thesis of unconstitutionality defended by the Applicant, as can be seen from the reading of the conclusions below reproduced and that should be repeated here:

Opinion of Messrs. Professors Dr. C… and Doctor D…

"CONCLUSIONS

We can now state, in summary, the conclusions to which we have arrived, already properly justified and developed throughout the Opinion.

Thus:

The Budget Law for 2009 approved the legal regime of Real Estate Investment Funds for Residential Rental (FIIAH) and, within it, a special tax regime in its article 8º, including, for what matters here, exemptions from IMT and Stamp Tax for acquisitions by FIIAH of properties and autonomous fractions intended for permanent rental for residential purposes and connected acts and contracts.
The said exemptions, from taxes due at the moment of acquisition, were sufficient unto themselves with the acquisition by FIIAH intended for residential rental purposes, not depending on the consummation of the actual rental within a certain period nor on the non-transfer of the property in that same period, the legislator having not made it incumbent on the FIIAH to bear the risk of the non-realization of the rental.
Article 235º of the Budget Law for 2014 introduced new nos. 14 to 16 in article 8º of the regime of FIIAH, which came to restrict the exemptions from IMT and Stamp Tax introduced by the Budget Law for 2009, as they subordinated the qualification of the property as intended for rental for permanent residential purposes to it being actually subject to a rental agreement for permanent residential purposes within the three-year period from the moment they became part of the fund's assets, and provided for that the said exemptions "cease to have effect" if the properties have not been subject to a rental agreement within that three-year period, the same occurring if the properties are transferred before that three-year period (except if in the exercise of the purchase option by the tenant who had previously transferred the property to the FIIAH).
The requirement introduced in the Budget Law for 2014 was not provided for in the original regime, of 2008, not resulting, namely, from the presupposition that these were acquisitions of urban properties or autonomous fractions "intended exclusively for rental for permanent residential purposes", since such destination is compatible, namely in periods of crisis in the rental market, with difficulties and delays in the realization of the rental, nothing preventing, according to the original provision of the exemption, that the immovable property should have been acquired as intended exclusively for rental for permanent residential purposes despite only coming to be rented, for example, 3 years and half or 4 years after the acquisition.
Similarly, the transfer, within the three-year period counted from the acquisition, of the immovable property that had been acquired to be intended exclusively for rental did not also prevent the application of the exemption according to its original provision - it being certain, furthermore, that only 75% of the assets of FIIAH had necessarily to be comprised of properties intended for rental (article 4º no. 1, of its respective regime).
The provision of a period for the realization of the rental is not merely a form of verification of a requirement already provided for - in which case a new law would be evidently unnecessary - but instead represents the introduction, with the three-year period, of a new presupposition for the exemption from IMT and Stamp Tax, with the effect of delimiting more restrictively the exception to the scope that results from the exemption, providing that this "ceases to have effect".
The special transitional provision contained in article 236º, no. 2, of the Budget Law for 2014, in mandating the application of the norms that restricted the exemption to acquisitions prior to its entry into force, made at a moment when the exemption was provided without such limitations, restricts the exemption from IMT and Stamp Tax as to tax facts previously exhausted, which are, for IMT and Stamp Tax respectively, the onerous transfer of immovable property and the act or contract connected with the acquisition.
The tax facts that give rise to the obligation of IMT and Stamp Tax are exhausted at the moment of their practice, being also that moment when the respective obligations to tax arise (articles 5º no. 2, and 5º, section a), respectively of the IMT Code and the Stamp Tax Code).
The provision of no. 2 of article 236º of the Budget Law for 2014 altered an essential element of the taxes in question (the exemptions, and, in consequence, the scope of the respective scope, or field of application), since it is an element upon which the very existence of the tax obligation depends (the "if" of the tax).
Article 103º, no. 3, of the Constitution of the Portuguese Republic prohibits taxes with a retroactive nature, having such prohibition, introduced in 1997, come to make clear that the legislator is not permitted to provide or alter in its essential elements taxes that apply to facts already exhausted at the moment of entry into force of the law - that is, that are authentically retroactive.
The wording of article 103º, no. 3, introduced in 1997 resulted in that, subsequently to 1997, and applying the new constitutional parameter, the Constitutional Court has come to decide in the sense of the unconstitutionality of norms that create or alter in its essential elements taxes for facts that were completed prior to their entry into force (authentic retroactivity, as opposed to mere retrospectivity or inauthentic retroactivity).
As can be read in Judgment no. 128/2009, of the Constitutional Court, "having been established the general principle of non-retroactivity of tax law, the mere retroactive nature of a disadvantageous tax law for individuals is sanctioned, automatically, by the Constitution, whatever has been, in the concrete, the conduct of the tax administration or of the taxed individual. In other words, the judgment of unconstitutionality results only from the mere analysis of the normative data, not depending, at any moment, on the verification of any circumstantial elements that result from the condition, in the concrete, of a certain tax legal relationship".
The provision of article 236º, no. 2, of the Budget Law for 2014 is an authentically retroactive provision, as it orders the application of the new presuppositions of the exemptions - rental and non-transfer within a 3-year period, on pain of these "ceasing to have effect" - to acquisitions and to acts (that is, to tax facts) prior to its entry into force and that were completed before this.
To this does not stand in the way the argument in the sense that the said restriction of the exemption by the provision of the deadlines would have only aimed to verify the purpose of rental of the acquisitions, since such presupposition of the exemption was not previously concretized and embodied in the law, at the moment when the relevant tax facts (the acquisition of the immovable property and the acts and contracts connected) were completed.
For this same reason, the qualification of the provision of article 236º, no. 2, of the Budget Law for 2014 as an interpretive provision would be without merit, since the presuppositions it added to the exemptions were not previously provided for.
It is irrelevant that it is provided in article 236º no. 2, of the Budget Law for 2014 that the three-year period is only counted from the entry into force of that, since such presupposition of the exemption (the period) was not even required at the moment when the relevant tax facts were practiced.
Article 236º, no. 2, of the Budget Law for 2014 is unconstitutional, for violation of article 103º, no. 3, of the Constitution of the Portuguese Republic, in providing that the provisions of the new nos. 14 to 16 of article 8º of the legal regime of FIIAH, which alter and restrict the exemptions previously provided for in nos. 7 and 8º of that same article, is "equally applicable to properties that have been acquired by FIIAH before 1 January 2014"."

The Applicant believes, thus, that there will be no doubt about the unconstitutionality of no. 2 of article 236º (Transitional Provision within the Special Regime Applicable to FIIAH and SIIAH) of Law no. 83-C/2013, of 31 December, the provision on which, recall, the assessments challenged in this arbitral proceeding are based. And, it being so, it is necessary to conclude that such assessments are defective (abstract illegality of the assessments).
In the same sense, see the arbitral decision of the CAAD in case 683/2015-T, in all respects similar to the present proceedings, which is given here as fully reproduced.
The Tax Authority argues in its Response that in the Portuguese administrative-legal system, the rule regime of invalidity of administrative acts is mere voidability citing established case law in various Judgments of the Supreme Administrative Court.
The Applicant is aware of the learned administrative case law on the matter.
It contends, however, that only nullity can be seen as the consequence admitted for the practice of an administrative act based on a rule declared unconstitutional, for otherwise it would be permitted that such a rule would produce its effects in a permanent manner in the legal order making irrelevant its own unconstitutionality.
It is not, however, this the opportunity or the occasion to deepen this debate, since the result of the same is irrelevant to the issue at hand, whether nullity or voidability is the consequence of unconstitutionality.
Suffice it to say that the application of a materially unconstitutional rule, or the maintenance of acts that have it as a ground, based on the untimeliness of the assertion of the defect, would go against the most basic principles of the legal system and would permit the gross violation of constitutionally established rights (right to non-retroactivity of fiscal matters, right to private property, etc.).
Wherefore it appears that the acts should be considered non-existent (or, at the very least, null) the tax acts practiced in execution or on the basis of legal provisions that are unconstitutional.

II – CLARIFICATION OF ISSUES

The Arbitral Tribunal was regularly constituted on 07-02-2017, with the arbitrator having been designated by the Deontological Council of the CAAD, with the respective legal and regulatory formalities fulfilled (articles 11º, no. 1, sections a) and b) of the RJAMT and 6º and 7º of the CAAD Code of Deontology).

The Parties have legal personality and capacity, are legitimate and are regularly represented, pursuant to articles 4º and 10º of the RJAMT and article 1º of Ordinance no. 112-A/2011, of 22 March.

The joinder of claims is admissible under art. 3º of the RJAT, since the judgment on the validity of both the assessment of municipal property transfer tax and the assessment of stamp tax depends essentially on the assessment of the same circumstances of fact and the interpretation and application of the same principles and rules of law.

No procedural nullities were identified.

III – ISSUES TO BE DECIDED

The issues to be decided by the Tribunal are:

Whether the exception regarding material incompetence of the Arbitral Tribunal is well-founded
Whether the exception regarding passive illegitimacy of the Respondent is well-founded
The unconstitutionality of the transitional regime established in article 236º, no. 2 of Law 83-C/2013, of 31 December, which provides:

"2 — Without prejudice to the provision of the preceding number, the provisions of nos. 14 to 16 of article 8º of the special regime applicable to FIIAH and SIIAH, approved by articles 102º to 104º of Law no. 64 -A/2008, of 31 December, shall equally apply to properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in no. 14 being counted from 1 January 2014."

In case of a decision in the sense of the unconstitutionality of the said provision, if such unconstitutionality has as its effect the nullity or voidability of the assessments made on its basis.
In case of a decision in the sense of the unconstitutionality of the said provision and the consequent declaration of invalidity of the contested assessments, if such invalidity results for the Respondent AT – Tax and Customs Authority the obligation to pay to the Applicant indemnity interest, pursuant to art. 43º of the General Tax Law.

IV – FACTS FOUND TO BE PROVEN

The following are the facts found to be relevant for the decision:

On 25 August 2016, "B… — CLOSED REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL, of which the Applicant is the manager, requested from the Respondent the assessment of IMT, pursuant to art. 8º, no. 16 of the Special Regime Applicable to Real Estate Investment Funds for Residential Rental, with reference to the purchase made by the same on 09.12.2013, of fraction … of urban property in horizontal co-ownership registered under article … in the urban property matrix of the Union of Parishes of … and … of the municipality of Beja.
On 25 August 2016, the Respondent AT- Tax and Customs Authority issued an assessment of IMT on the said acquisition, having determined tax in the amount of 10,456.88 euros.
Also on 25 August 2016, the Respondent issued an assessment of Stamp Tax on the said acquisition, having determined tax in the amount of 2,128.00 euros.

The facts found to be proven were so found based on documentary evidence in the proceedings and furnished by the Parties.

V - GROUNDS

Exception of Material Incompetence of the Arbitral Tribunal

In paragraphs 47º and 48º of the request for arbitral decision, the Applicant states:

"there will be no doubt about the unconstitutionality of no. 2 of art. 236º of Law 83-C/2013, of 31 December, provision on which, recall, the assessments are based. And it being so, it is necessary to conclude that such assessments are defective (abstract illegality)."

In formulating the request, the Applicant states:

"(..) must:

Be declared the nullity of the assessments based on their unconstitutionality (abstract illegality)"

For its part, in its response, the Respondent states:

"Regardless of the defect that may be considered imputable to the assessments in question (...), the Applicant further invokes that the assessments are tainted by abstract illegality. However, should this thesis of the Applicant be accepted, then the Arbitral Court is materially incompetent to assess, in the abstract, the constitutionality of the provision in question, as petitioned."

Attending to what is alleged by the Applicant, it appears that the latter intends (after all) the non-application of the norm for its alleged illegality/unconstitutionality and not for any illegality occurring in its application to concrete facts.

Now, it happens that the Constitutional Court is the competent forum to know of either the illegality or the unconstitutionality of legal norms [arts. 280º, no. 2, sections a) and d) and 281º, no. 1, sections a) and b) and no. 3 of the CRP and arts. 6º and 66º of the Law of the Constitutional Court].

Thus, if the issue in the present proceedings is not a situation of possible non-application of a norm for any illegality occurring in its application to concrete facts, as the Applicant now argues, but rather its own (intrinsic) illegality/unconstitutionality, then, it follows that the Arbitral Court does not have competence to assess this issue, since what is sought is the abstract review of the constitutionality of norms, a matter constitutionally reserved to the Constitutional Court, pursuant to section a) of no. 2, of article 281º of the CRP.

The concept of abstract illegality is referred to in art. 204º of the CPPT.

Doctrine and case law have developed the concept of "absolute or abstract illegality" (see, among many others, the judgments of the STA of 09-04-2014, case no. 076/14; TCAS of 12-06-2014, case 07309/14; TCAS of 27-09-2011, case 4733/11).

According to that case law, abstract illegality does not reside directly in the act that applies the law to the concrete case, but rather in the law itself whose application is made (STA 09-04-2014, case no. 076/14), the existence of the defect not being dependent on the real situation to which the law was applied nor on the circumstances in which the act was practiced (TCAS, 31-05-2005, case no. 439/05).

Within this concept of abstract illegality fall all cases of acts that apply norms that violate rules of superior hierarchy, namely, besides constitutional norms, those of community or international law in force in Portugal or even legislative norms of ordinary law when application is made of regulatory norms (STA 09-04-2014, case no. 076/14).

On the other hand, the abstract review of the constitutionality of norms, provided for in art. 281º of the Constitution of the Portuguese Republic (CRP), is characterized by taking place apart from any concrete case, the question of constitutionality forming the main subject of the proceedings. This review of constitutionality falls exclusively, in fact, to the Constitutional Court.

Alongside the abstract review of the constitutionality of norms, the Portuguese system of review of constitutionality includes, in art. 280º, no. 1 of the CRP, the concrete review of constitutionality. The concrete review of constitutionality, which falls to courts in general, including arbitral courts, is characterized by being incidental in relation to a dispute that bears on a concrete case. That is, the concrete review of constitutionality in deciding a dispute on a concrete case is based on a judgment that is made on the constitutionality or unconstitutionality of a legal norm that is applicable to that dispute and on which the fate of the same depends.

As has been stated, the concrete review of constitutionality falls to any and all courts, as per articles 204º and 280º, no. 1 of the CRP, where it is provided that any court may refuse to apply any norm on the ground of its unconstitutionality or apply a norm whose unconstitutionality has been raised during the proceedings.

Thus it can be seen, without need for further development, that concrete review of constitutionality encompasses the assessment of the abstract illegality of the administrative act to the extent that such assessment is directed at deciding a concrete case, related to the administrative act in question, applying or disapplying the legal norm on which it is founded, by reason of a judgment regarding the constitutionality of that norm (and not to declare the constitutionality or unconstitutionality of the norm, as is the competence in the case of abstract review of constitutionality).

There is, therefore, no possible confusion between "abstract review of constitutionality", which is the exclusive competence of the Constitutional Court, and "control of the abstract illegality" of the administrative act, which falls to administrative courts and to arbitral courts in administrative and tax matters and which may, or may not, imply an assessment of the constitutionality of the norm applied to the concrete case.

In the concrete case, the assessment of the legality of a tax assessment act falls within the competence of arbitral tax courts by force of art. 2º, no. 1, section a) of the RJAT.

The exception of incompetence of the arbitral court is, therefore, without merit.

Exception of Passive Illegitimacy of the Respondent

The respondent further alleges the exception of its passive illegitimacy in the following terms:

"Furthermore, on the other hand, in the context of the assessment of abstract review of constitutionality, the Respondent would always be an illegitimate party.

Because, as is well known, the Tax Administration cannot refuse to apply norms on the ground of their unconstitutionality or illegality, as it is subject to the principle of legality, as provided for in articles 266º no. 2 of the CRP, 3º no. 1 of the CPA and 55º of the LGT"

The exception of passive illegitimacy is also founded, as is apparent from the reading of the transcribed excerpts, on the presupposition that the request for arbitral decision seeks an abstract review of the constitutionality of a norm and that, in assessing such a request, the arbitral court would be carrying out an abstract control of the constitutionality of a norm.

We have already demonstrated that this is not so.

We are faced with a judicial proceeding (as per art. 97º of the Tax Procedure and Process Code) to challenge a tax act, on the basis of its abstract illegality, which will result, in case of assessment of the merits of the case, in an incidental, concrete control of constitutionality, which falls to all courts pursuant to art. 204º of the CRP.

Being so, the Respondent AT- Tax and Customs Authority is a legitimate party in the proceedings pursuant to art. 10º nos. 1 and 2 of the Code of Procedure in Administrative Courts, applicable to the present arbitral proceedings by force of art. 29º, no. 1, section c) of the RJAT.

The exception of passive illegitimacy of the Respondent is, therefore, without merit.

The Unconstitutionality of the Transitional Regime Established in Article 236º, no. 2 of Law 83-C/2013, of 31 December

3.1) The Norms in Question

The Budget Law for 2009 (Law no. 64-A/2008, of 31 December), in its article 102º, approved the "special regime applicable to real estate investment funds for residential rental and to real estate investment companies for residential rental" (hereinafter Special Regime of FIIAH and SIIAH)

Article 8º of this regime established the tax regime applicable to these entities.

Numbers 7 and 8 of the said article 8º established exemptions from IMT and Stamp Tax, in the following terms:

"7 — The following are exempt from IMT:

Acquisitions of urban properties or fractions of urban properties intended exclusively for rental for permanent residential purposes, by the investment funds referred to in no. 1;
Acquisitions of urban properties or fractions of urban properties intended for permanent own and residential purposes, as a result of the exercise of the purchase option referred to in no. 3 of article 5º by tenants of properties that are part of the assets of the investment funds referred to in no. 1."

8 - The following are exempt from stamp tax all acts practiced, insofar as they are connected with the transfer of urban properties intended for permanent residential purposes that occurs due to the conversion of the right of property of such immovable property into a right of rental on the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5º"

There is no doubt that there exists in these legal provisions a problem of a high degree of indeterminacy.

Attending particularly to section a) of no. 7, which speaks of "acquisitions of urban properties or fractions of urban properties intended exclusively for rental for permanent residential purposes", one must ask how the interpreter of the law should understand the expression "intended exclusively for rental for permanent residential purposes".

Literally, the expression means that the acquirer of the immovable property acquires it for, ie with the purpose of affecting it to rent to permanent residential purposes.

The rationale of this provision, which establishes a tax benefit, is to promote the rental of permanent residential purposes, of which there is also no doubt.

Therefore, it seems obvious that only the Fund (FIIAH) that acquires an immovable property with the purpose of renting it for permanent residential purposes can benefit from the exemptions (from IMT and Stamp Tax).

The question that arises next is: how is this final condition assessed?

How is it, at the moment when the provision must be applied – the moment immediately prior to acquisition, pursuant to art. 22º of the CIMT and art. 23º, no. 4 of the CIS – that the one applying the provision assesses the purpose of the acquisition?

The legal provision, in its original wording, did not say how to assess this purpose.

This concretization of the legal formula came to be made only with the Budget Law for 2014 (Law 83-C/2013, of 31 December), which modified the said article 8º of the special regime applicable to real estate investment funds for residential rental and to real estate investment companies for residential rental, adding thereto numbers 14 to 16, with the following wording:

"14 — For the purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residential purposes whenever they are subject to a rental agreement for permanent residential purposes within the three-year period counted from the moment they became part of the fund's assets, the taxpayer being required to communicate and provide proof to AT of the respective actual rental within 30 days following the end of the said period.

15 — When the properties have not been subject to a rental agreement within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 shall cease to have effect, in which case the taxpayer being required to request from AT, within 30 days following the end of the said period, the assessment of the respective tax.

16 — If the properties are transferred, with the exception of cases provided for in article 5º, or if the FIIAH is subject to liquidation, before the period provided for in no. 14 has elapsed, the taxpayer shall likewise request from AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax due pursuant to the preceding number."

From this law on, the problem of when an immovable property acquired by a FIIAH can be considered as "intended exclusively for permanent rental purposes" was solved.

However, since, in general, the law only provides for the future, this provision did not, by itself, solve the problem regarding immovable property acquired by FIIAH prior to 1 January 2014, the date on which Law 83-C/2013, of 31 December would enter into force.

To solve the problem of these cases, the same Law 83-C/2013, of 31 December established, in its article 236º, the following transitional regime:

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

2 — Without prejudice to the provision of the preceding number, the provisions of nos. 14 to 16 of article 8º of the special regime applicable to FIIAH and SIIAH, approved by articles 102º to 104º of Law no. 64 -A/2008, of 31 December, shall equally apply to properties that have been acquired by FIIAH before 1 January 2014, in which cases the three-year period provided for in no. 14 being counted from 1 January 2014."

What the Tribunal must assess is the conformity of the part of the transitional regime corresponding to no. 2 of art. 236º with the principle of prohibition of retroactivity of tax laws enshrined in art. 103º, no. 3 of the CRP.

3.2) The Various Degrees of Retroactivity and Their Regime in Light of the Rule of Prohibition of Retroactivity of Tax Laws Enshrined in Art. 103º, No. 3 of the CRP

Doctrine and case law have addressed the question of retroactivity of tax laws based on the concept that there are various degrees of retroactivity and that not all merit the same treatment in light of the principle of legal certainty and the legality of taxes.

Retroactivity of the first degree (perfect or proper), occurs when the tax fact that the new law intends to regulate has already produced all its effects under the old law at the moment when the new law enters into force (TC, judgment no. 128/2009; TC judgment no. 85/2010; STA, 14-02-2013, case no. 1375/12).

Retroactivity of the second degree (imperfect or improper) occurs when the tax fact that the new law intends to regulate occurred, in its entirety, ie was consolidated, under the force of the old law, but its tax effects are produced or continue to be produced in the sphere of the new law (STA, 14-02-2013, case no. 1375/12).

Retroactivity of the third degree takes place when at issue is a tax fact of successive or continuing formation and that was not completely formed in the force of the old law, but continues to form in the force of the new law (TC judgment no. 128/2009, TC judgment no. 85/2010 and TC judgment no. 399/2010).

The Constitutional Court has come to follow the understanding that the prohibition of tax retroactivity only reaches authentic retroactivity, encompassing only cases in which the tax fact that the new law intends to regulate has already produced all its effects under the old law, excluding from its scope of application situations of retrospectivity or improper retroactivity, that is, those situations in which the law is applied to past facts but whose effects still continue in the present (TC judgment no. 617/202; TC judgment no. 128/2009; TC judgment 85/2010).

It is important therefore to try to distinguish, as clearly as possible, situations of proper retroactivity from situations of "non-proper" retroactivity in order to apply them to the case at hand.

At this point, we believe that the doctrinal contribution that goes furthest remains that of CARDOSO DA COSTA. This Author understands that "the demarcation line of the scope of tax retroactivity constitutionally admissible will, from the start, be the distinction between 'permanent' and 'periodic' tax situations and 'facts' whose tax effectiveness is exhausted or established 'instantaneously', for each of them 'per se' (particularly, by the distinction between 'periodic taxes' and 'single-obligation taxes')" (CARDOSO DA COSTA, "O Enquadramento Constitucional do Direito dos Impostos em Portugal", in Perspectivas Constitucionais nos 20 anos da Constituição, Vol. II, Coimbra, 1997, p. 418).

To demarcate proper retroactivity from "non-proper" retroactivity one must look, as a starting point, to the fundamental distinction between "tax fact of successive formation", referred to in no. 2 of art. 12º of the LGT, and its opposite, "tax fact of instantaneous formation" (and not, in our opinion, and with due respect to differing opinions, to the distinction between single-obligation taxes and periodic taxes).

A tax fact of instantaneous formation is a tax fact that occurs in a precise moment and of a single time. For example, the tax fact of the Municipal Property Transfer Tax consists of the onerous acquisition of an immovable property. As a general rule, the onerous acquisition of an immovable property, for tax purposes, occurs instantaneously, occurs in a precise moment and of a single time, by means of a contract.

A tax fact of successive formation is, by contrast, a complex fact that forms over a period of time. For example, in the Personal Income Tax, the tax fact is, as a general rule, for resident taxpayers, the annual income. Annual income begins to form on January 1 and is completed on December 31 of each year.

This bipartition between tax facts of successive formation and of instantaneous formation does not totally solve the problem of the distinction between various degrees of retroactivity. There are "gray" situations, to which it can be difficult to apply this distinction. But still, we think that only it furnishes us with a solid point of departure to distinguish proper retroactivity and "non-proper" retroactivity (including in this last designation both retroactivity of the second and third degree).

3.3) Application of the Previous Concepts to the Concrete Case

3.3.1) Application to no. 7 of art. 8º of the Tax Regime of FIIAH

In the case of the present proceedings, at issue is an exemption from IMT and an exemption from stamp tax, provided respectively in no. 7 and no. 8 of art. 8º of the "special regime applicable to real estate investment funds for residential rental and to real estate investment companies for residential rental" (approved by art. 102º of Law no. 64-A/2008, of 31 December).

The exemption from IMT concerns the tax fact provided for in art. 2º, no. 1 of the CIMT, according to which "IMT applies to onerous transfers of the right of property or of parceled figures of that right, over immovable property situated in the national territory."

There is no doubt that the onerous transfer of the right of property, namely through a purchase and sale contract, is verified instantaneously, ie in a precise moment, the moment when the contract becomes perfect by which the transfer of property is made. It is, therefore, a tax fact of instantaneous formation.

Therefore, if a new law intends to aggravate the taxation on an acquisition of immovable property that has already been consummated before the entry into force of the new law, we would be faced with a situation of proper or authentic retroactivity.

However, although the exemption from IMT at issue relates to the tax fact provided for in art. 2º, no. 1 of the CIMT, the provision of the exemption does not have for its object precisely the same tax fact.

The exemption from IMT applies to "acquisitions of urban properties or fractions of urban properties intended exclusively for rental for permanent residential purposes".

It is apparent that the tax fact to which the exemption applies is not exactly the same tax fact to which the tax applies, since not all onerous acquisitions of immovable property subject to IMT become exempt under art. 8º, no. 7 of the special regime applicable to real estate investment funds for residential rental and to real estate investment companies for residential rental, but only "acquisitions of urban properties or fractions of urban properties intended exclusively for rental for permanent residential purposes".

The tax fact "acquisition of an urban property intended exclusively for rental for permanent residential purposes" is not completed with the mere acquisition of the property, but requires that to that acquisition is added a certain economic use, which is the rental for permanent residential purposes, and that such economic use is verified with the exclusion of any other. Therefore, we are faced with a tax fact that necessarily forms over time.

It is certain that tax facts of successive formation must be defined rigorously in their temporal dimension, which did not happen in the case. But it is also unquestionable that the tax fact does not occur instantaneously. The tax fact can only be considered verified when there exist objective elements that allow one to say that the property was intended for rental for permanent residential purposes.

This is the reason why, with due respect, we depart from the thesis of the Applicant (defended in paragraph 36º of the p.p.a.) that "at the moment when the properties subject of the assessments entered into the assets of Fund B…, the exemptions from IMT and Stamp Tax provided, respectively, in nos. 7, section a) and 8 of art. 8º of the Tax Regime of FIIAH were definitively crystallized in the legal order".

The tax effects of the tax fact "acquisition", in our opinion, were not crystallized at the moment when the acquisition occurs, since the tax fact provided for in the provision of the exemption could not be considered totally verified, because the property had not been intended, still at that moment, for rental for permanent residential purposes. In fact, the destination of the property for rental for permanent residential purposes cannot be considered verified with a mere declaration on the form of assessment of the tax.

Since "intended for rental" means that rental is the affectation one intends to give in the future, not the one that already exists, the condition that fulfills the provision of the exemption provision – purpose of rental for permanent residential purposes – can never be considered definitively verified at the moment when the exemption is requested, rather it must be verified continuously in time after the acquisition.

It is also at this point that we essentially disagree with the learned opinion of Messrs. Doctors C… and D…, filed by the Applicant to the proceedings.

The learned opinion states that "the application, by force of no. 2 of art. 236º of the Budget Law for 2014, of the restrictions of the exemptions from IMT and Stamp Tax to acquisitions of immovable property prior to the entry into force of such restrictions raises more complex questions. In fact, such transitional provision, in mandating the application of the norms that restricted the exemptions – first, by introducing a new deadline as its presupposition – to acquisitions prior to its entry into force, made at a moment when the exemption was provided without it being limited by such deadline, (but only by a purpose for rental assessed at the moment of acquisition and, in any case, not dependent on that at any deadline, applies these restrictive norms of the exemptions to tax facts not only prior but already exhausted."

It is affirmed here that, before the entry into force of nos. 14 to 16 of art. 8º of the "Tax Regime of FIIAH", the exemption (from IMT, as we understand) was only conditioned "by a purpose assessed at the moment of acquisition and not dependent on the actual realization of the rental within any deadline".

The question is, with the law not expressly saying that the exemption was conditioned to a purpose assessed at the moment of acquisition, and being, therefore, this affirmation the fruit of an interpretation, whether this interpretation has support.

In our opinion, with due respect, such interpretation of the exemption provision does not have support.

From the start because there is no way to "assess" the destination to rental for permanent residential purposes at the moment of acquisition. Such "assessment" at the moment of acquisition is a pure fiction. The destination exclusively to rental for permanent residential must be real, presupposing that there is affectation to rental for permanent residential purposes or that, at the very least, availability for such affectation.

And it is for this reason that we understand, contrary to the learned opinion, that such assessment, by not...

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Frequently Asked Questions

Automatically Created

What are the IMT and Stamp Tax exemptions available to FIIAH real estate investment funds for permanent housing rental?

FIIAH real estate investment funds benefit from IMT exemption under Article 8(7)(a) for acquisitions of urban properties or autonomous fractions intended exclusively for permanent residential rental, and Stamp Tax exemption under Article 8(8) for the same acquisitions. These exemptions also extend to acquisitions by tenants exercising purchase options. However, Law 83-C/2013 conditioned these exemptions on properties being actually rented within three years from entering the fund's assets.

What is the three-year deadline for FIIAH funds to execute a permanent housing lease contract under Article 8 of the FIIAH regime?

Article 8(14) of the FIIAH regime, as amended by Law 83-C/2013, establishes that urban properties are considered intended for permanent residential rental when subject to a rental agreement within three years from entering the fund's assets. The taxpayer must communicate and prove actual rental to the Tax Authority within 30 days after this three-year period expires. For properties acquired before 1 January 2014, Article 236(2) establishes that the three-year period counts from 1 January 2014.

Can the Tax Authority revoke IMT and Stamp Tax exemptions if a FIIAH property is not rented within the legal timeframe?

Yes, under Article 8(15) of the FIIAH regime, if properties are not subject to rental agreements within the three-year period, the IMT and Stamp Tax exemptions cease to have effect retroactively. The taxpayer must request tax assessment from the Tax Authority within 30 days after the period expires. Similarly, under Article 8(16), if properties are transferred before the three-year period elapses (except tenant purchases) or if the FIIAH is liquidated, tax assessment must be requested before the transfer or liquidation.

How does CAAD arbitration process 694/2016-T apply to disputed IMT and Stamp Tax assessments on FIIAH fund acquisitions?

Case 694/2016-T involves a FIIAH fund challenging IMT assessment no.… (€5,101.88) and Stamp Tax assessment no.… (€1,516.00) related to a December 2013 property acquisition. The fund argues these assessments, made under Article 8(16) due to retroactive application of Law 83-C/2013's three-year rental requirement via transitional Article 236(2), violate constitutional principles. The fund contends that exemptions were definitively crystallized at acquisition since IMT and Stamp Tax are single-obligation taxes, and retroactive conditioning violates Article 103(3) of the Portuguese Constitution regarding tax certainty and legitimate expectations.

What proof must FIIAH funds submit to the Portuguese Tax Authority to maintain their IMT and Stamp Tax exemption status?

Under Article 8(14) of the FIIAH regime, funds must communicate and provide proof to the Portuguese Tax Authority of actual rental for permanent residential purposes within 30 days following the end of the three-year period from when properties entered the fund's assets. This proof must demonstrate that rental agreements for permanent residential purposes were executed within the legal timeframe. Failure to provide this proof within the deadline triggers the obligation to request tax assessment under Article 8(15), resulting in loss of the IMT and Stamp Tax exemptions previously granted.

FIIAH Real Estate Fund IMT and Stamp Tax Exemptions: CAAD Arbitration on Housing Lease Requirements

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

Request

Response of the Respondent

Subsequent proceedings

Arguments of the Applicant

II – CLARIFICATION OF ISSUES

III – ISSUES TO BE DECIDED

IV – FACTS FOUND TO BE PROVEN

V - GROUNDS

Exception of Material Incompetence of the Arbitral Tribunal

Exception of Passive Illegitimacy of the Respondent

The Unconstitutionality of the Transitional Regime Established in Article 236º, no. 2 of Law 83-C/2013, of 31 December

Frequently Asked Questions

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FRESH Legal Group

Table of Contents

FIIAH Real Estate Fund IMT and Stamp Tax Exemptions: CAAD Arbitration on Housing Lease Requirements

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I – REPORT

Request

Response of the Respondent

Subsequent proceedings

Arguments of the Applicant

II – CLARIFICATION OF ISSUES

III – ISSUES TO BE DECIDED

IV – FACTS FOUND TO BE PROVEN

V - GROUNDS

Exception of Material Incompetence of the Arbitral Tribunal

Exception of Passive Illegitimacy of the Respondent

The Unconstitutionality of the Transitional Regime Established in Article 236º, no. 2 of Law 83-C/2013, of 31 December

Frequently Asked Questions

Tags

FRESH Legal Group

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