Process: 7/2017-T

Date: July 6, 2017

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

CAAD Process 7/2017-T addresses the constitutionality of Article 236 of Law 83-C/2013, which established an expiry regime for IMT and Stamp Duty exemptions previously granted to Real Estate Investment Funds for Residential Leasing (FIIAH). The claimant, managing a FIIAH, challenged assessments of €763.13 (IMT) and €610.50 (Stamp Duty) on a property transfer, arguing that tax exemptions under Article 8(7)(a) and 8(8) of the FIIAH regime had definitively crystallized upon acquisition and could not be retroactively revoked. The fund alleged Article 236 violates Article 103(3) of the Portuguese Constitution by prohibiting retroactive tax laws, rendering the assessments null or voidable. The Tax Authority raised preliminary objections arguing CAAD lacks material jurisdiction to assess constitutionality (reserved to the Constitutional Court) and that it lacks passive standing for abstract constitutional review. On the merits, the AT defended that Article 236 merely established a compliance timeframe for pre-existing requirements rather than creating new conditions, as FIIAH benefits always depended on allocating properties to permanent residential leasing. The AT argued it was legally bound to apply the rule despite constitutional doubts, and that even if unconstitutional, no compensatory interest would be due. This case presents critical issues regarding the temporal scope of tax benefits, the limits of CAAD jurisdiction in constitutional matters, and whether compliance deadlines for tax exemptions constitute impermissible retroactive legislation.

Full Decision

ARBITRAL AWARD

1. REPORT

1.1.A…, S.A., in its capacity as manager of B… – Real Estate Investment Fund Closed for Residential Leasing, taxpayer no. …, with registered office at …, no. … – …º, … – … Lisbon, hereinafter referred to as Claimant, filed on 03/01/2017 a request for arbitral award, in which it seeks that the nullity of the assessments of Tax on Onerous Real Estate Transfers (IMT), no. … and Stamp Duty, no. …, be declared, or, alternatively, their annulment and reimbursement of the amounts of tax paid, plus compensatory interest.

1.2.The Illustrious Mr. President of the Deontological Council of the Administrative Arbitration Center (CAAD) designated Francisco Nicolau Domingos as arbitrator on 27/02/2017.

1.3.The arbitral tribunal was constituted on 20/03/2017.

1.4.In compliance with the provisions of articles 17(1) and (2) of Decree-Law no. 10/2011 of 20 January (RJAT), the Respondent was notified on 21/03/2017 to, if so desired, file a reply, request the production of additional evidence and to submit the administrative file (AF).

1.5.On 26/04/2017 the Respondent filed its reply, in which it raises the lack of material jurisdiction of the arbitral tribunal and its lack of passive standing and contends for the dismissal of all claims filed by the Claimant.

1.6.On 08/06/2017 the tribunal invited the Claimant to make submissions regarding the preliminary objections.

1.7.On 19/06/2017 the Claimant made submissions for the dismissal of the preliminary objections, given that its claim consists of the declaration of nullity or alternatively the voidability of the assessments, on the ground that they are based on the application of a rule that violates the Constitution of the Portuguese Republic (CRP) and the law.

1.8.On 19/06/2017, the tribunal considered that the preliminary objections could be addressed in the arbitral award and decided to waive the hearing referred to in article 18(1) of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in conducting the proceedings and in determining the rules to be followed with a view to obtaining, within a reasonable timeframe, a substantive ruling on the claims filed, see article 16(c) of the RJAT, granted 8 days for the parties, if so desired, to file final written submissions and set a date for rendering the arbitral award.

1.9.On 21/06/2017, the Respondent filed its submissions in which it contends for the recognition of preliminary objections regarding the lack of material jurisdiction of the arbitral tribunal and lack of passive standing, and alternatively, for the dismissal of all claims.

2. POSITIONS OF THE PARTIES

The Claimant begins by alleging that, as a result of the legislative amendment made by Law no. 83-C/2013 of 31 December – article 236(2), it requested from the Tax Authority and Customs Authority (AT) the assessment of IMT and Stamp Duty resulting from the transfer by B… – Real Estate Investment Fund Closed for Residential Leasing of the property that is the subject of these proceedings, having been assessed at €763.13 for IMT and €610.50 for Stamp Duty.

Subsequently, it alleges the illegality of the assessments, given that they apply an unconstitutional rule, which leads to its nullity, or, should that not be accepted, to its voidability. To justify this claim it alleges that, with the entry of the property into the Claimant's patrimony, the exemptions from IMT and Stamp Duty, provided in article 8(7)(a) and 8(8) of the legal regime of Real Estate Investment Funds for Residential Leasing (FIIAH), became definitively crystallized in the legal order, in that, at the date of acquisition, they were not conditioned by the subsequent verification of any facts or circumstances, nor to any expiry regime.

Therefore, it adds that the assessments apply an unconstitutional rule, article 236 of Law no. 83-C/2013 of 31 December, which violates the principle of prohibition of retroactivity of tax law, provided for in article 103(3) of the CRP, given that it creates a regime of expiry of the exemptions provided for in article 8(7)(a) and 8(8) of the legal regime of FIIAH and not a specification of a criterion previously established.

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

The Respondent, in its reply, defends itself by exception, arguing that the situation in these proceedings is not a situation of possible non-application of a rule due to any illegality occurring in its application to concrete facts, but the very illegality/unconstitutionality, a matter which the arbitral tribunal does not have jurisdiction to know, given that it is reserved to the Constitutional Court, so that such preliminary objection would prevent the continuation of the proceedings.

It further sustains in this regard that the claim for abstract review of constitutionality collides with the powers of the Respondent and with its binding to the law and the CRP and, as such, there is lack of passive standing which should equally determine the dismissal of the case.

It defends itself by impugnation when it states that the principle of legality to which the Administration is bound prohibits administrative bodies and agents from failing to apply rules regarding which doubts of constitutionality are raised, article 236 of the tax regime of FIIAH, so that AT could not proceed to its non-application.

It sustains regarding the attribution of the vice of nullity to the assessments, by violation of article 103(3) of the CRP that, as a general rule, the consequence resulting from the invalidity of acts is voidability, with nullity occurring only when it lacks one of its essential elements or when the law expressly sanctions it with this form. In this field it observes, further, that if there existed the violation of article 103(3) of the CRP, as the Claimant argues, the impugned acts would only be annulled and not declared null.

It further adds that the assessments impugned are based on the fact that the property that is the subject of these proceedings was given a different destination from that which was the basis of the benefit.

It also refers that article 236 of Law no. 83-C/2013 of 31 December did not establish any new requirement, it only granted a period for its compliance, which only begins with the entry into force of the new law. That is, it contends that such rule is not altering the assumptions and conditions for the granting or recognition of a tax benefit, but only predicting the period of time for purposes of proof of compliance with a requirement previously established, respecting the principles of legal certainty and protection of reliance. That is, no new expiry regime of the benefit was introduced ex novo, so it argues that, if that is the case, there is no violation of the principle of prohibition of retroactivity of tax law, provided for in article 103(3) of the CRP and, as such, the aforementioned rule is not unconstitutional.

In summary, the tax benefits applicable to FIIAH always depended on the allocation of the properties to leasing for permanent housing, a requirement that AT could assess, in order to conclude for the permanence or else, for the restoration of the normal system of taxation.

Finally, it argues that, even if the above arguments were unsuccessful, the taxpayer would never be entitled to compensatory interest, given that the binding of AT to the law required the application of the rule, even if unconstitutional.

In this manner, these are the issues that the tribunal must know:

i) Whether the arbitral tribunal has jurisdiction to assess the request for arbitral award;

ii) Whether the Respondent entity is a party lacking standing in these proceedings;

iii) Whether the assessments of IMT and Stamp Duty are illegal;

iv) Whether compensatory interest is due.

3. PRELIMINARY MATTERS AND CASE MANAGEMENT

3.1.Lack of Jurisdiction of the Arbitral Tribunal

The Respondent argues that the tribunal does not have jurisdiction to assess or declare the (un)constitutionality of article 236 of Law no. 83-C/2013 of 31 December, given that abstract review of legality and constitutionality is reserved to the Constitutional Court.

Invited the Claimant to make submissions regarding such exception, it came to say that the allegation is based on an incorrect interpretation of the request for arbitral award, in that what is reflected in this procedural document is the claim that the nullity be declared or, alternatively, the voidability of the assessments challenged on the ground that they are based on the application of a rule that violates the CRP and the law.

Would the Respondent be right?

In this regard it is common ground to accept that the application of a materially unconstitutional rule in the context of the assessment of a tax determines its annulment, for suffering from the vice of violation of law arising from error concerning the legal assumptions.

Now, what the Claimant puts in question is the application of a rule which it deems unconstitutional, article 236 of Law no. 83-C/2013 of 31 December and not abstract review of constitutionality.

Thus, the tribunal is materially competent, the exception invoked by the Respondent being judged as unfounded.

3.2.Lack of Passive Standing of the Respondent

The Respondent invokes that if the Claimant's claim consists of abstract review of the constitutionality of article 236 of Law no. 83-C/2013 of 31 December, it is necessary to conclude that it is a party lacking standing in the proceedings.

Would it be right?

Article 30(1) and (2) of the Code of Civil Procedure (CPC) provides that: "1. The plaintiff is a party with standing when he has a direct interest in bringing the action; the defendant is a party with standing when he has a direct interest in defending against it. 2. The interest in bringing the action is expressed by the benefit derived from the success of the action and the interest in defending against it by the damage that would arise from such success."

Standing is thus assessed by the relation and interest of the party with the object of the action.

Article 9(1) and (4) of the Code of Tax Procedure and Tax Process (CPPT), applicable by virtue of article 29(1)(a) of the RJAT provides that the AT, which comprises the extinct Directorate-General for Taxes and Directorate-General for Customs and Special Taxes on Consumption, has standing to intervene in the tax procedure and in the tax court process.

In truth, as the doctrine sustains: "…all persons who have standing to intervene in tax procedure also have standing to intervene in tax court process"[1].

Now, in the case sub judice we are in the presence of assessment acts performed by the Respondent whose legality is now in question by reason of the Claimant understanding that they suffer from error concerning the legal assumptions by the application of a materially unconstitutional rule.

Thus, if we are not faced with abstract review of constitutionality, if the tribunal is materially competent to know the request for arbitral award and if the Respondent performed the acts in question it is imperative to conclude that it has passive standing. In truth, if it was the Respondent who performed the acts it will be the entity that best will be able to proceed with the judicial sustaining of their legality.

For such a sum of reasons, it is declared that the Respondent has passive standing in these proceedings, thus judging as unfounded the exception invoked.

3.3.Case Management

The cumulation of claims underlying these proceedings is admissible, in that there is identity between the material facts and the success of the claims depends on the interpretation of the same principles and rules of law, see article 3(1) of the RJAT.

Thus, the proceedings do not suffer from defects, the arbitral tribunal is regularly constituted and is materially competent to know and decide the claims, consequently verifying the conditions for the final award to be rendered.

4. MATERIAL FACTS

4.1. Facts Considered Proven

4.1.1. The Claimant on 30/12/2013 declared to the AT that it would acquire fraction "S" of the property registered in the property register under article … of the union of parishes of … and …, municipality of Sintra.

4.1.2. The Claimant is a management company of a real estate investment fund named "B… – Real Estate Investment Fund Closed for Residential Leasing", registered with the Securities Market Commission (CMVM) with tax identification number ….

4.1.3. The Claimant declared on 04/10/2016 to the AT that it would execute a deed of sale and purchase of the fraction identified in 4.1.1. and requested the assessment of IMT and Stamp Duty: "…because the aforementioned fraction will be transferred."

4.1.4. Thus, the assessment of IMT was €763.13 (no. …) and of Stamp Duty €610.50 (no. …).

4.1.5. The amount of the aforementioned assessments was paid on 04/10/2016.

4.2. Facts Not Considered Proven

There are no other facts with relevance to the arbitral award that have not been given as proven.

4.3. Justification of the Material Facts Considered Proven

The material facts given as proven originate in the documents used for each of the alleged facts and whose authenticity was not put in question.

5. LEGAL ANALYSIS

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

For this it is necessary to state that the legal regime of FIIAH was approved by Law no. 64-A/2008 of 31 December.

Article 8 of such regime established the normative dispositions of a tax nature. In the context of taxation of patrimony, article 8(7) provided that the following are exempt from IMT:

"a) Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for leasing for permanent housing, by the investment funds referred to in (1);

b) Acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the purchase option referred to in article 5(3) by the lessees of the properties that integrate the patrimony of the investment funds referred to in (1)".

And section 8 of such article provided that: "All acts are exempt from stamp duty performed, provided they are related to the transfer of urban properties intended for permanent housing which occurs as a result of the conversion of the right of ownership of such properties into a right of leasing over them, as well as with the exercise of the purchase option provided for in article 5(3)".

However, Law no. 83-C/2013 of 31 December added to article 8 of the legal regime of FIIAH the following sections:

"14. For the purposes of the provisions of sections 6 to 8, urban properties are considered to be intended for leasing for permanent housing whenever they are the subject of a leasing contract for permanent housing within a period of three years counted from the moment when they came to integrate the patrimony of the fund, and the passive subject must communicate and provide proof to the AT of the respective effective leasing, within 30 days following the end of the said period.

15. When the properties have not been the subject of a leasing contract within the period of three years provided for in the previous section, the exemptions provided for in sections 6 to 8 shall cease to have effect, and in that case the passive subject must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax.

16. Should the properties be transferred, with the exception of cases provided for in article 5, or should the FIIAH be subject to liquidation, before the expiry of the period provided for in section 14, the passive subject must equally request from the AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax owed under the terms of the previous section".

It further appears that Law no. 83-C/2013 of 31 December provided for a transitional rule (article 236) within the scope of the special regime applicable to FIIAH which provides the following:

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

2. Without prejudice to the provisions of the previous section, the provisions of sections 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008 of 31 December, also apply to properties that have been acquired by FIIAH before 1 January 2014, counting, in those cases, the period of three years provided for in section 14 from 1 January 2014".

The rule which the Claimant deems unconstitutional, by violation of the principle of prohibition of retroactivity of tax law is article 236 of Law no. 83-C/2013 of 31 December, because, in its opinion, it establishes a new regime of expiry of exemptions, when it requires proof of the allocation to residential leasing of the properties that integrate the funds, within a period of 3 years, with this period being counted from 1 January 2014, in relation to those properties acquired before such date.

Before anything else, let us make a summary analysis of the teleology underlying the normative provision of FIIAH. Now, faced with the economic crisis that broke out in 2008 and which extended to the real estate sector, the legislator understood to create such instruments as vehicles for the dynamization of the residential leasing market and to establish an alternative solution to the problem of troubled housing credit, in this way protecting the public interest.

On the other hand, article 235 of Law no. 83-C/2013 of 31 December comes to establish new requirements for the exemption, the obligation of the FIIAH to request the assessment of IMT and Stamp Duty that were not paid with the acquisition, should the allocation of the property to leasing for permanent housing not occur within the period of three years after its entry into the fund and in the event that the FIIAH is subject to liquidation.

In truth, the legislator, within the scope of the legal regime of FIIAH exempted from IMT and Stamp Duty urban properties intended for leasing for permanent housing, that is, those which were acquired for this purpose. To be precise, if the teleology underlying the institution of FIIAH consisted in the provision of instruments for the dynamization of the residential leasing market, it made perfect sense that its tax regime would establish an exemption that required this allocation and already Law no. 64-A/2008 of 31 December provides that the same exists regarding properties "…intended exclusively for leasing for permanent housing…".

Thus, it is not possible to conclude that the obligation to allocate the property to leasing for permanent housing constitutes a requirement introduced by Law no. 83-C/2013 of 31 December. Such obligation already appeared expressed and concretely in article 8(7) and (8) of the legal regime of FIIAH in its original version.

In truth, article 14(3) of the Statute of Tax Benefits (EBF), which in the geography of such diploma is located in the general part, also points in that direction when it provides that: "When the tax benefit concerns the acquisition of assets intended for the direct realization of the objectives of the acquirers, it ceases to have effect if they are transferred or given a different destination without authorization of the Minister of Finance, without prejudice to other sanctions or different regimes established by law".

These are the reasons that lead us to conclude that the effects resulting from the transfer of the property that appear in article 8(14), (15) and (16) of the legal regime of FIIAH do not have an innovative character, for they already resulted from article 8(7) and (8) of the said legal regime and the EBF and, thus, the unconstitutionality of such a rule is not put in question in the present case.

Moreover, at the moment of acquisition by the Claimant of the aforementioned property, it benefited from the content of article 8(7)(a) and 8(8) of the legal regime of FIIAH, in view of the declaration at the time of purchase that the property was intended for leasing for permanent housing.

Equally, it happens that, in the present case, in the declarations made with a view to the assessments challenged by the Claimant there is express mention that they have as their source article 8(16) of the legal regime of FIIAH. That is, that the aforementioned property will be transferred.

In fact, if the declarations that justified the assessments of IMT and Stamp Duty (attached as document 1 to the request for arbitral award) had as their genesis any other ground different from the allocation of the property to a purpose other than leasing, it was only the Claimant's obligation to provide proof of the allocation to leasing for permanent housing.

With no different proof existing in the proceedings, it is imperative to conclude that the ground of the assessments in question consisted in the fact that the B… Fund did not allocate the property to leasing for permanent housing.

Or, put in another way, what is in question in these proceedings consists of the fact that the use which formed the basis of the exemption was not given, the allocation to leasing for permanent housing and not a matter of time period. Which removes the issue of violation of the principle of prohibition of retroactivity of tax law.

In summary, the granting of the tax benefit does not require a mere declared intention, at the moment of execution of the public deed of sale and purchase, of allocation of the property to permanent residential leasing, but the effective allocation. Now, if the Claimant manifested such intention, but did not proceed to such allocation, or, at least, does not prove it in these proceedings, its claim must fail.

Thus, there is no violation of the principle of prohibition of retroactivity of tax law or aggravation of the tax position of the Claimant.

For such a sum of reasons, the assessments challenged by the Claimant are legal and, consequently, the requests for reimbursement of the amounts of tax paid and the request for condemnation of the Respondent in the payment of compensatory interest are dismissed.

6. AWARD

In these terms and with the justification described above, the request for arbitral award is judged entirely unfounded, maintaining in the legal order the assessments, with all legal consequences.

7. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at €1,373.63, pursuant to article 97-A of the CPPT, applicable by virtue of the provisions of article 29(1)(a) of the RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

8. COSTS

Costs to be borne entirely by the Claimant, in the amount of €306, see article 22(4) of the RJAT and Table I attached to the RCPAT.

Notify.

Lisbon, 6 July 2017

The Arbitrator,

(Francisco Nicolau Domingos)

[1] JORGE LOPES DE SOUSA, Code of Tax Procedure and Tax Process – annotated, 4th edition, Vislis Publishers, 2003, p. 84.

Frequently Asked Questions

Automatically Created

Are Real Estate Investment Funds for Residential Leasing (FIIAH) exempt from IMT and Stamp Tax on property transfers?
Yes, under Article 8(7)(a) and 8(8) of the FIIAH legal regime, Real Estate Investment Funds for Residential Leasing were originally granted exemptions from IMT and Stamp Duty on property acquisitions intended for residential leasing. However, these exemptions became subject to an expiry regime introduced by Article 236 of Law 83-C/2013, which required compliance with specific conditions within defined timeframes. The dispute centers on whether properties that received exemptions before this legislative change remain protected or became subject to the new compliance requirements.
How did Article 236 of Law 83-C/2013 change the tax regime for FIIAH property acquisitions?
Article 236 of Law 83-C/2013 introduced a temporal compliance framework for FIIAH tax exemptions, establishing that properties must be allocated to residential leasing within specified periods to maintain IMT and Stamp Duty exemptions. The Tax Authority contends this provision merely clarified pre-existing requirements by setting compliance deadlines, while the claimant argues it created an entirely new expiry regime that retroactively undermined previously crystallized exemptions. This legislative change triggered assessments on properties that had initially qualified for exemptions but were subsequently given different destinations, fundamentally altering the tax treatment of FIIAH acquisitions made before the law's enactment.
Can CAAD arbitral tribunals rule on the constitutionality of tax laws affecting real estate funds?
This presents a central procedural issue in the case. The Tax Authority argues that CAAD arbitral tribunals lack material jurisdiction to assess the constitutionality of tax laws, as constitutional review is constitutionally reserved to the Constitutional Court under Portuguese law. However, the claimant frames the dispute not as abstract constitutional review but as a concrete application challenge, arguing that assessments based on an unconstitutional rule are null or voidable, which falls within CAAD's jurisdiction to review the legality of tax acts. The tribunal must determine whether ruling on the validity of assessments necessarily involves constitutional adjudication beyond its competence.
What are the grounds for claiming nullity or annulment of IMT and Stamp Tax assessments on FIIAH transactions?
The claimant argues for nullity based on the application of Article 236 of Law 83-C/2013, which allegedly violates Article 103(3) of the Portuguese Constitution prohibiting retroactive tax laws. The primary ground is that tax exemptions definitively crystallized upon property acquisition and cannot be retroactively conditioned or revoked. Alternatively, the claimant seeks annulment (voidability) if nullity is not recognized. The Tax Authority counters that nullity requires absence of essential elements or express legal sanction, neither of which applies, and that any constitutional violation would result in voidability at most. The distinction affects remedies and the assessment's continued effects.
Is the Tax Authority (AT) entitled to raise procedural objections of material incompetence and passive illegitimacy in FIIAH arbitration cases?
Yes, the Tax Authority raised two preliminary objections: (1) lack of material jurisdiction of CAAD, arguing that assessing constitutionality is reserved to the Constitutional Court and exceeds CAAD's arbitral competence over tax legality; and (2) lack of passive standing (legitimidade passiva), contending that the AT cannot be the proper defendant in proceedings seeking abstract constitutional review, as it is bound by law and constitutional norms and cannot defend the constitutionality of legislation. These procedural defenses seek dismissal before reaching the merits, arguing the dispute's constitutional nature makes it unsuitable for tax arbitration and that the claimant has named the wrong respondent.