Summary
Full Decision
ARBITRAL DECISION
Claimant: A… – INVESTMENT FUND MANAGEMENT COMPANY, S.A. (hereinafter "Claimant")
Respondent: TAX AND CUSTOMS AUTHORITY (hereinafter "TA" and "Respondent")
1. Report
A… – INVESTMENT FUND MANAGEMENT COMPANY, S.A., with the collective person number …, with registered office at …, no. …, …, …-… Lisbon, in its capacity as managing company of the real estate investment fund «B… – Closed Real Estate Investment Fund for Residential Rental», submitted to the Administrative Arbitration Center (CAAD) a request for arbitral pronouncement with a view to annulling the assessments of Municipal Tax on Onerous Property Transfers (IMT) and Stamp Tax (IS), with no. … and …, in the amounts of €27,764.75 and €3,880.00, respectively.
The Claimant bases the illegality of the tax acts of IMT and IS and the consequent annulment of said assessments on the following defects, which are herein briefly summarized:
A) Illegality of the assessments: inasmuch as the fact subject to taxation is, both in respect of IMT and in respect of IS, the acquisition of ownership of the relevant properties by the Fund and the exemptions from IMT and IS were not, at the date they entered the Fund's assets, conditioned by the subsequent verification of any facts or circumstances nor, equally, subject to any lapse regime, given that at the moment the properties entered the Fund's assets the exemptions from IMT and IS became permanently crystallized in the legal-tax order as provided for in the Tax Regime of FIIAH; whereby, not being legally provided, at the moment of recognition of the exemption, any facts or circumstances upon which the lapse of the recognized exemption depended, it is manifest that the subsequent imposition of such facts or circumstances to exemptions crystallized in the legal-tax order of the Claimant suffers from unconstitutionality, by violation of the principle of non-retroactivity of tax law, enshrined in article 103, number 3, of the Constitution of the Portuguese Republic, considering that there is an example of authentic retroactivity, since the tax fact had already produced all its effects on the date the new law came into force.
B) On the nullity of the assessments: In the Claimant's view, the violation of the principle of non-retroactivity of tax law is in this case generative of nullity of the tax acts, since the violation is targeted at a fundamental right, which is why the tax acts should be declared null;
It further petitions, ultimately, not only the reversal of the amounts of tax paid, but also the payment of compensatory interest.
The Tax Authority, for its part, defended that there is no illegality alleged to violate a constitutional provision, thus arguing for the legal conformity of the tax acts and the consequent dismissal of the requests formulated by the Claimant.
The sole arbitrator was designated and appointed on 21.01.2016.
In accordance with the provisions of article 11, no. 1, letter c) of the RJAT, the sole arbitral tribunal was constituted on 05.02.2016.
Given that the issue subject to these proceedings is exclusively one of law and no exceptions have been raised, the Tribunal dispensed with the holding of an arbitral hearing, with the Claimant and Respondent being notified to, if they wished, submit written submissions, which the Claimant duly presented, reiterating the sense of what was petitioned in its request for arbitral pronouncement, and on that occasion attached a legal opinion regarding the alleged unconstitutionality.
The Respondent TA likewise submitted submissions, having had the opportunity to comment on the legal opinion attached by the Claimant.
2. Procedural Safeguards
The sole arbitral tribunal is materially competent, in accordance with the provisions of articles 2, no. 1, letter a) of the Legal Regime of Arbitration in Tax Matters (RJAT).
The parties enjoy legal personality and capacity and have standing in accordance with article 4 and no. 2 of article 10 of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22 March.
The cumulation of claims effected in this request for arbitral pronouncement, in which acts of assessment of IMT and IS are at stake, rest on the same factual basis and appeal to the same legal framework, and are thus fully justified by the cumulation in light of the principle of procedural economy enshrined in article 3 of the RJAT.
The proceedings do not suffer from any nullity, there are no exceptions that prevent the consideration of the merits of the case, the claim is timely, whereby the conditions are met for the issuance of the arbitral decision.
3. Facts
3.1. Established Facts:
Having analyzed the documentary evidence produced and the positioning of the parties, the following facts are considered established and relevant to the decision of the case:
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The Claimant is the managing company of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Rental", registered with the Securities and Exchange Commission (CMVM), with the fiscal identification number….
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The Claimant proceeded during 2013 to the acquisition of the autonomous fraction AC registered in the urban property register of the Union of Parishes of … and … under article …, and in such acquisition benefited from exemption from IMT and IS under letter a) of no. 7 and no. 8, respectively, of article 8 of the legal regime of FIIAH;
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The Claimant transferred, in said capacity, on 15 October 2015, the autonomous fraction AC registered in the urban property register of the Union of Parishes of … and … under article …, having requested from the Respondent TA, prior to the execution of the public deed of transfer, the following assessments:
| PROPERTY | TAX | ASSESSMENT | AMOUNT |
|---|---|---|---|
| U-…-… (registered in the urban property register of the Union of Parishes of … and…) | IMT | … | €27,764.75 |
| IS | … | €3,880.00 |
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The assessments of IMT and IS identified in the previous point were issued on 14 October 2015.
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The Claimant made payment of the aforementioned tax acts on 15 October 2015.
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On 27.11.2015 the request for pronouncement and constitution of arbitral tribunal was submitted by the Claimant via the computer platform.
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The Claimant proceeded to pay the initial court fee;
No other facts with relevance to the decision of the merits of the case were established.
3.2. Basis for the Established Facts:
Regarding the established facts, the arbitrator's conviction was based on the documentary evidence attached to the proceedings, as well as the positioning manifested by the parties.
3.3. Unestablished Facts
The matter deemed established is sufficient for the consideration of the issues raised in these proceedings, which are reduced to questions of law, with no unestablished facts relevant to the resolution of this dispute.
4. Legal Matters and Basis:
The request for arbitral pronouncement has as its object the assessment of the illegality of the tax acts of assessment of IMT and IS.
The central issue now raised by the Claimant and under consideration is based on assessing the non-conformity with a provision of the Constitution of the Portuguese Republic – article 103, no. 3 – by alleged occurrence of authentic retroactivity of a legal norm subsequent to the occurrence of the tax fact.
Thus, it is first necessary to review the infra-constitutional legal framework in which the issue to be resolved is situated, considering from the outset the tax regime that confers differentiated treatment to the general regime as regards IMT and IS and which is subsumed, for the reasons set out below, to a tax benefit, thus subject to the discipline contained in the Tax Benefits Statute (EBF).
Under article 2 of the EBF, "tax benefits are deemed to be exceptional measures established for the protection of relevant extra-fiscal public interests that are superior to those of taxation itself", being considered as tax benefits, namely, "(…) exemptions (…)".
The tax benefit thus functions as an impeditive fact of the constitution of the tax relationship, whereby the norms that govern its creation and that legitimize its granting are, in terms of law, special, aimed at covering exceptional factual realities, and are anchored in eminently extra-fiscal interests, highlighted as being of public interest and with constitutional basis.
The legislator thus admits the derogation from the general regime of taxation and the principle of tax capacity in the name of certain public interests, of extra-fiscal root, which it considers prevailing with a view to creating a deviation from the principle of taxation according to the taxpayer's tax capacity.
Under article 12 of the EBF, "the right to tax benefits must be based on the date of verification of their respective prerequisites, even though it is dependent on recognition (…)", from which it is possible to extract with sufficient certainty that, as a tendency, the right to tax benefits is deemed constituted with the verification of the prerequisites established by law for a taxpayer to benefit therefrom.
Article 5 of the EBF establishes that tax benefits may be "automatic and dependent on recognition", with "the former resulting directly and immediately from the law, the latter presupposing one or more subsequent recognition acts".
Since, by virtue of the provision of article 7 of the EBF, "all persons, natural or legal, of public or private law, to whom tax benefits are granted, automatic or dependent on recognition, are subject to inspection by the Tax and Customs Authority (…) for control of the verification of the prerequisites of the respective tax benefits and of compliance with the obligations imposed on the holders of the right to such benefits".
As for the extinction of these same benefits, in accordance with the provisions of article 14 of the EBF, such extinction may occur through lapse, through the transfer of property for purposes different from those for which the benefit was granted or through revocation of the administrative act of grant and through simple waiver of the benefits by its holder.
Since, in any of the situations referred to above, the extinction of tax benefits has as a consequence the automatic restoration of the general regime of taxation, which binds the holders of the right to tax benefits to declare, within 30 days of the occurrence of the cessation of the fact or circumstance on which the benefit was based, unless such cessation is of official knowledge, as may be gathered from what is established in article 9 of the EBF.
Given the context of the regime of tax benefits, it is important to note the legal framework of the benefits in this case relating to the exemption from IMT and IS now at issue.
Law no. 64-A/2008, of 31 December, approved the special regime applicable to real estate investment funds for residential rental and real estate investment companies for residential rental.
In its article 104, the State Budget Law for 2009 established the legal regime applicable to real estate investment funds, which is set out as follows:
Article 104
Legal regime
1 - The establishment and operation of FIIAH, as well as the marketing of their respective units of participation, are governed by the provisions of the Legal Regime of Real Estate Investment Funds, approved by Decree-Law no. 60/2002, of 20 March, amended by Decree-Laws nos. 252/2003, of 17 October, 13/2005, of 7 January, and 357-A/2007, of 31 October, and subsidiarily, by the provisions of the Securities Code, approved by Decree-Law no. 486/99, of 13 November, amended by Decree-Laws nos. 61/2002, of 20 March, 38/2003, of 8 March, 107/2003, of 4 June, 183/2003, of 19 August, 66/2004, of 24 March, 52/2006, of 15 March, 219/2006, of 2 November, and 357-A/2007, of 31 October, with the particularities contained in the following articles:
Article 1
Name and characteristics
1 - Real estate investment funds for residential rental shall include in their name the expression 'real estate investment funds for residential rental' or the abbreviation FIIAH.
2 - Only FIIAH may include in their name the expressions referred to in the previous number.
3 - FIIAH are funds which are established with the characteristics mentioned in articles 2 to 6 of this legal regime and which adopt that name.
Article 2
Types and form of subscription
FIIAH are established in the form of closed funds with public subscription or private subscription.
Article 3
Value of assets and dispersion
1 - After the first year of activity, the value of the total assets of the FIIAH must reach the minimum amount of €10 million and, when established through public subscription, have at least 100 participants, whose individual participation may not exceed 20% of the value of the total assets of the fund.
2 - Failure to comply with the individual participation limit provided for in the previous number determines the immediate and automatic suspension of the right to distribution of income of the FIIAH in the amount of the participation exceeding that limit.
3 - Without prejudice to the provisions of the previous number, in case of non-compliance with the provisions of no. 1, the Securities and Exchange Commission (CMVM) may revoke the authorization of the FIIAH.
Article 4
Composition of assets
1 - The composition of the assets of the FIIAH is subject to the provisions of article 46 of the Legal Regime of Real Estate Investment Funds, with at least 75% of its total assets consisting of real estate, situated in Portugal, intended for rental for permanent residence.
2 - The percentage limit defined in the previous number is assessed in relation to the average of values verified at the end of each of the last six months, being complied with within two years from the date of establishment of the FIIAH, and of one year from the date of capital increase, with respect to the amount of the increase.
Article 5
Call option
1 - Borrowers under residential credit contracts who proceed to the transfer of the property subject to the contract to a FIIAH may enter into a rental contract with the managing entity of the fund.
2 - Prior to the execution of the contract of transfer of ownership of the property to the FIIAH, the respective managing entity shall provide the transferor, on paper or other durable medium, information on the essential elements of the transaction, such as the transaction price, including, where applicable, the amount of the rent, the respective conditions for adjustment and the criteria for fixing the price and the general terms of exercise of the call option.
3 - Rental under the terms provided for in no. 1 constitutes the tenant in a call option right over the property, from the fund, capable of being exercised until 31 December 2020.
4 - The call option right over the property provided for in the previous number is only transferable upon death of the holder.
5 - The call option right provided for in no. 3 ceases if the tenant fails to meet the obligation to pay rent to the FIIAH for a period exceeding three months.
6 - The terms and conditions for exercise of the option provided for in the previous numbers are regulated by ordinance of the member of Government responsible for the area of finance, and must ensure the right of the transferor to repurchase the property from the FIIAH by reference to the updated value of the transfer, as well as, in case of non-exercise of the option right, the right to receive the difference between the value of future transfer of the property and the updated value of its acquisition by the FIIAH.
7 - The ordinance provided for in the previous number shall also determine the criteria for fixing and adjusting the values contained therein.
Article 6
Distribution of results
The results relating to the units of participation of the FIIAH are distributed with a minimum annual frequency and in an amount not less than 85% of the net results of the fund.
Article 7
Monitoring committee
1 - A monitoring committee shall be responsible for verifying compliance with the legal and regulatory regime applicable to the activity of FIIAH and controlling observance of good governance principles.
2 - The monitoring committee consists of three independent persons designated by the member of Government responsible for the area of finance, in accordance with criteria of competence, integrity and professional experience.
3 - The functions of the monitoring committee are, in particular, the following:
a) To verify observance of the legal regime and good governance principles that should govern the management of FIIAH, notably in matters of implementation of investment policy and financing of responsibilities, as well as respect by the managing entity of the rights of participants and tenants, namely with regard to compliance with the disclosure duties established in their favor;
b) To verify, in particular, compliance by the FIIAH with the regime governing the exercise of the call option by the tenant;
c) To exercise the other functions assigned to it in the management regulations of the fund.
4 - The resolutions of the monitoring committee are recorded in minutes, and these shall be sent to the CMVM.
5 - The functioning of the monitoring committee is regulated, to the extent not provided for in this law or in regulations of the CMVM, by the management regulations of the fund.
6 - The members of the monitoring committee, in that capacity, exercise their mandate with independence, with their status being determined by ordinance of the member of Government responsible for the area of finance.
Article 8
Tax regime
1 - FIIAH established between 1 January 2009 and 31 December 2015, which operate in accordance with national legislation and in observance of the conditions provided for in the previous articles, are exempt from corporate income tax (IRC).
2 - Income relating to units of participation in the investment funds referred to in the previous number, paid or made available to the respective holders, whether through distribution or redemption, are exempt from Personal Income Tax (IRS) and IRC, excluding the positive balance between gains and losses resulting from the transfer of units of participation.
3 - Gains resulting from the transfer of properties intended for personal residence in favor of the investment funds referred to in no. 1, which occurs as a result of the conversion of the right of ownership of such properties into a rental right, are exempt from IRS.
4 - The gains referred to in the previous number become subject to taxation, under the general rules, if the taxpayer terminates the rental contract or does not exercise the call option right provided for in no. 3 of article 5, with the periods of lapse and prescription being suspended for purposes of assessment and collection of IRS, until the end of the contractual relationship.
5 - The amounts borne by the tenants of the properties of the investment funds referred to in no. 1 as a result of the conversion of a right of ownership of a property into a rental right are deductible from collection, under the terms and limits contained in letter c) of no. 1 of article 85 of the IRS Code.
6 - Urban properties intended for rental for permanent residence that form part of the assets of the investment funds referred to in no. 1 are exempt from Property Tax (IMI), as long as they remain in the fund's portfolio.
7 - The following are exempt from IMT:
a) Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence, by the investment funds referred to in no. 1;
b) Acquisitions of urban properties or autonomous fractions of urban properties intended for personal and permanent residence, as a result of exercise of the call option referred to in no. 3 of article 5 by the tenants of properties forming part of the assets of the investment funds referred to in no. 1.
8 - All acts performed are exempt from stamp tax, provided that they are connected with the transfer of urban properties intended for permanent residence that occurs as a result of the conversion of the right of ownership of such properties into a rental right over the same, as well as with the exercise of the call option provided for in no. 3 of article 5.
9 - The managing entities of FIIAH are exempt from supervisory fees in what relates exclusively to the management of funds of this nature.
10 - The entities that are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in an ordinance approved by the Minister of Finance, are excluded from the exemptions contained in this article.
11 - The obligations provided for in article 119 and in no. 1 of article 125 of the IRS Code must be complied with by the managing or recording entities.
12 - Should the requirements referred to in no. 1 cease to be met, the application of the regime provided for in this article ceases, and the regime provided for in article 22 of the Tax Benefits Statute, approved by Decree-Law no. 215/89, of 1 July, applies, with the income of the investment funds referred to in no. 1 which, at that date, has not yet been paid or made available to the respective holders being taxed at the rates provided for in article 22-A of the said diploma, plus compensatory interest.
13 - The managing entities of the investment funds referred to in no. 1 are jointly and severally liable for the tax debts of the funds whose management they are responsible for. (emphasized)
Article 9
Transitional regime
1 - Within six months following the date of authorization of the FIIAH and, at the limit, until 31 December 2009, the managing entities may carry out transactions between real estate investment funds under their management with the exclusive purpose of integrating into the FIIAH portfolio properties intended for permanent residence, provided that all legal safeguards are observed, namely in matters of protection of the interests of investors.
2 - The transactions carried out under the provisions of the previous number are communicated to the CMVM at the end of that period, with the identification of the essential elements thereof."
2 - The regime contained in this section is in force until 31 December 2020, with the conversion of FIIAH into real estate investment funds subject in full to the Legal Regime of Real Estate Investment Funds occurring on that date.
Not losing sight of the legislative dynamics that the legal regime of the investment vehicles now under analysis has undergone, we find that, by way of Law no. 83-C/2013, of 31 December, the legislator added to article 8 numbers 14 to 16, which were worded as follows:
"14 — For purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for rental for permanent residence whenever they are the subject of a rental contract for permanent residence within three years from the date they entered the fund's assets, with the taxpayer required to communicate and provide proof to the TA of the respective effective rental within 30 days following the end of said period.
15 — When the properties have not been the subject of a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 cease to have effect, and in that case the taxpayer must request from the TA, within 30 days following the end of said period, the assessment of the respective tax.
16 — Should the properties be transferred, except in the cases provided for in article 5, or should the FIIAH be subject to liquidation, before the end of the period provided for in no. 14, the taxpayer must likewise request from the TA, before the transfer of the property or liquidation of the FIIAH, the assessment of the tax owed under the previous number."
The identified legal diploma also established in its article 236 the following transitional regime:
"1 — The provisions of nos. 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 from 1 January 2014 onwards.
2 — Notwithstanding the provisions of the previous number, the provisions of nos. 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, equally apply to properties that have been acquired by FIIAH before 1 January 2014, and in those cases, the three-year period provided for in no. 14 is counted from 1 January 2014."
Article 11 of the General Tax Law establishes the essential rules for interpretation of tax laws as follows:
Article 11
Interpretation
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In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
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Whenever, in tax norms, terms specific to other branches of law are used, they must be interpreted in the same sense as that which they have there, unless otherwise directly derived from the law.
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If doubt persists regarding the meaning of the applicable rules of incidence, account must be taken of the economic substance of the tax facts.
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Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to integration by analogy.
The general principles of interpretation of laws, to which no. 1 of article 11 of the LGT refers, are established in article 9 of the Civil Code, which establishes the following:
Article 9
Interpretation of law
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Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.
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However, the interpreter cannot consider legislative thought that does not have, in the letter of the law, a minimum of verbal correspondence, even if imperfectly expressed.
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In fixing the meaning and scope of the law, the interpreter shall presume that the legislator embodied the most correct solutions and was able to express its thought in appropriate terms."
Having as reference the principles arising from the norms cited above, it is necessary to appreciate their application to the specific case.
From the reading of the legal regime of FIIAH and anchored in the principles and general rules of interpretation of legal norms, it is first necessary to make a brief outline of the legislative rationale for the creation of this legal regime (and tax regime).
The legislator, perhaps in light of the scenario of economic-financial crisis that befell the Portuguese economy from the second half of 2008, intended to find legislative solutions that would allow alleviating the situations of individuals and families with difficulties in fulfilling their payment obligations relating to residential credit they had resorted to, the property acquired for this purpose being in most cases given to the lending entity as collateral security for the proper payment of this residential credit and, on the other hand, would wish to avoid imbalances in the banking system, which could occur as a result of massive sale by banks of properties acquired as a result of prior default by borrowers, a situation that would unbalance supply and demand and would lead to greater depreciation of the market value of these same properties and thus to an erosion of the value of real estate assets securing payment of these loans.
To this end, the legislator forged a mechanism that would enable borrowers (or third parties) to remain in the residence given as security for this same loan in case of inability to fulfill the financial obligations associated with it, by renting them from these FIIAH, which would be achieved through the acquisition by FIIAH of the properties in question and subsequent rental to the borrowers of these same residences, thereby avoiding a dramatic increase in the number of properties available for sale in the real estate market, far exceeding demand, with the negative implications such a situation would have on prices from the perspective of the seller.
A legal regime which established, from the outset, the right of tenants to acquire the property taken on rental from the FIIAH, through a call option right – no. 3 of article 5 of the legal regime of FIIAH.
For such a regime to be a successful and well-received solution, it would be important that operations associated with the properties not be tax-penalizing for the individuals and entities participating in them.
Accordingly, the legislator enshrined various norms aimed at making, from the tax perspective, the resort to this same legal regime tend to be neutral and even advantageous.
Thus, as regards IMT (and equally IS), the following exemptions were provided for, under the terms of no. 7 of article 8 of the 2009 State Budget Law:
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The acquisition by FIIAH of properties or autonomous fractions of urban properties intended exclusively for rental for permanent residence;
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The acquisition of properties or autonomous fractions of urban properties intended for personal and permanent residence, as a result of exercise of the call option referred to in no. 3 of article 5 by the tenants of properties forming part of the assets of FIIAH;
Now, there is thus the presence of exemptions applicable to absolutely distinct tax facts: the first of the exemption situations applicable at the time of acquisition by FIIAH of residential properties with the exclusive purpose of giving them in rental.
And the second tax fact capable of exemption occurs when, at a second moment, the tenants of properties held by FIIAH exercise the right of acquisition option over the property taken on rental.
Whereby, without room for any hesitation, it is necessary to establish that the circumstance of the transfer by the Claimant for a purpose different from that contained in letter b) of no. 7 of article 8 of article 104 of the 2009 State Budget Law would in no way conflict with the right to exemption by the FIIAH (managed by the Claimant) relating to the exemption to which letter a) of the referred norm applies.
This is because, in the case of the arbitral proceedings at hand, the FIIAH managed by the Claimant had benefited from the exemption in the first of the situations outlined, which meant respecting the exclusive purpose of said letter a) contained, that is, that the Claimant's FIIAH intended the property exclusively for rental for permanent residence, regardless of the circumstance that subsequently it might transfer it under or not under letter b) of no. 7 of article 8.
Now, the changes brought about by Law no. 83-C/2013, of 31 December, in no way modified the essence of the tax regime that derived from the 2009 State Budget Law, because, in fact, the legislator continued to make the recognition of exemption dependent on the intended purpose of permanent residential rental.
There was no amendment whatsoever to the normative framework that already pre-existed; rather, there was the addition of various numbers to articles already in force and also the approval of a transitional regime for reconciling the two different laws that underlie the current legal regime of FIIAH (approved in 2008 and 2013).
This means that the introduction of amendments to the existing norms maintained, in their essence, the facts subject to exemption from IMT (and IS), merely (insofar as it matters for the consideration of these proceedings) proceeding to regulate what should be understood by intended for permanent residential rental, specifying it in terms of effective rental and the respective temporal boundaries to which it should be subject.
Now, in this regard and bearing in mind what has been already stated above regarding the legislative rationale that underlies this legal regime, it would be poorly understood that the legal-tax framework of FIIAH could be interpreted, in the segment relating to letter a) of no. 7 and no. 8 of article 8 - article 104 of the 2009 State Budget Law - as not binding FIIAH to the effectuation of permanent residential rental regarding the properties acquired for such purpose by FIIAH.
The extra-fiscal legislative purpose that underlies the granting of this exception to the general regime of taxation of property transfers does not appear to have been merely to allow FIIAH to passively park properties with a view to their subsequent resale, and this is all the more so because for this purpose there already exists an exemption established in the IMT Code, enshrined in article 7 of the IMT Code.
That is, considering the legislative objective and the general rules of interpretation of norms – see no. 1 of article 9 of the Civil Code, it is not possible to conceive the tax regime of FIIAH as regards exemption from IMT under said letter a) of no. 7 (and as regards no. 8 in matters of IS) without the effectuation of effective rental being a constitutive element of this same right to the tax benefit in question.
In this regard, it should, moreover, be noted that, reading the initial request for arbitral pronouncement submitted by the Claimant, there results not even any mention of the fact that from the date of acquisition of the autonomous fraction – or at a later moment - it had effected any permanent residential rental on the property benefiting from the exemption.
That is, there is no evidence that between the acquisition and transfer the Claimant proceeded to rent the property for the purpose of permanent residence.
Whereby, not having even such matter been expressly invoked, let alone been proven, the burden of proof of which lay with the Claimant under the terms of no. 1 of article 74 of the General Tax Law, not forgetting equally that there are not assessments of IMT and IS generated by the TA's initiative (official assessments), but rather tax acts issued following declarations made by the Claimant itself with a view to this same purpose – issuance of the competent IMT and IS assessments.
Which is equivalent to saying that the Claimant failed to prove a constitutive element of its right to the tax benefit materialized in the exemption from IMT under letter a) of no. 7 of article 8 of the legal regime of FIIAH (and IS, under the terms of no. 8), regardless of the legal wording in light of which it is sought to assess the Claimant's right to the tax benefit which we have been analyzing.
Reason by which, in the absence of such constitutive element of the right to the tax benefit, even in light of the wording in force until 2013, the invoked violation of the right to protection of confidence, security and legal expectation on which the Claimant bases itself in the realm of the alleged violation of no. 3 of article 103 of the Constitution of the Portuguese Republic results spurious and compromised, given the non-proof of the constitutive element of the right to such tax benefit, which would always have to be verified upstream of the assessment of possible unconstitutionality.
Nonetheless, we cannot fail here to make reference, in accordance with its sense and reasoning, to what was decided by the Constitutional Court within the scope of judgment 85/2010, of 3 March, according to which:
"In Judgment no. 287/90, of 30 October, the Court already established the limits of the principle of protection of confidence in weighing the possible unconstitutionality of norms endowed with 'inauthentic retroactivity, retrospective'. In this case, similarly to what is occurring now, it was a matter of application of a new law to new facts, yet with a prior context to the occurrence of the fact that created, possibly, legal expectations. It was in this judgment also that the Court made the distinction between the treatment that should be given to cases of 'authentic retroactivity' and the treatment to be afforded to cases of 'inauthentic retroactivity' which would be, it was said, protected only in light of the principle of confidence as a consequence of the principle of the Rule of Law enshrined in article 2 of the Constitution.
In accordance with this jurisprudence on the principle of legal security in the material aspect of confidence, for the latter to be protected it is necessary that two essential prerequisites be met:
a) the affecting of expectations, in a disadvantageous sense, will be inadmissible, when it constitutes a mutation of the legal order with which, reasonably, the recipients of the norms contained in it cannot reckon; and also
b) when it is not dictated by the need to safeguard rights or constitutionally protected interests that should be considered prevailing (recourse must be made here to the principle of proportionality, explicitly enshrined with respect to rights, freedoms and guarantees, in no. 2 of article 18 of the Constitution).
The two criteria stated (and which are equally expressed in other jurisprudence of the Court) are, in substance, reducible to four different requirements or 'tests'. For there to be place for legal-constitutional protection of 'confidence' it is necessary, first, that the State (particularly the legislator) have undertaken behaviors capable of generating in private individuals 'expectations' of continuity; then, such expectations must be legitimate, justified and founded on good reasons; third, private individuals must have made life plans having in mind the prospect of continuity of the State 'behavior'; finally, it is also necessary that no reasons of public interest occur that justify, in a balancing, the non-continuity of the behavior that generated the situation of expectation.
This principle thus postulates an idea of protection of the confidence of citizens and the community in the stability of the legal order and the constancy of State action. However, the confidence here is not any confidence: if it does not meet the four requirements that were formulated above, the Constitution does not attribute protection to it.
Therefore, it was also stated in Judgment no. 287/90 – and it is important to bear this statement in mind in the case – that, as a general rule, and having in mind the self-revisability of laws, 'there is no (…) right to the non-frustration of legal expectations or to the maintenance of the legal regime in durable legal relationships or with respect to complex facts already partially realized'".
It thus results that in order to properly speak of legal-constitutional protection of 'confidence' it is necessary that the legislator have undertaken behaviors capable of generating in private individuals 'expectations' of continuity, which in no way occurs in this case, since perplexity could not fail to be generated by such poorly densified a formulation as the normative version approved in 2008.
Second, the 'affected' taxpayers' expectations must be legitimate, justified and founded on good reasons, which likewise does not appear to subsume to the case at hand, given that the tenuously concretized wording of 2008 was potentially generative of situations in which the legislative rationale was the subject of complete distortion and perversion of the purposes that presided over the granting of the exceptional tax benefit in question, foremost and at the head: ensuring the effectuation of the rental to which the property was intended.
Without even need to enter into consideration with the two remaining 'tests', given the cumulativity of the four, the argument for unconstitutionality cannot merit, also from this perspective, acceptance.
In this context, no censure, in matters of non-conformity with the legal order, infra- or constitutional, merits the assessments of IMT and IS subject to these proceedings, which result, as was appropriately noted, in declarations made by the Claimant itself.
In light of all that has been set out and concluded above, not issuing a judgment of illegality regarding the tax acts subject to the present arbitral pronouncement, the consideration of compensatory damages in the form of interest to be borne by the Respondent in favor of the Claimant is prejudiced and, likewise and naturally, the restitution of these same taxes paid.
Finally, the Claimant also invokes the nullity of the tax acts of assessment by virtue of the violation of no. 3 of article 103 of the Constitution of the Portuguese Republic (CRP).
Now, in light of the reasoning set out above regarding non-verification of any application of a legal-tax norm non-conforming with the CRP, the granting of recognition and declaration of nullity of such tax acts is equally prejudiced, and, even if such inapplicability for reasons of constitutionality did occur, such circumstance would not by itself dictate the nullity of the tax act.
This Tribunal inclines to follow the understanding repeatedly expressed by the Supreme Administrative Court, to the effect of considering that the nullity that may underlie a tax act does not by itself generate the nullity of that same act (unless it violated the essential content of a fundamental right, which does not occur for the reasons already referred to above), but rather its abstract illegality, reason by which the application of a norm based on its erroneous validity or existence should lead to the voidability of the tax act, based on error regarding the legal prerequisites on which the assessment was based.
5. DECISION:
In these terms and with the reasoning set out, this arbitral tribunal decides:
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To judge the claim for declaration of nullity and illegality of the tax acts of assessment of IMT and IS to be wholly without merit, given that none of the defects pointed out by the Claimant are verified.
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To condemn the Claimant to payment of costs in accordance with Schedule I of the RCPTA, calculated as a function of the value of the cause - articles 4-1 of the RCPTA and 6, no. 2, letter a) and 22, no. 4, of the RJAT.
Value of cause: €31,644.75 – articles 97-A of the CPPT, 12 of the RJAT (Decree-Law no. 10/2011), 3-2 of the Regulation of Costs in Arbitration Proceedings in Tax Matters (RCPAT).
This arbitral decision shall be notified to the parties and, in due course, the proceedings shall be filed away.
Lisbon, 1 August 2016.
The sole arbitrator
(Luís Ricardo Farinha Sequeira)
Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by remission from article 29, no. 1, letter e) of the Arbitration Regime in Tax Matters, with blank lines and revised by me.
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