Summary
Full Decision
Arbitral Decision
The sole arbitrator Nuno de Oliveira Garcia, designated by the Deontological Council of the Administrative Arbitration Centre (hereinafter only 'CAAD') to constitute the present Arbitral Tribunal (AT), which is singular, decides as follows:
- Report
1.1. 'A… – …, S.A.', taxpayer no. …, with headquarters at Avenida …, no. … – …, …-…, in Lisbon, requested, in its capacity as managing company of the fund 'B… – Closed Real Estate Investment Fund for Residential Rental', hereinafter referred to as 'Claimant', the constitution of an arbitral tribunal, pursuant to article 2, no. 1, paragraph a), of the Legal Framework for Tax Arbitration.
1.2. The said request for arbitral pronouncement has as its object – according to the request with which the initial petition concludes, and not in accordance with its heading which merely refers to the assessment of a legal regime – the declaration of nullity and, if not understood to be annulled, (the) tax assessment acts for IMT and IS, issued on 29 October 2015 by AT following the Claimant's declaration, in the total amount of €36,572.75, acts better identified in article 6 of the initial petition and annexed thereto as doc. no. 1. Such assessment acts resulted from the disposal by the Claimant, on 30 October 2015, of the unit with matrix U-…-… located at Avenida …, …, Block …, ….
The Claimant further requests reimbursement of the amount paid by virtue of said assessments, as also results from the payment receipts attached to the initial petition as doc. no. 2, plus indemnity interest on that amount.
1.3. The core of the motivation for the arbitral request, as indeed results from the heading of the initial petition, is based on the "assessment" that the norm underlying the assessments in question – article 236 of Law 83-C/2013, of 31 December, diploma which approved the State Budget for 2014 – reveals "a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in article 103 (Tax System), no. 3, of the Constitution of the Portuguese Republic" (cit., initial petition p. 1 at end and p. 2 at beginning).
The Claimant further contends that the disputed assessments are null under paragraph d) of no. 2 of article 133 of the Code of Administrative Procedure (CPA) because they violate the essential content of a fundamental right, and thus are challengeable at any time.
1.4. For its part, the 'AT – tax and customs authority' (hereinafter only 'AT') decided not to exercise the faculty provided in article 13 of the Legal Framework for Tax Arbitration, and sustained, defending itself through opposition, that the request for arbitral pronouncement should be judged unfounded or, if not understood that way, that notification be made to the Public Prosecutor "by appeal to the provisions of article 280, no. 3 of the CRP and article 72, no. 3 of the Law of the Arbitral Tribunal" (cit., p. 30 of the response to the initial petition).
AT, through opposition, defends itself by sustaining that the legal provision in question is not affected by retroactivity, having the said command not established a new requirement for application of the exemption provided in the tax regime for Real Estate Investment Funds for Residential Rental (hereinafter only 'FIIAH'), but merely having established a defined deadline for compliance with a requirement already underlying the regime itself, a deadline that only begins after the entry into force of the new law.
Annexed to its response, AT attaches document no. 1 which constitutes a copy of the arbitral decision issued in Case no. 398/2015-T, duly truncated in the passages referring to the identification of the requesting party. Having analyzed such document, it emerges as the sole conclusion that it is, unequivocally, a decision within the scope of a request for arbitral pronouncement concerning IMT and IS assessments issued following similar facts, and under identical norms, to those of the present arbitral process.
1.5. It was decided by the AT, and met with no opposition from the parties, to dispense with the meeting of the arbitral tribunal provided in article 18 of the Legal Framework for Tax Arbitration.
1.6. Both Parties produced and submitted their final arguments in which they maintained, albeit necessarily in summarized form, the positions established in the initial petition and its respective response.
- Cure
The Tribunal was regularly constituted and is competent ratione materiae, in conformity with article 2 of the RJAT.
The parties have legal personality and capacity, show themselves legitimate and are regularly represented (cfr. articles 4 and 10, no. 2, of the Legal Framework for Tax Arbitration and article 1 of Ordinance no. 112-A/2011, of 22 March).
No procedural nullities were identified.
- Matters of Fact and Respective Basis
3.1. With relevance for the decision on the merits, the Arbitral Tribunal considers the following facts proven:
a) On 13 December 2013, the 'B… – Closed Real Estate Investment Fund for Residential Rental', represented by the company that manages it, acquired the unit with matrix U-…-… located at Avenida …, …, Block …, ... (at the date of acquisition the unit was registered under a different article).
b) The said unit was acquired benefiting from IMT exemption under paragraph a) of no. 7 of article 8 of the legal regime of FIIAH.
c) On 30 October 2015, the said unit was disposed of.
d) One day before the disposal of the said unit – that is, on 29 October 2015 – AT issued the two assessments in question following the Claimant's declaration for that purpose; namely: (i) the IMT assessment with document no. …, in the amount of €32,244.75 and (ii) the IS assessment with document no. …, in the amount of €4,328.
e) In accordance with the arguments of both parties, such assessments were issued by AT under article 236 of Law 83-C/2013, of 31 December (State Budget Law for 2014), and it is certain that, in the IMT assessment in question and above identified, it is expressly stated that the same results from the fact that "a deed of sale is to be executed on 2015-10-30, whereby a different destination shall be given than that on which the benefit was based, the exemption thus lapsing" (cit., p. 1 of doc. no. 1 annexed to the initial petition).
3.2. Basis for Matters of Fact
The conviction regarding the facts given as proven was based on the documentary evidence attached by the Claimant – docs. no. 1 and 2 annexed to the initial petition, regarding the facts identified above as d) and e), and docs. A to E attached by subsequent petition,[1] regarding the facts identified above as a) to c) – whose authenticity and correspondence to reality were not questioned by the Defendant.
3.3. Unproven Facts
No essential facts, with relevance for the appreciation of the merits of the case, were identified which were not proven.
- QUESTIONS TO BE DECIDED
The question to be decided in the present case is as follows:
— Are the IMT and IS assessments in question, issued on 29 October 2015 by AT and following the Claimant's declaration, under article 236 of Law 83-C/2013, of 31 December (State Budget Law for 2014), illegal?
a) On the question concerning the nullity or voidability of the assessments
Before we assess the legality of the IMT and IS assessments, it is important to address the effects of their alleged unconstitutionality, and this because the Claimant seeks from this AT the declaration of nullity of the said acts and, only if this is not understood to be so, their annulment.
In this respect, we cannot find ourselves closer to the provisions of the cited decision in case no. 398/2015-T[2] when it explains that the tax jurisprudence of the Supreme Administrative Court (hereinafter only 'STA') has established that the nullity on which an assessment act is based does not imply the nullity of this act, rather generating a situation of abstract illegality of the assessment. A thesis that adheres to the case of the assessment act that applies an unconstitutional norm, except if it violates the essential content of a fundamental right, whereby even if the tax assessment acts are based on an unconstitutional norm, the defect.[3]
Now, in the present Arbitral Proceedings we see no reasons to follow an understanding different from that which has been followed by the STA, whereby we hold, for the purposes of the present decision, that an AT assessment act that applies a norm in the wrong presumption of its validity, its existence or legal relevance, suffers from the defect of violation of law by error in the legal presumption, but is cause for voidability and not nullity.
b) On the legality of the assessments in question
It is then necessary to decide on the merits of the request for arbitral decision of the IMT and IS assessments in question.
It is important to begin by establishing the matter of law on which the present case turns. We refer, first of all, to Law no. 64-A/2008, of 31 December (hereinafter only 'State Budget Law for 2009), which approved what may be called the 'Special Regime applicable to Real Estate Investment Funds for Residential Rental' (hereinafter only 'Special Regime'), which provides in no. 7 of its article 8 that are exempt from IMT:
§ "a) The acquisitions of urban real estate or of autonomous units of urban real estate intended exclusively for rental for permanent housing, by the investment funds referred to in no. 1;
b) The acquisitions of urban real estate or of autonomous units of urban real estate intended for own and permanent housing, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the lessees of the real estate which form part of the assets of the investment funds referred to in no. 1" (cit., italics ours for emphasis).
Secondly, we refer to Law 83-C/2013, of 31 December (hereinafter only 'State Budget Law for 2014') which, through its article 235, added to the above-mentioned article 8 of the Special Regime three numbers, as follows:
§ "14 – For the purposes of the provisions of nos. 6 to 8, it is considered that urban real estate are intended for rental for permanent housing whenever they are subject to a lease contract for permanent housing within three years from the moment they came to form part of the fund's assets, with the taxable person required to communicate and provide proof to AT of the respective actual lease, within 30 days following the end of said period.
15 – When the real estate have not been subject to a lease contract within the three-year period provided in the previous number, the exemptions provided in nos. 6 to 8 become void, with the taxable person required in that case to request from AT, within 30 days following the end of said period, the assessment of the respective tax.
16 – If the real estate are disposed of, with the exception of cases provided in article 5, or if the FIIAH is subject to liquidation, before the expiry of the period provided in no. 14, the taxable person must likewise request from AT, prior to the disposal of the real estate or the liquidation of the FIIAH, the assessment of the tax due under the previous number" (cit., italics ours for emphasis).
Thirdly, we remain in Law 83-C/2013, of 31 December, but now in its article 236, with the heading "Transitional Norm within the Special Regime applicable to FIIAH and SIIAH"(cit.), according to which:
§ "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, shall apply to real estate which have been acquired by FIIAH from 1 January 2014.
- Without prejudice to 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, shall likewise apply to real estate which have been acquired by FIIAH before 1 January 2014, with the three-year period provided in no. 14 being counted, in those cases, from 1 January 2014. (cit., italics ours for emphasis).
It is necessary therefore to evaluate the legality of the IMT assessments in question which have as their normative context the dispositions above cited.
As provided in the FACTS, the unit whose transmission motivated the assessments in question was acquired on 13 December 2013, benefiting in that operation and on that date from exemption from payment of IMT under the cited paragraph a) of no. 7 of article 8 of the Special Regime.
By way of preliminary matter it is important to agree with the decision of the CAAD in case no. 398/2005-T[2] regarding the same normative framework, when it refers that the cited norm – i.e., paragraph a) of no. 7 of article 8 of the Special Regime – already presupposed that the real estate be intended for rental for permanent housing in order to benefit from such exemption. Whereby, we also subscribe that "the obligation to intend the real estate for residential rental is not a requirement of the amendments introduced by the State Budget Law for 2014, but rather a requirement of the FIIAH tax regime ab initio, a natural consequence indeed of the motivations that led to the creation of these funds" (cit., p. 9 of the decision of the CAAD in case no. 398/2005-T).
Secondly, it is important to clarify that the tax benefit in question is not of a subjective or contractual nature, and was subject to a condition – destination for residential rental. It further follows that tax benefits are not, as is known and as a general rule, permanent and, much less, immutable. Moreover, there are several ways to extinguish them such as their express revocation, the suppression of the tax to which the benefit relates or the lapse of the normative periods provided for the validity of the 'benefit-granting' norms with the consequent lapsing of the benefits.[4] The very Tax Benefits Statute currently establishes,[5] a general regime for the extinction of tax benefits provided in its article 14 and which includes, notably, express reference to cases of tax benefits relating to the acquisition of goods intended for the direct realization of the purposes of the acquirers (see no. 3). It happens that none of that occurred in the present case with the entry into force of the State Budget Law for 2014, since this contented itself with introducing a densifying element of the concept 'destination for rental for permanent housing'. In this respect, it must even be said that it has always seemed to us incomprehensible that the reference to "destination for rental" did not contain, in the initial regime (i.e., in the wording of the State Budget Law for 2009) any densification. What type of destination did the tax law intend (e.g., merely accounting)?
Having said that, it is difficult to demonstrate the existence of a violation of legal expectations on the part of the Claimant, not even in the aspect of the prohibition of retroactive tax law. In this respect, note that the position of the Claimant, before and after the entry into force of the State Budget Law for 2014, in no way changed, despite the special regime, and the transitional norm, beginning to indicate a holding period and imposing actual rental (i.e., execution of contract). Effectively, it was only the disposal of the unit by the Claimant – posterior to the entry into force of the State Budget Law for 2014 it should be noted – that triggered taxation under the norm (already) in force at the moment of disposal. This aspect invokes the traditional position of the Constitutional Court of prevalence, as a taxable event, of the moment of disposal of goods and not the moment of their acquisition – see, for all, Decision no. 85/2010, issued on 3 March 2010, and our annotation to the same.[6]
Moreover, as results from the FACTS, the IMT and IS assessments in question were not based on their retention by the Claimant for a period equal to or greater than three years without there being destination for permanent housing rental. In fact, and as also results from the FACTS, the unit in question was owned by the Claimant for less than two years. The benefit in question did not become extinct, nor lapse; merely it was regulated, with a defined holding period being introduced and the condition of actual lease being concretized, which cannot even be considered disproportionate since we understand that for compliance with the special regime in question – even in the initial version of paragraph a) of no. 7 of article 8 of the State Budget Law for 2009 – it should not be sufficient to have a mere declared intention at the acquisition of the real estate, actual rental for permanent housing being necessary. That – actual rental for permanent housing – is the presupposition of the benefit, whereby and in accordance with article 12 of the EBF, it cannot even be affirmed that the Claimant had accrued the right to the benefit, contrary to what it invokes in its initial petition, particularly articles 21 (whose factuality invoked therein, moreover, is not proven) and 22.[7] This understanding is reinforced by the use of the word "exclusively" in the wording of a) of no. 7 of article 8 of the Special Regime. And, if such is the case in this segment of the decision, we again adhere to the position expressed in the decision of the CAAD in case no. 398/2005-T, to the effect that there is not even at issue a test of retroactivity of the applied norm, but rather the fact that the unit in question was disposed of "without having fulfilled its purpose – destination for permanent residential rental" and that "dispos[ed of] the unit may be, that purpose can no longer be fulfilled, whereby the requirement established for the IMT exemption to be applicable was not met" (cit., p. 10).
In sum, the Claimant acquired and disposed of a unit.[8] And did so without having leased it between the date of acquisition and the date of disposal. However, it benefited, on the date of its respective acquisition, from the tax benefit of non-payment of IMT and IS applicable to the acquisition of units intended exclusively for permanent housing rental. A benefit whose regime was regulated by the State Budget Law for 2014, with the disposal above referred to occurring precisely at a moment posterior to the entry into force of the said law. To that extent, we understand that the IMT assessment in question, as well as the IS assessment which has as its foundation the same facts, are legal under the provisions of the Special Regime cited above.
Thus, and since the assessments in question resulted from the Claimant's declaration, it is not even necessary for us to dwell on the correctness of the assessments as regards their appropriateness. In any case, recall that no. 15 of the Special Regime, as added by the State Budget Law for 2009 establishes that when the real estate have not been subject to a lease contract within the three-year period the benefits become void, with the taxable person required to request from AT, within thirty days following the end of said period, the assessment of the respective tax. Now, as we have seen, in the case in question there was acquisition and disposal of a unit which never came to be destined for permanent housing rental by the Claimant, whereby it – as indeed it did – was incumbent on this party to request the assessment of the respective tax.
- DECISION
In light of the foregoing, it is decided to judge unfounded, in its entirety, the request for arbitral pronouncement.
The value of the case is fixed at Euros €36,572.75 (thirty-six thousand, five hundred and seventy-two Euros and seventy-five cents), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of CPPT and 306 of CPC.
The amount of costs is fixed at €1,836 (one thousand, eight hundred and thirty-six Euros) under article 22, no. 4 of RJAT and Table I annexed to RCPAT, to be borne by the Claimant, in accordance with the provisions of articles 12, no. 2 of RJAT and 4, no. 4 of RCPAT.
Notice thereof.
Lisbon, 20 May 2016
The Arbitrator
Nuno de Oliveira Garcia
[1] Dated 4 May 2016 and following an arbitral order of 28 April 2016.
[2] Although, in such decision, the matter was treated, above all, as an exception for untimeliness of the request, an exception which does not obtain in the present Arbitral Proceedings.
[3] Such arbitral decision enumerates several judgments, with which we also agree, cases "of the decisions of 30/01/01, 15/01/03, 25/05/04, 16/11/05, 10/01/07, 5/07/07 and 7/05/08, in cases nos. 26,392, 1629/02, 208/04, 1108/03 (Plenary), 736/05, 496/06, 479/06 (Plenary) and 1034/07" (cit.).
[4] See thus our text "Exemption from Municipal Tariff – Fee – Validity of Exemption Granted in 1955" in Ciência e Técnica Fiscal, no. 416 (2005), p. 334 and 335, in which we follow, very closely and in this respect, the classical position of Nuno Sá Gomes (Lisbon, 1991) General Theory of Tax Benefits, CCTF no. 165.
[5] As republished by Decree-Law no. 108/2008, of 26 June.
[6] We refer to the text "Concurrence of the Negative Difference Between Realized Capital Gains and Losses via Onerous Transfer of Capital Shares at Half Their Value", in Revista de Finanças Públicas e Direito Fiscal Year 3.09 (2010), pp. 349 et seq.
[7] As is jurisprudence regarding tax benefits, although relating to cases of purchase for resale, the initial intention of the company (in this case, of the Fund) may be relevant – cfr. Decision of the Court of Appeal North of 25 February 2016, in case 00191/12.8BEPRT. Now, even if it cannot be inexorably affirmed that this was not the intention of the Claimant, the truth is that from the FACTS also no indication emerges that would support the existence of any impulse or activity by the Claimant towards the execution of lease contracts.
[8] Being, obviously, irrelevant in the present case whether with gain or loss and what the respective tax treatment thereof.