Process: 717/2015-T

Date: June 17, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral case (Process 717/2015-T) addresses whether Article 236 of Law 83-C/2013 (2014 State Budget) unconstitutionally imposed retroactive conditions on IMT and Stamp Duty exemptions previously granted to FIIAH (Real Estate Investment Funds for Residential Leasing). The claimant challenged IMT assessment of €3,815.55 and Stamp Duty assessment of €1,365.07, arguing that properties acquired by FIIAH before January 1, 2014 enjoyed crystallized tax exemptions under Article 8(7)(a) and 8(8) of the FIIAH Tax Regime. The claimant contended that Article 236's retroactive application of a three-year holding period violated Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws, generating nullity of the assessments. The Tax Authority defended by arguing the arbitral tribunal lacked competence to assess constitutionality and that Article 236 merely established a prospective compliance period without altering pre-existing requirements or the tax legal relationship. The Authority maintained no retroactivity occurred since the law only regulated future proof conditions. Central legal issues include whether tax exemptions become definitively crystallized upon property acquisition, whether subsequent legislative changes imposing new conditions constitute prohibited retroactivity, and the CAAD tribunal's competence to address constitutional matters. The case raises fundamental questions about taxpayer protection under the non-retroactivity principle and the temporal limits of legislative power to modify tax benefits already recognized in the legal order.

Full Decision

ARBITRAL AWARD

Claimant: A… – …, S.A.

Respondent: Tax and Customs Authority

The arbitrator, Henrique Nogueira Nunes, appointed by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to constitute the Arbitral Tribunal, agrees as follows:

1. REPORT

A… – …, S.A., with tax identification number … (hereinafter referred to as "Claimant"), requested the constitution of the Arbitral Tribunal pursuant to Article 2, paragraph 1, subparagraph (a) of Decree-Law No. 10/2011 of 20 January (hereinafter "RJAT").

The request for arbitral determination concerns the declaration of nullity and illegality of the Municipal Tax on Onerous Property Transfers (IMT) assessment No. …, in the amount of € 3,815.55, as well as the Stamp Duty assessment No. …, in the amount of € 1,365.07.

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (hereinafter referred to as "TCA" or "Respondent") on 10 December 2015, with the aforementioned arbitrator being appointed to the Arbitral Tribunal, who accepted the appointment.

On 26 January 2016, both parties were duly notified of such appointment, expressing no wish to refuse the arbitrator's appointment, pursuant to the combined terms of Article 11, paragraph 1, subparagraphs (a) and (b) of RJAT and Articles 6 and 7 of the Code of Ethics.

The Arbitral Tribunal was constituted on 10 February 2016.

To support its request, the Claimant alleges, in summary, the following:

(i) The Claimant contends that the assessments in dispute herein are affected by illegality due to violation of Article 103, paragraph 3 of the Constitution of the Portuguese Republic and must, consequently, be declared void.

(ii) It considers that at the moment when the properties – subject of the assessments – entered the patrimony of Fund B…, the exemptions from IMT and Stamp Duty provided, respectively, in paragraphs 7, subparagraph (a), and 8 of Article 8 of the Tax Regime of Real Estate Investment Funds for Residential Leasing (FIIAH) were permanently crystallized in the tax legal order.

(iii) Therefore, it argues that, since no facts or circumstances upon which the expiry of the recognized exemption depended were legally provided for at the moment of recognition of the exemption, it is manifest, in its view, that the subsequent imposition of such facts or circumstances to exemptions crystallized in their tax legal order is affected by unconstitutionality, due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103, paragraph 3 of the Constitution of the Portuguese Republic.

(iv) It considers that Article 236 (Transitional Provision within the special regime applicable to FIIAH and SIIAH) of Law No. 83-C/2013 of 31 December (State Budget for 2014), by extending the application of the current Tax Regime of FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided for in paragraph 14 from 1 January 2014" is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined.

(v) It likewise contends for its unconstitutionality, which it states generates the nullity of the assessments in dispute herein.

(vi) Since it understands that Article 103, paragraph 3 of the Constitution of the Portuguese Republic determines that "no one can be obliged to pay taxes that have not been created in accordance with the Constitution (...)".

(vii) Considering that the principle of fiscal non-retroactivity bears the character of a fundamental right, endowed with the protective legal regime of such right, its non-observance, it argues, originates the nullity of the Assessments.

(viii) Admitting, subsidiarily, that the defect (illegality) of the assessments may result in their annullability (and not nullity), it contends that the assessments should be annulled in accordance with Articles 10, paragraph 1, subparagraph (a) of RJAT and Article 102, paragraph 1, subparagraph (a) of the Code of Tax Procedure and Process.

(ix) It understands, in sum, that, being the assessments based on Article 236 (Transitional Provision within the special regime applicable to FIIAH and SIIAH) of Law No. 83-C/2013 of 31 December (State Budget for 2014), they are affected by unconstitutionality due to violation of the principle of non-retroactivity of tax law, enshrined in Article 103, paragraph 3 of the Constitution of the Portuguese Republic, whereby the Respondent should not have assessed the IMT and Stamp Duty corresponding to such assessments, as requested by it, whereby it contends for the nullity of the assessments based on their unconstitutionality, or subsidiarily, if such is not deemed appropriate, for the annulment, due to illegality, of the assessments in question herein.

(x) Thus being the case, it requests the reimbursement of the entire amount of tax paid, increased, pursuant to Article 43 of the General Tax Law, by the indemnatory interest that is due until such reimbursement.

(xi) In its Reply, it reinforced the foregoing and attached an Expert Opinion.

The TCA responded, arguing that the request should be dismissed as unfounded, alleging in summary as follows:

(i) It defends itself by exception, alleging the incompetence of the Arbitral Tribunal ratione materiae to assess or declare the constitutionality or unconstitutionality of Article 236 of Law 83-C/2013 of 31 December, a pretension which it states corresponds to the underlying intention of the Claimant.

(ii) It alleges the incompetence of the Arbitral Tribunal to proceed with the abstract assessment of constitutionality, verifying what it considers to constitute a dilatory exception that impedes the continuation of the proceedings, leading to the dismissal of the claim regarding the pretension in question, in accordance with Articles 576, paragraphs 1 and 2 and Article 577(a) of the Code of Civil Procedure, applicable by virtue of Article 29, paragraph 1, subparagraph (e) of RJAT.

(iii) It likewise defends itself by objection, sustaining that the disputed assessments do not violate the essential content of a fundamental right, and even if any defect were to be verified, it should be characterized as annullability and not nullity.

(iv) Since, it argues, the law established no new requirement, but merely granted a period for performance of such requirement, a period which only commences after the entry into force of the new law.

(v) It is not, it says, a matter of altering the prerequisites, conditions of attribution or recognition of a tax benefit, but solely and exclusively regulating the period of time for purposes of verification of compliance with a requirement which it argues has already been previously established.

(vi) It concludes that there is no situation of recognition of rights, but only procedures for proof of rights whose attribution is previously regulated, whereby, it states, one cannot affirm that the new law applies to past facts, since it merely establishes the period for the future.

(vii) It sustains that the legislative alteration in question herein did not alter the tax legal relationship, but merely established the conditions of proof, conditions which are only applicable for the future.

(viii) Concluding that there exists in the case at hand no situation of retroactivity of tax law.

(ix) Whereby it understands that the disputed act should be maintained in the legal order, having been clearly demonstrated, it states, that the argumentation advanced by the Claimant should not proceed.

(x) Considering that it understands that there is no illegality or unconstitutionality of the assessment acts in question herein, nor legal grounds sustaining the Claimant's pretension, it contends for the total dismissal of the request, and likewise for the dismissal of the request for payment of indemnatory interest formulated by the Claimant, since it understands that there exists no error in its conduct, and much less an error attributable to its services, thereby, according to it, excluding the application of Article 43 of the General Tax Law.

(xi) In its Reply, it reinforced the foregoing.

Given the documentary evidence presented by the parties and considering that the issues to be resolved herein are purely matters of law, the Arbitral Tribunal, by order entered into the CAAD procedural system on 22-03-2016 and notified to the parties, decided to dispense with the meeting of the Arbitral Tribunal provided for in Article 18 of RJAT.

It further determined that the matter of exception raised by the Respondent be assessed and decided in the arbitral award and that it be dispensed from joining the administrative file, as requested.

However, the Tribunal, through an order, notified the Claimant to file the requests referred to in Articles 6 and 21 of its Arbitral Petition.

By order entered into the CAAD procedural system on 23-03-2016, the Respondent was likewise notified to file the document that gave rise to recognition of the tax exemption referred to in Article 21 of the Arbitral Petition.

Finally, by order entered into the CAAD procedural system on 02-05-2016, the parties were notified to present successive replies. The deadline for issuance of the arbitral award was set until 30 June 2016.

2. PROCEDURAL ISSUES

The Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, paragraph 1, subparagraph (a), 5, paragraph 2, and 6, paragraph 1 of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10, paragraph 2 of RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March.

The proceedings are not affected by nullities and no issues have been raised that impede the assessment of the merits of the case, with the exception of a question of incompetence of the Arbitral Tribunal which shall be assessed in the present award.

3. FACTS

A) FACTS PROVED

Based on the facts alleged by the parties and not contested, as well as on the documentation attached to the file, the following relevant factual matter is established:

A) The Claimant was the owner of an urban property intended for residential purposes registered in the urban property register of the parish of …, municipality of …, under article … (see Document No. 1 attached to the file by the Claimant).

B) The property described in A) above was acquired by the Claimant by deed executed on 21 June 2012, for the value of € 170,634.25, benefiting from the exemptions from IMT and Stamp Duty contained, respectively, in paragraphs 7, subparagraph (a), and 8 of Article 8 of the Tax Regime of Real Estate Investment Funds for Residential Leasing, which were recognized upon request of the Claimant, pursuant to the provisions of Article 10 of the IMT Code (see Documents presented by the Claimant on 04-04-2016 in response to a request formulated by arbitral order and Article 21 of the arbitral petition and Documents presented by the Respondent on 08-04-2016 in response to a request formulated by arbitral order).

C) The Claimant requested from the Tax and Customs Authority – Finance Service of Lisbon …, on 12-10-2015, a request for assessment of IMT and Stamp Duty, requesting their payment, as it declared its intention to alienate (through an exchange) the property described in A) above, and, consequently, to give it a different purpose from that upon which the benefit granted was based (see Documents presented by the Claimant on 04-04-2016 in response to a request formulated by arbitral order and Documents presented by the Respondent on 08-04-2016 in response to a request formulated by arbitral order).

D) Such request gave rise to the assessment of IMT number …, in the amount of € 3,815.55, and to the assessment of Stamp Duty number …, in the amount of € 1,365.07, which the Claimant paid on 13-10-2015 (see Documents Nos. 1 and 2 attached to the file by the Respondent).

E) The assessments of IMT and Stamp Duty made by the Respondent in question herein were justified on the basis that the property described in A) above was given a different purpose from rental, the expiry of the tax benefit granted initially having occurred.

B) FACTS NOT PROVED

There are no further facts with relevance to the merits of the decision that were not proved.

C) GROUNDS FOR THE DECISION ON FACTS

As to the essential facts, the agreed factual matter is identically shaped by both parties and the Tribunal's conviction was formed on the basis of the documentary elements attached to the file and discriminated above, whose authenticity and truthfulness were not questioned by either party.

4. ISSUES FOR DECISION

Two are the issues that need to be assessed and decided:

  1. To determine the dilatory exception of incompetence of the Arbitral Tribunal invoked by the Respondent;

  2. To assess the legality of the IMT and Stamp Duty assessments in dispute herein.

5. LAW

In accordance with the issues enunciated, which are set out in point 4 of the present Award, and having regard to the factual matter established in point 3, it is necessary to determine the applicable law.

First and foremost, it is necessary to assess the matter of exception invoked by the TCA in its Response, relating to the exception based on alleged incompetence of the Arbitral Tribunal.

1) On the Incompetence of the Arbitral Tribunal

The Respondent invokes that the Tribunal has no competence to assess the abstract review of the legality and constitutionality of Article 236 of Law No. 83-C/2013 of 31 December, insofar as such intention corresponds to the true request of the Claimant, verifying, thus, a dilatory exception that impedes the continuation of the proceedings and leads to dismissal of the claim regarding the pretension in question herein.

It is stated forthwith that the Respondent is not correct.

Although the Claimant subsumes its request for arbitral determination to the pretension that the Tribunal assess "whether Article 236 (Transitional Provision within the Special Regime Applicable to FIIAH and SIIAH) provided for by Law No. 83-C/2013 of 31 December - insofar as it determines the application of the current Tax Regime of FIIAH 'to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided for in paragraph 14 from 1 January 2014' - constitutes a new regime of expiry of the exemptions provided for in paragraphs 7, subparagraph (a) and 8 of Article 8 (Tax Regime) of the Tax Regime of Real Estate Investment Funds for Residential Leasing, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in Article 103 (Tax System), paragraph 3, of the Constitution of the Portuguese Republic."

The fact is that in the request formulated in the arbitral petition the Claimant petitions for the nullity (or, subsidiarily, the annullability) of concrete assessment acts based on the invalidity of the aforementioned norm, that is, the Claimant intends, solely, that the Arbitral Tribunal pronounce itself regarding the application of the cited provision to the concrete facts submitted for its assessment, evaluating the nullity (or, subsidiarily, the annullability) of the assessments put in dispute herein on the ground that they are based on the application of a norm that violates the constitution and the law.

This was further reinforced in its Reply clarifying completely its pretension.

The Tribunal is, in this measure, materially competent, the exception invoked by the Respondent being deemed unfounded.

Proceeding to the matter of objection, regarding the issues raised by the Claimant.

2) On the Legality of the IMT and Stamp Duty Assessments in Dispute Herein

Article 102 (provision inserted in Chapter X, under the heading "Tax Benefits") of Law No. 64-A/2008 of 31 December (State Budget for 2009) approved the special regime applicable to real estate investment funds for residential leasing (hereinafter referred to as "FIIAH") and to real estate investment companies for residential leasing ("SIIAH").

According to paragraph 7 of Article 8 of FIIAH, which contains the respective tax regime, the following are exempt from IMT:

"a) The acquisitions of urban properties or of autonomous units of urban properties intended exclusively for rental for permanent residential purposes, by the investment funds referred to in paragraph 1;

b) The acquisitions of urban properties or of autonomous units of urban properties intended for permanent own residential use, as a result of the exercise of the purchase option referred to in paragraph 3 of Article 5 by the tenants of the properties that form part of the patrimony of the investment funds referred to in paragraph 1."

For its part, according to paragraph 8 of Article 8 of FIIAH:

"All acts performed are exempt from stamp duty, provided they are connected with the transfer of urban properties intended for permanent residential use occurring by virtue of the conversion of the right of ownership of such properties into a right of lease over the same, as well as with the exercise of the purchase option provided for in paragraph 3 of Article 5."

Article 235 of Law No. 83-C/2013 of 31 December (State Budget for 2014) came to alter the tax regime of FIIAH, by introducing 3 further paragraphs to the aforementioned Article 8:

"14 — For purposes of the provisions of paragraphs 6 to 8, urban properties are deemed to be intended for rental for permanent residential purposes whenever they are the subject of a lease contract for permanent residential purposes within the period of three years counted from the moment when they came to form part of the patrimony of the fund, with the taxable person to communicate and provide proof to the TCA of the respective effective lease, within 30 days following the end of the aforementioned period.

15 — When the properties have not been the subject of a lease contract within the three-year period provided for in the preceding paragraph, the exemptions provided for in paragraphs 6 to 8 cease to have effect, with the taxable person in such case to request from the TCA, within 30 days following the end of the aforementioned period, the assessment of the respective tax.

16 — Should the properties be alienated, except in the cases provided for in Article 5, or should the FIIAH be subject to liquidation, before the period provided for in paragraph 14 has elapsed, the taxable person must likewise request from the TCA, before the alienation of the property or the liquidation of the FIIAH, the assessment of the tax owed pursuant to the preceding paragraph."

For its part, in Article 236 of this Law, the following transitional provision is equally contained:

"1 - The provisions of paragraphs 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, are applicable to properties that have been acquired by FIIAH from 1 January 2014.

2 - Without prejudice to the provisions of the preceding paragraph, the provisions of paragraphs 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, are equally applicable to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided for in paragraph 14 from 1 January 2014."

It is against this transitional provision that the Claimant objects in its arbitral request, considering it unconstitutional, due to violation of the principle of non-retroactivity of tax law, embodied in Article 103, paragraph 3 of the Constitution of the Portuguese Republic, insofar as, in its view, such constitutes a new regime of expiry of the exemptions from IMT and Stamp Duty granted.

Assessing this.

It results from the proved facts that the property in question was acquired by the Claimant benefiting from exemption from IMT and Stamp Duty[1] pursuant to the provisions of subparagraph (a) of paragraph 7 of Article 8 of the tax regime of FIIAH.

Such provision requires that the property be intended for rental for permanent residential purposes in order to benefit from such exemption.

That is the ratio legis of the tax benefit granted, that is, the obligation to intend the property for residential rental is not a requirement of the alterations introduced by Articles 235 and 236 of Law No. 83-C/2013 of 31 December, but rather a requirement of the FIIAH regime itself.

As it appears to us, with due respect, the Claimant's request suffers from a fundamental error, namely the fact that it seeks to see annulled the acts of assessment of IMT and Stamp Duty in dispute herein based on the application of a legal provision purportedly unconstitutional - Article 236 of Law No. 83-C/2013 of 31 December – when the same[2] occurred at the request of the Claimant due to the expiry of the tax benefit initially granted, considering that the property in question was alienated, having been given a different purpose from rental[3].

Although the Claimant justified its request for assessment of the taxes in question herein, in a request dated 21 September 2015, which is in the file, on the basis of Article 236 of Law No. 83-C/2013 of 31 December, the fact is that was not the reason or justification contained in the assessments themselves, as we have already evidenced.

Thus, it appears to us that the issue to be assessed and decided in the present proceedings is not that of unconstitutionality of the provision, since it was proved in the present proceedings that the property to which the disputed assessment acts related was alienated for purposes different from those for which such tax benefits were initially granted, as, correctly, the Respondent evidences in its replies.

The intention of the legislator with the tax regime initially established in Article 8 of Law No. 64-A/2008 of 31 December was clear, the attribution of a tax benefit in IMT and Stamp Duty to FIIAH was conditioned on the fact that the acquisitions of urban properties or of autonomous units of urban properties would be intended for rental for permanent residential purposes, by FIIAH.

In other words, taxable persons who wished to benefit from the aforementioned exemptions, have always had, from the beginning of the tax regime applicable to FIIAH, in 2009, to comply with the legal requirement of exclusive dedication of such properties to rental for permanent residential purposes.

It is the natural consequence, as correctly argued by the Respondent, of the motivations that led to the creation of a special temporary regime applicable to such Funds, intrinsically linked to the economic crisis that began in 2008 and the consequent increased difficulty of persons and families in complying with the payment of installments of loan contracts concluded for the acquisition of permanent own residential housing, seeking thus the legislator to create a mechanism capable of acting in the context of situations of difficulty and of encouraging rental for permanent residential housing.

It is manifest that, from the beginning of the regime, already in 2009, the tax benefits in question applicable to FIIAH always depended on the dedication of the properties to rental for permanent residential purposes.

The new wording introduced by Law No. 83-C/2013 of 31 December, came, according to the interpretation that the Tribunal makes of the alteration effected by the legislator, and in line with the spirit of the latter upon the initial creation of the regime, to reinforce this aim, by stipulating a maximum period of three years for such properties to be effectively rented by FIIAH.

Article 235 of Law No. 83-C/2013 of 31 December (State Budget for 2014) came, it is true, to establish new requirements for the exemption, by establishing a period of 3 years following the entry of the property into the Fund for the rental of the acquired property to be realized, and likewise, should the liquidation of the fund occur before that period had elapsed, in which case the acquirer would have to request the assessment of the IMT and Stamp Duty that had not been assessed at the time of acquisition.

However, it is not this that was the reason for which the Claimant proceeded to request the assessments of the taxes in question herein, which results clearly from the factual matter established as proved in the proceedings, despite the effort made by the latter to evidence another factual reality.

The assessments of IMT and Stamp Duty made regarding the property in question herein were not based on its retention in the fund for a period equal to or greater than 3 years without there having occurred rental for permanent residential purposes.

The assessments in question, as indeed transpires from the assessments themselves, were based on the fact that the property was given "a different purpose from rental, thereby resulting in the expiry of the benefit".

The legislative intervention envisaged by the legislator in the context of the State Budget for 2014 was, as it appears to us, in the direction of reinforcing the regime applicable to properties that were acquired with the aim of being dedicated to residential rental, by determining a maximum period of 3 years for such rental to be realized, under penalty of, if not, abusive situations being able to subsist whereby properties would be acquired that would remain in portfolio with exclusive dedication to residential rental without the same ever occurring.

It is important to recall that the attribution of tax benefits constitutes a measure of exceptional character instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation itself that they prevent.

It would be, easily understood, totally in dissonance with the legislator's purpose that properties acquired with tax benefits pursuant to this special regime could be freely alienated without ever having been rented, without such implying the expiry of the tax benefits initially granted.

Thus, the Tribunal disagrees with the position expressed by the Claimant and by the distinguished legal experts consulted by it when, in the Expert Opinion attached to the file at pages 23 and 24, they argue: "according to the 2008 law, a property could be acquired for residential rental, benefiting from the exemptions, but thereafter be alienated for unforeseen reasons, such as crisis, etc."

And that, "It is, therefore, also not tenable to make a distinction between the hypotheses of retention of the property in the patrimony of the FIIAH without rental, on the one hand, and of alienation within the period without rental, on the other. (…) the provision of "expiry" of the exemptions in case of alienation within the three-year period is also new, it did not exist before. According to the 2008 law, being acquisitions of properties intended for rental for permanent residential purposes, by FIIAH - which had to hold at least 75% of its patrimony in properties intended for such rental – this was sufficient for the exemptions, it not being provided that the exemption would "expire" if there were alienation within the three-year period."

Except for the due respect, which is considerable, for the distinguished legal experts, the Tribunal cannot adhere to this position, since, it is easy to conclude, the same would lead to situations of manifest abuse of rights in which properties would be acquired with exemption from IMT and Stamp Duty with the aim of being given to residential rental, to, at a later moment and without them ever having fulfilled their purpose, be alienated for other purposes, maintaining the tax benefits granted initially.

The consequence of giving the property a different purpose is that the exemption initially granted could not have been granted, it being necessary to restore legality, by assessing the taxes that, but for the declaration of intent made at the time of acquisition to dedicate them to residential rental, would always have had to be assessed.

That was not, certainly, the intention of the legislator as has already been stated.

Thus being the case, we understand that what is not in question is the retroactivity or not of the provision provided for in Article 236 of Law No. 83-C/2013 of 31 December, which would be the case if, by way of example, the property remained for a period of 3 years in the FIIAH without it yet having been dedicated to rental for permanent residential purposes and, for that reason, there occurred assessment of IMT and Stamp Duty.

However, in the case at hand, that is not what is at issue. The property in question was alienated without having fulfilled its purpose - dedication to permanent residential rental. It is not, therefore, a question of a period, alienated as it is, that purpose can no longer be fulfilled, whereby the requirement initially established in the special regime of FIIAH for the exemption from IMT and Stamp Duty to be applicable was not met.

We note that the right to tax benefits must be assessed as of the date of verification of the respective prerequisites, as is postulated in Article 12 of the Tax Benefits Statute ("TBS").

The fact that the Claimant proceeded to alienate the property which, when acquiring it, it declared it would dedicate to the purpose which allowed it to be recognized – as it was – the exemption from IMT and Stamp Duty, would always determine, even if the added paragraph 16 of Article 8 of FIIAH did not expressly provide for it, the expiry of such exemptions, by effect of the application of the provisions of Article 12 and paragraph 3 of Article 14 of the TBS (former Article 12, paragraph 3, in the wording of the TBS that was in force prior to its re-publication by Decree-Law No. 108/2008 of 26/06), according to which: "When the tax benefit concerns the acquisition of property intended for the direct realization of the purposes of the acquirers, it ceases to have effect if such property is alienated or given a different purpose without authorization from the Minister of Finance, without prejudice to the other sanctions or different regimes established by law."

The Claimant at no moment demonstrated that it obtained the authorization there provided for, or any other circumstance that prevented the granted exemptions from ceasing to have effect as a consequence of the aforementioned alienation.

It is for this reason that, as we have already previously stated, we understand that the question of alleged unconstitutionality of the provision provided for in Article 236 of Law No. 83-C/2013 of 31 December does not arise in the case at hand, insofar as, in the part corresponding to the alienation of the property, paragraph 16 of Article 8 of the Tax Regime of FIIAH merely reiterates what already resulted from the provisions of the TBS.

Which, moreover, is well understood, having regard to the ratio legis of the granting of these tax benefits in concreto, as we have been explaining throughout this award.

In sum, the Tribunal understands that the alienation of the property in question herein would always determine the expiry of the exemption by application of the provisions of paragraph 3 of Article 14 of the TBS, it not being, therefore, in question, in the situation sub judice, any retroactive application of a provision that comes to introduce a new regime of expiry of the exemptions, nor is it seen that any violation of rights or legitimate expectations acquired by the Claimant has occurred, whereby it is concluded by the maintenance of the assessments in dispute herein, as legal.

Thus, the analysis of the issue raised by the Claimant regarding the alleged retroactivity of Article 236 of Law No. 83-C/2013 of 31 December (State Budget for 2014) which came to alter the tax regime of FIIAH is rendered moot, since, as above was extensively demonstrated, the prerequisites that guided the issuance of the tax assessments in dispute herein in no way relate to the alteration to the tax regime of FIIAH introduced in 2014.

Having the Tribunal decided on the legality of the assessments in dispute, the examination of the request for condemnation to indemnatory interest formulated by the Claimant is likewise rendered moot.

6. DECISION

In light of the foregoing, this Arbitral Tribunal hereby agrees to:

  • Judge the request for arbitral determination to be wholly unfounded.

The process value is fixed at Euro 5,180.62, in accordance with the provisions of Articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subparagraph (a) of CPPT and Article 306 of the Code of Civil Procedure.

The amount of costs, in the sum of Euro 612.00, pursuant to the provisions of Article 22, paragraph 4 of RJAT and of Table I attached to RCPAT, shall be borne exclusively by the Claimant, in accordance with the provisions of Articles 12, paragraph 2 of RJAT and 4, paragraph 4 of RCPAT.

Notify accordingly.

Lisbon, 17 June 2016

The Arbitrator,

Dr. Henrique Nogueira Nunes

Document prepared on computer in accordance with Article 131, paragraph 5 of the Code of Civil Procedure, applicable by referral from Article 29, paragraph 1, subparagraph (e) of Decree-Law No. 10/2011 of 20 January, with blank verses and revised.

The text of the present arbitral award is governed by the spelling prior to the 1990 Orthographic Agreement.

[1] Although the assessment of IMT and Stamp Duty in dispute herein bases the original exemption on the terms of the provision of Article 7, paragraph 7, subparagraph (a), this is due to an oversight, as the applicable provisions are, respectively, Article 8, paragraph 7, subparagraph (a) and Article 8, paragraph 8 of FIIAH.

[2] The assessments.

[3] This same is described in the assessments in dispute herein.

Frequently Asked Questions

Automatically Created

What IMT and Stamp Tax exemptions apply to properties acquired by FIIAH real estate investment funds in Portugal?
Under the FIIAH Tax Regime, properties acquired by Real Estate Investment Funds for Residential Leasing benefit from exemptions outlined in Article 8(7)(a) for IMT (Municipal Property Transfer Tax) and Article 8(8) for Stamp Duty. These exemptions apply to property acquisitions made by FIIAH funds, subject to compliance with the regime's specific requirements. However, Article 236 of Law 83-C/2013 (2014 State Budget) introduced transitional provisions establishing that for properties acquired before January 1, 2014, a three-year holding period would apply, counting from that date. The dispute centers on whether properties acquired before this legislative change enjoyed permanently crystallized exemptions or remained subject to subsequent regulatory modifications imposing temporal conditions for exemption maintenance.
Does Article 236 of Law 83-C/2013 violate the constitutional principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
The claimant argues that Article 236 of Law 83-C/2013 violates Article 103(3) of the Portuguese Constitution by retroactively imposing new conditions on tax exemptions that were already crystallized in the legal order when properties were acquired by FIIAH funds before January 1, 2014. The constitutional provision prohibits retroactive tax laws, protecting taxpayers from obligations not established at the time of the taxable event. The Tax Authority counters that no retroactivity exists because Article 236 merely established a prospective compliance period without creating new substantive requirements, regulating only future proof conditions rather than altering past legal relationships. The Authority maintains the law set a timeframe for demonstrating compliance with pre-existing requirements, with the three-year period running exclusively forward from 2014, thus avoiding prohibited retroactive application.
Can tax exemptions for FIIAH funds be revoked retroactively after properties have already been acquired?
The central dispute concerns whether tax exemptions become irrevocably crystallized upon property acquisition or remain subject to subsequent legislative modification. The claimant contends that once properties entered the FIIAH fund patrimony under the original exemption regime, those exemptions became definitively incorporated into the tax legal order, immune from retroactive revocation or conditioning. Under this view, imposing new requirements—such as a three-year holding period—on already-acquired properties violates the constitutional non-retroactivity principle. The Tax Authority argues that exemptions are not permanently crystallized but remain subject to compliance verification, and that establishing proof conditions and timeframes for future application does not constitute retroactive revocation. This fundamental disagreement reflects broader tensions between tax benefit stability and legislative flexibility to modify tax regimes prospectively.
How does the CAAD arbitral tribunal handle disputes over IMT and Stamp Tax liquidations involving FIIAH special tax regimes?
CAAD (Administrative Arbitration Centre) arbitral tribunals have jurisdiction under Article 2(1)(a) of Decree-Law 10/2011 to resolve disputes concerning the legality of tax assessments, including IMT and Stamp Duty liquidations involving FIIAH special tax regimes. However, a procedural issue arises regarding the tribunal's competence to assess constitutionality. The Tax Authority raised a preliminary exception arguing the arbitral tribunal lacks ratione materiae competence to declare Article 236 unconstitutional, contending this constitutes abstract constitutional review beyond the tribunal's authority. The tribunal must determine whether examining the constitutional validity of the legal basis for an assessment falls within its ordinary jurisdiction to assess legality, or whether it exceeds its competence. This raises questions about the scope of incidental constitutional review available to CAAD tribunals when constitutional violations form the basis for challenging assessment legality.
What is the legal effect of crystallized tax exemptions under the FIIAH Tax Regime when subsequent legislation imposes new conditions for exemption lapse?
The legal effect of crystallized tax exemptions under the FIIAH regime when subsequent legislation imposes new conditions represents the core legal question. The claimant argues that exemptions crystallized at acquisition become definitive rights that cannot be subsequently conditioned or withdrawn without violating constitutional non-retroactivity protections. Once crystallized, these exemptions allegedly form part of taxpayers' acquired rights immune from retroactive legislative modification. The Tax Authority maintains that crystallization does not occur merely upon acquisition; rather, exemptions remain conditional on ongoing compliance with regime requirements. According to this view, establishing timeframes for demonstrating compliance does not retroactively alter crystallized rights but merely regulates prospective proof obligations. The resolution depends on whether exemption crystallization creates definitive rights or merely presumptive benefits subject to subsequent verification of continued eligibility under evolving regulatory frameworks.