Process: 729/2015-T

Date: May 2, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 729/2015-T) addresses whether Article 236 of Law 83-C/2013 unconstitutionally applies retroactive tax rules to real estate investment funds (FIIAH). The applicant, a FIIAH managing company, challenged IMT assessments of €4,925.31 and Stamp Tax of €1,495.82 triggered when disposing of property originally acquired with tax exemptions under Article 8(7)(a) and 8(8) of the FIIAH Tax Regime. The core legal issue concerns Article 236's transitional rule, which applied new tax regime requirements to properties acquired before January 1, 2014, counting the mandatory three-year holding period from that date rather than the original acquisition date. The applicant argued this violates Article 103(3) of the Portuguese Constitution prohibiting retroactive tax legislation, constituting either a nullity for violating fundamental rights or alternatively an annullable illegal act. The Tax Authority raised jurisdictional and substantive defenses, arguing the arbitral tribunal lacks competence to declare laws unconstitutional and that Article 236 merely established a compliance timeline for existing requirements rather than creating new retroactive obligations. The Authority contended that even if illegal, such assessments would be annullable under general administrative law principles, not null, as they do not violate the essential content of fundamental rights but rather the legality principle. The case references similar precedent in Case 398/2015-T and highlights tensions between investor expectations, tax benefit stability, and legislative authority to modify transitional regimes governing real estate investment fund taxation in Portugal.

Full Decision

ARBITRAL DECISION

1. REPORT

1.1. A…, S.A., taxpayer no.…, with registered office at Avenida de …, no.…, Lisbon, in its capacity as managing company of B… - REAL ESTATE INVESTMENT FUND CLOSED FOR RESIDENTIAL RENTAL, taxpayer no.…, requested the constitution of arbitration, pursuant to Article 2.º, no. 1, subparagraph a), and Article 10.º, both of Decree-Law no. 10/2011, of January 20 (hereinafter RJAT).

1.2. The TAX AND CUSTOMS AUTHORITY is the Respondent in this case.

1.3. The Ethics Council of the Administrative Arbitration Center (CAAD) appointed the undersigned to form the Sole Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on February 11, 2016.

1.4. The request for arbitral pronouncement concerns the assessment of IMT no. …, in the amount of €4,925.31, and the assessment of IS no. …, in the amount of €1,495.82, both relating to the autonomous fraction, which was property of the Applicant, registered in the urban real estate registry under article … of the parish of…, Amadora, located in Rua…, … …, Lot… - …, assessments and fraction which are better identified in the Applicant's petition and in the documents attached thereto, to which reference is made here.

The Applicant invokes the illegality of the assessments based on their unconstitutionality which, in its view, leads to their respective nullity, which it seeks to have declared by the Tribunal, or to their voidability, whereby it alternatively requests the assessments be annulled.

The Applicant further petitions the condemnation of the Respondent to the reimbursement of the amounts paid by virtue of the assessments in dispute, plus default interest on all amounts paid accrued until the date of reimbursement.

The Applicant grounds its request alleging that Article 236.º (Transitional Rule within the scope of the Special Regime Applicable to FIIAH and SIIAH) provided for by Law no. 83 – C/2013, of December 31 - insofar as it determines the application of the current Tax Regime of FIIAH to properties that have been acquired by FIIAH before January 1, 2014, counting, in those cases, the three-year period provided in no. 14 from January 1, 2014 - constitutes a new regime of expiration of the exemptions provided in no. 7, subparagraph a) and no. 8 of Article 8.º (Tax Regime) of the Tax Regime of FIIAH and reveals a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in Article 103.º, number 3, of the Constitution of the Portuguese Republic, which, in its view, leads to its unconstitutionality.

The Applicant understands that the assessments in dispute are, as a consequence, affected by a defect which has the consequence of nullity, pursuant to subparagraph d) of no. 2 of Article 133.2 of the Code of Administrative Procedure (CPA) because they offend the essential content of a fundamental right.

Being that, it also understands, the assessments will always be voidable, as being illegal, with the same ground.

1.5. The TAX AND CUSTOMS AUTHORITY responded, defending itself by exception and by objection.

By exception the Respondent defended itself by stating that the Arbitral Tribunal lacks jurisdiction to assess or declare the constitutionality or unconstitutionality of Article 236.º of Law 83-C/2013, of December 31, as in essence the Applicant would intend.

It defended itself by objection arguing that in the Portuguese legal-administrative system the general regime of invalidity of acts is, for reasons of legal certainty, mere voidability, including for those carried out on the basis of illegal or unconstitutional resolutions, with the Supreme Administrative Court having pronounced itself in this same sense.

The Respondent states that the declaration of nullity appears reserved for those acts that offend the essential content of a fundamental right, contending with the rights, liberties and guarantees of citizens, but not those which contend with the principle of legality, as it says, is the case in this matter. The case in question, being, without such being conceded, violators of the principle of tax legality, would be, thus, voidable, but not null. It adds that the law in question is not affected by retroactivity, having established no new requirement.

It adds that the law in question is not affected by retroactivity, having established no new requirement for the application of the exemption provided in the tax regime of FIAH, but only having granted a period for the fulfillment of a requirement already underlying the regime itself, a period which only begins after the entry into force of the new law.

This is not, therefore, a matter of altering the premises, conditions of attribution or recognition of a tax benefit, but only and solely regulating the period of time for purposes of verification of compliance with a requirement previously established. Whereby the Respondent understands that the rule in question is not unconstitutional.

Whereby the Respondent concludes that the requests should be judged unfounded.

1.6. Notified to pronounce itself on the exception raised by the Respondent, the Applicant came to clarify that it does not intend for the Tribunal to assess in the abstract the constitutionality of the invoked rules, only the illegality of the assessment resulting from their application to the concrete case.

1.7. Having been notified of the tribunal's intention to dispense with the holding of the arbitral tribunal meeting provided for in Article 18.º of RJAT, the parties did not come to object.

1.8. The Respondent came to the case, on 06.04.2016, to request the attachment of Arbitral Decision delivered in Case 398/2015-T which assessed a question, in its understanding, in all respects identical to that of the present case, and the Applicant, notified, came to express its disagreement with respect to the decision delivered and to inform that it filed an appeal thereof. The Tribunal admits the attachment of both requests and gave due weight, both to the previously delivered decision and to the position of the Respondent.

2. CASE MANAGEMENT

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2.º of RJAT.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented.

The case does not suffer from any defects that invalidate it.

3. FACTUAL MATTERS

With relevance for the decision on the merits, the Tribunal considers the following facts to be proven:

  1. The Applicant was the owner of the autonomous fraction registered in the urban real estate registry under article ... of the parish of ..., Amadora, located in Rua..., ..., Lot...–...., better identified above and in the Applicant's petition and documents 1 and 2 attached thereto.

  2. The fraction had been acquired benefiting from the exemptions from IMT and IS contained, respectively, in numbers 7, subparagraph a), and 8 of Article 8.º of the Tax Regime of FIIAH, which were recognized at the request of the Montepio Housing Fund, pursuant to Article 10.º of the IMT Code.

  3. The Applicant presented, on 02.10.2015, a statement for the assessment of IMT and IS, requesting the payment of IMT and Stamp Tax based on its intention to dispose of the fraction and, consequently, to give it a destination different from that on which the benefit was based, with the consequent expiration of the exemption.

  4. Such statements gave rise to the assessment of IMT no..., in the amount of €4,925.31, and the assessment of IS no..., in the amount of €1,495.82, which the Respondent paid on 05.10.2015.

Unproven Facts

No essential facts with relevance for the assessment of the merits of the case were found which were not proven.

Grounds of the Decision on Factual Matters

The conviction regarding the facts given as proven was based on documentary evidence submitted by the Applicant, whose authenticity and correspondence to reality were not questioned by the Respondent.

4. QUESTIONS TO BE DECIDED

There are two questions to be decided in the present case:

A) To rule on the exception of the challengeability of acts due to lack of jurisdiction of the Arbitral Tribunal;

B) To assess the legality of the IMT and IS assessments sub judice and to decide on the consequences of their possible illegality;

A) OF THE ALLEGED LACK OF MATERIAL JURISDICTION OF THE ARBITRAL TRIBUNAL

The Respondent, by exception, affirms that the Tribunal is not competent to decide on the constitutionality or unconstitutionality of the rules which, in the Applicant's view, gave rise to the assessments in dispute.

It is true that the Applicant subsumes its request for arbitral pronouncement to the claim that the Tribunal assess "whether Article 236.º (Transitional Rule within the scope of the Special Regime Applicable to FIIAH and SIIAH) provided for by Law no. 83 – C/2013, of December 31 - insofar as it determines the application of the current Tax Regime of FIIAH "to properties that have been acquired by FIIAH before January 1, 2014, counting, in those cases, the three-year period provided in no. 14 from January 1, 2014" - constitutes a new regime of expiration of the exemptions provided in no. 7, subparagraph a) and no. 8 of Article 8.º (Tax Regime) of the Tax Regime of FIIAH, revealing a flagrant and unequivocal violation of the principle of non-retroactivity of tax law, embodied in Article 103.º (Tax System), number 3, of the Constitution of the Portuguese Republic".

The Arbitral Tribunal would not have, it appears to us evident, jurisdiction for such a declaration, of conformity or non-conformity of the rules in question with the Constitution of the Portuguese Republic.

However, in truth, it is not that which the Applicant petitions, as it came, moreover, after being invited, to clarify, only that the Arbitral Tribunal pronounce itself as to the application of the cited rules to the concrete facts submitted for its assessment, evaluating whether or not such application is lawful.

The Tribunal is, to this extent, materially competent, the exception invoked by the Respondent being judged unfounded.

B) OF THE LEGALITY OF THE IMT AND STAMP TAX ASSESSMENTS IN DISPUTE

It remains then to decide on the merits of the request for arbitral decision on the IMT and IS assessments sub judice.

Let us see:

Article 102.º (rule inserted in Chapter X, under the heading "Tax Benefits") of Law no. 64-A/2008 of December 31 approved the special regime applicable to real estate investment funds for residential rental (hereinafter "FIIAH").

According to no. 7 of its Article 8.º of FIIAH, exemptions from IMT are granted for:

"a) Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds referred to in no. 1;

b) Acquisitions of urban properties or autonomous fractions of urban properties intended for permanent personal housing, as a result of the exercise of the purchase option referred to in no. 3 of Article 5.º by tenants of the properties that make up the assets of the investment funds referred to in no. 1."

Article 235.º of 83-C/2013, of December 31 (State Budget for 2014) introduced 3 additional numbers to the said Article 8.º:

"14 — For the purposes of what is provided in nos. 6 to 8, it is considered that urban properties are intended for rental for permanent housing whenever they are the subject of a rental contract for permanent housing within three years counted from the moment they entered the assets of the fund, and the taxpayer must communicate and provide evidence to AT of the respective actual rental, within 30 days following the end of the said period. 15 — When properties have not been the subject of a rental contract within the three-year period provided for in the preceding number, the exemptions provided for in nos. 6 to 8 expire, and in that case the taxpayer must request from AT, within 30 days following the end of the said period, the assessment of the respective tax. 16 — Should the properties be disposed of, with the exception of the cases provided for in Article 5.º, or should the FIIAH be subject to liquidation, before the expiry of the period provided for in no. 14, the taxpayer must equally request from AT, before the disposal of the property or the liquidation of the FIIAH, the assessment of the tax due pursuant to the preceding number.".

In Article 236.º there is the following transitional provision: "The provisions of nos. 14 to 16 of Article 8.º of the special regime applicable to FIIAH and SIIAH, approved by Articles 102.º to 104.º of Law no. 64-A/2008, of December 31, apply to properties that have been acquired by FIIAH from January 1, 2014. 2 - Without prejudice to what is provided in the preceding number, the provisions of nos. 14 to 16 of Article 8.º of the special regime applicable to FIIAH and SIIAH, approved by Articles 102.º to 104.º of Law no. 64-A/2008, of December 31, are equally applicable to properties that have been acquired by FIIAH before January 1, 2014, counting, in those cases, the three-year period provided for in no. 14 from January 1, 2014."

It is against this transitional rule that the Applicant protests, considering it unconstitutional, for violation of the principle of non-retroactivity of tax law, embodied in Article 103.º, number 3, of the CRP, insofar as, in its view, it constitutes a new regime of expiration of the exemptions.

Upon examination, it results from the proven facts that the fraction in question was acquired by the Applicant benefiting from exemption from IMT pursuant to subparagraph a) of no. 7 of Article 8.º of the legal regime of FIIAH.

Such rule requires that the property be intended for rental for permanent housing in order to benefit from such exemption.

That is, the obligation to intend the property for residential rental is not a requirement of the amendments introduced by Articles 235.º and 236.º of 83-C/2013, of December 31, but rather a requirement of the tax regime of FIIAH. It is the natural consequence, as the Respondent correctly alleges, of the motivations that led to the creation of a special temporary regime applicable to these Funds, linked to the economic crisis and the consequent increased difficulty of individuals and families in paying the installments of loan contracts concluded for the acquisition of permanent personal housing, thus intending the regime to address situations of difficulty and to encourage rental for permanent personal housing.

The State Budget for 2014 does, it is true, establish new rules for the exemption: if the allocation to rental for permanent housing does not occur within the period of 3 years following the entry of the property into the Fund and, also if the FIIAH is subject to liquidation, before the expiry of that period, the acquirer must request the assessment of the IMT that was not assessed.

This was not, however, the reason why the Applicant proceeded with the statements that gave rise to the assessments in dispute, which is clearly apparent from the analysis of the documents attached, despite the Applicant's arguments suggesting otherwise.

The IMT assessments made with respect to the properties described above were not based on their retention in the fund for a period equal to or greater than 3 years without there having been allocation to rental for permanent housing.

The assessments in question, moreover as appears from the assessment notes attached to the case, were based on the fact, in the words of the Applicant itself, that the properties had been given a destination "different from that on which the benefit was based", "with the exemption expiring".

The fact that the disposal of the property causes the exemption to expire is not, as shall be explained hereinafter, a new fact, resulting from the addition made by the State Budget for 2014. What will be new, at most, is the obligation for the acquirer to request the assessment of the taxes that were not assessed before the disposal. A provision which not only is merely procedural, but is not even in issue in this case, having in mind that it was precisely that which the Applicant did and the consequence would always be, as we shall see results from the Tax Benefits Statute, that the taxes would be assessed officially by the Treasury (increased by interest and penalties provided for by law), once the disposal was established.

It appears to us, therefore, evident that the question sub judice is not related to the possible unconstitutionality, for violation of the prohibition of retroactivity of tax law, of the numbers added to Article 8.º by the State Budget of 2014.

In fact, the disposal of the fraction in question by the Applicant determines, as it itself recognized in the statements for the assessment of IMT and IS, the expiration of the exemption, because it was given a destination different from that which had determined the granting of the benefit.

For compliance with subparagraph a) of no. 7 of Article 8.º it is not sufficient a declared intention at the time of acquisition of the property, but an actual allocation to rental for permanent housing.

It is not, therefore, true, that, as the Applicant asserts, there were not already legally provided, at the moment of recognition of the exemption, the facts or circumstances on which its expiration depended, at least with respect to the circumstances which actually occurred: the disposal of the property.

In truth, the granting of a benefit already depended – and always depends – on the effective verification of the respective prerequisites, pursuant to Article 12.º of the EBF (Article 11.º, in the wording of the EBF that was in force prior to the republication thereof by Decree-Law no. 108/2008, of 26/06).

The fact that the Applicant proceeded with the disposal of the fraction which, upon acquiring, it declared it would allocate so that it would be recognized – as it was – the exemption from IMT and IS, would always determine, even if the added number 16 did not expressly provide for it, the expiration of such exemptions, by effect of what is provided in Article 12.º and in no. 3 of Article 14.º of the Tax Benefits Statute (former 12.º, no. 3, in the wording of the EBF that was in force prior to the republication thereof by Decree-Law no. 108/2008, of 26/06), according to which "When the tax benefit concerns the acquisition of goods intended for the direct realization of the purposes of the acquirers, it expires if those are disposed of or given another destination without authorization of the Minister of Finance, without prejudice to other penalties or different regimes established by law.".

The Applicant neither alleged nor, for greater reason, demonstrated having obtained the authorization referred to therein, or any other circumstance which would preclude the granted exemptions from expiring as a consequence of the disposal.

It is for this reason that, as above we have already advanced, we understand that it does not raise in the case in question the question of the alleged unconstitutionality of the provisions added, insofar as, in the part corresponding to the disposal of the property, no. 16 of Article 8.º of the Legal Regime of FIIAH merely reiterates what already resulted from what is provided in the Tax Benefits Statute.

Which, moreover, is well understood, considering the ratio of the granting of tax benefits.

The ratio for the attribution of the tax benefit for IMT and IS purposes to FIIAH is, clearly, their allocation to rental for permanent housing— "Acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for rental for permanent housing, by the investment funds..." – whereby the consequence of its being given a different destination is that the exemption could not have been granted, and it is necessary to restore legality, assessing the taxes which, were it not for the declaration of intention made at the time of acquisition, would have had to be assessed.

Which the Applicant recognized, all the more so since that is precisely what appears in the statements made by the Applicant itself for the assessment of IMT and IS.

In conclusion, the disposal of the fraction would always determine the expiration of the exemption by application of what is provided in no. 3 of Article 14.º of the EBF, it is not, therefore, in issue, in the situation sub judice, any application of retroactive effect of a rule which introduces a new regime of expiration of the exemptions, neither does there exist injury to the expectations of the Applicant or aggravation of its tax position, whereby we understand thus that the assessments of IMT and Stamp Tax in dispute are lawful.

The analysis of the question raised by the Applicant is thus prejudiced as to the alleged retroactivity of the regime provided for by Article 236.º of the Law of the State Budget for 2014 insofar as, as above was demonstrated, the conditions which originated the assessments of tax in dispute are in no way related to the additions originated by the said article, only with the disposal of the property and consequent allocation to a purpose different from that for which the exemptions from IMT and Stamp Tax were granted.

Having decided on the legality of the assessments in dispute, the analysis of the consequences of a possible illegality is thus prejudiced, as well as the request for condemnation to default interest.

6. DECISION

In view of the foregoing, it is decided to judge completely unfounded the requests of the Applicant.

The value of the case is fixed at €6,421.13 (six thousand, four hundred and twenty-one euros and thirteen cents), in accordance with what is provided in Articles 3.º, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97.º-A, no. 1, subparagraph a) of CPPT and 306.º of CPC.

The amount of costs is fixed at €612.00 (six hundred and twelve euros) pursuant to Article 22.º, no. 4 of RJAT and Table I attached to RCPAT, at the charge of the Applicant, in accordance with what is provided in Articles 12.º, no. 2 of RJAT and 4.º, no. 4 of RCPAT.

Notify.

Lisbon, May 2, 2016

The Arbitrator

(Eva Dias Costa)

Text prepared by computer, pursuant to Article 131.º, no. 5 of the Code of Civil Procedure, applicable by reference to Article 29.º, no. 1, subparagraph e) of RJAT.

Frequently Asked Questions

Automatically Created

What is the IMT and Stamp Tax exemption regime for FIIAH real estate investment funds in Portugal?
The IMT and Stamp Tax exemption regime for FIIAH (Fundos de Investimento Imobiliário para Arrendamento Habitacional - Real Estate Investment Funds for Residential Rental) in Portugal is governed by Article 8 of the FIIAH Tax Regime. Under Article 8(7)(a), FIIAH funds are exempt from IMT (Municipal Property Transfer Tax) when acquiring residential properties intended for rental purposes. Article 8(8) provides a corresponding exemption from Stamp Tax (Imposto do Selo). These exemptions are conditional and require the fund to maintain the property for residential rental purposes for a minimum period of three years. If the fund disposes of the property or changes its use before completing this period, the exemption expires and the previously exempted taxes become due. The exemption must be formally recognized by the tax authorities pursuant to Article 10 of the IMT Code upon request by the fund.
Can the Portuguese Tax Authority retroactively apply new tax rules to properties acquired by FIIAH before 2014?
The retroactive application of tax rules to FIIAH properties acquired before 2014 is the central constitutional question in this case. Article 236 of Law 83-C/2013 established a transitional regime that applied new FIIAH tax rules to properties acquired before January 1, 2014, counting the mandatory three-year holding period from that date rather than the original acquisition date. The Tax Authority argues this is not true retroactivity because it merely established a timeline for complying with pre-existing requirements rather than creating new substantive tax obligations. However, the taxpayer contends this constitutes impermissible retroactive application of tax law prohibited by Article 103(3) of the Portuguese Constitution. The constitutional principle of non-retroactivity prevents tax laws from applying to facts or situations that occurred before the law's entry into force, protecting taxpayer reliance on existing legal frameworks when making investment decisions.
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?
Article 236 of Law 83-C/2013 potentially violates Article 103(3) of the Portuguese Constitution depending on whether its transitional provisions constitute prohibited retroactive tax legislation. The applicant argues that by restarting the three-year holding period calculation from January 1, 2014 for properties already acquired under the previous regime, Article 236 retroactively modifies the conditions for maintaining tax exemptions initially granted. This allegedly violates the constitutional prohibition against retroactive tax laws, which protects citizens' legitimate expectations and legal certainty. The Tax Authority counters that Article 236 does not create retroactive obligations but rather establishes prospective compliance deadlines for existing requirements inherent in the FIIAH regime. According to this view, the law merely clarified the timeframe for fulfilling conditions that were always part of the exemption regime, with the three-year period beginning only after the new law's effective date, making it a prospective rather than retroactive application.
How can a FIIAH fund challenge IMT and Stamp Tax assessments through CAAD arbitration in Portugal?
FIIAH funds can challenge IMT and Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa - Administrative Arbitration Center) pursuant to Article 2(1)(a) and Article 10 of Decree-Law 10/2011 (RJAT - Legal Regime of Tax Arbitration). The process begins with the fund filing a request for arbitration constitution, identifying the contested tax assessments and legal grounds for challenge. The CAAD Ethics Council appoints an arbitrator to form the tribunal, which must be accepted by both parties. The arbitral tribunal is competent to hear disputes concerning the legality of tax acts, including IMT and Stamp Tax assessments. However, there are jurisdictional limitations: while the tribunal can assess whether applying a potentially unconstitutional law to a specific case renders the assessment illegal, it cannot abstract declare laws unconstitutional (a power reserved for constitutional courts). The taxpayer must demonstrate standing, legal interest, and comply with procedural requirements including payment of the contested amounts before challenging them through arbitration.
What are the legal consequences of unconstitutional tax assessments under Portuguese administrative law — nullity or annulability?
Under Portuguese administrative law, the legal consequences of unconstitutional tax assessments involve distinguishing between nullity (nulidade) and annulability (anulabilidade). The applicant argues that assessments based on unconstitutional laws are null under Article 133(2)(d) of the Administrative Procedure Code because they violate the essential content of fundamental rights, specifically the constitutional prohibition against retroactive taxation under Article 103(3). Nullity is the most severe form of invalidity, allowing challenges at any time without time limits. The Tax Authority contends that the general regime of administrative act invalidity is annulability for legal certainty reasons, even for acts based on unconstitutional provisions. According to this view, nullity is reserved exclusively for violations of the essential core of fundamental rights relating to civil liberties and guarantees, not violations of the legality principle. Acts violating tax legality principles, even if unconstitutional, would be merely annullable rather than null. This distinction has significant procedural consequences regarding challenge deadlines and the scope of judicial review available to taxpayers.