Process: 734/2015-T

Date: July 14, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses a constitutional challenge to retroactive tax legislation affecting Real Estate Investment Funds for Residential Leasing (FIIAH). The claimant fund management company contested IMT and Stamp Tax assessments issued under Article 236 of Law 83-C/2013 (2014 State Budget), arguing that the transitional provision unconstitutionally applied new tax conditions to properties acquired before January 1, 2014. The claimant contended that the original exemptions had definitively crystallized as acquired rights at the moment of property acquisition, as they were not subject to subsequent conditions. The retroactive application of a three-year leasing requirement allegedly violated Article 103(3) of the Portuguese Constitution, which prohibits retroactive tax laws. The Tax Authority defended that no true retroactivity occurred, arguing that the new provisions merely clarified pre-existing requirements that properties be 'intended exclusively for leasing for permanent residence.' The Authority maintained that the three-year period established by the 2014 legislation simply densified an indeterminate legal concept without creating new obligations. The case raises fundamental questions about the constitutional limits of fiscal legislation, the nature of tax exemptions as acquired rights, and whether clarification of legal requirements constitutes impermissible retroactivity. Procedurally, the case demonstrates the arbitral tribunal's competence to hear cumulated claims for both IMT and Stamp Tax nullification, along with claims for compensatory interest on improperly collected taxes, illustrating the comprehensive relief available in tax arbitration proceedings under Portuguese law.

Full Decision

ARBITRAL DECISION

REPORT

A - General

A…– …, S.A., with head office at…, n.º … – …, …– … …, with share capital of €1,550,000.00, registered at the Commercial Registry of … under the single registration and tax identification number … in its capacity as managing company of the investment fund «B… – REAL ESTATE INVESTMENT FUND CLOSED FOR RESIDENTIAL LEASING» registered with the Securities Market Commission, with tax identification number … (hereinafter referred to as the "Claimant"), filed on 04.12.2015 a request for constitution of a single arbitral tribunal in tax matters, which was accepted, seeking: (i) the declaration of nullity of the assessment acts for Municipal Tax on Real Estate Transfers ("IMT") and Stamp Tax ("IS") which were notified to it by documents n.º … and n.º…, respectively, both of 21.10.2015, (doc. n.º 1 attached to the proceedings with the arbitral ruling request) and (ii) the condemnation of the Tax and Customs Authority to payment of indemnity interest for improper payment of tax liabilities.

1.1. Pursuant to the provisions of paragraph a) of n.º 2 of article 6.º and paragraph b) of n.º 1 of article 11.º of Decree-Law n.º 10/2011, of 20 January, in the wording given to it by article 228.º of Law n.º 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Center (CAAD) designated as arbitrator Nuno Pombo, and the parties, after being duly notified, did not manifest any opposition to such designation.

1.2. By dispatch of 21.12.2015, the Tax and Customs Authority (hereinafter referred to as the "Respondent") proceeded to designate the Doctors C… and D… to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.3. In accordance with what is prescribed in paragraph c) of n.º 1 of article 11.º of Decree-Law n.º 10/2011, of 20 January, in the wording given to it by article 228.º of Law n.º 66-B/2012, of 31 December, the arbitral tribunal was constituted on 17.02.2016.

1.4. On the same day 17.02.2015 the highest official of the Respondent's service was notified to, if willing, within the period of 30 days, submit a response and request production of additional evidence.

1.5. On 16.03.2015 the Respondent submitted its response.

B – Position of the Claimant

1.6. The Claimant is the managing company which is responsible for the management of the investment fund «B… – REAL ESTATE INVESTMENT FUND CLOSED FOR RESIDENTIAL LEASING», which is a closed real estate investment fund for residential leasing (hereinafter referred to as "FUND B…").

1.7. On the date of entry into force of Law n.º 83-C/2013, of 31 December (State Budget Law for 2014), the FUND B… included fraction A of the property registered in the urban property register of the parish of…, municipality of…, under article n.º … .

1.8. Based on the provisions added to article 8.º (Tax Regime) of the legal regime applicable to Real Estate Investment Funds for Residential Leasing (hereinafter "REIFRH"), and the transitional rule contained in article 236.º of Law n.º 83-C/2013, of 31 December, the now Claimant requested from the Tax and Customs Authority the assessments of IMT and IS (hereinafter "Assessments"), which were paid by the Claimant on day 22.10.2015.

1.9. The Claimant considers that the Assessments suffer from illegality due to violation of what is provided in n.º 3 of article 103.º of the Constitution of the Portuguese Republic (hereinafter "CPR").

1.10. The IMT and the IS, as far as the factuality of the proceedings is concerned, are taxes of single obligation, which means that at the moment when the property on which the Assessments were levied entered into the patrimony of FUND B… the exemptions then provided for in the Tax Regime of REIFRH were definitively crystallized in the legal-tax order, given that they were not conditioned to the subsequent verification of any facts or circumstances nor subject to any regime of expiry.

1.11. Article 236.º of Law n.º 83-C/2013, of 31 December, by extending the application of the current Tax Regime of REIFRH «to properties that have been acquired by REIFRH before 1 January 2014, counting, in such cases, the period of three years provided for in n.º 14 from 1 January 2014» - is violating in a direct and unequivocal manner the constitutionally enshrined principle of non-retroactivity of tax law.

1.12. Given that the principle of non-retroactivity of tax law has the character of a fundamental right, the violation of that right effected by the Assessments entails its nullity, if not even its inexistence.

C – Position of the Respondent

1.13. The Respondent, in its response, after outlining the applicable legal framework, presents its defence, beginning by arguing the impossibility of disapplying a legal norm on the grounds of its unconstitutionality, since the bodies of public administration, unlike what happens with courts, are not entrusted with the task of conducting concrete review of the constitutionality of laws.

1.14. The Respondent does not accept the suggestion that the Assessments are based on unconstitutional legal norms.

1.15. The special regime applicable to REIFRH, approved by articles 102.º to 104.º of Law n.º 64-A/2008, of 31 December (State Budget Law for 2009), applied to funds constituted during the five years following the entry into force of said law and to real estate acquired by them in the same period.

1.16. The tax regime then in force provided for IMT exemption for "acquisitions of urban properties or of independent fractions of urban properties intended exclusively for leasing for permanent residence, by the investment funds referred to in n.º 1", and also provided for IS exemption with respect to "all acts performed, provided that they are connected with the transfer of urban properties intended for permanent residence which occurs by virtue of the conversion of the right of property of such real estate into a right of leasing over them".

1.17. Now, it was required, as can be seen, that the acquisition of the real estate had as its exclusive destination "leasing for permanent residence", so that the Claimant's assertion that the exemptions in question were not conditioned to the subsequent verification of any facts or circumstances is not exact.

1.18. N.º 14 of article 8.º of the Tax Regime of REIFRH came to clarify the meaning of the expression "urban properties intended exclusively for leasing for permanent residence", considering that "urban properties are intended for leasing for permanent residence whenever they are subject to a contract of leasing for permanent residence within the period of three years counted from the moment when they became part of the fund's patrimony", and henceforth a regime of cessation of the benefit is provided for in case the legal requirement contained in n.º 14 is not observed.

1.19. The cited n.º 14 of article 8.º of the Tax Regime of REIFRH did not alter the ratio of the exemptions enshrined. It merely served to densify the concept, in non-innovative terms and establishing an adequately broad period so as not to violate the principles of legal certainty and protection of legitimate expectations.

1.20. In fact, the exemptions in question did not simply cease to be in force: what happened was that criteria were established to clarify a legal requirement provided for in indeterminate form. Furthermore, in the concrete case, the cessation of the benefit could always occur if, in the course of a supervisory action, it was verified that the prerequisites on which the law makes the granting depend were not met.

1.21. It makes no sense, therefore, to speak of authentic or proper retroactivity, since the new law did not simply come to determine, without more, that properties previously acquired were to be subject to taxation under IMT and IS.

1.22. For all the foregoing, the Respondent should likewise not be condemned to pay indemnity interest to the Claimant, since no error attributable to the services of the Tax Authority can be imputed that, by itself, would have determined payment of a tax debt in an amount higher than that legally due.

D – Conclusion of the Report and Clarification

1.23. By dispatch of 14.06.2016, the arbitral tribunal dispensed with the meeting provided for in article 18.º of the Legal Regime of Arbitration in Tax Matters (LRATM), since it was its understanding that the parties had brought into the proceedings all the elements of fact necessary and sufficient for the rendering of the decision, although the Claimant did not forego the right to present its submissions in writing.

1.24. Thus, the arbitral tribunal granted both Parties the right to, if willing, present their submissions, which both did.

1.25. The parties have judicial personality and capacity and have legitimacy in accordance with article 4.º and n.º 2 of article 10.º of the LRATM, and article 1.º of Ordinance n.º 112-A/2011, of 22 March.

1.26. The cumulation of claims made in the present arbitral ruling request, in deference to the principle of procedural economy, is justified insofar as article 3.º of the LRATM, by expressly admitting the possibility of "cumulation of claims even if relating to different acts", accommodates, without interpretive abuse, the consideration of a claim that flows, in necessary terms, from the judgment that the arbitral tribunal reaches regarding the validity of the assessment called into question.

1.27. The proceedings do not suffer from any nullity. However, the Respondent raised the exceptions of lack of material jurisdiction of the arbitral tribunal to consider the abstract illegality of the Assessments, by alleged unconstitutionality of the legal norm that authorizes them and, consequently, the lack of passive legitimacy of the Respondent, which must therefore be considered.

EXCEPTIONS OF LACK OF MATERIAL JURISDICTION OF THE ARBITRAL TRIBUNAL AND OF LACK OF PASSIVE LEGITIMACY OF THE RESPONDENT

As stated, the Respondent expresses the view that the Claimant petitions for the consideration of the abstract illegality of the Assessments, by alleged unconstitutionality of the legal norm that authorizes them, arguing that the Constitutional Court is the competent forum to know either the illegality or the unconstitutionality of legal norms [articles 280.º, n.º 2, paragraphs a) and d) and 281.º, n.º 1, paragraphs a) and b) and n.º 3 of the Constitution of the Portuguese Republic and articles 6.º and 66.º of the Law of the Constitutional Court].

Unless better advised, the Respondent is not correct. What is requested of this arbitral tribunal is not that it declare the unconstitutionality of the norms that authorize the contested assessment acts. What is at issue is to determine whether the Assessments are, or are not, valid, depending on this judgment on another that clarifies, in concreto, the harmony of those assessments with the legal order, taken as a whole. The reading that the Respondent makes of the claim is so reductive that it would seem to be impossible for any body of jurisdictional nature, as this arbitral tribunal is, to judge unconstitutional a legal norm outside the process of abstract review of unconstitutionality. As can be clearly seen, this reading cannot prevail.

Thus, this arbitral tribunal considers that it is materially competent to consider the claim, and the question of the lack of passive legitimacy of the Respondent is consequently not raised, since one is not materially within the scope of abstract consideration of unconstitutionality.

MATTERS OF FACT

3.1. Proven Facts

The following facts are deemed proven:

3.1.1. On the date of entry into force of Law n.º 83-C/2013, of 31 December (State Budget Law for 2014), the FUND B… included fraction A of the property registered in the urban property register of the parish of…, municipality of…, under article n.º …[1] (the "Property") (consensus of the Parties).

3.1.2. The acquisition of the Property benefited from exemption from IMT and IS under paragraph a) of n.º 7 and n.º 8 of article 8.º (tax regime) of the legal regime of REIFRH, respectively – IMT assessment n.º …/2013 (doc. n.º 1, attached with the arbitral ruling request).

3.1.3. The Claimant requested from the Respondent the assessment of IMT and IS, which were notified to it by documents n.º … and n.º…, both of 21.10.2015, in the amount of € 707.50 and € 566.00, respectively (doc. n.º 1, attached with the arbitral ruling request).

3.1.4. The Claimant proceeded to full payment of both the IMT and IS assessments better identified in 3.1.3 on day 22.10.2015 (doc. n.º 2, attached with the arbitral ruling request).

3.2. Unproven Facts

It was not proven that between the acquisition of the Property by the Claimant until its disposal the same had been subject to any contract of leasing for permanent residence.

MATTERS OF LAW

4.1. Questions to be Decided

From what has been said above, the questions to be considered are, in essence:

a) To determine whether the acquisition of the Property, which occurred before 01.01.2014, can be taxed on the basis that the Property was sold before the expiration of the period of three years counted from 01.01.2014, without it having ever been subject to a contract of leasing for permanent residence;

b) To clarify whether, if the claim for declaration of illegality and consequent annulment of the Assessments is upheld, the Claimant, in the context of the present arbitral proceedings, may obtain the condemnation of the Respondent to payment of indemnity interest.

4.2. The Applicable Law

Incorporated in chapter X, dedicated to tax benefits, Law n.º 64-A/2008, of 31 December, by its articles 102.º to 104.º, approved the special regime applicable to REIFRH. Article 8.º of that special regime established its tax regime, with n.º 7 and n.º 8 of that provision dedicated to IMT and IS, respectively:

7 - The following are exempt from IMT:

a) Acquisitions of urban properties or of independent fractions of urban properties intended exclusively for leasing for permanent residence, by the investment funds referred to in n.º 1;

b) Acquisitions of urban properties or of independent fractions of urban properties intended for own and permanent residence, as a result of the exercise of the purchase option referred to in n.º 3 of article 5.º by lessees of properties that are part of the patrimony of the investment funds referred to in n.º 1.

8 - The following are exempt from stamp tax all acts performed, provided that they are connected with the transfer of urban properties intended for permanent residence which occurs by virtue of the conversion of the right of property of such real estate into a right of leasing over them, as well as with the exercise of the purchase option provided for in n.º 3 of article 5.º.

Article 235.º of Law n.º 83-C/2013, of 31 December added to the Tax Regime of REIFRH (article 8.º) the numbers 14 to 16:

14 - For the purposes of what is provided in n.ºs 6 to 8, it is considered that urban properties are intended for leasing for permanent residence whenever they are subject to a contract of leasing for permanent residence within the period of three years counted from the moment when they became part of the fund's patrimony, with the taxpayer being required to communicate and provide proof to the Tax Authority of the respective actual leasing, in the 30 days following the end of said period.

15 - When properties have not been subject to a leasing contract within the period of three years provided for in the previous number, the exemptions provided for in n.os 6 to 8 cease to have effect, and in such case the taxpayer must request from the Tax Authority, within the 30 days following the end of said period, the assessment of the respective tax.

16 - If properties are disposed of, with the exception of the cases provided for in article 5.º, or if the REIFRH is subject to liquidation, before the expiration of the period provided for in n.º 14, the taxpayer must likewise request the Tax Authority, before the disposal of the property or the liquidation of the REIFRH, the assessment of the tax due in accordance with the previous number.

In turn, article 236.º of Law n.º 83-C/2013, of 31 December established the following transitional regime within the scope of the special regime applicable to REIFRH:

1 - What is provided in n.ºs 14 to 16 of article 8.º of the special regime applicable to REIFRH and SICRH, approved by articles 102.º to 104.º of Law n.º 64-A/2008, of 31 December, is applicable to properties that have been acquired by REIFRH from 1 January 2014 onwards.

2 - Without prejudice to what is provided in the previous number, what is provided in n.os 14 to 16 of article 8.º of the special regime applicable to REIFRH and SICRH, approved by articles 102.º to 104.º of Law n.º 64-A/2008, of 31 December, is equally applicable to properties that have been acquired by REIFRH before 1 January 2014, counting, in such cases, the period of three years provided for in n.º 14 from 1 January 2014.

4.3. The Exemptions from IMT and IS Provided for in Law n.º 64-A/2008, of 31 December

The State Budget Law for 2009 enshrined a special regime applicable to REIFRH. This legislative initiative openly aimed at the stimulation of the residential leasing market, requiring that at least 75% of the fund's assets be constituted by real estate located in Portugal and intended for leasing for permanent residence, favoring these vehicles of collective investment with the tax benefits contained in article 8.º of their respective legal regime, with those relating to IMT and IS being those contained in numbers 7 and 8 of that article.

Insist on the idea that the special regime of REIFRH and the tax benefits available to it assume the nature or the vocation of true instruments of economic policy, placed in service of a clear purpose: the promotion of the residential leasing market for permanent residence. It is in light of this objective that the tax regime of REIFRH must be read and understood.

N.º 7 of the tax regime of REIFRH establishes that acquisitions of urban properties or of independent fractions of urban properties intended exclusively for leasing for permanent residence are exempt from IMT.

It is stated in the Opinion attached to the proceedings with the Claimant's submissions (the "Opinion") that "nothing was provided regarding the necessity of maintaining properties in the patrimony of REIFRH for a certain period, or regarding the necessity of actually concluding the leasing contract also within a certain period"[2].

If we read that normative provision correctly, we must conclude that the exemption from IMT did not depend solely on the identity of the acquirer of the real estate in question. The law does not limit itself to exempting (nor did it exempt at the time) mere acquisition of properties by REIFRH. It granted this exemption to REIFRH, yes, but provided that the acquisition pertained to urban properties or to independent fractions of urban properties "intended exclusively for leasing for permanent residence".

Now, as the distinguished authors of the Opinion rightly point out, the scope of the law is not (is not today as it was not then) the promotion of real estate speculation. However, neither was it, as can be read in it, the protection of the funds for leasing[3], forgive the apparent paradox. The law intended, rather, to stimulate the leasing market itself. This objective was pursued through various initiatives, including the establishment of a special and advantageous regime dedicated to REIFRH, although it would be premature to conclude that the legislator intended, without more, to support said REIFRH. To say what has just been said is not intended to mean more than this: it is reductive, and in that measure inaccurate, to claim that the exemption referred to in n.º 7 of article 8.º (tax regime) of the special regime applicable to REIFRH suffices with two prerequisites, namely, that of the identity of the acquirer and that of its declaration at the time of acquisition of the property that it is intended for leasing for permanent residence.

The destination, moreover exclusive, to be given to properties acquired by REIFRH is not, in our reading of the norms, to be purely intentional or volitional. It is not enough that the REIFRH, at the time of acquisition of a property, to benefit from the exemption from IMT and IS, declares that it intends to give said property as a destination the leasing for permanent residence. For this benefit to fulfill its purpose, for the tax expenditure associated with it to be economically and socially justified, this destination must be effective.

The postulate just expressed has, however, a less comprehensive scope, less impressive, than it may at first suggest. The fact is that the effectiveness of a certain destination of a real estate property can only be undermined, prejudiced, by the verification, also effective, of the attribution to that specific property of a different destination.

4.4. The Applicability to the Concrete Case of the Alterations to the IMT and IS Exemptions Introduced by Law n.º 83-C/2013, of 31 December

The State Budget Law for 2014 altered the tax regime of REIFRH, adding, for what concerns us here, numbers 14 to 16 to article 8.º.

N.º 14 came to clarify what should be understood as a property intended for leasing for permanent residence, imposing a period of three years, counted from the moment when the property becomes part of the REIFRH's patrimony, for that property to be subject to a contract of leasing for permanent residence, under penalty of the exemptions granted at the moment of its acquisition ceasing to have effect.

The new n.º 16 establishes the same sanction (the exemptions granted at the moment of acquisition ceasing to have effect) if the property in question is disposed of[4] (except in the case of disposal to the previous owner and lessee, in the exercise of purchase option) within the period of three years counted from the moment when it became part of the REIFRH's patrimony.

These rules do not suggest special precautions if applied to acquisitions of properties made by REIFRH after their entry into force. The problem exists, however, when one seeks to apply them, as in the case before us, to situations in which the acquisition of the property took place before the validity of these provisions.

Now, as was seen, n.º 2 of article 236.º of Law n.º 83-C/2013, of 31 December orders that these rules be applied "to properties that have been acquired by REIFRH before 1 January 2014, counting, in such cases, the period of three years provided for in n.º 14 from 1 January 2014".

The question is, therefore, to determine whether the assessment acts now contested are valid, practiced by the Respondent in light of what establishes, unequivocally, said transitional regime.

This exercise cannot be carried out apart from the concrete consideration of the factual situation, which is this: FUND B… acquired in 2013 the Property, and benefited from the respective exemptions from IMT and IS, since the Claimant declared that the acquired property, the Property, was intended for leasing for permanent residence. It happens that in 2015 FUND B… disposed of the Property, and the Respondent considered, in accordance with the norms just visited, that said exemptions ceased to have effect, wherefore it proceeded, on the basis of an oral request by the Claimant, to the assessment of the IMT and IS, that is, to the Assessments.

It is true that, in the previous regime, applicable at the time of acquisition of the Property, nothing was expressly stated regarding the necessity of maintaining properties in the patrimony of REIFRH for a certain period. However, it also seems evident to us that the destination to be given to acquired properties was a requirement and that this destination cannot be merely "psychological" or intentional.

As we have seen, it is the law that expressly requires, and in exclusive terms, a certain destination to be given to properties acquired with the tax benefits that have been occupying us. Different would have been the wording of the norm that enshrines the exemptions from IMT and IS if its granting had depended solely on the identity of the respective acquirer: being a REIFRH. The acquisition of properties by REIFRH is a necessary condition, but cannot be viewed, in light of the norms in force in 2013, as a sufficient condition[5].

However, it is necessary to recognize that it would not be reasonable to immediately impose the necessity of dedicating, in effective terms, the real estate property to leasing for permanent residence. At a first moment, that of acquisition, what will matter is the intention declared by the acquirer which is a REIFRH. At the time of acquisition, the REIFRH will have to manifest the intention of dedicating the acquired property to that modality of leasing, presuming that the acquirer cannot, without loss of benefits[6], assign to properties acquired with these exemptions a destination different from the one declared.

Let us agree that giving a different destination to real estate property with the exemptions from IMT and IS cannot be understood as synonymous with the attribution to such properties of an actual leasing for permanent residence. The same is to say that the period that elapses between the acquisition by the REIFRH of a property for leasing for permanent residence and the actual conclusion of a contract of leasing for permanent residence that has it as object, regardless of the duration of that period, is a lapse of time that does not authorize the conclusion that a different destination has been given to the property in question other than leasing for permanent residence. In fact, having a property on the leasing market, available to be leased, is still a manifestation of that declared destination. It suffices, in our view, the susceptibility of that property coming to be subject to a leasing contract in which the REIFRH appears as lessor for the requirement of the destination to be given to the good which, it will be recalled, was acquired with the tax benefits noted.

As we have already had occasion to say, the rules in force in 2013, the year in which the Property was acquired by FUND B… with the exemption from IMT and IS, did not establish, in temporally rigid terms, the necessity of actually concluding a contract of leasing for permanent residence. However, in our view, the benefit of the exemption from IMT and IS – in the context of the economic policy of which it is an instrument – rests on the necessity of giving it this actual destination (regardless of knowing – that is another question – the period for which the REIFRH has to give it this actual destination).

Now, the property does not receive the actual destination of leasing for permanent residence when the owner dedicates it to a different purpose – for example, commercial leasing – or when it ceases to be able to give it the desired destination of residential leasing (because it disposes of the property, for example).

We do not believe that the problem can be analyzed from the point of view of risk, in terms of being able to sustain that the exemptions provided for did not intend to place on REIFRH the risk of not being able to lease the properties, or of not being able to dispose of them. It happens that REIFRH, as organisms of collective investment, are true economic agents and must weigh the risks arising from their own activity, which includes the duty to weigh the consequences of the non-dedication of a given property to a certain destination.

It is stated in the Opinion that "the destination is compatible, particularly in periods of crisis in the leasing market, with difficulties and delays in the realization of the leasing", a statement that does not merit contestation. What will not, however, elicit unanimity, is the conclusion that these difficulties and delays do not constitute an integral part of the risks associated with this specific economic activity. If the law enshrined incentives for the acquisition of properties with the objective of them being destined for leasing for permanent residence, it is incumbent on the acquirer of such properties and beneficiary of such incentives to manage the risks of their business, which must include weighing the possibility of such properties not arousing in the market the interest that the owner of them, the REIFRH, foresaw[7].

4.5. Conclusion

It appears to this arbitral tribunal that the necessity for a REIFRH to dedicate to leasing for permanent residence the property acquired with the benefit of the exemption from IMT and IS is not an innovation of the State Budget Law for 2014, being already a requirement of the previous norm, applicable in 2013.

Note that, in the case sub judice, the contested assessments of IMT and IS are not based on the circumstance that the property acquired with tax benefits by FUND B…, the Property, remained in the fund's patrimony for a period equal to or greater than 3 years, without it having been given the necessary dedication to permanent residential leasing. In the present case, the Property was disposed of without it having been dedicated to permanent residential leasing. Therefore, in the case before us, the problem is not related to the period.

In conclusion, it does not appear to be truly a question of retroactivity of law, since the solution that the case calls for, in our view, is the same, applying the new law or making use of the old law, since one and the other do not dispense with the requirement that the acquisition of urban properties or of independent fractions of urban properties by REIFRH be actually dedicated, and in exclusive terms, for leasing for permanent residence.

DECISION

Pursuant to the terms and grounds set out above, the arbitral tribunal decides to maintain in the legal order the assessment acts for IMT and IS that are the subject matter of the claim presented by the Claimant, ruling it to be without merit.

CASE VALUE

In accordance with what is provided in n.º 2 of article 306.º of the CPC, in paragraph a) of n.º 1 of article 97.º-A of the CPPT and also in n.º 2 of article 3.º of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 1,273.50 (one thousand two hundred seventy-three euros and fifty cents).

COSTS

For the purposes of what is provided in n.º 2 of article 12 and in n.º 4 of article 22.º of the LRATM and in n.º 4 of article 4.º of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 306.00 (three hundred six euros), in accordance with Table I attached to said Regulation, to be borne entirely by the Claimant.

Lisbon, 14 July 2016

The Arbitrator

(Nuno Pombo)

Document prepared on computer, in accordance with n.º 5 of article 131.º of the CPC, applicable by referral of paragraph e) of n.º 1 of article 29.º of Decree-Law n.º 10/2011, of 20 January and with the spelling prior to the said Orthographic Agreement of 1990.

[1] It was acquired on day 31.12.2013 (v. § 20 of the Claimant's Submissions).

[2] Page 16 of the Opinion.

[3] Page 22 of the Opinion.

[4] Or in the case of the fund being liquidated in the same period.

[5] The Status of Tax Benefits, in the wording of article 7.º at the time of the facts, established the subjection to audit of all persons, natural or legal, of public or private law, to whom tax benefits were granted, automatic or dependent on recognition, to control the verification of the prerequisites of the respective tax benefits. In turn, article 9.º of the same provision provided (as it also provides today) that the holders of the right to tax benefits are obliged to declare, within the period of 30 days, the cessation of the situation of fact or of law on which the benefit was based.

[6] Note the n.º 3 of article 14.º of the Status of Tax Benefits, which, under the heading "Extinction of tax benefits", provides: "When the tax benefit pertains to acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if they are disposed of or given another destination without authorization of the Minister of Finance, without prejudice to other sanctions or different regimes established by law".

[7] In fact, such interest is not to be reported only to the properties objectively considered, to their physical characteristics, since the market's reaction will not be indifferent to the conditions under which the owner of them proposes to lease them.

Frequently Asked Questions

Automatically Created

Are real estate investment funds for residential leasing (FIIAH) exempt from IMT and Stamp Tax on property acquisitions?
Yes, Real Estate Investment Funds for Residential Leasing (FIIAH) were originally granted exemptions from both IMT (Municipal Property Transfer Tax) and Stamp Tax under the special regime established by Law 64-A/2008 (2009 State Budget). These exemptions applied to acquisitions of urban properties or independent fractions intended exclusively for leasing for permanent residence. However, these benefits were conditioned on the properties being actually used for permanent residential leasing. The 2014 State Budget Law (Law 83-C/2013) subsequently clarified that properties must be subject to a permanent residence lease within three years of entering the fund's patrimony to maintain exemption eligibility, creating controversy over whether this constituted a retroactive modification of previously granted tax benefits.
Can retroactive fiscal legislation revoke previously granted tax exemptions for FIIAH and SIIAH under Portuguese constitutional law?
Under Portuguese constitutional law, retroactive fiscal legislation faces strict limitations. Article 103(3) of the Portuguese Constitution enshrines the principle of non-retroactivity of tax laws as a fundamental right, prohibiting laws from producing effects on past taxable events. The central legal question in this case concerns whether Article 236 of Law 83-C/2013 constituted impermissible retroactivity by applying new leasing requirements to properties acquired before 2014. The claimant argued that tax exemptions constitute definitively acquired rights that crystallize upon property acquisition, which cannot be retroactively revoked. The Tax Authority countered that the legislation merely clarified pre-existing conditions rather than creating new obligations, thus avoiding true retroactivity. This distinction between authentic retroactivity (applying new rules to completed past events) and mere clarification of existing indeterminate legal requirements proves critical in determining constitutional validity under Portuguese tax law.
What did CAAD rule on the constitutionality of Article 236 of the 2014 State Budget Law (Lei 83-C/2013) regarding FIIAH tax benefits?
The case presents CAAD (Administrative Arbitration Center) with a constitutional challenge to Article 236 of Law 83-C/2013, specifically its transitional provision extending the three-year leasing requirement to properties acquired by FIIAH before January 1, 2014. The claimant sought a declaration of nullity (or even inexistence) of the IMT and Stamp Tax assessments based on alleged violation of the constitutional prohibition against retroactive tax legislation. The claimant characterized these as 'single obligation taxes' where exemptions definitively vest at the moment of acquisition, arguing that retroactive imposition of new conditions violated fundamental rights under Article 103(3) of the Constitution. While the excerpt shows the parties' positions, the tribunal's actual ruling on constitutionality is not fully presented, though the case establishes that arbitral tribunals possess competence to analyze constitutional issues when directly relevant to the validity of challenged tax assessments.
Can taxpayers cumulate claims for annulment of IMT and Stamp Tax assessments in a single tax arbitration proceeding?
Yes, taxpayers can cumulate claims for annulment of both IMT and Stamp Tax assessments in a single tax arbitration proceeding before CAAD. This case demonstrates such cumulation, with the claimant simultaneously challenging two separate tax assessments (IMT liquidation document and Stamp Tax liquidation document, both dated October 21, 2015) arising from the same factual situation and legal basis. Portuguese tax arbitration law permits joining related claims to promote procedural economy and avoid contradictory decisions. The cumulation is particularly appropriate when both taxes stem from identical legal grounds—here, the alleged unconstitutionality of the same transitional provision (Article 236 of Law 83-C/2013). This procedural efficiency mechanism allows comprehensive resolution of all tax disputes arising from a single transaction or legal issue, reducing litigation costs and ensuring consistent interpretation of applicable law across related assessments.
Are compensatory interest (juros indemnizatórios) available when IMT and Stamp Tax liquidations are declared unlawful by the arbitral tribunal?
Yes, compensatory interest (juros indemnizatórios) are available when tax assessments are declared unlawful by the arbitral tribunal. Portuguese law provides that when taxpayers pay taxes that are subsequently deemed illegal or unconstitutional, they are entitled to compensation for the improper deprivation of funds. In this case, the claimant explicitly sought condemnation of the Tax Authority to pay compensatory interest on the IMT and Stamp Tax amounts paid on October 22, 2015, following the annulment of the assessments. Compensatory interest compensates taxpayers for the financial prejudice suffered through payment of unlawfully assessed taxes, calculated from the payment date until restitution. This remedy recognizes that taxpayers suffer economic loss when funds are improperly collected by tax authorities, providing fair compensation for what constitutes an undue deprivation of property. The availability of compensatory interest serves as an important safeguard ensuring taxpayers are made whole when administrative tax assessments are later determined to lack legal foundation.