IMT and Stamp Duty Exemption for FIIAH Real Estate Funds: Retroactivity Challenge (CAAD 735/2015-T)

ARBITRAL DECISION [1]

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 17 February 2016, regarding the proceedings identified above, decided as follows:

1. REPORT

1.1.

A A..., S.A., Legal Entity no..., registered under the same number at the Commercial Registry Office of Lisbon, with registered office at Avenue of..., no..., ..., in Lisbon (hereinafter referred to as the "Claimant"), in its capacity as manager of the Real Estate Investment Fund B..., registered with the Securities Market Commission, with tax identification number ..., filed a request for arbitral pronouncement and constitution of a single Arbitral Tribunal, on 4 December 2015, under the provisions of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011, of 20 January [Legal Regime of Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority is the Respondent (hereinafter referred to as the "Respondent").

1.2.

With the said request for arbitral pronouncement, the Claimant seeks to:

1.2.1. "Given that the Assessments are based on article 236 (…) 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 (…), no. 3, of the Constitution of the Portuguese Republic (…)";

1.2.2. "(…) the Tax Authority should not have assessed the IMT and the IS corresponding to the Assessments (…)";

1.2.3. And, consequently, "(…) the nullity of the Assessments must be declared based on their unconstitutionality (…)" or, "subsidiarily, should that not be the case (…)", the Assessments must be "(…) annulled" and "the Claimant must be refunded by the full amount paid by virtue of the Assessments subject to this request for arbitral pronouncement, increased (…) by the compensatory interest that is due until the date of such refund".

1.3.

The request to constitute the Arbitral Tribunal was accepted on 7 December 2015 by the President of CAAD and notification was served on the Respondent on the same date.

1.4.

The Claimant failed to appoint an arbitrator and therefore, under the provisions of article 6, no. 2, paragraph a) of the RJAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD, on 2 February 2016, the appointment having been accepted within the legally prescribed time and terms.

1.6.

On the same date the parties were duly notified of this appointment and manifested no intention to reject it, as provided for in article 11, no. 1, paragraphs a) and b) of the RJAT, together with articles 6 and 7 of the Deontological Code.

1.7.

Thus, in accordance with paragraph c), no. 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on 17 February 2016, and an arbitral order was issued on the same date, to notify the Respondent to, as provided for in article 17, no. 1 of the RJAT, within a maximum period of 30 days:

1.7.1. File a Response;

1.7.2. Request the production of additional evidence (should it deem necessary);

1.7.3. Submit to the Arbitral Tribunal a copy of the administrative file.

1.8.

On 16 March 2016, the Respondent filed its Response, defending itself by way of challenge and concluding that "the (…) request for arbitral pronouncement must be judged unmeritorious as not proven, and consequently the Respondent absolved of all claims (…), all with the proper legal consequences" or, should that not be the case, "it is requested (…) that notification to the Public Prosecutor of the (…) arbitral award be determined".

1.9.

Additionally, the Response included a request for waiver of submission of the administrative file "(…) given the nature of the matter at issue and in light of the content of the documents already submitted by the claimant (…)".

1.10.

By arbitral order of 17 March 2016, both Parties were notified to pronounce, within a period of 5 days, on the possibility of waiving the holding of the meeting referred to in article 18 of the RJAT, as well as on the possibility of waiving the submission of arguments, and the request for waiver of submission of the administrative file submitted by the Claimant (and referred to in the previous point) was also granted.

1.11.

On the same date, the Respondent filed a request stating that "(…) it waives the meeting referred to in article 18 of the RJAT, however it does not waive the submission of arguments".

1.12.

The Claimant, on 23 March 2016, filed a request stating that "(…) it has no objection to the waiver of the meeting (…), proposing to submit written arguments as soon as the Arbitral Tribunal deems appropriate".

1.13.

Accordingly, by order of this Arbitral Tribunal, dated 30 March 2016, and in accordance with the procedural principles set out in article 16 RJAT, of the principle of adversarial procedure [paragraph a)], equality of parties [paragraph b)], the autonomy of the Arbitral Tribunal in conducting proceedings and determining the rules to be observed [paragraph c)], cooperation and good faith in proceedings [paragraph f)] and the free conduct of proceedings set out in articles 19 and 29, no. 2 of the RJAT, as well as taking into account the principle of avoidance of futile acts [provided for in article 130 of the Code of Civil Procedure (CPC), applicable by virtue of article 29, no. 1, paragraph e) of the RJAT], this Arbitral Tribunal decided as follows:

1.13.1. To waive the holding of the meeting referred to in article 18 of the RJAT;

1.13.2. Not to waive the submission of arguments and, consequently, to notify the Claimant and the Respondent to, in that order and successively, submit written arguments within a period of 15 days, the period for the Respondent to begin counting from the date of notification of the joining of the Claimant's arguments or from the expiry of the period granted for that purpose (in the event that it does not submit arguments).

1.13.3. To designate 20 May 2016 as the date for the rendering of the arbitral decision.

1.14.

The Claimant was also warned that until the date of rendering of the arbitral decision it should "(…) proceed with payment of the subsequent arbitral fee, as provided for in no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate such payment to CAAD".

1.15.

The Claimant submitted, on 5 April 2016, written arguments to the effect of:

1.15.1. Reiterate the position already assumed in the request for arbitral pronouncement regarding the fact that the assessments allegedly rest "on a materially unconstitutional norm, due to gross violation of the rule of fiscal non-retroactivity (…)", which, according to the Claimant, will determine "the abstract illegality of the Assessments";

1.15.2. Conclude in the same terms as the request, that is, should "be declared the nullity of the assessments based on their unconstitutionality, or subsidiarily (…) be annulled (…) and the Claimant refunded by the full amount paid by virtue of the assessments subject to the request (…), increased by the compensatory interest that is due until the date of such refund".

1.16.

The Respondent submitted, on 22 April 2016, written arguments to the effect of:

1.16.1. Reiterate the argument developed in its Response, "in that the argument invoked by the Claimant is far from supporting and sustaining any of the claims formulated which must fail", "(…) proceeding only (…) to reinforce some arguments already put forward" and,

1.16.2. Conclude that should "(…) be judged unmeritorious the (…) request for arbitral pronouncement, the tax act of assessment being challenged remaining in the legal order and (…) the respondent entity absolved of the claim (…)".[2]

2. CAUSE OF ACTION

The Claimant supports its claim, in summary, as follows:

2.1.

"Law no. 64-A/2008, of 31 December (…), approved the special regime applicable to real estate investment funds for residential rental (hereinafter «FIIAH») and to real estate investment companies for residential rental" and "in its article 8 (…) the tax regime applicable to FIIAH was established (…)", according to which are exempt from Municipal Tax on Onerous Transfers of Real Property (IMT):

2.1.1. "The acquisitions of urban real property or autonomous fractions of urban real property intended exclusively for rental for permanent housing (…)" and,

2.1.2. "The acquisitions of urban real property or autonomous fractions of urban real property intended for own and permanent housing, as a result of the exercise of the purchase option (…) by tenants of the properties that form part of the assets of the investment funds (…)".

2.2.

However, as the Claimant alleges, "Law no. 83-C/2013, of 31 December (…) 2014) added to article 8 (…) of the Tax Regime of FIIAH numbers 14 to 16" according to which:

2.2.1. "For the purposes of the provisions of nos. 6 to 8, urban real property is considered to be intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment they became part of the assets of the fund (…)";

2.2.2. "When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 cease to have effect, and in that case the taxable person must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax";

2.2.3. "If the properties are transferred, with the exception of cases provided for (…) before the three-year period provided for in no. 14 expires, the taxable person must likewise request from the AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax due as provided for in the previous number".

2.3.

And, the Claimant continues, referring to the fact that "Law no. 83-C/2013, of 31 December (…) also established in its article 236 (Transitional provision within the scope of the special regime applicable to FIIAH and SIIAH) the following regime (…)":

2.3.1. "The provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are applicable to properties that have been acquired by FIIAH from 1 January 2014";

2.3.2. "Without prejudice to the provision of the previous number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH, approved by articles 102 to 104 of Law no. 64-A/2008, of 31 December, are also applicable to properties that have been acquired by FIIAH before 1 January 2014, the three-year period (…) being counted, in those cases, from 1 January 2014".

2.4.

Based on the provisions referred to above, "(…) the present Claimant requested from the Tax Authority the assessment of IMT and Stamp Tax (…) of the tax acts of transfer of real property by the Montepio Rental Fund", identified below:

Of Assessments carried out under article 8 of the Tax Regime of FIIAH and article 236 of the Transitional Regime

2.5.

For the Claimant, "number 14 of article 8 (…) of the Tax Regime of FIIAH (…) clarified unequivocally, and for the first time, the meaning of the expression urban real property (…)" by referring to "[are] intended for rental for permanent housing", and "the introduction of this definition of urban real property [---] intended for rental for permanent housing was accompanied by the clarification of the circumstances in which properties that form part of the assets of FIIAH cease to benefit from the regime of exemptions provided for in numbers 6 to 8 of the Tax Regime of FIIAH (…)".

2.6.

Thus, for the Claimant "(…) in the event that properties forming part of the assets of FIIAH have not been the subject of a rental contract within the 3 (three)-year period, counted from the date of their entry into such assets, the taxable person must request from the Tax Authority, within 30 (thirty) days following the end of the said period the assessment of the respective tax", and must also proceed in this manner in the case of "(i) the properties being transferred by the FIIAH or (ii) the FIIAH being liquidated, in both cases, before the 3 (three)-year period, counted from the date of entry of the relevant properties into the assets of the FIIAH, has elapsed".

2.7.

The amendments introduced by Law no. 83-C/2013, of 31 December to the Tax Regime of FIIAH raise, according to the Claimant, "(…) legitimate perplexities and questions for the managing entities of FIIAH that wish to comply with their obligations towards the Tax Authority", in that, "(…) it is understood that the amendments to the Tax Regime of FIIAH are of particular significance in the context of taxes of single obligation (…) when they concern properties that formed part of the assets of FIIAH at the date of entry into force of Law no. 83-C/2013, of 31 December (…)".

2.8.

In this respect, according to the Claimant, the tax acts whose assessment of IMT and IS it requested from the Tax Authority "concerned urban real property that formed part of the assets of B..., at the date of entry into force of Law no. 83-C/2013, of 31 December (…), that is, those covered by (…) the said article 236 (…)", whereby "the Claimant understands (…) that the Assessments are affected by illegality due to violation of article 103 (…), no. 3, of the Constitution of the Portuguese Republic and must consequently be declared void".

Of the illegality of the Assessments

2.9.

In fact, for the Claimant, "the fact subject to taxation is, both in the context of IMT and in the context of IS, the acquisition of the ownership of the relevant properties by B...." and "the exemptions from IMT and IS were not, at the time they entered the assets of B..., conditioned by the subsequent verification of any facts or circumstances nor, furthermore, subject to any regime of lapsing", in that "at the moment when the properties - subject of the Assessments - entered the assets of B..., the exemptions from IMT and IS provided for (…)" were permanently crystallized in the tax legal order of FIIAH.

2.10.

Accordingly, the Claimant reiterates, "not being (…) legally provided, at the moment of recognition of the exemption, any facts or circumstances on which depended the lapsing of the exemption recognized, it is manifest that the subsequent imposition of such facts or circumstances to exemptions crystallized in the tax legal order of the Claimant is affected by unconstitutionality, due to violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), no. 3, of the Constitution of the Portuguese Republic" (emphasis by the Claimant).

2.11.

And, the Claimant continues, referring to the fact that "article 236 (…) in extending the application of the current Transitional Tax Regime of FIIAH to properties that have been acquired before 1 January 2014 (…) is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined", whereby it concludes that "the extension established therein constitutes a new regime of lapsing of the exemptions (…) and not merely a clarification of a criterion previously provided for".

2.12.

And, it adds, "(…) the violation of the principle of retroactivity, now invoked, takes into account the understanding that has been followed by the Constitutional Court according to which the prohibition of retroactivity, in the field of tax law, is only directed to authentic retroactivity, covering only those cases in which the tax fact that the new law seeks to regulate has already produced all its effects under the old law (…)".[3]

2.13.

Thus, for the Claimant, "in the case sub judice there are no doubts whatsoever that the tax facts that the new law seeks to regulate have already produced all their effects under the old law".

Of the nullity of the Assessments

2.14.

The Claimant continues by referring to the fact that "according to no. 1 of article 133 of the Code of Administrative Procedure in force at the time of the Assessments, acts which lack any of the essential elements or for which the law expressly prescribes that form of invalidity are void (…)", understanding "(…) prevailing doctrine and learned case-law of the Supreme Administrative Court that not all acts that violate constitutional principles are void, only those that violate the essential content of a fundamental right, that is, that conflict with the rights, freedoms and guarantees of citizens, are void, and not those that conflict with the principle of tax legality".

2.15.

Thus, "as a consequence of the fact that acts violating the principle of tax legality are voidable and not void", the Claimant understands that "it is necessary here to clarify whether the unconstitutionality now alleged (…) should have as a consequence the voidability or the nullity of the Assessments".

2.16.

However, "considering that the principle of fiscal non-retroactivity bears the character of a fundamental right, endowed with the protective legal regime of this right", "its disregard gives rise to the nullity of the act, in this case, the nullity of the Assessments".

2.17.

According to the Claimant, "as provided for in article 102 (…), no. 3, of the CPPT, when the ground for challenge is nullity, judicial challenge may be raised at any time" and "the admissibility of challenge of the defect of nullity without dependence on a time limit does not exclude the competence of the Arbitral Tax Tribunal, namely, by literal interpretation of article 10 (…) of the RJAT".

2.18.

Thus, according to the Claimant, "admitting, subsidiarily, that the defect (illegality) of the Assessments determines their voidability (and not their nullity), the Assessments must be annulled accordingly (…)".

2.19.

In summary, the Claimant concludes that:

2.19.1. "Given that the Assessments are based on article 236 (…) of Law no. 83-C/2013, of 31 December (…), they are affected by unconstitutionality due to violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), no. 3, of the Constitution of the Portuguese Republic (…)";

2.19.2. "The Tax Authority should not have assessed the IMT and IS corresponding to the Assessments (…)" subject of the claim;

2.19.3. "(…) the nullity of the Assessments must be declared based on their unconstitutionality (…)" or, "subsidiarily, should that not be the case, the Assessments be annulled";

2.19.4. "The Claimant must be refunded by the full amount paid by virtue of the Assessments subject to this request for arbitral pronouncement, increased (…) by compensatory interest that is due until the date of such refund".

3. RESPONDENT'S RESPONSE

3.1.

The Respondent responded by submitting the unmeritoriousness of the request for arbitral pronouncement, having raised the following arguments:

Of the impossibility of non-application by the AT of a legal norm on the ground of unconstitutionality

3.2.

With respect to this matter, the Respondent argues that "as provided for (…) by the CRP, the Administration is obliged to act in accordance with the principle of legality, and such principle is materialized at the infra-constitutional level in (…) the Code of Administrative Procedure (CPA), which in turn determines that organs of the Administration must act in obedience to law and right, within the limits of the powers that are attributed to them and in accordance with the purposes for which those powers were conferred on them".

3.3.

Thus, the Respondent understands that "(…) from such legal impositions it follows that administrative bodies and agents do not have competence to decide on the non-application of norms regarding which doubts about constitutionality are raised, contrary to Courts which, as provided for in article 204 of the CRP, are prohibited from applying unconstitutional norms, being assigned the competence for the review (…) of compliance with the Constitution".

3.4.

In this matter, according to the Respondent, "(…) it results that the Administration is subject to law and right and its bodies and agents must be the first to comply with it, and cannot (…) be required to pronounce on the choices of the legislator, since these, once embodied in law, are the normative discipline within which it exercises its attributions in the pursuit of the public interest".

3.5.

That is, "bound by the principle of legality, the AT cannot, by virtue of this, non-apply norms on the basis of the interpretation it makes regarding their unconstitutionality".

Of the alleged unconstitutionality

3.6.

In this matter, the Respondent begins by clarifying that "(…) Law no. 64-A/2008, of 31 December (…)" which "approved a special regime applicable to (…) FIIAH and to (…) SIIAH", "(…) would apply to FIIAH or SIIAH constituted during the five years following the entry into force of the said law and to real property acquired by them in the same period".

3.7.

"Regarding the tax regime then specifically provided for (…)", the Respondent emphasizes that:

3.7.1. "According to article 8, no. 7, paragraph a), exemptions from IMT are granted for acquisitions of urban real property or autonomous fractions of urban real property intended exclusively for rental for permanent housing, by investment funds (…)", such exemption applying "(…) to FIIAH constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and with observance of the conditions provided for (…) in their respective legal regime";

3.7.2. "(…) according to article 8, no. 8, exemptions from stamp tax are granted for all acts performed, provided they are related to the transfer of urban real property intended for permanent housing that occurs as a result of the conversion of the ownership right of such real property into a rental right over the same, as well as with the exercise of the purchase option provided for in no. 3 of article 5".

3.8.

However, according to the Respondent, "Law no. 83-C/2013, of 31 December (…), came to give new wording to the aforementioned article 8, relating to the tax regime applicable to FIIAH, adding (…) numbers 14 to 16 (…)", according to which:

3.8.1. "For the purposes of the provisions of nos. 6 to 8, urban real property is considered to be intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment they became part of the assets of the fund (…)".[4]

3.8.2. "When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 cease to have effect, and in that case the taxable person must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax".[5]

3.8.3. "If the properties are transferred, with the exception of cases provided for (…) before the three-year period provided for in no. 14 expires, the taxable person must likewise request from the AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax due as provided for in the previous number".[6]

3.9.

Additionally, the Respondent also refers to the fact that "Law no. 83-C/2013, of 31 December also established, in its article 236 (…)" a transitional provision, according to which "the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) are applicable to properties that have been acquired by FIIAH from 1 January 2014", being that "without prejudice to the provision of the previous number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) are also applicable to properties that have been acquired by FIIAH before 1 January 2014, the three-year period provided for in no. 14 being counted, in those cases, from 1 January 2014".

3.10.

In this respect, for the Respondent, "the new wording introduced by Law no. 83-C/2013, of 31 December, in favor of legal certainty and the principle of protection of legitimate expectations, and in the spirit of the legislator, when creating the regime, merely clarified the criterion already required, establishing that urban real property is intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment they became part of the assets of the fund".

3.11.

Thus, for the Respondent "it is to be concluded (…) that, with the amendments introduced, the ratio of the exemptions established was not altered, and it should be noted that the immediate extinction of the benefit was not determined in the event that the said rental contract was not concluded, since a quite lengthy period of three years was granted for that purpose", whereby it considers that "such amendments took care to respect the principle of legal certainty and the protection of legitimate expectations".

3.12.

For the Respondent it can be inferred "(…) with ease, that the exemptions in question did not simply cease to be in force: what happened, merely, was that criteria were established to concretize a legal requirement previously provided for in an indeterminate manner".

3.13.

Accordingly, according to the Respondent, "the extinction of the tax benefits has as a consequence the automatic restoration of standard taxation", concluding that it is "(…) manifest that, from the outset of the regime, the tax benefits in question applicable to FIIAH have always depended on the allocation of the real property to rental for permanent housing, a legal requirement that the AT, within the scope of its supervisory powers, has always been able to verify, in order to conclude for the persistence of the benefit or, rather, for the restoration of the system of standard taxation".

3.14.

"Thus, given that there is a specific transfer of the real property" and "(…) occurring the lapsing of the exemption (…) article 8, no. 16 of the regime merely concretizes an anti-abuse measure, that is, establishing that properties that do not remain in portfolio with allocation exclusively to residential rental, were not acquired with such purpose".

3.15.

The Respondent continues by referring to the fact that "regarding the issue of unconstitutionality (…), that no one can be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not carried out in accordance with law", "being the understanding upheld by doctrine and case-law that the said normative provision merely prohibits authentic or proper retroactivity of tax law (…), excluding from its scope of application situations of retrospectivity or improper retroactivity (…)", "(…) such does not mean that, in the case at hand, one can conclude by the existence of a circumstance of retroactivity because (…) the new law did not simply come to determine (…) that properties previously acquired were to be subject to taxation in the context of IMT and Stamp Tax" but rather, in the understanding of the Respondent, "(…) to clarify criteria already provided for in the old law (…)".

3.16.

Accordingly, the Respondent understands it is to be concluded that "(…) there is no introduction ex novo of a regime of lapsing of the benefit, and even less is there any frustration of the expectations of the taxable persons or violation of the principle of non-retroactivity of tax law" but, "should the Tribunal come to uphold the claim of the Claimant and (…) refuse the application of article 236 of the Regime applicable to FIIAH, on the ground of unconstitutionality, it is requested (…) that notification to the Public Prosecutor of the (…) arbitral opinion be determined".

Of the right to compensatory interest

3.17.

In this respect, according to the Respondent, "(…) for all that has been stated above, it is understood that the assessment acts are not affected by a defect that should dictate their annulment", reiterating that "(…) the services of the AT cannot be imputed any error of fact or law, given the compliance with law that informs all its activity", "which, in turn determines (…) that there is no legal basis for the request for compensatory interest".[7]

3.18.

The Respondent concludes its Response by requesting that "the present request for arbitral pronouncement must be judged unmeritorious as not proven, and consequently the Respondent absolved of all claims (…) with the proper legal consequences", "or, should that not be the case, it is requested, by reference to article 280, no. 3 of the CRP and article 72, no. 3 of the Law of the Constitutional Court, that notification to the Public Prosecutor of the (…) arbitral award be determined".

4. CLARIFICATION OF ISSUES

4.1.

The request for arbitral pronouncement is timely in that it was filed within the period provided for in paragraph a) of no. 1 of article 10 of the RJAT.

4.2.

The parties have legal capacity and personality, are legitimate regarding the request for arbitral pronouncement and are duly represented, as provided for in articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.[8]

4.3.

The Tribunal is materially competent to rule on the request for arbitral pronouncement filed by the Claimant.[9]

4.4.

The joinder of claims is legal, as the requirements provided for in article 3, no. 1 of the RJAT are met, that is, the merits of the claims depend essentially on the assessment of the same factual circumstances and the interpretation and application of the same principles or rules of law.

4.5.

No exceptions were raised that require consideration.[10]

4.6.

There are no nullities and therefore the merits of the claim must now be addressed.

5. FACTUAL MATTERS

5.1.

Of the facts established

5.2.

The following facts are considered established:

5.2.1. The Claimant is the managing entity of the real estate investment fund "B...", registered with the Securities Market Commission (CMVM), with tax identification number....

5.2.2. In the course of its activity, the Claimant requested from the Respondent, on 8 October 2015 (and with reference to the acquisition made on 18 December 2013, for the amount of EUR 142,800.00 of fraction I of article 13 intended for housing, located on Avenue..., Lane of... and Street..., ... Unit, in Torres Vedras, regarding which it had benefited from the exemption from IMT and IS, under the Tax Regime applicable to FIIAH), the following assessments:

5.2.3. The assessments of IMT and Stamp Tax identified in the previous point are dated 8 October 2015 and the Claimant made payment thereof on 9 October 2015 (that is, within the time limit to do so), as evidenced by copies of the bank transfers made and attached to the file with the claim (doc. no. 2).

5.3.

No other facts capable of affecting the decision on the merits of the claim have been established.

5.4.

Of the facts not established

5.5.

No facts were established as not proven with relevance for the arbitral decision.

6. LEGAL GROUNDS

6.1.

In the case at hand, the essential question to be decided is whether the assessments of IMT and Stamp Tax subject of the request for arbitral pronouncement, made in October 2015, are or are not affected by a defect that could determine their (il)legality.[13]

6.2.

As we have seen in point 1.2., above, the Claimant supports its claim on the fact that it considers that "(…) the Assessments based on article 236 (…) of Law no. 83-C/2013, of 31 December (…) are affected by unconstitutionality due to violation of the principle of non-retroactivity of tax law, enshrined in article 103 (…), no. 3, of the Constitution of the Portuguese Republic (…)", understanding that "(…) the Tax Authority should not have assessed the IMT and IS corresponding (…)" and, consequently "(…) the nullity of the Assessments must be declared based on their unconstitutionality (…)" or "(…) subsidiarily, should that not be the case (…)", the assessments must be "(…) annulled (…)".

6.3.

On the other hand, the Respondent does not agree with the position of the Claimant in that "as provided for in no. 2 of article 266 of the CRP, the Administration is obliged to act in accordance with the principle of legality (…) which in turn determines that organs of the Administration must act in obedience to law and right, within the limits of the powers that are attributed to them and in accordance with the purposes for which those powers were conferred on them".

6.4.

Accordingly, the Respondent understands that "(…) from such legal impositions it follows that administrative bodies and agents do not have competence to decide on the non-application of norms regarding which doubts of constitutionality are raised (…)", being "(…) subject to law and right (…)".

6.5.

Thus, the Respondent concludes that being "bound by the principle of legality, (…) it cannot, by virtue of this, non-apply norms on the basis of the interpretation it makes regarding their unconstitutionality".

6.6.

Accordingly, it is stated from now that this Arbitral Tribunal will not pronounce on the issue of the alleged (un)constitutionality of article 236 of the State Budget Law for 2014, regarding the transitional regime provided for therein, applicable to FIAH and SIIAH, but rather will assess and decide, within the scope of its competence (provided for in article 2 of the RJAT), on the (il)legality of the consequences that may result from its application, in the case under analysis.

6.7.

Indeed, as provided for in article 2 of the RJAT, "the competence of arbitral tribunals comprises the assessment (…)" namely, of the "declaration of illegality of acts of assessment of taxes (…)", and the competence to carry out the review of conformity of legal norms (in particular of Laws and Decree-Laws) with the Constitution is exclusively vested in the Constitutional Court, given that it is the core competence of that Court, positioning itself as the "guardian" or ultimate guarantor of the Constitution.[14]

6.8.

Thus, this Arbitral Tribunal will, preliminarily, assess whether the situation under analysis is or is not subsumable within the regime of article 236 referred to above and, if so, determine what consequences that possible subsumption may have on the assessments of IMT and Stamp Tax that are disputed.

Special regime applicable to FIIAH and SIIAH

6.9.

Law no. 64-A/2008, of 31 December approved "the special regime applicable to real estate investment funds for residential rental (FIIAH) and to real estate investment companies for residential rental (SIIAH)", providing that "the regime (…) applies to FIIAH or SIIAH constituted during the five years following the entry into force of this law and to real property acquired by them in the same period", that is, between 1 January 2009 and 31 December 2013 (underline ours).

6.10.

In accordance with the legal regime provided for in the diploma identified above, "the constitution and operation of FIIAH (…) are governed by the provisions of the Legal Regime of Real Estate Investment Funds, approved by Decree-Law no. 60/2002, of 20 March (…)". [15]

6.11.

Thus, as provided for in the legal regime referred to above, "FIIAH are constituted in the form of closed funds with public subscription or private subscription" and "after the first year of activity the value of the total assets of the FIIAH must reach the minimum amount of (euro) 10 million (…)", and "when constituted through public subscription" must "have, at least, 100 participants, whose individual participation cannot exceed 20 % of the value of the total assets of the fund".

6.12.

"Non-compliance with the individual participation limit provided for" in the previous point "determines the immediate and automatic suspension of the right to distribution of income of the FIIAH to the extent of the participation that exceeds such limit".

6.13.

With regard to the composition of the assets of FIIAH "the provisions of article 46 of the Legal Regime of Real Estate Investment Funds are applicable, and that at least 75 % of its total assets is composed of real property, situated in Portugal, intended for rental for permanent housing".[16] [17]

6.14.

"Borrowers of residential credit contracts who proceed to transfer the real property which is the subject of the contract to a FIIAH may enter into a rental contract with the managing entity of the fund" and, "prior to the execution of the contract for the transfer of the ownership of the real property to the FIIAH, the respective managing entity provides the transferor (…) with information on the essential elements of the transaction, such as the price of the transaction, including, also, where applicable, the value of the rent, the respective conditions for updating and the criteria for setting the price and the general terms for the exercise of the purchase option" (underline ours).

6.15.

"The rental (…) constitutes the tenant in a right of purchase option of the real property, to the fund, capable of being exercised until 31 December 2020", which "(…) is only transmissible by death of the holder" (underline ours).[18]

6.16.

With regard to the applicable tax regime, various exemptions are provided for in the special regime, namely:

6.16.1. The exemption from Corporate Income Tax (IRC) regarding income of any kind obtained by FIIAH constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and with observance of the conditions provided for.

6.16.2. The exemption from Personal Income Tax (IRS) and IRC regarding income relating to units of participation in investment funds paid or made available to their respective holders, whether by distribution or redemption, excluding the positive balance between capital gains and capital losses resulting from the transfer of units of participation.

6.16.3. The exemption from IRS regarding capital gains resulting from the transfer of real property intended for own housing in favor of investment funds, which occurs as a result of the conversion of the ownership right of such real property into a rental right.

6.16.4. The exemption from Municipal Real Property Tax (IMI), as long as they remain in the portfolio of the FIIAH, of urban real property, intended for rental for permanent housing, that form part of the assets of the funds.

6.16.5. The exemption from IMT regarding acquisitions of urban real property or autonomous fractions of urban real property intended exclusively for rental for permanent housing, by investment funds, as well as regarding acquisitions of urban real property or autonomous fractions of urban real property intended for own and permanent housing, as a result of the exercise of the purchase option by tenants of the properties that form part of the assets of the investment funds.

6.16.6. The exemption from Stamp Tax regarding all acts performed, provided they are related to the transfer of urban real property intended for permanent housing that occurs as a result of the conversion of the ownership right of such real property into a rental right over the same, as well as with the exercise of the purchase option referred to.

6.17.

The regime described above is applicable, with the necessary adaptations, to real estate investment companies (SIIAH) that may be constituted under special law and that observe the provisions of the special regime applicable to FIIAH.

6.18.

At the time of its creation, in 2008 (with effect from 1 January 2009), the tax regime described above stood out through its tax exemptions, as "a stimulus measure for rental (…), with the objective of alleviating the tax burden on owners and tenants", allowing families with residential loans, and with difficulty in paying the installment of their credit, to convert their respective installments into the payment of a rent, through the sale of their property to the FIIAH, and the conclusion, with the managing entity of the fund (SIIAH), of a rental contract over the same property, and still maintain, until 2020, the purchase option of the property.

6.19.

In this respect, it should be noted that the range of exemptions presented above forms the notion of tax benefits (in this case, applicable to FIIAH and SIIAH), as defined in the Tax Benefits Statute (EBF).

6.20.

Indeed, "tax benefits should be considered exceptional measures, instituted to protect relevant extrafiscal public interests and which are superior to those of taxation that they prevent", and "from a legal point of view, and in the perspective of the tax legal relationship, tax benefits essentially constitute facts that, while subject to taxation, are preventive of the birth of the tax obligation or, at least, of its arising in full" (underline ours).[20]

6.21.

"In fact, as a preventive fact, the tax benefit always translates into situations that (…) are subsumable under the legal rules that define the objective and subjective incidence of the tax", but "(…) because the tax benefit constitutes a preventive fact of standard taxation, its extinction or lack of application requirements has as an immediate effect the automatic restoration of that same taxation, as established by article 12, no. 1, of the EBF" (underline ours).[21]

6.22.

With the State Budget for 2014 (Law no. 83-C/2013, of 31 December) numbers 14, 15 and 16 were introduced to article 8 (tax regime) of the special regime referred to above, as follows:

6.22.1. "For the purposes of the provisions of nos. 6 to 8, urban real property is considered to be intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment they became part of the assets of the fund, and the taxable person must communicate and provide proof to the AT of the respective actual rental, within 30 days following the end of the said period" [22] (no. 14) (underline ours).

6.22.2. "When the properties have not been subject to a rental contract within the three-year period provided for in the previous number, the exemptions provided for in nos. 6 to 8 cease to have effect, and in that case the taxable person must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax" (no. 15).

6.22.3. "If the properties are transferred, with the exception of cases provided for in article 5, or if the FIIAH is subject to liquidation, before the three-year period provided for in no. 14 expires, the taxable person must likewise request from the AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax due as provided for in the previous number" (no. 16) (underline ours).

6.23.

Additionally, the same Law (referred to in the previous point) also established, in its article 236, a transitional regime applicable to FIIAH and SIIAH, as follows:

6.23.1. "The provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) are applicable to properties that have been acquired by FIIAH from 1 January 2014" (no. 1).

6.23.2. "Without prejudice to the provision of the previous number, the provisions of nos. 14 to 16 of article 8 of the special regime applicable to FIIAH and SIIAH (…) are also applicable to properties that have been acquired by FIIAH before 1 January 2014, the three-year period provided for in no. 14 being counted, in those cases, from 1 January 2014" (no. 2).

6.24.

The amendments described above not only came to clarify unequivocally the meaning of the expression "urban real property intended exclusively for rental for permanent housing", but also came to specify the circumstances in which properties that form part of the assets of FIIAH cease to benefit from the regime of exemptions provided for in numbers 6 to 8 of the applicable tax regime.

6.25.

Indeed, if in the wording given by Law no. 64-A/2008, of 31 December, it was stated that "exemptions from IMT are granted for acquisitions of urban real property or autonomous fractions of urban real property intended exclusively for rental for permanent housing", without clarifying the concepts implied therein, with Law no. 83-C/2013, of 31 December it was clarified that "urban real property is considered to be intended for rental for permanent housing whenever it is the subject of a rental contract for permanent housing within three years counted from the moment they became part of the assets of the fund (…)" (underline ours).

6.26.

On the other hand, with the amendments resulting from the State Budget Law for 2014, it came to expressly clarify that:

6.26.1. If the properties that form part of the assets of FIIAH have not been the subject of a rental contract within 3 years, counting from the date of their entry into the assets of the fund, the exemptions provided for, in the context of IMI, IMT and Stamp Tax, cease to have effect (lapse), "and in that case the taxable person must request from the AT, within 30 days following the end of the said period, the assessment of the respective tax assessed".

6.26.2. Should the said properties be, in particular, transferred before the 3-year period provided for has elapsed, the taxable person must likewise request from the AT (before the transfer of the property) the assessment of the tax due.

6.27.

In the case under analysis, the Claimant understands that the assessments of IMT and Stamp Tax subject of the request for arbitral pronouncement "are affected by illegality due to violation of article 103, no. 3 of the CRP" (whereby they must consequently be declared void or voidable), in that, "the exemptions from IMT and IS were not", at the time the real property entered the assets of the Real Estate Investment Fund B..., "conditioned by the subsequent verification of any facts or circumstances nor (…) subject to any regime of lapsing".

6.28.

In this line of reasoning, the Claimant understands that the transitional regime provided for in "article 236 (…) of Law no. 83-C/2013, of 31 December (…), in extending the application of the current Tax Regime of FIIAH to properties that have been acquired by FIIAH before 1 January 2014 (…) is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined", in that "(…) the extension established therein constitutes a new regime of lapsing of the exemptions provided for in numbers 7, paragraph a) and 8 of article 8 (…) and not merely a clarification of a criterion previously provided for".

6.29.

Thus, the Claimant understands that "not being (…) legally provided, at the moment of recognition of the exemption, any facts or circumstances on which depended the lapsing of the exemption recognized, it is manifest that the subsequent imposition of such facts or circumstances to exemptions crystallized in the tax legal order of the Claimant is affected by unconstitutionality, due to violation of the principle of non-retroactivity of tax law, enshrined in article 103 (….) of the Constitution of the Portuguese Republic" (underline ours).

6.30.

The Respondent does not agree with this position since it understands "at the time of creation of the tax regime applicable to FIIAH (…) the exemptions in question (…) required, respectively that the acquisition of the properties had as its exclusive destination rental for permanent housing and that the transfer had as its object properties intended for permanent housing (…)", whereby "the taxable persons who sought to benefit from the said exemptions, have always had, from the outset of the tax regime applicable to FIIAH, to comply with the requirement that such properties were intended exclusively for rental for permanent housing" (underline ours).

6.31.

However, in the case under analysis, as is evident from the assessment notes attached to the file, the assessments were based on the fact that the property in question was given a different purpose from that which formed the basis for the benefit (as evidenced by copies of the collection notes attached to the file by the Claimant), in that the property (described in point 5.2.2., above) acquired on 18 December 2013 was transferred in October 2015, there being no evidence that this transfer was made in favor of the tenant, as provided for in article 5 of the special regime of SIIAH.

6.32.

Thus, it is not a matter of the application of the requirement associated with allocation to a specific purpose (rental for permanent housing), within the three-year period introduced by article 236 of the transitional regime referred to (and respective counting of the period), but rather the transfer of a property assigned to a FIIAH managed by the Claimant, outside the scope of "acquisitions of urban real property or autonomous fractions of urban real property intended for own and permanent housing, as a result of the exercise of the purchase option by tenants of the properties that form part of the assets of the investment funds" [as provided for in article 8, no. 7, paragraph b), no. 8 and article 5, no. 3 of the special regime of FIIAH] which, implicitly, resulted in that property ceasing to be (or never having been) allocated, by the FIIAH, to the legally provided purpose in article 8, nos. 7, paragraph a) and 8 of that special regime (residential rental).

6.33.

Additionally, and with the objective of addressing the question outlined above in point 6.1., greater attention should also be given to the analysis of the nature of Tax Benefits, in general, and those provided for in the Special Regime applicable to FIIAH and SIIAH, in particular.

Of the regime of Tax Benefits in general

6.34.

In general, the grant of a tax benefit opposes the application of the normative system, since it translates into a preventive fact of the birth of the tax obligation and, since it may be an economic, social or cultural incentive (pursuing purposes different from those that govern the standard tax system), tax benefits should be characterized by their exceptional nature and by their extrafiscal rationale:

6.34.1. By their exceptional nature, because they obstruct normal taxation;

6.34.2. By their extrafiscal rationale, in that, if there were a fiscal rationale, it should be incorporated into the standard tax system itself.

6.35.

However, constituting the act of taxation an act of public interest, it must be recognized that the creation of a tax benefit will alter the balance in the distribution of the tax burden by treating citizens unequally, in light of the criterion of taxpaying capacity, preventing the application of the principle of equality.[23] [24]

6.36.

Accordingly, it can be stated that tax benefits contain three requirements:[25]

a) First, they constitute a derogation from the general rules of taxation;

b) Secondly, they pursue a relevant social and economic objective that determines the derogation from the general rule referred to in the previous point;

c) And, finally, they confer, as a consequence, a benefit on the taxpayers who benefit from them.

6.37.

Thus, in accordance with article 2 of the EBF, "tax benefits are considered to be exceptional measures instituted to protect relevant extrafiscal public interests which are superior to those of taxation itself that they prevent", and are considered as tax benefits, namely, "(…) exemptions (…)" (underline ours).[26]

6.38.

In this sense, article 2 of the EBF considers the concept of tax benefit as being a preventive fact of the constitution of the tax relationship, whereby the norms that govern its creation, and that legitimize its grant, are:

6.38.1. Legally special and,

6.38.2. Factually exceptional, because they are based on public interests, extrafiscal, but constitutionally relevant.

6.39.

In this respect, the breaking of the essential core of taxation is primarily achieved by a derogation from the principle of taxpaying capacity ([27]) because, in accordance with this principle, taxation would be practiced in accordance with the situation of each taxpayer, that is, a fair tax is one that ensures material equality in the distribution of the tax burden.

6.40.

Taxpaying capacity demands not only the personalization of taxation but also that the legislator direct the tax to the three relevant manifestations of wealth that indicate the taxpaying capacity of the taxpayer and that constitute the tax base, that is, wealth that is earned (income), wealth that is possessed (assets) and wealth that is spent (consumption).[28]

6.41.

Accordingly, the principle of taxpaying capacity comprises two dimensions, which are that of a presupposition and that of a limit of taxation:

6.41.1. As a presupposition or source of taxation, the principle of taxpaying capacity is based on the economic strength of the taxpayer expressed in the ownership or use of wealth;

6.41.2. As a limit or measure of the value of the tax, it prohibits the legislator from adopting ordering elements inciding on the constitutive elements of the tax, contrary to the requirements of tax justice stated by the same principle.

6.42.

On the other hand, tax benefits can be distinguished as conditioned tax benefits, temporary tax benefits and permanent tax benefits. [29]

6.43.

Conditioned tax benefits are those whose effectiveness is dependent on the verification of certain secondary accessory presuppositions (which are their "conditio juris"), thus distinguishing themselves from so-called pure benefits whose effectiveness is not dependent on the verification of any accessory presupposition.[30] [31]

6.44.

Regarding temporary benefits, as the name indicates, they are granted for a limited period fixed by law, in contrast to permanent benefits granted for the future without predetermined determination of their duration.[32] [33]

6.45.

Being temporary benefits created with the objective of producing certain results of relevant public interest, benefits of a permanent character, given their long duration, have the disadvantage of, once the public interest pursued by their grant is surpassed, being transformed into favors or tax privileges.

6.46.

As established in article 12 of the EBF, "the right to tax benefits must be reported to the date of verification of their respective presuppositions, even if it is dependent on recognition (…)" from which it is deduced that, as a rule, the right to tax benefits is constituted with the verification of their respective presuppositions (underline ours).

6.47.

In this matter, in accordance with article 5 of the EBF, tax benefits may be "automatic and dependent on recognition", being that "the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition" (underline ours).

6.48.

In fact, regarding the grant of tax benefits, the law distinguishes two types of recognition:

6.48.1. In automatic tax benefits, recognition results directly and immediately from the law, operating through the mere verification of their respective factual presuppositions, not requiring any act of the tax administration;

6.48.2. In tax benefits dependent on recognition, this can be effected by administrative act (in which case we have tax benefits dependent on unilateral recognition) or through a contract (in which case we have tax benefits dependent on bilateral recognition).

6.49.

For the purposes described above, article 65 of the Code of Tax Procedure and Process (CPPT) provides that "the recognition of tax benefits depends on the initiative of the interested parties, through a request addressed specifically for that purpose, the calculation, when mandatory, of the requested benefit and proof of the verification of the presuppositions of recognition according to law".

6.50.

In accordance with article 7 of the EBF, "all persons, singular or collective, of public or private law, to whom tax benefits are granted, automatic or dependent on recognition, are subject to supervision by the Tax and Customs Authority (…) to control the verification of the presuppositions of the respective tax benefits and the compliance with the obligations imposed on the holders of the right to the benefits" (underline ours).[34]

6.51.

As to the form of extinction of tax benefits, in general terms, in accordance with article 14 of the EBF, the same may be caused by lapsing, by transfer of assets for purposes different from those for which the benefit was granted, by revocation of the administrative act of grant and by waiver of the benefits.

6.52.

In any case, in accordance with the provision referred to in the previous point, "the extinction of tax benefits has as a consequence the automatic restoration of standard taxation", being that, as provided for in article 9 of the EBF, "persons holding the right to tax benefits are obliged to declare, within 30 days, that the factual or legal situation on which the benefit was based has ceased, except where such cessation is known ex officio" (underline ours).

6.53.

On the other hand, in accordance with article 15 of the EBF, "the right to tax benefits (…) is non-transferable inter vivos, being, however, transferable mortis causa if the presuppositions of the benefit are verified in the transferee, save if this is of a strictly personal nature".[35]

Of the interpretation of norms

6.54.

Additionally, and with the objective of better understanding the tax benefits granted to FIIAH and SIIAH, it will be important to pay attention to the basic principles of interpretation and application of tax laws.

6.55.

Indeed, and in accordance with the established in article 11 of the General Tax Law (LGT), "in determining the meaning of tax norms and in qualifying the facts to which they apply the general rules and principles of interpretation and application of laws are observed", being that "whenever, in tax norms, terms peculiar to other branches of law are employed, they must be interpreted in the same sense that they have therein, unless otherwise directly follows from the law" (underline ours).

6.56.

"If doubt persists regarding the meaning of the applicable norms of incidence, the substance of the economic facts should be considered", being that "gaps resulting from tax norms covered in the legislative reservation of the Assembly of the Republic are not susceptible of analogical integration" (underline ours).[36]

6.57.

That is, in accordance with the provision referred to above, in the interpretation of tax norms the principles and general rules of interpretation and application of any legal norm are used, except when, as a result of the application of these principles and rules, the interpreter finds himself confronted with any insurmountable doubt – an event in which he is allowed to consider the substance of the economic facts subject to taxation.

6.58.

And those general rules are, as is proper in law, those drawn from the established in article 9 of the Civil Code, according to which it is provided that:[37]

"Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, having especially in account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied" (underline ours).

"The legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot, however, be considered by the interpreter" (underline ours).

"In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express his thought in adequate terms" (underline ours).

6.59.

That is, the letter of the law is the starting point and limit for its interpretation and the role of any applicator/interpreter is to attend to what the law says, to its objective meaning, and not to what the legislator putatively wished to say.

6.60.

It is certain that the teleology of the provision cannot be disregarded, a word that expresses one of the logical elements of the interpretation of laws, namely its purpose or social justification, but such cannot contend with what is established in no. 2 of article 9 of the Civil Code, i.e., even if it is understood that the purpose of the provision does not accord with its letter, it is the latter that must prevail (because it is for the legislator to change the law, and it is for the interpreter merely to understand and apply it).

6.61.

Accordingly, and in the context of the interpretive exercise, it must be taken into account that the applicability of the exemptions from IMT and Stamp Tax provided for in the special regime applicable to FIIAH, as defined by the State Budget Law for 2009 (as we have seen in point 6.16.), were dependent on compliance with the following requirements:

6.61.1. Existence of FIIAH, constituted between 1 January 2009 and 31 December 2013, in accordance with applicable legislation, with at least 75 % of their total assets composed of real property, intended for rental for permanent housing.

6.61.2. Existence of real property intended for rental for permanent housing, whose acquisition occurred between 1 January 2009 and 31 December 2013.

6.61.3. Existence of borrowers of residential credit contracts who proceed to transfer the real property which is the subject of the contract to a FIIAH (within the period referred to in the previous point), who may enter into a rental contract with the managing entity of the fund, constituting themselves in a purchase option right of the property (to the FIIAH) capable of being exercised until 31 December 2020.

6.62.

Thus, with the requirements referred to in the previous point verified, the following were exempt:

6.62.1. From IMT the acquisitions of urban real property or autonomous fractions of urban real property, intended exclusively for rental for permanent housing, by investment funds, as well as acquisitions of urban real property or autonomous fractions of urban real property, intended for own and permanent housing, as a result of the exercise of the purchase option by tenants of the properties that form part of the assets of the investment funds;

6.62.2. From Stamp Tax the acts related to the transfer of urban real property intended for permanent housing that occurs as a result of the conversion of the ownership right of such real property into a rental right over the same, as well as with the exercise of the purchase option referred to in the previous point.[38]

6.63.

If those conditions were not verified, in accordance with the provision of article 14 of the EBF, the extinction of the tax benefits referred to above would always occur (exemptions from IMT and Stamp Tax).

6.64.

However, having in consideration the transfer of the property identified in point 5.2.2., above, for purposes different from those for which the tax benefits described above were granted, this would determine (and determined in the case under analysis), the automatic restoration of standard taxation.[39]

6.65.

Thus, in light of the above exposition, this Arbitral Tribunal understands that the provision of no. 16 of article 236 of the Transitional Regime, applied in conjunction with the provision of no. 15 of the same article in no way alters the substance or requirements of applicability of the exemptions established by article 8, nos. 7 and 8 of the special regime applicable to FIIAH and SIIAH, regarding the assessments in question.

6.66.

Accordingly, having in consideration the conclusions resulting from the analysis presented above, the Tribunal understands that the response to be given to the question posed in point 6.1., above, will be in the negative, that is, that the assessments of IMT and Stamp Tax subject of the request for arbitral pronouncement are not affected by any illegality, whereby the request for arbitral pronouncement must be considered unmeritorious.

6.67.

As a consequence of the conclusion referred to in point 6.65., above, analysis of the question raised by the Claimant regarding the alleged retroactivity of the regime provided for by article 236 of the State Budget Law for 2014 is rendered moot, because, as demonstrated above, the conditions that gave rise to the tax assessments in question stem from the fact that the property (identified in point 5.2.2., above) was given a purpose different from that for which the exemptions from IMT and Stamp Tax were granted.

6.68.

Additionally, for the same reasons, analysis of the question of whether the assessments in question are void or voidable is also rendered moot.

Of the refund of tax paid with compensatory interest

6.69.

Accordingly, having in consideration the conclusion presented in point 6.66., above, as the request for arbitral pronouncement is considered unmeritorious, there will be no refund of the tax (IMT and Stamp Tax) paid, nor will there be, consequently, payment of compensatory interest on that amount.

Of liability for payment of arbitral costs

6.70.

In accordance with the provision of article 22, no. 4, of the RJAT, "the arbitral decision rendered by the arbitral tribunal contains the fixing of the amount and the apportionment among the parties of the costs directly resulting from the arbitration proceedings".

6.71.

In consonance with the previous point, and in accordance with the provision of article 527, no. 1 of the CPC (by virtue of article 29, no. 1, paragraph e) of the RJAT), it should be established that the Party that gave rise to the costs will be condemned to pay them or, if there is no success of the action, whoever benefited from the proceedings will do so.

6.72.

In this respect, no. 2 of the said article specifies the expression "gave rise to", according to the principle of failure to succeed, understanding that the party that is unsuccessful gives rise to the costs of the proceedings, in proportion to the extent to which it is unsuccessful.

6.73.

Accordingly, having in consideration the above analysis, liability for arbitral costs should be exclusively imputed to the Claimant.

7. DECISION

7.1.

In the case under analysis, having in consideration what is stated in the previous chapter, the principle of proportionality requires that liability for arbitral costs be assigned to the Claimant, in accordance with the provision of article 12, no. 2 of the RJAT and article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings.

7.2.

Accordingly, having in consideration the analysis carried out, this Arbitral Tribunal decided:

7.2.1. To judge unmeritorious the request for arbitral pronouncement presented by the Claimant, the acts of assessment of IMT and Stamp Tax subject of the request remaining in the legal order, with the consequences thereof;

7.2.2. To condemn the Claimant in the payment of the costs of the present proceedings.

Value of the proceeding: Having in consideration the provision of articles 306, no. 2 of the CPC, article 97-A, no. 1 of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings the value of the proceeding is set at EUR 3,566.24.

Costs of the proceeding: In accordance with the provision of Table I of the Regulation of Costs of Tax Arbitration Proceedings, the value of the costs of the Arbitration Proceeding is set at EUR 612.00, charged to the Claimant, in accordance with article 22, no. 4 of the RJAT.

Notify.

Lisbon, 20 May 2016

The Arbitrator,

Sílvia Oliveira

[1] The writing of this decision is governed by the spelling prior to the Orthographic Agreement of 1990, except as regards transcriptions made.

[2] Although the Respondent did not defend itself by exception in the Response presented, it did refer in the text of its arguments both (i) a dilatory exception relating to the alleged lack of material jurisdiction of the tribunal [by referring in point 14 of the said arguments that "(…) it is to be concluded that there is an impossibility for this Arbitral Tribunal to decide the present dispute (…)"], as well as (ii) a dilatory exception relating to the alleged lack of passive legitimacy of the Respondent [by referring in point 20 of the said arguments "(…) given the dilatory exception of lack of passive legitimacy demonstrated in the present arbitral proceedings (…)"], which would determine, if verified in either situation, the absolution of the Respondent from the proceedings. In this respect, as to these matters, see comments in Chapter 4 of this decision.

[3] In this respect, the Claimant refers to Decisions of the Constitutional Court nos. 128/2009, 85/2010 and 399/2010, all accessible at www.tribunalconstitucional.pt.

[4] No. 14 of the Tax Regime applicable to FIIAH.

[5] No. 15 of the Tax Regime applicable to FIIAH.

[6] No. 16 of the Tax Regime applicable to FIIAH.

[7] For this purpose, the Respondent cites the Decision of the SAT rendered in the context of proceeding no. 01529/14, of 03/04/2015, as well as Decisions nos. 0481/13, of 26/02/2014, no. 01916/13, of 12/03/2014, no. 0843/14, of 21/01/2015 and no. 0703/14, of 21/01/2015, all of the SAT.

[8] In substantive law, the concept of legitimacy refers to the relationship between the subject and the object of the legal act, ordinarily postulating the coincidence between the subject of the legal act and the holder of the interest affected by it. Already in adjective law, as a general procedural presupposition, or condition necessary for the rendering of a decision on the merits, that concept expresses the relationship between the party to the proceedings and the object thereof (the claim or request) and, therefore, the position that the party must have in order to be able to address the request, either raising it or contesting it.

Thus, as in substantive law, for purposes of verification of the legitimacy of the parties, it must be assessed, ordinarily, by the ownership of the interests at stake (in the proceedings), in accordance with the criterion stated in nos. 1 and 2 of article 30 of the CPC, that is, based on the direct interest (and not indirect or derivative) in bringing the action, expressed by the legal advantage that will result to the plaintiff from the success of the action, and the direct interest (and not indirect or derivative) in contesting, expressed by the legal disadvantage that will result to the defendant from its loss (or, considering the material case law formed by the dismissal of the claim, by the legal advantage that will result therefrom for the defendant). Still within the rule stated in the cited nos. 1 and 2 of article 30 of the CPC, the ownership of the interest in bringing the action and the interest in contesting is determined, whenever the request affirms (or denies) the existence of a legal relationship, by the ownership of the legal situations (right, duty, subjection, etc.) that form an integral part thereof.

In accordance with no. 3 of article 30 of the CPC, "unless the law provides otherwise, those considered holders of the relevant interest for the purpose of legitimacy are the subjects of the contested relationship, as configured by the plaintiff".

Accordingly, in determining legitimacy only the consideration of the request and the cause of action matters, independently of the proof of the facts that make up the latter.

Given the claims formulated by the Claimant (see point 1.2., above), and having in consideration the provision of article 21 of the IMT [according to which "IMT is assessed by the central services of the Directorate-General for Taxes (…)", thus the Tax Authority has exclusive competence, both for the assessment and for the collection of the tax (see articles 36 and following of the IMT Code)], as well as the provision of article 67, no. 2 of the Stamp Tax Code [according to which "matters not regulated in the present code relating to item 28 of the General Table is subsidiarily applied the CIMI"], this Tribunal understands that the Respondent has passive legitimacy regarding the claim formulated by the Claimant.

[9] In this respect, in accordance with the provision of article 2 of the RJAT, "the competence of arbitral tribunals comprises the assessment (…)" of the "declaration of illegality of acts of assessment of taxes, of self-assessment, of withholding at source and of payment on account", as well as of the "declaration of illegality of acts of determination of the assessable base when it does not give rise to the assessment of any tax, of acts of determination of the assessable amount and of acts of fixing patrimonial values".

Additionally, in accordance with the provision of article 2 of Ordinance no. 112-A/2011, of 22 March, "the AT is bound by the jurisdiction of the arbitral tribunals that function in CAAD and that have as their object the assessment of claims relating to taxes whose administration is committed to it" (and not excepted), as is the case of IMT and Stamp Tax.

Considering the Claimant considers that "(…) the Tax Authority should not have assessed the IMT and IS corresponding to the Assessments (…)", it raises the issue of the illegality of the assessments and their subsequent nullity/voidability, even though it supports the arguments presented in the alleged unconstitutionality of norm 236 of the Tax Regime of FIIAH, concluding the arbitral request, as per point 1.2., above, with the understanding that "(…) the nullity of the Assessments must be declared based on their unconstitutionality (…)" or, "subsidiarily, should that not be the case (…)", the Assessments must be "(…) annulled" and "the Claimant must be refunded by the full amount paid by virtue of the Assessments subject to this request for arbitral pronouncement, increased (…) by compensatory interest that is due until the date of such refund" (underline ours).

Thus, having in consideration the request to review the assessments in question, according to the above exposition, this Tribunal understands it is materially competent to rule on the (il)legality of the assessments in question.

[10] See footnotes nos. 8 and 9 above.

[11] As evidenced by a copy attached to the file with the claim (doc. no. 1).

[12] As evidenced by a copy attached to the file with the claim (doc. no. 1).

[13] In this respect, the present decision will follow, very closely, the content of the analysis and arbitral decision of proceeding no. 688/2015, rendered by the undersigned on 11 April 2016, having in consideration the similarities in proceedings (in fact and in law) existing between both proceedings.

[14] The competencies of the Constitutional Court are multiple and varied, being fixed in the Constitution, in the Law of the Constitutional Court (Law no. 28/82, of 15 November), in the Law of Political Parties (Organic Law no. 2/2003, of 22 August) and in the Law on the Financing of Political Parties and Electoral Campaigns (Law no. 19/2003, of 20 June).

[15] And amended by Decree-Laws nos. 252/2003, of 17 October, 13/2005, of 7 January, and 357-A/2007, of 31 October, and subsidiarily, by the provisions of the Code of Securities, approved by Decree-Law no. 486/99, of 13 November, amended by Decree-Laws nos. 61/2002, of 20 March, 38/2003, of 8 March, 107/2003, of 4 June, 183/2003, of 19 August, 66/2004, of 24 March, 52/2006, of 15 March, 219/2006, of 2 November, and 357-A/2007, of 31 October.

[16] The percentage limit defined "is assessed in relation to the average of the values verified at the end of each of the last six months, being respected within two years from the date of constitution of the FIIAH, and one year from the date of the increase in capital, regarding the amount of the increase".

[17] This constitution of its assets made FIIAH (at the time of its creation) could become an instrument that would enhance the rental market in Portugal, combating the speculation of prices in new rentals and the decay of urban centers.

[18] "The purchase option right provided for (…) ceases if the tenant fails to meet the obligation to pay rent to the FIIAH for a period exceeding three months".

[19] The capital gains referred to will be subject to taxation, under the general terms, if the taxable person ceases the rental contract or does not exercise the option right provided for in no. 3 of article 5 of the regime provided for, with the lapsing and limitation periods being suspended for purposes of assessment and collection of IRS, until the end of the contractual relationship.

[20] In this sense, see Decision of the TCAS no. 06588/13, of 25 June.

[21] See Decision referred to in the previous footnote.

[22] In accordance with what is established, if the properties are transferred, even before the period provided for has elapsed, in accordance with article 5 of the regime (that is, in the case of the exercise of the purchase option by the tenants, capable of being exercised until 31 December 2020, or by their legal heirs), there will be no place for the assessment of the tax due.

[23] In accordance with Costa A., Rainha J. and Pereira M. [in "Tax Benefits in Portugal: Economic-social Objectives - systematization by activities, legislation", Coimbra, Almedina Bookstore (1977)], tax benefits are instruments of policy that pursue certain economic and social objectives, and it is stated that the tax benefit exists whenever an entity or activity covered by the incidence of a tax finds itself in a more favorable situation relative to those subject to the general tax regime.

[24] The principle of taxpaying capacity is characterized consensually by doctrine and by the case-law of the Constitutional Court as a structuring principle of the tax system that expresses and concretizes the principle of tax equality and which has implicit foundation in the "Tax Constitution", by virtue of the combination of the provisions in articles nos. 103° and 104° of the Constitution of the Portuguese Republic (CRP).

[25] In this sense, Freitas, M. [in "Tax incentives and the financing of private investment, influence of taxation in the form of financing of companies", Lisbon, Center for Tax Studies, (1980)], rec