Summary
Full Decision
ARBITRAL DECISION
1. Report
1.1 A… – Investment Fund Management Company, S.A., VAT Number …, in its capacity as managing entity of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Leasing", hereinafter referred to as the "Claimant", VAT Number …, with registered office in …, in …, requested the constitution of a single arbitral tribunal, under the combined provisions of articles 2, no. 1, paragraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "RJAT") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (AT) is the Respondent.
1.2 The request for arbitral ruling, presented on 04 December 2015, seeks the declaration of nullity or, alternatively, the annulment of the assessment notices no.s ... of the municipal tax on onerous property transfers (IMT), of 04-11-2015, in the amount of €24,894.25 and ... of stamp duty, of the same date, in the amount of €3,592.95, in the total amount of €28,487.20 (twenty-eight thousand, four hundred and eighty-seven euros and twenty cents), better identified in said request for arbitral ruling, relating to the acquisition of the autonomous fraction identified by the letters "AF" of the urban property constituted under the horizontal property regime, registered in the urban property register of the parish of ..., municipality of Lisbon, under article ....
1.3 It further requests that the Respondent be condemned to reimburse the amounts paid, plus the respective compensatory interest, pursuant to article 43 of the General Tax Code (LGT).
1.4 The Claimant chose not to appoint an arbitrator.
1.5 The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to AT on 17 December 2015.
1.6 The undersigned was appointed by the President of the Deontological Council of CAAD as arbitrator of the single arbitral tribunal, pursuant to article 6 of RJAT, and acceptance of the appointment was communicated within the applicable period.
1.7 On 02 February 2016, the parties were notified of such appointment and did not object thereto, under the combined provisions of article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of CAAD's Deontological Code.
1.8 Thus, in accordance with the provision of paragraph c) of no. 1 of article 11 of RJAT, the single arbitral tribunal was constituted on 17 February 2016.
1.9 The Respondent was notified, by arbitral order of 18 February 2016, to, pursuant to article 17, no. 1, of RJAT and within a period of 30 days, present a response and, if so desired, request the production of additional evidence.
1.10 It was further notified to, within the same period, present the administrative file referred to in article 111 of the Code of Tax Procedure and Process (CPPT), but chose not to do so.
1.11 On 16 March 2016, the Respondent presented its response, defending itself by impugning and arguing for dismissal of the request for arbitral ruling.
1.12 Or, should it be otherwise understood, that notification of the Public Prosecutor be ordered, for the purposes of article 280, no. 3 of the Constitution of the Portuguese Republic (CRP) and article 72, no. 3 of the Law of the Constitutional Court.
1.13 Considering that the parties did not request the production of any evidence beyond that which the Claimant submitted with the request for arbitral ruling, the Arbitral Tribunal, given the principles of autonomy in the conduct of proceedings, expedition, simplification and procedural informality, inherent in no. 2 of articles 19 and 29 of RJAT, by order of 17 December 2015, dispensed with the holding of the meeting provided for in article 18 of the same statute, and also decided that the proceedings continue with optional written submissions, successively for the Respondent.
1.14 The date of 26 May 2016 was also set for the delivery of the respective final arbitral decision.
1.15 The parties were notified of such order on 17 March 2016 and duly presented their submissions.
1.16 In these, the Respondent invokes the dilatory exceptions of material incompetence, absolute, of the Arbitral Tribunal to appreciate the abstract illegality of the assessments and that of passive illegitimacy of the Respondent, provided, respectively, in paragraphs a) and e) of article 577 of the Code of Civil Procedure (CPC), applicable ex vi article 29, no. 1, paragraph e) of RJAT.
2. Sanitation
2.1 Because the dilatory exceptions invoked may constitute an obstacle to the knowledge of the merits of the case, giving rise to absolution of the instance, cfr. articles 576, no. 2, and article 278, no. 1, paragraphs a) and d) of CPC, the same should be officiously and prioritarily decided – articles 578 and 608, no. 1, of the same code.
2.2 Thus:
a) Of the material incompetence of the Arbitral Tribunal
According to the Respondent, the Claimant seeks the inapplication of article 236 of Law no. 83-C/2013, of 31 December (State Budget for 2014) on account of its alleged illegality/unconstitutionality and not for any illegality occurring in its application to concrete facts.
Thus, the Constitutional Court is the competent forum to know both the illegality and the unconstitutionality of legal norms [arts. 280, no. 2, als. A) and d) and 281, no. 1, als. A) and b) and no. 3 of CRP and arts. 6 and 66 of the Law of the Constitutional Court].
The Arbitral Tribunal having no competence to appreciate this question, given that abstract review of the constitutionality of norms is sought.
However, it is not the purpose of the arbitral tribunal to declare the (un)constitutionality of the norm in question, as is obvious, but merely to pronounce on its application to concrete facts, assessing the legality or otherwise of such application, competence which emanates from paragraph a), no. 1, article 2 of RJAT.
Wherefore it is ruled that the invoked exception of material incompetence of the Arbitral Tribunal is unfounded.
b) Of the passive illegitimacy of the Respondent
In light of what we have stated regarding the invoked preceding exception, the one relating to the passive illegitimacy of the Respondent shall also be ruled unfounded, since the question is not one of appreciating the abstract review of the constitutionality of the norm referred to, but merely its application to concrete facts, that is to the impugned acts.
2.3 In accordance with the foregoing, the tribunal declares itself regularly constituted and materially competent to know of the present action, in declaratory proceedings.
2.4 The parties have legal personality and capacity, prove themselves to be legitimate and are regularly represented (articles 4 and 10, no. 2, of RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
2.5 The proceedings are not affected by nullities.
2.6 There are no other circumstances that obstruct knowledge of the merits of the case.
3. Position of the Parties
3.1 Of the Claimant
It argues that the assessments are illegal due to unconstitutionality of article 236 of Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, by violation of no. 3 of article 103 of the Constitution of the Portuguese Republic.
It further understands that the same are null under the provision of paragraph d), of no. 2, of article 133 of the Code of Administrative Procedure (CPA), insofar as they offend the essential content of a fundamental right, and as such are challengeable at any time.
It concludes by arguing for the full success of the request for arbitral ruling.
3.2 Of the Respondent
In defending itself, by impugning, AT invokes that in the Portuguese legal-administrative order, the general regime of invalidity of acts is, for reasons of legal certainty, mere voidability, including for those practiced on the basis of illegal or unconstitutional deliberations, and the Supreme Administrative Court has pronounced itself in that same sense.
That the declaration of nullity appears reserved for those acts that offend the essential content of a fundamental right, contending with the rights, freedoms and guarantees of citizens, but not those that contend with the principle of legality, as is the case in the present proceedings.
That the acts in question, if they were violating the principle of tax legality, would be voidable, but not null.
It further maintains that the law in question does not suffer from retroactivity, having established no new requirement for application of the exemption provided for in the special regime applicable to real estate investment funds for residential leasing (FIIAH), but merely having granted a deadline for fulfillment of a requirement already underlying the regime itself, a deadline that only begins after the entry into force of the new law.
Thus, it is not a matter of altering the assumptions, conditions of attribution or recognition of a tax benefit, but only and solely regulating the period of time for purposes of proving compliance with a previously established requirement.
In light of the foregoing, it understands that the norm in question is not unconstitutional, and it should be declared that the present request for arbitral ruling is unfounded.
4. Object of the Dispute
The question that constitutes the thema decidendum consists in assessing the legality of the IMT and IS assessments, contained in the request for arbitral ruling, effected pursuant to article 236 of Law no. 83-C/2013, of 31 December (State Budget for 2014).
5. Grounds
5.1 Proven Facts
With relevance to the appreciation and decision of the questions raised, preliminary and on the merits, the following facts are established and proven:
5.1.1 On 28 January 2014, the claimant acquired an autonomous fraction identified by the letters "AF" of the urban property constituted under the horizontal property regime, registered in the urban property register of the parish of ..., municipality of Lisbon, under article ....
5.1.2 This acquisition was exempt from IMT, under paragraph a), no. 7, article 8 of the Special Regime applicable to Real Estate Investment Funds for Residential Leasing (FIIAH), approved by article 102 of Law no. 64-A/2008, of 31 December, because said autonomous fraction was intended exclusively for leasing for permanent housing.
5.1.3 It also benefited from exemption from IS, provided in entry 1.1 of the General Table of Stamp Duty, under no. 8 of article 8 of said special regime.
5.1.4 On 06 October 2015, assessment no. ... of the municipal tax on onerous property transfers (IMT) was effected, in the amount of €24,894.25.
5.1.5 On the same date, assessment no. ... of stamp duty was effected, in the amount of €3,592.95.
5.1.6 These assessments were based on no. 2 of article 236 of Law no. 83-C/2013, of 31 December, combined with no. 16 of article 8 of said regime, added by article 235 of the same law, by virtue of the fact that, with the sale of said autonomous fraction, the above exemptions ceased to have effect.
5.1.7 The assessed IMT and IS were paid on 05 November 2015.
5.2 Unproven Facts
5.2.1 There are no facts relevant to the decision of the case that have not been proven.
5.3 Motivation
5.3.1 With respect to the proven facts, the conviction of the Arbitral Tribunal was based on the body of documentation submitted.
5.4 Matter of Law
Articles 102 to 104 of Law no. 64-A/2008, of 31 December (State Budget for 2009) approved a special regime applicable to real estate investment funds for residential leasing (FIIAH), constituted during the five years following the entry into force of said law, that is up to 31-12-2013[1] and for the real estate acquired by them in the same period.
This regime was intended to create an additional stimulus to the urban leasing market in Portugal, providing for a specially favorable tax regime applicable until 31 December 2020.
At pages 16/17 of the Report of the Bill no. 226/X[2] (State Budget for 2009) can be read: "Creation of Real Estate Investment Funds for Residential Leasing - Also deserving of reference is the initiative on the creation of funds and real estate investment companies specifically aimed at investment in properties intended for residential leasing. With this initiative it is intended to create an additional stimulus to the urban leasing market in Portugal, providing for a specially favorable tax regime applicable until 31 December 2020. The present regime is applicable to funds and companies constituted in the five years following the entry into force of the law and to the properties acquired by them in that period.
In essence, it comes to provide for the creation of real estate investment funds and companies whose total assets are constituted, in a percentage not less than 75%, by properties located in Portugal intended for leasing for permanent housing. In this way, it is intended to create the necessary conditions for placing properties on the leasing market and also allow families burdened with housing loan payments to sell their respective property to the fund or company, with reduction of their respective costs, replacing them with a rent of lower value than that payment and maintaining an option to purchase on the property they lease to the fund.
It is proposed that the tax regime of these funds contemplate:
" (…) Exemption from IMT in acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for leasing for permanent housing or of urban properties or of autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the purchase option by lessees of the properties that make up the assets of the real estate investment funds.
• Exemption from Stamp Duty in all acts connected with the transmission of urban properties intended for permanent housing, which occurs as a result of the conversion of the right of ownership of such properties into a right of leasing, as well as with the exercise of the purchase option (…)" (underlining and bold, ours).
This Bill was approved on 28 November 2008, coming to be part of Law no. 64-A/2008, of 31-12 (article 8 of said special regime) in the following terms:
"Article 8
Tax Regime
1— Become exempt from Corporate Income Tax (IRC) income of any kind obtained by FIIAH constituted between 1 January 2009 and 31 December 2013, which operate in accordance with national legislation and observance of the conditions provided in the preceding articles.
2 — Become exempt from Personal Income Tax (IRS) and IRC income relating to units of participation in the investment funds referred to in the preceding number, paid or made available to their respective holders, whether by distribution or redemption, excluding the positive balance between the gains and losses resulting from the sale of participation units.
3 — Become exempt from IRS the gains resulting from the transmission of properties intended for own housing in favor of the investment funds referred to in no. 1, which occurs as a result of the conversion of the right of ownership of such properties into a right of leasing.
4 — The gains referred to in the preceding number come to be taxed, under general terms, in case the taxable person ceases the leasing contract or does not exercise the right of option provided in no. 3 of article 5, with the deadlines for expiration and prescription being suspended for purposes of assessment and collection of IRS, until the end of the contractual relationship.
5 — The amounts supported by the lessees of the properties of the investment funds referred to in no. 1 as a result of the conversion of a right of ownership of a property into a right of leasing are deductible from the tax bill, under the terms and limits contained in paragraph c) of no. 1 of article 85 of the IRS Code.
6 — Become exempt from IMI, as long as they remain in the portfolio of FIIAH, the urban properties intended for leasing for permanent housing that make up the assets of the investment funds referred to in no. 1.
7 — Become exempt from IMT:
a) The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for leasing for permanent housing, by the investment funds referred to in no. 1;
b) The acquisitions of urban properties or of autonomous fractions of urban properties intended for own and permanent housing, as a result of the exercise of the purchase option referred to in no. 3 of article 5 by the lessees of the properties that make up the assets of the investment funds referred to in no. 1.
8 — Become exempt from stamp duty all acts practiced, provided that they are connected with the transmission of urban properties intended for permanent housing which occurs as a result of the conversion of the right of ownership of such properties into a right of leasing on the same, as well as with the exercise of the purchase option provided in no. 3 of article 5.
9 — Become exempt from supervision fees the managing entities of FIIAH with respect exclusively to the management of funds of this nature.
10 — Excluded from the exemptions contained in this article are entities that are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in a list approved by ordinance of the Minister of Finance.
11 — The obligations provided for in article 119 and in no. 1 of article 125 of the IRS Code must be fulfilled by the managing or registering entities.
12 — In case the requirements referred to in no. 1 cease to be verified, the application of the regime provided for in this article ceases, and the regime provided for in article 22 of the Tax Benefits Statute comes to apply, and the income of the investment funds referred to in no. 1 which, at that date, have not yet been paid or made available to their respective holders are taxed autonomously, at the rates provided in article 22 of the same statute, with the addition of the corresponding compensatory interest.
13 — The managing entities of the investment funds referred to in no. 1 are jointly and severally liable for the tax debts of the funds whose management is their responsibility" (bold ours).
It thus appears that it is a prerequisite of the exemption from IMT and IS, provided in nos. 7, paragraph a) and 8 above, that the urban properties or autonomous fractions of urban properties are intended exclusively for leasing for permanent housing.
In this measure, the obligation to intend the property for residential leasing is not a requirement of the amendments introduced by the Law on the State Budget for 2014, but rather a requirement ab initio of the special regime applicable to real estate investment funds for residential leasing (FIIAH), indeed, a natural consequence of the objectives and motivations that presided over the creation of these funds.
For compliance with the provision of paragraph a), of no. 7, of article 8 of the special regime applicable to real estate investment funds for residential leasing (FIIAH), it is not enough a declared intention in the acquisition of the property but rather an effective allocation to leasing for permanent housing.
Now, the Claimant does not prove in any way in this proceeding the fulfillment of that requirement.
Thus, whenever to those properties or autonomous fractions another destination is given or their sale is verified (because in this case the assumption on which the exemption was based – leasing for permanent housing – can no longer be fulfilled), the exemption ceases to have effect, as follows from no. 3 of article 14 of the Tax Benefits Statute (EBF), which provides:
"When the tax benefit relates to the acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if they are sold or given another destination without authorization of the Minister of Finance, without prejudice to the remaining sanctions or different regimes established by law".
In these cases, the burden rested on the taxable person to request the assessment of IMT, within 30 days from the expiration of the exemption and, within the same period, to effect its payment, cfr. no. 1 of article 34 and no. 6 of article 36 of CIMT, respectively.
Under penalty of the Tax and Customs Authority (the chief of finances) promoting its official assessment and notifying the taxable person to effect payment, within 30 days, without prejudice to compensatory interest and the corresponding sanction, cfr. no. 1 of article 38 of CIMT.
As for the stamp duty provided in entry 1.1 of the respective general table, the same burden is verified on the part of the taxable person by force of the provision in no. 4 of article 23 and no. 4 of article 44 of CIS.
It is true that article 235 of Law no. 83-C/2013, of 31 December (State Budget for 2014) gave new wording to the said article 8 of that special regime applicable to FIIAH, adding to that effect numbers 14 to 16, with the following wording:
"14 — For the purposes of the provision in nos. 6 to 8, it is considered that urban properties are intended for leasing for permanent housing whenever they are subject to a leasing contract for permanent housing within a period of three years counted from the moment they came to be part of the fund's assets, and the taxable person must communicate and provide proof to AT of the respective effective leasing, within 30 days following the end of said period.
15 — When properties have not been subject to a leasing contract within the three-year period provided in the preceding number, the exemptions provided in nos. 6 to 8 cease to have effect, and in that case the taxable person must request from AT, within 30 days following the end of said period, the assessment of the respective tax.
16 — In case the properties are sold, except in the cases provided in article 5, or in case the FIIAH is subject to liquidation, before the period provided in no. 14 has expired, the taxable person must likewise request from AT, prior to the sale of the property or liquidation of the FIIAH, the assessment of the tax owed pursuant to the preceding number" (underlining and bold, ours).
As a transitional rule within the scope of the same regime, article 236 of said law provides:
"1— The provision in 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, is applicable to properties that have been acquired by FIIAH as of 1 January 2014.
2 — Without prejudice to the provided in the preceding number, the provision in 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, is likewise applicable to properties that have been acquired by FIIAH before 1 January 2014, counting in such cases, the three-year period provided in no. 14 from 1 January 2014" (underlining ours).
In this way, whenever properties or autonomous fractions come to be sold, the taxable person must request from AT, prior to the sale, the assessment of the tax owed pursuant to no. 15 of article 8 of the special regime applicable to FIIAH.
What no. 16 brought about that was new was only the alteration of the deadline for requesting the assessment of taxes and payment thereof.
In effect, before the addition of this provision, the assessment of taxes was requested from AT by the taxable person, within 30 days from the expiration of the exemption, under penalty of AT promoting its official assessment.
However, with the new wording, the taxable person came to request assessment likewise from AT, but prior to the sale of the property or autonomous fraction.
Thus, the referred no. 16, combined with no. 15 of article 8 of the special regime, does not alter the substance or requirements of the exemption established by paragraph a), having a more procedural/operative nature – reading that in case there is sale of properties that have not been subject to a leasing contract, the exemptions cease (namely that of paragraph a) of no. 7), and the taxable person must request the assessment of the respective tax.
We thus understand that the question is not one of the retroactivity or otherwise of the law, nor is there any infringement of the expectations of the Claimant or an aggravation of its tax position. The rationale for the attribution of a tax benefit in the context of IMT to FIIAH was clearly established from the beginning – "The acquisitions of urban properties or of autonomous fractions of urban properties intended exclusively for leasing for permanent housing, by the investment funds…".
As to the question of nullity or voidability of the taxable acts in question, by alleged violation of no. 3 of article 103 of CRP (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 made in accordance with the law), the Arbitral Tribunal understands that the same would be voidable and not null, in case they were violating the principle of tax legality.
In effect, pursuant to article 133 of the [former] Code of Administrative Procedure (CPA), only acts lacking any of the essential elements or for which the law expressly sanctions such form of invalidity shall be null.
Already administrative acts practiced with offense of the applicable legal principles or norms for whose violation no other sanction is provided, are voidable, cfr. article 135 of the [former] CPA.
In this sense, inter alia, the following judgments available at www.dgsi.pt:
"I - The sanction that generally falls on an invalid administrative act is its voidability (art. 135 of CPA), and the law only determines its nullity when it lacks any of its essential elements or when it expressly sanctions it with such form of invalidity - art. 133 of the same statute. In this way, only those administrative acts specifically indicated in the law are null - this is the case of those enumerated in no. 2 of that art. 133 - and those lacking one of their essential elements.
II - By essential elements of the administrative act for the purposes of art. 133, no. 1, of CPA, should be understood the elements making up the administrative act itself contained in art. 120 of the same code and, therefore, the same relate to its densification, which results from the types of acts in question or the seriousness of the defects that affect them[3]".
"When the violation of fundamental rights that do not meet the «hard core», nor can be framed in the so-called analogous rights, nor can the possible violation thereof generate nullity, but rather mere voidability[4]".
In effect, in the Portuguese legal-administrative order, the general regime of invalidity of acts is, for reasons of legal certainty, mere voidability, including for those practiced on the basis of illegal or unconstitutional deliberations, and the Supreme Administrative Court has pronounced itself in that same sense.
Thus, the declaration of nullity appears reserved for those acts that offend the essential content of a fundamental right, contending with the rights, freedoms and guarantees of citizens, but not those that contend with the principle of legality, as is the case in the present proceedings.
However, for the case sub judice, the category of invalidity of the acts will matter little – whether null or voidable – since the request for arbitral ruling is timely, given the provision of paragraph a), no. 1, article 10 of RJAT, combined with paragraph a), no. 1, of article 102 of CPPT, no. 1 of article 43 of CIMT and no. 2 of article 49 of CIS.
By all the foregoing, we understand that the IMT and Stamp Duty assessments in question do not suffer from any defect, and should therefore be maintained in the legal order.
6. Decision
In light of the foregoing, it is decided:
· Rule unfounded the dilatory exceptions invoked (material incompetence of the Arbitral Tribunal and passive illegitimacy of the Respondent); and
· Rule unfounded the request for declaration of illegality of the IMT no. ... and IS no. ... assessments, in the amounts of €24,894.25 and €3,592.95, respectively, effected on 04 November 2015, relating to the acquisition of the autonomous fraction identified by the letters "AF" of the urban property under the horizontal property regime, registered in the urban property register of the parish of ..., municipality of Lisbon, under article ..., maintaining the said tax acts in the legal order.
7 - Value of the Process
In accordance with the provision of article 306, no. 2, of CPC, 97-A, no. 1, paragraph a), of CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is set at €28,487.20.
8 - Costs
Pursuant to article 22, no. 4, of RJAT, the amount of costs is set at €1,530.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.
Notify.
Lisbon, 19-05-2016
The Arbitrator,
(Rui Ferreira Rodrigues)
Text prepared by computer, pursuant to the provision of article 131, no. 5, of CPC, applicable by referral of article 29, no. 1, al. e), of RJAT.
[1] Extended until 31-12-2015, cfr. article 234 of Law no. 83-C/2013, of 31-12
[2] Available at https://www.parlamento.pt/OrcamentoEstado/Documents/oe/2009/RelatorioOE2009.pdf
[3] Judgment of the STA of 03-03-2004 (Case no. 01938/03)
[4] Judgment of the TCAN of 03-07-2013 (Case no. 01795/10.9BEBRG)