CAAD 76/2016-T: IMT and Stamp Tax Exemptions for FIIAH Funds vs Retroactive Tax Law

ARBITRAL DECISION

I. REPORT

1. On 10 February 2016, A… – …, S.A., NIPC …, with registered office at Avenida …, …, …, … (hereinafter, Claimant), in its capacity as manager of the real estate investment fund "B… – …" (hereinafter, Fund B…), registered with the Securities Market Commission, with the tax identification number …, filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2, no. 1, subparagraph a), and 10, nos. 1, subparagraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal System of Arbitration in Tax Matters, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the assessment of Municipal Tax on Onerous Transfers of Real Estate (IMT) no. …, dated 12.11.2015, in the amount of € 5,066.88, and of the assessment of Stamp Tax no. …, dated 12.11.2015, in the amount of € 1,520.00, both having as reference the urban property registered under article … in the urban real estate register of the parish of …, municipality of …, district of ....

The Claimant attached 2 (two) documents and did not request the production of any other evidence.

The Respondent is AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged the following:

• The exemptions from IMT and Stamp Tax, contained, respectively, in numbers 7, subparagraph a), and 8 of article 8 (Tax regime) of the Tax Regime of FIIAH, were recognized at the request of Fund B…, in accordance with article 10 (Recognition of exemptions) of the IMT Code, at a moment prior to the entry of the relevant properties into the assets of Fund B…;

• At the moment when the properties - object of the Assessments - entered into the assets of Fund B..., the exemptions from IMT and Stamp Tax provided, respectively, in numbers 7, subparagraph a), and 8 of article 8 (Tax regime) of the Tax Regime of FIIAH were definitively crystallized in the tax legal order;

• The fact subject to taxation is, both in respect of IMT and in respect of Stamp Tax, the acquisition of ownership of the relevant properties by Fund B… and the exemptions from IMT and Stamp Tax were not, on the date when such properties entered the assets of Fund B…, conditional upon the subsequent verification of any facts or circumstances nor, furthermore, subject to any expiry regime;

• Since there were not, however, legally provided, at the moment of recognition of the exemption, any facts or circumstances upon which the expiry of the recognized exemption depended, it is manifest that the subsequent imposition of these facts or circumstances to exemptions crystallized in the tax legal order of the Claimant suffers from unconstitutionality, by violation of the principle of non-retroactivity of tax law, enshrined in article 103 (Tax system), number 3, of the Constitution of the Portuguese Republic;

• Article 236 (Transitional rule in the context of the special regime applicable to FIIAH and SIIAH) of Law no. 83-C/2013, of 31 December (State Budget for 2014), by extending the application of the current Tax Regime of FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided in no. 14 as from 1 January 2014", is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined; in effect, the extension enshrined therein constitutes a new expiry regime of the exemptions provided in numbers 7, subparagraph a) and 8 of article 8 (Tax Regime) and not merely a densification of a criterion previously provided;

• In the case sub judice there is no doubt whatsoever that the tax facts that the new law intends to regulate have already produced all their effects under the old law;

• Considering that the principle of tax non-retroactivity has the character of a fundamental right, endowed with the protective legal regime of this right, its disregard results in the nullity of the act, in casu, the nullity of the Assessments;

• Admitting subsidiarily, that the defect (illegality) of the Assessments determines their voidability (and not nullity), the Assessments should be annulled accordingly, in accordance with articles 10, no. 1, subparagraph a), of the RJAT and article 102, no. 1, subparagraph a) of the Code of Tax Procedure and Process;

• Since the Assessments are based on article 236 (Transitional rule in the context of the special regime applicable to FIIAH and SIIAH) of Law no. 83-C/2013, of 31 December (State Budget for 2014), which suffers from unconstitutionality by violation of the principle of non-retroactivity of tax law, enshrined in article 103 (Tax system), no. 3, of the Constitution of the Portuguese Republic, the Tax Authority should not have assessed the IMT and Stamp Tax corresponding to the Assessments.

The Claimant concludes its initial submissions by petitioning the following:

"In these terms, and in the other respects of applicable Law and with the erudite supplementation of the Arbitral Tribunal which is hereby invoked, it should:

(i) be declared the nullity of the Assessments based on their unconstitutionality;

subsidiarily, if this is not so understood, the Assessments should be annulled;

(ii) the Claimant should be reimbursed for the entire amount paid by virtue of the Assessments subject of this request for arbitral pronouncement, plus, in accordance with article 43 (Unduly paid tax obligation) of the General Tax Law, the indemnification interest that is due until the date of such reimbursement."

1. The request for constitution of an arbitral tribunal was accepted and automatically notified to AT on 26 February 2016.

2. The Claimant did not proceed to appoint an arbitrator, wherefore, under the provisions of no. 1 of article 6 and subparagraph a) of no. 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

3. On 13 April 2016, the parties were duly notified of this appointment and did not manifest any will to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, subparagraphs b) and c), of the RJAT and articles 6 and 7 of the Deontological Code of CAAD.

4. Thus, in accordance with the provision of subparagraph c) of no. 1 of article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 29 April 2016.

5. On 25 May 2016, the Respondent, duly notified for this purpose, filed its Response in which it specifically contested the arguments raised by the Claimant and concluded by the groundlessness of the present action, with its consequent absolution of the claim.

The Respondent did not attach any evidentiary elements nor request the production of any evidence.

6.1. In essence and also in brief form, it is important to extract the most relevant arguments on which the Respondent based its Response:

• At the date of creation of the tax regime applicable to FIIAH, the exemptions from IMT and Stamp Tax required, respectively: (i) that the acquisition of the properties had as exclusive destination the lease for permanent housing and (ii) that the transfer had as object properties intended for permanent housing that occurs by force of the conversion of the right of ownership of such properties into a right of lease over the same, as well as the exercise of the purchase option provided in no. 3 of article 5 of that special tax regime;

• In the case at issue the property was not given the destination provided in the law, namely, the allocation to lease;

• The taxpayers who intended to benefit from the said exemptions always had, from the beginning of the tax regime applicable to FIIAH, to comply with the requirement that such properties be intended exclusively for lease for permanent housing;

• The assessments contested had precisely as their basis the fact that the property was given a destination different from that which gave rise to the attribution of the tax benefit;

• The contested assessments do not suffer from any illegality since they were based, not on the legislative change to the FIIAH regime introduced by article 236 of the Law that approved the State Budget for 2014, but rather on the fact that the property was given a destination different;

• The acts of assessment contested were made in accordance with the law in force, with no violation of constitutional principles which, if it existed, would translate into the mere voidability of those assessments, since it would not be a matter of violation of the essential content of a fundamental right but only of the principle of tax legality;

• The new law does not alter the assumptions, the conditions of attribution and recognition of the tax benefit of exemption from IMT and Stamp Tax, with only the legal provision of the time and manner of compliance with a legal requirement previously established;

• What happened therefore was that means of proof were established that aimed to concretize a legal requirement provided in an indeterminate manner with total and absolute respect for the principle of legal certainty and the protection of legitimate expectations;

• Therefore, one cannot affirm that there is any violation of the principle of retroactivity of tax law, namely, through subsequent imposition of any conditions determining the expiry of the right to exemption from IMT or Stamp Tax that were not initially provided;

• 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 keeping with the spirit of the legislator, when creating the regime, only served to densify the criterion already required, stipulating that urban properties are intended for lease for permanent housing whenever they are the object of a lease contract for permanent housing within the period of three years counted from the moment they became part of the fund's assets;

• Without prejudice to the legislative changes introduced by the State Budget Law for 2014, the AT, within the scope of its supervisory powers, would always have been able to assess, in order to conclude on the permanence of the benefit or, rather, on the restoration of the rule taxation system, in accordance with article 14 of the EBF;

• Tax retroactivity only has constitutional support if the confidence of the addressees in the norm is materially unjustified or if reasons of general interest require it and the burden on the taxpayer does not appear disproportionate;

• In the case at issue, it is not a matter of retroactivity or non-retroactivity of the law, nor is there injury to the expectations of the Claimant or aggravation of its tax position;

• The normative standard of reference for the action of AT is the law, whereby its action is always bounded according to its subordination to the law, and cannot disapply a norm based on its unconstitutionality, if such existed;

• Thus, the request for payment of indemnification interest is unfounded since there is no error in the action of the respondent entity and, much less, an error imputable to its services, thus ruling out the application of article 43 of the LGT.

The Respondent concludes its submissions thus:

"In the terms set out above and in the other respects of Law that Your Excellency will duly supplement, the present arbitral action should be judged groundless, absolving the respondent entity of all claims, all with the due and legal consequences."

6.2. In that submission, the Respondent requested the waiver of the attachment of its administrative file to the court records.

Notified for this purpose, the Claimant manifested its agreement with that pretension of the Respondent, which was then granted by order of 9 June 2016.

1. On 25 May 2016, an order was issued waiving the holding of the meeting referred to in article 18 of the RJAT.

2. On 9 June 2016, an order was issued setting a deadline for the presentation of pleadings and fixing 25 October 2016 as the deadline for the pronouncement of the arbitral decision.

3. Both Parties presented written pleadings, in which they reiterated the positions previously assumed in their respective submissions, with the Claimant relying on a legal opinion, prepared by Mr. C… and Professor D…, which it attached, to support its position regarding the unconstitutionality of no. 2 of article 236 of Law no. 83-C/2013, of 31 December.

II. SANITATION

The Arbitral Tribunal was regularly constituted and is competent.

The process does not suffer from nullities.

The parties enjoy legal personality and capacity, are duly represented and are legitimate.

The joinder of claims is admitted – two acts of assessment are at issue, one for IMT and one for Stamp Tax, and the declaration of illegality of each of them is petitioned – by virtue of verifying that the meritoriousness of the claims formulated by the Claimant depends essentially on the appreciation of the same factual circumstances and the interpretation and application of the same principles or rules of law (cf. article 3, no. 1, of the RJAT).

There are no exceptions or other preliminary matters that preclude the knowledge of merit and which are required to be known.

III. GROUNDS

III.1. FACTS

§1. PROVEN FACTS

The following facts are considered proven:

a) The Claimant is the managing company of the real estate investment fund "B… – Closed Real Estate Investment Fund for Residential Lease", registered with the Securities Market Commission, with the tax identification number ….

b) On 27 July 2012, Fund B…, represented and managed by the Claimant, acquired the urban property located at …/…, parish of …, municipality of …, district of ..., registered under article … in the urban real estate register of that parish of …. [cf. Doc. 1 attached to I.P.]

c) The acquisition of the mentioned urban property was made with exemption from IMT and Stamp Tax, under the provisions of no. 7, subparagraph a) and no. 8 of article 8 of the special regime applicable to real estate investment funds for residential lease (FIIAH), provided in articles 102 to 104 of Law no. 64-A/2008, of 31 December (SOB 2009). [cf. Doc. 1 attached to I.P.]

d) On 13 November 2015, the said urban property was transferred by Fund B…, represented and managed by the Claimant.

e) On 12 November 2015, with a view to the execution of the respective public deed of purchase and sale, the Claimant, in representation of Fund B…, declared to the competent services of the Tax and Customs Authority the elements necessary for the prior assessment of IMT and Stamp Tax. [cf. Doc. 1 attached to I.P.]

f) Following that declaration by the Claimant, the Tax and Customs Authority issued the assessment of IMT no. …, dated 12.11.2015, in the amount of € 5,066.88, in which the following was stated: "A deed of sale will be executed on 2015.11.13, whereby the property will be given a destination different from that on which the benefit was based, the exemption expiring." [cf. Doc. 1 attached to I.P.]

g) Concomitantly, the Tax and Customs Authority issued the assessment of Stamp Tax no. …, dated 12.11.2015, in the amount of € 1,520.00, in which the following was stated: "A deed of sale will be executed on 2015.11.13, whereby the property will be given a destination different from that on which the benefit was based, the exemption expiring." [cf. Doc. 1 attached to I.P.]

h) The Claimant proceeded to pay the amount of IMT assessed by the Tax and Customs Authority, mentioned in proven fact f), on 13 November 2015. [cf. Doc. 2 attached to I.P.]

i) The Claimant proceeded to pay the amount of IMT assessed by the Tax and Customs Authority, mentioned in proven fact g), on 13 November 2015. [cf. Doc. 2 attached to I.P.]

j) On 10 February 2016, the Claimant filed the request for constitution of an arbitral tribunal that gave rise to the present process. [cf. process management information system of CAAD]

§2. UNPROVEN FACTS

With relevance to the appreciation and decision of the cause, there are no facts that have not been proven.

§3. REASONING REGARDING FACTUAL MATTERS

Regarding the proven factual matters, the conviction of the Tribunal was based on the facts alleged by the Parties, whose adherence to reality was not put in question and on the documents attached to the court records.

III.2. LAW

§1. OF THE QUESTION TO BE DECIDED

The question that is put before the Tribunal rests, essentially, on discerning whether the assessments of IMT and Stamp Tax disputed suffer from any defect that invalidates them and justifies the declaration of their nullity or, subsidiarily, their annulment.

At the epicenter of the disagreement that opposes the Parties in this process, is the rule contained in article 236 of Law no. 83-C/2013, of 31 December (SOB 2014), which, according to the Claimant, is unconstitutional by violation of the principle of non-retroactivity of tax law, enshrined in article 103 of the Constitution of the Portuguese Republic.

Indeed, the Claimant asserts that the said article 236 "by extending the application of the current Tax Regime of FIIAH "to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided in no. 14 as from 1 January 2014" is directly and unequivocally violating the principle of non-retroactivity of tax law constitutionally enshrined. In effect, the extension enshrined therein constitutes a new expiry regime of the exemptions provided in numbers 7, subparagraph a) and 8 of article 8 (Tax Regime) and not merely a densification of a criterion previously provided."

Further in accordance with the Claimant, having in consideration that "the principle of tax non-retroactivity has the character of a fundamental right, endowed with the protective legal regime of this right, its disregard results in the nullity of the act, in casu the nullity of the Assessments", having regard to article 133, nos. 1 and 2, subparagraph d), of the CPA (in force at the date of the facts).

However, "without conceding and by mere caution of representation", the Claimant admits, subsidiarily, "that the defect (illegality) of the Assessments [may] determine[s] their voidability (and not nullity)".

The Respondent, for its part, contends that the contested assessments were made under the legislation in force, which is in conformity with the Constitution of the Portuguese Republic, and therefore no constitutional principles have been violated.

The Respondent further states that the "new law does not alter the assumptions, the conditions of attribution and recognition of the tax benefit of exemption from IMT and Stamp Tax, with only the legal provision of the time and manner of compliance with a legal requirement previously established". In this manner, concludes the Respondent, it is not a matter of retroactivity or non-retroactivity of the law, nor is there injury to the expectations of the Claimant or aggravation of its tax position.

§2. OF THE LEGAL FRAMEWORK

The legal-tax appreciation of the situation sub judice must necessarily begin with the delimitation of the applicable normative bloc, for which it is necessary to invoke and interpret the legal norms that appear concretely relevant.

§2.1. Under Law no. 64-A/2008, of 31 December (SOB 2009), the special regime applicable to real estate investment funds for residential lease (FIIAH) and to real estate investment companies for residential lease (SIIAH) (cf. article 102) constituted during the five years following the entry into force of that law and to properties acquired by them in the same period (cf. article 103) was approved.

According to the provisions of article 104 of the said legal instrument, the constitution and operation of FIIAH, as well as the commercialization of the respective investment units, are governed by the provisions of the Legal System of Real Estate Investment Funds, approved by Decree-Law no. 60/2002, of 20 March, and subsidiarily, by the provisions of the Code of Securities, approved by Decree-Law no. 486/99, of 13 November, with the specificities contained in the legal system therein concretely provided.

As regards the legal system specifically established in that article 104, it is important here to highlight the following rules:

"Article 4

Composition of assets

1. To the composition of the assets of the FIIAH applies the provision of article 46 of the Legal System of Real Estate Investment Funds, whereby at least 75% of its total assets are constituted by properties, located in Portugal, intended for lease for permanent housing.

(...)"

"Article 5

Purchase option

1. Borrowers of housing credit contracts who proceed to transfer the property subject to the contract to a FIIAH may enter into with the fund manager an lease agreement.

(...)

1. The lease under the terms provided in no. 1 constitutes the lessee in a right of option to purchase the property from the fund, capable of being exercised until 31 December 2020.

2. The right of option to purchase the property provided in the previous number is only transferable by death of the holder.

(...)"

"Article 8

Tax regime

(...)

1. The following are exempt from IMT:

a) The acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing, by the investment funds referred to in no. 1 [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 foregoing articles];

b) The acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent housing, resulting from the exercise of the purchase option referred to in no. 3 of article 5 by the lessees of the properties that form part of the assets of the investment funds referred to in no. 1.

1. The following are exempt from stamp tax all acts performed, provided they are connected with the transfer of urban properties intended for permanent housing that occurs by force of the conversion of the right of ownership of such properties into a right of lease over the same, as well as with the exercise of the purchase option provided in no. 3 of article 5.

(...)"

Law no. 83-C/2013, of 31 December (SOB 2014), amended the tax regime of funds and companies for real estate investment for residential lease, having, among other things, added nos. 14, 15 and 16 to article 8 of the special regime applicable to FIIAH and SIIAH, with the following wording (cf. article 235):

"Article 8

(...)

(...)

1. For the purposes of the provisions of nos. 6 to 8, it is considered that urban properties are intended for lease for permanent housing whenever they are the object of a lease contract for permanent housing within the period of three years counted from the moment when they became part of the fund's assets, the taxpayer being required to communicate and provide proof to AT of the respective actual lease within 30 days following the end of said period.

2. When properties have not been the object of a lease contract within the three-year period provided in the previous number, the exemptions provided in nos. 6 to 8 cease to have effect, in which case the taxpayer must request AT, within 30 days following the end of said period, the assessment of the respective tax.

3. If the properties are transferred, with the exception of cases provided in article 5, or if the FIIAH is subject to liquidation, before the end of the period provided in no. 14, the taxpayer must likewise request AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of the tax due in accordance with the previous number."

Still regarding the special regime applicable to FIIAH and SIIAH, the following was provided in article 236 of the cited Law no. 83-C/2013:

"Article 236

Transitional rule in the context of the special regime applicable to FIIAH and SIIAH

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, apply to properties that have been acquired by FIIAH from 1 January 2014.

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, likewise apply to properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the three-year period provided in no. 14 as from 1 January 2014."

§2.2. Having regard to the tax regime of funds and companies for real estate investment for residential lease, provided in article 8 of the special regime applicable to FIIAH and SIIAH, it seems pertinent to cite the following rules of the Statute of Tax Benefits:

"Article 2

Concept of tax benefit and tax expenditure and their respective control

1. Tax benefits are measures of exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to the taxation they prevent.

2. The following are tax benefits: exemptions, reductions of rates, deductions from the taxable base and from the tax, accelerated depreciation and reintegrations and other fiscal measures that comply with the characteristics enunciated in the previous number.

(...)"

"Article 5

Automatic and recognition-dependent tax benefits

1. Tax benefits are automatic or dependent on recognition; the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition.

(...)"

"Article 9

Declaration by interested parties of the cessation of the prerequisites of tax benefits

The persons holding the right to tax benefits are obliged to declare, within 30 days, that the situation of fact or law on which the benefit was based has ceased, except when that cessation is of official knowledge."

"Article 11

Application in time of the rules on tax benefits

1. The rules that alter conventional, conditional or temporary tax benefits are not applicable to taxpayers who already enjoy the right to the respective tax benefit, insofar as they prejudice them, except when the law provides otherwise.

(...)"

"Article 12

Constitution of the right to tax benefits

The right to tax benefits must be dated to the date of the verification of the respective prerequisites, although it may be dependent on declarative recognition by the tax administration or on agreement between this and the beneficiary person, except when the law provides otherwise."

"Article 14

Extinction of tax benefits

1. The extinction of tax benefits has as consequence the automatic restoration of rule taxation.

2. Tax benefits, when temporary, expire by the lapse of the period for which they are granted and, when conditional, by the verification of the prerequisites of the respective resolutive condition or by non-compliance with the obligations imposed, imputable to the beneficiary.

3. When the tax benefit concerns the acquisition of goods intended for the direct realization of the purposes of the acquirers, it ceases to have effect if those goods are transferred or are given another destination without authorization of the Minister of Finance, without prejudice to the other sanctions or different regimes established by law.

(...)"

§2.3. Additionally and with a view to the correct interpretation and application of the legal precepts cited above, it will be important to take into account the rules that pontificate on the interpretation and application of tax laws. Thus:

General Tax Law

"Article 11

Interpretation

1. 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.

2. Whenever, in tax norms, terms specific to other branches of law are used, these should be interpreted in the same sense that they have there, unless otherwise directly results from the law.

3. Should doubt persist regarding the meaning of the applicable rules of incidence, attention should be given to the economic substance of the tax facts.

4. Gaps resulting from tax norms covered by the reserve of law of the Assembly of the Republic are not susceptible to analogical integration."

Given the reference made to "general rules and principles of interpretation and application of laws", we must appeal to the rule where we find ones and the others:

Civil Code

"Article 9

Interpretation of law

1. Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied.

2. However, the legislative intent that has no minimum verbal correspondence in the letter of the law cannot be considered by the interpreter, even if imperfectly expressed.

3. In fixing the meaning and scope of the law, the interpreter will presume that the legislator adopted the most appropriate solutions and knew how to express its intent in adequate terms."

Applying these hermeneutical guidelines to the concrete case, it seems, from the start, useful to consider what is stated in the Report of the State Budget for 2009, prepared by the Ministry of Finance and Public Administration, in which the following is referred to[1]:

"Creation of Real Estate Investment Funds in Residential Lease

The initiative in the matter of creation of funds and companies for real estate investment specifically vocational for investment in properties intended for residential lease likewise merits reference. This initiative intends to create additional stimulus to the urban lease 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 properties acquired by them in that period.

In essence, it comes to provide for the creation of funds and companies for real estate investment whose total assets are constituted, in a percentage not less than 75%, by properties located in Portugal intended for lease for permanent housing. In this manner, it intends to create the necessary conditions for placing the properties on the lease market and to allow, also, families burdened with housing loan payments to transfer the respective property to the fund or company, with reduction of their respective charges, replacing them with a rent of value lower than that payment and maintaining a purchase option on the property they lease to the fund.

It is proposed that the tax regime of these funds contemplate:

• Exemption from Corporate Income Tax (IRC) on income of any nature obtained by FIIAH constituted between 1 January 2009 and 31 December 2014;

• Exemption from Personal Income Tax (IRS) and IRC on income relating to investment units in the investment funds referred to in the previous number, excluding the positive balance between capital gains and losses resulting from the transfer of investment units.

• Exemption from IRS on capital gains resulting from the transfer of properties intended for own housing in favor of investment funds that occurs by force of the conversion of the right of ownership of such properties into a right of lease, provided that the lease relationship is maintained and the purchase option comes to be exercised at the end.

• Deduction from the IRS tax on amounts borne by the lessees of the fund's properties as a result of the conversion of a right of ownership of a property into a right of lease.

• Exemption from Property Tax, while remaining in the FIIAH portfolio, for urban properties intended for lease for permanent housing.

• Exemption from IMT in acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing or of urban properties or autonomous fractions of urban properties intended for own and permanent housing, resulting from the exercise of the purchase option by the lessees of the properties that form part of the assets of investment funds.

• Exemption from Stamp Tax in all acts connected with the transfer of urban properties intended for permanent housing, occurring by force of the conversion of the right of ownership of such properties into a right of lease, as well as with the exercise of the purchase option.

• Exemption from supervision fees for the management entities of FIIAH regarding the management of funds of this nature."

§2.4. Having said this. Having delimited the applicable legal framework, it is now important to interpret the respective legal norms, namely those contained in Law no. 64-A/2008, of 31 December (SOB 2009) and Law no. 83-C/2013, of 31 December (SOB 2014), cited above, with a view to their subsequent application to the case sub judice.

We will proceed with this hermeneutical task with the perspective of elucidating the legal regime of the exemptions from IMT and Stamp Tax provided in the tax regime of funds and companies for real estate investment for residential lease, established in article 8 of the special regime applicable to FIIAH and SIIAH, which, having regard to the legislative change that we have accounted for above, we will do having as reference two distinct moments: one corresponding to the initial validity of that legal regime, namely, as it resulted from the provisions in articles 102 to 104 of Law no. 64-A/2008, of 31 December, and another following the entry into force of Law no. 83-C/2013, of 31 December.

The tax regime of funds and companies for real estate investment for residential lease, provided in article 8 of the special regime applicable to FIIAH and SIIAH, in its original wording, established the following:

a) Exemption from IMT for:

• the acquisitions of urban properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing, made by FIIAH constituted between 1 January 2009 and 31 December 2013;

• the acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent housing, resulting from the exercise of the purchase option right – provided until 31 December 2020 – by the lessees of the properties forming part of the assets of FIIAH constituted between 1 January 2009 and 31 December 2013.

b) Exemption from Stamp Tax for all acts performed in connection with the transfer of urban properties intended for permanent housing that occurs by virtue of:

• the conversion of the right of ownership of such properties into a right of lease over the same;

• the exercise of the purchase option right – provided until 31 December 2020 – by the lessees of the properties forming part of the assets of FIIAH constituted between 1 January 2009 and 31 December 2013.

The essential prerequisite of these exemptions, their conditio sine qua non, as it flows from the letter of the law itself, lay precisely in urban properties or their autonomous fractions being intended exclusively for lease for permanent housing.

Indeed, this very result appears from the aforesaid Report of the State Budget for 2009, in which these exemptions are justified with the intention of "creating additional stimulus to the urban lease market in Portugal, providing for a specially favorable tax regime applicable until 31 December 2020."

Let us now see what flows from the amendments introduced by article 235 of Law no. 83-C/2013, of 31 December, to the tax regime of funds and companies for real estate investment for residential lease, which were embodied, among other things, in the addition of nos. 14, 15 and 16 to article 8 of the special regime applicable to FIIAH and SIIAH.

We have therefore the following tax regime currently in force:

a) Exemption from IMT for:

• the acquisitions of properties or autonomous fractions of urban properties intended exclusively for lease for permanent housing, made by FIIAH constituted between 1 January 2009 and 31 December 2015;

• the acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent housing, resulting from the exercise of the purchase option right – provided until 31 December 2020 – by the lessees of the properties forming part of the assets of FIIAH constituted between 1 January 2009 and 31 December 2015.

b) Exemption from Stamp Tax for all acts performed in connection with the transfer of urban properties intended for permanent housing, that occurs by virtue of:

• the conversion of the right of ownership of such properties into a right of lease over the same;

• the exercise of the purchase option right – provided until 31 December 2020 – by the lessees of the properties forming part of the assets of FIIAH constituted between 1 January 2009 and 31 December 2015.

The now added no. 14 of the said article 8 establishes that it is considered "that urban properties are intended for lease for permanent housing whenever they are the object of a lease contract for permanent housing within the period of three years counted from the moment when they became part of the fund's assets [FIIAH]", with an obligation weighing on the taxpayer to communicate and provide proof to AT of the respective actual lease within 30 days following the end of said period.

c) The said exemptions cease to have effect if any of the following circumstances occur:

• the properties are not the object of a lease contract within the three-year period counted from the moment when they became part of the assets of the FIIAH;

• the properties are transferred before the end of the three-year period counted from the moment when they became part of the assets of the FIIAH, except if such occurs as a consequence of the exercise of the aforesaid purchase option right;

• the FIIAH is subject to liquidation before the end of the three-year period counted from the moment when the properties became part of the assets of the FIIAH.

Should the first situation occur, the taxpayer must request AT, within 30 days following the end of said three-year period, the assessment of IMT and Stamp Tax.

If the second or third situation occurs, the taxpayer must request AT, before the transfer of the property or the liquidation of the FIIAH, the assessment of IMT and Stamp Tax.

In article 236 of Law no. 83-C/2013, of 31 December, a transitional rule was enshrined in the context of the special regime applicable to FIIAH and SIIAH, from which it results that the amendments introduced by the foregoing article 235 apply:

a) To properties that have been acquired by FIIAH from 1 January 2014;

b) To properties that have been acquired by FIIAH before 1 January 2014, counting, in such cases, the aforesaid three-year period as from 1 January 2014.

In comparative summary, we have that the differences existing between the original version and the currently valid version of the tax regime applicable to FIIAH and SIIAH, for the said exemptions from IMT and Stamp Tax to be verified, lie in the following core aspects:

• Urban properties or their autonomous fractions acquired by FIIAH, having as exclusive destination lease for permanent housing, must now be actually leased within the three-year period counted: (i) from the moment when they became part of the FIIAH's assets, for those acquired from 1.1.2014 and (ii) from 1.1.2014, for those acquired before that date.

• Urban properties or their autonomous fractions acquired by FIIAH, having as exclusive destination lease for permanent housing, must now remain in the FIAAH's assets – except if the respective transfer results from the exercise of the aforesaid purchase option right – for the three-year period counted: (i) from the moment when they became part of the FIIAH's assets, for those acquired from 1.1.2014 and (ii) from 1.1.2014, for those acquired before that date.

• The FIIAH should not be subject to liquidation before the end of the three-year period counted: (i) from the moment when the urban properties or their autonomous fractions acquired with exclusive destination to lease for permanent housing became part of the FIIAH's assets, for those acquired from 1.1.2014 and (ii) from 1.1.2014, for those acquired before that date.

In this parameter, previously it was sufficient for those exemptions from IMT and Stamp Tax to be verified that they were acquisitions of urban properties or their autonomous fractions intended exclusively for lease for permanent housing, with nothing being provided regarding the necessity of actual execution of the lease contract in a certain period or regarding the necessity of maintenance of the properties in the FIIAH's assets also during a determined period.

Currently the prerequisites of those exemptions are, in addition to exclusive destination to lease for permanent housing, actual lease and non-transfer of the properties, as well as non-liquidation of the FIIAH, in the said three-year period.

Thus, it ceased to be sufficient that the property be intended for residential lease, at the moment of its acquisition by the FIIAH; now, if the acquisition of the property intended exclusively for lease for permanent housing is not followed by its actual lease within the said three-year period or if its transfer or the liquidation of the FIIAH occurs in that same period, the exemptions in question cease to have effect.

However, it is important to emphasize that, between the original version and the current version of the tax regime in question, there was a prerequisite of those exemptions from IMT and Stamp Tax that remained unchanged: the exclusive destination of urban properties or their autonomous fractions to lease for permanent housing.

Indeed, the obligation to intend the property for residential lease is a requirement always present in the tax regime enshrined in the context of the special regime applicable to FIIAH and SIIAH – in fact, as a necessary consequence of the objectives and motivations that underlay its creation, namely to allow families with housing loans and with difficulty in paying their loan payments, to convert those payments into the payment of a rent, by means of the sale of the respective property to the FIIAH and the execution, with the respective fund management entity (SIIAH), of a lease contract over the same property, being able to maintain, until 2020, the purchase option on the property – and not being therefore a requirement resulting from the amendments introduced by article 235 of Law no. 83-C/2013, of 31 December.

Furthermore, compliance with that requirement never sufficed – initially, as now – with a mere declared intention, at the moment of acquisition of the property, that it was intended to be intended exclusively for residential lease, always having been required an effective allocation to lease for permanent housing; the only difference lies in the fact that, now, such allocation must be concretized, through the execution of a lease contract, within a determined period.

To admit an understanding to the contrary, in addition to distorting the purposes that justified the creation of FIIAH and SIIAH and the establishment of a special legal regime – namely regarding tax matters, with the enshrinement of various tax benefits – one would be allowing practices of evasion and fraud, with the harmful tax consequences arising therefrom; therefore, that is decidedly not the best interpretation of those rules.

This position of ours is reinforced by the provision of no. 3 of article 14 of the EBF – already in force when the entry into force of Law no. 83-C/2013, of 31 December occurred, which here matters to consider, since we are faced with authentic tax benefits (cf. article 2, nos. 1 and 2, of the EBF) – in which express reference is made to cases of tax benefits concerning the acquisition of goods intended for the direct realization of the purposes of the acquirers, establishing that the tax benefit "ceases to have effect if those [goods] are transferred or are given another destination without authorization of the Minister of Finance".

Thus, in the validity of the tax regime of funds and companies for real estate investment for residential lease, established in article 8 of the special regime applicable to FIIAH and SIIAH, as approved by Law no. 64-A/2008, of 31 December, the referenced exemptions from IMT and Stamp Tax ceased to have effect if the said urban properties or their autonomous fractions were transferred or were given another destination without authorization of the Minister of Finance, which would have as consequence the automatic restoration of rule taxation (cf. article 14, no. 1, of the EBF).

Should that situation occur, there would then weigh on the taxpayer the duty to request the assessment of IMT, within the period of 30 days counted from the expiry of the exemption and, in the same period, to effect payment of the tax due (cf. articles 34, no. 1, and 36, no. 6, of the CIMT).

The same obligation was then verified regarding Stamp Tax, having regard to the provisions of articles 23, no. 4 and 44, no. 4, of the CIS.

Finally, it is also important to emphasize that no. 3 of article 14 of the EBF determines that those tax benefits cease to have effect in the terms established therein, "without prejudice to other sanctions or different regimes established by law". Now, the amendments introduced by article 235 of Law no. 83-C/2013, of 31 December, to the special regime applicable to FIIAH and SIIAH, embodied in the addition of nos. 14, 15 and 16 to the respective article 8, translate precisely into the enshrinement of a different regime established by law, that is, of a special regime for the exemptions from IMT and Stamp Tax provided in the tax regime of funds and companies for real estate investment for residential lease (FIIAH and SIIAH), in face of the general regime resulting from no. 3 of article 14 of the EBF.

§3. OF THE CASE SUB JUDICE: SUBSUMPTION TO THE APPLICABLE NORMATIVE BLOC

As results from the proven factuality: Fund B…, represented and managed by the Claimant, acquired, on 27 July 2012, the urban property in question in these proceedings, with exemption from IMT and Stamp Tax, under the provisions of no. 7, subparagraph a) and no. 8 of article 8 of the special regime applicable to real estate investment funds for residential lease, provided in articles 102 to 104 of Law no. 64-A/2008, of 31 December (cf. proven facts b) and c)); on 13 November 2015, the said urban property was transferred by Fund B…, represented and managed by the Claimant (cf. proven fact d)).

We have therefore that the Claimant, as managing company of Fund B…, acquired that urban property, declaring that it was intended exclusively for lease for permanent housing and, therefore, benefiting from the exemptions from IMT and Stamp Tax provided in subparagraph a) of no. 7 and no. 8 of article 8 of the special regime applicable to FIIAH and SIIAH.

However, the Claimant does not allege and it does not result from the file that the said urban property was transferred within the context of the exercise of the purchase option right provided in no. 3 of article 5 of the special regime applicable to FIIAH and SIIAH.

It was further proven that in the assessments of IMT and Stamp Tax contested the following was stated: "A deed of sale will be executed on 2015.11.13, whereby the property will be given a destination different from that on which the benefit was based, the exemption expiring." (cf. proven facts f) and g)).

In this factual framework and having regard to the above exposition, it is necessary to conclude that the pretension of the Claimant cannot but fail.

Indeed, the assessments of IMT and Stamp Tax contested resulted from the fact that the mentioned urban property was given a destination different from that on which the granting of the exemptions from IMT and Stamp Tax was based – exclusively lease for permanent housing –, a different destination that is proven by the transfer of the property – once this is executed, the prerequisite on which the exemptions were based (lease for permanent housing) will no longer be capable of being fulfilled – and without there being any evidence that it was executed in favor of one of its lessees and, therefore, under the aforesaid purchase option right.

In this manner, the assessments of IMT and Stamp Tax contested did not emerge from "the application of the requirement associated with allocation to a specific destination (lease for permanent housing), within the three-year period introduced by article 236 of the transitional regime already referred to (and respective counting of the period), but rather from the transfer of a property allocated to a FIIAH managed by the Claimant, outside the scope "of acquisitions of urban properties or autonomous fractions of urban properties intended for own and permanent housing, resulting from the exercise of the purchase option by the lessees of the properties that form part of the assets of investment funds" (…) which, implicitly, resulted in that property ceasing to be (or never having been) allocated, by the FIIAH, to the purpose legally provided in article 8, no. 7, subparagraph a) and no. 8 of that special regime (residential lease)" (arbitral decision handed down in process no. 688/2015-T). It is not therefore a matter of a period.

In this measure, we understand that both the assessment of IMT and the assessment of Stamp Tax in question do not suffer from any illegality, being in full conformity with the provision in subparagraph a) of no. 7 and no. 8 of article 8 of the special regime applicable to FIIAH and SIIAH and further with the provision of article 14, no. 3, of the EBF, whereby they are legal.

It adds furthermore that, contrary to what was alleged by the Claimant, its tax position was not altered in any way and, much less, injured/aggravated by the transitional rule of article 236 of Law no. 83-C/2013, of 31 December, concatenated with the provision of art. 235 of the same legal instrument.

For the reason that, the "what no. 16 [added by the said article 235 to article 8 of the special regime applicable to FIIAH and SIIAH] brought as new was only the alteration of the period for requesting the assessment of the taxes and payment thereof.

In effect, before the addition of this precept, the assessment of the taxes was requested from AT by the taxpayer, within the period of 30 days counted from the expiry of the exemption, under penalty of AT promoting its official assessment.

However, with the new wording, the taxpayer came to request the assessment likewise from AT, but before the transfer of the property or autonomous fraction.

Thus, the said 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 subparagraph a) [of no. 7 of the same article 8], having a more procedural/operative nature (…)" (arbitral decision handed down in process no. 709/2015-T).

In this parameter, it is our understanding that no. 16 of article 8 of the special regime applicable to FIIAH and SIIAH, applied in combination with the provision of no. 15 of the same article, does not produce any alteration in the substance and/or in the requirements of applicability of the exemptions established by nos. 7 and 8 of the same article 8, regarding the assessments of IMT and Stamp Tax contested.

Indeed, contrary to what is advocated by the Claimant, it is not accurate to say that there were not already legally provided, at the moment of recognition of the exemption, the facts or circumstances upon which the respective expiry depended, at least regarding the circumstance that occurred in casu: the transfer of the property[2].

In truth, the fact that the Claimant proceeded to transfer the said urban property which, upon acquiring, it declared that it would allocate to the purpose that allowed it to be recognized – as it was – the exemption from IMT and Stamp Tax, would always have determined – even if the cited no. 16 had not been added to the mentioned article 8, nor did the transitional rule of article 236 of Law no. 83-C/2013, of 31 December exist – the expiry of such exemptions, by effect of the provision of no. 3 of article 14 of the EBF.

Thus being, in the situation sub judice there is not at issue the retroactive application of any rule that has come to introduce a new expiry regime of the exemptions from IMT and Stamp Tax provided in nos. 7 and 8 of article 8 of the special regime applicable to FIIAH and SIIAH.

Consequently, the analysis of the question concerning the alleged retroactivity of the transitional regime provided by article 236 of Law no. 83-C/2013, of 31 December is moot, for, as referred to above, the conditionals that originated the assessments of IMT and Stamp Tax contested have no relation whatsoever with the addition of nos. 14, 15 and 16 to article 8 of the special regime applicable to FIIAH and SIIAH, operated by article 235 of the said Law no. 83-C/2013, but only with the transfer of the said urban property for purposes different from those for which the exemptions from IMT and Stamp Tax were granted.

For the same reasons and by inherence, the analysis of the question concerning the alleged nullity or (subsidiarily, if this were not so understood) voidability of the assessments of IMT and Stamp Tax contested is moot.

§4. OF THE REIMBURSEMENT OF AMOUNTS PAID AND THE PAYMENT OF INDEMNIFICATION INTEREST

The Claimant further petitions the conviction of AT to reimburse the amounts of tax that it paid, plus the respective indemnification interest.

Since the assessments of IMT and Stamp Tax contested do not suffer from any invalidating defect, being thus legal, the Claimant has no right to reimbursement of the amounts of tax that it paid nor, inherently, to the payment of any interest.

IV. DECISION

In the terms set out above, this Arbitral Tribunal decides:

a) To judge the request for arbitral pronouncement totally groundless and, consequently:

• not to declare illegal the assessment of Municipal Tax on Onerous Transfers of Real Estate (IMT) no. …, dated 12.11.2015, in the amount of € 5,066.88;

• not to declare illegal the assessment of Stamp Tax no. …, dated 12.11.2015, in the amount of € 1,520.00; and

• not to recognize the right of the Claimant to reimbursement of the amounts of tax that it paid nor, inherently, to the payment of any interest.

b) To absolve the Respondent of the claims.

c) To condemn the Claimant to payment of the costs of the process.

VALUE OF THE PROCESS

In accordance with the provisions of arts. 306, no. 2, of the CPC, 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is fixed at € 6,586.88 (six thousand five hundred and eighty-six euros and eighty-eight cents).

COSTS

In accordance with article 22, no. 4, of the RJAT, the amount of costs is fixed at € 612.00 (six hundred and twelve euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Claimant.

Lisbon, 8 July 2016.

The Arbitrator,

(Ricardo Rodrigues Pereira)

[1] Available at https://www.parlamento.pt/OrcamentoEstado/Documents/oe/2009/RelatorioOE2009.pdf.

[2] It would not be so if, for example, the property were for a period of three years in Fund B… without having yet been the object of a lease contract for permanent housing and, for that reason, there were assessment of IMT. In the concrete case, as results from the proven factuality, that is not what is at issue.