Process: 93/2016-T

Date: June 13, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitral decision from CAAD (Administrative Arbitration Center) addresses whether Article 236 of Law 83-C/2013 unconstitutionally revoked IMT and Stamp Tax exemptions for FIIAH closed-end real estate investment funds for residential rental. A FIIAH fund challenged assessments totaling €33,171.55 after selling property acquired before 2014 with tax exemptions under Article 8(7)(a) and 8(8) of the FIIAH special regime. The claimant argued Article 236 violated Article 103(3) of the Portuguese Constitution by retroactively changing exemption expiration rules, starting the mandatory 3-year holding period from January 1, 2014 rather than the original acquisition date. The Tax Authority countered that Article 236 merely regulated the compliance period for pre-existing requirements without creating retroactive effects, and that any illegality would result in annulability rather than nullity under Portuguese administrative law. The constitutional debate centered on whether the transitional provision impermissibly altered vested tax benefits or simply clarified timing rules. The tribunal's decision would determine whether the fund receives a full refund with compensatory interest calculated from payment until reimbursement. This case has significant implications for FIIAH tax planning, the temporal limits of legislative amendments to tax exemptions, and the protection of legitimate expectations in real estate investment fund taxation under Portuguese constitutional principles of legal certainty and non-retroactivity.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1 A…, S.A., taxpayer No.…, with headquarters at Avenida…, No.…, Lisbon, in its capacity as managing company of B… — CLOSED REAL ESTATE INVESTMENT FUND FOR RESIDENTIAL RENTAL, taxpayer No.…, requested the constitution of an arbitral tribunal, pursuant to Article 2, No. 1, letter a), and Article 10, both of Decree-Law No. 10/2011, of January 20 (hereinafter RJAT).

1.2 The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.

1.3 The Deontological Council of the Administrative Arbitration Center (CAAD) appointed the undersigned to form the Singular Arbitral Tribunal, notifying the parties, and the Tribunal was constituted on May 9, 2016.

1.4 The request for arbitral decision concerns the assessment of IMT No.…, in the amount of 29,152.75€, and the assessment of IS No.…, in the amount of 4,018.80€, both relating to the real property that was owned by the Claimant, registered in the urban property registry under Article….º of the Union of Parishes of … and…, assessments and property that are better identified in the Claimant's request and in the documents attached thereto, for which reference is made here.

The Claimant invokes the illegality of the assessments on the basis of their unconstitutionality which, in its view, leads to their respective nullity, which it requests the Tribunal declare, or to their annulability, for which it alternatively requests that the assessments be annulled.

Furthermore, the Claimant petitions for the condemnation of the Respondent to the reimbursement of the amounts paid by force of the assessments in question, increased by default interest on all amounts paid, accrued until the date of reimbursement.

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

The Claimant understands that the assessments in question are, consequently, affected by a defect that has as its consequence nullity, under letter d) of No. 2 of Article 133.2 of the Code of Administrative Procedure (CPA) because they violate the essential content of a fundamental right.

Being that it also understands that, in any case, the assessments would be annulable, as illegal, on the same basis.

1.5 The TAX AND CUSTOMS AUTHORITY responded, defending itself by way of counter-argument, sustaining that in the Portuguese legal-administrative order the standard regime of invalidity of acts is, for reasons of legal certainty, mere annulability, including for those performed on the basis of illegal or unconstitutional determinations, having the Supreme Administrative Court pronounced itself to that effect.

The Respondent states that the declaration of nullity appears reserved for those acts that violate the essential content of a fundamental right, affecting the rights, freedoms and guarantees of citizens, but not those affecting the principle of legality, as it contends is the case here.

The acts in question, being, without conceding this point, violative of the principle of tax legality, would thus be annulable, but not null.

It further argues that the law in question is not affected by retroactivity, having established no new requirement for the application of the exemption provided for in the tax regime of FIIAH, but having merely granted a period for compliance with a requirement already inherent to the regime itself, a period that only commences after the entry into force of the new law.

It is not, therefore, a matter of altering the presuppositions, conditions of attribution or recognition of a tax benefit, but solely and only of regulating the period of time for purposes of proving compliance with a previously established requirement. For which reason the Respondent understands that the norm in question is not unconstitutional and concludes that the requests should be judged unsubstantiated.

1.6 Notified of the Tribunal's intention to dispense with the meeting of the arbitral tribunal provided for in Article 18 of the RJAT, the parties did not oppose.

  1. SANCTION

The Tribunal was regularly constituted and is competent ratione materiae, in conformity with Article 2.9 of the RJAT.

The parties possess legal personality and capacity, are shown to be legitimate, and are regularly represented.

The proceedings do not suffer from any defects that would render them invalid.

  1. MATTER OF FACT

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

  1. The Claimant was owner of the property registered in the urban property registry of the Union of Parishes of … and … under Article….º, better identified above and in the Claimant's request and documents 1 and 2 attached thereto.

  2. The property was acquired benefiting from the exemptions from IMT and IS contained, respectively, in Nos. 7, letter a), and 8 of Article 8 of the Tax Regime of FIIAH, which were recognized upon request, pursuant to Article 10 of the IMT Code.

  3. The Claimant presented, on 23.11.2015, a declaration for assessment of IMT and IS, requesting payment of IMT and Stamp Duty on the basis of its intention to alienate the property and, consequently, to give it a use different from that on which the benefit was based, with the consequent expiration of the exemption.

  4. Such declarations gave rise to the assessment of IMT No.…, in the amount of 29,152.75€, and to the assessment of IS No.…, in the amount of 4,018.80€, which the Respondent paid on 24.11.2015.

Facts Not Proven

No essential facts with relevance to the assessment of the merits of the case, which were not proven, were established.

Reasoning of the Decision on the Matter of Fact

The tribunal's conviction regarding the facts given as proven was based on documentary evidence submitted by the Claimant, the authenticity and correspondence to reality of which were not contested by the Respondent.

  1. QUESTION TO BE DECIDED: ON THE LEGALITY OF THE ASSESSMENTS OF IMT AND STAMP DUTY IN QUESTION

The question submitted to the appraisal of the Arbitral Tribunal is that of assessing the legality of the assessments of IMT and IS sub judice and of deciding on the consequences of their possible illegality.

It is therefore necessary to decide on the merits of the request for arbitral decision of the assessments of IMT and IS sub judice.

Let us proceed:

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

According to No. 7 of Article 8 of the FIIAH, the following are exempt from IMT: "a) The acquisitions of urban real property or of autonomous fractions of urban real property intended exclusively for rental for permanent residence, by the investment funds referred to in No. 1;

b) The acquisitions of urban real property or of autonomous fractions of urban real property intended for permanent residence, as a result of the exercise of the purchase option referred to in No. 3 of Article 5 by tenants of real property that forms part of the assets of the investment funds referred to in No. 1."

Article 235 of Law No. 83-C/2013, of December 31 (State Budget for 2014) introduced three additional paragraphs to the said Article 8:

"14 — For purposes of the provisions of Nos. 6 to 8, urban real property is considered to be intended for rental for permanent residence whenever it is subject to a rental contract for permanent residence within a period of three years counted from the moment it became part of the fund's assets, and the taxpayer must communicate and provide proof to the Tax Authority of the respective actual rental, within 30 days following the end of the said period. 15 — When real property has not been subject to a rental contract within the period of three years provided for in the previous number, the exemptions provided for in Nos. 6 to 8 cease to have effect, and in that case the taxpayer must request from the Tax Authority, within 30 days following the end of the said period, the assessment of the respective tax.

16 — In case the real property is alienated, with the exception of cases provided for in Article 5, or in case the FIIAH is subject to liquidation, before the period provided for in No. 14 has elapsed, the taxpayer must equally request from the Tax Authority, before the alienation of the real property or the liquidation of the FIIAH, the assessment of the tax owed pursuant to the previous number."

In Article 236 the following transitional provision appears: "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 December 31, shall apply to real property that has been acquired by FIIAH from January 1, 2014. 2 - Without prejudice to the provisions 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 December 31, shall equally apply to real property that has been acquired by FIIAH before January 1, 2014, counting, in those cases, the period of three years provided for in No. 14 from January 1, 2014."

It is against this transitional norm that the Claimant objects, considering it unconstitutional, for violation of the principle of non-retroactivity of tax law, enshrined in Article 103, No. 3, of the CRP, insofar as, in its view, it constitutes a new regime of expiration of the exemptions.

Upon examination, it results from the facts proven that the real property in question was acquired by the Claimant benefiting from exemption from IMT under letter a) of No. 7 of Article 8 of the legal regime of FIIAH.

Such norm requires that the real property be intended for rental for permanent residence in order to benefit from such exemption.

That is, the obligation to intend the real property for residential rental is not a requirement of the amendments introduced by Articles 235 and 236 of Law No. 83-C/2013, of December 31, but rather a requirement of the tax regime of FIIAH itself.

It is the natural consequence of the motivations that led to the creation of a special temporary regime applicable to these Funds, linked to the economic crisis and the consequent increased difficulty of individuals and families in paying installments of mortgage contracts entered into for the acquisition of permanent residence, the regime thereby intending to address situations of difficulty and encourage rental for permanent residence.

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

This was not, however, the reason for which the Claimant proceeded to make the declarations that gave rise to the assessments in question, which is clearly evident from the analysis of the attached documents, notwithstanding the Claimant's arguments to the contrary.

The IMT assessments effected regarding the real property described above were not based on its retention in the fund for a period equal to or greater than 3 years without dedication to rental for permanent residence.

The assessments in question, moreover, as results from the assessment notices attached to the file, were based on the fact, in the words of the Claimant itself, that the real property was given "a use different from that on which the benefit was based", with "the exemption expiring".

The fact that the alienation of real property causes the exemption to expire is not, as shall be explained below, a new fact resulting from the amendment made by the State Budget for 2014.

What may be new, at most, is the obligation of the acquirer to request the assessment of the taxes that were not assessed before the alienation. A provision that not only is merely procedural, but is not even at issue in these proceedings, given that it was precisely that which the Claimant did and the consequence would always be, as we shall see results from the Tax Benefits Statute, that the taxes would be assessed ex officio by the Treasury (increased by the interest and sanctions provided for in the law), once the alienation was ascertained.

It appears to us, therefore, evident that the question sub judice is not concerned with the possible unconstitutionality, for violation of the prohibition of retroactivity of tax law, of the paragraphs added to Article 8 by the State Budgets of 2014.

In fact, the alienation of the real property in question by the Claimant determines, as it itself recognized in the declarations for assessment of IMT and IS, the expiration of the exemption, because it was given by the Claimant a use different from that which had determined the granting of the benefit.

For compliance with letter a) of No. 7 of Article 8 it is not sufficient a declared intention at the time of acquisition of the real property, but an actual dedication to rental for permanent residence.

It is not, therefore, true, as the Claimant alleges, that the facts or circumstances upon which the respective expiration depended were not already legally established at the time of recognition of the exemption, or at least regarding the circumstances that actually occurred: the alienation of the real property.

In fact, the granting of a benefit already depended – and always depends – on the actual verification of the respective presuppositions, pursuant to Article 12 of the Tax Benefits Statute (Article 11, in the version of the Tax Benefits Statute that was in force prior to its republication by Decree-Law No. 108/2008 of 26/06).

The fact that the Claimant proceeded to alienate the real property which, upon acquiring it, it declared it would dedicate in order that it would be recognized – as it was – the exemption from IMT and IS, would always determine, even if the added No. 16 did not expressly provide for it, the expiration of such exemptions, by effect of the provisions of Article 12 and No. 3 of Article 14 of the Tax Benefits Statute (former Article 12, No. 3, in the version of the Tax Benefits Statute that was in force prior to its republication by Decree-Law No. 108/2008 of 26/06), according to which "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 those are alienated or given another use without authorization of the Minister of Finance, without prejudice to the other sanctions or different regimes established by law."

The Claimant neither alleged nor, with even greater reason, demonstrated having obtained the authorization provided for therein, or any other circumstance that would prevent the granted exemptions from ceasing to have effect as a consequence of the alienation.

It is for this reason that we understand that it does not present, in the case at hand, the question of the alleged unconstitutionality of the added provisions, insofar as, in the part corresponding to the alienation of the real property, No. 16 of Article 8 of the Legal Regime of FIIAH merely reiterates what already resulted from the provisions of the Tax Benefits Statute.

Which, moreover, is well understood, taking into account the rationale for the granting of tax benefits.

The rationale for the granting of the tax benefit in the case of IMT and IS to FIIAH is, clearly, their dedication to rental for permanent residence — "The acquisitions of urban real property or of autonomous fractions of urban real property intended exclusively for rental for permanent residence, by the investment funds..." – for which reason the consequence of giving them a different use is that the exemption could not have been granted, and it is necessary to restore legality by assessing the taxes that, were it not for the declaration of intention made at the time of acquisition, would have been required to be assessed.

Which the Claimant recognized, all the more so because that is precisely what appears in the declarations made by the Claimant itself for assessment of the IMT and IS.

In conclusion, the alienation of the real property would always determine the expiration of the exemption by application of the provisions of No. 3 of Article 14 of the Tax Benefits Statute, not being, therefore, at issue, in the situation sub judice, any retroactive application of a norm that introduces a new regime of expiration of the exemptions, nor does there exist any injury to the Claimant's expectations or aggravation of its tax position, for which reason we understand that the assessments of IMT and Stamp Duty in question are legal.

Thus, the analysis of the question raised by the Claimant regarding the alleged retroactivity of the regime provided for in Article 236 of the State Budget Law for 2014 is rendered moot, insofar as, as was demonstrated above, the circumstances that originated the assessment of tax in question are in no way related to the amendments originated by the said article, but solely with the alienation of the real property and consequent dedication to a use different from that for which the exemptions from IMT and Stamp Duty were granted.

Having decided on the legality of the assessments in question, the analysis of the consequences of possible illegality is rendered moot, as is the request for condemnation in default interest.

  1. DECISION

In view of the foregoing, it is decided to judge entirely unsubstantiated the requests of the Claimant.

The value of the case is fixed at 33,171.65€ (thirty-three thousand one hundred seventy-one euros and sixty-five cents) in accordance with the provisions of Articles 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, No. 1, letter a) of the Code of Tax Procedure and Process and 306 of the Code of Civil Procedure.

The amount of costs is fixed at 1,836.00€ (one thousand eight hundred thirty-six euros), under Article 22, No. 4 of the RJAT and Table I annexed to the RCPAT, to be borne by the Claimant, in accordance with the provisions of Articles 12, No. 2 of the RJAT and 4, No. 4 of the RCPAT.

Notify.

Lisbon, June 13, 2016

The Arbitrator

(Eva Dias Costa)

Document prepared by computer, pursuant to Article 131, No. 5 of the Code of Civil Procedure, applicable by reference of Article 29, No. 1, letter e) of the RJAT.

Frequently Asked Questions

Automatically Created

What is the special tax regime applicable to FIIAH closed-end real estate investment funds for residential leasing in Portugal?
The special tax regime for FIIAH (Fundos de Investimento Imobiliário para Arrendamento Habitacional) provides exemptions from IMT (property transfer tax) under Article 8(7) of Law 64-A/2008 for acquisitions of urban property intended exclusively for permanent residence rental, and exemptions from Stamp Tax under Article 8(8). These exemptions apply to closed-end real estate investment funds dedicated to residential leasing and are subject to specific conditions including maintaining the property for rental purposes for a minimum period, with exemptions expiring if the fund alienates the property or changes its designated use before meeting all requirements.
Can Article 236 of Law 83-C/2013 retroactively revoke IMT and Stamp Tax exemptions previously granted to FIIAH funds?
Article 236 of Law 83-C/2013 created a transitional rule for properties acquired by FIIAH funds before January 1, 2014, establishing that the 3-year compliance period would begin counting from January 1, 2014 rather than the original acquisition date. The claimant argued this constituted unconstitutional retroactive revocation of previously granted exemptions, violating Article 103(3) of the Portuguese Constitution which prohibits retroactive tax laws. The Tax Authority defended that Article 236 did not create new requirements but merely regulated the timeframe for proving compliance with pre-existing conditions, arguing the provision was prospective rather than retroactive since the new counting period only commenced after the law's entry into force.
Does the transitional rule on FIIAH tax exemptions violate the principle of non-retroactivity of tax law under Article 103(3) of the Portuguese Constitution?
The constitutional issue turns on whether Article 236 violates the principle of non-retroactivity enshrined in Article 103(3) of the Portuguese Constitution. The claimant contended the provision impermissibly altered the legal framework governing exemptions for transactions already completed, effectively creating a new expiration regime for vested tax benefits and undermining legitimate expectations. This allegedly constituted authentic retroactivity (retroactividade autêntica) by changing the legal consequences of past events. The Tax Authority argued the provision respected constitutional limits by not retroactively imposing new tax burdens or altering completed tax situations, but rather establishing prospective compliance deadlines for ongoing obligations inherent to the original exemption regime.
What are the legal consequences of unconstitutional IMT and Stamp Tax assessments — nullity or annulability under Portuguese administrative law?
Under Portuguese administrative law, the legal consequences of unconstitutional tax assessments depend on whether they constitute nullity (nulidade) or annulability (anulabilidade). The claimant argued the assessments are null under Article 133(2)(d) of the Administrative Procedure Code because they violate the essential content of a fundamental right (the constitutional prohibition on retroactive taxation). The Tax Authority countered that Portuguese law establishes annulability as the standard regime for illegal or unconstitutional administrative acts based on legal certainty principles, with the Supreme Administrative Court confirming that nullity is reserved exclusively for violations of fundamental rights, freedoms and guarantees affecting citizens' core rights, not mere violations of the legality principle. Since the dispute concerns tax legality rather than fundamental rights infringement, the Tax Authority argued the assessments would be annulable at most, not null.
Are FIIAH funds entitled to a refund with compensatory interest when IMT and Stamp Tax liquidations are annulled by CAAD arbitration?
If the arbitral tribunal annuls the IMT and Stamp Tax assessments, FIIAH funds are entitled to full reimbursement of amounts paid (€29,152.75 IMT and €4,018.80 Stamp Tax) plus compensatory interest (juros indemnizatórios) calculated from the payment date (November 24, 2015) until actual reimbursement. Portuguese tax law provides that when tax assessments are judicially or arbitrally annulled, the Tax Authority must refund overpaid amounts with compensatory interest to restore the taxpayer's economic position, compensating for the time value of money and loss of use of funds wrongfully collected. The interest rate and calculation method follow statutory provisions governing tax refunds, with interest accruing automatically upon annulment without requiring separate determination.