Process: 102/2016-T

Date: August 11, 2016

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 102/2016-T) concerns the application of the aggravated 7.5% IMI rate under Article 112(4) of the Municipal Property Tax Code (CIMI) to a U.S.-based company owning Portuguese real estate. The claimant challenged IMI assessments totaling €33,039.75 for 2012, arguing that the Portuguese Tax Authority (AT) incorrectly applied the higher rate reserved for entities domiciled in favorable tax regimes listed in Portaria 150/2004. The company contended it changed its fiscal domicile from the British Virgin Islands to the United States in December 2005 and registered this change with the National Registry of Legal Persons (RNPC) in 2013, asserting AT should have recognized this change or corrected it ex officio under Article 19(9) of the General Tax Law (LGT). The Tax Authority countered that RNPC and AT are distinct entities under different ministries - RNPC manages commercial registration under the Institute of Registries and Notaries, while AT operates under the Ministry of Finance with separate tax administration functions. The Respondent emphasized that notification to RNPC does not constitute a change of fiscal domicile for tax purposes, as the taxpayer must separately notify the tax authorities to effectuate such changes. The case highlights the critical distinction between commercial registry obligations and tax registration requirements for foreign entities holding Portuguese property, demonstrating that changes to corporate domicile must be properly communicated to AT to avoid application of punitive IMI rates applicable to offshore jurisdictions with favorable tax regimes.

Full Decision

ARBITRAL DECISION

PARTIES

Claimant: A…, NIPC PT…, with registered office in the State …, USA (represented by B… SA, NIPC PT…, with registered office in…, plot … – Offices, … …, … …).

Respondent: TAX AUTHORITY AND CUSTOMS AUTHORITY (AT).

I. REPORT

a) On 23-02-2016, the Claimant filed with CAAD a request seeking, under the Legal Framework for Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).

THE REQUEST

b) The Claimant requests, indirectly, the declaration of illegality of the Municipal Property Tax (IMI) assessment relating to the year 2012, contained in collection notes no. 2012-… (1st instalment), no. 2012-… (2nd instalment) and no. 2012-… (3rd instalment), issued with reference to the urban property located in the Union of Parishes of … and …, municipality of Lagoa, registration article …, in the global amount of 33,039.75 euros (€ 2,619.30 + 2,619.30 + 27,801.15 = 33,039.75).

c) Furthermore, it requests that the decision dismissing the hierarchical appeal which, under no. …2014…, it filed with AT and which proceeded through the Municipal Property Tax Service Directorate, be declared non-conforming with law.

d) It finally requests, furthermore, the condemnation of AT to reimburse the amount of IMI that it paid and to pay compensatory interest, at the legal rate, until reimbursement of the tax paid.

OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)

e) The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to AT on 07-03-2016.

f) By the Ethics Council of CAAD, the signatory of this decision was designated as arbitrator, and the parties were notified thereof on 21-04-2016. The parties did not manifest a desire to reject the designation, in accordance with article 11, no. 1, subparagraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

g) The Singular Arbitral Tribunal (TAS) has been, since 09-05-2016, duly constituted to examine and decide the object of this dispute (articles 2, no. 1, subparagraph a) and 30, no. 1, of RJAT).

h) All these acts are documented in the communication of constitution of the Singular Arbitral Tribunal dated 09-05-2016, which is hereby reproduced.

i) On 11-05-2016, AT was notified in accordance with and for the purposes of article 17-1 of RJAT. It responded on 15.06.2016. It also attached the PA comprised of 2 computerized files designated as PA1 with 1/60 pages and PA2 with 1/34 pages.

j) By order of the TAS dated 16.06.2016, notified on that date, the parties were invited to take a position on whether or not to hold the meeting of parties referred to in article 18 of RJAT and to make arguments. The Respondent, by request dated 21.06.2016, expressed its position to the effect that "it may be dispensed with the holding of the meeting referred to in article 18 of RJAT, as well as with final arguments", which was notified to the Claimant on 21.06.2016.

k) By order of the TAS dated 19.07.2016, in view of the absence of a position taken by the Claimant, it was considered that it waived the meeting of parties, but not arguments, setting a deadline for written and sequential arguments, unless it came to communicate otherwise within the deadline for arguments. By request dated 22.07.2016, the Claimant expressed its position on procedural conduct, adhering to the position of the Respondent, waiving the holding of the meeting of parties and the making of arguments.

l) In view of the coinciding position of the parties, the TAS, by order dated 22 July 2016, revoked the decision of 19.07.2016, set the date of the final decision, and invited the Claimant to proceed with payment of the subsequent arbitration fee. Order which was notified to the parties on 25.07.2016.

PROCEDURAL REQUIREMENTS

m) Legitimacy, capacity and representation – The parties enjoy legal personality, procedural capacity, are legitimate parties and are represented (articles 4 and 10, no. 2, of RJAT and article 1 of Regulation no. 112-A/2011, of 22 March).

n) Principle of adversarial proceedings - The Respondent was notified of the request for pronouncement in accordance with subsection i) of this Report. All procedural items and all documents attached to the proceedings were made available to the respective counterparty in the CAAD Case Management System. The attachment of each was always notified to both parties.

o) Dilatory objections - The arbitral procedure does not suffer from defects and the request for arbitral pronouncement is timely, having been presented within the prescribed period in subparagraph a) of no. 1 of article 10 of RJAT, as results from the fact that the decision on the hierarchical appeal, here directly at issue, was notified by official letter dated 28.11.2015, received on 30.11.2015, and the request for pronouncement was registered with CAAD on 23.02.2016.

SUMMARY OF THE CLAIMANT'S POSITION

p) The Claimant is the owner of the urban property located in the Union of Parishes of … and…, municipality of Lagoa, registration article …, which was valued in 2012, resulting in a taxable property value of 440,530.00 euros.

q) In 2013, IMI was assessed to it for the year 2012 at the rate of 7.5% (article 112-4 of CIMI) because it was recorded in AT's register as having its fiscal domicile in the British Virgin Islands, considered a "country, territory or region subject to a clearly more favourable tax regime" in accordance with Regulation 150/2004, of 13.02.

r) Disagreeing with this assessment, it alleges that until 2005 it had its fiscal domicile there, but in December of that year it proceeded to change it to the State of … in the USA, where it has had its registered office since then, and that this change was registered in the RNPC.

s) Only in 2013 did the Claimant proceed to change its fiscal domicile in the RNPC (but not in the tax registry), and therefore, at least from that date onwards, it understands that the Respondent should have taken this into account in gracious proceedings (complaint and appeal) for purposes of annulling the IMI assessments.

t) It further understands that AT should have used the mechanism of article 19, no. 9 of the LGT to correct, ex officio, the Claimant's fiscal domicile (notified only to RNPC) and thereby not assess IMI in the manner in which it was assessed.

SUMMARY OF THE RESPONDENT'S POSITION

u) Disagreeing with the Claimant's point of view, the Respondent states with regard to ex officio correction of the fiscal domicile that "this does not apply from the outset because the Claimant seems to want to overlook that RNPC is a distinct entity from the Respondent". "This means to say that the (alleged) notification of 2013-05-10 to RNPC could never constitute (as it does not) any change of fiscal domicile, as the Claimant alleges", since RNPC "is integrated into the Institute of Registers and Notaries as the registry of the commercial register, having the function of organizing and managing the central file of legal entities (article 78 of Decree-Law 129/98, of 13 May)" and "the Respondent is not integrated into the Institute of Registers and Notaries, but rather into the Ministry of Finance, and does not pursue functions related to the commercial register, but rather «(…) has as its mission to administer taxes, customs duties and other taxes assigned to it, as well as to exercise control of the external border of the European Union and of the national customs territory, for fiscal, economic and social protection purposes, in accordance with the policies defined by the Government and European Union Law» (article 2 of Decree-Law 118/2011, of 15 December).

v) "This meaning, therefore, that having the Respondent proceeded to alter its data with the RNPC for purposes of commercial registration, it would then necessarily have had to proceed in the same manner with the Respondent, since there is no intercommunication between the alteration of the commercial register and the register of taxpayers".

w) Concluding: "… the Respondent could never have rectified the Claimant's tax registry based solely on the notification made by the latter to RNPC, because such notification was not brought to the knowledge of the Respondent".

x) But even if it were as the Respondent argues – regarding the obligation of AT to make the correction of fiscal domicile ex officio -, according to the documents presented, the alteration of its registered office in RNPC occurred only on 18-07-2013, in accordance with document no. 9 attached with the request for pronouncement and not in 2005.

y) And it continues: "… as a direct consequence of what has just been stated, having the alteration to the commercial register been made on 2013-07-18, obviously the alteration of the Claimant's registered office occurred at a time subsequent to the assessments sub judice, as these were issued by the Respondent on 2013-05-07". "In other words, even if – by absurd hypothesis and without conceding in the slightest – the intercommunication between RNPC and the Respondent's tax registry were defensible, the fact is that, both the request for alteration to the commercial register (2013-06-19) and the actual effectuation of the alteration (2016-07-18), occurred at a time subsequent to the issuance of the tax acts".

z) It concludes: "… even if by merely academic hypothesis it were to be accepted – which it is not – what the Claimant argues, that mere notification to RNPC, occurred on 2013-07-18, was sufficient for the Respondent thereafter to proceed with the rectification of the assessments issued in the year 2013, still those tax acts were always fully valid in the legal order, not suffering from any errors regarding the assumptions of fact and of law". "That is, because in the year 2012, precisely the year to which the assessed IMI relates, the now Claimant had its fiscal domicile in the British Virgin Islands". And the

aa) "British Virgin Islands which, in accordance with Regulation 150/2004, of 13/02, rectified by Rectification Declaration 31/2004, of 23 March, subsequently altered by Regulation 292/2011, of 8 November, appear as a "tax haven", which justifies that, in accordance with and for the purposes of article 112/4 of the IMI Code, the basis of taxation of that tax – the taxable property value of the property - be taxed, as it was, at a rate of 7.5%".

bb) It further objects to the reading of the law implicit in the Claimant's position, considering it to be in violation of constitutional principles, in that "it devalues the registral/cadastral reality to the detriment of an informal reality and incapable of minimal control by the Respondent, it is offensive to the fundamental principle of trust and legal certainty that should inform any legal relationship, here including the tax relationship".

cc) It advocates for the dismissal of the request for pronouncement and maintenance in the legal order of the decision taken in the hierarchical appeal and of the IMI assessment at issue.

II - ISSUES TO BE RESOLVED BY THE TRIBUNAL

Two types of tax acts are at issue, in accordance with subparagraphs b) and c) of the Report of this decision:

· Directly, the decision on the hierarchical appeal;
· Indirectly, the IMI assessments.

What must be determined, in terms of material truth, in light of the facts deemed established, is from when the Claimant has had its registered office in the USA–… . This matter concerns the fundamental question of knowing whether, on 31.12.2012, the date relevant for the assessment of IMI at issue here, its registered office (fiscal domicile) was in the USA or in the British Virgin Islands.

Once the fundamental question is resolved – in light of the evidence produced and the material truth – the merits or demerits of the request regarding the decision on the hierarchical appeal will result, where the same documentary evidence produced for this proceeding was presented, with subsequent indirect effect on the IMI assessment.

We note that AT's defence is centered on the assessment acts and not so firmly on the decision adopted in the hierarchical appeal procedure.

The issue of the proven lack of registration in AT's tax register of the Claimant's new domicile from 2005 in the USA–…, must obviously have fiscal consequences, which will be, in this case, the issue of interest, that is, the determination of who caused the assessment to be carried out in the manner in which it was effected.

III. PROVEN AND UNPROVEN MATTERS OF FACT AND REASONING

Regarding matters of fact, the Tribunal need not pronounce on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish proven from unproven matters (in accordance with article 123, no. 2, of CPPT and article 607, no. 3 of CPC, applicable by virtue of article 29, no. 1, subparagraphs a) and e), of RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and delineated according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of law (in accordance with former article 511, no. 1, of CPC, corresponding to current article 596, applicable by virtue of article 29, no. 1, subparagraph e), of RJAT).

Thus, taking into account the positions assumed by the parties, the documentary evidence and the PA attached to the proceedings, the following facts were considered proven as relevant to the decision, the respective documents being indicated (proof by documents), as reasoning.

Proven Facts

  1.             The Claimant is the owner of the urban property located in the Union of Parishes of … and …, municipality of Lagoa, registration article …, with the taxable property value of 440,500.00 euros, determined in the year 2012, appearing as its holder on 31.12.2012 – in accordance with article 8 of the request for pronouncement; section II Reasoning – 3 Facts – nos. 1 and 2 (page 3/8) of the decision on the hierarchical appeal and which constitutes Document no. 1 attached to the request for pronouncement; page 24/34 of PA 2 attached by AT and document no. 6 attached with the request for pronouncement (property record).

  2.             In December 2005, the Claimant transferred its registered office from the British Virgin Islands to the State of …– USA, with its registered office located at … …, Suite…, in the city of …, …, … – in accordance with documents 7 and 8 attached with the request for pronouncement; documents from pages 54 to 60 of PA1 and 1 to 10 of PA2 and articles 13 and 14 of the request for pronouncement – facts and documents not contested by AT.

  3.             The Claimant sent to the National Register of Legal Entities (RNPC) a letter with RNPC Model 2 requesting the registration/identification of a legal entity or equivalent entity where it attached in particular "proof of legal existence in the country of origin issued on 10.05.2013", "articles of association" and "certificate of constitution", the model received by RNPC on 21 June 2013, having been issued with the date of 18.07.2013 by RNPC, an identification certificate which refers "registered office in the country of origin: United States of America" and a certificate of updating of entity where it was written "Address of entity: … …, Suite…, in the city of…, …, … …" – in accordance with article 16 of the request for pronouncement, document no. attached with the request for pronouncement and documents from pages 11 to 19 of PA2 attached by AT – facts and documents not contested by the Claimant.

  4.             On dates not specifically determined, but in 2013, the Claimant was notified of the assessment of IMI for the year 2012, which occurred on 07.05.2013, through collection notes no. 2012-… (1st instalment), no. 2012-… (2nd instalment) and no. 2012-… (3rd instalment), issued with reference to the urban property located in the Union of Parishes of … and …, municipality of Lagoa, registration article …, in the global amount of 33,039.75 euros (€ 2,619.30 + 2,619.30 + 27,801.15 = 33,039.75) – In accordance with article 11 of the request for pronouncement; documents nos. 3, 4 and 5 attached with the request for pronouncement; and section II Reasoning – 3 Facts – no. 4 (page 3/8) of the decision on the hierarchical appeal and which constitutes document no. 1 attached to the request for pronouncement.

  5.             The Claimant paid the tax assessed in the global amount of 33,039.75 euros (€ 2,619.30 + 2,619.30 + 27,801.15 = 33,039.75) – in accordance with article 6 of the request for pronouncement; apostille placed on documents nos. 3, 4 and 5 attached with the request for pronouncement – in view of AT's non-objection.

  6.             The Claimant filed a gracious complaint against the IMI assessment referred to in 4) and the proceeding …2014… was instituted in the Tax Services office of…, which was dismissed and the decision was notified by official letter no. … of 19.02.2014 – in accordance with article 18 of the request for pronouncement; document no. 2 attached with the request for pronouncement; and section II Reasoning – 3 Facts – nos. 4 and 9 (pages 3 and 4/8) of the decision on the hierarchical appeal and which constitutes Document no. 1 attached to the request for pronouncement.

  7.             The Claimant filed on 26.04.2014 a hierarchical appeal which received the no. ...2014…, reacting against the order dismissing the gracious complaint – in accordance with article 19 of the request for pronouncement; and section II Reasoning – 3 Facts – no. 10 (page 4/8) of the decision on the hierarchical appeal and which constitutes Document no. 1 attached to the request for pronouncement.

  8.             By official letter no. … of 26.22.2015 of the Tax Services office of … the Claimant was notified of the order dismissing the hierarchical appeal dated 21.10.2015 from the Director of Services of IMI, containing the following reasoning: "5.2 – Legal and factual framework - There is no occurrence of any error attributable to AT's services, therefore, no responsibility is attributable to the tax administration for any administrative acts that affect or harm the rights or interests of taxpayers when they do not comply with the obligation contained in no. 1 of article 43 of CPPT. Indeed, not having communicated to AT the change of the registered office of the Appellant herein, since it did not comply with the legal obligation set out in no. 1 of article 43 of CPPT, the result was that, on 31 December 2012, it appeared in AT's tax registry that the appellant had its registered office in the British Virgin Islands, a region with privileged tax treatment, clearly more favourable than appears in the list contained in Regulation 150/2004 of 13 February, rectified with Rectification Declaration 31/2004 of 23 March, altered by Regulation 292/2011 of 8.11, whereby it must be concluded that the rate of 7.5% applied pursuant to no. 4 of article 112 of CIMI is correctly applied. The argument invoked by the appellant does not apply, that it notified the change of its registered office on 10 May 2013 and that the domicile should have been corrected ex officio, based on no. 8 of article 19 of LGT, when it only notified the change of its registered office in 2013 to the National Register of Legal Entities, verifying in this context that, only on 21 June 2013 did the appellant proceed with the filing, at the Institute of Registers and Notaries – National Register of Legal Entities of the statement Mod. 2 RNPC, intended to notify the change of its registered office to …– United States of America: The change of domicile must be necessarily notified to the tax administration within the legally established period in order to produce the fiscal effects resulting from the changes, in particular, with regard to the processing of assessments. This obligation derives expressly from the legal provisions that specifically regulate tax matters, specifically article 43 of the Code of Tax Procedure and Process and article 19 of the General Tax Law.

In this regard, it is the understanding of the Judgment of the Central Administrative Court of the South, no. 03112/09 of 30.06.2009 –

"… In truth, by virtue of no. 3 of article 43 of CPPT and no. 3 of article 19 of LGT, there weighed on the Appellant the duty to communicate the change of its fiscal domicile. Resulting from article 43 of CPPT in conformity with no. 13 of article 19 of LGT and rule of non-opposability to the Tax Administration of the change of domicile not declared to it, mentioning its no. 3 that the communication only produces effects if the interested party makes proof of having already requested or obtained the updating of the domicile or registered office in the taxpayer's fiscal number. From the provision of no. 19 no. 6 of LGT, it does not result that the tax administration AT has by principle to proceed with measures to know any possible new fiscal domicile of taxpayers… As clearly results from no. 2 of the same provision, the taxpayer has the obligation to communicate the place of its habitual residence to AT's services (…) To these only is given the possibility, the power/duty, to rectify the information available on the fiscal domicile of the tax subjects, on the condition that they have access to elements which, with certainty, attest to the change, alteration, and must obviously if necessary undertake measures for confirmation of the data accessed (…). Although the law does not say so expressly, the treatment of this matter requires particular precautions, lest one may be attributing importance and relevance to a merely transitory alteration which the tax subject does not intend to exercise, not forgetting that the notification by the latter of alterations to the fiscal domicile obeys a specific and exclusive formalism, including documentation that attests to the change, alteration, and must, obviously if necessary, undertake measures for confirmation of the data accessed".

In view of the record of the proceeding, as well as the information contained in AT's tax registry databases relating to the Appellant, the change of registered office was not communicated to the Tax Administration in a timely manner, producing no fiscal effects, in particular in the assessment of IMI for 2012, whereby such situation falls under the provision of no. 3 of article 19 of LGT, thus, we are faced with a situation that constitutes error attributable to the tax subject and it must be concluded that the rate of 7.5% applied pursuant to no. 4 of article 112 of CIMI is correctly applied, whereby the assessment of IMI for the year 2012 was correctly carried out in light of the applicable legal provisions, reason by which the pretension of the tax subject should be dismissed".

  1. Conclusion

From the foregoing, in the present information based on the reasoning set forth and from the analysis of all elements attached to the proceeding, it appears that although the appellant has changed its registered office from the British Virgin Islands to the State of … in the United States of America in the National Register of Legal Entities on 21 June 2013, it did not communicate such change to the Tax Administration in a timely manner, not complying with the legal obligation to notify the change of registered office, which is established in no. 1 of article 43 of CPPT, whereby the contested act should be upheld, thus denying the hierarchical appeal" – in accordance with article 21 of the request for pronouncement; document no. 1 attached with the request for pronouncement; and pages 24 to 33 of PA2 attached by AT.

  1.             On 23-02-2016, the Claimant filed with CAAD the present request for pronouncement – registration of entry in the SGP of the request for pronouncement.

Unproven Facts

There is no other factual matter alleged that has not been considered proven and that is relevant for the resolution of the dispute.

IV. EXAMINATION OF THE ISSUES TO BE RESOLVED BY THE TAS

As results from the proven facts (subparagraphs 3) and 4) of section III) and uncontested by the parties, only on 21 June 2013 was Model 2 received by RNPC. But the assessment of IMI occurred on 07 May 2013, as appears from the three collection notes attached to the proceeding, relating to the three instalments of IMI.

This means that, even if it were considered relevant, in terms of fiscal domicile opposable to AT, what appears in the National Register of Legal Entities (RNPC), in this case it could not be invoked here, because the change of fiscal domicile (the registered office) of the Claimant, in terms of material truth, occurred in December 2005 (subparagraph 2) of section III of this decision) and was only communicated to RNPC on 21.06.2013, when the assessment of IMI had already been carried out, on 07.05.2013.

However, in terms of proven facts, in light of the material truth, the Claimant succeeded in proving, by documents not challenged, that it changed in December 2005 its fiscal domicile, its registered office, from the British Virgin Islands to the State of … in the USA, as appears from subparagraph 2) of section III of this decision.

In subparagraph 81) of Regulation 150/2004, of 13.02, rectified by Declaration 31/2004, of 23.03 and altered by Regulation 292/2011, of 08.11, the British Virgin Islands appear, forming part of the list of "countries, territories and regions with privileged tax regimes, clearly more favourable". But the State of …- USA does not appear in this list, whereby, "brevitatis causae", the decision on the hierarchical appeal should not have failed to take into account the evidence of this fact that was produced by the taxpayer in the respective proceeding and now, also, in judicial review.

In this respect, only the request for annulment of the decision on the hierarchical appeal can proceed. And mediately and consequently, the request for annulment of the IMI assessment should also proceed.

In fact, although the IMI assessment, at the time it was carried out, in May 2013, with reference to 31.12.2012 (no. 4 of article 112, no. 1 of article 8, no. 1 of article 113, both of CIMI) could only take into account the elements AT had available, due to the Claimant's lack of diligence in complying with the legal duty to formally change its domicile in the tax register, in accordance with no. 1 of article 19 of LGT and no. 1 of article 43 of CPPT, the fact is that nothing prevented that, in light of the material truth (that the registered office or domicile of the Claimant was no longer in the British Virgin Islands, but rather in a federated state of the USA), duly proven by the Claimant, in the hierarchical appeal proceeding, the assessment be annulled, as is required here, in the strict duty to judge according to established law.

It does not appear that the Claimant is correct in arguing that AT should have altered its fiscal domicile "ex officio" since, as AT states, neither was the communication to RNPC carried out before the assessment of IMI.

However, the Claimant's failure to alter its fiscal domicile in AT's tax register, due to lack of diligence, cannot in any way be opposable to AT in accordance with no. 4 of article 19 of LGT and article 43, no. 2 of CPPT, which does not affect what was stated above regarding the merits of the decision on the hierarchical appeal, in light of the evidence subsequent to the assessment of the true fiscal domicile of the Claimant.

Questions of Moot Character

Taking into account that in AT's response it is stated that the reading of the law implicit in the Claimant's position is considered in violation of constitutional principles, in that "it devalues the registral/cadastral reality to the detriment of an informal reality and incapable of minimal control by the Respondent, it is offensive to the fundamental principle of trust and legal certainty that should inform any legal relationship, here including the tax relationship", it is noted that the TAS, in this decision, does not follow the Claimant's point of view regarding the lack of cadastral registration of the change of domicile, whereby the examination of this question becomes moot.

Compensatory Interest

It was proven in 5) of section III of this decision that "the Claimant paid the tax assessed in the global amount of 33,039.75 euros (€ 2,619.30 + 2,619.30 + 27,801.15 = 33,039.75)".

Article 43, no. 1, of LGT establishes that «compensatory interest is owed when it is determined, in a gracious complaint or judicial review, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due».

As results from the literal content of this provision, the right to compensatory interest depends on «payment of the tax debt in an amount greater than legally due».

In the case, the Claimant paid € 33,039.75, whereby the annulment of the assessment, in addition to the duty of reimbursement, may result in payment of compensatory interest, if there was error attributable to AT's services in the assessment.

No. 2 of article 43 of LGT states that error attributable to the services is considered to exist in cases where, despite the assessment being made on the basis of the taxpayer's return, the latter has followed, in its completion, the generic guidance of the tax administration, duly published.

This was not the case, although the taxpayer paid the debt assessed within the framework of a notification made to it by AT (which would be equivalent to generic guidance by AT), the fact is that the assessment resulted, exclusively, from the fact that the taxpayer omitted a legal duty that is expressly stated in no. 1 of article 19 of LGT and no. 1 of article 43 of CPPT.

The illegality of the decision adopted in the hierarchical appeal proceeding is attributable to the Tax Administration, which dismissed it on its own initiative, but what is relevant for the purpose of the right to interest is the existence of error attributable to the services at the level of the tax assessment act.

It does not appear in this case that AT perpetrated error, with regard to the assessment, since it was carried out taking into account the fiscal domicile that the taxpayer had in its tax register, failing to comply with the legal duty to alter it, within the 15-day period referred to in no. 1 of article 43 of CPPT.

Moreover, in this case, IMI would always be and will be owed, at the rates that result from subparagraphs b) or c) of no. 1 of article 112 of CIMI (according to the Municipal Assembly of the respective municipality), rather than at the "ad valorem" rate of no. 4 of the same legal provision, whereby, if interest were to be owed to the taxpayer, the same should only be incurred on the difference between the IMI paid and the IMI owed according to the normal rate of IMI applicable.

Consequently, the Claimant has no right to compensatory interest, whereby the respective request is dismissed in this part.

V. DISPOSITIVE

In accordance with and for the reasons set forth above:

· The request for annulment of the decision on the hierarchical appeal which received the no. … 2014 …, notified by official letter no. … of 26.22.2015 from the Tax Services office of … and consequently the act of assessment of IMI for the year 2012, which occurred on 07.05.2013, contained in collection notes no. 2012-… (1st instalment), no. 2012-… (2nd instalment) and no. 2012-… (3rd instalment), issued with reference to the urban property located in the Union of Parishes of … and …, municipality of Lagoa, registration article …, in the global amount of 33,039.75 euros (€ 2,619.30 + 2,619.30 + 27,801.15 = 33,039.75), is held to be well-founded.

· The assessment and the order referred to are annulled, for being in non-conformity with no. 4 of article 112 of CIMI.

· The request for condemnation of AT to reimburse to the Claimant the excess tax paid, considering that the tax owed is that which results from the application of the rates of subparagraphs b) or c) of no. 1 of article 112 of CIMI, is held to be well-founded.

· The request for condemnation of AT to pay compensatory interest is held to be unfounded.

Value of the Proceeding: in accordance with the provision of article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (and subparagraph a) of no. 1 of article 97A of CPPT), the proceeding is assigned the value of 33,039.75.

Costs: in accordance with the provision of article 22, no. 4, of RJAT, the amount of costs is fixed at 1,836.00 € according to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, being 4/5 the responsibility of the Respondent and 1/5 the responsibility of the Claimant, in view of the partial success.

Notify.

Lisbon, 11 August 2016

Singular Arbitral Tribunal (TAS),

Augusto Vieira

Text prepared by computer in accordance with the provision of article 131, no. 5, of CPC, applicable by reference of article 29 of RJAT.

The wording of this decision follows the orthography prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

Automatically Created

What is the higher IMI tax rate applied under Article 112(4) CIMI to entities in favorable tax regimes?
Under Article 112(4) of the Municipal Property Tax Code (CIMI), entities with fiscal domicile in countries, territories, or regions subject to clearly more favorable tax regimes are subject to an aggravated IMI rate of 7.5%. This rate applies to the taxable property value (VPT) of urban properties owned by such entities in Portugal. Portaria 150/2004 (as amended by Portaria 292/2011) establishes the list of jurisdictions considered to have favorable tax regimes. This punitive rate is significantly higher than standard IMI rates and aims to discourage property ownership through offshore structures in tax havens.
Can a US-based company challenge the application of the aggravated IMI rate on Portuguese property?
Yes, a US-based company can challenge the application of the aggravated 7.5% IMI rate on Portuguese property through administrative and judicial remedies. As demonstrated in Process 102/2016-T, the company can file a complaint and hierarchical appeal with the Tax Authority, and if unsuccessful, request arbitration before CAAD (Centro de Arbitragem Administrativa) under the Legal Framework for Arbitration in Tax Matters (RJAT). The challenge may succeed if the company can prove its fiscal domicile was properly established in a jurisdiction not listed as a favorable tax regime (the USA is not on the Portaria 150/2004 list), though proper notification to tax authorities is essential for recognition of the domicile change.
How does a change of fiscal domicile affect IMI taxation for foreign entities in Portugal?
A change of fiscal domicile significantly affects IMI taxation for foreign entities holding Portuguese property. If an entity relocates from a jurisdiction listed in Portaria 150/2004 (favorable tax regime) to one not listed, it can avoid the aggravated 7.5% IMI rate and benefit from standard rates. However, the change must be properly communicated to the Portuguese Tax Authority (AT) through the appropriate tax registration procedures - notification to the National Registry of Legal Persons (RNPC) alone is insufficient. The Tax Authority and RNPC are separate entities under different ministries with distinct functions (tax administration versus commercial registration), so taxpayers must ensure fiscal domicile changes are registered with both systems to ensure tax consequences are properly recognized.
What is the CAAD arbitration procedure for disputing IMI property tax assessments?
The CAAD arbitration procedure for disputing IMI assessments follows the Legal Framework for Arbitration in Tax Matters (RJAT). The taxpayer files a request for constitution of an arbitral tribunal within the statutory deadline (Process 102/2016-T was filed within the prescribed period following notification of the hierarchical appeal decision). The CAAD President accepts the request and notifies the Tax Authority, then the Ethics Council designates an arbitrator. Once constituted, the tribunal notifies the Tax Authority to respond and provide the administrative file. The parties may waive the hearing under Article 18 RJAT and submit written arguments. The tribunal then issues a final decision. Throughout the process, both parties have access to all documents through the CAAD Case Management System, ensuring compliance with the adversarial principle.
Are compensatory interest and tax refunds available when IMI is unlawfully charged to offshore entities?
Yes, compensatory interest and tax refunds are available remedies when IMI is unlawfully charged to entities incorrectly classified as offshore entities in favorable tax regimes. In Process 102/2016-T, the claimant explicitly requested condemnation of the Tax Authority to reimburse the IMI amount paid (€33,039.75) and to pay compensatory interest at the legal rate until full reimbursement of the tax. Article 43(1) of the Tax Procedure Code (CPPT) governs compensatory interest on tax refunds. These remedies ensure taxpayers are made whole when tax authorities erroneously apply the aggravated 7.5% IMI rate, compensating not only for the principal amount overpaid but also for the time value of money during the period the tax was improperly retained.