IMI Exemption for Classified Heritage Properties Under Article 44 EBF – CAAD Ruling 172/2017-T

ARBITRAL DECISION

I. REPORT

1. On March 14, 2017, the taxpayers A…, with tax identification number…, married, holder of citizen card no…., resident in….., …..-… Alpiarça, B…, with tax identification number…, married, holder of citizen card no…., resident in….., …..-… Alpiarça, C…, with tax identification number…, unmarried, holder of citizen card no…. resident in….., no…., ….., D…, with tax identification number…, divorced, holder of citizen card no…., resident in….., ….., ….., …..-… Estoril and E…, with tax identification number…, divorced, holder of citizen card no…., resident in….., no…., ….., ….., hereinafter referred to as the Applicants, requested the establishment of an arbitral tribunal and filed a request for an arbitral decision, pursuant to paragraph a) of no. 1 of article 2 and paragraph a) of no. 1 of article 10 of Decree-Law no. 10/2011, of January 20 (Legal Regime for Arbitration in Tax Matters, hereinafter designated solely as LRAT), in which the Tax and Customs Authority (hereinafter designated as TA) is the Respondent.

2. The Applicants are represented in the context of the present proceedings by their legal representative, Dr. F…, and the Respondent is represented by legal counsel, Dr. G… and Dr. H….

3. The request for establishment of the arbitral tribunal was accepted by His Excellency the President of CAAD and was notified to the Respondent on May 11, 2017.

4. By means of the request for establishment of the arbitral tribunal and request for an arbitral decision, the Applicants seek the declaration of unlawfulness of the decisions denying the administrative review requests nos…2016… and…2016…, and consequently, the annulment of the tax acts assessing Municipal Tax on Real Property (IMI) for the year 2015, in the total amount of € 610.75 (six hundred and ten euros and seventy-five cents), concerning the urban properties located on….Street, no…..-… and…., registered in the property register under article… and… of the Union of Civil Parishes of…., …., …., … and…., in the municipality of Porto.

5. After verifying the formal regularity of the request presented, pursuant to the provisions of paragraph a) of no. 2 of article 6 of the LRAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD.

6. The Arbitrator accepted the appointment made, with the arbitral tribunal being constituted on May 26, 2017, at the headquarters of CAAD, located at Avenida Duque de Loulé, no. 72-A, in Lisbon, in accordance with the minute of establishment of the arbitral tribunal which was drawn up and is attached to the present proceedings.

7. After being notified for that purpose, the Respondent submitted its response on June 27, 2017.

8. By order of 04.07.2017, given that no exceptions were raised, there being no need for the production of additional evidence beyond that which is already incorporated into the proceedings in documentary form, with no perceived need for the parties to correct their respective procedural documents, with the proceedings containing all the necessary elements for the rendering of the decision, for reasons of procedural economy and expedience and the prohibition of unnecessary procedural acts, the Tribunal decided to dispense with holding the meeting referred to in article 18 of the LRAT, and should also dispense with the presentation of submissions, provided that the parties do not object thereto. In light of the silence of the Applicants and the request of the Respondent of 07.07.2017, the aforementioned meeting was dispensed with, as well as the mentioned submissions.

9. The Tribunal, in compliance with the provision of no. 2 of article 18 of the LRAT, designated November 24, 2017 for the purpose of rendering the arbitral decision, and warned the Applicants in the order of July 4, 2017, that they should proceed with payment of the subsequent arbitral fee, pursuant to no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, and communicate such payment to CAAD.

II. The Applicants support their request, in summary, as follows:

The Applicants support the requests for annulment of the denials of the administrative review requests nos…2016… and…2016… and of the assessments of Municipal Tax on Real Property for the year 2015, embodied in the collection documents nos 2015…, 2015…, 2015…, 2015…, 2015…, 2015…, 2015… and 2015…, in the total amount of € 610.75 (six hundred and ten euros and seventy-five cents), to which they were subjected, with respect to the urban properties of which they are co-owners, located on….Street, no…. and…., registered in the property register under article… and… of the Union of Civil Parishes of…., …., …., …., … and…., in the municipality of Porto, alleging the following defects:

a) In accordance with the provision of paragraph n), of no. 1, of art. 44 of the Tax Benefits Statute, exempt from IMI are: "properties classified as national monuments and properties individually classified as of public interest or municipal interest, in accordance with applicable legislation".

b) Indeed, "in the specific case of the property in question, it is classified as a national monument in accordance with the provisions of nos. 3 and 7 of art. 15 of Law no. 107/2001, for being inscribed in the UNESCO World Heritage List in 1996 as the 'Historic Centre of Porto' (Special Protection Zone).[as declared by Notice no 15173/2010, published in the Official Journal, II Series of July 30, 2010, issued pursuant to no 3 of art. 72 of Decree-Law 309/2009, of October 23.]"

c) Now, "the Historic Zone of Porto is classified in its entirety as a National Monument, in accordance with the territorial delimitation of classification, representing in itself a cultural value of significance for the Nation that should be protected and valued in accordance with Law no. 107/2001, with the property in question being part of that same National Monument."

d) As such, "In the classification of this ensemble – as is the case with the Historic Zone of Porto - it is relevant that the protected heritage be viewed as a whole, which makes it impossible to classify each property individually, which should be considered as a whole, as an ensemble."

e) In fact, "This is naturally the case with the Historic Zone of Porto, as its classification has been changed from properties of public interest, which originally appeared in Decree 67/97, of December 31."

f) Indeed, "Today, in light of Law 107/2001, the properties in question are of national interest, and not of merely public or municipal interest, being consequently classified as national monuments."

g) For which reason, "as stated in article 15 of Law 107/2001 and of art. 3 of Decree-Law 309/2009, a property classified as of national interest is designated as a 'national monument', regardless of whether it is a single building, ensemble or site, being clear that the properties that make up the ensemble or site are covered by that classification."

h) However, "The fact that individually classified properties may coexist, in case of delimitation of an ensemble or a site, pursuant to art. 56 of Decree-Law 309/2009 only has provisional relevance for delimiting the protection zone of that property until the publication of the classification of the ensemble or site (cfr. no 2)."

i) Thus, "the Historic Zone of Porto should be viewed as an ensemble. The law aimed at the protection of all properties therein, as a whole and therefore it makes no sense any individual classification of the properties integrated in that Historic Zone."

j) In light of the foregoing, the Applicants understand that "article 44 of the Tax Benefits Statute distinguishes between 'property classified as a national monument' and 'property individually classified as of public interest or municipal interest', only requiring individualization in relation to these two latter categories, not as to properties of national interest."

k) Therefore, they request that the Arbitral Tribunal annul the decisions of the Tax Authority denying the administrative review requests, by virtue of such decisions being based on a mistaken interpretation of the Law, namely the provision of paragraph n), of no. 1, of article 44 of the TBS, and consequently, annul the assessment notices and order the reimbursement of amounts incorrectly paid as IMI, in the total amount of € 610.75 (six hundred and ten euros and seventy-five cents).

III. In its Response the Respondent invoked, in summary, the following:

For its part, the TA comes forward in its response to defend itself by way of counterclaim as follows:

a) The Respondent understands that: "the arguments expounded by the Applicants cannot possibly be valid, insofar as such argumentation: is based on an incorrect presupposition; and makes an incorrect interpretation and application of the legal norms applicable to the case sub judice."

b) Firstly, and in order to make some corrections and remove some confusion on the part of the Applicants, the Respondent provides a historical evolution of the concept of Classification, noting that "1st During the Constitutional Monarchy there was only one level of Classification: National Monument; 2nd During the 1st Republic there were two levels of Classification: (i) National Monument and (ii) Property of Public Interest; 3rd During the Estado Novo there were three levels of Classification: (i) National Monument, (ii) Property of Public Interest and (iii) Municipal Value; 4th At the beginning of the 3rd Republic the concept of Category was introduced and the levels of Classification expanded, but neither one nor the other were ever applied because Law 13/85 did not receive the necessary regulation; 5th During the 3rd Republic and until the emergence of the Cultural Heritage Law of 2001 the levels of Classification created by the Estado Novo continued to be applied."

c) Having clarified the evolution of the concept of "Classification" over the successive national cultural heritage laws during the twentieth century, the Respondent found it necessary to subsequently establish the distinction of the various concepts contained in article 15 of the Framework Law on Cultural Heritage (FLCH), thus, "1st The FLCH establishes in article 15 three distinct legal-cultural concepts regarding immovable cultural properties, namely: the Category (no. 1), the Classification (no. 2) and the Designation (no. 3); 2nd There are three Categories foreseen in the FLCH (article 15/1): Monument, Ensemble and Site, with their definitions, for what is relevant in the case sub judice, being contained in the UNESCO Convention of 1972; 3rd There are three Classifications foreseen in the FLCH (article 15/2): National Interest, Public Interest and Municipal Interest, organized on a decreasing scale of levels; and 4th The designation of National Monument is reserved exclusively for monuments, ensembles or sites that are classified as being of National Interest (article 15/3)."

d) Now, "The 'World Heritage List' referred to in article 11/2 of the UNESCO Convention of 1972 and, therefore, the list referred to in article 15/7 of the FLCH is nothing more than that: a list, a list that is in the charge of the World Heritage Committee. In inscribing a cultural property on the 'World Heritage List', the UNESCO Cultural Heritage Committee is not classifying a property."

e) In fact, "in inscribing the Historic Centre of Porto on the 'World Heritage List' the UNESCO Cultural Heritage Committee NEVER proceeded to any prior administrative classification procedure (DOCUMENT 1 HERETO ATTACHED), as indeed, regarding all Portuguese cultural properties that form part of that list,...Since, as is obvious, the UNESCO Cultural Heritage Committee is not even part of the Portuguese Public Administration."

f) Continuing its thesis, the Respondent expresses the understanding that "(…) the so-called Historic Centre of Porto: 1st Belongs to the category of Ensemble (no. 1 of Notice no. 15,173/2010); 2nd Is included in the list of properties classified as of National Interest (article 15/7 of the FLCH); and 3rd Is designated as a National Monument (article 15, no. 3 and 7, of the FLCH), it being certain that the designation of National Monument does not confuse with nor is equivalent to the concept of classification called National Monument contained in Decree 20,985 of 1932."

g) Thus, "(…) it can be understood for which reason they challenge, for all legal purposes, the certificates issued by the Regional Directorate of Culture of the North (cfr. ADMINISTRATIVE PROCESS)."

h) In that measure, "the TBS is very clear in the 2nd and 3rd segments of article 44/1-n): Are exempt from municipal tax on real property (…) properties individually classified as of public interest, of municipal value or cultural heritage, in accordance with applicable legislation. That is, in order to be able to benefit from IMI exemption the TBS requires the individual classification of each of the properties that make up that Ensemble."

i) It is further added that the interpretation conveyed by the Applicants is contrary to the Constitution of the Portuguese Republic, "(…) insofar as it violates the constitutional principles: (i) of tax equality, (ii) of fiscal justice, (iii) of contributory capacity, (iv) of local autonomy and (v) of participation in decision-making."

j) Therefore, "(…) the present request for arbitral decision should be judged unmeritorious, as not proven, maintaining in the legal order the impugned tax acts and absolving the Respondent accordingly of the request."

IV. Sanitation

The Tribunal is competent and is regularly constituted pursuant to paragraph a) of no. 1 of article 2 and articles 5 and 6, all of the LRAT.

Taking into account the assessment of the same circumstances of fact and the interpretation and application of the same principles and rules of law, the hereby coalition of applicants, as well as the cumulation of requests, are admissible, pursuant to article 3, no. 1 of the LRAT.

The parties have legal personality and capacity, show themselves to be legitimate, are regularly represented and the proceedings do not suffer from any nullities.

V. Matter of Fact

With relevance for the decision, the following facts are established as proven:

A. The Applicants are co-owners of the urban properties located on….Street, no…. and…., registered in the property register under article… and… of the Union of Civil Parishes of…., …., …., …., ….and…., in the municipality of Porto (cfr. fls. 15 to 28 of the administrative process);

B. The aforementioned properties, of the Historic Centre of Porto, form part of the UNESCO World Heritage List, in accordance with Notice no. 15173/2010 published in the Official Journal no. 147 of July 30, 2010 (cfr. fls. 29 of the administrative process);

C. As it results from the certificates issued by the Regional Directorate of Culture North, the properties are classified as a national monument, in accordance with the provisions of nos. 3 and 7 of art. 15 of Law no. 107/2001, of 2011.09.08, DR 209, for being an integral part of the UNESCO World Heritage List in 1996 as the 'Historic Centre of Porto' (cfr. fls. 40 and 41 of the administrative process);

D. The Applicants were notified of the following acts assessing IMI for the year 2015:

• no 2015…, in the amount of 406.72 € (with the collection of the properties identified above being 122.15 €), with payment deadline in April 2016;

• no 2015…, in the amount of 406.72 € (with the collection of the properties identified above being 122.15 €), with payment deadline in July 2016;

• no 2015…, in the amount of 504.55 € (with the collection of the properties identified above being 122.15 €), with payment deadline in April 2016;

• no 2015…, in the amount of 504.50 € (with the collection of the properties identified above being 122.15 €);

• no 2015…, in the amount of 398.94 € (with the collection of the properties identified above being 122.15 €), with payment deadline in April 2016;

• no 2015…, in the amount of 248.35 € (with the collection of the properties identified above being 122.15 €), with payment deadline in July 2016;

• no 2015…, in the amount of 142.29 € (with the collection of the properties identified above being 122.15 €), with payment deadline in April 2016;

• no 2015…, in the amount of 122.15 € (with the collection of the properties identified above being 122.15 €), with payment deadline in April 2016 – cfr. copies of assessment notices attached to the administrative review requests.

E. The Applicants proceeded with payment of the assessment acts underlying the arbitral petition.

F. On August 23, 2016, the Applicants submitted an administrative review request against the aforementioned assessments, having given rise to proceedings instituted with nos…2016… and…2016… (cfr. administrative process).

G. On January 4, 2017, the Applicants were notified of the orders denying each of the submitted administrative review requests.

VI. Facts established as not proven

There are no facts established as not proven, because all facts relevant to the assessment of the request were established as proven.

VII. Motivation of the matter of fact established as proven

For the conviction of the Arbitral Tribunal, regarding the proven facts, the documents attached to the proceedings were relevant, as well as the administrative process, all analyzed and weighed in conjunction with the pleadings, from which results agreement regarding the factuality presented by the Applicants in the request for arbitral decision.

VIII. Issue to be Decided

1. In light of what has been stated in the preceding sections, the principal issue to be decided is as follows:

− Are the tax acts assessing Municipal Tax on Real Property for the year 2015 unlawful, in that the two urban properties in question are classified as National Monuments by virtue of their being part of the ensemble commonly referred to as the Historic Centre of Porto, considered World Heritage by UNESCO in 1996, whereby such properties meet the requirements established in law to benefit from the IMI exemption enshrined in article 44, no. 1, paragraph n) of the TBS.

IX. Grounds of Law

1. We will now determine the Law applicable to the underlying facts, in accordance with the issue already stated (see, supra no. 10).

2. Article 44, no. 1 paragraph n) of the TBS establishes that exempt from IMI are "properties classified as national monuments and properties individually classified as of public interest or of municipal interest, in accordance with applicable legislation".

This article is composed of two provisions. In the first place, properties classified as national monuments are exempt from IMI. In the second place, properties individually classified as of public interest or of municipal interest are exempt from the same tax.

1. Taking into account the reference to applicable legislation contained in the aforementioned provision of article 44, no. 1, paragraph n) of the TBS, one must take into account Law 107/2001, of September 8 – Framework Law on Cultural Heritage –, more specifically, its article 15, according to which:

"1 - Immovable properties may belong to the categories of monument, ensemble or site, as such categories are defined in international law, and movable properties, among others, to the categories indicated in title VII.

2 - Movable and immovable properties may be classified as of national interest, of public interest or of municipal interest.

3 - For immovable properties classified as of national interest, whether they are monuments, ensembles or sites, the designation 'national monument' shall be adopted and for movable properties classified as of national interest the designation 'national treasure' is created.

4 - A property is deemed to be of national interest when its respective protection and appreciation, in whole or in part, represent a cultural value of significance for the Nation.

(...)

7 - Immovable cultural properties included in the world heritage list integrate, for all purposes and in their respective category, the list of properties classified as of national interest."

1. In turn, the Convention for the Protection of World Cultural and Natural Heritage, which took place in Paris, and was approved by Decree no. 49/79, of June 6, sought to establish which natural and cultural properties could come to be inscribed on the World Heritage List, establishing the duties of Member States regarding the identification and protection of such properties. In this sequence, various monuments, sites or ensembles came to obtain the classification of UNESCO World Heritage. Particular note is made of ensembles classified, more specifically, Historic Centres classified as UNESCO World Heritage, as is the case of the Historic Centre of Porto.

2. It should be noted that the aforementioned ensembles classified as World Heritage benefited, for several years, from IMI exemption, under the combined provisions of articles 44, no. 1, paragraph n) of the Tax Benefits Statute and 15, no. 2, 3 and 7 of Law no. 107/2001, of September 8 (Framework Law on Protection of Cultural Heritage).

3. As already mentioned, by articulating the cited provisions, the immovable properties located in Historic Centres included in the UNESCO World Heritage List are classified as being of national interest, falling within the category of "national monuments" and, consequently, benefiting from the exemption enshrined in paragraph n) of no. 1 of article 44 of the TBS.

4. This formulation came to be reiterated in Decree-Law no. 309/2009, of October 23 – Immovable Cultural Heritage –, which establishes the procedure for the classification of immovable properties of cultural interest, as well as the regime of protection zones and the detailed safeguarding plan. In accordance with its article 3, no. 1 "an immovable property may be qualified as of national interest, of public interest or of municipal interest", with no. 3 adding that "the designation 'national monument' is attributed to immovable properties classified as of national interest, whether they are monuments, ensembles or sites".

5. The fact that individually classified properties may coexist, in case of delimitation of an ensemble or site, pursuant to article 56 of Decree-Law no. 309/2009 only has provisional relevance for delimiting the protection zone of that property until the publication of the classification of the ensemble or site.

For this reason it is understood that article 44 of the TBS distinguishes between "property classified as a national monument" and "property individually classified as of public interest or municipal interest", only requiring individualization in relation to these two latter categories, and not as to properties of national interest.

1. As to the argument that some authors defend a restrictive interpretation of exemptions to classified immovable properties, with the intent to exclude from the benefits granted in the context of IMI or IMT all situations in which there has not been a procedure or act of individual classification as national monument, property of public interest or municipal interest, for which reason the amendment was made in that sense to article 6, paragraph g) of the IMT Code by Law 55-A/2010, of December 31, leading to the exemption no longer encompassing "acquisitions of properties classified as of national interest, of public interest or of municipal interest, under Law no 107/2001, of September 8" to contemplate only "acquisitions of properties individually classified as of national interest, of public or of municipal interest, in accordance with applicable legislation", we understand that this argument also does not hold.

2. In fact, it would scarcely make sense, since the wording of article 44 of the TBS was not amended in the same direction, continuing to require individual classification for the attribution of the exemption only in the case of properties of public interest or municipal interest, but not making such a requirement for national monuments. On the contrary, the provision of no. 5 of article 44 of the TBS provides that "the exemption referred to in paragraph n) of no. 1 is of an automatic nature, operating by means of communication of the classification as national monuments or of the individual classification as properties of public interest or of municipal interest (…)".

Thus, truly, we understand it to be clear that the legislator's intention was to dispense with individual classification for purposes of IMI exemption for national monuments, only requiring it in relation to properties of public interest or of municipal interest.

1. The property in question in the present proceedings is part of the Historic Centre of Porto, which was inscribed on the UNESCO World Heritage List, as declared by Notice no 15173/2010, published in the Official Journal, II Series of July 30, 2010, issued pursuant to no 3 of art. 72 of Decree-Law 309/2009, of October 23 (cfr. fact established as proven B).

2. In this sense, decisions of CAAD from processes nos. 325/2014-T, 76/2015-T, 33/2016-T, 98/2016-T, 379/2016-T, 534/2016-T and 204/2017-T have already been pronounced.

3. Thus, and as concluded by the CAAD decision from process no. 76/2015-T, being the property in question integrated within the Historic Centre of Porto, legally qualified as a national monument, it is manifest that it benefits from the aforementioned exemption, it being thus unlawful the IMI assessment herein contested, and the tax that was paid should be restituted to the Applicants.

4. With regard to the alleged defects of unconstitutionality for violation of the principles of (i) tax equality, (ii) fiscal justice, (iii) contributory capacity, (iv) local autonomy and (v) participation in decision-making, enunciated in the Constitution of the Portuguese Republic, knowledge of such issues is precluded by the declaration of unlawfulness of the IMI assessments at issue, due to a substantive defect that prevents their re-issuance or renewal.

As referred to in the Commentary to the Code of Procedure in Administrative Courts, Almedina, 2005, by Mário Aroso de Almeida and Carlos Cadilha, in annotation to article 95 of that statute, p. 483 (applicable by reference of article 2 paragraph c) of the CPPT and of article 29, no. 1, paragraphs a) and c) of the LRAT) "If the court ruled the principal request meritorious, the jurisdictional power is precluded with regard to a subsidiary request or one formulated in the alternative; and, in the same manner, if the ruling adopted regarding an issue consumes or leaves precluded other aspects of the case that correlate with it."

In these terms, in light of the material interpretation advocated, knowledge and assessment of the other defects imputed to the assessment acts contested is precluded.

X. DECISION

In accordance with the foregoing, it is decided:

To rule the request formulated by the Applicants in the present tax arbitration proceedings meritorious, regarding the unlawfulness of the decisions denying the administrative review requests nos…2016… and…2016…, and consequently the annulment of the tax acts assessing Municipal Tax on Real Property for the year 2015, in the total amount of € 610.75 (six hundred and ten euros and seventy-five cents).

To rule meritorious the request to condemn the Tax and Customs Authority to reimburse to the Applicants the amount of tax paid, plus compensatory interest in accordance with legal terms, from the date on which such payment was made until the date of complete reimbursement thereof.

XI. Value of the Proceedings

The value of the proceedings is fixed at € 610.75, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29 of the LRAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The amount of costs is fixed at € 306.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Tax and Customs Authority, since the request was wholly meritorious, in accordance with articles 12, no. 2, and 22, no. 4, both of the LRAT, and article 4, no. 4, of the cited Regulation.

Let it be notified.

Lisbon, November 22, 2017

The Arbitrator,

(Jorge Carita)