IMI Exemption for Public Domain Property – CAAD Arbitration 180/2016-T Decision

ARBITRAL DECISION

I. Report

A…, S.A., with registered office at Avenue …, no. …, in Lisbon, registered in the Commercial Registry Office under unique registration number and collective person number … (hereinafter, the "Claimant"), requested from the Administrative Arbitration Centre (CAAD), on 22 March 2016, the constitution of an arbitral tribunal in tax matters, in accordance with the provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime of Tax Arbitration, hereinafter referred to as "LRTA"), in which the Tax and Customs Authority (TA) is the Respondent, with a view to declaring the illegality and consequent annulment of the acts of additional assessment of Municipal Real Estate Tax (MET) relating to the property registered in the urban property registry under article … of the parish of …, Municipality of …, relating to the years 2012 and 2013, in the amount of €54,387.87 (fifty-four thousand three hundred and eighty-seven euros and eighty-seven cents), following the act of implicit dismissal of hierarchical appeal filed against the act of express dismissal of amicable complaint concerning such assessments that was filed by the Claimant.

The Claimant chose not to appoint an arbitrator.

The request for the constitution of an arbitral tribunal was accepted by the President of the CAAD on 23 March 2016 and automatically notified to the TA on the same date.

The undersigned was appointed by the President of the Deontological Council of the CAAD as arbitrator of a singular arbitral tribunal, in accordance with the provisions of Article 6 of the LRTA, having communicated acceptance of the appointment within the legal time limit in accordance with Article 4 of the Deontological Code of the CAAD.

The parties were notified of the appointment of the undersigned on 18 May 2016, in accordance with Article 11(1)(a) and (b) of the LRTA, and raised no objection thereto.

The singular arbitral tribunal was thus duly constituted on 3 June 2016, in accordance with the provisions of Article 11(1)(c) of the LRTA.

The TA was notified of the arbitral order of 3 June 2016 to submit its response within 30 (thirty) days.

The TA submitted its response on 7 July 2016.

By arbitral order of 20 July 2016, the Arbitral Tribunal ordered the notification of the Claimant to, within 10 days, and in consideration of the provisions of Article 17A of the LRTA, pronounce on what was indicated by the Respondent in points 47 to 56 of its Response, whereby, essentially, the Respondent maintains that the proceedings should be suspended.

The Claimant pronounced itself on 12 September 2016, having argued that the proceedings should continue their course to conclusion.

By order of 1 November 2016, the Arbitral Tribunal considered, in accordance with the provisions of Article 16(c) and (e) of the LRTA, unnecessary the hearing provided for in Article 18 of the LRTA. It further considered that the case was ready for decision, in accordance with the principles of procedural expedition and the tribunal's autonomy in conducting the case.

The Claimant submitted written submissions on 14 November 2016, the Respondent having dispensed with submitting the same.

The parties have legal personality and capacity and are legitimate (Articles 4 and 10(2) of the LRTA and Article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would invalidate them.

II. Claimant's Claim

The Claimant presented a request for arbitral pronouncement with a view to declaring the illegality and consequent annulment of the acts of additional assessment of Municipal Real Estate Tax (MET) relating to the property registered in the urban property registry under article … of the parish of …, Municipality of …, relating to the years 2012 and 2013, in the amount of €54,387.87 (fifty-four thousand three hundred and eighty-seven euros and eighty-seven cents), following the act of implicit dismissal of hierarchical appeal filed against the act of express dismissal of amicable complaint concerning such assessments that was filed by the Claimant.

The Claimant presented the present claim, in accordance with the grounds briefly indicated hereinafter:

1. The MET assessments relate to the property registered in the urban property registry under article … of the parish of …, Municipality of ….

2. The property in question is, in accordance with its respective property record description, a dam.

3. Through this dam, the Claimant operates a hydroelectric facility, the hydroelectric facility of ….

4. Such facility is operated under a "Concession Contract relating to the use of water resources for the capture of surface waters intended for hydroelectric energy production – hydroelectric facility of …".

5. The electric facility in question is endowed with public utility by its own nature and by recognition upon its initial concession, cf. Government Gazette no. …, II series, of … December 1944.

6. The said concession contract permits the Claimant the exclusive use of public domain water assets allocated to the hydroelectric facility in question for the production of electrical energy, that is, the hydroelectric facility is composed of and located on public domain.

7. The concession contract itself indicates that the equipment and infrastructures that comprise the hydroelectric facility integrate the public domain of the State.

8. The hydroelectric facility constitutes a hydroelectric energy production centre whose energy is transported and distributed by the Public Service Electricity Network and delivered to traders for supply to consumers, and has other functions, namely, capture of waters for public supply to populations, control of floods and droughts, firefighting, with the top of the dam being used by the national/local road network.

9. The use made by the Claimant of the public domain in question is reconciled with various other purposes and entities, being subject to various constraints and restrictions, considering the specific nature of the reservoir created by the dam, which constitutes a public service water reservoir, in accordance with Decree-Law no. 107/2009, of 15 May and Ordinance no. 522/2009, of 15 May.

10. The property article in question has never been subject to Municipal Contribution or MET, as it was the understanding of the TA, contained in DGCI Information nos. …/90, of 17 June 1990, and …/91, of 28 November 1991, that the relevant reality cannot be qualified as property.

11. Consequently, the property article in question was always considered exempt.

12. There was no relevant alteration in the applicable legal regime or in the reality in question that would support the alteration of such understanding by the TA.

13. The Claimant was notified of general assessment of the property article in 2013 and 2014, through a procedure that was contested by the Claimant, with the Lisbon Tax Court annulling the act of second assessment (of 2014), in a decision that was appealed by the TA.

14. In December 2014, the Claimant was notified of two additional MET assessments relating to 2012 and 2013, having proceeded to their payment.

15. The Claimant filed an amicable complaint requesting the annulment of those MET assessments, on the grounds: a) lack of substantiation of the assessments, b) the non-subjection of the hydroelectric facility to MET, as the conditions of subjective or objective incidence were not met, c) impossibility of revocation of the exemption of the dam or the impossibility of retroactive effects being attributed thereto, d) error in MET calculation.

16. The TA dismissed such amicable complaint, arguing that the exemption ceased to be in force due to the fact that the Claimant ceased to be, with effect from 2012, a public entity, and thus could no longer benefit from the exemption contained in Article 11 of the MRET Code.

17. The Claimant filed a hierarchical appeal, without response to date.

18. The dam in question assumes public utility, as was expressly recognised upon the granting of its construction concession, and also has utilities that benefit the general public.

19. In general terms, in accordance with Article 84 of the Constitution of the Portuguese Republic (CPR), Decree-Law no. 477/80 of 15 October, and Law no. 54/2005, of 15 November, dams of public utility integrate the public domain of the State.

20. Such fact, moreover, is expressly stated in the concession contract concluded with the Claimant.

21. Now, assets of the public domain cannot be considered to be covered by the definition of property contained in Article 2 of the MRET Code. They are assets excluded from legal commerce, and cannot be the subject of private rights. They are not, therefore, patrimonial assets.

22. Article 2 of the MRET Code determines that property is that which forms part of the assets of a natural or legal person and which has economic value, characteristics which, in the present case, do not apply: the dam is a public domain asset.

23. In these terms, the Claimant does not understand the TA's allegation regarding the fact that it was only exempt from MET by virtue of its alleged status as a public entity. For there is no possibility of maintaining that the Claimant benefited from such a status, as it is not "State", "Autonomous Region" or any service, establishment or body of these entities.

24. And this is so much so that it proceeds to pay MET with reference to the properties of which it is actually the owner.

25. Furthermore, the situation under examination flagrantly violates the requirements of the principle of tax legality: on the one hand, the acts practised contradicted previous administrative practice, on the other hand, the grounds invoked do nothing to legitimise their practise, preventing the interpretation of "property" hitherto followed from being set aside.

26. There are not in the MRET Code sufficient elements that permit the conclusion that dams are subsumed into the concept of urban property and subject to taxation to that extent.

27. Consequently, the acts practised violate the principle of tax legality, provided for in Article 103(2) of the CPR, in its material aspect of effective limitation of the Administration's margin of free appreciation in implementing the essential elements of taxes, as well as the limitation of the use of indeterminate concepts in defining such elements.

28. Without prejudice, the concession contract confers upon the Claimant merely the right to exclusive use of assets of the public domain.

29. Now, MET is owed by the owner, usufructuary or leaseholder of the property, other holders of real rights not being included herein.

30. As the legislator has not included other real rights in the norm contained in Article 8 of the MRET Code, it is clear that the legislator intended to construct an exhaustive provision at the level of subjective incidence, thus excluding the possibility of subjective incidence of the tax.

31. On assets of the public domain, as in the present case, only the acquisition of exclusive use rights through concession or license can take place. Rights that cannot be qualified as being of a real nature, whether ownership, usufruct or leasehold.

32. Consequently, the assessments in question could never be maintained and should be annulled for breach of law.

33. Still without prejudice: since its property registration that the dam in question benefited from exemption, first from Municipal Contribution, then from MET, expressly recognised and declared by the TA.

34. The recognition of that exemption would result, namely, from DGCI Information nos. …./90, of 17 June 1990, and ….9/91, of 28 November 1991, wherein the TA itself declared that assets that integrate the national electricity network, such as dams, form part of the public domain of the State and are not subject to MET.

35. Now, without more, the TA gave effect without the exemption in 2014, with effects retroactively applied to 2012 and 2013, which cannot be understood and is not accepted.

36. Article 14(4) of the Statute of Tax Benefits indicates that the administrative act granting a tax benefit cannot be revoked nor can the respective concession agreement be rescinded, or the acquired rights be diminished by unilateral act, save if there is non-compliance attributable to the beneficiary of the obligations imposed or if the benefit was induly granted, in which case the act may be revoked.

37. Those exceptions can only operate within the period for which the acts constitutive of rights can be revoked.

38. And by the provisions of Article 141 of the CPA, that period has long since expired.

39. Whereby the MET assessment acts in question, materialising the destruction with retroactive effects of MET exemption previously in force, prove to be illegal by violation of Article 141 of the CPA.

40. And even if such revocation were possible, the TA could never confer retroactive effects thereupon, and therefore such acts are illegal.

41. Finally, the Claimant does not understand the calculations that underpinned the MET assessed, nor has even the respective MET safeguard clause been applied, whereby therefore the contested assessments should also be annulled for this reason.

42. Additionally, the assessments in question clearly suffer from the defect of lack of substantiation, it not being possible for the Claimant to understand the volitional and cognitive process underlying them.

43. They do not clarify which properties are in question, the reason for the revocation of the MET exemption, the reason for the revocation with retroactive effects or the calculation carried out to determine the tax.

44. Accordingly, in accordance with Article 77 of the General Tax Law and Article 268(3) of the CPR, the acts should be annulled for lack of clear, sufficient and congruent substantiation of fact and law.

45. In these terms, the additional MET assessments in question should be annulled, condemning the Respondent to the reimbursement of the amounts paid and the payment of compensatory interest.

III. Respondent's Response

The Respondent submitted its Response, which it bases on the following grounds:

1. The Claimant's amicable complaint was dismissed on the ground that it was privatised through Council of Ministers Resolution no. .../2012, of 12 November, having altered its legal nature as a public entity, as it involved its removal from public utility, by cessation of public utility of the Dam of ….

2. The operation of total privatisation of the Claimant, carried out by the aforementioned Council of Ministers Resolution, with effect from 31.10.2012, altered its legal nature as a public entity.

3. It is concluded, thus, that it is no longer possible for the Claimant to continue to benefit from the exemption provided for in Article 11 of the MRET Code, as it involved its removal from public utility, by cessation of public utility of the Dam of ….

4. To justify this conclusion, recourse was made to the information that led to the dismissal of the complaints, to the Manual of Tax Law of Professor Freitas do Amaral, in accordance with which dominial character may cease as a consequence of the disappearance of the public utility that those assets discharged or by the fact that a purpose of general interest may be more conveniently met in another regime. That is, dominial character ceases when the right of public ownership is extinguished with the lack of subject matter.

5. A change of paradigm is assumed in these proceedings in the tax treatment of dams, verifying the obligation of property registration and consequent subjection to MET, including public utility dams, on the ground that public utility dams fall within the concept of property drawn in Article 2 of the MET Code, by constituting assets integrated into private legal commerce.

6. Therefore, the Tax and Customs Authority has proceeded to their respective property registration, to additional MET assessments to concessionaire companies, this being the subject of the present claim.

7. In truth, the TA followed, until the implementation of the general assessment procedure for urban property, the understanding sanctioned superiorly on 28 November 1991, to which the claimant refers, to the effect that assets integrating the so-called Network … are of the public domain, owned by the State and municipalities and, as assets of the public domain, such assets are outside private legal commerce, being only alienable under public law provisions, having, consequently, no value of exchange and, therefore, no market value, not being, thus, properties, incapable, therefore, of property registration, for the purposes of the provisions of Article 11 of Decree-Law no. 441-C/88, of 30 November, and were not subject to municipal contribution.

8. It is noted that this condition of absence of value of exchange in order to consider the asset to belong to the public domain is not, currently, entirely valid, as assets of the public domain, save, obviously, assets of natural public domain, may eventually, in abstract, be recorded as assets of the public entities that administer and control them, State, municipalities or autonomous regions.

9. But the non-verification of this requirement, that is, the existence of a market value, does not necessarily imply any taxation under MET of those assets, in most cases property of public entities subjectively exempt from MET.

10. Public utility dams do not form part of the enumeration of assets that constitutionally integrate the public domain in accordance with Article 84(1) of the CPR. Accordingly, it would only be within the remit of the ordinary legislator, respecting constitutional limits, to include or not them in the public domain.

11. On the other hand, the exploitation of the asset by private entities under a license or concession regime does not interfere with its qualification as an asset of the public domain.

12. Doctrine is clear that the cession of exclusive use of dominal assets does not imply their removal from the public domain. And this is what results, namely, from Articles 27(1) and 30(1) of Law no. 180/2007, of 7 August, which contains the so-called Legal Regime of Public Immovable Property.

13. Such legal norms provide that individuals may acquire rights of exclusive use of assets of the public domain, including the right to their management and exploitation, through license or concession, without the fact determining that those assets cease to belong to the public domain.

14. In the concession contract, the subject of acquisition is not, in fact, any right of ownership of the immovable asset integrating the public domain – which would be, moreover, null as assets of the public domain are excluded from legal commerce – but merely a contractual right to exclusive use, including management and exploitation of the public domain asset, which, in accordance with Article 8(1) and (2) of the MRET Code, is not, in fact, sufficient for concessionnaires to be passive subjects of MET.

15. Dams, understood, "broadly speaking", as any artificial barrier, made in watercourses, especially for the supply of residential, agricultural and industrial zones, hydroelectric energy production or flow regulation, integrate, when declared of public utility and by mere effect of that declaration, the public domain of the State.

16. For that purpose, Article 4(d) of Decree-Law no. 477/80, of 15 October, integrates public utility dams in the public domain and this classification does not depend on whether public utility dams are or are not exploited by private entities.

17. Although, in accordance with Article 1(1) of Decree-Law no. 156/2012, of 18 July, it is the General Directorate of the Treasury and Finance (DGTF) that is the entity legally incumbent to ensure the integrated management of State property, the truth is that it results from Article 3(3)(a), (b) and (d) of Decree-Law no. 56/2012, of 12 March, that the attributions of the Portuguese Environment Agency, Public Institute (PEA, PI) are the management of water resources of the public or private domain of the State, issue of the respective titles of use and supervise compliance with the legal obligations established therein.

18. The taxation of dams on the ground that they are not immovable assets of the public domain and are not excluded from private legal commerce depends on them not being legally classified by the PEA, PI as assets of the public domain, either by not having been subject to classification or by, having been legally classified as assets of the public domain, having subsequently been declassified, "maxime" through the revocation of public utility.

19. The holding of the right to exclusive use of assets of the public domain, should it still subsist, does not, however, imply removal of the assets subject to those use rights from the public domain, for the reasons previously stated.

20. Such removal depends, depending on the cases, on a normative or administrative act to cease the status of public utility of dams, a matter for which the TA lacks any competence. It is not, therefore, incumbent upon the TA but rather upon the PEA, PI to clarify, case by case, the dominal status of public utility dams.

21. The TA has already requested clarification from that entity on the matter in question. But considering the case file, it is requested that it be the Claimant, as it alleges that the Dam of … belongs to the public domain, to attach to the case file documentary proof, obtained from that entity, as the TA considers proof of this legal fact essential, given what has been set out, in order to find the proper solution to the present dispute.

22. Should it thus not be understood, the present arbitral instance should then be suspended, awaiting the response to the request already made by the TA to the Portuguese Environment Agency IP.

23. Should the tribunal opt for continuation of the case, in the current situation, the TA's position will be to petition to the effect that the additional MET assessments should be maintained, because they result from the interpretation and application that the TA is making of Articles 2 and 8 of the MRET Code, and consequently, the requests made by the Claimant should be disregarded.

IV. Subsequent Request

The Claimant attached to the case file on 31 October 2016 a request with a document issued by the Portuguese Environment Agency, Public Institute, attesting that the dam in question has public utility.

V. Issues to be Decided

Considering the facts and legal matter contained in the request for arbitral pronouncement filed by the Claimant and the response of the Respondent, the controversial issue to be decided by the Arbitral Tribunal is whether the additional MET assessments in question were or were not correctly issued in view of the nature of the property in question.

Without prejudice, first of all, the Arbitral Tribunal would take cognisance of the Respondent's request as to the determination, by the Tribunal, to order the Claimant to attach to the case file documentary proof, obtained from the Portuguese Environment Agency, Public Institute, and of the suspension of the present arbitral instance pending response to the request already made by the TA to the Portuguese Environment Agency IP.

VI. Matters of Fact

With relevance to the assessment of the Claimant's claim, the following are the facts that are taken to be proven, based on what has been alleged by the parties and not contested, and on the documents attached to the file:

1. The MET assessments in question relate to the property registered in the urban property registry under article … of the parish of …, Municipality of ….

2. The property in question is, in accordance with its respective property record description, a dam.

3. Through this dam, the Claimant operates a hydroelectric facility, the hydroelectric facility of ….

4. Such facility is operated under a "Concession Contract relating to the use of water resources for the capture of surface waters intended for hydroelectric energy production – hydroelectric facility of …".

5. The electric facility in question is endowed with public utility by its own nature and by recognition upon its initial concession, cf. Government Gazette no. …, II series, of … December 1944.

6. The said concession contract permits the Claimant the exclusive use of public domain water assets allocated to the hydroelectric facility in question for the production of electrical energy, that is, the hydroelectric facility is composed of and located on public domain.

7. The concession contract expressly indicates that the equipment and infrastructures that comprise the hydroelectric facility integrate the public domain of the State.

8. The hydroelectric facility constitutes a hydroelectric energy production centre whose energy is transported and distributed by the Public Service Electricity Network and delivered to traders for supply to consumers, and has other functions, namely, capture of waters for public supply to populations, control of floods and droughts, firefighting, with the top of the dam being used by the national/local road network.

9. The use made by the Claimant of the public domain in question is reconciled with various other purposes and entities, being subject to various constraints and restrictions, considering the specific nature of the reservoir created by the dam, which constitutes a public service water reservoir, in accordance with Decree-Law no. 107/2009, of 15 May and Ordinance no. 522/2009, of 15 May.

10. The hydroelectric facility has public utility, attested by the Portuguese Environment Agency on 25 October 2016.

11. The property article in question has never been subject to Municipal Contribution or MET, as it was the understanding of the TA, contained in DGCI Information nos. …./90, of 17 June 1990, and …./91, of 28 November 1991, that the relevant reality could not be qualified as property.

12. Consequently, the property article in question was always considered exempt.

13. There was no relevant alteration in the applicable legal regime or in the reality in question.

14. The Claimant was notified of general assessment of the property article in 2013 and 2014, through a procedure that was contested by the Claimant, with the Lisbon Tax Court annulling the act of second assessment (of 2014), in a decision that was appealed by the TA.

15. In December 2014, the Claimant was notified of two additional MET assessments relating to 2012 and 2013, having proceeded to their payment.

16. The Claimant filed an amicable complaint requesting the annulment of those MET assessments, on the grounds: a) lack of substantiation of the assessments, b) the non-subjection of the hydroelectric facility to MET, as the conditions of subjective or objective incidence were not met, c) impossibility of revocation of the exemption of the dam or the impossibility of retroactive effects being attributed thereto, d) error in MET calculation.

17. The TA dismissed such amicable complaint, arguing that the exemption ceased to be in force due to the fact that the Claimant ceased to be, with effect from 2012, a public entity, and thus could no longer benefit from the exemption contained in Article 11 of the MRET Code.

18. The Claimant filed a hierarchical appeal, without response to date.

The conviction as to the facts taken to be proven was based on documentary evidence attached and not contested by the parties.

There are no other facts with relevance to the case that are not considered proven.

VII. Matters of Law

As results from the matters of fact, MET assessments relating to the years 2012 and 2013 are at stake.

Without due respect, and advancing from the outset the sense of the present arbitral decision, the Respondent itself demonstrates, in its Response, that it has no reason to maintain in the legal order the contested assessments.

In examining its request, contained in its Response:

a. With regard to the request that it be the Claimant to demonstrate, by documentary proof from the Portuguese Environment Agency, Public Institute or from another entity, that the dam of which it is a concessionnaire integrates the public domain, the same is not, naturally, upheld. The Claimant has demonstrated by documentary means, to the extent available in the legal order and within its sphere as a concessionnaire, that the dam has public utility and that, as such, is affected to the public domain. Such is evident, as can be verified above, in the matters taken to be proven. The documentary support and body of evidence that attest thereto is ample and sufficient for the purpose, and is not, in any moment, contested by the Respondent, on the contrary, is recognised by it.

In truth, regardless of the entity that currently has competence to decree whether an asset integrates or not the public domain, the incontested fact is that the concession contract, executed by a public entity with competence for the purpose, is express in defining the dam in question as integrating the public domain.

Consequently, the Respondent is correct: it has no competence to pronounce on such affectation. For this very reason, the Claimant does not have to produce further proof – beyond that which it has already attached to the case file – that attests to that which is already demonstrated. It is, therefore, the Respondent's request is dismissed.

Without prejudice, and by virtue of the Claimant's request in which it attached to the case file a declaration from the Portuguese Environment Agency attesting to the public utility of the hydroelectric facility, it would always have been superfluous to examine the Respondent's request in this regard.

b. As to the suspension of the instance, it does not appear that such is, in any way, necessary or appropriate. First, the case file is instructed with sufficient and appropriate documentary evidence for the delivery of a decision. Second, even if the response from the Portuguese Environment Agency, Public Institute were to alter, in any way, the quality of public domain of the dam in question, this would only have, only so can it be configured, effects for the future. Now, in examining, in the present case, acts of tax assessment relating to 2012 and 2013, it is incumbent upon the Arbitral Tribunal to examine only whether the same were validly issued in function of the elements existing and valid at the date of the tax facts.

Consequently, the Respondent's request that the present proceedings be suspended cannot be accepted either, and they shall thus continue their normal course.

Without prejudice, and by virtue of the Claimant's request in which it attached to the case file a declaration from the Portuguese Environment Agency attesting to the public utility of the hydroelectric facility, it would always have been superfluous to examine the Respondent's request in this regard.

In view of the foregoing, and taking as proven that the dam which constitutes the property article in question is an asset integrating a complex with public utility, and which, for that very reason, is integrated in the public domain, it must then be decided whether the same is or is not subject to MET.

As results from the facts proven, alleged by the Claimant and recognised and accepted by the Respondent in its Response, and further confirmed by the declaration from the Portuguese Environment Agency, the dam of … assumes public utility, fact expressly recognised upon the granting of its construction concession and recently confirmed.

Article 84 of the CPR provides that there belong to the public domain the territorial waters with their beds and the contiguous seabeds, as well as lakes, lagoons and navigable or floatable watercourses, with their respective beds and other assets classified by law.

Decree-Law no. 477/80, of 15 October, which creates the general inventory of State property, determines, in Article 4(b) and (d) that there integrate the public domain of the State, namely, public utility dams.

The foregoing suffices to conclude that the dam in question is an asset integrating the public domain of the State, the fact that it is under concession for its operation being irrelevant to remove it from such public domain, as well clarified by the Respondent itself: the cession of exclusive use of dominal assets does not imply their removal from the public domain. And this is what results, namely, from Articles 27(1) and 30(1) of Law no. 180/2007, of 7 August. Individuals may acquire rights of exclusive use of assets of the public domain, including the right to their management and exploitation, through license or concession, without the fact determining that those assets cease to belong to the public domain.

Article 2(1) of the MRET Code establishes that "For the purposes of this Code, property is all land area, encompassing the waters, plantations, buildings and constructions of any nature incorporated or based therein, with a character of permanence, provided it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value".

As is known, assets of the public domain are excluded from legal commerce, namely by virtue of the provisions of Decree-Law no. 280/2007, of 7 August. Its Article 18 establishes that "Immovable assets of the public domain are outside legal commerce, and cannot be the subject of private rights or transmission by instruments of private law." Article 19 even states that "Immovable assets of the public domain are not susceptible of acquisition by adverse possession".

As the Claimant well points out, the fact that assets belonging to the public domain are outside private legal commerce – and as such not susceptible of private appropriation – leads to them not having current exchange value and, consequently, not being capable of being assessed in money.

A fact that is recognised by the legislator itself, in the preamble to Decree-Law no. 477/80 of 15 October, which creates the general inventory of State property: "Concerning the problem of the consistency of the inventory, a solution was chosen that can be expressed in the formula whereby to the assets that in the plane of private law are generally designated as 'overall assets', the assets of the public domain were added.

It is not overlooked that this choice is susceptible to provoking criticism, especially from civil law specialists, since by definition, assets of the public domain, because they are excluded from private commerce, have no current exchange value. Hence the reason why such assets are normally opposed to the set of patrimonial assets.

Accordingly, when one speaks of the State's assets and includes in that expression assets of the public domain, it may be said that a scientific breach is committed, for which, however, one of the justifications is that it is an acceptance of assets already traditional in our public law (cf. preamble to the aforementioned Decree-Law 22728)." (emphasis added).

From the foregoing, to integrate the concept of property contained in Article 2 of the MRET Code, the same should, cumulatively:

a. form part of the assets of a natural or legal person and,

b. in normal circumstances, have economic value.

As was demonstrated, the asset in question, the dam, despite forming part of the assets of a legal person (public), does not have, in normal circumstances, economic value.

As well cited by the Claimant, J. Silvério Mateus and L. Corvelo de Freitas, in "The Taxes on Immovable Property, Stamp Duty – Annotated and Commented", Lisbon, 2005, p. 102, clarify that:

"In the legal plane, relevance is attributed to patrimonial nature. The asset, in the physical sense, must be susceptible of integration into the assets of a natural or legal person. Lacking this requirement of patrimonial character, assets of the public domain do not integrate the fiscal concept of property – such as assets of the hydric public domain, roads […]. For that reason, assets of the public domain are not susceptible of property registration, and moreover have no patrimonial value".

Also António Santos Rocha and Eduardo José Martins Brás, in "Taxation of Property. MET-TET and Stamp Duty (Annotated and Commented), Almedina, Coimbra, 2015, p. 26, defend that:

"In any case, it is imperative that the property to be taxed in MET forms part of the assets of a person, natural or legal, which excludes from taxation assets that cannot be the subject of '...private rights, such as those found in the public domain and those that are, by their nature, not susceptible of individual appropriation', as referred to in Article 202(2) CC.

As assets of public domain that for that reason are not susceptible of being taxed under MET, are to be considered, beyond those which, by specific law, are thus considered, those referred to in Article 84 CPR."

From the foregoing, no doubts remain that assets integrating the public domain of the State, as is the case of the dam in question, are not susceptible of integrating the definition of property contained in Article 2 of the MRET Code, and cannot consequently be included in its scope of taxation.

And well does the Respondent know that this is so, for i) does not even defend the position of the TA contained in the dismissal of the Claimant's amicable complaint, regarding the alleged previous exemption by virtue of its also alleged status as a public entity and, with greater relevance, ii) does not contest any interpretation of the aforementioned norms in the sense of the present decision contained, which is, essentially, what was raised by the Claimant in its arbitral request. And more, will also know that it cannot relegate a position on the assessments in question to a document that is to be issued by a third entity when, in reality, the TA was and has been in possession of all the elements and information necessary so that it could know, ab initio, the nature of public domain of the dam in question and its consequent non-subjection to MET.

There exists no known act in the present proceedings, presented by the Claimant or by the Respondent, that alters or is susceptible of altering that fact with tax relevance in 2012 and 2013.

And should such an act come to exist, it must always substantiate its possible retroactive tax application, under the principle of tax legality.

And even if it is thus considered, the TA could never confer retroactive effects upon it, being therefore such acts illegal.

And even if such an act (unknown at the present date, it is reiterated) could exist, it would never be capable of substantiating the additional MET assessments carried out and notified to the Claimant, simply by the fact of being unknown to the TA at the moment of the respective assessment. Being unknown, it would be impossible to be, in any way, the cause or basis of such acts.

In view of all that has been set out, nothing remains but to show that the Claimant's understanding as to the issue subject to the present proceedings is well-founded, and to hold as without effect, in accordance with Article 124 of the Code of Tax Procedure, ex vi Article 29(1)(c) of the LRTA, knowledge of further allegations by the Claimant (there being, in light of this decision, no prejudice to the most stable or effective protection of the interests thereof).

Compensatory Interest

In accordance with Article 43 of the General Tax Law, compensatory interest is owed when, in an amicable complaint or legal challenge, it is determined that there was an error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due.

As results from what was concluded previously, there was, in the present case, error attributable to the services, to the extent that the assessments in question were not issued in accordance with the applicable legal provisions. In fact, the Respondent, well knowing that assets integrating the public domain do not meet the concept of property contained in the MRET Code, subjected the public utility dam operated by the Claimant under a concession contract to MET. Consequently, it could not have issued the tax assessments which, as concluded, are illegal.

There being, manifestly, error attributable to the services, it is also, without more, proper to grant the Claimant's request for payment of compensatory interest.

VIII. Decision

In these terms, and based on the grounds herein set out, the Arbitral Tribunal decides:

a. To declare entirely well-founded the request for arbitral pronouncement, and in consequence, annul the MET assessments in question, determining the reimbursement of the amounts wrongfully collected; and

b. To declare well-founded the request for payment of compensatory interest to the Claimant.

Value of the case: €54,387.87 (fifty-four thousand three hundred and eighty-seven euros and eighty-seven cents)

Costs: In accordance with the provisions of Article 22(4) of the LRTA, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the costs are fixed at €2,142.00 (two thousand one hundred and forty-two euros), to be borne by the Respondent.

Lisbon, 18 November 2016

The Arbitrator

Ana Pedrosa Augusto