Summary
Full Decision
ARBITRATION DECISION
The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Prof. Doctor Eduardo Paz Ferreira and Dr. Maria Manuela do Nascimento Roseiro, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 16-06-2014, agree as follows:
- Report
A, S.A. (hereinafter A or Claimant), with registered office in …, …, registered at the Trade Register Conservancy of Vila Franca de Xira under the unique registration number of Legal Entity no. …, filed a request for constitution of the collective arbitral tribunal, pursuant to the combined provisions of articles 2(1)(a) and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with article 99 and article 102(1) of the CPPT.
The Respondent is the Tax and Customs Authority.
The Claimant requests an arbitral pronouncement on the legality of the Municipal Tax on Onerous Real Estate Transfers (hereinafter IMT) assessment for the year 2009, and respective compensatory interest, in the amount of €295,734.40, a copy of which is attached as document no. 1 with the request for arbitral pronouncement, against which a Gracious Objection was filed which was expressly dismissed, dismissal which, should the arbitral pronouncement now requested result in a finding of illegality of the tax act in question, the Claimant requests that it be likewise annulled.
The request for constitution of the arbitral tribunal was filed on 07-04-2014, accepted by the President of CAAD on 09-04-2014 and notified to the Tax and Customs Authority on the same date.
Pursuant to the provisions of article 6(2)(a) and article 11(1)(b) of the RJAT, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of their appointment within the applicable time period.
In accordance with the provision of article 11(1)(c) of the RJAT, the collective arbitral tribunal was constituted on 16-06-2014.
The Tax and Customs Authority responded, arguing that the Claimant's claim lacks legal basis and raising the preliminary question of whether in the challenge of an additional assessment the defects of the original assessment can be invoked, arguing that, if an affirmative answer is given, the request for arbitral pronouncement would be out of time.
The Claimant replied to the exception raised, arguing that it has no merit.
The Parties dispensed with witness testimony and the Claimant.
By order of 24-09-2104, the holding of the meeting provided for in article 18 of the RJAT was dispensed with, it being decided that the proceedings would continue with written submissions for a period of 10 days, with the time period for the Claimant's submissions beginning with the notification of this order and the time period for the Tax Authority's submissions beginning with the notification of the presentation of the Claimant's submissions.
The Parties did not submit written arguments.
The Arbitral Tribunal was properly constituted and is competent.
The parties have legal personality and capacity and are legitimate (articles 4 and 10(2) of the same statute and article 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities.
No possible obstacles to the consideration of the merits of the case are apparent, beyond the exception raised by the Tax and Customs Authority.
- Factual Matters
2.1. Proven Facts
The Tax and Customs Authority expressly accepted all the facts alleged by the Claimant which, for that reason, are considered proven by agreement:
a) On 15.12.1998, a financial leasing contract was entered into between the Claimant herein, in its capacity as lessee, and a consortium of Financial Companies [composed of B, S.A. (succeeded by C), D S.A. (succeeded by E) and F, S.A. (succeeded by G)], as leasing entities, for the real property previously identified (copy of the Financial Leasing Contract entered into and a copy of which was attached to the request for arbitral pronouncement as Document no. 9, the content of which is reproduced);
b) Among the conditions determined in the said contract was that the said leasing had an established term of twelve years, so the planned end date of the contract was — at the beginning of the contract — 15.12.2010 (section III of the Particular Conditions — page 2 of Document no. 9);
c) It was provided in Clauses Fourteen and Fifteen of the General Conditions of the Leasing Contract for the possibility of early termination through early purchase by the lessee of the leased property;
d) Clause Fourteen of the General Conditions of the contract established, under the heading "Termination of the Contract", that "This contract shall terminate on the date indicated in the Particular Conditions, unless the LESSEE opts for what is provided in the following clause";
e) Under the heading "Option to Purchase before the [Initial] Termination of the Contract", the said leasing contract then provided that:
"ONE - The LESSEE may opt for the acquisition of the property before the termination [initial] of this contract, provided that the following conditions are met cumulatively:
a) It is not in default regarding the payment of rents;
b) It is not in breach of any of the obligations arising from this contract.
TWO — The sale price shall be the amount owed plus a penalty of 3% (three percent) and the respective taxes or fees arising until that date, even if they are subsequently presented to the LESSOR.
THREE— The LESSOR undertakes, hereby, to execute the deed of sale and purchase within a maximum period of one hundred and twenty days from payment of the price.
FOUR — If the parties do not reach an agreement on any conditions of the sale contract provided for in this clause, the financial leasing contract shall subsist in the precise terms now stipulated" (Clause Fifteen of the General Conditions contained in Document no. 9);
f) In 2009, the Claimant was experiencing a phase marked by serious liquidity problems and cash shortages, which were preventing it from carrying out its activity and meeting its commitments, so it needed to conduct a "financial restructuring of its debt."
g) At that time, together with the Credit Institutions mentioned above, the Claimant sought a solution to mitigate this cash problem, the solution being found through early acquisition followed by new financial leasing of the real property previously identified, that is, through a Sale and Leaseback operation;
h) Through this operation (Sale and Leaseback), the Claimant, anticipating the termination of the leasing contract in force and having it immediately followed by the execution of a deed of sale, followed by (new) financial leasing, allowed it to create the financial flow (corresponding to the difference between the value of the sale of the property under the new financial leasing contract and the amount necessary to proceed with the early termination of the leasing contract that was in force at that date) necessary to continue its activity;
i) In order to carry out such operation, it was then necessary to anticipate the acquisition of the property in question, the initial time period of which was established in the leasing contract as 15.12.2010;
j) Thus, pursuant to Clause Fifteen of the General Conditions, it anticipated the date initially established in the financial leasing contract executed (15.12.2010) and, on 25.11.2009, proceeded with the acquisition of the property, having, for this purpose, pursuant to the cited Clause and by force of said anticipation, made the payment to the LESSORS (G, E and C) of "the amount owed" — in which the value of the rents and the residual value corresponding to the following amounts are included:
(i) €404,522.18, to G;
(ii) €638,298.44, to E;
(iii) €745,978.43, to C; (copy of the respective proofs of the amounts determined by the Lessors attached to the request for arbitral pronouncement as Documents nos. 10 to 12, the contents of which are reproduced, totaling €1,812,833.87);
k) There were also paid to them, also pursuant to the cited Clause, both the respective "penalties" and the respective litigation costs;
l) In order to carry out the said early termination of the leasing contract with purchase option, on 25.11.2009 (that is, thirteen months before the end of the period initially established in the financial leasing contract) the respective public deed was executed, then designated as Rescission and Sale and Purchase, between the LESSORS and the Claimant herein (document attached to the request for arbitral pronouncement as document no. 3, the content of which is reproduced);
m) In the deed referred to, it states that "having the lessee company opted for the early purchase of the said property, in the terms provided for in the leasing contract, by the present deed, the first grantors in the aforementioned capacity and for the price of ONE MILLION EIGHT HUNDRED AND TWELVE THOUSAND EIGHT HUNDRED AND THIRTY-THREE EUROS AND EIGHTY-SEVEN CENTS, already received (...), sell to the company «A, SA.», the property previously identified.";
n) It also appearing in that deed that: "(...) as a consequence of this act, the said financial leasing contract is deemed fulfilled, and the respective real estate registration must be cancelled";
o) On that same day, the Claimant paid, as IMT, through DUC …, the amount of €117,834.20 (Document no. 4 attached to the request for arbitral pronouncement, the content of which is reproduced) corresponding to the IMT calculated based on the sale value contained in the executed deed, that is, in the amount of €1,812,833.87;
p) The Claimant made the payment of the IMT in order not to make the execution of the deed impossible, as the Claimant already understood at that time that there was no basis for the said IMT assessment, but, knowing that that act was only provisional, it waited for the definitive assessment in order to react by legal means;
q) Being the 1st transfer after the entry into force of the patrimonial reform, the Claimant knew from the outset that the property would be subject to the general assessment intended to determine its current VPT;
r) Through notifications of the assessment forms nos. … to …, all dated 24.08.2010, the Claimant was notified of the result of the assessment, having been assigned to the sum of the fractions that make up the property in question, a total VPT of €4,549,760.00 (Document no. 5 attached to the request for arbitral pronouncement, the content of which is reproduced).
s) Thirty-one months later, more precisely on 25.03.2013, and based on the assessment carried out on the property, the Claimant was notified, through letter no. …, dated 20.03.2013, of the definitive IMT assessment due by the acquisition of the property previously identified, which occurred on 25.11.2009, which amounted to €295,734.40 (Document no. 1 attached to the request for arbitral pronouncement, the content of which is reproduced);
t) Basing the assessment on article 12(1) of the CIMT and article 27(1)(a) of Decree-Law no. 287/2003, of 12/11 and taking into account the payment of IMT made on 25.11.2009 — in the amount of €117,834.20 —, the Tax Authority requested that the Claimant proceed with the payment, as IMT, of the amount of €177,900.20, corresponding to the difference between the IMT provisionally assessed in 2009 and the IMT actually due under the definitive assessment, in the amount of €295,734.40;
u) Notwithstanding the payment of IMT made on 25.11.2009 — and determined provisionally based on the purchase value contained in the deed —, the Claimant understood that, being the exercise of the right to option to purchase the property at issue in a financial leasing contract, even if through early termination of the initially established time period, no IMT was due, so it filed, on 12-06-2013, a gracious objection against the said IMT assessment in the amount of €295,734.40 (Document no. 8 attached to the request for arbitral pronouncement, the content of which is reproduced);
v) By letter no. …, dated 06.01.2014, the said gracious objection was fully dismissed, with the grounds contained in the information REC-…attached to the said letter (Document no. 2 attached to the request for arbitral pronouncement, the content of which is reproduced);
w) On 19.12.2013, the Claimant paid the amount of €177,900.20, relating to the additional assessment referred to (document no. 6, attached to the request for arbitral pronouncement, the content of which is reproduced);
x) A was the subject of an inspection, of general scope, of the 2009 fiscal year, by the Tax Authority, which was closed without any correction by it (copy of the notification of the result of the inspection action attached to the request for arbitral pronouncement as Document no. 13, the content of which is reproduced);
y) On 07-04-2014, the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings.
2.2. Unproven Facts
There are no facts relevant to the decision of the case that were not competently proven.
2.3. Grounds for the Factual Matters
The decision of the factual matters, in addition to the documents attached to the request for arbitral pronouncement, is based on the agreement of the Parties, as the Tax and Customs Authority expressly accepted as true all the facts alleged.
- Legal Matters
3.1. Question of Timeliness
In the decision of the gracious objection, the Tax and Customs Authority considered the gracious objection to the original assessment as out of time.
In the present proceedings, the Tax and Customs Authority raises the question of timeliness of the filing of the request for arbitral pronouncement, although confusingly raising it in terms of "whether, in the gracious objection or judicial challenge of the additional IMT assessment, can the claimant invoke defects of the original assessment or, on the contrary, whether the right to gracious objection or judicial challenge is limited to the grounds of the additional assessment, in which case the present request for arbitral pronouncement should be considered out of time" (paragraph 43 of the Response).
In light of the very thesis that the Tax and Customs Authority defends in the present proceedings, which is that the additional assessment has autonomy in relation to the first, it is manifest that the Claimant can challenge the additional assessment, which it timely challenged through gracious objection, on the grounds it deems fit, because "the gracious objection may be raised on the same grounds provided for judicial challenge" (article 70(1) of the CPPT) and "any illegality constitutes a ground for challenge" (article 99 of the same Code).
Thus, it is manifest that, regarding the additional assessment, the Claimant can request a declaration of its illegality on the grounds it deems fit, whether or not common to the original assessment.
Therefore, the preliminary question raised does not succeed, as it is formulated in the present proceedings.
3.2. Question of Knowledge of the Main Claim and/or the Alternative Claim
The Claimant formulates a main claim and an alternative claim.
The main claim is based on the assumption that the additional assessment is not autonomous in relation to the initial assessment (articles 52, 53, 61 and 62 of the request for arbitral pronouncement, among others).
The question of autonomy is relevant because it was a ground for dismissal of the gracious objection, the objection may be out of time if the initial assessment is understood to be autonomous in relation to the additional assessment.
In any case, independently of the question of timeliness being considered in the decision dismissing the gracious objection, in light of the terms in which the Claimant raises the question of knowledge of the main and alternative claims, the first question to be considered is whether the additional assessment is autonomous in relation to the initial one, or whether one is dealing with a first provisional assessment that combines with the second, subsequent to the assessment, as a single assessment: if autonomy is found to exist, the Claimant requests that the alternative claim be considered.
a) Question of the Autonomy or Non-Autonomy of the Assessments
The relevant factual situation is as follows, in summary:
— the Claimant acquired the property referred to in the case on 25-11-2009, having paid IMT on that day, in the amount of €117,834.20;
— the Claimant did not challenge the assessment, in any way, until 12-06-2013, the date on which it filed a gracious objection, following an assessment of the property and an additional assessment of that tax, relating to the same transaction, an assessment of which it was notified on 25-03-2013;
— following the dismissal of the gracious objection, communicated by letter dated 06-01-2014, the Claimant filed the request for arbitral pronouncement that gave rise to the present proceedings;
— the Claimant argues, in short, that the assessment made in 2009 was provisional and that it awaited the definitive assessment, which is the additional assessment, so it understands it is in time to challenge the entirety of the IMT assessment;
— the Claimant formulated a main claim, covering the declaration of illegality of both assessments, and an alternative claim, in which a declaration is requested only of the illegality of the additional assessment.
Articles 19, 22, 36, 41, 42 and 43 of the CIMT, as amended by Law no. 64-A/2008, of 31 December, establish the following, insofar as relevant here:
Article 19
Initiative of Assessment
1 - The assessment of the IMT is initiated by the interested parties, for which purpose they must submit, at any tax office or by electronic means, an official form duly completed.
2 - The assessment is carried out ex officio by the competent tax offices and whenever the interested parties do not take the initiative to do so within the legal time periods, as well as when there is cause for any additional assessment, without prejudice to any compensatory interest that may be due and the penalty that may apply.
Article 22
Moment of Assessment
1 - The assessment of the IMT precedes the act or fact transferring the goods, even though the transfer is subject to a suspensive condition, there is a retention of ownership, as well as in cases of a contract for the nomination of a person in the terms provided in article 4(b), except when the tax must be paid later, pursuant to article 36.
Article 31
Additional Assessment
1 - In case of omission of goods or values subject to taxation or where there are founded indications that acts or contracts were carried out or entered into with the objective of diminishing the tax debt or obtaining other undue benefits, the correction powers attributed to the tax administration by this Code or by other tax laws apply.
2 - When it is found that in the assessments an error of fact or law was committed, which resulted in loss to the State, as well as in cases where an assessment is to be carried out, the head of the tax office where the assessment was made or the return was delivered for the purposes of article 19(3), promotes the corresponding additional assessment.
(...)
4 - The additional assessment must be notified to the taxpayer, pursuant to the terms provided in the Tax Procedure and Process Code, in order to effect payment and, if applicable, to be able to use the means of defense provided therein.
Article 36
Payment Deadlines
1 - The IMT must be paid on the day of the assessment or on the first business day following, on pain of the assessment becoming void, without prejudice to the provisions of the following sections.
(...)
Article 41
Guarantees
1 - Without prejudice to the provisions of the following articles, taxpayers may resort to the means of guarantee provided in the General Tax Law and in the Tax Procedure and Process Code.
2 - For the purposes of this article and the following, the tax office that carried out the assessment shall be competent.
Article 42
Official Review of Assessment
The official review of assessment shall be subject to the provisions of article 78 of the General Tax Law.
Article 43
Legitimacy to Object or Challenge
1 - Taxpayers and persons jointly or subsidiarily responsible for payment of the tax may object to the respective assessment or challenge it, on the grounds and in the terms established in the Tax Procedure and Process Code.
2 - When a document or judgment that is subsequent is invoked as proof of one of the alleged grounds, the time periods shall be counted from the date on which it becomes possible to obtain the document or from the date the judgment becomes final.
No reference is found in these or other provisions of the CIMT to "provisional assessment" and "definitive assessment", applicable to the situation at hand, rather providing, as in relation to the generality of taxes, for the existence of an initial assessment and the possibility of an additional assessment being carried out. Article 27 of the CIMT, invoked by the Claimant, refers to assessments relating to omitted properties, for which there has been no prior assessment for tax purposes, which is not the case here, in which the property was assessed.
Based on the CIMT, in particular the provisions indicated, the initial assessment, made at a moment prior to the act or fact transferring the property, in relation to a non-omitted property, which was assessed for tax purposes and whose value is contained in the real estate tax register, is an assessment for all purposes, which can be challenged by administrative means, through gracious objection or request for review or hierarchical appeal, or by contentious means, pursuant to the provisions of the General Tax Law and the CPPT, as results from the express content of the transcribed articles 41(1) and 43(1) of the CIMT, which merely make referrals to the general regime for challenging tax assessments.
On the other hand, the initial assessment, like assessments relating to the majority of taxes, may or may not be followed by an additional assessment.
In fact, also in the case of the CIMT, it is not necessary that the first assessment, made at the moment mentioned in article 22, be followed by an additional assessment, because, even in cases where a new assessment of a property already assessed for tax purposes is mandatory, there will only be an additional assessment if the result of the assessment justifies a tax liability different from that determined in the initial assessment.
Therefore, it must be concluded that the thesis of the Claimant on which the knowledge of the main claim depends does not have legal support.
In fact, the assessment that precedes the act or fact transferring the property, provided for in article 22(1) of the CIMT, is not a provisional assessment, whose perfection is dependent on a subsequent additional assessment, to be carried out pursuant to article 31 of the same Code, rather being an assessment substantially identical to any other autonomous assessment act, to which the general regime for challenging tax assessments applies, as results from articles 41 and 43(1) of the same statute.
Thus, the assumption on which the Claimant made the knowledge of the main claim dependent not being verified, knowledge of it is prejudiced, and the alternative claim must be considered.
b) Consideration of the Alternative Claim
The question that is the object of the alternative claim is that of the legality or illegality of the additional assessment in the amount of €177,900.20.
At issue, as the Claimant summarizes in article 127 of the request for arbitral pronouncement, is "whether, at the time of the facts described above (November 2009), article 3 of Decree-Law no. 311/82 allowed the exemption of the sale and purchase of real property carried out by the lessee in the context of a financial leasing contract, even when the initial term established in that contract was subject to early termination by the parties."
The Tax and Customs Authority accepts that such exemption is possible after the amendment that Law no. 55-A/2010, of 31 December, made to the said article 3 of Decree-Law no. 311/82, of 4 August, but that the exemption did not apply based on the initial wording.
That article 3, in its initial wording, established the following:
Article 3
Transfer of Leased Real Property in Favor of the Lessee
The transfer by sale and purchase in favor of the lessee, at the end of the term of the financial leasing contract and carried out in the conditions established therein, of the ownership or the right of superficies constituted on the leased real property is exempt from sisa.
The wording introduced by Law no. 55-A/2010, of 31 December, is as follows:
Article 3
Transfer of Leased Real Property in Favor of the Lessee
The transfer by sale and purchase in favor of the lessee, in the exercise of the right of purchase option provided for in the legal regime of the financial leasing contract, of the ownership or the right of superficies constituted on the leased real property is exempt from municipal tax on onerous transfers of real property.
The thesis of the Tax and Customs Authority is based on the expression "at the end of the term of the financial leasing contract" which it interprets as referring to the final date of the period provided for in the leasing contract.
The Claimant argues that that expression refers to the moment at which the contract ceases to be in force, which may not coincide with the end date of the term provided in the contract, because when the parties to the contract agree to anticipate its termination, fixing a new term, this becomes the term of the contract.
It is manifest that both interpretations have correspondence in the legal text, because in that initial wording of that article 3, no reference is made to the initial term of the contract and, for that reason, is compatible with the possibility of an agreement by the parties to the contract to the effect of modifying the initially agreed term.
Moreover, the Supreme Administrative Court, in its judgment of 18-06-2014, delivered in case no. 0805/13, even understood that only the interpretation that the Claimant here defends "allows an application of the norm that meets the spirit with which the legislator enacted DL no. 311/82."
This is stated in this judgment, corroborating this statement:
In fact, it was always its intention, "...with a view to ensuring an adequate degree of fiscal neutrality, to exempt from sisa the transfer by sale and purchase in favor of the lessee, at the end of the term of the financial leasing contract and carried out in the conditions established therein, of the ownership or the right of superficies constituted on the leased real property and to establish a regulation that allows the exemption of the transfer tax of goods acquired by financial leasing companies, when leased to companies that, if they acquired them directly, could benefit from that exemption", cfr. preamble to that DL.
That is, the legislator explicitly intended that the sale and purchase in favor of the lessee be carried out in the conditions established therein (in the contract), at the end of the term of the financial leasing contract.
Providing expressly in the contract that the acquisition could be anticipated, in relation to the initially established time period, we must conclude, necessarily, that the same contract ends its term of force by virtue of that early purchase option, contractually established, that is, respecting the conditions established therein for the sale and purchase of the real property subject of the contract, thus respecting the fiscal neutrality legally enshrined." [1]
It is true that an unlimited possibility of anticipating the termination of the contract could open an obvious door to tax fraud, because, to benefit from the exemption, it would suffice, instead of entering into a pure sale and purchase contract, to enter into a financial leasing contract followed, in the short term, by the early termination thereof.
However, that hypothetical unlimited possibility of anticipating the termination of the contract, which could foster tax fraud, did not exist at the time Decree-Law no. 311/82 was issued, because based on the legal regime for leasing of real property then in force, contracts could not have a duration of less than 10 years (article 11(1) of Decree-Law no. 171/79, of 6 June).
Therefore, no reason can be seen for the legislator to want to exclude the application of the exemption when, instead of the initially provided term, another, earlier term was agreed, provided that the minimum legal time period was respected which, in the legislative perspective, was sufficient to justify the exemption.
Moreover, subsequent legislation demonstrated that the legislator had little concern with the existence of a long minimum time period for financial leasing contracts, as Decree-Law no. 149/95, of 24 June, shortened the minimum time period for financial leasing of real property to 7 years in its article 6(1), and Decree-Law no. 285/2001, of 3 November, ceased to impose a minimum duration. And, thus, from that last wording onward, it was not even necessary to establish a time period with a reasonable duration for the lessee that acquired the property to benefit from the exemption.
In this context, the thesis defended by the Tax and Customs Authority that the lessee only benefits from the exemption when the contract terminates on the initially fixed termination date ceases to have any reasonableness, at least in cases where the duration of the contract, even with early termination, is greater than the 10 years provided in the law as minimum duration at the time the exemption was established.
In fact, if, in light of the legislative circumstances in which the exemption was approved, it could be concluded that it was legislatively understood that it was justified that one who entered into a financial leasing contract for real property with a duration of the minimum legal period of 10 years would benefit from it, it could not be understood that the reasons justifying the exemption would cease to apply when a contract was entered into providing for a duration greater than this, for example, a maximum of 30 years, and early termination to 15 years was subsequently agreed.
In this context, to discriminate negatively, for the purpose of exemption, lessees who maintained the contract for a period greater than the minimum legal period would be a purely arbitrary legislative choice, incompatible with the constitutional principle of equality (article 13 of the CRP). The constitutional principle of equality, as a limit on legislative discretion, is not compatible with norms that create arbitrary and unreasonable discriminations, because they are devoid of objective and rational justification.
Therefore, in an interpretation in conformity with the Constitution, it must be concluded that the said article 3 of Decree-Law no. 311/82, of 4 August, in its initial wording, at the very least, did not exclude the benefit of the exemption provided therein in cases where the duration of the financial leasing contract extended for more than 10 years, which in the initial legislative perspective were sufficient to justify the right to the exemption.
In the case at hand, the duration initially provided for the contract was 12 years and the term was anticipated by 13 months, so the contract lasted 10 years and 11 months.
That is, in the case at hand, we can be certain that the interpretation of the norm with the scope of recognizing the exemption is the only one with constitutional support.
Therefore, it must be concluded that the Claimant is entitled to the exemption.
- Reimbursement of Tax Paid and Compensatory Interest
The Claimant requests reimbursement of the amounts paid plus interest.
Based on what was stated, the request for arbitral pronouncement is judged to succeed only as to the declaration of illegality of the additional assessment which is the object of the alternative claim.
The corresponding amount was paid on 19-12-2013 (document no. 6 attached to the request for arbitral pronouncement).
In accordance with the provision of article 24(b) of the RJAT, an arbitral decision on the merits of a claim that is not subject to appeal or challenge binds the tax administration from the end of the time period provided for appeal or challenge, and the administration must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the time period provided for the voluntary execution of decisions of tax court judgments, "restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for this purpose," which is in line with the provision of article 100 of the General Tax Law [applicable by force of article 29(1)(a) of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial success of objection, judicial challenge or appeal in favor of the taxpayer, to immediate and full restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the time period for execution of the decision."
Although article 2(1)(a) and (b) of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral courts operating at CAAD, not making reference to declaratory decisions, it should be understood that it includes competences that in judicial challenge proceedings are attributed to tax courts, this being the interpretation that accords with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it proclaims, as the first directive, that "the tax arbitration process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters."
The judicial challenge process, despite being essentially a process for annulment of tax acts, admits a condemnation of the Tax Administration to the payment of compensatory interest, as can be inferred from article 43(1) of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in gracious objection or judicial challenge, that there was an error attributable to the services that resulted in payment of the tax debt in an amount greater than the legally due amount" and from article 61(4) of the CPPT (as amended by Law no. 55-A/2010, of 31 December, which corresponds to section 2 in the initial wording), which states that "if the decision recognizing the right to compensatory interest is judicial, the payment period counts from the beginning of the voluntary execution period."
Thus, section 5 of article 24 of the RJAT, in stating that "payment of interest is due, regardless of its nature, pursuant to the terms provided in the general tax law and in the Tax Procedure and Process Code," should be understood as allowing recognition of the right to compensatory interest in the arbitration process.
In the case at hand, it is manifest that, as the additional assessment is illegal, there is entitlement to reimbursement of the tax paid, by force of the said articles 24(1)(b) of the RJAT and 100 of the General Tax Law, as this is essential to "restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out."
With regard to compensatory interest, it is also clear that the illegality of the additional assessment is attributable to the Tax and Customs Authority, which carried out the assessment on its own initiative.
There is a defect consisting of a violation of substantive law, embodied in an error in legal grounds, attributable to the Tax Administration.
Consequently, the Claimant is entitled to compensatory interest, pursuant to article 43(1) of the General Tax Law and article 61 of the CPPT, calculated from the date of payment (19-12-2013) until the date on which the reimbursement is made, at the legal supplementary rate, in accordance with the provision of articles 43(4) and 35(10) of the General Tax Law and article 559 of the Civil Code and Ordinance no. 291/2003, of 8 April (or other statutes that may subsequently amend the rate).
- Decision
In accordance with the above, this Arbitral Tribunal agrees that:
a) Judge the main claim unfounded and judge the alternative claim well-founded;
b) Declare the illegality of the additional assessment a copy of which is contained in document no. 1 attached to the request for arbitral pronouncement, in the amount of €177,900.20;
c) Dismiss the Tax and Customs Authority from the claim for a declaration of illegality of the IMT assessment referred to in the DUC …, in the amount of €117,834.20;
d) Condemn the Tax and Customs Authority to reimburse the Claimant in the amount of €177,900.20;
e) Condemn the Tax and Customs Authority to pay the Claimant compensatory interest in the terms referred to in section 4 of this judgment.
- Value of the Case
In accordance with the provision of article 306(2) of the Code of Civil Procedure and article 97-A(1)(a) of the CPPT and article 3(2) of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is set at €295,734.40.
- Costs
Pursuant to article 22(4) of the RJAT, the amount of costs is set at €5,202.00, pursuant to Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, to be borne by the Claimant and the Tax and Customs Authority in the percentages of 39.84% and 60.16%, respectively.
Lisbon, 27-10-2014
The Arbitrators
(Jorge Lopes de Sousa)
(Eduardo Paz Ferreira)
(Maria Manuela Roseiro)
[1] Essentially in the same sense, regarding the interpretation of the reference to the term of the financial leasing contracts, the judgment of the Supreme Administrative Court of 16-01-2013, delivered in case no. 0831/12, in which it was understood that "the term of a financial leasing contract for real property occurs both at the end of the contract and in situations where the parties, pursuant to the contract itself, terminate it by means of the option of early purchase of the said property, in accordance with the applicable law."
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