Process: 325/2014-T

Date: November 8, 2014

Tax Type: IMI

Source: Original CAAD Decision

Summary

This arbitral case (Process 325/2014-T) addresses whether properties located within a UNESCO World Heritage Site are automatically exempt from IMI (Municipal Property Tax) under Article 44(1)(n) of the Portuguese Tax Benefits Statute (EBF). Five co-owners of properties in a historic center listed as UNESCO World Heritage since 1996 challenged IMI assessment notices for tax years 2009-2012, seeking exemption and refund of €122.15 paid plus compensatory interest. The claimants argued that Article 44(1)(n) EBF exempts properties classified as national monuments, and that their properties qualify because the entire historic zone is classified as a national monument under Law 107/2001 by virtue of UNESCO inscription. They contended that heritage protection legislation views historic centers as ensembles, making individual property classification impossible and unnecessary. The claimants emphasized that if UNESCO classification triggers property restrictions (like first refusal rights), it should equally grant tax exemptions. The Tax and Customs Authority countered that Law 53-A/2006 (2007 State Budget) expressly requires individual classification of each property as being of public or municipal interest for IMI exemption eligibility. The Authority argued that collective classification of a historic zone does not automatically extend exemption to every property within it, and that individual classification under Decree-Law 309/2009 constitutes a separate autonomous administrative procedure necessary to establish a property's cultural value. The case highlights the interpretive conflict between collective heritage protection (viewing historic zones as indivisible ensembles) versus individual property classification requirements for tax benefits, with significant implications for historic center revitalization and property owner incentives.

Full Decision

Case 325/2014

Arbitral Decision

I - Report

  1. On 08-04-2014, the taxpayers A, NIF ..., married, holder of Citizen Card No. ..., valid until ..., resident in ..., ...; B, NIF ..., married, holder of Citizen Card No. ..., valid until …, resident in ..., ...; C, NIF ..., single, holder of Citizen Card No. ..., valid until ..., resident in ..., D, NIF ..., divorced, holder of Citizen Card No. ..., valid until ..., resident in ... and E, NIF ..., divorced, holder of Citizen Card No. ..., valid until ..., resident in ..., ..., submitted a request for the establishment of a singular arbitral tribunal, in accordance with the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as RJAT), with the object of the annulment of assessment notices Nos. 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ... and 2012 ..., the granting of the exemption from IMI (Municipal Property Tax), pursuant to the provisions of paragraph n) of Article 1 of Article 44 of the Tax Benefits Statute, and the reimbursement of the amount paid by claimant C, as stated in the assessment notice in the amount of 122.15 € (one hundred twenty-two euros and fifteen cents) plus the respective default interest, provided for in Articles 43 of the LGT (General Tax Law) and in Article 61 of the CPPT (Code of Administrative Procedure and Courts).

  2. In accordance with the provisions of paragraph a) of Article 2(2) and paragraph b) of Article 1(1) of Decree-Law No. 10/2011, of 20 January, in the version introduced by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrator of the singular arbitral tribunal the present signatory, who communicated acceptance of the appointment within the applicable deadline. The parties were notified of this appointment and did not manifest any will to refuse the arbitrator, considering the Arbitral Tribunal thus constituted on 10 April 2013, in accordance with paragraph c) of Article 1(1) of Article 11 of the RJAT.

  3. The tribunal is properly constituted to examine and decide on the subject matter of the present case.

  4. The allegations that support the claimant's petition for an arbitral pronouncement are, in summary, as follows:

4.1. The claimants are co-owners of the real property located in ..., Nos. … to … and …, parish of …, municipality of ....

4.2. The aforementioned real property in the historic center of ... forms part of the UNESCO World Heritage List.

4.3. In accordance with the provisions of paragraph n) of Article 1 of Article 44 of the Tax Benefits Statute, the following are exempt from IMI: "real property classified as national monuments and real property individually classified as of public interest or municipal interest, in accordance with applicable legislation".

4.4. Among the applicable legislation to which this provision refers is, in particular, the Framework Law for the Protection and Enhancement of Cultural Heritage (Law No. 107/2001, of 8 September).

4.5. Pursuant to Article 15(1) of the aforementioned Law No. 107/2001, immovable property may belong to the categories of monument, ensemble, or site, in the manner in which such categories are defined in International Law, in particular in Article 1 of the UNESCO Convention for the Protection of the World's Cultural and Natural Heritage, concluded in Paris, on 16 November 1972 and in Article 1 of the Convention for the Safeguarding of the Architectural Heritage of Europe, signed in Granada, on 3 October 1985.

4.6. Furthermore, in accordance with the provisions of Article 15(2) of the aforementioned Law, immovable property may be classified as of national interest, public interest, or municipal interest and specifically in the above-mentioned categories of Monument, Ensemble, and Site.

4.7. Now, in the specific case of the real property in question, it is classified as a national monument in accordance with the provisions of Articles 15(3) and 15(7) of Law No. 107/2001, by being inscribed on the UNESCO World Heritage List in 1996, as "Historic Center …" (Special Protection Zone).

4.8. In the classification of this ensemble – as is the case with the Historic Zone of ... – it is relevant that the protected heritage is viewed as a whole, such that it is impossible to classify each individual real property, which should be considered as a whole, as an ensemble.

4.9. Furthermore, it is the legislation itself, in particular the Tax Benefits Statute, that states that real property classified as national monuments are ipso facto exempt from this tax.

4.10. On the other hand, it is important to emphasize that the classification of this heritage entails for the real property inserted in these historic centers a set of regulatory restrictions that are intended to preserve their particular characteristics, as a safeguard of the heritage interest that is recognized in them.

4.11. Tax exemptions (in particular regarding IMI) constitute a form of direct incentive to promote the attraction and retention of new inhabitants in areas that are subject to depopulation, as is the case with the Historic Center of ....

4.12. Now, if the insertion of the real property in question in the Historic Zone of ... is sufficient for purposes of right of first refusal, among other limitations on the property right of these assets, even if not individually classified, it should also be so for tax purposes, in particular regarding IMI.

4.13. In this respect, the Historic Zone of ... should be viewed as an ensemble.

4.14. Having the law aimed at the protection of all real property inserted therein as a whole, it makes no sense to require the individual classification of real property integrated in the aforementioned Historic Zone.

4.15. The claimants therefore consider the position of the Tax Administration to be illegal in requiring this individual classification for purposes of granting the benefit of IMI exemption, consequently requesting the annulment of the disputed assessments and the restitution of the payment made, plus default interest.

  1. For its part, the Respondent Tax and Customs Authority presented a response, in which it defended itself on the following grounds:

5.1 The current version of this provision was introduced by Law No. 53-A/2006, of 29.12, which approved the State Budget for 2007, and was intended to expressly establish in the text of the law the requirement of a new condition for purposes of IMI exemption - the individual classification as real property of public interest or municipal interest.

5.2. Consequently, that Law proceeded to modify Article 112 of the Code of Municipal Property Tax, with its Article 12 now providing for the possibility for municipalities, through a resolution of the municipal assembly, to fix a reduction of up to 50% of the rate applicable in the year to which the tax relates to be applied to real property classified as of public interest, of municipal value or cultural heritage, in accordance with applicable legislation, provided that these real properties are not covered by paragraph n) of Article 1 of Article 40 (current 44) of the EBF (see Article 77 of Law No. 53-A/2006, of 29.12).

5.3 The individual classification of real property, regulated by Decree-Law No. 309/2009, of 30.10, corresponds to the final act of the administrative procedure by which it is determined that a certain asset possesses an invaluable cultural value. (See Article 18 of Law No. 107/2001)

5.4 And it constitutes an autonomous procedure provided for and regulated by law that occurs of its own accord.

5.5 And such is the case that Article 56 of Decree-Law No. 309/2009, of 23.10 states the following: "Within the area covered by the delimitation of an ensemble or a site, individually classified real properties may coexist".

5.6 It thus follows as evident that the individual classification of real property to which paragraph n) of Article 44 of the EBF refers corresponds to a final act of a procedure provided for and regulated in the legislation on cultural heritage.

5.7 Now, in the case at hand, what is classified is the "Historic Center of ... " and not the real property that is the property of the Claimants.

5.8 The individual classification of real property does not result by inherence from membership in a particular ensemble but rather from the presence of another set of factors of different nature.

5.9 It being certain that the Tax Benefits Statute only grants IMI exemption to real property and not to ensembles.

5.10 If the thesis of the Claimants were to prevail, to the effect that the classification of the ensemble dispenses with and replaces the individual classification, what by mere hypothesis is conceded, one would not understand what the useful meaning of the alteration to the tax benefits regime introduced by Law No. 53-A/2006, of 29/12 would be.

5.11 There is no provision within the scope of tax legislation or even within the scope of legislation on cultural heritage that extends individual classification to the classification of an ensemble.

5.12 Wherefore, in the absence of documentary proof and in the absence of an express provision and given the legislative alteration that has since occurred and cannot be ignored, an extensive interpretation of the law appears to be abusive in the sense of broadening the personal and material scope of the tax benefit provided for in paragraph n) of Article 44 of the EBF contrary to the understanding already conveyed by the cited doctrine.

5.13 From 1 January 2007, the law came to expressly establish as a condition for the attribution of the tax benefit of IMI exemption the individual classification of real property, determining the cessation of IMI exemption.

5.14. This cessation thus resulted from a legal imperative, with the Tax Administration merely limiting itself to complying with and executing the normative command previously approved.

5.15. The classification of the ensemble does not imply the individual classification of the real property that comprises it, just as it is not only the understanding of the Ministry of Culture services but also constitutes the consolidated position of the doctrine and corresponds to the correct interpretation of the text of the law, and it was concluded that the legally provided requirements for IMI exemption are not met.

5.16. Even if it is a benefit of automatic attribution, its attribution always and necessarily depends on the verification of compliance with the legal conditions, which requires information in this regard from the competent services of the Ministry of Culture that the real property meets the requirements provided for in the law, which did not occur in the case at hand.

5.17. Wherefore, as long as the wording of paragraph n) of Article 44 of the EBF is not altered, the claim of the Claimants cannot proceed due to lack of legal framework.

  1. On 4/09/2014, an arbitral order was issued, pursuant to paragraph c) of Article 16 of the RJAT, dispensing with the meeting provided for in Article 18 of the same instrument, given that the subject matter of the dispute relates fundamentally to a matter of law, no exceptions were raised, and the relevant documents are on file, nor was the presentation of legal arguments considered necessary.

II - Established Facts

  1. The claimants were notified of the following assessment notices:

a) A:

  • No. 2009 ..., in the amount of 259.43 €, relating to the year 2009;

  • No. 2010 ..., in the amount of 279.22 €, relating to the year 2010;

  • No. 2011 ..., in the amount of 279.22 €, relating to the year 2011;

  • No. 2012 ..., in the amount of 135.75 €, relating to the year 2012.

b) B:

  • No. 2009 ..., in the amount of 259.43 €, relating to the year 2009;

  • No. 2010 ..., in the amount of 279.22 €, relating to the year 2010;

  • No. 2011 …, in the amount of 279.22 €, relating to the year 2011;

  • No. 2012 ..., in the amount of 135.75 €, relating to the year 2012.

c) C:

  • No. 2009 ..., in the amount of 259.43 €, relating to the year 2009;

  • No. 2010 ..., in the amount of 279.22 €, relating to the year 2010;

  • No. 2011 ..., in the amount of 279.22 €, relating to the year 2011;

  • No. 2012 ..., in the amount of 135.75 €, relating to the year 2012.

d) D:

  • No. 2009 ..., in the amount of 259.43 €, relating to the year 2009;

  • No. 2010 ..., in the amount of 279.22 €, relating to the year 2010;

  • No. 2011 ..., in the amount of 279.22 €, relating to the year 2011;

  • No. 2012 ..., in the amount of 135.75 €, relating to the year 2012.

e) E:

  • No. 2009 ..., in the amount of 259.43 €, relating to the year 2009;

  • No. 2010…, in the amount of 279.22 €, relating to the year 2010;

  • No. 2011 ..., in the amount of 279.22 €, relating to the year 2011;

  • No. 2012 ..., in the amount of 135.75 €, relating to the year 2012.

  1. Claimant C was notified of the first installment for the year 2013 and paid on 31 March 2014, the amount of 122.15 € (one hundred twenty-two euros and fifteen cents).

There are no unproven facts with relevance to the decision of the case.

III - Legal Grounds

The following are the issues to be examined:

  • The illegality of the IMI assessments

  • Default interest

I - ON THE ILLEGALITY OF THE IMI ASSESSMENTS

  1. Pursuant to Article 44 of the Tax Benefits Statute, Article 1(n): "The following are exempt from Municipal Property Tax: (...) n) Real property classified as national monuments and real property individually classified as of public interest or municipal interest, in accordance with applicable legislation".

  2. We can verify that this article comprises two provisions. First, real property classified as national monuments are exempt from Municipal Property Tax. Second, real property individually classified as of public interest or municipal interest are exempt from the same tax.

  3. In accordance with Article 15 of Law 107/2001, of 8 September:

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

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

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

4 - Property is considered to be of national interest when its protection and enhancement, in whole or in part, represents a cultural value of significance to the Nation.

(...)"

  1. This formulation is reiterated in Article 2 of Decree-Law 309/2009, with its Article 3(1) stating that "an immovable property may be qualified as of national interest, of public interest, or of municipal interest", and adding in Article 3(3) that "the designation 'national monument' is attributed to immovable property classified as of national interest, whether they are monuments, ensembles, or sites".

  2. The real properties in question are part of the Historic Zone of ..., which was inscribed on the UNESCO World Heritage List, as declared by Notice No. 15173/2010, published in the Official Journal, Series II, of 30 July 2010, issued pursuant to Article 72(3) of Decree-Law 309/2009, of 23 October.

  3. Article 15(7) of Law 107/2001 expressly states that "immovable cultural property included on the world heritage list integrate, for all purposes and in their respective category, property qualified as of national interest".

  4. This is naturally the case of the Historic Zone of ..., having been amended its classification as real property of public interest, which originally appeared in Decree 67/97, of 31 December.

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

  6. Indeed, and as provided in Article 15 of Law 107/2001 and Article 3 of Decree-Law 309/2009, property classified as of national interest is designated as a "national monument", regardless of whether it is a single building, ensemble, or site, and it is clear that the immovable property that comprise the ensemble or site are covered by this classification.

  7. The fact that individually classified real properties may coexist, in case of delimitation of an ensemble or site, pursuant to Article 56 of Decree-Law 309/2009, has only provisional relevance to delimit the protection zone of that real property until the publication of the classification of the ensemble or site (see Article 56(2)).

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

  9. It is a fact that there are authors such as José Casalta Nabais and Nuno Sá Gomes, who have advocated a restrictive interpretation of the exemptions for property classified with the intention of excluding from the benefits attributed regarding IMI or IMT all situations in which there has not been a procedure or act of individual classification as a national monument, real property of public or municipal interest[1].

  10. The intent to follow the position expressed by these illustrious authors determined the amendment to Article 6(g) of the IMT Code by Law 55-A/2010, of 31 December, leading to the exemption ceasing to cover "acquisitions of real property classified as of national interest, public interest, or municipal interest, pursuant to Law No. 107/2001, of 8 September" to now contemplating only "acquisitions of real property individually classified as of national, public or municipal interest, in accordance with applicable legislation".

  11. It happens, however, that the legislator did not simultaneously alter the tax benefits regarding IMI in the same manner, despite having proceeded with the modification of the wording of Article 44 itself of the EBF, with its paragraph n) continuing to require individual classification for the granting of the exemption only in the case of real property of public or municipal interest, but not making the same requirement for national monuments.

  12. Quite the contrary, the provision of Article 44(5), in the version given to it by Law 3-B/2010, of 28 April, expressly provides that "the exemption referred to in paragraph n) of Article 1 is of an automatic character, operating through notification of the classification as national monuments or the individual classification as real property of public or municipal interest (…)". It results, therefore, in very clear terms that the legislator's intention was to dispense with individual classification for purposes of IMI exemption for national monuments, requiring it only in relation to real property of public or municipal interest.

  13. Now, with the real properties in question integrated in the Historic Zone of ..., legally qualified as a national monument, it is manifest that they benefit from the aforementioned exemption, and the IMI assessments disputed are therefore illegal, and the tax that was paid should be reimbursed.

  14. The assessments Nos. 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010..., 2011 ... and 2012 ... are accordingly considered illegal, with their annulment in full being ordered.

ON DEFAULT INTEREST

  1. The Claimants also requested payment of default interest in relation to the payment made by one of them, pursuant to Article 43 of the LGT and Article 61 of the CPPT.

  2. It follows from Article 1 of that article that "when it is determined, in a gracious complaint or judicial impugnation, that there was an error attributable to the services from which results the payment of the tax debt in an amount exceeding that legally due".

  3. We can further understand that, as follows from Article 24(5) of the RJAT, the right to default interest may be recognized in an arbitral proceeding.

  4. It will, however, be necessary to determine whether or not there was an error attributable to the services.

  5. The information relating to the inscription of the "Historic Center of ..." was published in the Official Journal on 30 July 2010, with the Tax Administration having knowledge of this information.

  6. The law is clear regarding the determination of IMI exemption for monuments, ensembles, or sites classified as "national monuments".

  7. We are thus, in this case, faced with an error attributable to the services, as provided in Article 43 of the LGT.

  8. Taking into account what is established in Article 61 of the CPPT and having verified the existence of an error attributable to the services of the Tax Administration, from which resulted the payment of the tax debt in an amount exceeding that legally due (see Article 43(1) of the LGT), we can understand that the Claimant has the right to default interest at the legal rate, calculated on the amount of 122.15 euros, which shall be counted from 31-03-2014, until full reimbursement of that same amount.

IV - Decision:

In these terms, this Singular Arbitral Tribunal:

a) Finds in favor of the request for annulment of assessments Nos. 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010 ..., 2011 ..., 2012 ..., 2009 ..., 2010..., 2011 ... and 2012 ...,

b) Determines the reimbursement of the amount paid by claimant C, in the amount of 122.15 € (one hundred twenty-two euros and fifteen cents), plus the respective default interest, counted from 31-03-2014, until full reimbursement of that same amount.

Value of the case: The process is assigned the value of € 4,890.25 (value indicated and not contested), and in accordance with Article 22(4) of the RJAT, the value of the corresponding arbitration fee in € 612, in accordance with Table I of the Regulations on Costs of Tax Arbitration Proceedings.

Costs to be borne by the respondent entity.

Lisbon, 8 October 2014

The Arbitrator

(Luís Menezes Leitão)

[1] See in this regard, JOSÉ CASALTA NABAIS, "Considerations on the Legal Framework of Cultural Heritage", in JORGE MIRANDA (ed.), Studies in Tribute to Professor Doctor Marcello Caetano on the Centenary of His Birth, I, Lisbon, Faculty of Law of Lisbon, Coimbra Editora, 2006, pp. 727-745 (735-736) and NUNO SÁ GOMES, "Tax Incentives in the Taxation of Cultural Heritage", in FDUP Journal, Year 3 (2006), pp. 589-611 (600 et seq.).

Frequently Asked Questions

Automatically Created

What is the IMI tax exemption under Article 44(1)(n) of the Portuguese Tax Benefits Statute (EBF)?
Article 44(1)(n) of the Portuguese Tax Benefits Statute (EBF) provides IMI exemption for properties classified as national monuments and properties individually classified as being of public interest or municipal interest, in accordance with applicable cultural heritage legislation. This exemption was modified by Law 53-A/2006 to expressly require individual classification for properties of public or municipal interest. The provision aims to incentivize preservation of culturally significant properties by eliminating the annual municipal property tax burden on owners who maintain these heritage assets.
Are properties located in UNESCO World Heritage Sites eligible for IMI exemption in Portugal?
Properties located in UNESCO World Heritage Sites are not automatically eligible for IMI exemption in Portugal merely by virtue of their location within the classified zone. While the entire historic area may be recognized as a UNESCO World Heritage Site and classified as a national monument ensemble under Law 107/2001, the Tax Authority's position requires individual classification of each specific property. However, taxpayers can challenge this interpretation through tax arbitration (CAAD), arguing that inclusion in a UNESCO-listed ensemble constitutes classification as a national monument. The outcome depends on whether tribunals interpret 'national monument' to include individual properties within classified ensembles or require separate administrative acts classifying each property individually.
How can co-owners of historic properties request IMI tax exemption through tax arbitration (CAAD)?
Co-owners of historic properties can request IMI exemption through tax arbitration by filing a petition with CAAD (Centro de Arbitragem Administrativa) under Articles 2 and 10 of Decree-Law 10/2011 (RJAT). The petition must identify all co-owners with their tax numbers and identification details, specify the challenged IMI assessment notices by number and year, state the legal basis for exemption (typically Article 44(1)(n) EBF combined with heritage classification laws), and request annulment of the assessments. If any amounts were paid, claimants should request refund plus compensatory interest under Articles 43 LGT and 61 CPPT. The arbitral tribunal is constituted within days, and the process provides a faster alternative to judicial courts for resolving tax disputes over heritage property exemptions.
What is the procedure for claiming a refund of IMI paid on exempt heritage properties in Portugal?
To claim a refund of IMI paid on properties that qualify for heritage exemption, taxpayers must first challenge the assessment notices through administrative complaint, hierarchical appeal, or tax arbitration. The refund request should be included in the initial petition, specifying the exact amounts paid (identifying each assessment notice and payment), and requesting restitution with compensatory interest (juros indemnizatórios) as provided in Article 43 of the General Tax Law (LGT) and Article 61 of the Tax Procedure Code (CPPT). If the exemption claim succeeds, the Tax Authority must refund all amounts unduly paid. Taxpayers should maintain proof of payment and act within the statutory limitation periods for challenging tax assessments to preserve their refund rights.
Can taxpayers claim compensatory interest (juros indemnizatórios) when granted retroactive IMI exemption?
Yes, taxpayers can claim compensatory interest (juros indemnizatórios) when granted retroactive IMI exemption on heritage properties. Article 43 of the General Tax Law (LGT) establishes the right to compensatory interest when taxpayers recover amounts paid beyond what was legally due, provided the delay in restitution is not attributable to the taxpayer. Article 61 of the Tax Procedure Code (CPPT) regulates the calculation and payment of such interest. When a tribunal or administrative decision recognizes that a property was entitled to IMI exemption for prior years, any amounts paid during those years must be refunded with compensatory interest calculated from the payment date until restitution. This compensates taxpayers for the financial cost of the Tax Authority's improper retention of funds that should have been exempt from taxation.