CAAD Case 346/2019-T: ISV Environmental Component Reduction for Used Vehicle Admission Ruled Illegal

ARBITRAL TAX JURISPRUDENCE

Case No. 346/2019-T

Decision Date: 2 November 2019

ISV (Vehicle Tax)

Claim Amount: €2,930.85

Subject Matter: ISV – Admission of used vehicles – Incidence on the environmental component

ARBITRAL DECISION

I. Report

1. A..., holder of tax identification number ..., resident at Rua ..., ...º, ...-... ..., ..., hereby, pursuant to the provisions of articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, subparagraph a), of the Legal Regime for Tax Arbitration (RJAT) approved by Decree-Law No. 10/2011, of 20/01, submits a request for constitution of an Arbitral Tribunal, in which the Tax and Customs Authority (AT) appears as Respondent.

2. The request for arbitral pronouncement, presented on 17-05-2019, seeks the declaration of illegality and partial annulment of the act of assessment of Vehicle Tax (ISV) No. 2019/..., of the Customs Office of ..., of 15-04-2019, in the total amount of €21,004.94, of which €9,514.22 corresponds to the cylinder capacity component and €14,654.29 to the environmental component.

3. The Claimant also requests reimbursement of the tax unlawfully collected, in the amount of €2,930.85, plus corresponding compensatory interest calculated in accordance with legal terms, and further requests that, should any doubts remain regarding the interpretation and application of article 110 of the TFEU, a preliminary reference of this question to the Court of Justice of the European Union be made.

4. As the basis for the claim formulated, the Claimant argues, in summary, that the disputed assessment, effected under the provisions of articles 7 and 11 of the Vehicle Tax Code (CISV), is vitiated by illegality as, in accordance with the provision of the aforementioned article 11, no percentage reduction of tax was considered relative to the age of the vehicle and the environmental component, in violation of the provision of article 110 of the Treaty on the Functioning of the European Union (TFEU).

5. In response to what has been requested, the Tax and Customs Authority (AT) submitted the administrative file, taking the position that the present request for arbitral pronouncement should be dismissed, arguing, in essence, that the disputed act was effected in accordance with national and community law, and therefore does not suffer from any defect and should consequently remain in the legal order as the disputed assessment stands.

6. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (AT).

7. The Claimant did not proceed with the appointment of an arbitrator.

8. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20/01, as amended by article 228 of Law No. 66-B/2012, of 31/12, the Deontological Council appointed as arbitrator of the singular arbitral tribunal the undersigned, who communicated acceptance of the charge within the applicable period and duly notified the parties.

9. Duly notified of this appointment, the parties did not express any intention to challenge the appointment of the arbitrator, in accordance with article 11, paragraph 1, subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

10. Accordingly, in compliance with the provision of subparagraph c) of paragraph 1 of article 11 of RJAT, as amended by article 228 of Law No. 66-B/2012, of 31/12, the arbitral tribunal was constituted on 31-07-2019.

11. Given the knowledge derived from the procedural documents submitted by the Parties, which is deemed sufficient for decision-making, the Tribunal decided to dispense with the meeting referred to in article 18 of RJAT.

12. Thus, by order of 04-10-2019, duly notified, it was decided, absent opposition from the Parties, to dispense with the aforementioned meeting, and a period of 10 days was granted for submission of written submissions.

13. Within the fixed period, the Parties submitted written submissions, reaffirming the positions already previously expressed in the Claimant's petition and the Respondent's corresponding response.

II. Case Management

1. The Arbitral Tribunal is duly constituted and is materially competent, pursuant to subparagraph a) of paragraph 1 of article 2 of Decree-Law No. 10/2011, of 20/01.

2. The Parties possess judicial personality and capacity, are legitimate, and are duly represented (see article 4 and paragraph 2 of article 10 of Decree-Law No. 10/2011 and article 1 of Ordinance No. 112/2011, of 22/03).

III. Factual Matter

1. Based on the documentary elements forming part of this file, the following factual elements are highlighted which, not being contested by the Parties, are deemed entirely proven:

16.1. On 17 April 2019 a Vehicle Customs Declaration (DAV) No. 2019/... was presented at the Customs Office of ..., by electronic data transmission, for placing into consumption a used light passenger motor vehicle, brand ..., model ..., diesel-powered, motor number ..., cylinder capacity ..., with permanent registration number ....

16.2. The said DAV further states that the vehicle in question, used, originating from Germany, with 27,804 km travelled, was assigned its first registration on 16 January 2018.

16.3. With regard to the characteristics of the vehicle, the said DAV shows a value of 0.0013 g/km relative to particle emissions and a value of 185 g/km relative to gas emissions.

16.4. On 15 April 2019, the Claimant requested calculation of ISV by the alternative method provided for in article 11, paragraph 3, of CISV, indicating for this purpose a commercial value of €74,550.00, in accordance with specialist publications, and a retail sale value of €111,687.00, relating to the year of first registration of the vehicle.

16.5. Based on the elements contained in the DAV, ISV was calculated on the basis of the provisions of articles 7 and 11 of the respective Code, resulting in the amount of €21,004.94, calculated as follows:

[calculation table in original]

16.6. On 17 April 2019, the Claimant paid the assessed tax.

1. The proven facts are based on the documents attached to the file; there are no facts of relevance to the decision that should be considered as unproven.

III. Legal Matter

1. The present request for arbitral pronouncement is grounded in the illegality of the provision of article 11 of the Vehicle Tax Code, relevant in the present disputed assessment, due to violation of the provision of article 110 of the Treaty on the Functioning of the European Union (TFEU).

2. Thus, the Claimant alleges that the said provision, applicable to vehicles bearing community registration plates assigned by other Member States, with a view to contemplating in the calculation of the tax due the average commercial depreciation of vehicles used in the national market provides for a percentage reduction by number of years of use of the vehicle, but only in the cylinder capacity component, leaving aside the environmental component.

3. According to the Claimant, the provision applied in the assessment that it contests has the effect that tax is levied on vehicles "imported" from other Member States of the European Union, calculated on the basis of a value superior to the actual value of the vehicle, burdening them with taxation superior to that applied to similar used vehicles available in the national market.

4. With the reasoning summarized above, the Claimant concludes that the present challenge "should be judged to be well-founded and successful, ordering the rectification of the ISV assessment, so as to apply the reduction provided for in article 11 of CISV to the environmental component", determining the condemnation of AT to reimbursement of the amount of €2,930.85 collected in excess, plus compensatory interest at the legal rate.

5. However, the Claimant considers that, "(...) should doubts persist regarding the interpretation and application of the provision of article 110 of TFEU, this Arbitral Tribunal should proceed to preliminary reference of this question to the Court of Justice for interpretation thereof in light of the Treaty." It further adds that this question "(...) should be formulated in such a way that that Court clarify whether the provision of article 11 of CISV violates or does not violate the provision of the said article of the Treaty, since it negatively discriminates against used vehicles admitted in Portuguese territory."

6. In written submissions, the Claimant, essentially, reaffirms the position already expressed in the initial petition.

7. Responding to the request formulated, the Respondent argues that "(...) having the disputed act been effected in accordance with national and community law, it does not suffer from any defect, and therefore the disputed assessment, effected by the Customs Office of ..., should remain in the legal order."

8. After outlining a general framework of national legislation applicable in the area of objective and subjective scope, determination of the taxable base, applicable rates, taxable event and exigibility of the tax, the Respondent, regarding the compatibility of that provision of article 11 of CISV with community law, argues, in essence, that:

"65. The model of ISV taxation resulting from the approval of CISV by Law 22-A/2007, of 29 June, was guided by environmental concerns in respect of the guidance emanating from community bodies and the commitments assumed within the Kyoto Protocol and, later, the Paris Agreement.

"66. The Kyoto Protocol (international treaty ratified by the Portuguese State) established very stringent commitments for reducing the emission of gases that aggravate the greenhouse effect, considered, in accordance with the majority of scientific research, as the causes of global warming, with the environmental component therefore becoming determinant in the calculation of the tax that applies to new and used vehicles (with high emissions), in compliance with the polluter-pays principle, leading consumers to opt for automobiles with lower carbon dioxide emissions.

"67. The current model of automobile taxation thus aims to ensure consistency between the taxation of new and used vehicles, in that the acquisition of either is governed by the same principles of fiscal justice and respect for the environment.

"68. Now, as regards used automobiles, there is no doubt that, the older the motor vehicles become, the more polluting they become, and the greater the harmful consequences for the environment!

"69. In truth, much is currently said about environmental protection and defence and compliance with European provisions and agreements assumed by States in this field, at the international level, but when it comes to acting through concrete measures, in compliance with current legislation and agreements, what is advocated is the easier path, the same path that led to the current state of pollution of the planet."

1. Invoking the provisions of article 110 of the TFEU, prohibition of subjecting products from other Member States to internal impositions higher than those affecting national products, and article 191 of the same Treaty, relating to the preservation, protection and improvement of environmental quality, the Respondent argues that "(...) in view of what is established in paragraph 1 of article 11 of CISV, it is apparent that the legislator took into account that the environmental component represents the cost of environmental impact, in accordance with the provision of paragraph 3 of article 11 of CISV, also borne by new vehicles, and should be understood as an amount that taxpayers pay to the State, intended to compensate for the harmful effects that the automobile causes to the environment, and that amount is progressive according to carbon dioxide emissions."

2. Emphasizing this aspect, the Respondent submits that "given that the environmental component is intended to compensate for the harmful effects of any reduction due to commercial depreciation or the years of use of the automobile, in light of the fact that the polluting potential of the automobile does not decrease with age, on the contrary, it worsens, it should not be subject to any reduction as it represents the "cost of environmental impact", its objective being to guide consumer choice towards greater selectivity in automobile purchases, based on their degree of pollution." And therefore "the interpretation of the provision of article 110 of the TFEU cannot fail to take into account the environmental objectives referred to above, on pain of generating untenable inconsistencies between fiscal policy and environmental policy."

3. In conclusion, the Respondent argues that "The assertions made allow us to conclude that the model of taxation of used vehicles in force in Portugal does not offend the spirit of article 110 of the TFEU, contrary to what is advocated in the arbitral decision cited by the Claimant, which has not yet become final [i], since the payment of the environmental component in full is not aimed at restricting the entry of used vehicles into Portugal, but solely at selecting that entry, through the application of criteria exclusively environmental in nature. It is not, therefore, a matter of protecting national production, but rather of protecting the environment, a heritage of the world and on which the survival of the human species depends."

4. In written submissions, the Respondent declares that it maintains its position in the same terms and on the same grounds, without prejudice to the exercise of the right to be heard, should any new facts and/or documents be presented that warrant its pronouncement.

5. Having outlined, in its essential aspects, the positions of the Parties, it is first necessary to provide a brief examination of the relevant legislation.

6. First and foremost, article 110 of the Treaty on the Functioning of the European Union (TFEU) is invoked as the basis for the alleged illegality of the disputed assessment, insofar as the taxation in question would be more burdensome for vehicles placed into consumption in Portugal originating from other Member States of the European Union than that which falls on used vehicles traded in the national market.

7. Indeed, that provision – corresponding to the former article 90 of the TEC – establishes that "No Member State shall impose, directly or indirectly, upon the products of other Member States any internal charges, of any kind whatsoever, higher than those imposed, directly or indirectly, upon similar domestic products.

Furthermore, no Member State shall impose upon the products of other Member States any internal charges designed either directly or indirectly to protect other products."

1. The national legislation which, according to the Claimant, violates the community provision, are the provisions of articles 7 and 11 of CISV, in particular the latter, whose wording, at the date of the occurrence of the taxable event and as regards light passenger vehicles, diesel-powered, is as follows:

"Article 7

Standard Rates – Automobiles

1 - Table A, set out below, establishes the rates of tax, taking into account the cylinder capacity component and environmental component, and applies to the following vehicles:[ii]

a) Passenger automobiles;[ii]

b) (...)

TABLE A

Cylinder Capacity Component

...

Environmental Component

Diesel Vehicles

Article 11

Rates – Used Vehicles

1 - The tax levied on vehicles bearing permanent community registration plates assigned by other Member States of the European Union is subject to provisional assessment in accordance with the rules of this Code, with the exception of the cylinder capacity component to which the reduction percentages provided in table D are applied to the tax resulting from the respective table, which are associated with the average commercial depreciation of vehicles in the national market:[iv]

TABLE D

2 - For purposes of applying the preceding paragraph, "time of use" shall be understood as the period elapsed from the date of assignment of the first registration and respective documents by the competent entity until the expiry of the deadline for submission of the vehicle customs declaration.[v]

3 - Without prejudice to the provisional assessment effected, whenever the taxpayer believes that the amount of tax ascertained in accordance with paragraph 1 exceeds the tax calculated by applying the formula set out below, may request from the customs director, upon prior payment of a fee to be set by ordinance of the Government member responsible for the finance area, and until the expiry of the payment period referred to in paragraph 1 of article 27, that it be applied for taxation of the vehicle, with a view to definitive assessment of the tax:iv

ISV = ((V/VR) x Y) + C

where:

ISV represents the amount of tax to be paid;

V represents the commercial value of the vehicle, based on the average reference value determined as a function of the brand, model and respective standard equipment, age, mode of propulsion and average reference mileage, contained in specialized sector publications, presented by the interested party;

VR is the retail sale price of an identical vehicle in the year of first registration of the vehicle to be taxed, as declared by the interested party, being considered as such the vehicle of the same brand, model and propulsion system, or, in the event that this is not available in the information available, of a similar vehicle introduced into the national market in the same year in which the vehicle to be placed into consumption was first registered;

Y represents the amount of tax calculated on the basis of the cylinder capacity component, taking into account the table and the rate applicable to the vehicle, in force at the time of tax exigibility;

C is the "cost of environmental impact", applicable to vehicles subject to Table A, in force at the time of tax exigibility, and whose value corresponds to the environmental component of the said table.iv

4 - In the absence of a request for valuation formulated in accordance with the preceding paragraph, it is presumed that the taxpayer accepts as definitive the tax assessment made by application of the table in paragraph 1.v

1. In the present case, the ISV assessment on a vehicle originating from another Member State of the European Union was effected in compliance with the provision of article 11 of CISV, with a 20% reduction in the cylinder capacity component being considered. In the environmental component no reduction was considered as a function of the number of years of use of the vehicle, in accordance with the provision of that article.

2. What is therefore at issue is the determination of whether the said provision of article 11 of CISV, insofar as it does not consider any tax reduction as a function of the number of years of use of the vehicle in the environmental component, violates or does not violate community law, in particular the aforementioned article 110 of the TFEU and, consequently, whether the disputed assessment is or is not vitiated by illegality.

3. The question of conformity with community law of national provisions relating to the taxation of used vehicles "imported" from another Member State has been the subject of recurrent review by the Court of Justice of the European Union.

4. In the first instance, even under the revoked automobile tax, which preceded the current ISV, that Court had no hesitation in declaring that "The levy by a Member State of a tax on used vehicles originating from another Member State is contrary to article 95 of the EEC Treaty when the amount of tax, calculated without taking into account the real depreciation of the vehicle, exceeds the residual amount of tax incorporated in the value of similar used motor vehicles already registered in the national territory." (Judgment of 09-03-1995, case C-345/03, Nunes Tadeu).

5. On the same subject, and with reference to that same tax, the Court of Justice would pronounce itself again, to the effect that "The levy by a Member State of a tax on used vehicles originating from another Member State is contrary to article 95 of the EEC Treaty when the amount of tax, calculated without taking into account the real depreciation of the vehicle, exceeds the residual amount of tax incorporated in the value of similar used motor vehicles already registered in the national territory" (Judgment of 22-02-2001, case C-393/98, Gomes Valente).

6. It is therefore a consistent orientation of the Court of Justice regarding the incompatibility of national provisions that tax more heavily vehicles "imported" from other Member States, as emerges from both of the decisions cited and from taxation of similar contours in force in other countries of the European Union: "Article 95, first paragraph, of the Treaty only permits a Member State to apply to used vehicles imported from other Member States a system of taxation in which the depreciation of the effective value of those vehicles is calculated in a general and abstract manner, on the basis of fixed criteria or tables determined by a legislative, regulatory or administrative provision, if those criteria or tables are capable of ensuring that the amount of tax due does not exceed, even if only in certain cases, the residual amount of tax incorporated in the value of similar vehicles already registered in the national territory" (Judgment of 20-09-2007, case C-74/06, Commission of the European Communities v Hellenic Republic).

7. Addressing the consideration of the environmental component within the scope of automobile taxation in Hungarian law, the Court of Justice would consider that: "52. Within a regime relating to automobile tax, criteria such as engine type, cylinder capacity and a classification based on environmental considerations constitute objective criteria. Hence they can be used in such a regime. However, it is not required that the amount of tax be related to the price of the vehicle.

8. However, an automobile tax must not burden products originating from other Member States more heavily than similar domestic products.

9. Now, a new vehicle on which automobile tax has been paid in Hungary loses, as time passes, part of its market value. Thus, the amount of automobile tax incorporated in the residual value of the vehicle diminishes to the same extent. Being a used vehicle, it can only be sold for a percentage of the initial value, a percentage which includes the residual amount of automobile tax.

10. Now, it appears from the written submissions to the Court of Justice by the referring courts that a vehicle of the same model and of identical age, mileage and other characteristics, purchased second-hand in another Member State and registered in Hungary would, nonetheless, be subject to 100% of the automobile tax applicable to a vehicle in that category. Consequently, the said tax burdens used vehicles imported more heavily than similar used vehicles already registered in Hungary and subject to the same tax. 56. Thus, notwithstanding the environmental character of the objective and basis of the automobile tax and even though these have no relationship to the market value of the vehicle, article 90, first paragraph, EC requires that account be taken of the depreciation of used vehicles that are subject to taxation, given that this tax is characterized by being levied only once upon first registration of the vehicle for its use in the Member State in question and is thereby incorporated in that value." Based on these considerations, the Court would declare that "2 - Article 90, first paragraph, EC must be interpreted as precluding a tax such as that instituted by law relating to automobile tax, insofar as

– it is levied on used vehicles when they are first placed into circulation in the territory of a Member State and

– its amount, determined exclusively on the basis of the technical characteristics of the vehicles (engine type, cylinder capacity) and their environmental classification, is calculated without taking account of their depreciation, such that, when applied to used vehicles imported from other Member States, it exceeds the amount of that tax contained in the residual value of similar used vehicles that have already been registered in the Member State of importation." (Judgment of 05-10-2006, joined cases C-290/05 and C-33/05, Akos Nadasdi).

1. Addressing the national automobile taxation system and already the provision of article 11 of CISV, in the wording in force prior to the amendment introduced by Law No. 42/2016, of 28/12, the Court of Justice would make the following considerations:

"26 For the purposes of applying article 110 TFEU and, in particular, for the purposes of the comparison between the taxation regime for imported used vehicles and that for used vehicles purchased in the national market, which constitute similar or competing products, account must be taken not only of the rate of internal taxation that bears directly or indirectly on national and imported products but also of the taxable matter and the methods of the tax in question. More precisely, a Member State cannot levy a tax on imported used vehicles, calculated on the basis of a value higher than the real value of the vehicle, having the effect of a more burdensome taxation thereof compared to that of similar used vehicles available in the national market. The value of the imported used vehicle used by the Administration as the taxation basis must faithfully reflect the value of a similar vehicle already registered in the national territory (see judgment of 20 September 2007, Commission/Greece, C-74/06, EU:C:2007:534, no. 27 and 28 and case-law cited).

"27 In the present case, article 11, paragraph 1, of the Vehicle Tax Code provides, for the purposes of calculating the tax applicable to used vehicles imported from other Member States, taking into account a depreciation on the basis of a table of fixed percentages which establishes, in particular, at 20% the depreciation of a motor vehicle used for a period of one to two years and at 52% the depreciation of a motor vehicle used for more than five years.

"28 From this it follows that the Portuguese Republic applies to used motor vehicles imported from other Member States a system of taxation in which, on the one hand, the tax due for a vehicle used for less than one year is equal to the tax that applies to a similar new vehicle placed into circulation in Portugal and, on the other, the depreciation of motor vehicles used for more than five years is limited to 52%, for the purposes of calculating the amount of that tax, regardless of the actual general condition of those vehicles.

"29 Now, it is an established fact that the market value of a motor vehicle begins to diminish from the date of its purchase or placing into circulation and that this diminution continues beyond the fifth year of its use (see, in this sense, judgment of 19 September 2002, Tulliasiamies and Siilin, C-101/00, EU:C:2002:505, no. 78).

"30 Thus, the national regulation in question has the consequence that the amount of registration tax to be paid by used motor vehicles imported from other Member States into Portugal and used for less than one year or for more than five years is calculated without taking account of the actual depreciation of those vehicles.

"31 Consequently, the national regulation in question does not guarantee that, in the cases referred to in the preceding paragraph of this judgment, used vehicles imported from another Member State are subject to a tax in an amount equal to that of the tax that applies to similar used vehicles available in the national market, which is contrary to article 110 TFEU". In conclusion, the Court would declare that "1) The Portuguese Republic, by applying, for the purposes of determining the taxable value of used vehicles originating from another Member State, introduced in the territory of Portugal, a system relating to the calculation of vehicle depreciation that does not take into account their depreciation before they reach one year of age, nor depreciation exceeding 52% in the case of vehicles more than five years old, has failed to fulfill the obligations incumbent upon it under article 110 TFEU."(Judgment of 16-06-2016, case C-200/15, European Commission v Portuguese Republic).

1. With a view to accommodating the decision of the Court of Justice, the said article 11 was amended by Law No. 42/2016, of 28/12, such that the depreciation of the vehicle referred to therein is now considered but only as regards the cylinder capacity component, with any reduction now being entirely excluded as regards the environmental component.

2. It is therefore in this exclusion that the question that opposes the Claimant to AT is centered: while the latter considers that the current wording of the provision is in conformity with community law, invoking reasons that have to do with environmental protection and quality of life, the former considers that what is at issue is solely the negative discrimination of used vehicles admitted in the national territory, compared to those commercialized in Portugal, prohibited by article 110 of the TFEU.

3. Indeed, as the Court of Justice has repeatedly declared, automobile taxation may rest on objective criteria, such as engine type, cylinder capacity and, inclusively, a classification based on environmental considerations. However, when applied to used vehicles imported from other Member States, the amount of tax levied cannot exceed the amount contained in the residual value of similar used vehicles already registered in the Member State of importation. It is therefore a consistent orientation of the Court of Justice, as concerns the interpretation of article 110 when referring to automobile taxation: an automobile tax must not burden products originating from other Member States more heavily than similar domestic products.

4. It should be noted that the non-conformity of national law, in its current wording, with the community provision has already given rise to the initiation of infringement proceedings. Indeed, in accordance with a communication of 24-01-2019, the European Commission initiated legal action against the Portuguese State "because this Member State does not take into account the environmental component of the registration tax applicable to used vehicles imported from other Member States for purposes of depreciation. The Commission considers that Portuguese legislation is not compatible with article 110 of the TFEU, insofar as used vehicles imported from other Member States are subject to a tax burden superior in comparison to used vehicles purchased in the Portuguese market, since their depreciation is not fully taken into account. If Portugal does not act within two months, the Commission may send a reasoned opinion on this matter to the Portuguese authorities."

5. It is further observed that this matter has already been the subject of detailed analysis in an arbitral decision of 30-04-2019, delivered in case 572/2019-T, in which it was concluded that "(...) article 11 of the Vehicle Tax Code is in non-conformity with the provision of article 110 of the TFEU inasmuch as that article cannot, in accordance with what that article provides, calculate tax on used vehicles originating from another MS without taking into account the depreciation thereof, such that, in this case, the tax calculated exceeds the amount of ISV contained in the residual value of similar used vehicles that have already been registered in the MS of importation, that is, of national used vehicles."

6. Following, without reservation, the decision referred to above, this Tribunal considers that, in light of the reiterated and consistent position of the Court of Justice referred to above, there are no doubts as to the incompatibility with community law of the provision applied to the disputed assessment, concluding that a preliminary reference is unnecessary.

7. In these terms, it is judged that the provision of article 11 of the Vehicle Tax Code is incompatible with community law, insofar as it subjects used vehicles imported from other Member States to a tax burden superior to the residual tax contained in similar used vehicles traded in the national market.

8. Consequently, the assessment act in question, disregarding the reduction in the aspect relating to the environmental component of ISV, is vitiated by illegality and should be annulled. Restricting, however, the illegality only to that excess taxation, and centering upon it exclusively the subject matter of the present request for arbitral pronouncement, that act should be partially annulled.[vi]

Regarding the Right to Compensatory Interest

1. In addition to the partial annulment of the assessment act, and consequent reimbursement of the amount unlawfully collected, the Claimant further requests that the right to compensatory interest be recognized to it, under article 43 of the General Tax Code (LGT).

2. Indeed, in accordance with the provision of paragraph 1 of the said article, compensatory interest shall be due "when it is determined, in a voluntary reclamation or judicial challenge, that there was error attributable to the services which resulted in payment of the tax debt in an amount higher than that legally due." In addition to the means referred to in the provision transcribed, we understand that, as follows from paragraph 5 of article 24 of RJAT, the right to the aforementioned interest may be recognized in the arbitral process and thus the request is known.

3. The right to compensatory interest to which the provision of the General Tax Code referred to above alludes presupposes that tax has been paid in an amount higher than that due and that such results from error, of fact or law, attributable to the services of the AT.

4. In the present case, it is evident that, as a result of the illegality of the assessment act, for the reasons pointed out previously, the Respondent effected payment of an amount manifestly unjustly due.

5. Thus, judging the illegality of the provision on which the disputed assessment was based, the Claimant is recognized to have the right to the compensatory interest petitioned, calculated, at the legal rate, on the amount unlawfully collected, from the date of the respective payment until the moment of actual reimbursement (see General Tax Code, article 43, paragraph 1 and Code of Tax Procedure and Process, article 61).

V. Decision

In accordance with the terms and on the grounds set out, the Arbitral Tribunal decides to judge the request for arbitral pronouncement well-founded and, consequently, to determine the partial annulment of the disputed assessment act, in the part corresponding to the increase in taxation resulting from the disregard of the reduction in tax corresponding to the environmental component of ISV, in the amount of €2,930.85, with the consequent reimbursement of the amounts unlawfully collected, plus the corresponding compensatory interest calculated in accordance with legal terms.

Value of Case: The value of the case is set at €2,930.85, in accordance with article 97-A, paragraph 1, subparagraph a) of the Code of Tax Procedure and Process, applicable by referral from article 29, paragraph 1, subparagraphs a) and b), of RJAT and article 3, paragraph 2, of the Regulations of Costs in Tax Arbitration Proceedings.

Costs: Pursuant to article 22, paragraph 4, of RJAT, and in accordance with Table I attached to the Regulations of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00, to be borne by the Respondent.

Lisbon, 2 November 2019,

The Arbitrator,

Álvaro Caneira

[i] The arbitral decision referred to herein – CAAD, Case 572/2018-T – was the subject of an appeal to the Administrative Court of Appeal, which was not admitted due to legal inadmissibility of its subject matter (Administrative Court of Appeal, Judgment of 18-09-2019, case 050/19.3BALSB).

[ii] Wording as amended by Law 64-B/2011, of 30/12.

[iii] Wording as amended by Law 64-B/2011, of 30/12.

[iv] Wording as amended by Law 42/2016, of 28/12.

[v] Original wording of Law 22-A/2007, of 29/06.

[vi] In this sense, Administrative Court of Appeal, Judgments of 10-10-2012, case 0533/12, of 30-04-2013, case 01374/12 and of 18-11-2015, case 0699/15.