IMI Tax Exemption for Properties in UNESCO World Heritage Historic Centers – CAAD Case 362/2018-T

ARBITRAL DECISION (consult complete version in PDF)

The arbitrators Advisor Jorge Lopes de Sousa (arbitrator-president), Prof. Dr. Suzana Fernandes da Costa and Prof. Dr. Nuno Cunha Rodrigues (arbitrator-members), appointed by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 14-11-2018, agree as follows:

1. Report

A... - INSURANCE COMPANY, S.A. (hereinafter referred to as "Claimant"), holding tax identification number..., with registered office at ... no...., ...-... Lisbon, hereinafter abbreviated as "Claimant", came, under the terms of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), to request the constitution of an Arbitral Tribunal.

The Claimant requests the annulment of the tax assessment act for Municipal Property Tax ("IMI") no. 2017..., referring to the tax period of 2017, in the part corresponding to the amount of € 66,807.03.

The Claimant further requests reimbursement of the aforementioned amount, plus compensatory interest.

The respondent is the TAX AND CUSTOMS AUTHORITY.

The application for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 04-09-2018.

Pursuant to the provisions of paragraph (a) of no. 2 of article 6 and paragraph (b) of no. 1 of article 11 of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Arbitrators who were initially appointed by the Ethics Council communicated their acceptance of the assignment, within the applicable time limit.

On 24-10-2018 the parties were duly notified of this appointment, and did not manifest their will to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11 no. 1 paragraphs (a) and (b) of RJAT and articles 6 and 7 of the Code of Ethics.

Thus, in compliance with the provision in paragraph (c) of no. 1 of article 11 of RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 14-11-2018.

The Tax and Customs Administration filed a Response in which it argued that the application for arbitral decision should be judged without merit.

By order of 03-12-2018, the meeting provided for in article 18 of RJAT was dispensed with and it was decided that the proceedings would continue with written submissions.

The Parties filed submissions.

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, no. 1, paragraph (a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The Parties are duly represented, have legal personality and capacity, are legitimated and are represented (articles 4 and 10, no. 2, of the same decree and article 1 of Regulation no. 112-A/2011, of 22 March).

The proceedings do not suffer from any nullities.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven:

• The Claimant is owner of real estate properties integrated in Portuguese Historic Centres, included in the Indicative List of World Heritage of the United Nations Organization for Education, Science and Culture ("UNESCO");

• In the Claimant's real estate portfolio are included the following properties located in the Historic Centre of Porto, included in the UNESCO World Heritage Indicative List in 1996, indicated in Notice no. 15.173/2010 of the Ministry of Culture, Official Gazette, II Series, of 30-07-2010: (document no. 2 attached with the application for arbitral decision, the content of which is reproduced);

• In the Claimant's real estate portfolio are included the following properties located in the Historic Centre of Évora, included in the UNESCO world heritage list, as publicized in the Notice of the Directorate of Cultural Services, published in the Official Gazette, II Series, of 17-02-1988, page 552: (document no. 3 attached with the submissions, and documents 1, 3 and 6, attached with the Response of the Tax and Customs Authority, the content of which is reproduced);

• The Claimant was notified to pay IMI in the total amount of € 259,167.40, relating to the year 2017, in the context of which the AT included in the tax collection the aforementioned properties in the amount of € 66,807.03 (document no. 1 attached with the application for arbitral decision, the content of which is reproduced);

• On 27-04-2018, the Claimant paid the assessed amount (document no. 4 attached with the application for arbitral decision, the content of which is reproduced);

• On 06-06-2018, the Head of the Municipal Revenue Division of the Porto Municipal Council sent to the Municipal Finance and Heritage Department the letter, a copy of which is contained in document no. 2 attached with the application for arbitral decision, the content of which is reproduced, in which it refers, among other things, to the following:

Subject: Exemption from Municipal Property Tax (IMI) - article 44, no. 1, paragraph n) of the Tax Benefits Statute (EBF)

Regarding the application for recognition of IMI Exemption under article 44, no. 1, paragraph n) of the Tax Benefits Statute (EBF), it is hereby informed that the aforementioned article provides that the following are exempt from Municipal Property Tax (IMI): "Properties classified as national monuments and properties individually classified as of public or municipal interest, in accordance with applicable legislation", the recognition of this exemption being automatic in character.

Thus, it is hereby informed that it is the understanding of this Municipality that the group known as the Historic Centre of Porto, located in the civil parishes of ..., ..., of ... and of ..., in the councils of Porto and Vila Nova de Gaia, district of Porto, included in the UNESCO World Heritage Indicative List in 1996, as stated in Notice no. 15173/2010, of 30 July, encompasses all properties located in the Historic Centre of Porto, and being this group classified as a "national monument", all properties located in that area benefit from the IMI Exemption.

In this sense, and in compliance with the order of the President of the Porto Municipal Council, on 15/07/2013, a document was sent to the Tax and Customs Authority (AT) identifying the properties situated in the area designated as "Historic Centre of Porto", where the properties located on Street..., no... on Street..., no..../... are situated.

However, this understanding was not adopted by the AT, a situation repeatedly complained about by this Municipality, until in January 2017 Law no. 73/2013, of 3 September, which establishes the financial regime of local authorities and inter-municipal entities, was amended, and which provides in its article 16, no. 2 that "The municipal assembly may, on the proposal of the municipal council, through a reasoned decision that includes an estimate of the respective tax expenditure, grant total or partial exemptions, objective or subjective, with respect to own taxes and tributes".

In accordance with this, it is hereby informed that the Porto Municipality is analysing the existing legal rules with a view to preparing a draft regulation on tax benefits in the context of municipal taxes.

• On 27-07-2018, the Claimant filed the application for constitution of the arbitral tribunal which gave rise to the present proceedings.

2.2. Unproven Facts and Justification of the Decision on Factual Matters

There are no facts relevant to the decision of the case that have not been proven.

In arbitral proceedings, general means of proof are admitted by virtue of article 115, no. 1, of the Code of Tax Procedure and Process (CPPT) applicable to tax arbitral proceedings by virtue of the provision in article 29, no. 1, paragraph (c), of RJAT.

The location of properties is not a fact for the proof of which any special means of proof is required, so all means of proof admitted under law are admitted.

The proven facts are based on documents submitted by the Claimant, the authenticity of which was not challenged by the Tax and Customs Authority within the time limit provided in article 115, no. 4, of CPPT, applicable to tax arbitral proceedings by virtue of the provision in article 29, no. 1, paragraph (c), of RJAT.

Having brought such documentary evidence to the proceedings, issued by public entities of evident credibility and with competence in urban matters (municipal councils), there is no reason to doubt that the information provided corresponds to reality.

On the other hand, the boundaries of the historic centres of Porto and Évora are publicized by UNESCO at https://whc.unesco.org/en/list/755/multiple=1&unique_number=890 and https://whc.unesco.org/en/list/361/multiple=1&unique_number=414, so it is easy to confirm through the location accessible at https://www.google.com/maps/ that the properties in question are situated within the classified areas.

Thus, in the exercise of this Arbitral Tribunal's powers to judge factual matters, it is considered proven that the properties referred to in paragraph B) of the factual matters are situated in the Historic Centre of Porto (expressly referred to in document no. 2 attached with the application for arbitral decision, issued by the Porto Municipal Council) and that the properties indicated in paragraph C) of the factual matters are situated in the Historic Centre of Évora (as stated in document no. 3 attached with the application for arbitral decision, issued by the Municipal Council of Évora), which deserve the Arbitral Tribunal's credibility and whose correspondence to reality is not refuted by any evidence brought to the proceedings by the Tax and Customs Authority.

3. Legal Matters

Pursuant to paragraph n) of no. 1 of article 44 of the EBF, "the following are exempt from municipal property tax (...) properties classified as national monuments and properties individually classified as of public or municipal interest, in accordance with applicable legislation".

No. 5 of the same article establishes that "the exemption referred to in paragraph n) of no. 1 is of automatic character, operating through communication of the classification as national monuments or the individual classification of properties of public or municipal interest, to be made by the Institute for the Management of Architectural and Archaeological Heritage, I.P., or by municipal councils, effective while the properties remain classified, even if they are subsequently transferred" (wording of Law no. 3-B/2010, of 28 April, in force in 2017).

Law no. 107/2001, of 8 September, established "the bases of policy and the regime for protection and valuation of cultural heritage".

Decree-Law no. 309/2009, of 23 October, established "the procedure for classification of immovable property of cultural interest, as well as the legal regime of protection zones and the detailed safeguard plan".

The Claimant contends, in summary, that the aforementioned properties, being inserted in Historic Centres classified as UNESCO World Heritage, integrate the category of "national monuments" and, consequently, should benefit (automatically) from the IMI exemption.

The Tax and Customs Authority contends, in summary:

– that since 2001 there has not been a classification called National Monument, but only classifications called National Interest, Public Interest or Municipal Interest, and therefore one cannot assert that the Historic Centres of Porto and Évora are classified as National Monument;

– there is no UNESCO classification called "Humanity Heritage", "UNESCO Heritage", "World Heritage" or equivalent expression;

– the inscription of a cultural asset in the "World Heritage List" does not constitute any Classification, as this necessarily presupposes the existence of a prior administrative procedure; that inscription "merely" amounts to the attribution of a new honorary status to the asset in question: from being a national cultural asset it becomes (also) a world cultural asset;

– the UNESCO Cultural Heritage Committee did not carry out any classification of the Historic Centre of Porto, merely entered another record in a list of cultural assets of world value;

– Notice no. 15.173/2010 establishes that the Historic Centre of Porto falls within the category of Group;

– from article 15, no. 7 of the Law on the Bases of Cultural Heritage (LBPC) it results that cultural assets inscribed in the "UNESCO World Heritage List" would, at most, be classified as immovable property of National Interest;

– the so-called Historic Centres of Porto and Évora are, at most, classified as of National Interest, not as a result of a decision by the competent entity, but as a direct result of law, as it is the latter that mandates to attribute, without more, such classification (article 15, nos. 2 and 3, by reference to article 15, no. 7, both of LBPC, coordinated with article 72, no. 1 of Decree-Law 309/2009);

– the first segment of paragraph n) of article 44, no. 1, of the EBF refers to properties classified as National Monuments under the laws of the Estado Novo that preceded LBPC.

3.1. Question of Classification as "National Monument"

The essential question to be decided is, therefore, whether, being inserted in Historic Centres classified as UNESCO World Heritage, they should be considered classified as national monuments and, consequently, should benefit (automatically) from the IMI exemption.

The thesis defended by the Tax and Customs Authority that the first segment of paragraph n) of article 44, no. 1, of the EBF refers only to properties classified as National Monuments under the laws that preceded Law no. 107/2001 conflicts with no. 5 of article 44, in the wording of Law 3-B/2010, of 28 April, which makes reference to "communication of classification as national monuments", clearly referring to communications that may occur after its entry into force.

On the other hand, this communication was not provided for, in these terms, in the previous wording, so it would not be understood that reference was being made to communications concerning monuments classified before the entry into force of Law no. 107/2001, more than nine years earlier.

Moreover, in the same vein, article 53, no. 1, of Law no. 107/2001 refers to "the act that decrees the classification of monuments", so it is unequivocal that, under this act, there is "classification of monuments".

Therefore, the initial part of paragraph n) of no. 1 of article 44 of the EBF should be interpreted as referring to "properties classified as national monuments" under that Law no. 107/2001, inclusively.

Being so, all properties to which the designation "national monument" is attributed should be considered classified as "national monuments". In truth, no acceptable explanation can be envisioned for why, legislatively, properties to which no intention to recognize such classification was intended would be designated as "national monuments". In this context, if for some hypothetical intention with an indecipherable legislative basis it were intended to refer only to monuments classified before Law no. 107/2001, certainly an express reference would have been made. In its absence, being presumed that the legislator knew how to express his thought in adequate terms (article 9, no. 3, of the Civil Code) and not to conceal it or confuse the interpreter, it must be concluded that the first part of the exemption referred to encompasses all properties to which the designation "national monuments" is legislatively attributed, including those which were not the subject of individual classification.

Thus, as "national monuments" should be considered all "immovable cultural assets classified as of national interest, whether they are monuments, groups or sites", as article 15, no. 3, of Law no. 107/2001 and article 3 of Decree-Law no. 309/2009, of 23 October, expressly attribute to them that designation. That is, properties to which that designation is attributed are "properties classified as national monuments" for purposes of the initial part of paragraph n) of no. 1 of article 44. These are properties to which that designation is attributed.

"Immovable property included in the world heritage list integrate, for all purposes and in their respective category, the list of property classified as of national interest", by virtue of the provision in no. 7 of article 15 of Law no. 107/2001.

Since "properties individually classified as of public or municipal interest" are expressly referenced in that paragraph n) of no. 1 of article 44 of the EBF, the useful scope of the initial reference to "properties classified as national monuments" will consist of extending the exemption to properties that are subject to non-individual classification, namely those integrated in "monuments, groups or sites", referred to in no. 3 of article 15 of Law no. 107/2001, which expressly attributes to them the designation "national monument", which is used in paragraph n) of no. 1 of article 44 of the EBF.

Thus, from the entry into force of Law no. 107/2001, the inclusion of properties in the world heritage list has the consequence of their classification as of national interest, for all purposes (no. 7) and from that classification it follows that they come to be designated as "national monuments" (no. 3) and to have the legal treatment provided for these.

Therefore, for such properties included in the world heritage list to be considered "national monument", no other act of classification is necessary, inclusion in the list being sufficient.

In this context, the opening of a classification procedure that implies the inclusion of an immovable asset in the UNESCO world heritage indicative list, in accordance with no. 1 of article 72 of Decree-Law no. 309/2009, of 23 October, does not aim to assess whether the conditions for classification are met, nor the pronouncement of a final decision by the Government, pursuant to article 30, no. 1, of the same decree (as the classification is already made "for all purposes" by virtue of no. 7 of article 15 of Law no. 107/2001), but merely to identify which are the immovable properties that were included in that list, namely through a location plan, and to fix the respective special protection zone.

It is in this context that, with respect to immovable properties inscribed in the world heritage list at the date of entry into force of Decree-Law no. 309/2009, it is provided, in no. 3 of its article 72, only the publication in the form of a notice in the Official Gazette of the location and implementation plan of the immovable property inscribed in the world heritage list, including the respective protection zone and not a Government decision in the form of a decree, as provided for in its article 30, no. 1, for the final decisions of property classification procedures as of national interest.

Thus, with respect to immovable properties inscribed in the world heritage list before the entry into force of Decree-Law no. 309/2009, there is no place for any classification act, and they are integrated "for all purposes and in their respective category, the list of property classified as of national interest", by virtue of no. 7 of article 15 of Law no. 107/2001.

Therefore, with respect to these properties inscribed in the world heritage list, there is no place for the "communication of classification as national monuments (...) to be made by the Institute for the Management of Architectural and Archaeological Heritage, I.P." that is referred to in no. 5 of article 44 of the EBF, as there is no classification act to communicate.

Thus, in these cases, the exemption operates automatically, following the publication of the notice provided for in article 72, no. 3, of Decree-Law no. 309/2009.

3.2. Question of the Necessity or Otherwise of Individual Classification as "National Monument"

With regard to the question of whether, with respect to national monuments that are constituted by a group of properties, an individual classification of each of the properties is or is not necessary, it appears that the negative answer is supported by paragraph n) of no. 1 of article 44 of the EBF, combined with its no. 5 and nos. 1, 2, 3 and 7 of Law no. 107/2001.

Immovable properties may be classified as of national interest, public interest or municipal interest (article 15, no. 2, of Law no. 107/2001), and those classified as of national interest are designated "national monument" (no. 3 of the same article).

"Immovable property may belong to the categories of monument, group or site" (no. 1 of Law no. 107/2001), but, being of national interest, even if it is a group, are designated as "national monument" (no. 3 of the same article). The concepts of "monuments, groups or sites" are those defined in international law (articles 2, no. 1, and 3, no. 2, of Decree-Law no. 309/2009).

"Immovable cultural assets included in the world heritage list integrate, for all purposes and in their respective category, the list of property classified as of national interest" (no. 7 of article 15 of Law no. 107/2001) and, therefore, even when it is a case of inclusion of a group, being of national interest, that group is considered a "national monument".

In that paragraph n) it is stated that exempt from IMI are "properties classified as national monuments and properties individually classified as of public or municipal interest, in accordance with applicable legislation".

The fact that reference is made only to the necessity of individual classification with respect to properties "classified as public or municipal interest" suggests that, as regards "national monuments", it is not necessary, for the exemption to operate, an individual classification of the properties and, therefore, the exemption is applicable to properties integrated in a group classified as a "national monument". That is, as the Claimant states, the "individualization" intended by the legislator is limited to properties classified as of public and municipal interest and does not extend to properties of national interest - which can be understood as a group or individually for purposes of obtaining classification as a "national monument" and, consequently, for application of the IMI tax benefit in question.

This was the understanding adopted by the vast majority of case law that has considered this question, not only abundant arbitral jurisprudence, but also by the Central Administrative Court of the North, as can be seen from the ruling of 07-12-2016, handed down in case no. 00134/14.4BEPRT, in which it is stated:

– "Indeed, and as stated in article 15 of Law no. 107/2001, of 8 September, and article 3 of Decree-Law no. 309/2009, of 23 October, a property classified as of national interest is designated as a "national monument", regardless of whether it is a single building, group or site, and it is clear that the properties that make up the group or site are covered by that classification.

 The fact that individually classified properties may coexist, in the case of delimitation of a group or site, under article 56 of Decree-Law no. 309/2009, of 23 October, has only provisional relevance for delimiting the protection zone of that property until the publication of the group or site classification (see no. 2).

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

– "the properties in question are of national interest, and not merely of public or municipal interest, being, consequently, classified as national monuments, regardless of whether it is a single building, group or site".

– "article 44, no. 1, paragraph n), of the Tax Benefits Statute – alludes to two distinct realities: on the one hand, it establishes that exempt from IMI are properties classified as national monuments (nothing more being required in this respect); on the other, it contemplates similar exemption for properties individually classified as of public or municipal interest. In support of the position that, as regards the category of national monuments (in which the Historic Centres are inserted), the law does not impose an individual classification, it was also pointed out that the legislator did not make such a requirement, contrary to what occurred, for example, in the context of Municipal Property Transfer Tax (IMT), in which paragraph g) of article 6 of the IMT Code was amended, having ceased to cover "acquisitions of properties classified as of national interest, public or municipal interest, under Law no. 107/2001, of 8 September" to now only contemplate "acquisitions of properties individually classified as of national interest, public or municipal interest, in accordance with applicable legislation".

However, the legislator did not simultaneously alter the tax benefits in the context of IMI in the same sense, despite having proceeded to amend the wording of article 44 itself of the EBF, with its paragraph n) continuing to require individual classification for attribution of the exemption only in the case of properties of public or municipal interest, but not making a similar requirement for national monuments.

On the contrary, the rule of no. 5 of article 44, in the wording given to it by Law no. 3-B/2010, of 28 April, expressly provides that "the exemption referred to in paragraph n) of no. 1 is of automatic character, operating through communication of the classification as national monuments or the individual classification of properties 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 to national monuments, only requiring it in relation to properties of public or municipal interest".

Moreover, it is manifest that this exemption, with this scope, is perfectly justified, as it amounts to compensation for the special obligations that Law no. 107/2001, in its article 21, imposes on holders of real rights over classified properties:

Article 21

Special Duties of Rights Holders

1 - The owners, possessors and other holders of real rights over assets that have been classified or inventoried are specifically bound by the following duties:

a) Facilitate the administration of cultural heritage with the information that may be necessary for implementation of this law;

b) Conserve, care for and properly protect the asset, so as to ensure its integrity and prevent its loss, destruction or deterioration;

c) Adapt the destination, use and utilization of the asset to ensure its conservation.

2 - Over the owners, possessors and other holders of real rights over assets that have been classified, the following duties also fall:

a) Comply with the legal regime established regarding public access and visitation, to which they may, however, exempt themselves by proving the respective incompatibility, in the specific case, with rights, liberties and personal guarantees or other constitutional values;

b) Execute the works or the works that the competent service, following due procedure, deems necessary to ensure the safeguarding of the asset.

From the foregoing, it must be concluded that the properties in question benefit from the exemption provided in paragraph n) of no. 1 of article 44 of the IMI Code.

3.3. Constitutional Questions Raised by the Tax and Customs Authority

The Tax and Customs Authority, in its submissions, contends that "an interpretation such as that conveyed by the Claimant is clearly an interpretation that offends the fundamental law of the country, insofar as it violates the principles: i) of tax equality, ii) of tax justice and iii) of taxable capacity (iv) of local autonomy and (v) of participation in decision-making, (vi) as well as an organic unconstitutionality.

As has been stated, this exemption, with this scope, is perfectly justified, as it amounts to compensation for the special obligations that article 21 of Law no. 107/2001 imposes on owners, possessors and other holders of real rights over classified assets and does not impose on the generality of other holders of unclassified properties.

All holders of real rights over classified properties, whether holders of individually classified properties or holders of those whose classification results from integration into a classified group.

In that light, it is manifest that the exemption in question is not incompatible with the principles of equality and justice, as holders of classified and unclassified properties are not in identical situations as to legal obligations and the fact that holders of classified properties are imposed more duties justifies that they be granted more rights. On the contrary, what would appear incompatible with the principles of equality and justice would be the imposition of special duties without any compensatory consideration. The privileged treatment resulting from paragraph n) of no. 1 of article 44 of the IMI is not, therefore, either arbitrary or unjust.

With respect to the principle of taxable capacity, it is not raised in the context of tax benefits, as they presuppose an exception to that principle, justified by special reasons: in this case the exception is justified to ensure the principles of equality and justice, in addition to the pursuit of the extrafiscal objective of encouraging holders of properties to adopt behavior that allows preservation of the heritage, necessary to maintain the classification and be able to continue to benefit from the exemption.

As regards the invocation of violation of the principle of local autonomy, this is clearly a misconception by the Tax and Customs Authority, as tax exemptions are a matter of the relative legislative competence reserve of the Parliament [articles 103, no. 2, and 165, no. 1, paragraph i), of the Constitution], in this case created to satisfy national rather than municipal interests. On the other hand, as to the allegation that the Municipalities of Porto and Évora "had no say in the question of loss of IMI revenue underlying the area of the Historic Centres of Porto and Évora", regardless of its irrelevance, nothing can be concluded from the Official Gazette, as it is a matter not subject to publication (article 119 of the Constitution). On the other hand, as concerns the alleged lack of participation of the "Porto and Évora municipalities in the formation of the decision to classify", in addition to not being demonstrated, will be a matter as to which there will surely be no reason for concern, as it is not even imaginable that the classification of a historic centre would not be promoted by the respective municipality.

As to the organic unconstitutionality invoked by the Tax and Customs Authority, this is also a confusion, as Parliament is the constitutionally competent body to legislate on tax exemptions, and it was Parliament that created it through Law no. 109-B/2001, of 27 December, adding a paragraph n) to no. 1 of article 40 of the EBF (this article which became article 44, following the re-publication of Decree-Law no. 108/2008, of 26 June).

The correct interpretation of paragraph n) of no. 1 of article 44 of the EBF, with respect to properties integrated in groups classified included in the heritage list, is that referred to above, so the provision of that paragraph n), from the initial wording, subsequent to Law no. 107/2001, includes a reference, with implicit acceptance, of the application of the tax benefit, at least, to situations in which prior classification of groups as national monuments had previously occurred (as is the case here).

From the foregoing, none of the unconstitutionalities invoked by the Tax and Customs Authority occur.

4. Compensatory Interest

From what has been stated, the assessed IMI suffers from partial illegality, in the part in which the tax was calculated with respect to the properties referred to in the fixed factual matters, included in the Historic Centre of Porto and Historic Centre of Évora.

On 27-04-2018, the Claimant paid the assessed amount and requests compensatory interest.

Article 43, no. 1, of the General Tax Law (LGT) establishes that "Compensatory interest is due when it is determined, in administrative request or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in amount greater than legally due".

In accordance with the provision in paragraph b) of article 24 of RJAT, the arbitral decision on the merits of the claim for which there is no appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the substantiation of the arbitral decision in favor of the taxpayer and until the end of the period provided for spontaneous execution of decisions of tax court decisions, "restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose", which is in harmony with the provision in article 100 of the LGT [applicable by virtue of the provision in paragraph a) of no. 1 of article 29 of RJAT] which establishes that "the tax administration is obliged, in case of total or partial substantiation of a request, judicial challenge or appeal in favor of the taxpayer, to immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".

Although article 2, no. 1, paragraphs a) and b), of RJAT uses the expression "declaration of illegality" to define the competence of arbitral tribunals operating at CAAD, making no reference to condemnatory decisions, it should be understood that the powers attributed to tax courts in judicial challenge proceedings are included within their competences, this being the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve RJAT, in which it proclaims, as the first guideline, that "the tax arbitral process must constitute an alternative procedural means to judicial challenge proceedings and to actions for recognition of a right or legitimate interest in tax matters".

Judicial challenge proceedings, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration in payment of compensatory interest, as can be inferred from article 43, no. 1, of the LGT, which establishes that "compensatory interest is due when it is determined, in administrative request or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in amount greater than legally due" and article 61, no. 4 of CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the initial wording), which provides that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of RJAT, when it says that "payment of interest is due, regardless of its nature, under the terms provided in the general tax law and in the Code of Tax Procedure and Process", should be understood as permitting the recognition of the right to compensatory interest in arbitral proceedings.

On the other hand, since compensatory interest is calculated based on an amount to be reimbursed, the competence to condemn in payment of compensatory interest has inherent the competence to determine the reimbursement of amounts unduly paid, which underlie the calculation of interest.

In the case at hand, the error affecting the assessment, in the part to which it relates to the properties referred to, included in the Historic Centre of Porto and Historic Centre of Évora, is "attributable to the services" as it was they who issued it, without considering the exemption from which they benefit.

Pursuant to no. 5 of article 44 of the EBF, in the wording of Law no. 3-B/2010 (in force in 2017) "the exemption referred to in paragraph n) of no. 1 is of automatic character, operating through communication of the classification as national monuments or the individual classification of properties of public or municipal interest, to be made by the Institute for the Management of Architectural and Archaeological Heritage, I.P., or by municipalities, effective while the properties remain classified, even if they are subsequently transferred".

However, in the case of properties inscribed in the world heritage list, there is no classification act to communicate, as mere inclusion in the world heritage list has the consequence "for all purposes" (and, therefore, also for purposes of the exemption) that the properties come to integrate "in their respective category, the list of property classified as of national interest" (no. 7 of article 15 of Law no. 107/2001).

Thus, in these cases, the services should take steps to apply the exemption automatically, for which they have elements that allow them to assess the verification of the conditions for its application, since the inclusion in the world heritage list was publicized in the Official Gazette, as referred to.

In truth, the necessity of presentation of a request by taxpayers, duly documented, was provided in the wording of no. 5 of article 44 that was in force before Law no. 3-B/2010, of 28 April, but was eliminated from its entry into force.

Thus, in accordance with the wording in force in 2017, the errors in assessments that result in the non-application of the IMI exemption to properties included in the world heritage list are attributable to the services and not to the taxpayers.

Consequently, the Claimant is entitled to reimbursement of the amount unduly paid (€ 66,807.03), plus compensatory interest, which is due at the legal supplementary rate, in accordance with articles 43, nos. 1, and 35, no. 10 of the LGT, article 24, no. 1, of RJAT, articles 61, nos. 3 and 4, of CPPT, article 559 of the Civil Code and Regulation no. 291/2003, of 8 April (or such other(s) as may amend the legal rate), from the date of payment (27-04-2018) until complete reimbursement.

5. Decision

In accordance with the foregoing, the members of this Arbitral Tribunal agree that:

1. The application for arbitral decision is substantiated;

2. The IMI assessment no. 2017..., relating to the tax period of 2017, is partially annulled, in the part corresponding to the amount of € 66,807.03;

3. The Tax and Customs Authority is condemned to reimburse the Claimant the amount of € 66,807.03, plus compensatory interest, calculated in accordance with the terms referred to in section 4 of this ruling.

6. Case Value

In accordance with the provision in articles 296, no. 1, of the Code of Civil Procedure (CPC) and 97-A, no. 1, paragraph a), of CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at € 66,807.03.

7. Costs

Pursuant to article 22, no. 4, of RJAT, the amount of costs is fixed at € 2,448.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings.

From what has been stated in section 4, the error affecting the assessment challenged is attributable to the Tax and Customs Authority, so it is this Authority that is responsible for payment of the total costs.

Lisbon, 15-01-2019

The Arbitrators

(Jorge Lopes de Sousa)

(Suzana Fernandes da Costa)

(Nuno Cunha Rodrigues)

[1] Currently, the competences of the Institute for the Management of Architectural and Archaeological Heritage, I.P., are exercised by the Directorate-General of Cultural Heritage, pursuant to article 13, paragraph a), of Decree-Law no. 115/2012, of 25 May.

[2] These definitions appear, in particular, in the Convention for the Protection of World Cultural and Natural Heritage, approved for accession, by Decree-Law no. 49/79, of 6 June, which provides the following definitions in its article 1:

Monuments. - Architectural, sculptural or monumental paintings works, archaeological character structures or elements, inscriptions, grottoes and groups of elements with exceptional universal value from the point of view of history, art or science;

Groups. - Groups of isolated or assembled buildings which, by reason of their architecture, unity or integration in the landscape, have exceptional universal value from the point of view of history, art or science;

Sites of interest. - Works of man, or combined works of man and nature, and zones, including sites of archaeological interest, with exceptional universal value from the historic, aesthetic, ethnological or anthropological point of view.

The Convention for the Safeguarding of the Architectural Heritage of Europe, approved for ratification, by Resolution of Parliament no. 5/91, of 23 January, uses the following definitions:

1. Monuments: all constructions of particular significance by their historical, archaeological, artistic, scientific, social or technical interest, including installations or decorative elements forming an integral part of such constructions;

2. Architectural groups: homogeneous groups of urban or rural buildings, noteworthy for their historical, archaeological, artistic, scientific, social or technical interest, and sufficiently coherent to be the subject of a topographic delimitation;

3. Sites: combined works of man and nature, partially constructed and constituting sufficiently characteristic and homogeneous spaces to be the subject of a topographic delimitation, noteworthy for their historical, archaeological, artistic, scientific, social or technical interest.

[3] Arbitral rulings of 08-10-2014, handed down in case no. 325/2014-T; of 16-11-2015, handed down in case no. 76/2015-T; of 09-06-2016, handed down in case no. 33/2016-T; of 14-06-2016, handed down in case no. 98/2016-T; of 07-12-2016, handed down in case no. 379/2016-T; of 24-06-2017, handed down in case no. 534/2016-T; of 20-10-2017, handed down in case no. 204/2017-T; of 21-12-2017, handed down in case no. 405/2017-T; of 05-07-2017, handed down in case no. 46/2017-T; of 22-11-2017, handed down in case no. 172/2017-T; of 20-10-2017, handed down in case no. 204/2017-T; of 08-02-2018, handed down in case no. 356/2017-T; of 21-12-2017, handed down in case no. 405/2017-T; and of 28-03-2018, handed down in case no. 531/2017-T.

[4] Whose jurisprudence is followed in the ruling of the Central Administrative Court of the North of 01-06-2017, handed down in case no. 00693/14.1BEPRT.

[5] Currently, the competences of the Institute for the Management of Architectural and Archaeological Heritage, I.P., are exercised by the Directorate-General of Cultural Heritage, pursuant to article 13, paragraph a), of Decree-Law no. 115/2012, of 25 May.