Summary
Full Decision
ARBITRAL DECISION
The arbitrators, Dr. Alexandra Coelho Martins (presiding arbitrator), Dr. Adelaide Moura and Dr. José Nunes Barata (member arbitrators), appointed by the Ethics Council of the Center for Administrative Arbitration ("CAAD") to form the Collective Arbitral Tribunal, constituted on 27 March 2019, hereby agree as follows:
I. REPORT
A..., S.A., hereinafter "first Claimant", NIPC..., with registered office at Rua..., n.º..., ..., ... -... Lisbon, and B..., S.A., hereinafter "second Claimant", NIPC..., with registered office in ..., ... ..., ...-... ..., jointly designated as "Claimants", hereby request the constitution of a Collective Arbitral Tribunal, in accordance with the combined provisions of articles 2, no. 1, paragraph a), 3, no. 1 and 15 and following, all of the Legal Framework for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, as subsequently amended.
The Claimants lodge a request for an arbitral pronouncement, following the expiry of the period for tacit rejection of Gracious Claims filed against two assessments of Municipal Property Tax ("IMI"), relating to the year 2017, issued under nos. 2017..., of 7 March 2018, in the amount of € 152,321.10, relating to the first Claimant, and 2017..., of 8 March 2017, in the amount of € 93,081.48, relating to the second Claimant, totalling € 245,402.58. They petition for the declaration of illegality and partial annulment of said tax acts, in the amount of € 175,646.72, and of the decisions rejecting the Gracious Claims filed which tacitly confirmed them.
They invoke that 6 (six) fractions in relation to which IMI was assessed are affected by the concession of gambling and benefit from exemption from this tax, in accordance with article 92 of the Gaming Law (Law no. 422/89, of 2 December, and subsequent amendments).
The Claimants attached supporting documents.
On 18 January 2019, the request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Claimants and to the Respondent entity.
Pursuant to articles 6, no. 2, paragraph a) and 11, no. 1, paragraphs a) and b) of the RJAT, the Ethics Council of CAAD appointed the arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of their assignment within the applicable period, with notification of the parties of such appointment on 7 March 2019.
The Collective Arbitral Tribunal was duly constituted on 27 March 2019.
The Respondent, notified to file a Response on 29 March 2019, pursuant to no. 1 of article 17 of the RJAT, on the same day informed the proceedings that it had proceeded with the "[partial] revocation of the IMI assessments for 2017 now being contested", in the amounts of € 105,816.14 and € 69,830.58, totalling the amount requested of € 175,646.72, and attached the corresponding order.
On 8 April 2019, the Claimants declared that they had no objection to the "revocation", requesting the Tribunal to declare its timeliness in accordance with nos. 1 and 3 of article 13 and no. 3 of article 10, all of the RJAT. They further state that they maintain an interest in the continuation of the proceedings for "recognition of their right to compensatory interest, in accordance with article 43 of the LGT, inasmuch as the information preceding the revocation order indicates that there was error attributable to the tax authority's services", of which the AT (Tax Authority) was notified on the same date.
On 15 April 2019, the parties were notified for optional simultaneous arguments, with a deadline of 10 days set.
The Claimants presented arguments on 30 April 2019. They reiterate the validity of the administrative annulment in light of article 168, no. 3 of the Code of Administrative Procedure ("CPA") and request compensatory interest on the grounds that there was error attributable to the services, given that the AT possessed information that the fractions in question were affected by the gambling concession, with the IMI exemption being automatically applicable.
They further request the extension of the annulment petition to the IMI assessment acts relating to 2018, issued on 23 March 2019, which they consider "entirely identical" to those of 2017. As the legal basis, they invoke the provisions of article 265 of the Code of Civil Procedure ("CPC"), applicable by reference to article 29, no. 1, paragraph e) of the RJAT, combined with article 3, no. 1 of this provision and articles 104 of the Code of Procedure and Tax Process ("CPPT") and 63 of the Code of Procedure in Administrative Courts ("CPTA"). They attached supporting documents of IMI payments relating to 2017 and 2018.
On 2 May 2019, the Respondent argued for extinction of the proceedings due to supervening uselessness of the dispute and objected to the recognition of compensatory interest. It argues that no claim for compensatory interest and reimbursement of amounts paid was formulated in the request for arbitral pronouncement ("ppa"). It contends that, with the disappearance of the subject-matter of the proceedings and the annulment objective sought by the Claimants having been achieved, the proceedings cannot continue solely for consideration of the question of compensatory interest.
According to the Respondent, the recognition of compensatory interest requires verification of prerequisites related to the practice of the assessment acts which, having ceased to exist, cannot be assessed. In this regard, it concludes that the Arbitral Tribunal lacks material jurisdiction to consider this request for compensatory interest, inasmuch as no challengeable act any longer exists in the legal order, and the Tribunal has no jurisdiction over requests relating to the recognition of rights, which must take place in separate proceedings.
It invokes the jurisprudence of the Supreme Administrative Court ("STA"), according to which the right to compensatory interest provided for in article 43, no. 1 of the General Tax Law ("LGT") "depends on it being demonstrated in the proceedings that this act is affected by error regarding the facts or law attributable to the AT", in accordance with Decisions of 2 December 2015, case no. 1610/13, and 28 November 2018, case no. 087/18.0BALSB.
When notified to rule on the exception of material incompetence raised by the Respondent, the Claimants stated on 9 May 2019 that, given it is manifest that there was error attributable to the services, interest is a legal consequence inherent in a decision favourable to the taxpayer, in accordance with article 100 of the LGT. They cite arbitral jurisprudence which notes that the Arbitral Tribunal is not prevented from, in such cases, ordering the AT to pay compensatory interest, concluding to the impropriety of the exception – cf. Arbitral Decisions in CAAD cases nos. 153/2016-T, of 15 November 2016; 30/2017-T, of 28 August 2017; 227/2018-T, of 5 November 2018, and 301/2017-T, of 5 January 2018.
On 30 May 2019, the Claimants attached a subsequent document, consisting of the AT's arguments in another arbitral proceeding, no. 520/2018-T, similar in subject-matter, grounds and procedure, in which the AT raised no obstacles to the jurisdiction of the Arbitral Tribunal to recognize the right to compensatory interest for the Claimants.
II. CASE MANAGEMENT
1. PRELIMINARY ISSUE: MATERIAL INCOMPETENCE – COMPENSATORY INTEREST
The violation of rules of jurisdiction ratione materiae determines the absolute incompetence of the court (and the lack of jurisdiction of the Arbitral Tribunal), which is of public order and whose examination takes precedence over any other matter, as is apparent from a comparison of articles 16 of the CPPT and 13 of the CPTA, by reference to article 29, no. 1, paragraphs a) and c) of the RJAT.
In this regard, the Respondent contends that the supervening uselessness of the dispute resulting from the partial annulment of the tax acts and the consequent extinction of the proceedings compromise consideration of the matter of compensatory interest. It considers that since recognition of the right to compensatory interest depends on the establishment of certain prerequisites related to the assessment act, the Tribunal can no longer assess its legality, thus making manifest the incompetence of the Tribunal to order payment of such interest.
However, the Tribunal does not agree with the Respondent's position.
First and foremost, it appears that the issue raised is not qualifiable as material incompetence, but rather concerns the scope of extinction of proceedings as an effect of the (partial) annulment of the acts challenged. That is, the question is whether this extinction extends to ancillary or dependent claims of the annulment request that has since been satisfied by administrative means, without, however, regulating those claims [compensatory interest or indemnification for provision of guarantee].
This Tribunal has no doubt that the matter of compensatory interest arising from illegal tax acts that are challenged is capable of being considered by tax arbitral courts. Indeed, these have jurisdiction to issue condemnatory pronouncements in the same manner as is permitted in judicial review proceedings, including therefore those arising from recognition of the right to such interest, under articles 24, no. 1, paragraph b) and no. 5 of the RJAT and 43 and 100 of the LGT, as repeatedly affirmed by the arbitral jurisprudence of CAAD.
The right to compensatory interest is based on the principle of liability of public entities (article 22 of the Constitution) and is governed by article 43 of the LGT which, in its no. 1, makes it dependent on the occurrence of error attributable to the services' staff from which resulted payment of a tax liability exceeding that legally due. This provision states that "[c]ompensatory interest is due when it is determined, in a gracious claim or judicial review, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due".
The consolidated jurisprudence of the STA has understood that annulment, by the AT, of tax assessment acts pending judicial review instituted against such tax acts and where, in addition to requesting annulment of the acts, payment of compensatory interest is also sought, constitutes a fact per se demonstrative of error attributable to the Services and determinative of payment of such interest under article 43 of the LGT.
In accordance with this jurisprudential understanding, not only is the question of the Tribunal's jurisdiction to that effect (consideration of compensatory interest) implicitly resolved in favour, but also that of the assessment of the (il)legality of the annulled assessment act itself. That is, annulment of the act by the AT for substantive defects evidences error attributable to the Services, an essential prerequisite to the decision to grant the request for compensatory interest.
Hence, this conclusion must equally be drawn within the context of the tax arbitral proceedings. Otherwise, depending on the tribunal considering the matter, we would have differing results, in a kind of "à la carte" justice which is rejected from the outset.
Thus, regardless of whether the prerequisites on which the birth of the obligation to pay compensatory interest depends are verified in the concrete case, it is undeniable that the Arbitral Tribunal has jurisdiction to consider such a question, which objectively falls within its powers of cognition, for the reasons set out above.
In light of the foregoing, the exception of material incompetence of the Arbitral Tribunal is without merit, such that it may therefore consider the merits of the claim relating to compensatory interest (cf. article 2, no. 1, paragraph a) of the RJAT).
2. OTHER PROCEDURAL PREREQUISITES
The Tribunal was duly constituted (cf. article 5 of the RJAT) and the request for arbitral pronouncement is timely, having been presented within the period provided for in paragraph a) of no. 1 of article 10 of the RJAT.
The parties have legal personality and capacity, have standing and are duly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
The proceedings do not suffer from any nullities.
The joint action by the claimants is admissible, as it concerns the assessment of identical circumstances of fact and legal regime, in accordance with the provisions of article 3, no. 1 of the RJAT.
The proceedings do not suffer from any nullities.
3. REGARDING EXTENSION OF THE CLAIM
In the arguments phase, the Claimants request extension of the annulment petition to IMI assessments relating to the year 2018, which have meanwhile been notified to them, issued on 23 March 2019. They argue that these IMI assessment acts are entirely identical to those relating to 2017, with the exception of the rate and amount of tax, which are slightly lower.
The Claimants consider that this extension of the subject-matter of the proceedings safeguards the principles of procedural economy and uniformity of decisions and avoids the Claimants having to resort again to litigation. They conclude that the extension of the subject-matter should be admitted in light of article 265 of the CPC, applicable by virtue of article 29, no. 1, paragraph e) of the RJAT, combined with article 3, no. 1 of this provision and article 104 of the CPPT and 63 of the CPTA, as identical grounds of fact and law are involved.
It should first be noted that modification of the subject-matter of the proceedings, which includes its extension and limitation, is only admitted in certain circumstances, as it constitutes a departure from the procedural principle of stability of proceedings, according to which "[o]nce the defendant is served, the proceedings must remain the same as regards the parties, the claim and the cause of action, save for such modifications as are provided for by law", as provided in article 260 of the CPC, applicable ex vi article 29, no. 1, paragraph e) of the RJAT.
In arbitral proceedings, the proceedings commence with the constitution of the Tribunal, in accordance with article 15 of the RJAT (and not, as is usual in State Courts, with receipt at the registry of the respective initial petition, currently by electronic data transmission, as results from articles 259 and 144 of the CPC). On the other hand, in the Tax Arbitral Tribunal, notification of the highest official of the AT service to file a Response (cf. article 17, no. 1 of the RJAT) is equivalent to "service of process on the defendant".
Thus, from the moment of notification of the AT to file a Response, the arbitral subject-matter – claim and cause of action – is fixed in such a manner that the Arbitral Tribunal is not constantly faced with modifications that would make the conduct of the dispute difficult and compromise the progress of the proceedings, in manifest contradiction with the purposes of arbitral jurisdiction, the creation of which was guided by the objective of resolving disputes with greater expedition.
Neither the RJAT, nor the procedural compendia subsidiarily applicable – CPPT, CPTA or CPC – provide for the possibility of modification (extension) of the proceedings in the circumstances sought by the Claimants, specifically: (i) of new tax acts; (ii) relating to other tax periods; (iii) which do not replace the acts being challenged, and which (iv) are subsequent to the institution of proceedings and the expiry of the Respondent's Response period (in this case the extension was requested in the final arguments phase). The conclusion is not altered by the fact that the grounds of the acts are identical.
Indeed, as regards the RJAT, only article 20 addresses the matter of objective modification of the proceedings, providing for this possibility when, pending the proceedings, the acts that are the subject of the request for arbitral decision are replaced. However, the IMI assessments relating to the year 2018 do not replace those relating to the year 2017, such that the legal prerequisite for admissibility of the modification under this provision is not met.
The CPPT does not contain provisions on extension of the claim or any other modification of the proceedings, such that, under article 29, no. 1 of the RJAT and article 2, paragraphs c) and e), such regulation must be sought in the CPTA and the CPC.
As regards the CPTA, continuing to follow the order of application of subsidiary law to the RJAT, with relevance to the situation in question, article 63, no. 1, provides, under the heading "Extension of proceedings":
"1 – Until closure of the discussion at first instance, the subject-matter of the proceedings may be extended to challenge acts that arise within the scope of or as a consequence of the procedure in which the challenged act is inserted, as well as to the formulation of new claims that may be cumulated with that claim."
MÁRIO AROSO DE ALMEIDA and CARLOS ALBERTO FERNANDES CADILHA note, Almedina 2005, in "Commentary on the CPTA", pp. 317-319, that this is a manifestation of the principle of procedural flexibility, structural to the new procedural regime, aimed at ensuring effective judicial protection of the rights of the interested parties: "The extension of the subject-matter of the proceedings is thus configured in entirely innovative terms, aimed at ensuring that the contention of challenging administrative acts 'is not necessarily confined to consideration of the validity of a single administrative act, but instead comes to regulate the entire framework of the administrative-legal relationship in which the challenged act is inserted'".
In this context, the aforementioned authors enumerate five distinct situations in which extension of the claim may occur pending the proceedings, as summarized below:
1st – New administrative acts issued within the scope of the same procedure, which are in a relationship of prejudiciality or dependence;
2nd – Supervening facts that entitle the claimant to extend the request for challenge of the act with claims of another type;
3rd – Conclusion of a contract, where a pre-contractual act relating to the formation thereof has been challenged;
4th – New administrative acts, consequential, that arise from other acts on whose validity or existence they depend;
5th – New administrative acts, whose effects oppose the utility sought in the proceedings, i.e., that prevent or contradict the useful effect that could result from the annulment judgment.
In the situation under analysis, it is a matter of the issuance of a new tax act relating to a distinct tax period from that which is under discussion in the pending proceedings, such that it is not encompassed in any of the typified situations.
It also does not appear that article 265 of the CPC may support the intended extension of the claim, as it only admits it, in accordance with its no. 2, if it is the development or consequence of the original claim, which is not the case, as we are dealing with two distinct claims, with objects – tax acts – resulting from distinct decision-making procedures and relating to different years.
It is true that the supervening assessment acts, relating to 2018, meet the requirements for cumulation of claims (the merits of the claims depends essentially on the assessment of the same circumstances of fact and the interpretation and application of the same principles or rules of law), under article 3 of the RJAT. However, the cumulation provided for in this provision refers to contemporaneous claims, not encompassing supervening cumulation, which must follow the general regime of modification of proceedings by extension of the claim set out above.
Furthermore, in the situation at hand, contemporaneity would not be possible, since the request for arbitral pronouncement ("ppa") regarding the IMI assessments of 2017 is anterior to the issuance of the new IMI acts of 2018 which did not exist at that date [that was presented on 17 January 2019 and the new acts were issued more than two months later, on 23 March 2019].
In light of the foregoing, the extension of the claim requested by the Claimants is rejected.
III. REASONING
III.I. MATTERS OF FACT
With relevance to the decision, the following facts are considered proven:
A. The Claimants are joint owners of 6 autonomous fractions, located in the parish of ... (...), municipality of ..., registered at the Land Registry Office of ... under no. ..., which are affected by the performance of the contractual obligations under the gaming concession contract for games of fortune or chance of ..., identified in the table below:
Description Urban Property
Matrix Article Autonomous Fraction
Casino ... C
Entertainment Center ... E
Congress Center ... U
C... Hotel ... H
Bar / Nightclub ... BD
SPA ... S
– cf. information from the AT which supports the order for annulment (partial) of the contested IMI assessments and property booklets attached as document 5 with the request for arbitral pronouncement ("ppa").
B. On 7 February 2018, the AT received the letter from the Gaming Regulation and Inspection Service (SRIJ) of Portugal Tourism informing of the aforementioned dedication of the properties identified above to gaming concession in ... – cf. information from the AT which supports the order for annulment (partial) of the IMI assessments.
C. The first Claimant was notified of the IMI assessment relating to the year 2017, issued under no. 2017..., of 7 March 2018, in the total amount of € 152,321.10, which applied to, among others, the properties (autonomous fractions) identified in point A above, amounting, in relation to these, to € 105,816.14, contested in these proceedings – cf. copy of the assessment act attached with the ppa and grounds of the partial annulment order thereof.
D. The second Claimant was notified of the IMI assessment relating to the year 2017, issued under no. 2017..., of 8 March 2018, in the total amount of € 93,081.48, which applied to, among others, the properties (autonomous fractions) identified in point A above, amounting, in relation to these, to € 69,830.58, contested in these proceedings – cf. copy of the assessment act attached with the ppa and grounds of the partial annulment order thereof.
E. The first Claimant proceeded to pay two (of three) installments of € 50,773.70 of the IMI assessment of 2017, on the following dates: 26 April 2018 and 30 July 2018 – cf. copies of the banking documents attached with the ppa and with the arguments of the Claimants.
F. The second Claimant proceeded to pay, in three installments of € 31,027.17, the IMI assessment of 2017, on the following dates: 26 April 2018, 18 July 2018 and 22 November 2018 – cf. copies of the banking documents attached with the ppa and with the arguments of the Claimants.
G. Not accepting the IMI assessment acts relating to 2017, insofar as they concern the autonomous fractions affected by the gaming concession of ..., on 19 June 2018, each of the Claimants filed a gracious claim against these assessments, in accordance with the terms and for the purposes of articles 129 of the IMI Code and 68 and following of the CPPT – cf. copy of the grounds of the partial annulment order of the IMI assessments of 2017 and proven by agreement.
H. By letters from the Finance Directorate of …, dated 8 October 2018, following a request for information on the status of the procedure, the Claimants were notified that the gracious claim proceedings were pending a report requested from the Central Services, it not being possible to indicate the expected date for their conclusion – cf. documents attached with the ppa (3A, 3B, 4A and 4B).
I. On 17 January 2019, in partial disagreement with the IMI assessment acts relating to 2017, and given the presumption of rejection of the Gracious Claims filed against them, the Claimants submitted to CAAD the request for constitution of the Collective Arbitral Tribunal, with the Tribunal being constituted on 27 March 2019.
J. On 27 March 2019, the Deputy Director-General for the Heritage Area, proceeded with the partial annulment of the IMI assessments, insofar as these were contested by the Claimants, in accordance with the following opinion of the Director of Services, dated 26 March 2019: "I agree that the IMI assessments of 2017 should be annulled in the amount of 105,816.14 € in relation to the taxpayer... and in the amount of 69,830.58 € in relation to the taxpayer..., totalling 175,646.72 €, which shall be effectuated by the registration of the IMI exemption, pursuant to article 92 of Decree-Law no. 422/89 of 2/12, in relation to the properties in question, given the communication made by the Gaming Regulation and Inspection Service, that the same are affected by the performance of contractual obligations." – cf. copy of the grounds of the partial annulment order of the IMI assessments of 2017.
K. The order for annulment and opinion referenced above were based on information from the IMI Services Directorate containing the following grounds:
"II – FACTS
[…]
3 – On 2018.02.07, the AT received letter no. ... from the Gaming Regulation and Inspection Service (SRIJ) of Portugal Tourism, which informs "…that the properties affected by the performance of contractual obligations by the gaming concession company for games of fortune or chance of B... S.A., and A... S.A. are those sent as attached."
4 – The properties listed in that attachment are those previously mentioned and in relation to which the tax is being contested.
III – ASSESSMENT
Considering that article 92 of Decree-Law no. 422/89, of 02.12 – Gaming Law –, in the current wording, provides that "Acquisitions of properties indispensable to the performance of contractual obligations assumed by concessionaires are exempted from transfer tax, and municipal contribution is not due by those which are affected by the concessions." and that article 28 of Decree-Law no. 287/2003, of 12.11, provides that "All legal texts that mention (…) municipal contribution are deemed to refer (…) to municipal property tax (IMI).", once the dedication of the urban properties to the gaming concession is proven, the same are exempt from IMI.
Further provides article 94 of the Gaming Law that "The Gaming Inspection Authority must inform the General Directorate of Contributions and Taxes or the municipal chambers, as appropriate: a) Which properties, in accordance with the terms referred to in article 92, have been acquired or constructed and dedicated to the performance of contractual obligations; b) Which activities are mandatorily exercised pursuant to the gaming concession contract."
Confirming that the current SRIJ fulfilled the duty laid down in article 94 and that the IMI exemption in question has an automatic nature, furthermore taking into account the gaming concession contract for the exclusive operation of games of fortune or chance in the gaming zone of ..., which was already in force in 2017, it remains to conclude that the urban properties in question benefit from the IMI exemption in the manner previously described.
IV – CONCLUSION
Given the foregoing, the indirect request for annulment of the contested IMI assessments merits acceptance, such that the respective annulment is proposed in the terms described in this information
For the consideration of superiors" – cf. copy of the grounds of the partial annulment order of the IMI assessments of 2017.
The relevant facts were selected and identified for their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of articles 123, no. 2 of the Code of Procedure and Tax Process ("CPPT"), 596, no. 1 and 607, no. 3 CPC, applicable by reference to article 29, no. 1, paragraphs a) and e) of the RJAT.
As regards the proven facts, the conviction of the arbitrators was based on critical analysis of the documentary evidence attached to the proceedings.
UNPROVEN FACTS
No other facts with relevance to the decision of the case were proven.
III.II. MATTERS OF LAW
A. ADMINISTRATIVE ANNULMENT (PARTIAL) OF IMI ASSESSMENT ACTS – EXTINCTION OF PROCEEDINGS DUE TO SUPERVENING IMPOSSIBILITY OF DISPUTE
The tax acts challenged, which constitute the subject-matter of the request for arbitral pronouncement, were administratively annulled insofar as they were challenged in this action. And they were annulled when the period provided for in article 13, no. 1 of the RJAT had already elapsed.
In these circumstances, the request for partial annulment of the IMI assessments relating to 2017 became moot, as with administrative annulment, the respective constitutive legal effects (we are always referring to the annulled part) are destroyed with retroactive effect, in accordance with article 171, no. 3 of the Code of Administrative Procedure ("CPA"), and there is a supervening impossibility of the dispute. As stated in the Arbitral Decision in case no. 31/2013-T, of CAAD, of 4 November 2013, "it becomes legally impossible to annul what no longer exists".
A question may be raised regarding the timeliness of administrative annulment, given that the period of 30 days, counted from knowledge of the request for constitution of the Arbitral Tribunal, had already elapsed, as established in article 13, no. 1 of the RJAT for the AT to proceed with "revocation, confirmation, amendment or conversion of the tax act whose illegality has been raised, carrying out, when necessary, a substitute tax act", with no. 3 of this provision stipulating that, upon expiry of this period, "the tax authority is prevented from carrying out a new tax act in relation to the same taxpayer or tax obligor, tax and tax period, except on the grounds of new facts".
It is understood that the provision in question should be interpreted to mean that, once the aforementioned 30-day period has elapsed, the AT is barred from carrying out a new dispositive act that regulates the tax-legal relationship, in relation to the same taxpayer, tax and tax period, except on the grounds of new facts. However, it appears that this restriction does not apply in the case of simple administrative annulment of the challenged act, unaccompanied by new regulation of the legal situation.
Indeed, in this latter case, the principle of stability of proceedings which appears to underlie the statutory limitations on administrative action during the course of judicial proceedings does not deserve protection, as the party simply recognizes that the other party is entitled to the relief sought, grounded in the material law, and in that measure permits early resolution of the dispute and consequent extinction of proceedings, with procedural and cost economy. There ceased to be reason for the continuation of the dispute, since, although occurring at a later moment, consensus was generated based on convergence of the parties regarding the applicable legal regime.
This interpretation was adopted by the Supreme Administrative Court ("STA") in relation to the judicial review process, which is governed by article 112 of the CPPT, which establishes a similar discipline to that of articles 13, nos. 1 and 3 of the RJAT, the latter applicable to tax arbitral action. As the tax arbitral process is an alternative means to judicial review, the manifest identity of reasons is undeniable, with the added fact that the CPA and the provisions concerning organization and procedure in administrative and tax courts are of subsidiary application to the tax arbitral process, by reference to article 29, no. 1, paragraphs c) and d) of the RJAT.
On the application of the CPA regime to the "revocation" of administrative acts in tax matters, the STA advocates, in its Decision of 15 March 2017, in case no. 449/14, that:
"The legal possibility of revocation of administrative acts in tax matters is provided for in art. 79 of the LGT (revocation is an act that terminates or eliminates the effects of a prior act, grounded in its inconvenience or invalidity, with the respective regime provided for in articles 138° to 146° of the CPA).
However, as no provision in the LGT or the CPPT defines the period for such revocation, it is undisputed that the rules contained in articles 136 et seq. of the CPA must be accommodated, which directly regulate the revocation of administrative acts [with the CPA constituting complementary and subsidiary legislation to tax law – articles 2, paragraph c), of the LGT and 2, paragraph d), of the CPPT (See, for all, the decision of this Section of the STA, of 15/5/2013, case no. 0566/12; as well as Leite Campos, Benjamim Rodrigues and Jorge de Sousa, Annotated and Commented General Tax Law, 4th ed., 2012, note 1 to article 79, p. 724 and Lima Guerreiro, General Tax Law, annotated, Rei dos Livros Editora, p. 350, note 7.)]. […]"
In the same sense regarding the applicability of the administrative invalidity regime to tax acts, the STA ruled again in its Decision of 17 December 2014, relating to case no. 454/14.
It is important to note that the concept of "revocation" until the new CPA came into force on 8 April 2015, following the approval of Decree-Law no. 4/2015, of 7 January, encompassed both revocation with annulment grounds based on illegality and revocation for reasons of opportunity and merit.
With the new CPA, the concept of administrative revocation became restricted to this second modality. As provided for in the current article 165 of the CPA, under the heading "Administrative Revocation and Annulment", revocation is the administrative act that determines the termination of the effects of another act, for reasons of merit, convenience or opportunity (no. 1), and administrative annulment is the administrative act that determines the destruction of the effects of another act, on the grounds of invalidity (no. 2). It is in this latter segment that the act which eliminated (partially) the IMI assessments for the year 2017 under discussion in these proceedings is inserted.
Thus, the "revocation" referred to in article 79 of the LGT and, likewise, in the aforementioned Decision corresponds to what is today, in light of the CPA, termed "administrative annulment", whose regime is provided for in articles 163 "Acts subject to annulment and regime of annulability" (former articles 135 and 136); 166 "Acts not subject to revocation or administrative annulment" (former article 139) and 168 "Conditions applicable to administrative annulment" (whose no. 2 corresponds to the former article 141), all of the CPA.
In general, the conceptual and structural frameworks of the regime of invalidity of administrative acts have not been altered, and the considerations made under the traditional framework of Portuguese Administrative Law are applicable, with the necessary adjustments, without prejudice to the flexibility of the consolidation periods of the annulable act which, for acts not constituting rights, has come to have a maximum limit of 5 years from the respective issuance (article 168, no. 1 of the CPA).
It should further be noted, with regard to annulment of acts that have been subject to judicial review, as is the case, that article 168, no. 3 of the CPA provides that annulment may take place until closure of the discussion.
Returning to the concrete case, the contested IMI assessments were issued on 7 and 8 March 2018. On the other hand, the silent acts (tacit rejection of the Gracious Claims), also challenged here, were formed on 19 October 2018, taking into account that the Gracious Claims had been filed on 19 June of that year, given the four-month period provided in article 57, no. 1 of the LGT. Lastly, administrative annulment [of the rejection and the primary assessment acts] took place by order dated 27 March 2019, such that it is concluded that such acts were not consolidated, given the provision of article 168, no. 1 of the CPA.
Furthermore, the date of the order for administrative annulment precedes closure of the discussion in the present case, as only on 30 April and 2 May, respectively, did the Claimant and Respondent present arguments. The period established in article 168, no. 3 of the CPA is thus observed.
In light of the foregoing, it is concluded that the administrative annulment effected by order of 27 March 2019, by the Deputy Director-General of the Heritage Area of the AT, which fully satisfied the partial annulment claim against the tax acts in question, in the amount of € 175,646.72, removes from the arbitral dispute its principal subject-matter, such that, in this respect, the proceedings are ruled extinct, in accordance with the provisions of articles 277, paragraph e) and 611 of the CPC, applicable by reference to article 29, no. 1, paragraph e) of the RJAT.
B. REGARDING THE RIGHT TO COMPENSATORY INTEREST
As has just been noted, the tax acts challenged which constitute the subject-matter of the request for arbitral pronouncement were administratively annulled insofar as they were challenged, with the Claimants seeking recognition of their right to compensatory interest, on which the annulment order is silent.
As a preliminary matter, it is noted that this claim was raised de novo in a subsequent pleading, following the Claimants' exercise of their right to reply to the administrative annulment, not appearing in the petition, which is limited to the declaration of illegality and consequent annulment of the IMI assessment acts, nothing more. That is, the initial pleading contains no claim for condemnation of the AT to recognize/pay compensatory interest, within the freedom of formulation which was available to the Claimants in defining the subject-matter of the action (claim and cause of action) and, consequently, the judge's powers of cognition.
The procedural principle of stability of proceedings to which reference was made above applies in this regard, adopted in article 260 of the CPC, according to which, from a given moment (service on the defendant, which corresponds in arbitral proceedings to notification of the Respondent to file a Response), the proceedings must remain the same as regards the parties, the claim and the cause of action. Its principal objective is to prevent the tribunal from being systematically surprised with new issues to resolve during the proceedings and, for that reason, the progress of proceedings is prejudiced.
However, one exception to this principle is contemplated, among others, if the claimant extends the claim and the extension is the development or consequence of the original claim, in which case it may do so at any time until closure of the discussion – article 265, no. 2 of the CPC.
The claim for compensatory interest falls within this exception. It is because the claim for interest is a consequence of the principal claim that jurisprudence considers that the fact of interest not being sought in the constitutive action does not even preclude the right to request it subsequently, in the execution phase (if such interest is not voluntarily allowed by the AT), as its payment is inscribed in the duty of execution of the annulment judgment and the full reconstruction of the current hypothetical situation, i.e., the situation that would exist if the illegality had not been committed, as provided in articles 24, no. 1, paragraph b) and no. 5 of the RJAT and 100 of the LGT.
It is thus understood to be admissible the pronouncement on the compensatory interest sought before "closure of the discussion". Additionally, where supervening impossibility of the dispute occurs, as in the present proceedings, if the annulment act does not rule on compensatory interest, the Tribunal may consider the claim for compensatory interest that has been duly raised on this matter.
This understanding derives from the retroactive effect of annulment of the assessment acts not having the virtue of instantaneously eliminating all the harmful effects that were produced by the tax acts during the period preceding the annulment, specifically as regards the deprivation of financial means used to pay the tax liability which, after all, was not due, as it was illegal.
Thus, if the removal of the assessment acts (or the part affected) is not accompanied by regulation of the situation that would exist if they had not been carried out, that is, the attribution of compensatory interest (or indemnification for provision of guarantee if applicable), then, in that measure, the proceedings may continue to safeguard the ancillary claim raised by the issuance of such illegal acts which, although annulled, existed and produced harmful effects.
It should be noted that the position adopted is not unanimous, as can be seen from a reading of the recent Arbitral Decisions in CAAD cases nos. 215/2018-T, of 16 November 2018, and 481/2018-T, of 7 March 2019.
However, this contrary understanding, according to which the claim for compensatory interest is not to be considered in the case of uselessness or supervening impossibility of the dispute, does not appear to be in harmony with the constant jurisprudence of the STA which advocates that, there being no administrative pronouncement (decision) on compensatory interest (and, mutatis mutandis, on indemnification for undue provision of guarantee if applicable), the tax relationship generated by the illegal act is not entirely regulated, nor is the claim raised in the proceedings fully satisfied, such that the Tribunal, having been seized of a request to that effect, may assess and, should the respective prerequisites be met, order the AT to pay compensatory interest, that is, in this exact measure the utility and interest of the jurisdictional pronouncement is maintained. Jurisprudence with which this Tribunal agrees. By way of example, see the Decisions of that Supreme Tribunal in cases nos. 574/14, of 7 January 2016, and 1101/16, of 3 May 2017.
It is certain that administrative annulment imposes on the AT the duty ("ope legis") to restore the situation that would exist if the tax act had not been carried out. However, in the case, the AT did not expressly recognize this right in the "annulment act", omitting administrative regulation of that part. Thus, the (ancillary) claim raised by the Claimants in court – for compensatory interest – was not expressly granted (or ruled upon favorably) by the operative part of the annulment act.
The fact that the law imposes a given solution does not mean that this is observed by the administrative authorities. Following the line of reasoning of the cited arbitral decisions, it would always be said that a jurisdictional pronouncement on compensatory interest or on indemnification for undue provision of guarantee would never be admissible, as these are always an effect ipso iure of the annulment pronouncement constitution – whether by the tribunal or by the AT – and of the obligation to restore the current hypothetical situation that in both cases obtains (provided that the prerequisite of error attributable to the Services is met). However, in a different understanding, these ancillary claims have been admitted, taking into account the purpose of regulating and encompassing within the jurisdictional pronouncement the totality of the material relationship, with the binding force which is characteristic thereof.
Thus, it is concluded that the legal claim of the Claimants has (not) yet been entirely satisfied by annulment of the act, as some of its harmful effects have not been purged. The circumstance that the duty to pay compensatory interest is provided for in law and derives (as an effect) from annulment, provided its prerequisites are met, does not, in this Tribunal's understanding, compromise the utility of a jurisdictional pronouncement to that effect which regulates the question with the force of res judicata. This interpretation is parameterized by the principle of effective judicial protection and the dispensation of any potential contention (unnecessary and costly), in the event of non-compliance with the reconstructive duties by the AT, namely an autonomous indemnification action, which would result from the contrary position.
Assessing the concrete situation in the proceedings regarding the claim for compensatory interest, which this Arbitral Tribunal considers should be considered, the provisions of article 43, no. 1 of the LGT apply, with the right to interest depending on two fundamental prerequisites.
The first concerns verification of error attributable to the Services, considering, in line with the jurisprudence of the STA cited above, that annulment of the tax acts by the AT, in casu for material non-conformity with the law, is, per se, demonstrative of error attributable to the Services determinative of payment of interest, in accordance with article 43, no. 1 of the LGT (Decisions of the STA in cases nos. 574/14, of 7 January 2016, and 1101/16, of 3 May 2017).
The second prerequisite concerns payment of the tax liability. In this regard, the first Claimant proved payment of two of the three installments of IMI of 2017, with the second Claimant proving complete payment of the three installments. Compensatory interest applies only to the value of payments made and proven.
In light of the foregoing, the Claimants' claim for compensatory interest proceeds, in accordance with article 43, no. 1 of the LGT and the jurisprudence referenced above, as the prerequisite of error attributable to the Services is considered verified, calculated on the amount of IMI paid by the Claimants.
IV. DECISION
In these terms, the arbitrators of this Arbitral Tribunal agree:
(a) To rule as without merit the exception of material incompetence raised by the Respondent;
(b) To reject the extension of the claim to the IMI assessment acts relating to 2018;
(c) To rule the proceedings extinct, due to supervening impossibility of the dispute, as regards the claim for declaration of illegality and partial annulment of the silent acts rejecting the Gracious Claims identified above and of the IMI assessments of 2017 (partially) challenged in these proceedings;
(d) To rule as meritorious the claim for condemnation of the AT to reimburse the amounts paid by the Claimants and to pay compensatory interest, to be calculated on such amounts;
(e) To order the AT to pay the costs of the proceedings,
with all legal consequences.
V. VALUE OF CAUSE
The value of the proceedings is set at € 175,646.72, as this is the amount whose annulment is sought, in accordance with the provisions of article 97-A, no. 1, paragraph a) of the CPPT, applicable ex vi article 29, no. 1, paragraph a) of the RJAT, and article 3, no. 2 of the Rules of Costs in Tax Arbitration Proceedings ("RCPAT").
VI. COSTS
Pursuant to articles 12, no. 2 and 22, no. 4 of the RJAT, 4, no. 5 of the RCPAT, 527 and 536, no. 3 of the CPC, the amount of costs is set at € 3,672.00, in accordance with Table I attached to the RCPAT, chargeable to the Respondent, as it is responsible for the supervening uselessness of the dispute, arising from the (partial) annulment of the tax acts pending the arbitral proceedings.
Notify parties accordingly.
Lisbon, 10 June 2019
[Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by reference to article 29, no. 1, paragraph e) of the RJAT]
The arbitrators,
Alexandra Coelho Martins
Adelaide Moura
José Nunes Barata
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