IMI Tax Exemption for UNESCO World Heritage Historic Centre – CAAD Case 405/2017-T

ARBITRAL DECISION [1]

The arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Single Arbitral Tribunal, constituted on 12 September 2017, with respect to the case identified above, has decided as follows:

1. REPORT

1.1.

A…, S.A., a company registered in the Commercial Registry Office of Sintra under number …, with registered office at … …, …, …, in Sintra (hereinafter referred to as the "Claimant"), filed a request for arbitral pronouncement and constitution of a Single Arbitral Tribunal, on 3 July 2017, pursuant to the provisions of article 4 and number 2 of article 10 of Decree-Law no. 10/2011, of 20 January [Legal Framework for Arbitration in Tax Matters (RJAT)], in which the Tax and Customs Authority (hereinafter referred to as the "Respondent") is the respondent party.

1.2.

The Claimant requests that the Arbitral Tribunal declare "(…) the present arbitral action as proven (…)", annul "(…) the decision of the Tax Authority, dismissing the requests for ex officio review (…) identified, filed by the Claimant, by virtue of such decision being based on a misinterpretation of the law (…)" and "as a consequence of the annulment of the decisions of the Tax Authority and (…) of the tax assessment notices (…) identified, a decision should be issued ordering the reimbursement of amounts unduly paid (…), in respect of IMI and the tax unduly paid in the amount of 6,560.57 € (…) be restituted (…)", further requesting "(…) the payment of compensatory interest (…), by the Tax Administration (…)".

1.3.

The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on 3 July 2017 and, on the same date, automatically notified to the Respondent.

1.4.

The Claimant did not proceed to appoint an arbitrator, whereupon, pursuant to the provisions of article 6, number 2, paragraph a) of the RJAT, the undersigned was designated as arbitrator by the President of the Deontological Council of CAAD, on 28 August 2017, with the appointment having been accepted within the period and terms legally provided for.

1.5.

On the same date, both Parties were duly notified of such appointment and did not express any intention to challenge the appointment of the arbitrator, in accordance with the provisions of article 11, number 1, paragraphs a) and b) of the RJAT, read together with articles 6 and 7 of the Code of Conduct.

1.6.

Thus, in accordance with the provisions of paragraph c), number 1, article 11 of the RJAT, the Arbitral Tribunal was constituted on 20 June 2016, and an arbitral order was issued on 12 September 2017, to notify the Respondent to, "(…) within 30 days, respond, attach a copy of the administrative file and request, if so desired, the production of additional evidence"

1.7.

On 10 October 2017, the Respondent filed its Response, having defended itself by way of exception and by way of challenge and concluded that:

1.7.1.

"(…) the exception of material incompetence of the Single Arbitral Tribunal should be upheld as proven, which gives rise to dismissal of the case (…)" and, subsidiarily,

1.7.2.

"the present request for arbitral pronouncement should be dismissed as unproven, with the tax acts challenged remaining in the legal order, accordingly absolving the Respondent from the request".

1.8.

Additionally, the Respondent attached to the case file the administrative instruction file.

1.9.

By arbitral order dated 10 October 2017, the Claimant was notified to make a statement, within the period of ten days, if so desired, on the matter of exception raised by the Respondent in the Response filed on the same date.

1.10.

The Claimant filed a request on 23 October 2017, to make a statement on the matter of exception raised by the Respondent, concluding that "(…) the exception of absolute incompetence for violation of the rules of material competence, alleged by the respondent should not proceed, and this Tribunal should declare itself competent to judge the issues raised as a consequence of the dismissal of the request for ex officio review filed by the claimant, under penalty of violation of the provisions of articles 266, 267, 268 number 4 and article 20 of the CRP".

1.11.

By arbitral order of 23 October 2017, and to "ensure the principle of adversarial proceedings and equality of the parties (…)", the Arbitral Tribunal ordered notification of "both Parties to make a statement, within the period of 5 days, on the possibility of dispensing with the holding of the meeting referred to in article 18 of the RJAT and on the possibility of dispensing with the submission of pleadings".

1.12.

On 25 October 2017, the Respondent filed a request to the effect that "(…) the holding of the meeting referred to in article 18 of the RJAT could be dispensed with", but not dispensing with "(…) the production of final pleadings (…)", requesting that they be submitted "(…) in written form and in successive order".

1.13.

On 11 October 2017, the Claimant filed a request to state that "(…) it has no objection to dispensing with the meeting provided for in article 18 of the RJAT" and that, with regard to pleadings, "(…) given the position of the Respondent, final pleadings should preferably (…) assume written form".

1.14.

By arbitral order dated 31 October 2017, taking into account the above-mentioned orders and the requests filed by the Parties, the Arbitral Tribunal decided "in accordance with the procedural principles set out in article 16 of the (…) (RJAT), of adversarial proceedings [paragraph a)], of equality of the parties [paragraph b)], of the autonomy of the Arbitral Tribunal in conducting the proceedings and in determining the rules to be observed [paragraph c)], of cooperation and procedural good faith [paragraph f)] and of the free conduct of proceedings set out in articles 19 and 29, number 2 of the RJAT, as well as taking into account the principle of limitation of unnecessary acts, provided for in article 130 of the Code of Civil Procedure (CPC), applicable by virtue of the provisions of article 29, number 1, paragraph e) of the RJAT":

1.14.1.

"To dispense with the holding of the meeting referred to in article 18 of the RJAT";

1.14.2.

"Not to dispense with the submission of pleadings and, as a consequence, notify the Claimant and the Respondent to, in this order and in successive manner, submit optional written pleadings, within the period of 10 days, with the period for the Respondent to commence from the date of notification of the filing of the Claimant's pleadings";

1.14.3.

"To designate 21 December 2017 for the purposes of issuing the arbitral decision".

1.15.

By arbitral order of 2 November 2017, in complement to the arbitral order referred to in the previous paragraph, the Arbitral Tribunal further warned the Claimant that, until the date of issuance of the arbitral decision, it should proceed with the payment of the subsequent arbitral fee, in accordance with the provisions of number 3 of article 4 of the Regulations on Costs in Tax Arbitration Proceedings, and communicate such payment to CAAD.

1.16.

On 13 November 2017, the Claimant submitted its written pleadings, reiterating the arguments presented in the request and concluding in the same terms as the arbitral request.

1.17.

On 24 November 2017, the Respondent submitted its written pleadings, in the sense of reiterating argumentation already presented in its Response, concluding in the same terms.[2]

2. GROUNDS FOR CLAIM

The Claimant sustains its request, in summary, in the following manner:

2.1.

"The Claimant is the owner of the urban property in full ownership located at Rua…, no.…,…, nos… to … and Rua …, nos … to … parish …, municipality of Porto, described under no. … in the Land Registry Conservatorship of Porto and registered under the property register number … (…)".

2.2.

"The present Claimant was notified and proceeded with the payment of the Municipal Property Tax, relating to the urban property (…)" identified in the previous paragraph, "(…) relating to the years 2012, 2013 and 2014 (during the years 2013, 2014 and 2015), through the following tax assessment notices (…)":

"- 2012…, in the amount of 761.46 €, with payment due date in April 2013;

• 2012…, in the amount of 761.46 €, with payment due date in July 2013;

• 2012…, in the amount of 761.45 €, with payment due date in November 2013;

• 2013…, in the amount of 685.31 €, with payment due date in April 2014;

• 2013…, in the amount of 685.31 €, with payment due date in August 2014;

• 2013…, in the amount of 708.10 €, with payment due date in November 2014;

• 2014…, in the amount of 740.09 €, with payment due date in April 2015;

• 2014…, in the amount of 740.09 €, with payment due date in July 2015;

• 2014…, in the amount of 740.09 €, with payment due date in November 2015 (…)"

2.3.

The Claimant alleges that "the aforementioned property, from the historic centre of Porto, is part of the UNESCO World Heritage list (…)" and "as results from the certificate issued by the Regional Directorate of Culture North, the property is classified as a national monument (…) by being an integral part of the UNESCO World Heritage list, in 1996, as the Historic Centre of Porto (…)".

2.4.

The Claimant states that "in the view of the Tax and Customs Authority, since the attached documentation does not certify that the property is individually classified as of national interest, public interest or municipal interest, the same does not recognize the exemption from IMI to the aforementioned properties", not accepting "(…) the Claimant (…) this understanding".

2.5.

The Claimant believes that "considering the factual circumstances and legal framework (…) could make use of the requests for ex officio review", being that "in the case at hand (…), the TA has, within the scope of the request for ex officio review, the legal duty to correct in favour of the taxpayer, pursuant to the principle of material justice, impartiality, equality and legality".

2.6.

In these terms, the Claimant reiterates that "(…) TA should, pursuant to the request for ex officio review filed, correct the IMI assessments relating to the years 2012, 2013 and 2014, under penalty of violating the principle mentioned above", and understands that "the procedural requirements provided for in article 78 of the LGT are manifestly met, the requests for ex officio review of the tax act being timely and duly substantiated in accordance with legal terms".

2.7.

Thus, the Claimant, having been notified, "(…) on 10 April 2017, of the dismissal of the requests for ex officio review of the tax act nos …2016…, …2016… and …2017… (relating to assessments of the Municipal Property Tax) (…)" does not agree with the position of the Respondent.

2.8.

Indeed, the Claimant believes that "in accordance with the provisions of paragraph n) of number 1 of article 44 of the Tax Benefits Statute, exemptions from IMI are granted to properties classified as national monuments and to properties individually classified as of public interest or municipal interest (…)".

2.9.

According to the Claimant, "(…) in the first place, properties classified as national monuments are exempt from municipal property tax. In the second place, properties individually classified as of public interest or municipal interest are exempt from that same tax", that is, "the classification as a national monument is sufficient for the properties subject to such classification to be exempt from the aforementioned tax".

2.10.

On the other hand, the Claimant believes that "(…) the CIMI refers (…) to the Legal Framework for the Protection and Enhancement of Cultural Heritage (…)", pursuant to which (article 15):

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

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

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

4 - A property is considered of national interest when its protection and enhancement, in whole or in part, represents a cultural value of significance for the Nation (…)".

2.11.

According to the Claimant, "(…) in the specific case of the property in question, the same is classified as a national monument in accordance with the provisions of numbers 3 and 7 of article 15 of Law no. 107/2001, by being inscribed in the UNESCO World Heritage list, in 1996, as the Historic Centre of Porto (Special Protection Zone)", being that "(…) pursuant to the provisions of number 7 of article 15, all immovable cultural property included in the world heritage list, for all purposes and in its respective category, integrate the list of property classified as of national interest".

2.12.

The Claimant adds that "(…) the Tax Benefits Statute (…) states that properties classified as national monuments are immediately exempt (…) from IMI, and that "tax exemptions (namely in respect of IMI) constitute a form of direct incentive to promote the attraction and settlement of new inhabitants in areas that are subject to population abandonment, as is the case with the Historic Centre of Porto".

2.13.

Thus, the Claimant believes that, "given the foregoing, (…) being properties in the Historic Zone of Porto at issue, the same are exempt from IMI, since the Historic Centre of Porto was classified as a national monument", and "for this reason it is understood that article 44 of the Tax Benefits Statute distinguishes between property classified as a national monument and property individually classified as of public interest or municipal interest, only requiring individualization in relation to these latter two categories, not already to properties of national interest".

2.14.

The Claimant understands that "the Historic Zone of Porto should be viewed as an ensemble, since the law aimed at the protection of all properties contained therein as a whole, and therefore any individual classification of the properties integrated in the said Historic Zone makes no sense", whereby "for this reason it is understood that article 44 of the Tax Benefits Statute distinguishes between property classified as a national monument and property individually classified as of public interest or municipal interest, only requiring individualization in relation to these latter two categories, not already to properties of national interest".

2.15.

Thus, the Claimant believes that "given the foregoing, the legislature's intention was to dispense with individualized classification for the purposes of IMI exemption to national monuments, being required only in relation to property of public interest or municipal interest" and "(…) appealing to the principle of the prevalence of substance over form, we also believe that the legislation applicable to the classification of this heritage should prevail, to which the aforementioned tax provision expressly refers".[3]

2.16.

In these terms, the Claimant concludes by petitioning that this Arbitral Tribunal declare "(…) the present arbitral action as proven (…)", annul "(…) the decision of the Tax Authority, dismissing the requests for ex officio review (…) identified (…) by virtue of such decision being based on a misinterpretation of the law, namely the provisions of paragraph n) of number 1 of article 44 of the Tax Benefits Statute", and "as a consequence of the annulment of the decisions of the Tax Authority and (…) of the tax assessment notices (…) identified (…)" issue "(…) a decision ordering the reimbursement of the amounts unduly paid (…) and the tax (…) be restituted in the amount of 6,560.57 € (…)", with "(…) the payment of compensatory interest to the Claimant (…) pursuant to articles no. 43 of the LGT and 61 of the CPPT".

3. RESPONSE FROM THE RESPONDENT

3.1.

The Respondent defended itself by way of exception and by way of challenge, concluding that:

3.1.1.

"(…) the exception of material incompetence of the Single Arbitral Tribunal should be upheld as proven, which gives rise to dismissal of the case (…)" and, subsidiarily,

3.1.2.

"the present request for arbitral pronouncement should be dismissed as unproven, with the tax acts challenged remaining in the legal order, accordingly absolving the Respondent from the request".

By Exception

Of the Material Incompetence of the Tribunal

3.2.

The Respondent begins by alleging that "it is important (…) to raise the partial incompetence of the Single Arbitral Tribunal to assess the dismissals around the requests for Ex Officio Review of Tax Act, insofar as the assessment of such matter exceeds the competences reserved to it by law".

3.3.

The Respondent reiterates that "(…) the request for arbitral pronouncement has as its object, albeit mediately, IMI assessments", "such assessments as were subject to a request for Ex Officio Review of Tax Act".

3.4.

"However, the assessments subject to a request for Ex Officio Review cannot be assessed by the Single Arbitral Tribunal" because, according to the Respondent, "article 2 a) Regulation 112·A/2011, of 22 March literally excludes from the scope of the Respondent's binding to arbitral jurisdiction (…)", "that is, from the wording given to the cited legal provision, it is observed that the legislator chose to restrict the knowledge in arbitral jurisdiction to claims that, being relative to the declaration of illegality of assessment acts, have been preceded by recourse to the administrative route".

3.5.

Thus, the Respondent believes that, "(…) from the mere reading of article 2 a) of Regulation no. 112/2011, of 22 March, the express obligation results for the prior submission of a Gracious Complaint as a way to open the arbitral route for assessment of the present dispute", concluding that "the material incompetence of the Collective Arbitral Tribunal for the assessment of IMI assessments inherent to the requests for Ex Officio Review of Tax Act constitutes a dilatory exception that impedes the continuation of the proceedings, leading to dismissal of the case with regard to the claim in question (…)".

By Challenge

3.6.

However, the Respondent also defends itself by way of challenge, alleging that "(…) the argumentation put forth by the Claimant cannot proceed at all, insofar as such argumentation (…) rests on an incorrect premise and makes an incorrect interpretation and application of the legal rules applicable to the case sub judice".

3.7.

In this regard, the Respondent believes that "(…) the argumentation put forth by the Claimant cannot proceed at all, insofar as (…) it rests on an incorrect premise and (…) makes an incorrect interpretation and application of the legal rules applicable to the case (…)".

3.8.

In fact, according to the Respondent (after presenting "The Evolution of the Concept of Classification" and making the "(…) distinction of the various concepts apparent in article 15 of the LBPC"), "(…) it is observed that the biased reasoning into which the Claimant fell results (…) from two facts of extreme importance in the case at hand (…)" (emphasis of the Respondent):[4]

3.8.1.

"The Claimant confuses the current concepts of Classification and Designation" (underline of the Respondent) and,

3.8.2.

"The Claimant confuses the concept of Designation introduced by the LBPC with the concept of graduation of the Classification as National Monument that was in effect between the beginning of the validity of Decree 20,985 of 1932 and the entry into force of the LBPC in 2001" (underline of the Respondent).

3.9.

According to the Respondent, "(…) since 2001 there has been NO classification called National Monument, but only classifications called of National Interest, of Public Interest or of Municipal Interest (…)" so that "it is manifestly impossible to assert (…) that the Historic Centre of Porto is classified as National Monument" and "on the other hand, the concept of classification called National Monument contained in Decree 20,985 does NOT equal the concept of designation of National Monument contained in the LBPC" (emphasis, underline and capitals of the Respondent).

Of the nature of the (purported) "UNESCO World Heritage Classification"

3.10.

According to the Respondent, "(…) the greatest confusion and imprecision introduced by the Claimant concerns the circumstance that it (…) asserts that the Historic Centre of Porto is classified as being National Monument as a direct consequence of it having been classified as UNESCO World Heritage", insofar as the Respondent believes that "(…) there is NO classification by UNESCO called Heritage of Humanity, Heritage of UNESCO, World Heritage or any equivalent expression", but only "(…) a list (…) that is under the charge of the World Heritage Committee" (emphasis, underline and capitals of the Respondent).

3.11.

The Respondent reiterates that "by inscribing a cultural property in the World Heritage List, the UNESCO World Heritage Committee is not classifying a property" but "(…) is thus recognizing that that cultural property also constitutes a universal heritage for the protection of which the international community as a whole has the duty to cooperate (…)".

3.12.

On the other hand, the Respondent states that "the classification of a cultural property always depends on a prior administrative Classification procedure" being that "(…) by inscribing the Historic Centre of Porto in the World Heritage List, the UNESCO World Heritage Committee NEVER carried out any prior administrative classification procedure (…)" (emphasis, underline and capitals of the Respondent).

3.13.

Thus, the Respondent believes that "the classification enjoyed by the Historic Centre of Porto necessarily results from the articulation of three legal instruments" (emphasis of the Respondent):

3.13.1.

"Notice no. 15,173/2010, of 30 July (…)",

3.13.2.

"The LBPC" and,

3.13.3.

"Decree-Law no. 309/2009, of 23 October".

3.14.

In light of the legislation that it believes is applicable, the Respondent argues that "(…) in light of article 15/7 of the LBPC, the Historic Centre of Porto is, at most, classified with one of the three possible graduations (…)", "that is, it results (…) from the law (…) that the so-called Historic Centre of Porto is, at most, classified as of National Interest, as a result, no longer of a decision by a competent entity, but rather as a direct result of the law (…)" (emphasis and underline of the Respondent).

3.15.

In these terms, the Respondent believes that "(…) it is necessary to conclude that the Claimant's argumentation rests on an incorrect premise and makes an incorrect interpretation of the LBPC and, by implication, of article 44, l - n) of the EBF", whereby, "(…) in order to be able to enjoy exemption from IMI, the EBF requires the individual classification of each of the properties that make up that Ensemble".

3.16.

Thus, for the Respondent, "it is abusive the interpretation that ALL properties inserted within the Ensemble are, simply by that fact, classified and, as such, exempt from IMI", stating that "(…) the sense of the position expounded throughout this procedural document goes to meet the Binding Information provided on 2013-02-25 by the IMI Services Directorate, in the context of request no. … (…)," whose content it partially transcribes, and whose "(…) understanding is equally subscribed by the General Directorate of Cultural Heritage itself (…)" (emphasis of the Respondent).

Of the inseparability of the exemption sub judice from the tax concept of property

3.17.

Additionally, the Respondent in its extensive Response further states that, according to its understanding, "(…) an ensemble can never be ONE property, but rather a PLURALITY of properties", "because (…) a PLURALITY of properties that is (…) an ensemble, is not ONE property in the tax sense" (capitals, emphasis and underline of the Respondent).

3.18.

Now, for the Respondent, being "from article 2 of the CIMI that the sense that the concept of property has in tax law is gathered (…)", it understands that "(…) the exemption apparent in article 44 (…) of the EBF, because it can only be directed at tax properties (…), requires the individual classification of the properties, regardless of the Cultural Heritage Category in which the same are inserted (…)", concluding that this is "the (…) only plausible interpretation and one that is in harmony with the unity of the legal system" (emphasis and underline of the Respondent).

3.19.

In these terms, the Respondent concludes that "(…) in light of all that has been expounded, it is necessary to conclude that the assessments now placed in question find factual and legal support, and should therefore remain in the legal order".

As to the evidence submitted by the Claimant

3.20.

With regard to the documentary evidence presented by the Claimant, the Respondent challenges in its Response document no. 3 attached with the arbitral request "(…) not because the same is false, but because the same is affected and conveys a serious ERROR", attaching with the Response a document issued by a General Directorate, in order to dispel doubts caused by the document attached by the Claimant (capitals, emphasis and underline of the Respondent).

As to the jurisprudence invoked

3.21.

With regard to the jurisprudence invoked by the Claimant, the Respondent downplays the same, namely the arbitral, referring that "(…) the invoked (…) did not have the list of issues raised by the Respondent throughout the (…) pleading, nor the documents now attached, which should necessarily be subject to pronouncement" concluding, once again, that "(…) the decisions now placed in question find factual and legal support, and should therefore remain in the legal order".

Of the interpretation contrary to the Constitution

3.22.

Finally, the Respondent alleges in its Response that "(…) the interpretation conveyed by the Claimant is shown to be contrary to the Constitution of the Portuguese Republic (…), insofar as it violates the constitutional principles: (i) of tax equality, (iii) of tax justice, (iii) of tax capacity, (iv) of local autonomy and (v) of participation in decision" presenting argumentation as to the defense of the same (emphasis of the Respondent).

4. PRELIMINARY ISSUES

Exception of Material Incompetence of the Arbitral Tribunal

4.1.

The Respondent, in the Response filed, came to raise the "(…) partial incompetence of the Single Arbitral Tribunal to assess the dismissals around the requests for Ex Officio Review of Tax Act (…)", insofar as it believes that "(…) the assessment of such matter exceeds the competences reserved to it by law".

4.2.

In this regard, the Respondent states that "(…) the request for arbitral pronouncement has as its object, albeit mediately, IMI assessments" "(…) which were subject to a request for Ex Officio Review of Tax Act" and, to that extent, the Respondent believes that "(…) the assessments subject to a request for Ex Officio Review cannot be assessed by the Arbitral Tribunal (…)" given that "(…) Regulation 112-A/2011, of 22 March, literally excludes from the scope of the Respondent's binding to arbitral jurisdiction (…) claims relative to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Tax Procedure and Process Code, without the mechanism of Ex Officio Review provided for in article 78 of the General Tax Law being mentioned therein (…)".

4.3.

Thus, the Respondent expands its argumentation to conclude that "the material incompetence of the Arbitral Tribunal (…) for the assessment of IMI assessments inherent to the requests for Ex Officio Review of Tax Act constitutes a dilatory exception that impedes the continuation of the proceedings, leading to dismissal of the case with regard to the claim in question (…)".

4.4.

The Claimant, duly notified to make a statement on the matter of exception raised by the Respondent, came to state that "(…) the equivalence of the requests for review of the tax act is manifest, namely, to the gracious complaint on the acts of self-assessment, withholding at source and payment on account", stating in this regard that "there is (…) jurisprudence of the STA that goes in the direction of considering that the request for review of tax act is a mechanism for opening the contentious route, perfectly equivalent to the gracious complaint".[5]

4.5.

And the Claimant reiterates that "(…) to exclude arbitral jurisdiction simply because the means used was not effectively a gracious complaint would be to violate the principle of effective judicial protection, enshrined in article 20 of the CRP".

4.6.

On the other hand, the Claimant alleges that "as JORGE LOPES DE SOUSA maintains, the express reference to prior recourse to the administrative route in accordance with articles 131 to 133 of the Tax Procedure and Process Code should be interpreted as referring to cases in which such recourse is mandatory through a gracious complaint, which is the administrative means indicated in those articles (…) of the CPPT, to whose terms it refers".[6]

4.7.

With expanded argumentation by the Claimant, with reference to various arbitral decisions in the same sense, concludes that "(…) the exception of absolute incompetence for violation of the rules of material competence, alleged by the Respondent should not proceed (…)", understanding that the Tribunal should "(…) declare itself competent to judge the issues raised as a consequence of the dismissal of the request for ex officio review filed by the claimant (…)".

4.8.

In these terms, in light of the above, with regard to the position assumed by each of the Parties, on the matter of the exception raised by the Respondent, it is necessary here to analyze the legal framework of the competences of the Arbitral Tribunals.

4.9.

In general terms, the competence of the Arbitral Tribunals operating in the CAAD is, in the first place, limited to the matters indicated in article 2, number 1 of the RJAT, being that, in accordance with this rule, the competence of the Arbitral Tribunals comprises "the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account", as well as "the declaration of illegality of acts of determination of taxable matter when it does not give rise to the assessment of any tax, of acts of determination of taxable income and of acts of fixation of patrimonial values" (underline ours).

4.10.

In addition to the direct assessment of the legality of the type of acts described in the previous paragraph, the competences of the arbitral tribunals operating in the CAAD also include competences to assess acts of second or third degree that have as their object the assessment of the legality of acts of that nature, namely of acts that decide gracious complaints and hierarchical appeals, as can be inferred from the express references made in that rule to acts of assessment, self-assessment, withholding at source and payment on account, which expressly are referred to as included among the competences of the arbitral tribunals.

4.11.

On the other hand, it has also been understood, in harmony with jurisprudence of the STA that, following the declaration of illegality of acts of assessment issued in a process of judicial challenge, decisions of condemnation in the payment of compensatory interest may be issued, as well as, by virtue of article 171, number 1 of the CPPT, of condemnation in the payment of indemnification for unjust security.

4.12.

Now, beyond the situations listed above, it has been understood that there is no legal basis to allow condemnations of another nature to be issued by the arbitral tribunals, even if they are a consequence of the declaration of illegality of acts of assessment.

4.13.

With regard to the case under analysis, following the exception raised by the Respondent, as to the alleged incompetence of the Arbitral Tribunal to assess requests for declaration of illegality of acts of assessment following requests for ex officio review, it will be necessary to determine, in greater detail, the competence of the arbitral tribunals operating in the CAAD, already generically listed above.

4.14.

Thus, and in the first place, this competence is limited to the matters indicated in article 2, number 1 of the RJAT, and in a second line, the aforementioned competence (of the Arbitral Tribunals operating in the CAAD) is also limited by the terms to which the Tax Administration is bound to that jurisdiction, in accordance with the provisions of Regulation no. 112-A/2011, of 22 March.

4.15.

Indeed, article 4 of the RJAT establishes that "the binding of the tax administration to the jurisdiction of the tribunals constituted in accordance with the present law depends on a regulation of the members of the Government responsible for the areas of finance and justice, (…)".

4.16.

Thus, in light of this second limitation of the competence of the Arbitral Tribunals operating in the CAAD, the resolution of the question of competence depends essentially on the terms of this binding, insofar as, even if one is faced with a situation that can be framed in the aforementioned article 2 of the RJAT, if it is not covered by the binding identified above, the possibility of the dispute being jurisdictionally decided by this Arbitral Tribunal will be excluded.

4.17.

Now, in accordance with the provisions of paragraph a) of article 2 of the aforementioned Regulation, expressly excluded from the scope of the binding of the Tax Administration to the jurisdiction of the Arbitral Tribunals operating in the CAAD are "claims relative to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative route in accordance with articles 131 to 133 of the Tax Procedure and Process Code", whereby this express reference to the preceding "recourse to the administrative route" should be interpreted as referring to cases in which such recourse is mandatory through a gracious complaint (which is the administrative means indicated in articles 131 to 133 of the CPPT), to whose terms it refers.

4.18.

In the case at hand, being having requested the declaration of illegality and annulment of the act of dismissal of the request for ex officio review relating to the assessments of Municipal Property Tax (IMI) for the years 2012, 2013 and 2014, it is important, first of all, to clarify whether the declaration of illegality of acts of dismissal of requests for review of the tax act, provided for in article 78 of the General Tax Law (LGT), is included in the competences attributed to the arbitral tribunals operating in the CAAD, in accordance with the provisions of article 2 of the RJAT.

4.19.

In truth, in this article 2 of the RJAT there is no express reference to these acts, contrary to what happens with the legislative authorization on which the Government based itself to approve the RJAT, when it refers to "requests for review of tax acts" and "administrative acts that involve the assessment of the legality of acts of assessment".

4.20.

However, the formula "declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account", used in paragraph a) of number 1 of article 2 of the RJAT does not restrict (in a mere declarative interpretation) the scope of arbitral jurisdiction to cases in which a direct challenge is made to an act of that nature.

4.21.

Indeed, the illegality of acts of assessment may be declared jurisdictionally as a corollary of the illegality of a second degree act, which confirms an act of assessment, embodying its illegality.

4.22.

The inclusion in the competences of the arbitral tribunals operating in the CAAD of cases in which the declaration of illegality of the acts indicated therein is effected through the declaration of illegality of second degree acts, which are the immediate object of the challenge claim, results with certainty from the reference made in that rule to acts of assessment, self-assessment, withholding at source and payment on account, which expressly are referred to as included among the competences of the arbitral tribunals.

4.23.

Now, with respect to acts of self-assessment, withholding at source and payment on account, a gracious complaint is imposed as a rule (as provided for in articles 131 to 133 of the CPPT) so that, in these cases, the immediate object of the challenge process is, as a rule, the second degree act that assesses the legality of those acts, which if it confirms them must be annulled in order to obtain the declaration of illegality of the first degree act.[7]

4.24.

Once the conclusion is reached that the formula used in paragraph a) of number 1 of article 2 of the RJAT does not exclude cases in which the declaration of illegality results from the illegality of a second degree act, it will also encompass cases in which the second degree act is that of dismissal of a request for review of the tax act, as no reason is seen for restricting, especially since, in cases in which the request for review is made within the period of gracious complaint, it should be treated as equivalent to a gracious complaint.

4.25.

Thus, the express reference to article 131 of the CPPT which is made in article 2 of the aforementioned Regulation cannot have the decisive scope of excluding the possibility of assessing requests for illegality of acts of dismissal of requests for ex officio review of acts of assessment.[8]

4.26.

In these terms, it is manifest that the scope of the requirement of prior gracious complaint, in the cases enumerated (that is, necessary to open the contentious route for challenge of acts of self-assessment, withholding at source and payment on account) has as its sole justification the fact that with respect to that type of acts there is no statement of position by the Tax Administration on the legality of the legal situation created with the act, a position that could even turn out to be favorable to the taxpayer, avoiding the need for recourse to the contentious route.

4.27.

Another unequivocal confirmation that this is the reason for the requirement of the necessary gracious complaint is found in number 3 of article 131 of the CPPT, by establishing that "without prejudice to the provisions of the preceding numbers, when its ground is exclusively a matter of law and the self-assessment has been effected in accordance with generic guidelines issued by the tax administration, the period for challenge does not depend on a prior complaint, and the challenge must be submitted within the period of number 1 of article 102".

4.28.

Now, in the case under analysis, being the tax acts underlying the request the IMI assessments for the years 2012, 2013 and 2014, effected by the Respondent itself, the latter had knowledge of the rules it applied, making it unnecessary a prior statement (via gracious complaint) on the legality of the legal situation created with the aforementioned assessment acts in question.

4.29.

And having been filed a request for ex officio review of acts of assessment of IMI (in the case relating to the years 2012 to 2014), the Tax Administration was provided (with this request) an opportunity to make a statement on the merit of the claim of the taxpayer before the latter resorts to the jurisdictional route, so that, in coherence, here cannot be required that, cumulatively with the possibility of administrative assessment, within the scope of that ex officio review procedure, a new administrative assessment be required through a gracious complaint.

4.30.

Thus, being unequivocal that the law expressly grants taxpayers the possibility of choosing between gracious complaint or ex officio review of acts of assessment, and being the request for ex officio review filed within the period of gracious complaint perfectly equivalent to a gracious complaint, as was mentioned, there can be no reason that could explain that a taxpayer cannot access the arbitral route when having chosen, in the case of an assessment act of a tax, the submission of a request for review of the tax act instead of submitting a gracious complaint.

4.31.

Moreover, it should be noted that the interpretation produced above, not confining itself to the literal wording, is especially justified in the case of the provisions of paragraph a) of article 2 of Regulation no. 112-A/2011, due to the evident imperfections thereof, insofar as one thing is to associate the broad formula "recourse to the administrative route" (which encompasses, in addition to the gracious complaint, the hierarchical appeal and review of the tax act) to the "expression in the terms of articles 131 to 133 of the Tax Procedure and Process Code", which has potential restrictive scope to gracious complaint, another will be using the expression "preceded" by recourse to the administrative route, referring to "claims relative to the declaration of illegality of acts" which, obviously, would coadapt much better with the word "preceded".

4.32.

In these terms, ensuring with the review of the tax act the possibility of assessment of the claim of the taxpayer before access to the contentious route (which it is sought to achieve with the challenge) the most correct solution, because it is the most coherent with the legislative design to "strengthen the effective and efficient protection of the rights and legally protected interests of taxpayers" (manifested in number 2 of article 124 of Law no. 3-B/2010, of 28 April), is the admissibility of the arbitral route to assess the legality of acts of assessment previously assessed in a review procedure without the need for prior submission of a gracious complaint.

4.33.

And, because it is the most correct solution, it must be presumed to have been normatively adopted (article 9, number 3 of the Civil Code).

4.34.

Thus, it is to be concluded that article 2, paragraph a) of Regulation no. 112-A/2011 (duly interpreted on the basis of the criteria for interpretation of law provided for in article 9 of the Civil Code) and with the applicable substantive and adjective tax rules being applicable (by virtue of the provisions of article 11, number 1 of the LGT), enables the submission of requests for arbitral pronouncement relating to acts of assessment that have been preceded by a request for ex officio review, with the exception of material incompetence of the Tribunal Arbitral, as to the matter, raised by the Respondent therefore not proceeding.

5. PRELIMINARY RULING

5.1.

The request for arbitral pronouncement is timely since it was submitted within the period provided for in paragraph a) of number 1 of article 10 of the RJAT.[9]

5.2.

The parties have legal capacity and personality, are legitimate as to the request for arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March.

5.3.

The joinder of claims here made by the Claimant is legal and valid, in accordance with the provisions of article 3, number 1 of the RJAT, given that the success 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.

5.4.

The Tribunal is, as we saw in Chapter 4 of this Decision, competent as to the assessment of the request for arbitral pronouncement filed by the Claimant.[10]

5.5.

In addition to the exception raised by the Respondent and already analyzed in Chapter 4 of this Decision, there are no other exceptions of which it is necessary to take cognizance.

5.6.

No nullities are found, so it is now necessary to assess the merit of the request.

6. MATTER OF FACT

Of the facts proven

6.1.

The following facts are considered as proven:

6.1.1.

The Claimant is the owner of the urban property in full ownership located at Rua…, no.…, …, nos … to … and Rua …, nos … to …, of the Union of Parishes of …, …, …, … and … (extinct Parish …), Municipality of Porto, District of Porto, described in the Land Registry Conservatorship of Porto under no. … and registered under the property register number … (extinct …).

6.1.2.

The "Historic Centre of Porto" has been classified, since 1996, as a UNESCO World Heritage Site [having been integrated in the respective Indicative List, on the grounds that "(…) it has the exceptional universal value of the urban fabric of its historic centre (…)"], as declared by Notice no. 15,173/2010, published in the Official Journal, II Series, of 30 July 2010.

6.1.3.

The property identified above in paragraph 6.1.1 is an integral part of the ensemble known as the "Historic Centre of Porto" and is classified as a National Monument (by being inscribed in the UNESCO World Heritage List), in accordance with the provisions of numbers 3 and 7 of article 15 of Law no. 107/2001, of 8 September.

6.1.4.

The Claimant was notified of the following IMI collection notices, relating to the assessment of tax relating to the property described in paragraph 6.1.1, above, relating to the years 2012 to 2014, dated 16 March 2013, 9 March and 26 April 2014 and 28 February 2015, respectively:

6.1.5.

The Claimant filed, on 18 March 2016, a request for Ex Officio Review of Tax Act (nos…2016…, …2016… and …2017…) relating to the IMI assessments for the years 2012 to 2014.

6.1.6.

The Claimant was notified of Memorandum no. 2017…, of 1 March 2017, relating to the draft of dismissal of the request for Ex Officio Review identified in the previous paragraph and to, if so desired, within the period of 15 days, exercise the right of participation in the decision (prior hearing).

6.1.7.

The Claimant exercised its right of prior hearing, reiterating the argumentation presented in the request for Ex Officio Review of the assessment acts of IMI identified.

6.1.8.

The Claimant was notified of Memorandum no. 2017…, of 5 April 2017, relating to the order of dismissal of the aforementioned request for Ex Officio Review of the assessment acts of IMI for the years 2012, 2013 and 2014.

6.2.

No other facts were proven that could affect the decision on the merit of the request.

Motivation as to the matter of fact

6.3.

With respect to the proven matter of fact, the Arbitral Tribunal's conviction was founded, in addition to the free assessment of the positions assumed by the Parties (as to fact), on the content of the documents attached by both Parties to the case file.

Of the facts not proven

6.4.

No facts were observed as not proven with relevance to the arbitral decision.

7. GROUNDS OF LAW

7.1.

In the case file, the principal question that arises comes down to knowing whether the properties located in Historic Centres Classified as UNESCO World Heritage (as is the case with the Porto Historic Centre) benefit from exemption from IMI, pursuant to the provisions of article 44, number 1, paragraph n) of the EBF.

7.2.

In this regard, the Claimant believes, in summary, that "in accordance with the provisions of paragraph n) of number 1 of article 44 of the Tax Benefits Statute, exemptions from IMI are granted to properties classified as national monuments and to properties individually classified as of public interest or municipal interest (…)", being that "in the specific case of the property in question, the same is classified as a national monument (…) by being inscribed in the UNESCO World Heritage list (…) as the Historic Centre of Porto (Special Protection Zone)" and "pursuant to the provisions of number 7 of article 15, all immovable cultural 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".

7.3.

Additionally, the Claimant believes that "being properties in the Historic Zone of Porto at issue, the same are exempt from IMI, since the Historic Centre of Porto was classified as a national monument", and "for this reason it is understood that article 44 of the Tax Benefits Statute distinguishes between property classified as a national monument and property individually classified as of public interest or municipal interest, only requiring individualization in relation to these latter two categories, not already to property of national interest".

7.4.

The Claimant understands that "the Historic Zone of Porto should be viewed as an ensemble, since the law aimed at the protection of all properties contained therein as a whole, and therefore any individual classification of the properties integrated in the said Historic Zone makes no sense", concluding that "(…) the legislature's intention was to dispense with individualized classification for the purposes of IMI exemption to national monuments (…)".

7.5.

On the other hand, the Respondent does not so believe, having, in summary, alleged that "by inscribing a cultural property in the World Heritage List, the UNESCO World Heritage Committee is not classifying a property" but "(…) is thus recognizing that that cultural property also constitutes a universal heritage for the protection of which the international community as a whole has the duty to cooperate (…)", stating that "the classification of a cultural property always depends on a prior administrative Classification procedure", whereby "by inscribing the Historic Centre of Porto in the World Heritage List, the UNESCO World Heritage Committee NEVER carried out any prior administrative classification procedure (…)" (capitals of the Respondent).

7.6.

The Respondent reiterates that "the classification enjoyed by the Historic Centre of Porto necessarily results from the articulation of three legal instruments, Notice no. 15,173/2010, of 30 July (…), the LBPC and Decree-Law no. 309/2009, of 23 October", being that it believes that "(…) the so-called Historic Centre of Porto (1st) Belongs to the category of Ensemble (…), (2nd) Is included in the list of property classified as of National Interest (…) and (3rd) Is designated as National Monument (…) being certain that (…)" this designation "is not confused nor equals the concept of classification called National Monument contained in Decree 20,985 of 1932".

7.7.

Thus, the Respondent believes that "(…) it is necessary to conclude that the Claimant's argumentation rests on an incorrect premise and makes an incorrect interpretation of the LBPC and (…) of article 44, l - n) of the EBF" insofar as "(…) in order to be able to enjoy exemption from IMI, the EBF requires the individual classification of each of the properties that make up that Ensemble", being that for the Respondent "an ensemble can never be ONE property, but rather a PLURALITY of properties" and "a PLURALITY of properties that is (…) an ensemble, is not ONE property in the tax sense" (emphasis, underline and capitals of the Respondent).

7.8.

In these terms, the Respondent believes that "it is abusive the interpretation that ALL properties inserted within the Ensemble are, simply by that fact, classified and, as such, exempt from IMI" (emphasis and capitals of the Respondent).

7.9.

In these terms, in light of the foregoing, regarding the position of the Parties and the arguments presented, it will be necessary to verify which of the two interpretations should be made to article 44, number 1, paragraph n) of the EBF.

General framework regarding IMI

7.10.

In accordance with the provisions of number 1 of article 1 of the IMI Code, in its current wording, "the municipal property tax (…) applies to the patrimonial value of rural and urban properties located in Portuguese territory, constituting income of the municipalities where they are located" being that, in accordance with the provisions of number 1 of article 7 "the patrimonial value of properties is determined in accordance with the present Code".

7.11.

With respect to the notion of property, article 2 of the IMI Code provides that:

"1 - For the purposes of this Code, property is every fraction of territory, encompassing the waters, plantations, buildings and constructions of any nature incorporated therein or resting thereon, with a character of permanence, provided that it is part of the heritage of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are implanted, although located in a fraction of territory that constitutes an integral part of a different heritage or has no property nature.

2 - Buildings or constructions, although movable by nature, are regarded as having a character of permanence when devoted to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are resting on the same location for a period exceeding one year.

4 - For the purposes of this tax, each autonomous fraction, under the horizontal property regime, is regarded as constituting a property".

7.12.

With respect to the taxpayers of the tax, article 8, number 1 of the IMI Code provides that "the tax is due by the owner of the property on 31 December of the year to which it relates", being presumed as "owner, usufructuary or leaseholder, for tax purposes, those who as such appear or should appear in the assessment roll, on the date referred to in number 1, or, in the absence of registration, those who on such date have possession of the property" (number 4 of the same article).

7.13.

With regard to what concerns us here, article 9, number 1, paragraph a) of the IMI Code provides that "the tax is due from (…) the year, inclusive, in which the fraction of territory and other elements referred to in article 2 should be classified as property (…)".

7.14.

With regard to the competence and period for assessment of the tax, article 119 of the IMI Code provides that "the tax is assessed annually, in relation to each municipality, by the central services of the General Directorate of Taxes, based on the patrimonial values of properties and in relation to the taxpayers that appear in the assessment rolls on 31 December of the year to which the tax relates", being that "the assessment (…) is effected in the months of February and March of the following year" and the tax should be paid within the periods provided for in article 120 of the IMI Code.

Of the regime of tax benefits in general

7.15.

The Portuguese tax system has a set of tax benefits, with a view to promoting or encouraging certain operations, economic sectors, activities, regions or economic agents, thus playing a relevant role in the development of our country, being that some of these alternatives are contained in the EBF, published by Decree-Law no. 215/89 of 1 July, a diploma that has already undergone several updates.

7.16.

Thus, with regard to the tax benefits regime itself, it must be borne in mind from the outset the definition of tax benefit (which translates into an incentive of an economic, social or cultural nature), representing all the advantages attributed to taxpayers, with a view to achieving a certain behavior.

7.17.

Indeed, the grant of a tax benefit is opposed to the application of the normative system, insofar as it translates into a fact preventing the birth of the tax obligation.

7.18.

Because it may be an economic, social or cultural incentive, pursuing purposes different from those presiding over the system of taxation as a rule, tax benefits should be characterized by their exceptional nature and by an extrafiscal foundation:

7.18.1.

By their exceptional nature, because they impede normal taxation;

7.18.2.

By the extrafiscal foundation, insofar as, if there were a fiscal foundation, it should be incorporated in the system of taxation as a rule itself.

7.19.

As the act of taxation is an act of public interest, it must be recognized that the creation of a tax benefit will alter the equilibrium in the distribution of the tax burden by treating citizens unequally, in light of the criterion of tax capacity, making impossible the application of the principle of equality.[12] [13]

7.20.

In these terms, it can be stated that tax benefits encompass three requirements:[14]

a) First of all, they constitute a derogation from the general rules of taxation;

b) Second, they pursue a relevant social and economic objective that determines the derogation from the general rule referred to in the previous paragraph;

c) And, finally, they grant, as a consequence, an advantage to the taxpayers who benefit from them.

7.21.

Now, in accordance with the provisions of article 2 of the EBF, "tax benefits are considered to be measures of an exceptional character established for the protection of relevant extrafiscal public interests that are superior to those of taxation itself that impede", being considered as tax benefits, in particular, "(…) reductions of rates (…)" (underline ours).

7.22.

In this sense, article 2, number 1 of the EBF considers the concept of tax benefit as a fact preventing the constitution of the tax relationship, so that the rules presiding over its creation, and that legitimize its grant, are:

7.22.1.

Legally special and,

7.22.2.

Factually exceptional, insofar as they are based on public interests, extrafiscal, but constitutionally relevant.

7.23.

Thus, the break of the essential nucleus of taxation passes, primarily, through a derogation of the principle of tax capacity ([15]) insofar as, in accordance with this principle, taxation would be practiced according to the subjective situation of each taxpayer, that is, fair taxation is that which ensures material equality in the distribution of tax burdens.

7.24.

However, tax capacity concerns the criterion of the distribution of income intended for the financing of direct public expenses (and not those intended for the pursuit of specific extrafiscal social purposes), which will mean that the distribution of income would not be possible if not for the possibility of modulating the content of the principle of tax capacity.

7.25.

Tax capacity, as defined, requires not only the personalization of taxation but also that the legislator direct the tax to the three manifestations of wealth relevant that indicate the economic capacity of the taxpayer and that constitute the tax base, that is, the wealth that is earned (income), the wealth that is possessed (property) and the wealth that is spent (consumption).[16]

7.26.

Although the principle of tax capacity does not consume the principle of tax equality, it nevertheless constitutes one of its stronger expressions or manifestations, as well as a conforming element of the idea of a Material Rule of Law.

7.27.

In these terms, the principle of tax capacity comprises two dimensions, which are that of a presupposition and a limit of taxation: as a presupposition or source of taxation, the principle of tax capacity is based on the economic force of the taxpayer expressed in the ownership or use of wealth; already as a limit or measure of the value of the tax, it prevents the legislator from adopting ordering elements incident on the constituent elements of the tax, contrary to the requirements of tax justice enunciated by the same principle.[17]

7.28.

On the other hand, tax benefits may be distinguished as conditional benefits, temporary benefits and permanent benefits.

7.29.

Conditional tax benefits are those whose effectiveness depends on the verification of certain secondary accessory presuppositions (which are their "conditio juris"), thus distinguishing themselves from the so-called pure benefits whose effectiveness does not depend on the verification of any accessory presupposition.[18]

7.30.

In conditional benefits, the condition may take one of two forms, either suspensive or resolutive:

7.30.1.

The condition is said to be suspensive when the benefit is granted after certain accessory presuppositions are verified, and

7.30.2.

It is considered resolutive when the benefit is granted but its effectiveness depends on the verification of the presuppositions of the benefit, whose non-verification determines the lapsing of the same.

7.31.

With respect to temporary benefits, as the name suggests, are granted for a limited period fixed in the law, as opposed to permanent benefits granted for the future without pre-determination of their duration.[19] [20]

7.32.

As temporary benefits are created with the objective of producing certain results of relevant public interest, permanent character benefits, given their long duration, have the disadvantage of the possibility that the public interest pursued with their grant has been exceeded, coming to transform into favors or tax privileges.

7.33.

Also in this context, it is important to proceed with the distinction by which tax benefits may be considered static or dynamic:

7.33.1.

The former are geared to situations that have already occurred (or that while not yet fully occurring) do not aim (at least not directly) to encourage or stimulate, but only to benefit (for reasons of superior order and nature of policy for defense, economic, religious, social, cultural, etc);

7.33.2.

By contrast, dynamic incentives aim to encourage or stimulate certain activities, establishing a relationship between the advantages attributed and the activities stimulated in terms of cause-effect.

7.34.

Thus, whereas in static tax benefits the cause of the benefit is the situation or activity in itself, in dynamic tax benefits the cause is linked to the future adoption of the favored behavior or future exercise of the activity that is intended to promote.

7.35.

As established by article 12 of the EBF, "the right to tax benefits must concern the date of verification of the respective presuppositions, even if dependent on recognition (…)" (underline ours).

7.36.

It appears from this transcription that, as a general rule, the right to tax benefits is constituted with the verification of the respective presuppositions.

7.37.

However, just as the tax obligation is not due at the exact moment it is verified, it is understandable that if a tax benefit is not duly and timely requested, it will not produce its effects at the exact moment of the verification of the facts.[21]

7.38.

In this matter, in accordance with the provisions of article 5 of the EBF, tax benefits may be "automatic and dependent on recognition", being that "the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition" (underline ours).

7.39.

In truth, with regard to the granting of tax benefits, the law distinguishes two types of recognition:

7.39.1.

In automatic tax benefits, recognition results directly and immediately from the law, operating by the simple verification of the respective factual presuppositions, not requiring any act of the tax administration;

7.39.2.

In tax benefits dependent on recognition, this may be effected by an administrative act (in which case we have tax benefits dependent on unilateral recognition) or through a contract (in which case we have tax benefits dependent on bilateral recognition).

7.40.

For the purposes of the above, article 65 of the CPPT provides that "the recognition of tax benefits depends on the initiative of the interested parties, by means of a request directed specifically for that purpose, the calculation, when mandatory, of the requested benefit and the proof of the verification of the presuppositions of recognition in accordance with the law" (underline ours).

7.41.

In accordance with the provisions of article 7 of the EBF, "all persons, natural or legal, of public or private law, to whom tax benefits are granted, automatic or dependent on recognition, are subject to inspection by the Tax and Customs Authority (…) to control the verification of the presuppositions of the respective tax benefits and the fulfillment of the obligations imposed on the holders of the right to the benefits" (underline ours).[22]

7.42.

As to the manner of extinction of tax benefits, in general terms, in accordance with the provisions of article 14 of the EBF, the same may be caused by lapsing, by alienation of property for purposes different from those for which the benefit was granted, by revocation of the administrative act of grant and by renunciation of the benefits, being that "the extinction of tax benefits has as a consequence the automatic restoration of the general taxation" (underline ours).[23]

7.43.

On the other hand, in accordance with the provisions of article 15 of the EBF, "the right to tax benefits (…) is non-transferable inter vivos, being, however, transferable mortis causa if the presuppositions of the benefit are verified in the transferee, except if this is of a strictly personal nature", being that this rule of non-transferability has two exceptions, provided for in article 15, number 2 and number 3 of the EBF, the first of automatic application and the second dependent on authorization from the Minister of Finance (underline ours).[24]

7.44.

In accordance with the provisions of article 14 of the EBF, as already mentioned above, "the extinction of tax benefits has as a consequence the automatic restoration of general taxation".

7.45.

In these terms, and having considered the general regime of Tax Benefits presented above, we will conclude, after making the framing of the case under analysis, whether or not the Respondent's assertion is correct when, in its Response, it states that "(…) the interpretation conveyed by the Claimant is shown to be contrary to the Constitution of the Portuguese Republic (…), insofar as it violates the constitutional principles (i) of tax equality, (ii) of tax justice, (iii) of tax capacity, (iv) and (v) of participation in decision".

Of the framing of the case under analysis

7.46.

In this context, and for the purposes of this analysis, in order to assess which of the Parties is correct in the interpretation that should be made regarding the provisions of article 44, number 1, paragraph n) of the EBF, we will follow very closely the position defended in the Judgment of the TAC of 7 December 2016 (case no. 00134/14.4BEPRT), because this Tribunal agrees with the position adopted in the referred Judgment, even though the Respondent has stated in its pleadings that an extraordinary appeal of that decision was filed.[25]

7.47.

But, in this context, it should also be noted that the same position was adopted in the Judgment of the TAC of 01 June 2017 (case no. 00693/14.1BEPRT), pursuant to which it is concluded that "the properties located in Historic Centres, included in the UNESCO World Heritage List, are classified as being of national interest, falling within the category of national monuments" and, to that extent, "are exempt from municipal property tax the properties classified as national monuments (…)".

7.48.

But let us analyze the question sub judice from the beginning.

7.49.

"The Convention for the Protection of World Cultural and Natural Heritage, which took place in Paris, and was approved by Decree no. 49/79, of 6 June, sought to establish which natural and cultural properties could be inscribed in the World Heritage List, setting forth the duties of Member States as to the identification and protection of such property".

7.50.

"Following this, various monuments, sites or ensembles came to obtain the classification of UNESCO World Heritage, standing out, in particular, the ensembles classified, more specifically, the Historic Centres classified as UNESCO World Heritage, in casu, the Historic Centre of Porto".

7.51.

"The aforementioned ensembles classified as World Heritage benefited, for several years, from exemption from IMI, pursuant to the provisions combined with articles 44, number 1, paragraph n) of the Tax Benefits Statute and 15, numbers 2, 3 and 7 of Law no. 107/2001, of 8 September (Legal Framework for the Protection of Cultural Heritage)".

7.52.

In general terms, and transcribing only the legislation applicable to the case under analysis, in accordance with article 44, number 1, paragraph n) of the EBF "are exempt from municipal property tax (…) properties classified as national monuments and properties individually classified as of public interest or municipal interest, in accordance with the applicable legislation".

7.53.

Thus, taking into account the provision of the rule under analysis, the properties in question are exempt from IMI provided they are classified as national monuments, in accordance with the applicable legislation.

7.54.

Indeed, it is argued in the aforementioned Judgment that "we can verify that this article is composed of two provisions. In the first place, properties classified as national monuments are exempt from municipal property tax. In the second place, properties individually classified as of public interest or municipal interest are exempt from that same tax" (underline ours).

7.55.

Additionally, pursuant to the provisions of number 2, paragraph d) of the aforementioned article, "the exemptions referred to in the preceding number commence (…) with respect to the situations provided for in paragraph n), in the year, inclusive, in which the classification occurs", being that in accordance with the provisions of number 5 of the aforementioned article 44 of the EBF "the exemption referred to in paragraph n) of number 1 is of an automatic character, operating through communication of the classification as national monuments or of individualized classification as property of public interest or municipal interest, to be effected by the Institute for the Management of Architectural and Archaeological Heritage, I.P., or by the municipal councils, in force while the properties are classified, even if these should be transmitted" (underline ours).

7.56.

Finally, in accordance with number 6 of the same article of the EBF, "for the purposes provided for in the preceding number, the services of the Institute for the Management of Architectural and Archaeological Heritage, I.P., and the municipal councils proceed with the aforementioned communication, with respect to properties already classified on the date of entry into force of the present law: a) Ex officio, within the period of 60 days, or b) At the request of the owners of the properties, within the period of 30 days from the date of entry of the request in the respective services".

7.57.

"In turn, article 15 of Law no. 107/2001, of 8 September, establishes" that "1 - Immovable property may belong to the categories of monument, ensemble or site, in the terms that such categories are defined in international law, and movable property, among others, to the categories indicated in title VII. 2 - Movable and immovable property may be classified as of national interest, public interest or municipal interest. 3 - For immovable property classified as of national interest, whether they are monuments, ensembles or sites, the designation 'national monument' shall be adopted, and for movable property classified as of national interest the designation 'national treasure' is created. 4 - A property is considered of national interest when its protection and enhancement, in whole or in part, represents a cultural value of significance for the Nation. (...) 7 - Immovable cultural property included in the world heritage list integrates, for all purposes and in its respective category, the list of property classified as of national interest" (underline ours).

7.58.

Now, "from the articulation of these provisions results that properties located in Historic Centres included in the UNESCO World Heritage List are classified as being of national interest, falling within the category of national monuments and, benefiting, therefore, from the exemption established in paragraph n) of number 1 of article 44 of the Tax Benefits Statute", formulation "(…) reiterated in article 2 of Decree-Law no. 309/2009, of 23 October, with its article 3, number 1 stating that an immovable property may be qualified as of national interest, public interest or municipal interest, and adding number 3 that the designation national monument is attributed to immovable property classified as of national interest, whether they are monuments, ensembles or sites" (underline ours).

7.59.

However, "(…) with the entry into force of Law no. 53-A/2006, of 29 December - State Budget Law for 2007, which introduced changes to the rule of the Tax Benefits Statute analyzed here, a new literal element was introduced in the text of article 44, number 1, paragraph n) (…) – the individual classification of the property".

7.60.

Based on this new element, the Respondent believes that "it is abusive the interpretation that ALL properties inserted within the Ensemble are, simply by that fact, classified and, as such, exempt from IMI", stating that "(…) in order to be able to enjoy exemption from IMI, the EBF requires the individual classification of each of the properties that make up that Ensemble" (emphasis and capitals of the Respondent).

7.61.

In the case, the property identified, as documented, is "(…) part of the Historic Zone of Porto, which was inscribed in the UNESCO World Heritage List, as declared by Notice no. 15,173/2010, published in the Official Journal, II Series, of 30 July 2010, issued pursuant to number 3 of article 72 of Decree-Law no. 309/2009, of 23 October".

7.62.

And, recall that "article 15, number 7 of Law no. 107/2001, of 8 September, expressly states that immovable cultural property included in the world heritage list integrates, for all purposes and in its respective category, property qualified as of national interest".

7.63.

In this context, the Judgment of the TAC 00134/14.4BEPRT reiterates that "that is the case of the Historic Zone of Porto, having had its classification altered as property of public interest, which originally appeared in Decree no. 67/97, of 31 December" whereby "today, in light of Law no. 107/2001, of 8 September (…)" a property there inserted is "(…) of national interest, and not of merely public or municipal interest, being, consequently (…)" classified as national monument.

7.64.

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

7.65.

"The fact that individually classified properties may coexist, in case of delimitation of an ensemble or of a site, pursuant to article 56 of Decree-Law no. 309/2009, of 23 October, has only provisional relevance to delimit the protection zone of that property until the publication of the classification of the ensemble or of the site" and, "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 interest or municipal interest, only requiring individualization in relation to these latter two categories, not already to property of national interest".[26]

7.66.

"In this vein, it was further added that the article in question – article 44, number 1, paragraph n) of the Tax Benefits Statute – alludes to two distinct realities: on the one hand, it establishes that properties classified as national monuments are exempt from IMI (nothing further being required in this respect); on the other, it contemplates a similar exemption for properties individually classified as of public interest or municipal interest".

7.67.

Now, unless better opinion, with respect to national monuments, "(…) the law does not impose an individualized classification (…)" taking into account "(…) the fact that the legislator did not make such a requirement, contrary to what occurred, for example, in the case of the Municipal Tax on Onerous Property Transfers (IMT), in which paragraph g) of article 6 of the IMT Code was amended, having ceased to encompass acquisitions of properties classified as of national interest, public interest or municipal interest, pursuant to Law no. 107/2001, of 8 September, to now only contemplate acquisitions of properties individually classified as of national interest, public interest or municipal interest, in accordance with the applicable legislation".

7.68.

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

7.69.

Indeed, in this context, "in fact, on the contrary, the rule of number 5 of article 44, as worded by Law no. 3-B/2010, of 28 April, expressly provides that the exemption referred to in paragraph n) of number 1 is of an automatic character, operating through communication of the classification as national monuments or of individualized classification as property of public interest or municipal interest (…)" (underline ours).

7.70.

Thus, "it results, therefore, in very clear terms that the legislature's intention was to dispense with individualized classification for the purposes of IMI exemption to national monuments, requiring it only in relation to property of public or municipal interest".

7.71.

Now, being the underlying tax acts of the request the IMI assessments for the years 2012, 2013 and 2014, effected by the Respondent itself, and being...

[The text is truncated here as in the original Portuguese version]