Process: 453/2017-T

Date: April 5, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 453/2017-T) addresses a challenge to IMI (Property Transfer Tax) assessment for 2016 concerning properties collectively known as a heritage building complex in Porto. The claimant company contested the tax assessment on multiple grounds: (i) omission of essential formality due to inadequate consideration of legal arguments raised during the hearing procedure under Article 60(7) LGT; (ii) erroneous interpretation of Article 44(1)(n) EBF regarding IMI exemption for properties classified as assets of public interest; and (iii) violation of constitutional principles of justice, equality, and proportionality. The Tax Authority raised preliminary objections including lis pendens (litispendência), arguing that a parallel Administrative Special Action concerning the same IMI exemption denial was pending before the Administrative Court of Porto since 2013. The Authority also claimed tribunal incompetence regarding the procedural hearing violation and defended its substantive interpretation that the properties, while classified as public interest assets, did not qualify for exemption because they were not part of UNESCO's Historic Centre of Porto classification. The case raises significant issues about the scope of tax exemptions for heritage properties, procedural rights in tax assessment procedures, and the interaction between administrative court proceedings and tax arbitration, particularly regarding the effects of inadequate reasoning when dismissing taxpayer arguments presented during mandatory hearing procedures.

Full Decision

ARBITRAL DECISION

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD, being notified to the Tax and Customs Authority in accordance with legal provisions. The Ethics Council appointed the undersigned as arbitrator of the Single Arbitral Tribunal, notifying the parties of this appointment. In accordance with the provision set out in article 11(1)(c) of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 19 October 2017.

I – REPORT

  1. On 28.07.2017, A..., LDA. with the Tax Identification Number ... and registered office at ..., ... , ...-... PORTO, filed a request for constitution of a Single Arbitral Tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as LRAT), with the Tax and Customs Authority as respondent.

  2. The Claimant contests the act of assessment of Property Transfer Tax (IMI) relating to the year 2016, requesting its declaration of nullity/annulment and consequent condemnation to restitution of the tax paid, as well as condemnation of the Respondent to payment of compensatory interest.

The Claimant alleges:

The procedure for assessment of IMI, with reference to the year 2016, is vitiated by several defects that imply its nullity/voidability: i) omission of essential formality [article 60(7) of the General Tax Law (LGT)], ii) erroneous qualification of tax facts, violation of law [articles 44(1), paragraph n) and 5, of the Tax Benefits Statute (EBF)], and iii) violation of the principles of justice, coherence of the legal system, equality, and proportionality [articles 2, 13 and 18(2) of the Constitution of the Portuguese Republic (CRP) and 55 of the LGT].

The Claimant, in exercise of that right (of hearing), raised new legal elements in order to refute the "extravagant" interpretation made by the Tax Authority of the norm of article 44(1) paragraph n) of the EBF, which is, furthermore, "contra legem".

When the legislator establishes, in article 60(7) of the LGT, that the Tax Authority must take into account new elements, it refers to both factual elements and legal elements, which the Tax Authority should have assessed in the grounds for rejection – which, in this case, did not occur.

Indeed, "The obligation to take these new elements into account in the grounds of the decision is expressed by them being mentioned and assessed."

And "The failure to assess the new factual or legal elements invoked by the interested parties shall constitute a formal defect, due to deficiency of reasoning, susceptible of leading to annulment of the decision of the procedure."

The merely formal "compliance" with the right of hearing, distorting its objective of ensuring the taxpayer's participation in the decision, constitutes a violation of the right of participation (article 60(7) of the LGT), which constitutes omission of essential formality and is a ground for judicial challenge, in accordance with article 99, paragraph d) of the Code of Tax Procedure and Process (CPPT), determining the annulment of the act.

The Tax Authority's interpretation of article 44(1), paragraph n) of the EBF, which does not grant IMI exemption to the Claimant, in addition to being manifestly unjust, by treating equally what is different, does not comply with the requirement of proportionality in the strict sense, leading to an unacceptable imbalance in the obligation to which the owner of properties classified as "assets of public interest" is subject, consisting of an unjustifiable excess in conservation expenses and an abusive limitation on free disposal of the property, with manifest violation, as explained, of the principles of coherence of the legal system, equality, justice and proportionality (article 55 of the LGT and articles 13, 18(2) and 266(2) of the CRP).

As such, the IMI assessment under discussion is illegal and unconstitutional, by violation of ordinary law (article 44(1), paragraph n) of the EBF) and constitutional law (article 55 of the LGT and articles 13, 18(2) and 266(2) of the CRP).

  1. For its part, the Tax Authority…

It first emphasizes that the assessment placed in issue is the result of the decision to reject the request for IMI exemption, delivered on 2013-11-16 by the Chief of Finance of Porto… and relating to the urban properties in question, to which the Claimant reacted by filing an Administrative Special Action.

There is, therefore, in the view of the Tax Authority, a question of prejudiciality in the decision that must be taken into account, and the present arbitral request should be suspended until the matter raised in the Administrative Court of Porto is definitively decided.

In submissions, the Tax Authority, invoking similar arguments, raises the exception of Lis Pendens, which, because it must be assessed ex officio, should also be examined with the legal consequences in case of success.

With regard to the alleged violation of the right of participation within the scope of the IMI exemption procedure, the Tax Authority points to the Incompetence of this Tribunal because such question "cannot be assessed within the scope of the arbitral pronouncement request".

As to the merits, the Tax Authority understands that the assessments in issue constitute a correct interpretation and application of law to the facts, not suffering from any defect of violation of law, or other, and consequently, the total lack of merit of the request should be declared, the act being maintained in the exact terms in which it was performed.

It acknowledges that there is a strong tendency in the case law of CAAD and superior courts towards the declaration of IMI exemption in the case of properties classified as World Heritage by UNESCO, warning, however, that such case law has no relation to the present case, since the properties in question are not part of the so-called "Historic Centre of Porto", being therefore outside that Institution's classification.

II – Facts

  1. The Claimant is the owner of the properties which are, together, known as "...":

Property located on Rua ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on Rua ..., Nos. ... and ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ... to ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on Rua ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., No. ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto;

Property located on ..., Nos. ... to ... and on Rua de ..., corresponding to article ... of the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ..., of the municipality of Porto.

  1. The identified properties are an integral part of the so-called "Historic Zone of Porto", the whole of which was classified as an asset of public interest by Decree-Law No. 67/97, of 31 December, and whose delimitation was explicitly set out graphically by Order No. 975/2006 (2nd series), of 19 May 2006.

  2. In 2003, the Claimant requested exemption from Municipal Contribution/IMI for the properties registered in the urban registry of the parish of ..., under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... [in the current Union of Parishes of ..., ..., ..., ..., ... and ... (Porto), now under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ...], which constitute the aforementioned ..., which it did in accordance with the legislation in force at that time.

  3. On 24-05-2005, a dispatch of agreement was issued by the Tax Manager of the Directorate of Municipal Contribution/IMI Services, approving those requests for IMI exemption, with effects as of the year 2004, inclusive.

  4. On 01-11-2013, by official letter No. ..., dated 28-10-2013 from the Chief of the Finance Service of Porto – ..., the Claimant was notified to exercise the right of hearing on the draft assessment relating to the IMI of the aforementioned properties registered in the urban registry of the Union of Parishes of ..., ..., ..., ..., ... and ... (Porto) under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ..., with reference to the years 2009 to 2012.

  5. The Claimant exercised, on 15-11-2013, its right of hearing in accordance with document No. 15, attached with the case file.

  6. On 02-12-2013, the Claimant was notified by official letter No. .../...-10, dated 25-11-2013, of a dispatch by the Deputy Chief of Finance of the Finance Service of Porto - ..., by delegation of powers, which maintained the draft decision on cessation of IMI exemptions on the identified properties, in accordance with document No. 16, attached with the case file.

  7. The Director of Services for Cultural Assets, of the Regional Directorate of Culture of the North, by official letter S-.../..., dated 10-02-2014, commented on a request submitted by the Claimant, in accordance with the document attached as document No. 18 to the case file, noting that the set of properties referred to was not subject to individual classification, highlighting, however, that they form part of the "Historic Zone of Porto", classified as an asset of public interest.

  8. The identified properties do not form part of the so-called "Historic Centre of Porto", classified as World Heritage by UNESCO, but of the so-called "Historic Zone of Porto", not covered by such classification.

  9. On 03-03-2014, the Claimant filed an Administrative Special Action, in accordance with the terms set out in the document attached with the Tax Authority's Response, against the dispatch of the Deputy Chief of Finance of the Finance Service of Porto - ..., which, by delegation of powers, maintained the draft decision on cessation of IMI exemption, which continues to be pending in the Administrative Court of the North.

Facts Established as Proved

All those aforementioned.

Justification of Factual Matter Proved and Not Proved

With regard to factual matters, the Tribunal is not required to pronounce on all that has been alleged by the parties; rather, it has the duty to select the facts that matter for the decision and distinguish the proven matter from the unproven matter (see article 123(2) of the CPPT and article 607(3) of the Code of Civil Procedure, applicable by virtue of article 29(1), paragraphs a) and e) of the LRAT).

Thus, the facts relevant to the judgment of the case are selected and defined according to their legal relevance, which is established having regard to the various plausible solutions to the legal question(s) (see former article 511(1) of the Code of Civil Procedure, corresponding to the current article 596, applicable by virtue of article 29(1), paragraph e) of the LRAT).

Therefore, having regard to the positions assumed by the parties, in light of article 110(7) of the CPPT, and the documentary evidence joined to the case file, the facts listed above were considered proved, with relevance to the decision.

III – ON THE LAW

The central disputed issues in the present proceedings that require assessment for decision are the following:

  • The matter of the exception/lis pendens
  • The matter of suspension/prejudiciality
  • The matter of the (in)competence of this arbitral tribunal to assess the alleged defect of omission of legal formality consubstantiated in the "irregular" exercise of the right of prior hearing and as to the consequences of its verification. The principle of act preservation and its applicability to the present case must be weighed.
  • The substantive question that arises is ultimately whether it is to be determined on what terms and conditions properties located in classified places benefit from IMI exemption, under the provisions of article 44, paragraph 1, paragraph n) of the EBF.

Let us examine this:

a) EXCEPTION/LIS PENDENS

The Respondent, in its submissions, argues that there is a strong similarity between the present arbitral proceedings and the proceedings pending in the Administrative Court of the North, under No. 530/14.7BEPRT, consubstantiated in an Administrative Special Action, in which, according to the Respondent, the Claimants submit to judicial review the same substantive question that is at issue in these proceedings.

As this must be assessed ex officio, we first proceed to examine the raised exception of lis pendens.

As alleged by the Respondent, the requests in each of the two proceedings are, on the substantive question, identical; the factual and legal grounds, in each of the proceedings, are exactly the same; and the disputed legal relationships from which each action proceeds are the same. Therefore, there is unequivocal repetition of the cause, as it is the same cause of action, the same request, and the same parties involved.

Consequently, since the present arbitral proceedings were instituted secondly, the dilatory exception of lis pendens between this proceeding and that judicial proceeding would impose absolution of the instance of the Tax Authority.

Now, as stated in the decision cited by the Tax Authority: Article 580 of the Code of Civil Procedure provides that the exception of lis pendens presupposes the repetition of a cause, with the prior one still pending (paragraph 1), with the purpose of preventing the tribunal from being placed in the alternative of contradicting or reproducing a prior decision (paragraph 2).

The requirements of lis pendens are set out in article 581 of the Code of Civil Procedure, which provides that a cause is repeated "when an action identical to another is proposed as to the subjects, the request, and the cause of action" (paragraph 1), with "identity of subjects when the parties are the same from the perspective of their legal capacity" (paragraph 2), "identity of request when in both cases it is intended to obtain the same legal effect" (paragraph 3), and "identity of cause of action when the claim made in the two actions proceeds from the same legal fact" (paragraph 4).

It is therefore necessary to verify whether or not the triple identity required by article 581(1) of the Code of Civil Procedure occurs in this case between this arbitral proceeding and the aforementioned judicial proceeding.

Apparently, there is no identity between the requests formulated in that Administrative Special Action and in the present arbitral proceeding. Effectively, in that action what is sought is annulment of the dispatch issued by the Deputy Chief of Finance of the Finance Service of Porto - ..., which, by delegation of powers, maintained the draft decision on cessation of IMI exemption. Whereas in this arbitral proceeding what is being claimed is annulment of the IMI tax assessment act relating to the year 2016.

Also apparently we are faced with different causes of action: an administrative act in tax matters, as to the judicial proceeding, and an assessment act (tax acts stricto sensu), in this arbitral proceeding.

However, it is the case that this is so only in appearance, as in essence we are faced with identical causes of action and requests, which we can perceive with meridian clarity if we pay attention to the scope/extent of the challenge to said IMI assessment that is being made through this arbitral proceeding.

It results therefore unequivocally that the Claimant here petitioned both the Administrative Court of Porto and this Arbitral Tribunal to assess the same question, although from different but wholly convergent perspectives, namely: IMI exemption, year 2016, relating to the properties in question.

Indeed, lis pendens occurs when there is repetition of the cause, that is, when an action identical to another is proposed as to the subjects, the request, and the cause of action, with the first still pending; and in the assessment of this exception "account must be taken not only of the formal criterion (based on the triple identity of the elements that define the action) established and developed in article 581 of the Code of Civil Procedure, but also of the substantial directive traced in paragraph 2 of article 580, where it is stated that the exception of lis pendens (like that of res judicata) has the purpose of preventing the tribunal from being placed in the alternative of contradicting or repeating a prior decision (cfr. Antunes Varela, J. Miguel Bezerra and Sampaio e Nora, Manual of Civil Process, 2nd Edition, Coimbra Editora, at page 302).

Manuel de Andrade teaches, in Elementary Notions of Civil Procedure, at pages 138 and 139, that the exception in question "is intended to prevent the material legal relationship or situation defined by a judgment from being validly defined in a different manner by another judgment (reason of certainty or legal security) and to prevent a new useless decision (reasons of procedural economy), with "the concern to safeguard the prestige of the tribunals" also intervening at a secondary level.

Such reasons lead to the conclusion that, in the case of these proceedings, given the content of the petitions/requests presented by the Claimant, one could conclude for the verification of the exception of lis pendens, absolving the Public Treasury of the instance.

HOWEVER,

Upon reviewing and comparing the content of such initial petitions/requests presented by the Claimant in each of the two proceedings, it is noted that in the arbitral request an autonomous defect directed to the "procedure" that gave rise to the IMI assessment act in question is raised, which, not forming part of the plaintiff's principal claim in the proceedings running in the administrative courts, may in itself impose annulment of the tax act in the terms in which it is being requested.

Thus, without prejudice to what was stated above, the request for annulment of the tax act on the ground of the defect of omission of legal formalities cannot fail to be examined, as it may, in case of success, impose annulment of the assessment act, being a sufficient ground for such annulment, and as it was not requested in the first proceedings instituted, and it is not subject to ex officio examination in the Court where the proceedings are pending.

b) Similarly, the matter concerning the question of Prejudiciality raised in the Tax Authority's Response deserves, with appropriate adaptations, the same examination and decision.

c) Exception of Incompetence as to the Subject Matter

Article 54 of the CPPT provides: "Unless they are immediately harmful to the taxpayer's rights or unless there is express provision to the contrary, the interlocutory acts of the procedure are not subject to contentious challenge, without prejudice to any illegality previously committed being invoked in the challenge to the final decision."

It is therefore in the "contest" to the tax assessment act that the taxpayer, as the tax obligation's debtor, should challenge any act of the tax procedure that preceded it.

With respect specifically to tax benefits, see Nuno Cerdeira Ribeiro (The Jurisdictional Control of Acts of the Tax Administration: reflections on the articulation with the administrative procedure, Coimbra, Almedina, 2014, p. 213) "automatic benefits are considered in a broader assessment procedure, which results in the emanation of a tax act stricto sensu."

In that case, since "the tax benefit is part of the assessment procedure, the act here challengeable will be this latter, through the process of judicial challenge, and it is in this venue that the taxpayer can attack the legality of the assessment based on disregard or incorrect consideration of the benefit in question, which vitiates the final act".

We consider that, in the case under analysis, these are acts underlying the IMI tax assessment act that is being challenged.

Being the case that, in accordance with article 2 of the Legal Regime of Tax Arbitration:

"1 – The jurisdiction of arbitral tribunals comprises the assessment of the following claims:

a) the declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) …"

In these terms this Tribunal declares itself competent to assess the matter in question, which it now proceeds to do.

c.1) As we will be able to verify in proceeding No. 67872 of 17-05-2012 of the Supreme Administrative Court:

The right of hearing enjoyed by taxpayers, enshrined in article 60(1) of the LGT, constitutes a constitutional right applied to the tax procedure, as a corollary of the principle of citizen participation in the formation of decisions or deliberations of the Public Administration that concern them, aiming to ensure preventive protection against any lesion of their rights or interests (article 267(5) of the CRP).

And, according to the provisions of paragraph 7 of article 60 of the LGT, "new elements raised in the hearing of taxpayers are obligatorily taken into account in the grounds of the decision".

In an annotation to this provision, DIOGO LEITE CAMPOS/BENJAMIM RODRIGUES AND JORGE DE SOUSA (See General Tax Law, Annotated and Commented, 4th ed., encounter of writing, publisher, 2012), consider that "The obligation to take these new elements into account in the grounds of the decision is expressed by them being mentioned and assessed", and that "the failure to assess the new factual or legal elements invoked by the interested parties shall constitute a formal defect, due to deficiency of reasoning, susceptible of leading to annulment of the decision of the procedure".

However, while procedural defects giving rise to mere voidability are at issue, as is the case of violation of article 60 of the LGT, it is admitted, by force of the general principle of administrative law of act preservation, that, for reasons of legal security and, above all, procedural economy, the administrative act, despite being invalid, should not be annulled when, in particular, its content "cannot be other and there is no relevant interest in annulment" or "when it is proven without margin for doubt that the formal defect had no influence on the decision" (See VIEIRA DE ANDRADE; Lessons of Administrative Law, 2nd ed., Coimbra, 2011, p. 179.)

In the same sense, the Supreme Administrative Court has established solid case law to the effect that formal defects do not necessarily impose annulment of the act to which they relate, and that essential procedural formalities are degraded to non-essential if, despite them, satisfaction was given to the interests that the law had in view when providing for them (See, among others, the Judgment of the Supreme Administrative Court of 30/3/2011, proceeding No. 877/09, with extensive case law referenced.) and that in particular the omission of the duty of prior hearing will not be invalidating of the final decision in cases where, through an ex post judgment of prognosis, the court can conclude, without margin for doubt, that the decision taken was the only concretely possible one (See, among others, the Judgment of the Supreme Administrative Court of 30/3/2011, proceeding No. 877/2011, and the Judgments of the Plenary of the Administrative Contentious Section of the Supreme Administrative Court of 9/2/1999, appeal No. 39.379 and of 12/12/2001, appeal No. 34981.).

In light of the above, it is necessary to consider whether in the case at hand the prerequisites for the application of the principle of act preservation were met.

Let us see.

Recall that the present Claimant, in response to the right of hearing, invoked substantial and important arguments in support of its understanding to the effect of IMI exemption, with respect to the properties located in that classified Zone.

Now, the omission of the right of hearing, by way of application of the principle of act preservation, will only be admissible when the intervention of the interested party in the tax procedure is, in a decisive and unequivocal manner, incapable of influencing the final decision, which generally occurs in cases where we are faced with an obvious legal situation (See Judgment of the Supreme Administrative Court of 15/2/2007, proceeding No. 1071/06.) or where it is a question of bound administrative activity. And, even here, it is established case law of this Supreme Court that "(…) it may still be possible, in certain cases of bound administrative activity, to admit the influence of the interested party's participation in that direction. Consequently, the formality in question (essential) is only degraded to non-essential, being therefore not invalidating of the decision, in cases where prior hearing would not have the slightest probability of influencing the decision taken, which imposes act preservation - utile per inutile non viciatur - as, it was emphasized, hearing of the interested parties is not mere procedural ritual." (see the Judgment of 14/5/2003, appeal No. 317/03).

As was stated in the Judgment of this Supreme Court of 30/3/2011, proceeding No. 877/09, referring to the application of the principle of act preservation, "(…) only in situations where no doubts whatsoever can be raised concerning the irrelevance of the exercise of the right of hearing on the content of the act's decision can application of that principle be effected".

As is commonly stated, "The interest pursued by the figure in question is, still and nuclearly, that of discovery of the material truth and preventive defense of the taxpayer's interests. If the legality of the assessment depends on the correct determination of the taxpayer's tax capacity, the objective interest is understood that the latter cooperates with the tax administration in order to prevent future disputes.

On the other hand, from the taxpayer's point of view, the latter has an interest in clarifying any evidentiary uncertainties of the tax administration before they are resolved in a manner contrary to its interests, thereby avoiding the need to challenge or appeal the assessment.", here attesting the pursuit of that aforementioned dual function – defensive and preventive.

Concluding, it was indeed necessary and obligatory to hear the taxpayer before the assessment.

And, as the hearing of interested parties is intended to permit their participation in decisions that concern them (see article 267(5) of the CRP), contributing to a full clarification of facts and a more adequate and fair decision, the omission of such hearing constitutes omission of a legal formality leading to voidability of the decision (see article 163(1) of the Administrative Procedure Code), unless it is manifest that this could only, in the abstract, have the content that it had in the concrete, and that therefore its preservation was necessary, through application of the general principle of act preservation.

[Part of the summary of the recent Judgment of the Supreme Administrative Court, Proceeding: 095/16 of 18-10-2017, was transcribed, which, with due deference, we shall continue to follow closely]

… The possibility of application of the principle of act preservation requires a case-by-case examination, analysis of the particular and concrete circumstances of each case, with a view to ascertaining, in an ex post judgment of prognosis, whether we are or are not faced with a situation of absolute impossibility of the decision of the procedure being influenced by the participation of the claimant.

That is, continuing in the sense of the Judgment we have been citing… the omission of the right of hearing, by way of application of the principle of act preservation, is only admissible when the intervention of the interested party in the tax procedure is unequivocally incapable of influencing the final decision.

Now, in the case, it is not completely unequivocal what the final direction of the discussion is, as it is, at least in the abstract, arguable whether the properties in question would fall within IMI exemption. It is, in the case, even a complex discussion, as can be seen in the cited case law.

Indeed, the analysis must attend to the particular and concrete circumstances of each case, with a view to ascertaining, in an ex post judgment of prognosis, independently of the later fact of the outcome of that discussion, that is, independently of the success or lack of success of the defects invoked in the challenge/contest.

The touchstone for the application of the aforementioned principle is therefore the incapability of the interested party's participation influencing the final decision, whether in its direction or in its grounds.

It is reiterated, "the application of the principle of act preservation necessarily implies an ex post judgment, 'this must be an ex post judgment of prognosis, whereby it cannot and should not be influenced by the lack of success of the other defects (in addition to omission of the right of hearing) invoked in the proceeding in which the act was challenged, under penalty of emptying the right of participation and practical impossibility of this institute.

(See in the same sense the Judgment of the Plenary of the Tax Contentious Section of the Supreme Administrative Court of 15 October 2014, delivered in proceeding No. 1374/13.).

WHEREFORE THE arbitral pronouncement request SUCCEEDS, as the contested assessment suffers from a formal defect consubstantiated in the deficiency (which is equivalent to lack) of prior hearing in accordance with the provisions of paragraph 7 of article 60 of the LGT, requiring annulment of the respective tax act.

d) As to the Request for Compensatory Interest

It is established case law, notably in the Supreme Administrative Court, that when the assessment act subject to challenge is annulled due to a formal defect, there is no basis, under the provisions of article 43 of the LGT, for the award of compensatory interest.

The aforementioned norm requires that there be an error attributable to the services from which resulted (in light of a nexus of causality) payment of undue tax.

And the existence of such error is not considered verified in the case under examination.

It is concluded, effectively, that, in cases, such as the present, in which the annulment of the assessment is based on omission of formality by violation of the right of participation or omission of the duty of prior hearing, the condemnation of the Tax Authority to payment of compensatory interest lacks legal support under article 43 of the LGT.

e) Given the Success of the Defect Pointed Out, the Examination of the Other Alleged Grounds for Annulment is Prejudiced, in the Terms Stated.

In truth, in obedience to the order of examination of defects, provided in article 124 of the CPPT, examination of the defect of omission of essential formality [article 60(7) of the General Tax Law (LGT)] would not take priority, as in the case of its success, it would not prevent renewal of the challenged act. However, given what was stated regarding the examination of the exception of lis pendens, the other defects could not be examined here.

IV – DECISION

In these terms, the Arbitral Tribunal decides to judge the arbitral request partly successful, and in consequence:

a) Declare the annulment of the IMI tax assessment act challenged, due to formal defect;

b) Determine the reimbursement of the amount unduly paid;

c) Not condemn the Tax Authority to payment of compensatory interest;

d) Condemn the Claimant and Respondent in the costs of the proceeding, fixed below.

Value of Proceedings

The value of the proceedings is fixed at €10,350.10, in accordance with article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by force of article 29(1), paragraphs a) and b) of the LRAT and paragraph 2 of article 3 of the Regulations on Costs in Tax Arbitration Proceedings.

Costs

The arbitration fee is fixed at €918.00, in accordance with Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the Respondent and Claimant, in the proportion of 90/10, respectively, as the request was considered partly successful, in accordance with articles 12(2) and 22(4), both of the LRAT, and article 4(4) of the aforementioned Regulations.

Lisbon, 05 April 2018

The Arbitrator,

(Fernando Miranda Ferreira)

Frequently Asked Questions

Automatically Created

What is the IMI tax exemption under Article 44(1)(n) of the Portuguese Tax Benefits Statute (EBF)?
Article 44(1)(n) of the Portuguese Tax Benefits Statute (EBF) provides IMI exemption for properties classified as national monuments or public interest assets, subject to specific conditions. The exemption aims to reduce the tax burden on owners who face special conservation obligations and disposal limitations. However, tax authorities have interpreted this provision restrictively, particularly regarding whether properties must be specifically included in UNESCO World Heritage classifications (such as Porto's Historic Centre) or whether general classification as public interest assets suffices. The scope and interpretation of this exemption has generated substantial case law, with CAAD tribunals often adopting broader interpretations favoring taxpayers who bear heritage conservation obligations.
How does failure to comply with the right to a hearing (Article 60(7) LGT) affect an IMI tax assessment?
Under Article 60(7) of the General Tax Law (LGT), tax authorities must consider and assess new factual and legal elements presented by taxpayers during mandatory hearing procedures before issuing final decisions. Failure to properly analyze and respond to these elements in the decision's reasoning constitutes an omission of essential formality (preterição de formalidade essencial), which is a procedural defect that can lead to annulment of the tax assessment under Article 99(d) of the Tax Procedure Code (CPPT). Mere formal compliance with the hearing requirement, without substantive engagement with taxpayer arguments, violates participation rights and distorts the objective of ensuring meaningful taxpayer involvement in administrative decisions. This defect is independent of the merits and can invalidate otherwise substantively correct assessments.
What constitutes preterição de formalidade essencial (omission of essential formality) in Portuguese tax proceedings?
Preterição de formalidade essencial (omission of essential formality) in Portuguese tax proceedings refers to the failure to comply with mandatory procedural requirements that are fundamental to protecting taxpayer rights and ensuring procedural fairness. Essential formalities include: proper notification of taxpayers, opportunity for hearing and defense (direito de audição), adequate reasoning in administrative decisions, and proper consideration of arguments and evidence presented. Unlike minor procedural irregularities, omission of essential formalities constitutes a serious defect that leads to annulment (not mere voidability) of tax acts under Article 99(d) CPPT. The distinction between essential and non-essential formalities depends on whether the omission prejudices the taxpayer's defense rights or the administration's ability to properly decide, with courts and arbitral tribunals strictly enforcing compliance with constitutionally-protected procedural guarantees in tax matters.
Can lis pendens (litispendência) be raised as a defense in CAAD arbitral tax proceedings?
Lis pendens (litispendência) can be raised as a procedural exception in CAAD arbitral tax proceedings when identical parties are litigating the same legal relationship in different courts or tribunals simultaneously. Portuguese tax arbitration law requires tribunals to examine this exception ex officio (sua sponte). When lis pendens exists between tax arbitration and administrative court proceedings concerning the same tax assessment or exemption decision, the tribunal must determine which proceeding takes priority based on filing dates and subject matter jurisdiction. The Tax Authority in this case argued that a prior Administrative Special Action filed in 2013 concerning the same IMI exemption denial created lis pendens requiring suspension of arbitration. However, the analysis depends on whether the proceedings truly involve identical parties, cause of action (petitum), and factual basis (causa de pedir), or whether they address distinct tax years or different legal issues, which would allow parallel proceedings.
What are the grounds for annulment of an IMI tax assessment based on erroneous qualification of taxable facts?
Grounds for annulment of IMI assessments based on erroneous qualification of taxable facts include: (i) misinterpretation or misapplication of exemption provisions such as Article 44(1)(n) EBF regarding heritage properties; (ii) incorrect factual determinations regarding property classification or characteristics relevant to tax liability; (iii) failure to properly investigate or consider evidence regarding exemption eligibility; and (iv) application of unlawful interpretative criteria that contradict statutory language (interpretação contra legem). In heritage property cases, erroneous qualification often involves disputed interpretations of what constitutes 'assets of public interest' eligible for exemption, whether UNESCO classification is required, or whether properties within heritage zones but not individually listed qualify. Tax authorities bear the burden of correct legal qualification, and errors constitute violation of law (violação de lei) under Article 99(b) CPPT, warranting annulment. Constitutional principles of equality, proportionality, and justice also limit permissible interpretations that would impose disproportionate burdens on heritage property owners.