Stamp Tax on Building Land Over €1M: CAAD Ruling 482/2015-T Annuls Assessment Under Verba 28.1

ARBITRAL DECISION

I – REPORT

1. On 27.07.2015, the Petitioner, A… - BRANCH IN PORTUGAL, holder of tax identification number…, with registered office at Rua…, no.…, …, requested the CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "LRAT"), in which the Tax and Customs Authority is Respondent, with a view to annulling the stamp duty assessment provided for in Item 28.1 of the General Schedule of Stamp Duty relating to the year 2014 and with reference to the urban property registered in the land registry under article U-…, of the Union of Parishes of … and …, municipality of …, dated 20.03.2015, in the amount of € 12,550.63.

The Petitioner further petitions for the restitution of the amounts corresponding to the tax assessment, which it considers to have been paid unduly, plus default interest accruing at the legal rate.

1. The request to constitute the arbitral tribunal was accepted by His Excellency the President of the CAAD and notified to the Tax and Customs Authority.

Pursuant to the terms and for the purposes of the provisions in no. 1, article 6, of the LRAT, by decision of His Excellency the President of the Deontological Board, duly communicated to the parties within the applicable legal periods, the undersigned was appointed as arbitrator, who communicated acceptance of the assignment to the Deontological Board and to the Centre for Administrative Arbitration within the applicable period.

The Arbitral Tribunal was constituted on 6.10.2015.

1. Verifying the absence of any situation provided for in article 18, no. 1, of the LRAT, which would necessitate the arbitral meeting provided therein, the holding thereof was dispensed with, on the grounds of the prohibition of unnecessary procedural acts and also on the principles of celerity, simplification and procedural informality.

The holding of oral arguments was likewise dispensed with, pursuant to article 18, no. 2, of the LRAT, "a contrario".

1. The grounds presented by the Petitioner in support of its claim were, briefly, as follows:

• The urban property to which the assessment in question relates was the subject of a prior information request submitted to the Municipal Council of…, regarding the use provided for or authorized in the Municipal Master Plan.

• Following the said prior information request, information was provided by the Department of Urban Planning and Development - Municipal Directorate of Environment, Equipment and Investments of the Municipal Council of… in accordance with which the urban property in question has an authorized and/or provided building, pursuant to the Municipal Property Tax Code – namely the IMI Code – intended for "residential activities, complemented with other activities, namely commercial, equipment, services, business and industrial".

• Comparing the nature of the property with the legal definition resulting from the IMI Code and with the scope of application provided in Item 28.1 of the TGIS, it is readily apparent that the assessment incurred a clear error regarding the factual basis, since from the analysis of the information provided by the Department of Urban Planning and Development of the Municipal Council of … it is clear that the planned buildings are not aimed solely at housing but also at commerce, equipment, services and industry, a situation that neither the text nor the intent of the scope provision contemplates.

• The scope provision materially typifies as the taxable event, in the case of the same land for construction, the building authorized or provided solely for housing, pursuant to the IMI Code.

• The legislator, with Law 55-A/2012 and with the amendment to the TGIS, intended, in a context of national emergency, to tax taxpayers holding increased tax capacity.

• Following this same reasoning and considering that with the State Budget for 2014 the legislator expanded, with the same intent, the objective scope of Stamp Duty pursuant to item 28.1 of the TGIS to land for construction, we can infer that, and nothing having been said to the contrary, also in this case the legislator only intended to subject to tax those who, having residential assignment or whose authorized or planned building is for housing pursuant to the IMI Code – that is, a HOUSE – and whose VPT is greater than 1,000,000 Euros.

• While the ownership of residential properties with a tax value exceeding 1,000,000 Euros evidences increased tax capacity, this does not result from the ownership of property by a real estate company that holds it in its legal sphere as an investment asset dedicated to real estate development operations, insofar as it does not represent "luxury" assets, and much less an additional or exceptional tax capacity.

• Therefore, the assessment of the tax in question, which is based on land for construction, in addition to literally not observing compliance with the materially applicable scope provisions, clearly affects the ratio legis represented in the amendment introduced to the General Schedule also with the wording given by the State Budget for 2014.

• It must further be noted in this regard that there is a reason for excluding from the scope of the scope provision the land intended for construction in the case of investment assets, since the properties by their area may have significant value, but after the construction operation the allocation to each unit will be of value less than € 1,000,000, and it may even have modest construction built thereon, depending always on the developer's choice.

• Furthermore, the fact that the Tax Authority now seeks to assess Stamp Duty pursuant to Item 28.1 of the TGIS in relation to investment assets reveals a clear violation of the principle of equality and tax capacity, and therefore it cannot but be concluded that the assessment of Stamp Duty pursuant to Item 28.1 of the TGIS is illegal, by violation of the principle of equality as provided in article 13 of the CRP, as well as its illegality by violation of the principle of tax capacity.

• It must further be stated that the Tax Authority does not invoke as the basis for the assessment the circumstance that we are dealing with land for construction with intended or approved allocation for housing as provided in the IMI Code, and therefore, in addition to the error regarding the factual basis, there is also a lack of reasoning, since, to sustain the assessment in question, the Tax Authority would have had to invoke that we are dealing with land for construction whose building, authorized or provided, is for housing, as provided in the IMI Code.

• The Tax Authority [even though not fully corresponding to the material reality of the urban property in question] should have stated and did not state that the land for construction has buildings provided or authorized for housing.

• The Petitioner is entitled to the restitution of the amounts paid plus compensatory interest counted as provided in article 43 of the LGT.

1. The Tax and Customs Authority, called to respond, contested the Petitioner's claim, in summary, with the following grounds:

BY EXCEPTION

a. The present request for arbitral pronouncement has as its object the annulment of the Stamp Duty assessment act expressed in the collection note with no. 2015…, in the amount of € 4,183.00.

b. For each tax event, there will, in principle, be a single assessment, by which the tax due will be determined.

c. The assessment is only one and only it constitutes an injurious act, capable of being challenged, which can, evidently, only be the object of a single challenge, regardless of whether the tax can be paid in several installments.

d. That is, the law does not provide for the independent challenge of an installment of item 28 of the TGIS contained in the collection notes, as is the case in the present matter.

e. And naturally, when the law provides for payment of the assessment amount in several installments, the annulment of the tax act will have consequences in relation to all of them.

f. In fact, article 23, no. 7, of the Stamp Duty Tax Code provides that "where the tax due by the situations provided for in item 28 of the General Schedule is concerned, the tax is assessed annually, in relation to each urban property (…), applying, with the necessary adaptations, the rules contained in the CIMI", and article 44, no. 5, establishes that "Where there is an assessment of the tax referred to in item 28 of the general schedule, the tax is paid within the periods, terms and conditions defined in article 120 of the CIMI".

g. Given the manifest unimpeachability of the independent installments of the assessment acts contained in the collection notes which constitute the object of the present request for arbitral pronouncement, the dilatory exception provided in article al. c), no. 1, article 89 of the CAPTA, subsidiarily applicable by article 29, no. 1, al. c), of the LRAT, occurs, which precludes consideration of the merits and results in the acquittal of the Tax Authority from the instance.

BY CHALLENGE

h. With the amendment made by Law no. 83-C/2013, of 31 December, to item 28.1 of the Stamp Duty Tax Code, land for construction whose building, authorized or provided, is for housing, as provided in the Stamp Duty Tax Code, came to be expressly covered thereby.

i. The document attached by the petitioner issued by the competent municipal authority confirms that the property in question fully integrates the definition of land for construction for the purposes of item 28.1 of the TGIS, in the wording given by Law 83-C/2013.

j. The document itself is clear in referring that the property in question is located in a predominantly residential area. Any other activities provided will always be supplementary to this.

k. By all the foregoing, the assessment in question constitutes a correct interpretation and application of item 28.1 of the TGIS, in the wording of Law no. 83-C/2013, which expressly prescribes that land for construction as the objective element of the scope of the rule, for which reason there necessarily fails any attempt to raise any interpretive issue of the letter of the Law.

l. With regard to the legislative choice not to include in the scope of item 28.1 of the TGIS urban properties intended for purposes other than residential, or rather, without residential allocation (and indeed, likewise, not to cover rustic properties), it is noted that what is at issue here is a differentiation with a material basis widely recognized by the legislator.

m. Indeed, the non-inclusion of Commercial, industrial or services properties is intuitive in light of the historical, political, social and economic circumstances surrounding the creation of item 28.1, since, given that it is known and public that the revival of economic activity and the increase of exports are the ways out of the crisis, it is understood that legislative measures that would hinder economic activity were not taken, namely the increase of the tax burden that hampers it and affects competitiveness in international terms.

n. We are therefore faced with a legitimate criterion of rational and logical differentiation, in no way violating constitutional precepts, which requires the limitation of the scope of the taxation in question to luxury residential properties or with residential allocation, with exclusion and to the detriment of properties with strictly economic allocations.

o. It is unquestionable that it is not an absolutely unreasonable solution that, in the context of the particular cyclical situation of a serious economic and financial crisis, budgetary imbalance and deterioration of public finances, an additional tax effort should be made on the owners of luxury residential properties, without equally including the owners of properties with non-residential allocations, which are intended for the development of economic activities.

p. The differentiated treatment finds sufficient material justification, the principle of equality is respected, both per se and in its dimension of proportional equality.

q. The legislator's essential objective was to establish individualized taxation of "high-value properties intended for housing", of "houses with a value equal to or greater than 1 million euros", or, commonly, of luxury properties or houses.

r. It was therefore intended to configure a taxation that would apply, in a specific manner, to individual real property components of the taxpayer's assets that were deemed to be luxury (not to the very assets globally considered), on the understanding that the ownership of such high-value residential real property reflected increased tax capacity capable of explaining the enhanced contribution of their holders to the common effort of budgetary consolidation.

s. And what results from the law itself, results a priori from the legislative choice itself, when the intention was, exclusively, to define that the ownership of properties with residential allocation of value exceeding the stated amount, demonstrates that the respective owner has special tax capacity, i.e., can acquire a single property in these conditions.

t. Also with regard to the alleged defect of lack of reasoning, the Petitioner is not correct, since all elements – tax identification of the taxpayer, tax year, property identification, tax year, rate, VPT, assessment and tax to pay – are expressed in the collection notes for payment, with no administrative procedure underlying each assessment act.

1. The Petitioner, notified to pronounce on the exception of unimpeachability raised, came to state, in summary, the following:

u. The petitioner identified in the heading of the initial petition the object of the request for arbitral pronouncement, which is reproduced here: "assessment of the legality of the tax act of assessment of Stamp Duty provided for in item 28.1 of the General Schedule of Stamp Duty".

v. Likewise, it identified the tax year: "relating to the year 2014", and also the property which constitutes the taxable event of the assessment in question: "with reference to the urban property registered in the land registry under article U-…, of the Union of Parishes of … and …, municipality of …".

w. So that there be no doubt, in article 1 of the request for arbitral pronouncement, the petitioner returned to the identification of the tax act, as can be seen:

"The present request for arbitral pronouncement is filed against the assessment of Stamp Duty provided for in Item 28.1 of the General Schedule of Stamp Duty (hereinafter TGIS) with the wording introduced by Law no. 83-C/2013, of 31 December [article 194] – pursuant to the State Budget for 2014".

x. With the same purpose, and to better represent the object of the request for arbitral pronouncement, the petitioner identified the document reflecting the stamp duty assessment: document 1 attached with the initial petition.

y. From the elements contained in this document, which the Petitioner called a "collection note", it is readily apparent that it integrates the act of assessment of the tax, and it was precisely the act that was intended to be challenged.

z. The Petitioner identified the amount of the first installment but such "section" does not allow concluding, as the Tax Administration intends, that it intended to challenge the first installment of the tax.

aa. As can be readily understood, what is at issue is the assessment of stamp duty and not the first installment of the assessment of stamp duty, which is equally perceivable bearing in mind the value assigned to the action: € 12,550.63, precisely the amount of the assessment.

bb. Article 104, no. 1 of the LGT states under the heading "bad faith litigation":

"Without prejudice to the exemption from costs, the tax administration may be condemned to a pecuniary sanction to be quantified according to the rules on bad faith litigation in case of acting in court contrary to the tenor of binding information previously provided to interested parties or its procedure in the proceeding differs from that habitually adopted in identical situations".

cc. In the case at issue, the petitioner identified the act that is the object of the arbitral pronouncement in the same manner that, by the pen of its representative, it did in dozens of proceedings that are or have been conducted in this Centre for Arbitration and which are identified here. And all have formulation identical to that of the present proceeding.

dd. The same occurred with proceeding no. 480/2015-T, in the scope of which the petitioner therein identified the assessment act in the same terms as it did in the present case without the Tax Authority raising the question with which we are concerned.

ee. Beyond revealing the (self) awareness of the lack of merit that he has in this exception, it also reveals that the Tax Authority acts in court (read: in arbitral instance) in a procedure that clearly differs from that habitually adopted in identical situations.

ff. Therefore, beyond the exception of unimpeachability of the object of the arbitral pronouncement being judged unfounded, the Tax Authority should be condemned as a litigant in bad faith.

1. The following questions must be resolved:

i) Exception of unimpeachability raised by the Respondent.

ii) Bad faith litigation by the Respondent in invoking such exception.

iii) Defect of violation of law due to error regarding factual and legal presuppositions.

iv) Defect of lack of reasoning.

II. CLARIFICATION

1. Exception of unimpeachability raised by the Respondent and the question of bad faith provided in article 104 of the LGT.

a) In the initial petition, the Petitioner expressly indicates that it comes to request the constitution of an Arbitral Tribunal and to present its request for arbitral pronouncement "for assessment of the legality of the tax act of assessment of Stamp Duty provided for in Item 28.1 of the General Schedule of Stamp Duty relating to the year 2014 and with reference to the urban property registered in the land registry under article U-…, of the Union of Parishes of … and …, municipality of…" also repeating in article 1 thereof that "The present request for arbitral pronouncement is filed against the assessment of Stamp Duty provided for in Item 28.1 of the General Schedule of Stamp Duty (hereinafter TGIS) with the wording introduced by Law no. 83-C/2013, of 31 December [article 194] – pursuant to the State Budget for 2014."

In article 2 of the petition it can further be read:

"The assessment in question refers to the following real property:

".

Adding in article 3 "all as appears from the assessment note attached (Doc. 1)."

Although in article 2 of the initial petition when referring to "The assessment in question" only the amount of the first installment is mentioned, article 3 nonetheless refers to document no. 1, where, in addition to the amount of the first installment, the assessment amount appears.

On the other hand, in the request formulated, the annulment of the "Stamp Duty assessment act" is expressly requested, with the added fact that the amount of the action indicated is precisely the amount of the assessment (12,550.63 Euros) and not the amount of the 1st installment.

Therefore, notwithstanding the reference in article 2 of the petition, from the remaining elements of this procedural document it is clear that the Petitioner came to challenge the assessment of stamp duty and not the first installment of the tax in question.

Accordingly, the exception raised by the respondent is judged unfounded.

b) The Petitioner also came to request the condemnation of the Respondent for bad faith litigation in the invocation of such exception, pursuant to article 104, no. 1, of the General Tax Law.

Article 104, no. 1 of the LGT states on the subject of effective "bad faith litigation":

"Without prejudice to the exemption from costs, the tax administration may be condemned to a pecuniary sanction to be quantified according to the rules on bad faith litigation in case of acting in court contrary to the tenor of binding information previously provided to interested parties or its procedure in the proceeding differs from that habitually adopted in identical situations".

The Petitioner alleged that "In the case at issue, the petitioner identified the act that is the object of the arbitral pronouncement in the same manner that, by the pen of its representative, it did in dozens of proceedings that are or have been conducted in this Centre for Arbitration and which are identified here. And all have formulation identical to that of the present proceeding.

The same occurred with proceeding no. 480/2015-T, in the scope of which the petitioner therein identified the assessment act in the same terms as it did in the present case without the Tax Authority raising the question with which we are concerned."

We understand, however, that the segment of the rule that provides for the conduct in question ("its procedure in the proceeding differs from that habitually adopted in identical situations") should not be separated from the segment of the rule that precedes it: "acting in court contrary to the tenor of binding information previously provided to interested parties". By equating the law the two behaviors for purposes of sanctions, the legislative intent appears to have been, also in this part and likewise in the preceding segment, to sanction conduct relating to procedural positions taken with regard to the merits of the case and not relating to matters of a procedural nature. It will be a question, in either case, of sanctioning contradictory conduct of the tax administration regarding the tax situation of taxpayers, a situation different from that alleged in the case before us.

It will, however, always be said that even if it were otherwise, the claim in question could not but be unfounded since the Petitioner only attached to the file elements referring to proceeding no. 480/2015-T, and therefore the reiteration inherent in the words "habitually" and "identical situations" is not thus demonstrated.

Accordingly, the request for condemnation in question is denied.

1. The tribunal is materially competent and is regularly constituted pursuant to the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceeding does not suffer from defects that would invalidate it.

III – RELEVANT FACTUAL MATTER

1. The following facts are considered proven:

a. The Petitioner company is listed in the land registry as the holder of an undivided half-share of the ownership of the urban property located at Rua… and Avenida…, described in the Land Registry Office of… under no. … of the Union of Parishes of … and … and registered in the competent urban land registry with article….

b. Said urban property was the subject of a prior information request submitted to the Municipal Council of… regarding the use provided for or authorized in the Municipal Master Plan.

c. Following the said prior information request, the following information was provided by the Department of Urban Planning and Development - Municipal Directorate of Environment, Equipment and Investments of the Municipal Council of…:

"Given the request made, it is incumbent upon me to inform that the land in question, lot no. 8 of the subdivision authorization no.…, is located, according to the Master Plan and the Urbanization Plan of…, in a predominantly residential area. It is intended for the predominant location of residential activities, complemented with other activities, namely commercial, equipment, services, business and industrial, provided they do not create incompatibility with residential activity as provided by law."

d. The respondent was notified of the assessment of Stamp Duty, provided for in Item 28.1 of the General Schedule of Stamp Duty relating to the year 2014, effected on 20.03.2015, in the amount of € 12,550.63 and with reference to the urban property registered in the land registry under article U-…, of the Union of Parishes of … and …, municipality of….

e. This notification contains the tax identification of the Petitioner, the tax year, the identification of the document, the date of the assessment, the identification of the property, the item of the TGIS in question, the tax value of the property, the Petitioner's share in the ownership of the property, the tax rate, the assessment amount and the amount of the 1st installment to be paid in April 2015, with no mention of the allocation of the authorized or planned building.

f. The Petitioner paid the first installment of the tax, in the amount of € 4,183.55, on 29.04.2015, the second installment of the tax, in the amount of € 4,183.54, on 29.07.2015 and the third installment of the tax, in the amount of € 4,183.54, on 27.11.2015.

With relevance for the decision of the case, there are no unproven facts.

1. The tribunal's conviction regarding the decision on the factual matter was based on the documents contained in the file, as well as the arguments presented, with it being noted that there is complete agreement between the parties regarding the factual matter, the disagreement being confined to the matter of law.

IV – APPLICABLE LAW

1. Item 28 of the General Schedule of Stamp Duty in the wording introduced by Law no. 83-C/2013, of 31 December (State Budget Law for 2014) provides that the following is subject to stamp duty:

"Ownership, usufruct or right of superficies of urban properties whose tax value shown in the register, pursuant to the Municipal Property Tax Code (CIMI), equals or exceeds (euro) 1,000,000 - on the tax value used for IMI purposes:

28.1 Per residential property or per land for construction whose building, authorized or provided, is for housing, pursuant to the provisions of the Municipal Property Tax Code: 1%.

(…)

The original wording of the rule in question, in this part, was as follows:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax value shown in the register, pursuant to the Municipal Property Tax Code (CIMI), equals or exceeds 1,000,000 euros – on the tax value used for IMI purposes:

28.1 – Per property with residential allocation – 1%;

(…)

1. According to the new wording of the rule in question, "land for construction whose building, authorized or provided, is for housing, pursuant to the provisions of the Municipal Property Tax Code" are also subject to taxation.

The new segment of the rule, in its apparent simplicity, raises several questions, notably in light of the recognized legislative intention reflected in item 28.1 of the TGIS to tax "luxury properties".

First, at the level of its literal element, in providing for the taxation of land for construction "whose building", authorized or provided, is for housing, it legitimates the question of whether the provision refers only to land where the building of a single residence is authorized or provided, or also to plots of land in relation to which the building of multiple residential units is authorized or provided.

Also within the scope of the literal element of the rule, assuming that it may refer to the building of more than one urban property, whether the provision refers only to land where the building of residences alone is authorized or provided, or also to properties where, together with the building of residential property or properties, the construction of properties intended for other purposes is provided, as in the case of the present matter where it is provided, in a supplementary manner to the building of residential properties, the building of properties intended for "other activities, namely commercial, equipment, services, business and industrial, provided they do not create incompatibility with residential activity as provided by law."

1. It is undisputed that the ratio legis of item 28 of the TGIS is the taxation of luxury properties that are allocated to housing or that are expected to be incorporated in the productive process of a building with such allocation (in the case of plots of land).

As the Respondent writes in its response:

"the legislator's essential objective was to establish individualized taxation of 'high-value properties intended for housing', of 'houses with a value equal to or greater than 1 million euros', or, commonly, of luxury properties or houses.

(…)

It was therefore intended to configure a taxation that would apply, in a specific manner, to individual real property components of the taxpayer's assets that were deemed to be luxury (not to the very assets globally considered), on the understanding that the ownership of such high-value residential real property reflected increased tax capacity capable of explaining the enhanced contribution of their holders to the common effort of budgetary consolidation."

The legislator, in making the taxation of item 28.1 apply to plots of land for construction, is anticipating the taxation of "luxury", which constitutes the presupposition of the taxation, in that, although the possibility of a high-value property being the subject of residential use has not yet occurred, the mere fact of being the owner of land intended for the building of a property with such characteristics and also itself, from the outset, possessing high tax value, presupposes the increased tax capacity, which constitutes the presupposition and criterion of this taxation.

In the case before us, it emerges unequivocally from the factual matter that the stated presupposition is not met. This is not a plot of land intended to be incorporated in the productive process of luxury housing, but rather intended for the building of a non-concretely determined quantity of residential units and, in a supplementary manner, of units with other allocations.

The ratio legis of item 28.1, aimed at the taxation of high-value properties intended immediately or successively for housing, manifestly does not encompass the property in question in the present proceedings.

Furthermore, the interpretation of the rule that is adopted here, in addition to being in harmony with the teleological element and having in the letter of the law a minimum of verbal correspondence, is the one that best accords with the unity of the legal system and, namely, with the principle of interpretation in conformity with the Constitution. In truth, if it were understood that the taxation of plots of land provided for in item 28.1 of the TGIS is not limited to plots intended for the building of high-value housing, this would imply the taxation of land intended for medium-value housing or even for social housing, which, in addition to clearly violating the principle of tax capacity, would moreover manifestly affront article 65 of the Constitution of the Portuguese Republic.

In this respect and without need for further considerations, it is understood that the property in question, of which the Petitioner is a co-owner, does not fall within the scope of the rule contained in item 28.1 of the TGIS, and therefore the assessment sub judice cannot but be annulled, and consequently the knowledge of the defect of lack of reasoning of the tax act also alleged by the Petitioner is rendered moot.

1. The Petitioner also came to request the condemnation of the Respondent to restitute the amounts paid corresponding to the assessment that is the subject of the present proceeding, as well as the respective compensatory interest.

Let us see.

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

Although article 2, no. 1, paragraphs a) and b), of the LRAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in the CAAD, not making reference to condemnatory decisions, it should be understood that the competencies thereof comprehend the powers that in proceedings for judicial challenge are attributed to the tax tribunals, being this the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the LRAT, in which it proclaims, as a first guideline, that "the tax arbitral proceeding must constitute an alternative procedural means to the judicial challenge proceeding and to the action for recognition of a right or legitimate interest in tax matters".[1]

The judicial challenge proceeding, although essentially an annulment proceeding for tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as is apparent from article 43, no. 1, of the LGT, in which it is established that "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services resulting in the payment of the tax debt in an amount exceeding that legally due" and from article 61, no. 4 of the CPPT (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), which provides "if the decision recognizing the right to compensatory interest is a judicial one, the payment period runs from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of the LRAT when it states that "payment of interest, regardless of its nature, is due, pursuant to the provisions of general tax law and the Code of Tax Procedure and Process" should be understood as allowing the recognition of the right to compensatory interest in the arbitral proceeding.

In the case at issue, it is manifest that, following the illegality of the assessment acts, reimbursement of the tax is due, by virtue of the said articles 24, no. 1, paragraph b), of the LRAT and 100 of the LGT, since this is essential to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed".

With regard to compensatory interest, this claim must still be assessed in light of article 43 of the General Tax Law.

No. 1 of that article provides that "Compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services resulting in the payment of the tax debt in an amount exceeding that legally due".

We follow the understanding of Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa who maintain that "The error attributable to the services that performed the assessment is demonstrated when a gracious claim or judicial challenge of that same assessment is made and the error is not attributable to the taxpayer" (GENERAL TAX LAW, Annotated and Commented, escriba encounters, 4th Edition, 2012, p. 342).

In the case "sub judice", since the error that gave rise to the assessments now being annulled is not attributable to the Petitioner, the request for condemnation of the Respondent regarding compensatory interest cannot but be granted.

Thus, the Tax and Customs Authority must execute the present decision, pursuant to article 24, no. 1, of the LRAT, restituting the amounts paid by the Petitioner relating to the assessments that have been annulled, with compensatory interest, at the legal rate.

Compensatory interest is due from the date of payment to the date of processing of the credit note, in which they are included (article 61, no. 5, of the CPPT).

IV – DECISION

Accordingly, the arbitral tribunal decides, finding the request for arbitral pronouncement wholly substantiated:

a) To decree the annulment of the assessment that is the subject of the present proceeding.

b) To condemn the Respondent to restitute to the petitioner the amounts paid with compensatory interest at the legal rate, counted from the date of payment by the petitioner to the date of processing of the credit note.

Value of the action: 12,550.63 € (Twelve thousand five hundred and fifty euros and sixty-three cents) pursuant to the provisions of article 306, no. 2, of the CPC and 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Costs Regulation in Arbitration Proceedings.

Costs payable by the Respondent in the amount of 918.00 € (nine hundred and eighteen euros) pursuant to no. 4 of article 22 of the LRAT.

Let it be notified.

Lisbon, CAAD, 5.02.2016

The Arbitrator

Marcolino Pisão Pedreiro

[1] On this question see Jorge Lopes de Sousa, Commentary on the Legal Regime for Arbitration in Tax Matters, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, pp. 110-116).