IMI Safeguard Clause on Horizontal Property: CAAD Arbitration Decision 491/2015-T

ARBITRAL DECISION

The arbitrator Dr. André Festas da Silva, appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on November 5, 2015, decides as follows.

I. REPORT

I.1

On July 28, 2015, the taxpayer A…, Lda., NIF…, with registered office at Rua…, …, …, …-… Lisbon requested, in accordance with the terms and for the purposes set forth in subparagraph a) of section 1 of Article 2 and in Article 10, both of Decree-Law No. 10/2011 of January 20, the constitution of an Arbitral Tribunal with appointment of a sole arbitrator by the Ethics Council of the Administrative Arbitration Center, in accordance with the terms set forth in section 1 of Article 6 of the aforementioned statute.

The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and was notified to the Tax and Customs Authority (hereinafter referred to as AT or "Respondent") on August 14, 2015.

The Claimant did not proceed with the appointment of an arbitrator, and therefore, pursuant to the provisions of Article 5, section 2, subparagraph b) and Article 6, section 1, of the RJAT, the undersigned was appointed by the President of the Ethics Council of CAAD to serve on this sole Arbitral Tribunal, having accepted in accordance with legally established procedures.

The AT presented its response on December 10, 2015.

By order of December 14, 2015, the holding of the meeting provided for in Article 18 of the RJAT was waived and it was decided that the proceedings would continue with written arguments.

On January 13, 2016, the Claimant presented its legal arguments.

On January 26, 2016, the Respondent presented its legal arguments.

The Claimant requests that the Arbitral Tribunal declare the illegality of the assessment of Municipal Tax on Onerous Transfers of Real Property (IMI) No. 2014…, in the amount of €5,935.83, dated February 25, 2015, and order the Respondent to refund the amount of €918.51, plus compensatory interest, as well as to refrain from failing to apply the safeguard clause in the future regarding the same property of the Claimant and on the same grounds.

I.A. The Claimant bases its request, in summary, on the following grounds:

The now Claimant was notified to pay the first installment of IMI relating to the year 2014.

The IMI assessments in question relate to the property located at Rua …..., …, …, … and Av. … No… and …, …-… Lisbon, registered under matrix No. … of the parish of ….

The above-identified property has been registered with the competent Real Property Registry in horizontal property ownership since July 2013.

The Tax Administration assessed, on February 25, 2015, IMI in the amount of €5,935.83 (five thousand, nine hundred and thirty-five euros and eighty-three cents).

The IMI thus assessed is divided into three equal installments of €1,978.61 (one thousand nine hundred and seventy-eight euros and sixty-one cents) falling due in April, August, and November.

The property has six urban lease contracts prior to 1990, corresponding to units D, L, N, O, Q, and U.

Such contracts were duly communicated to the Tax Authority.

The first installment has already been paid and the now Complainant will proceed to pay those falling due in a timely manner.

Pursuant to Article 15-N of Decree-Law No. 287/2003 of November 12, as amended by Law 60-A/2011 of November 30, "in the case of property or part of urban property covered by the general assessment that is leased by an urban lease contract for housing entered into before the entry into force of the Urban Lease Regime, approved by Decree-Law No. 321-B/90 of October 15, or by a lease contract for non-residential purposes entered into before the entry into force of Decree-Law No. 275/95 of September 30, the taxable value, for IMI purposes exclusively, cannot exceed the value resulting from the capitalization of the annual rent by applying the factor 15."

As communicated to the Tax Authority, the Claimant has 6 units leased with lease contracts concluded before 1990.

The Claimant has fulfilled all requisites and legal requirements to benefit from this safeguard clause.

Namely, the notification pursuant to Article 15-N, section 2, supplemented by Regulation No. 240/2012 which extended the deadline for submitting the notification to October 31, 2012.

As well as the annual notification provided for in Article 15-N, section 7.

Respecting the regime established by the said safeguard clause, the IMI for 2014 should have been assessed as follows:

The amount to be paid is therefore considerably increased due to the non-application of the safeguard clause.

The Claimant cannot therefore accept the understanding of the Tax Authorities, as it always proceeded timely with the declarations imposed by law.

When the Claimant sought to understand why the Tax Authority had disregarded the safeguard clause in the IMI assessment, it was informed that the fact that in one year (2013) it had not filed the declaration referred to in section 7 of Article 15-N would prevent the benefit from being granted in 2014.

In the Claimant's submission, such understanding has no basis in the letter of the law, nor in the underlying rationale of Article 15-N.

In the notification issued, there is no reference to the legal norm on which the Tax Authority's decision was based, and the non-application of the safeguard clause of Article 15-N is incomprehensible and completely arbitrary in the Claimant's view.

In fact, it establishes a binding of the Tax Administration to a conduct that is entirely predetermined – the law is clear and provides that the safeguard clause is only not applicable when the taxpayer has not submitted the notification established in section 2 of Article 15-N by October 31, 2012, or in the previous year has not made the notification referred to in section 7 of the same article.

In the case at hand, both notifications were made timely.

Moreover, the assessments also clearly violate the principle of contributive capacity, by requiring from the Claimant amounts of tax that are not owed.

Further, in line with the basic principles of tax law, it is possible to verify that the attitude of the Tax Administration constitutes a gross and illegal violation of the principle of justice.

There is no doubt that the spirit underlying the safeguard clause in the context of IMI, pursuant to Article 15-N, should be assessed annually, the only condition that should be verified in a prior year being that notification referred to in section 2.

It cannot be understood as relevant any other notification that may or may not have been made in a prior year.

On the other hand, these assessments also result in an illegal and confiscatory action by the Tax Administration, violating the essential content of the right to property – a fundamental right of a nature analogous to Rights, Freedoms and Guarantees provided for and protected by the Constitution of the Portuguese Republic.

Moreover, the assessments also clearly violate the principle of good faith and equally violate the principle of contributive capacity, by requiring from the Claimant amounts of tax that are not owed.

Furthermore, in line with the most basic principles of tax law, it is possible to verify that the attitude of the Tax Administration constitutes a gross and illegal violation of the principle of justice.

There is no doubt that the spirit underlying the safeguard clause in the context of IMI, pursuant to Article 15-N, should be assessed annually, the only condition that should be verified in a prior year being that notification referred to in section 2.

It cannot be understood as relevant any other notification that may or may not have been made in a prior year.

On the other hand, these assessments also result in an illegal and confiscatory action by the Tax Administration, violating the essential content of the right to property – a fundamental right of a nature analogous to Rights, Freedoms and Guarantees provided for and protected by the Constitution of the Portuguese Republic.

Similarly, "no one can be forced to pay taxes (…) whose assessment and collection are not carried out in accordance with the law" is postulated by section 3 of Article 103 of the CRP.

Now, in the case at hand it is precisely what is provided for in the aforementioned rule that is called into question by the illegal action of the Tax Administration, as the law establishes express rules regarding the application of the safeguard clause that have not been followed.

For all the foregoing reasons and taking into account the above article, it is possible to state that the position taken by the Tax Administration is completely devoid of proportionality.

I.B In its Response, the AT invoked the following:

1. Article 15-N of D.L. No. 387/2003 of November 12, as amended by Law No. 60-A/2011 of November 30, in order to safeguard the specific situation of the value of old and very low rents, introduced a special regime for determining the taxable value for properties or parts of urban properties leased by an urban lease contract for housing entered into before the entry into force of the Urban Lease Regime, approved by DL 321-B/90 of October 15, or by a lease contract for non-residential purposes entered into before the entry into force of DL No. 257/95 of September 30, and which are covered by the general assessment of urban properties.

2. In those cases, whenever the result of the general assessment is higher than the value resulting from the capitalization of the annual rent through the application of factor 15, the latter will be the taxable value (TPV) relevant, exclusively, for IMI assessment purposes.

3. Thus, in accordance with the applicable provision, the owners, usufructuaries and superficiaries in question, in order to benefit, for IMI purposes, from the regime for determining taxable value of its section 1, as well as, in the case of rent updates provided for in section 6, are subject to the fulfillment of a set of declarative obligations contained in sections 2, 3, and 4.

4. And the same IMI taxpayers who already benefit from the aforementioned regime must, pursuant to the subsequent provisions of section 7, submit, annually, in the period between November 1 and December 15, a notification containing the value of the monthly rent due for the month of December and the tax identification of the tenant, according to the official form, accompanied by a copy or supporting document of the rent relating to the month of December.

5. However, section 10 provides that, in the absence of the notification or the elements of sections 7 and 9, the special regime fixed in Article 15-N shall not be applied.

6. That is, owners of properties with old rents who wish to continue to benefit from the safeguard clause that prevents the increase of IMI must repeat the declaration provided for in section 7 of Article 15-N, within the deadlines established therein.

7. It results from the documents presented in the case that the Author of the request for arbitral pronouncement submitted the rent declaration for the units for 2012 on October 30, 2012, and the declaration relating to 2014 on December 3, 2014.

8. The notification of rents for the year 2013 was not delivered to the finance office, which, moreover, the Author failed to demonstrate.

9. The IMI assessment challenged does not constitute any arbitrariness or violation of the principle of good faith, the principle of contributive capacity, or the principle of equality.

10. It is the understanding of the Author that the lack of communication of rents in a prior year should not be considered relevant in the application of the safeguard clause in the act of IMI assessment pursuant to Article 15-N, which should be assessed annually, the only condition that should be verified in a prior year being that notification referred to in section 2.

11. The act of IMI assessment respects the content of section 7 and section 10, subparagraph h) of Article 15-N.

12. This is a transitional and exceptional regime, which does not, in itself, constitute any tax benefit for owners of properties leased with old rents.

13. Which justifies the legislator having provided for the failure to submit the rent notification with the loss of the regime that benefited, pursuant to section 10, subparagraph h) of Article 15-N, with the taxable value resulting from the general assessment being applied, in definitive terms, for the year whose rents were not declared and subsequent years.

14. The AT could not have any other interpretation and application of Article 15-N that did not take into account the legal consequences expressly prescribed by the tax legislator regarding the failure to comply with the delivery of the notification provided for in section 7, under penalty of frontally infringing the principle of legality that informs all tax administration activity.

15. It will not be, therefore, a matter of questioning the literal interpretation of Article 15-N of the EBF, or an interpretation in non-conformity with the spirit of the legislator, as the Author does, to the extent that the letter of the law does not permit an interpretation different from that expressed in the challenged assessment act.

II. SANITATION

Given the request formulated by the claimant, it is important, first of all, to assess the material jurisdiction of this tribunal for that purpose.

The claimant petitions:

a) The annulment of an IMI assessment;

b) Condemnation of the respondent to refund the amount of €918.51, plus compensatory interest;

c) Condemnation of the respondent to refrain from failing to apply the safeguard clause in the future regarding the same property of the claimant and on the same grounds.

Given that the scope of material jurisdiction of the tribunal is of public order and its knowledge precedes that of any other matter (Article 13 of the Code of Procedure of the Administrative Courts (CPTA) applicable by virtue of Article 29, section 1, subparagraph c) of the RJAT), and that the infringement of the rules of jurisdiction ratione materiae determines the absolute incompetence of the tribunal, which is to be examined ex officio (Article 16, sections 1 and 2 of the Code of Procedure and of Tax Procedure (CPPT) applicable by virtue of Article 29, section 1, subparagraphs a) and c) of the RJAT), it is important to first assess the material jurisdiction of the Arbitral Tribunal.

The jurisdiction of the arbitral tribunals operating in CAAD is defined, in the first place, by Article 2, section 1 of the RJAT, which establishes the following:

"1 - The jurisdiction of arbitral tribunals comprises the consideration of the following claims:

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

b) The declaration of illegality of acts fixing the taxable matter when it does not give rise to the assessment of any tax, of acts of determination of the taxable matter and of acts of fixing patrimonial values;"

In the second place, the jurisdiction of the arbitral tribunals operating in CAAD is limited by the binding of the Tax and Customs Authority which, pursuant to Article 4, section 1 of the RJAT, was defined by Regulation No. 112-A/2011 of March 12, which establishes the following, insofar as relevant here: "The services and bodies referred to in the preceding article are bound to the jurisdiction of the arbitral tribunals operating in CAAD whose object is the consideration of claims relating to taxes whose administration is assigned to them referred to in section 1 of Article 2 of Decree-Law No. 10/2011 of January 20, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by resort to the administrative remedy in accordance with Articles 131 to 133 of the Code of Procedure and of Tax Procedure;

b) Claims relating to acts of determination of the taxable matter and acts of determination of the taxable matter, both by indirect methods, including the decision of the revision procedure;

c) Claims relating to customs duties on imports and other indirect taxes levied on goods subject to import duties; and

d) Claims relating to the tariff classification, origin and customs value of goods and tariff contingents, or whose resolution depends on laboratory analysis or steps to be taken by another Member State in the context of administrative cooperation in customs matters."

Regulation No. 112-A/2011, regarding the acts classified in Article 2, only removed from the scope of the binding of the Tax Administration, in non-customs matters, claims relating to acts of self-assessment, withholding at source and payment on account that have not been preceded by resort to the administrative remedy and claims relating to acts of determination of the taxable matter and acts of determination of the taxable matter, both by indirect methods, including the decision of the revision procedure.

It is evident that we are not dealing with any of the situations in which Regulation No. 112-A/2011 removes the jurisdiction of the arbitral tribunals operating in CAAD, and therefore jurisdiction must be assessed only in light of the RJAT.

As can be seen from Article 2 of the RJAT, the jurisdiction of the arbitral tribunals operating in CAAD was defined by the RJAT only taking into account the type of acts that are the subject of the claims of taxpayers.

As regards the requests for annulment of the assessment act and for condemnation of the respondent to reimburse the amount of €918.51, plus compensatory interest, there is no doubt that this tribunal is competent to consider them (Article 2, section 1, subparagraph a) and Article 24, section 5 of the RJAT).

However, the same is not true with regard to the request for condemnation of the respondent to refrain from failing to apply the safeguard clause in the future regarding the same property of the claimant and on the same grounds. The claimant seeks to have a right recognized for the future without any underlying or connected connection to any specific tax act.

Now, "(…) the recognition of rights and legitimate interests in tax matters, outside the cases in which it may underlie the declaration of legality of acts or consideration of the issues addressed in section 1 of Article 2 of the RJAT, is outside the jurisdiction of arbitral tribunals."[1] The request formulated is not connected with any tax act, being appropriate for an action for recognition of right (Article 145 of the CPPT).

The legislative concern in removing from the jurisdiction of the arbitral tribunals operating in CAAD the consideration of requests for recognition of rights and legitimate interests in tax matters results, from the outset, from the fact that subparagraph b) of section 4 of Article 124 of Law No. 3-B/2010 of April 28, in which the recognition of the right or the legally protected interest of taxpayers is indicated among the possible objects of the tax arbitral process, was not transposed to the RJAT. This choice can only be justified by a legislative intention to exclude from the possible objects of arbitral proceedings the consideration of requests for recognition of rights.

Therefore, as regards the request for condemnation of the respondent to refrain from failing to apply the safeguard clause in the future regarding the same property of the claimant and on the same grounds, this Arbitral Tribunal is materially incompetent to consider and decide, pursuant to Articles 2, section 1, subparagraph a) and 4, section 1, both of the RJAT and Articles 1 and 2, subparagraph a), of Regulation No. 112-A/2011, which constitutes a dilatory exception preventing knowledge of the merits of the case, pursuant to the provisions of Article 576, sections 1 and 2 of the CPC ex vi Article 2, subparagraph e) of the CPPT and Article 29, section 1, subparagraphs a) and e) of the RJAT, which prevents consideration of the request and the dismissal of the instance of the Respondent, as regards this request, pursuant to Articles 576, section 2 and 577, subparagraph a) of the CPC, ex vi Article 29, section 1, subparagraphs a) and e) of the RJAT.

As regards the other requests (annulment of the IMI assessment and condemnation of the respondent to refund the amount of €918.51, plus compensatory interest), the parties have legal personality and capacity, have legal standing pursuant to Articles 4 and 10, section 2, of the RJAT and Article 1 of Regulation No. 112-A/2011 of March 22, and are legally represented.

The Tribunal is competent and is regularly constituted, pursuant to Articles 2, section 1, subparagraph a), 5 and 6, all of the RJAT.

The proceedings are in proper form.

There are no other preliminary issues to be considered nor vices that invalidate the proceedings.

It is now necessary to consider the merits of the requests.

III. THEMA DECIDENDUM

The issue to be considered is as follows:

a) Not having the Claimant notified the rents in 2013, cannot benefit in 2014 from the regime provided for in Article 15-N of D.L. No. 387/2003 of November 12, as amended by Law No. 60-A/2011 of November 30?

IV. MATTER OF FACT

IV.1. Established Facts

Before proceeding to the consideration of the issues, it is necessary to present the factual matter relevant to its respective understanding and decision, which, having examined the documentary evidence, the tax administrative process attached and taking into account the facts alleged, is established as follows:

The Claimant was notified on March 25, 2015 of the IMI assessment No. 2014…, in the amount of €5,935.83.

The IMI assessment in question relates to the property located at Rua … No…, …, …, … and Av. … No … and…, …-… Lisbon, registered under matrix No. … of the parish of ….

The above-identified property is owned by the claimant.

The IMI thus assessed is divided into three equal installments of €1,978.61 (one thousand nine hundred and seventy-eight euros and sixty-one cents) falling due in April, August, and November.

The property has six urban lease contracts prior to 1990, corresponding to units D, L, N, O, Q, and U.

Such contracts were communicated to the Tax Authority on October 30, 2012.

Such contracts were communicated to the Tax Authority on December 3, 2014.

The assessment was paid in full.

IV.2. Facts deemed not proven

There are no facts deemed not proven, as all facts relevant to the consideration of the request were established as proven.

IV.3. Justification of the matter of fact

The established facts integrate matters not contested and documented in the case.

The facts set out in numbers 1 to 8 are taken as established by agreement of the parties, by examination of the administrative process and by the documents attached by the Claimant (documents 1 to 5 of the request for constitution of the Arbitral Tribunal).

V. APPLICATION OF LAW TO FACTS

Matter of Law

1. Article 15-N of D.L. No. 387/2003 of November 12, as amended by Law No. 60-A/2011 of November 30 in 2013

Given the factuality analyzed in the present case and the arguments of the parties, the issue that must be determined is as follows: "Not having the Claimant benefited from the regime provided for in Article 15-N of D.L. No. 387/2003 of November 12, as amended by Law No. 60-A/2011 of November 30 in 2013, by not having delivered the necessary documentation, is she immediately prevented in 2014 from benefiting from this regime, even if she meets the other requirements for its granting?"

The applicable provision is as follows:

Article 15-N
Leased Urban Properties

1 - In the case of property or part of urban property covered by the general assessment that is leased by an urban lease contract for housing entered into before the entry into force of the Urban Lease Regime, approved by Decree-Law No. 321-B/90 of October 15, or by a lease contract for non-residential purposes entered into before the entry into force of Decree-Law No. 257/95 of September 30, the taxable value, for IMI purposes exclusively, cannot exceed the value resulting from the capitalization of the annual rent by applying the factor 15.

2 - The owners, usufructuaries or superficiaries of leased urban properties, in accordance with the preceding section, must submit, by August 31, 2012, a notification containing the last monthly rent received and the tax identification of the tenant, in accordance with the form approved by regulation of the Minister of Finance.

3 - The notification referred to in the preceding section must be accompanied by an authenticated photocopy of the written contract or, failing that, by suitable means of proof as to be defined by regulation of the Minister of Finance.

4 - The notification must also be accompanied by a copy of the rent receipts or stubs of those receipts relating to the months of December 2010 until the month prior to the date of submission of the notification, or by monthly rent collection statements, in cases where these are received by representative entities of the owners, usufructuaries or superficiaries of rented properties in accordance with section 1.

5 — The taxable value for IMI purposes exclusively, fixed in accordance with the terms of the preceding sections, is subject to notification to the respective owner and is subject to reclamation or challenge in accordance with general terms.

6 — In the case of properties or parts of properties covered by section 1 whose rents are updated in accordance with section 10 of Article 33 of Law No. 6/2006 of February 27, amended by Law No. 31/2012 of August 14, or based on corrected gross annual income (RABC), pursuant to the terms provided for in subparagraph c) of section 2 of Article 35 or in section 7 of Article 36 of the same law, the provisions of section 1 are applicable, with the necessary adaptations, with reference to the value of the updated annual rent.

7 — The owners, usufructuaries or superficiaries of leased urban properties by a lease contract for housing entered into before the entry into force of the Urban Lease Regime, approved by Decree-Law No. 321-B/90 of October 15, or by a lease contract for non-residential purposes entered into before the entry into force of Decree-Law No. 257/95 of September 30, who benefit from the regime provided for in this article must submit, annually, in the period between November 1 and December 15, a notification containing the value of the monthly rent due relating to the month of December and the tax identification of the tenant, in accordance with the form approved by regulation of the member of Government responsible for the area of finance.

8 — (Repealed.)

9 — The notification referred to in the preceding section must be accompanied by a copy of the receipt or stub of the receipt of the rent relating to the month of December or the monthly rent collection statement, in cases where the rent is received by a representative entity of the landlord.

10 - The taxable value, for IMI purposes exclusively, fixed in accordance with this article, is not applicable, and the taxable value determined in the general assessment shall prevail, for all purposes, in the following situations:

a) Failure to submit the notification or the elements provided for in sections 2, 3 and 4 within the deadlines established in the preceding sections;

b) Non-declaration of rents, by October 31, 2011, relating to the lease contracts provided for in section 1 for purposes of personal income tax and corporate income tax for tax periods between 2001 and 2010;

c) Divergence between the rent notified and that contained in those declarations;

d) Non-declaration of rents relating to the lease contracts provided for in section 1 for purposes of personal income tax and corporate income tax for tax periods commencing on or after January 1, 2011;

e) Onerous transfer or donation of the property or part of the urban property; or

f) Termination of the lease contract referred to in section 1.

g) Update of the rent in accordance with the terms provided for in Articles 30 to 37 or 50 to 54 of Law No. 6/2006 of February 27, amended by Law No. 31/2012 of August 14, except in the situations referred to in section 6;

h) Failure to submit the notification or the elements provided for in sections 7 and 9.

11 — The falsification, alteration and tampering with the elements referred to in sections 3, 4 and 9 or the omissions or inaccuracies of the notifications provided for in section 2 or 7, when not to be punished by the crime of tax fraud, constitute a violation punishable in accordance with Article 118 or 119 of the General Tax Violations Regime, approved by Law No. 15/2001 of June 5.

The respondent asserts that we are not facing a tax benefit, stating that it is a transitional and exceptional regime with underlying extra-fiscal interests.

Tax benefits may be permanent or temporary. The tax benefits provided for in Parts II and III of the EBF generally apply for a period of five years (Article 3, section 1 of the EBF). Using the classification of Prof. Nuno Sá Gomes[2]: "Tax benefits are said to be permanent when they are established for the future, without predetermined duration; they are said to be temporary when the law sets a time limit on the duration of the benefit." Thus, the temporary character of the regime provided for in Article 15-N is not a characteristic that can affect its qualification as being, or not, a tax benefit.

The primary purpose of taxes is to obtain resources to meet the financial needs of the State. However, taxes are also very important for pursuing other purposes, the so-called extra-fiscal purposes. The granting of tax benefits is one of the instruments, among others, to achieve an extra-fiscal objective.

With the provision in question, the legislator intended to prevent a sudden increase in IMI for owners of properties whose rent values do not increase in the same proportion. It is a relevant extra-fiscal public interest that the legislator seeks to protect.

Pursuant to Article 2, section 1 of the EBF, tax benefits are intended to protect relevant extra-fiscal public interests. Thus, the fact that the provision in question has an extra-fiscal concern indicates its nature as a tax benefit and not the opposite.

Further, pursuant to Article 2, section 1 of the EBF:

"1 - Tax benefits are exceptional measures instituted for the protection of relevant extra-fiscal public interests that are superior to those of the taxation they prevent."

Thus, the exceptionalness of the measure is one of the characteristics of tax benefits.

Furthermore, pursuant to Article 2, section 2 of the EBF:

"2 - Tax benefits are exemptions, reductions in rates, deductions from taxable matter and tax, accelerated depreciation and reinstatement and other fiscal measures that comply with the characteristics set out in the preceding section."

Article 15-N of D.L. No. 287/2003 prevents taxation under the standard regime, constituting a tax relief. "A tax benefit represents all tax relief derogatory of the principle of tax equality instituted for the protection of extra-fiscal interests of greater relevance."[3] In light of the foregoing, it is clear that we are dealing with a tax benefit.

Having reached this point, we must now attend to the rules of hermeneutics to dissect its correct interpretation of the provision (Article 15-N of D.L. No. 287/2003). It is now well established that tax laws are interpreted as any others, being necessary to determine their true meaning in accordance with the techniques and interpretative elements generally accepted by doctrine (Article 9 of the CC, Article 11 of the LGT)[4].

Specifically, provisions that enshrine tax benefits are not susceptible to analogical integration, although they admit extensive interpretation (Article 10 of the EBF)[5].

In light of the foregoing, as regards hermeneutic rules, we should resort to what is provided for in the CC. Article 9, section 1 of the CC establishes the following:

"1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied."

Thus the letter naturally assumes itself as the starting point of interpretation, having, from the outset, a negative function, which is to say it cannot "be considered as comprised among the possible meanings of the law that legislative thought (spirit, meaning) which does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed""[6] Also as OLIVEIRA ASCENSÃO states, "the letter is not only the starting point, it is also an irremovable element of all interpretation. That is to say, the text also functions as a limit on the search for the spirit"[7]

Applying the foregoing to the case under analysis, it is necessary to consider the literal element. The letter of the law provides that the failure to submit the notification and other elements leads to taxation under the standard regime. There is no literal element that implies the permanent loss of this benefit, if in the previous fiscal year it did not benefit from it. Moreover, for the granting of this benefit the law does not distinguish whether the taxpayer benefited from it or not in the previous year. Having the legislator not made such a distinction, it is not for the interpreter to distinguish: "ubi lex non distinguit, nec interpres distinguere debet."

The circumstances in which the law was approved ("occasio legis") are also an interpretative element pursuant to Article 9, section 1 of the CC. With the approval of this provision, it was intended to protect owners of rented properties who were legally prevented from increasing them. The factual circumstances remain unchanged. The economic and social conjunctural factors that motivated the legislative measure remain. Quoting Prof. Saldanha Sanches, "...consisting the tax benefit in a norm of economic law, it should be applied taking into account the economic policy it embodies, since the public interest that justifies the exemption, that of stimulating a certain behavior of the taxpayer, is in this case paramount to that of correct distribution of tax burdens according to contributive capacity. In this case, the interpretation rules to be used are those that can contribute to achieving one of those purposes"[8]. In case of doubt, by determination of Article 11, section 3 of the LGT, the economic substance of the tax facts should be considered. Considering the economic substance related, nothing justifies the distinction made by the respondent, since from this perspective the situation of fact to be protected persists in 2013 and in 2014.

The extra-fiscal reasons justifying the tax relief for the year 2013 are exactly the same as those justifying the tax relief for the year 2014. From this perspective nothing has changed that would justify the distinction between taxpayers who always benefited from this clause and taxpayers who did not benefit from it in 2013 but are in a position to benefit from it in 2014.

The factual circumstances are equal and therefore nothing justifies the distinction, which moreover is not made by the letter of the law.

Pursuant to Article 12 of the EBF, "[t]he right to tax benefits must be reported to the date of the verification of their respective assumptions, even if it is dependent on declarative recognition by the tax administration (…)". As a rule, the act recognizing the tax benefit is merely declarative and not constitutive.

Given what is provided for in Article 15-N of D.L. No. 287/2013, the tax relief in question is a tax benefit of automatic recognition.

Article 5 of the EBF clarifies that:

"1. Tax benefits are automatic or dependent on recognition; the former result directly and immediately from the law, the latter presuppose one or more subsequent acts of recognition.

1. The recognition of tax benefits may take place by administrative act or by agreement between the Administration and those interested, having, in both cases, merely declarative effect, unless the law provides otherwise.

2. The procedure for recognizing tax benefits is governed by the provisions of the general tax law and the Code of Procedure and of Tax Procedure."

Thus, automatic tax benefits are those that result from the law, that is, those that do not presuppose any act of recognition.

"As provided for in section 1 of Article 5 of the EBF, tax benefits may be automatic or dependent on recognition. Automatic benefits result directly and immediately from the law, it being sufficient that the assumptions fixed therein are met. Benefits dependent on recognition presuppose, in addition to the verification of the objective and subjective assumptions defined in the law, the performance, by the tax administration, of one or more subsequent acts of recognition."[9]

"In these cases, once the legal assumptions of the tax benefit in question are verified, it arises automatically, 'ope lege' without need for any initiative of the benefited entity or intervention by the Tax Administration. Therefore, in these situations, tax benefits are not granted by the tax administration, but are established directly in the law, with the subjective right to the corresponding benefit arising from the simple historical verification of its respective assumptions."[10]

Being the law the immediate source of the benefit, without need for any act of autonomous intermediation at the tax level that expressly recognizes it, the exemption in question must necessarily be qualified as being of automatic nature, pursuant to the terms provided for in Article 5 of the EBF.

Thus, having the claimant fulfilled the formal requisites (timely delivery of the notification – Article 15-N, section 2, section 7 - and the elements provided for in section 9 of the same article), the taxable value, for IMI purposes, cannot exceed the value resulting from the capitalization of the annual rent by applying the factor 15 in the following terms:

In view of all the foregoing, the tribunal considers that the act whose legality is the subject of consideration in this case violates legality, and therefore this request is granted.

1. Compensatory Interest

Pursuant to section 1 of Article 43 of the LGT, "Compensatory interest is owed when it is determined, in a voluntary reclamation or judicial challenge, that there was error attributable to the services as a result of which the tax debt was paid in an amount exceeding that legally owed."

Now, in the present case, the legitimacy of the aforementioned request for compensatory interest payment in favor of the Claimant is unequivocally established, as the assessments sub judice are shown to be affected by illegality resulting from an error in the legal assumptions. The error in the legal assumptions attributable to the respondent led to the payment of an amount exceeding that legally owed. Therefore, compensatory interest must be considered owed from the day following that of the wrongful payment in the amount of €918.51 until the date of issuance of the respective credit note, in accordance with the terms provided for in Article 43 of the LGT and Article 61 of the CPPT.

The Claimant is therefore creditor of the Respondent AT of the amount corresponding to the IMI wrongfully paid, in the amount of €918.51, plus the respective compensatory interest accrued and accruing to be calculated from the date of payment until the issuance of the respective credit note.

VI. DECISION

In light of all the foregoing, the following is decided:

1. To find the request for arbitral pronouncement regarding the illegality of the act of assessment of Municipal Tax on Onerous Transfers of Real Property (IMI) No. 2014…, dated February 25, 2015, to be well-founded;

2. To partially annul that assessment, to the extent that the provisions of Article 15-N, section 1 of D.L. 387/2003 of November 12 are not considered;

3. To find the request for condemnation of the respondent to refund the amount of €918.51, plus compensatory interest, from the date of wrongful payment until the date of issuance of the credit note, in accordance with the terms provided for in Article 43 of the LGT and in Article 61 of the Code of Procedure and of Tax Procedure, to be well-founded.

The value of the case is fixed at €918.51 pursuant to Article 97-A, section 1, a), of the CPPT, applicable by virtue of subparagraph a) of section 1 of Article 29 of the RJAT and section 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at €306.00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid in full by the Respondent, as the request was entirely granted, pursuant to Articles 12, section 2, and 22, section 4, both of the RJAT, and Article 4, section 4, of the aforesaid Regulation.

Notify parties.

Lisbon, February 23, 2016

The Arbitrator

André Festas da Silva

[1] Jorge Lopes de Sousa, Commentary on the Legal Regime of Tax Arbitration, in N. Villa-Lobos and M. Brito Vieira (ed.), Guide to Tax Arbitration, Almedina, 2013, p. 105

[2] In General Theory of Tax Benefits, Notebooks of Science and Fiscal Technique No. 165, Lisbon, Center for Tax Studies, 1991, p. 145

[3] In Tax Benefits: System and Regime, Guilherme D'Oliveira Martins, IDEFF Notebooks; No. 6, Almedina, 2006, p. 15

[4] Cf. Nuno Sá Gomes, Manual of Tax Law, II, Reis dos Livros, 1997, p. 384, Casalta Nabais, Tax Law, 5th Ed., Almedina, 2009, p. 215 et seq., Manuel Henrique de Freitas Pereira, Taxation, 3rd Ed., Almedina, 2009, p. 199 et seq., Américo Fernando Brás Carlos, Taxes-General Theory, 2nd Ed., Almedina, 2008, p. 215, Diogo Leite Campos, Tax Law, 2nd Ed., Almedina, 2000, p. 87 et seq. and Jonatas Machado, Paulo Costa, Course in Tax Law, 2nd ed., Coimbra Editora, 2012, p. 163 et seq.

[5] Nuno Sá Gomes, General Theory of Tax Benefits, Notebooks C.T.F., No. 165, 1991, p. 253 et seq.

[6] In Introduction to Law and to Legitimizing Discourse, Baptista Machado, Almedina, 2nd reprint, 9th Reprint, 1996, pp. 189 et seq.

[7] In The Law, Introduction and General Theory, 9th Ed., Almedina, Lisbon, 1995, p. 382

[8] In Manual of Tax Law, 2nd Ed., Coimbra Editora, 2001, p. 105

[9] In Jonatas Machado, Paulo Costa, Course in Tax Law, 2nd ed., Coimbra Editora, 2012, p. 438

[10] In Nuno Sá Gomes, General Theory of Tax Benefits, Notebooks C.T.F., No. 165, 1991, p. 133