Summary
Full Decision
ARBITRAL DECISION
The arbitrators, Dr. Alexandra Coelho Martins (presiding arbitrator), Dr. Maria Alexandra Mesquita and Dr. João Pedro Rodrigues (member arbitrators), designated by the Ethics Council of the Administrative Arbitration Centre ("CAAD") to form the Collective Arbitral Tribunal, constituted on 3 January 2019, agree as follows:
I. REPORT
A..., S.A., hereinafter "first Claimant", Tax ID..., with registered office at Street ..., no...., ..., ...-... Lisbon, and B..., S.A., hereinafter "second Claimant", Tax ID..., with registered office at..., ..., ...-... ..., jointly designated as "Claimants", hereby request the constitution of a Collective Arbitral Tribunal, pursuant to the combined provisions of articles 2, paragraph 1, subsection a), 3, paragraph 1, and 15 et seq., all of the Legal Framework for Arbitration in Tax Matters ("RJAT"), approved by Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December.
The Claimants file a request for an arbitral decision following the expiry of the period for deemed rejection of the Requests for Official Review submitted against two assessments of Municipal Property Tax ("IMI"), relating to the year 2016, issued under numbers 2016..., of 2 March 2017, in the amount of € 152,321.10, relating to the first Claimant, and 2016..., of 3 March 2017, in the amount of € 93,081.48, relating to the second Claimant, totalling € 245,402.58. They petition for the declaration of illegality and partial annulment of the said tax acts, in the amount of € 175,646.72, and of the decisions rejecting the official reviews submitted which tacitly confirmed them.
They invoke, for this purpose, that 6 (six) units in relation to which IMI was assessed are affected by the granting of gaming concessions and benefit from exemption from this tax, in accordance with article 92 of the Gaming Law (Law no. 422/89, of 2 December, and subsequent amendments). They also allege the application of IMI exemption on the basis of tourist utility that was attributed to these properties, which they consider still to be in force in the year 2016.
The Claimants attached documents and called one witness.
On 22 October 2018, the request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and automatically notified to the Claimants and the Respondent entity.
Pursuant to articles 6, paragraph 2, subsection a) and 11, paragraph 1, subsections a) and b) of the RJAT, the Ethics Council of CAAD designated the arbitrators of the Collective Arbitral Tribunal, who communicated their acceptance of the appointment within the applicable period, with parties being notified of this designation on 12 December 2018.
The Collective Arbitral Tribunal was duly constituted on 3 January 2019.
The Respondent, notified to file a Response on 4 January 2019, under paragraph 1 of article 17 of the RJAT, elected not to do so.
On 19 March 2019, the Respondent was notified to attach to the case file a copy of the Administrative Case ("PA"), on the basis of article 17, paragraph 2 of the RJAT. In this context, the Respondent requested an extension of the period for submission of the PA, which was granted.
On 5 April 2019, the Respondent informed the present arbitral case that partial annulment of the IMI assessment acts had been sanctioned, in the amounts of € 105,816.14 and € 69,830.58, totalling the requested amount of € 175,646.72, and requested termination of proceedings due to futility in pursuing the present action.
On 11 April 2019, in exercise of the right to reply, the Claimants stated that they had no objection to the "revocation", requesting the Tribunal to declare its timeliness, in light of paragraphs 1 and 3 of article 13 and paragraph 3 of article 10, all of the RJAT. They further state that they maintain an interest in continuing the proceedings for "recognition of their right to compensatory interest, in accordance with article 43 of the General Tax Law, inasmuch as the information preceding the revocation order reveals that there was error attributable to the services", of which the Tax Authority was notified on the same date.
The parties were notified on 15 April 2019 to submit successive and optional written submissions.
The Claimants submitted submissions on 2 May 2019. They reiterate their entitlement to compensatory interest, concluding that there was error attributable to the services, given that the Tax Authority possessed information that the units in question were affected by the gaming concession, and IMI exemption was automatic in application. They attached documents evidencing payment of IMI.
On 17 May 2019, the Respondent submitted that compensatory interest should only be accrued from the date of the presumption of deemed rejection of the official review requests, which it considers occurred on 9 August 2018. It argues that it is false that the Tax Authority knew, as of 4 January 2016, that the disputed units were affected by gaming concessions, as it only received on 7 February 2018 the letter from the Gaming Regulation and Inspection Service ("SRIJ") of Tourism of Portugal, for which it attaches the supporting document, as well as the PA.
Considering that the Respondent invoked novel matter of fact at the submissions stage, the Claimants submitted their response on 27 May 2019, under article 3, paragraph 3 of the Code of Civil Procedure ("CPC"), arguing that, contrary to what was stated by the Respondent, the PA shows that the Inspector-General of Gaming communicated to the Director-General of Taxes, by letter signed in 2016, that IMI exemption was applicable to buildings affected by the gaming concession and, furthermore, that a request was submitted on 4 January 2016 to the Finance Service in..., noting IMI exemption on the properties in the case.
II. CURATIVE PHASE
The Tribunal was duly constituted and is competent ratione materiae in accordance with articles 2, paragraph 1, subsection a) and 5 of the RJAT.
The parties have legal standing and capacity and have legitimate interest, in accordance with articles 3, paragraph 1, 4 and 10, paragraph 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.
The joinder of claimants is admissible, as it concerns the assessment of identical circumstances of fact and legal framework, in compliance with article 3, paragraph 1 of the RJAT.
The process does not suffer from vices that would invalidate it, and no exceptions have been raised.
III. REASONING
III.I. FACTUAL MATTER
For relevance to the decision, the following facts which are considered proven must be noted:
A. The Claimants are co-owners of 6 autonomous units, situated in the parish of ... (...), municipality of..., registered at the Real Property Registry of ... under number..., which are affected by the gaming concession of ..., identified in the table below:
Description Urban Property
Article Matrix Number Autonomous Unit
Casino ... C
Entertainment Centre ... E
Congress Centre ... U
C... ... H
Bar / Nightclub ... BD
SPA ... S
– cf. information from the Tax Authority supporting the order for (partial) annulment of the disputed IMI assessments, communication letter sent by SRIJ to the Tax Authority, dated 02.02.2018 and property records attached as document 5 with the request for arbitral decision ("ppa") and contained in the PA.
B. By letter dated 21 September 2006, the Inspector-General of Gaming ("IGJ"), represented by the Inspector-General, communicated to the Director-General of Taxes that the second Claimant, by contract concluded with the State on 27 June 2005, was constituted as concessionaire of the gaming zone of ..., committing itself to construct a casino, a congress centre and a hotel. In this communication, the Inspector-General concludes that "having regard to the provisions of articles 92 and 93 of Decree-Law no. 422/89, of 2 December, I agree with the interpretation expressed in the request which is the subject of this letter, namely, regarding the payment of taxes substituting the transfer tax and municipal contribution, Transfer Tax and IMI, respectively, and fees due for licenses and municipal permits relating to contractual obligations" – cf. copy of the letter contained in the PA.
C. By order of the Secretary of State for Tourism, no. 9210/2009, of 6 March 2009, tourist utility was attributed, on a provisional basis, to the enterprise composed of the infrastructures described in point A above – cf. Official Gazette, 2nd series, No. 65, of 2 April 2009.
D. Tourist utility was definitively confirmed by subsequent order of the Secretary of State for Tourism, no. 16592/12, of 4 December 2012 – cf. Official Gazette, 2nd series, No. 252, of 31 December 2012.
E. This latter order states, in its paragraph 2, that: "[i]n accordance with the provisions of paragraph 1 of article 11 of Decree-Law no. 423/83, of 5 December, I set the validity of tourist utility at 7 (seven) years, counted from the date of the certificate of use no. .../10, of the Municipal Chamber of ... (issued on 14 December 2010), that is, until 14 December 2017" – cf. Official Gazette, 2nd series, No. 252, of 31 December 2012.
F. In March 2014, the Deputy Finance Chief of the Finance Service of ... informed that the units of the urban property registered under article number ... of the parish of ..., municipality of ..., were properly noted as exempted from IMI until the year 2015, inclusive, without the need for additional procedures – cf. copy of the e-mail contained in the PA.
G. On 4 January 2016, each of the Claimants submitted a request to the Chief of the Finance Service of ... requesting objective exemption from IMI provided for in article 92 of the Gaming Law (Decree-Law no. 422/89), for the entire duration of the concession – cf. copies of the requests contained in the PA.
H. The first Claimant was notified of the IMI assessment for the year 2016, issued under number 2016..., of 2 March 2017, in the total amount of € 152,321.10, which related, among others, to the properties (autonomous units) identified in point A above, amounting, in relation to these, to € 105,816.14, disputed in the present case – cf. copy of the assessment act attached with the ppa and reasoning of the order for partial annulment thereof.
I. The second Claimant was notified of the IMI assessment for the year 2016, issued under number 2016..., of 3 March 2017, in the total amount of € 93,081.48, which related, among others, to the properties (autonomous units) identified in point A above, amounting, in relation to these, to € 69,830.58, disputed in the present case – cf. copy of the assessment act attached with the ppa and reasoning of the order for partial annulment thereof.
J. The first Claimant made payment of the IMI assessment in three instalments of € 50,773.70, on the following dates: 28 April 2017, 28 July 2017 and 24 November 2017 – cf. copy of the bank documents attached with the ppa and with the Claimants' submissions.
K. The second Claimant made payment of the IMI assessment in three instalments of € 31,027.17, on the following dates: 27 April 2017, 28 July 2017 and 24 November 2017 – cf. copy of the bank documents attached with the ppa and with the Claimants' submissions.
L. By letter-order dated 2 February 2018 and received by the Tax Authority on 7 February of that year, the Gaming Regulation and Inspection Service communicated to the Tax Authority that the properties identified in point A above were "affected by the performance of contractual obligations by the company holding the gaming concession of ..." – cf. copy of the letter contained in the PA.
M. Not accepting the IMI assessment acts relating to 2016, in the part relating to the autonomous units affected by the gaming concession of ..., each of the Claimants addressed to the Finance Chief of the Finance Service of ... a Request for Official Review of those tax acts, submitted on 9 April 2018, under article 78 of the General Tax Law, on the grounds of paragraph 1 of article 115 of the IMI Code – cf. official review procedures that form part of the PA.
N. On 3 September 2018, following a request for information on the status of the procedure, the Claimants were notified that the Official Review Requests had been forwarded to the regional peripheral body and that "it was not yet possible to predict the date of conclusion for official review of the disputed assessment acts" – cf. documents attached with the ppa (3A and 3B) and contained in the PA.
O. Subsequently, on 8 October 2018, the Claimants were informed by the central services that "although it is still not possible to predict the date of conclusion, it would already be possible for the claimants, if they wish," to presume rejection – cf. documents attached with the ppa (4A and 4B) and contained in the PA.
P. On 19 October 2018, in partial disagreement with the IMI assessment acts relating to 2016, and given the presumption of rejection of the Official Review Requests that were their subject matter, the Claimants presented to CAAD the request for constitution of the Collective Arbitral Tribunal.
Q. On 1 April 2019, the Sub-Director-General for the Heritage Area proceeded with the partial annulment of the IMI assessments, in the part in which these were disputed by the Claimants, in accordance with the grounds set out in the information on which the annulment order was based, of which the following relevant excerpts are transcribed:
"II – FACTS
[…]
3 – On 2018.02.07, the office letter no. TDP/... of the Gaming Regulation and Inspection Service (SRIJ) of Tourism of Portugal was received at the Tax Authority, which informs «…that the properties affected by the performance of contractual obligations by the company holding the gaming concession of B... S.A., and A... S.A. are those sent herewith.»
4 – The properties contained in that annex are those previously mentioned and in relation to which the tax is being disputed.
III – ASSESSMENT
Considering that article 92 of Decree-Law no. 422/89, of 02.12 – Gaming Law – in its current wording, provides that «Acquisitions of properties indispensable for the performance of contractual obligations assumed by concessionaires are exempted from transfer tax, and municipal contribution is not due by those affected by concessions.» and that article 28 of Decree-Law no. 287/2003, of 12.11, provides that «All legal texts that mention (…) municipal contribution shall be deemed to refer (…) to municipal property tax (IMI).», once the affectation of the urban properties to the gaming concession is proven, they are exempted from IMI.
Article 94 of the Gaming Law also provides that «The Inspector-General of Gaming must inform the Director-General of Tax Contributions and Taxes or the municipal chambers, as appropriate: a) Which properties, in accordance with the terms referred to in article 92, were acquired or constructed and affected to the performance of contractual obligations; b) Which activities are necessarily exercised in accordance with the gaming concession contract.»
It being verified that the current SRIJ has fulfilled the duty contained in article 94 and that the IMI exemption in question is of an automatic nature, taking into account, furthermore, the gaming concession contract for the exclusive operation of games of chance or skill in the gaming zone of ..., which was already in force in 2016, it remains to conclude that the urban properties in question benefit from IMI exemption in the manner previously described." – cf. order and information attached to the arbitral process.
The relevant facts were selected and defined by their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of articles 123, paragraph 2 of the Code of Tax Procedure and Process ("CPPT"), 596, paragraph 1 and 607, paragraph 3 CPC, applicable by reference to article 29, paragraph 1, subsections a) and e) of the RJAT.
As regards the facts proven, the conviction of the arbitrators was based on critical analysis of the documentary evidence attached to the case file.
FACTS NOT PROVEN
No other facts with relevance to the decision of the case have been proven.
III.II. LEGAL MATTER
A. ADMINISTRATIVE (PARTIAL) ANNULMENT OF IMI ASSESSMENT ACTS – TERMINATION OF PROCEEDINGS DUE TO SUPERVENING IMPOSSIBILITY OF THE DISPUTE
The tax acts at issue, which constitute the subject matter of the request for arbitral decision, were administratively annulled in the part disputed in this action. And they were annulled when the period for the Respondent to file a Response had already elapsed.
In these circumstances, the request for partial annulment of the IMI assessments relating to 2016 became moot, since with administrative annulment, the respective constitutive legal effects (we always refer to the annulled part) are destroyed with retroactive efficacy, in accordance with article 171, paragraph 3 of the Code of Administrative Procedure ("CPA"), verifying a supervening impossibility of the dispute. As stated in Arbitral Decision in case no. 31/2013-T of CAAD, of 4 November 2013, "it becomes legally impossible to annul what no longer exists".
Doubt may be raised as to the timeliness of the administrative annulment, given that the period of 30 days had already elapsed, counted from knowledge of the request for constitution of the Arbitral Tribunal, established in article 13, paragraph 1 of the RJAT for the Tax Authority to proceed with "revocation, ratification, amendment or conversion of the tax act whose illegality has been raised, performing, where necessary, substitute tax act", article 13, paragraph 3 of the same provision stipulating that, after this period has expired, "the tax administration is prevented from performing new tax acts in relation to the same taxpayer or tax obligor, tax and taxation period, except on the basis of new facts".
It is understood that the provision in question should be interpreted to mean that, once the aforementioned period of 30 days has elapsed, the Tax Authority is prevented from performing a new dispositive act that regulates the tax legal relationship, in relation to the same taxpayer, tax and taxation period, except on the basis of new facts. However, it appears that this restriction does not occur in the case of simple administrative annulment of the disputed act, unaccompanied by new regulation of the legal situation.
Indeed, in this latter hypothesis, the principle of stability of proceedings underlying the legal limitations on administrative action during the pendency of judicial proceedings does not merit protection, since the party simply recognizes that the other party is right, with material basis in the law, and to that extent allows for premature resolution of the dispute and consequent termination of proceedings, with procedural and cost savings. There is no longer reason for the continuation of the dispute, since, although at a subsequent moment, consensus was generated supported by convergence of the parties as to the applicable legal regime.
This interpretation was adopted by the Supreme Administrative Court ("STA") in relation to the judicial challenge process, which is governed by article 112 of the CPPT, which establishes a discipline similar to that of article 13, paragraphs 1 and 3 of the RJAT, the latter applicable to the tax arbitration action. Since the tax arbitration process is an alternative means to judicial challenge, the manifest identity of reasons is undeniable, to which is added the fact that the CPA and the norms on organization and procedure in the administrative and tax courts are applicable subsidiary to the tax arbitration process, by reference to article 29, paragraph 1, subsections c) and d) of the RJAT.
As to the application of the CPA regime to the "revocation" of administrative acts in tax matters, the STA advocates in the Decision handed down on 15 March 2017, in case no. 449/14, that:
"The legal possibility of revocation of administrative acts in tax matters is provided for in article 79 of the General Tax Law (revocation is an act that ceases or eliminates the effects of a prior act, on the basis of its inexpediency or invalidity, with the respective regime provided for in articles 138 to 146 of the CPA).
However, since there is no provision in the General Tax Law or the CPPT defining the period for such revocation, it is uncontroversial that the rules contained in articles 136 et seq. of the CPA must be followed, which directly regulate the revocation of administrative acts [the CPA being complementary and subsidiary legislation to tax law – articles 2, subsection c), of the General Tax Law and 2, subsection d), of the CPPT (See, among others, the decision of this Section of the STA, of 15/5/2013, case no. 0566/12; as well as Leite Campos, Benjamim Rodrigues and Jorge de Sousa, Annotated and Commented General Tax Law, 4th edition, 2012, annotation 1 to article 79, p. 724 and Lima Guerreiro, General Tax Law, annotated, Rei dos Livros Publishers, p. 350, note 7.)]. […]"
In the same sense as to the applicability of the administrative invalidity regime to acts in tax matters, the STA again pronounced itself in the Decision of 17 December 2014, relating to case no. 454/14.
It is important to note that the concept of "revocation" up to the entry into force of the new CPA, on 8 April 2015, following the approval of Decree-Law no. 4/2015, of 7 January, encompassed both annulling revocation on the basis of illegality and revocation on grounds of opportunity and merit.
With the new CPA, the concept of administrative revocation became restricted to this second modality. As provided for in the current article 165 of the CPA, under the heading "Revocation and administrative annulment", revocation is the administrative act that determines the cessation of the effects of another act, on grounds of merit, convenience or opportunity (paragraph 1), and administrative annulment is the administrative act that determines the destruction of the effects of another act, on the basis of invalidity (paragraph 2). It is in this latter segment that the act which (partially) eliminated the IMI assessments of the year 2017, under discussion in the case, falls.
Thus, the revocation to which article 79 of the General Tax Law refers and, likewise, the cited Decision correspond to what is today, in light of the CPA, denominated as "administrative annulment", whose regime is contained in articles 163 "Voidable acts and regime of voidability" (previous articles 135 and 136); 166 "Acts not subject to revocation or administrative annulment" (previous article 139) and 168 "Conditions applicable to administrative annulment" (whose paragraph 2 corresponds to the previous article 141), all of the CPA.
In general, the conceptual and structural frameworks of the invalidity regime for administrative acts were not altered, and the considerations made under the traditional framework of Portuguese Administrative Law apply, with the necessary adaptations, without prejudice to the relaxation of the periods of consolidation of the voidable act which, for non-constitutive acts, now has a maximum limit of 5 years from their respective issuance (article 168, paragraph 1 of the CPA).
It is also worth noting, regarding the annulment of acts that have been subject to judicial challenge, as is the case, that article 168, paragraph 3 of the CPA provides that this may take place until the closure of discussion.
Returning to the concrete case, the silent acts (of deemed rejection) here disputed were formed on 9 August 2018, taking into account that the Official Review Requests had been submitted on 9 April of that year, given the four-month period provided for in article 57, paragraph 1 of the General Tax Law. As regards the administrative annulment of the same and, consequently, of the corresponding primary acts (of assessment), this took place by order dated 1 April 2019, whereby it is concluded that such acts were not consolidated, given the provision of article 168, paragraph 1 of the CPA.
On the other hand, the date of the administrative annulment order is prior to the closure of discussion of the present case, since only on 2 and 17 May, respectively, did the Claimant and Respondent submit their submissions. Thus, the period established in article 168, paragraph 3 of the CPA is observed.
In light of the foregoing, it is concluded that the administrative annulment effected by order of 1 April 2019, of the Sub-Director-General of the Heritage Area of the Tax Authority, which gives full satisfaction to the annulment request (partial) relating to the tax acts in dispute, in the amount of € 175,646.72, removes from the arbitral dispute its principal subject matter, whereby, in this part, proceedings are terminated, with support in articles 277, subsection e) and 611 of the CPC, applicable by reference to article 29, paragraph 1 subsection e) of the RJAT.
B. ON THE RIGHT TO COMPENSATORY INTEREST
As just stated, the tax acts at issue which constitute the subject matter of the request for arbitral decision were administratively annulled, in the disputed part, with the Claimants seeking recognition of their right to compensatory interest, on which the annulment order is silent.
As a preliminary matter, it is noted that this request was made ex novo in a subsequent pleading, following the exercise of the right to reply regarding the administrative annulment, and was not included in the pleadings which are limited to the assessment of legality and consequent annulment of the IMI assessment acts, nothing more. That is, no claim was made therein for condemnation of the Tax Authority to the recognition/payment of compensatory interest, within the freedom of formulation available to the Claimants in delimiting the subject matter of the action (claim and cause of action) and the powers of cognition of the judge.
The procedural principle of stability of proceedings, adopted in article 260 of the CPC, applies in this context, whereby, from a given moment (service of the defendant, which corresponds in the arbitration process to notification of the Respondent to file a Response), proceedings must remain the same as to the persons, the claim and the cause of action. Its principal objective is to prevent the court from being systematically surprised by new issues to resolve during the course of proceedings and that, for that reason, the progress of the proceedings be prejudiced.
However, an exception to this principle is contemplated if the plaintiff amplifies the claim and the amplification is the development or consequence of the original claim, in which case it may do so at any time until the closure of discussion – article 265, paragraph 2 of the CPC.
This exception encompasses the claim for compensatory interest, which is ancillary and consequential to the principal annulment claim, normally requiring that it be verified that error attributable to the Services has occurred, as article 43, paragraph 1 of the General Tax Law requires, or, if review of the tax act is requested at the initiative of the taxpayer, as occurs in this case, that the review take place more than 1 year after the taxpayer's request, in accordance with the following:
"Article 43
Overpayment of tax obligation
1 - Compensatory interest is due when it is determined, in administrative appeal or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due.
2 - […]
3 - Compensatory interest is also due in the following circumstances:
a) […]
b) […]
c) When review of the tax act at the initiative of the taxpayer is effected more than one year after the taxpayer's request, unless the delay is not attributable to the tax administration."
It is because the claim for interest is a consequence of the principal claim that jurisprudence considers that the fact that they are not claimed in the constitutive action does not even preclude the right to claim them subsequently, in the enforcement stage (if the same are not voluntarily satisfied by the Tax Authority), since their payment is inscribed in the duty of execution of the annulment sentence and full reconstitution of the hypothetical current situation, i.e., the situation that would exist if the illegality had not been committed, as also provided in article 100 of the General Tax Law.
In this way, it is understood that a decision on the compensatory interest claimed may be rendered before "closure of discussion". Additionally, where supervening impossibility of the dispute occurs, as is verified in the present case, if the annulment act does not pronounce on compensatory interest, the Tribunal may adjudicate on the claim for compensatory interest that has been properly raised on this matter.
This understanding derives from the fact that the retroactive efficacy of the annulment of the assessment acts does not have the virtue of instantaneously eliminating all the harmful effects that were produced by the tax acts during the period preceding the annulment, in particular as regards the deprivation of the financial means used to pay the tax obligation which, in fact, was not due due to illegality.
Thus, if the removal of the assessment acts (or the defective part) is not accompanied by regulation of the situation that would exist if they had not been performed, i.e. the attribution of compensatory interest (or indemnity for guarantee provision if the case may be), then, to that extent the proceedings may continue to safeguard the ancillary claim raised by the issuance of such illegal acts which, despite being annulled, existed and produced harmful effects.
It should be noted that the position adopted is not unanimous, as can be seen from the reading of the recent Arbitral Decisions in CAAD cases no. 215/2018-T, of 16 November 2018, and 481/2018-T, of 7 March 2019.
However, the contrary understanding, according to which the claim for compensatory interest should not be adjudicated in case of futility or supervening impossibility of the dispute, does not appear to be in harmony with the jurisprudence of the STA which holds that where there is no administrative pronouncement (decision) on compensatory interest (and, mutatis mutandis, on indemnity for undue guarantee provision if the case may be), the tax relationship generated by the illegal act is not integrally regulated, nor is the claim made in the proceedings fully satisfied, whereby the Tribunal, where such a claim has been raised, may assess and, should the respective conditions be verified, condemn the Tax Authority to the payment of compensatory interest, that is to say, to this exact extent the utility and interest of jurisdictional pronouncement is maintained. By way of example, reference is made to Decisions of that Supreme Court in cases no. 574/14, of 7 January 2016, and 1101/16, of 3 May 2017.
It is true that administrative annulment imposes on the Tax Authority the duty ("ope legis") to restore the situation that would exist if the tax act had not been performed. However, in the case, the Tax Authority did not expressly recognize this right in the "annulment act", omitting the administrative regulation of that part. Thus, the (ancillary) claim made by the Claimants in the tribunal – for compensatory interest – was not expressly granted (or decided favorably) by the operative part of the annulment act.
The fact that the law imposes a given solution does not mean that this is observed by administrative bodies. Following the line of reasoning of the cited arbitration cases, it could always be said that jurisdictional pronouncement on compensatory interest or on indemnity for undue guarantee provision should never be admissible, since these are always an ipso iure effect of the constitutive annulment pronouncement – whether by the court or by the Tax Authority – and of the obligation to reconstruct the hypothetical current situation that occurs in both cases (provided that the condition of error attributable to the Services is met). However, in a different understanding, these ancillary claims have been admitted, given the purpose of regulating and encompassing by the jurisdictional pronouncement the entirety of the substantive relationship, with the binding force that is proper to it.
Thus, it is concluded that the legal claim of the Claimants has not yet been fully satisfied by the annulment of the act. The circumstance that the duty to pay compensatory interest is provided for in law and derives (as an effect) from annulment, provided that its conditions are met, does not compromise, according to this Tribunal, the utility of a jurisdictional pronouncement to that effect that regulates the question with the force of res judicata. This interpretation is parametrized by the principle of effective jurisdictional protection and by the avoidance of possible contentious proceedings (unnecessary and costly), in case of non-compliance with the reconstitutive duties by the Tax Authority, namely an autonomous indemnity action, which would derive from the contrary position.
Assessing the concrete situation of the case in relation to the claim for compensatory interest, which this Arbitral Tribunal considers should be adjudicated, and as a preliminary point to the assessment of error attributable to the Services, it is important to consider that two Official Review Requests submitted by the Claimants on 9 April 2018 are at issue, already beyond the period of 120 days provided for in article 70, paragraph 1 of the CPPT and, therefore, not convertible into (nor admissible as) Administrative Appeal. In this case, the right to compensatory interest falls within the specific discipline of article 43, paragraph 3, subsection c) of the General Tax Law, which provides that these are due if review of the act is effected more than 1 year after the taxpayer's request, i.e., in this case, after 9 April 2019.
However, the tax acts, in the relevant part, were annulled previously, on 1 April 2019, the aforementioned period of 1 year had not yet elapsed, a condition essential to the birth of the right to such interest. To this effect also contributes the consolidated jurisprudence of the STA, summarized in the recent Decision of the Plenary, of 8 May 2019, handed down in case no. 116/18.7.BALSB, from which the following illustrative excerpts are drawn, with full applicability to the situation of the case:
"2.2. The fundamental legal question opposing the appealed arbitral decision to the decision on the merits consists in determining whether compensatory interest, to be fixed following judicial annulment of an assessment act preceded by a request for review at the initiative of the taxpayer, should be counted from the date of payment of the tax indevidly assessed, or should be counted after the expiry of the period of one year from the date of submission of the review request.
The question is not new and has been analyzed and decided on several occasions by the STA in the sense that such interest is only due after the expiry of the period of one year counted from the date of submission of the review request - decisions of this Section of 24/05/06, in case no. 01155/05, of 2/11/2006, in case no. 0604/06, of 15/02/2007, in case no. 01041/06, of 10/05/2017, in case no. 01159/14, and of 6/12/2017, in case no. 0926/17, and decisions of the Plenary of 23/05/2018, in case no. 01201/17, and of 27/02/2019, in case no. 022/18.
We support, without reservation, this jurisprudential orientation, which is currently consolidated in the Supreme Administrative Court in light of the aforementioned decisions of the Plenary, which is why we will transcribe what is highlighted in that latest decision.
«Reading of the provision in article 61, paragraph 1 of the Code of Tax Procedure and Process allows the conclusion that, as it addresses the administrative entity, it confers on it the power/duty to recognize the right to compensatory interest in favor of the taxpayer in various situations
[…]
Additionally, the General Tax Law provides, in article 43, paragraph 3 that: «Compensatory interest is also due when review of the tax act at the initiative of the taxpayer is effected more than one year after the taxpayer's request, unless the delay is not attributable to the tax administration».
As concluded in the merits decision, and reaffirmed in the decision of the Plenary of the Tax Contentious Section of the Supreme Administrative Court handed down in case no. 01201/17 on 23/05/2018, the situation of the case is also encompassed in paragraph 3, subsection c) of article 43 of the General Tax Law because the taxpayer, although able to have obtained annulment of the assessment act effected in 2012 and 2013 previously, did nothing, temporarily disinteresting itself in the recovery of its money, until on 28 September 2016, it submitted a request for official review of the tax act.
Between 2012 and 2016 there elapsed an extensive period in which restitution of legality could have been prompted by the taxpayer's own initiative which it did not undertake, which justifies that the right to compensatory interest should have more limited scope by contrast to the situation in which the taxpayer raises the question of the illegality of the assessment act immediately after the disbursement of the amount in question, in particular in the three months following the end of the voluntary payment period using the process of challenging the assessment act.
The legislator considers that the period of one year is the reasonable period for the Administration to decide the review request and execute the respective decision, where favorable to the taxpayer, refraining from full indemnification from the moment the damages arose in the taxpayer's patrimonial sphere.
As the constitutional law imposes on the State the obligation to repair damages caused by its illegal acts, ordinary law has come to establish limits on such repair, whether those arising from the assessment of the greater or lesser diligence of the injured party, or from the time it gives to the Tax Administration to decide.
The arbitral decision on appeal attributed indemnification from the occurrence of the damaging event, and in light of the tax law norms currently in force such indemnification does not have legal basis, at least under the aegis of the process of challenging the decision rejecting the official review request of the assessment act.».
It is true that the taxpayer was forced to resort to the arbitral tribunal due to the Administration's services not having proceeded with the requested review of the illegal assessment act, and that this constitutes a circumstance that has been invoked to set aside the application of subsection c) of paragraph 3 of article 43 of the General Tax Law.
However, it is important not to forget that the principle of equality imposes similar treatment between taxpayers whose review requests are successful (beyond the period of one year) with the Administration, and taxpayers who obtain identical results (also beyond that period) with the Tribunal. In either case, the delay of more than one year is attributable to the Administration and derives from the performance of illegal act: either because it delayed in giving the taxpayer satisfaction or because it did not and it subsequently proved that it should have done so. In these cases, the right to indemnification derives from the performance of illegal act and not from non-compliance with a procedural deadline for the services to decide favorably on the taxpayer's claim, since the period of one year set in that norm does not even coincide with the period of four months that the General Tax Law sets for the issuance of a decision (article 57, paragraph 1).
In the case at hand, the tax was assessed on 20/03/2015 and paid on 30/10/2015 and 30/11/2015. However, the request for review of the assessment was only submitted on 28/09/2016 [cfr. subsection e) of the factual basis of the appealed decision] and, in this circumstance, interest can only be counted from one year thereafter, that is, from 29/09/2017.
Thus, the aspect of the arbitral decision which fixed the starting date of compensatory interest at the dates of payment of the tax must not fail to be repealed, and it should be determined that this starting date only occurred on 29/09/2017, in this measure granting merit to the appeal.
3. For the foregoing, the Judges of the Plenary of the Tax Contentious Section of the Supreme Administrative Court agree to grant merit to the appeal, annul the arbitral decision in the segment in which it determined compensatory interest to be due from the date of payment of the tax, declaring that such interest is due only from one year after the review request was formulated."
It should be noted that the interpretation advocated is not altered by the fact that the (partial) administrative annulment of the assessments occurred as a result of the assessment of the legality of the acts raised in the context of the arbitration action, as results from the reading of the Decision of the STA, of 15 February 2007, in case no. 1041/06, confirmed by subsequent jurisprudence, in particular, by Decisions of 28 January 2015, in case no. 722/14, and of the Plenary, of 24 October 2018, in case no. 099/18.3BALSB, which set aside a restrictive interpretation of the cited article 43, paragraph 3, subsection c) of the General Tax Law.
In light of the foregoing and regardless of whether the IMI assessments, in the invalid part, derive from error attributable to the Services, immediately because the exemption provided for in article 16, paragraph 1 of Decree-Law no. 423/83, of 5 December, applies, the period of 7 years of which had not yet expired in 2016, compensatory interest is not due, because this is a situation encompassed in article 43, paragraph 3, subsection c) – of the General Tax Law, and the Tax Authority took less than 1 year to review – through partial administrative annulment – the tax acts in question.
Non-observance of this period of 1 year for the review of the acts is a condition for the birth of the right to compensatory interest, which, however, was not verified in the concrete situation.
Thus, the claim of the Claimants for compensatory interest is not well-founded, in light of article 43, paragraph 3, subsection c) of the General Tax Law and the jurisprudence referred to above.
IV. DECISION
In these terms, this Arbitral Tribunal agrees to:
(a) Declare proceedings terminated, due to supervening impossibility of the dispute, with respect to the claim for declaration of illegality and partial annulment of the silent acts rejecting the Official Review Requests and the IMI assessments relating to the year 2016 identified above;
(b) Declare the claim for condemnation of the Tax Authority to payment of compensatory interest to the Claimants not well-founded;
(c) Condemn the Tax Authority to pay the costs of proceedings.
V. VALUE OF THE CASE
The value of the case is fixed at € 175,646.72, as this is the amount the annulment of which is sought, in accordance with the provision of article 97-A, paragraph 1, subsection a) of the CPPT, applicable by virtue of article 29, paragraph 1 subsection a) of the RJAT, and article 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT").
VI. COSTS
In accordance with articles 12, paragraph 2 and 22, paragraph 4, of the RJAT, 4, paragraph 5 of the RCPAT, 527 and 536, paragraph 3 of the CPC the amount of costs is set at € 3,672.00, in conformity with Table I attached to the RCPAT, to be borne by the Respondent, since it is imputable to the Respondent the supervening futility of the dispute, deriving from the (partial) annulment of the tax acts during the pendency of arbitration proceedings.
Notify accordingly.
Lisbon, 6 June 2019
[Text prepared by computer, in accordance with article 131, paragraph 5 of the CPC, applicable by reference to article 29, paragraph 1 subsection e) of the RJAT]
The arbitrators,
Alexandra Coelho Martins
Maria Alexandra Mesquita
João Pedro Rodrigues
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