Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A…, SA, Public Company with Tax Identification Number[1]…, with registered office at Street … no. … – (…-…) Porto, in the area of the … tax authority of said city, filed a request for arbitral pronouncement, pursuant to the provisions of paragraph a) of item 1 of Article 2, of item 1 of Article 3 and of paragraph a) of item 1 of Article 10, all of the Tax Arbitration Legal Framework[2], requesting the Tax and Customs Authority[3], with a view to declaring the illegality of the dismissal decisions issued in the request for official review of Municipal Property Tax assessments relating to the years 2011 to 2014, concerning urban properties … and … of the parish and municipality of …, in the amounts of € 7,975.38 and € 7,012.27, all as set out in item 1 of the request for arbitral pronouncement and which is here fully reproduced for due purposes.
The request was made without exercising the option to appoint an arbitrator, and was accepted by the Honorable President of the Administrative Arbitration Centre[4] on 03/10/2017 and notified to the Tax and Customs Authority on the same date.
Pursuant to and for the purposes of item 2 of Article 6 of the Tax Arbitration Legal Framework, by decision of the Honorable President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, on 31/10/2017, Arlindo José Francisco was appointed arbitrator of the tribunal, who communicated acceptance of the appointment within the legally stipulated time limit.
The tribunal was constituted on 14/12/2017 in accordance with the provisions contained in paragraph c) of item 1 of Article 11 of the Tax Arbitration Legal Framework, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December.
With its request, the claimant aims at the annulment of the decision dismissing the request for official review, with the consequent annulment of the Municipal Property Tax assessments contested and the reimbursement of the total amount thereof, in the sum of € 14,987.65, plus compensatory interest as requested.
It supports its position, in summary, on the fact that both properties are located in the Historic Centre of …, physically delimited by its medieval walls, included in the UNESCO Heritage list[5], as declared in Notice DD 1536 of the Ministry of Foreign Affairs[6] of 1/02/1988, as published in the Official Gazette[7] – 1st Series, no. 39, of the same date.
Thus and in accordance with Article 44, item 1, paragraph n) of the Tax Benefits Framework[8], the aforementioned properties benefit from the exemption provided in this legal norm, since they are located in an area qualified as UNESCO World Heritage.
It understands that, in accordance with the provisions contained in Article 15 of Law 107/2011 of 8 September, namely its items 2, 3 and 7, the aforementioned properties meet the conditions to benefit from the Municipal Property Tax exemption provided for in the already cited paragraph n) of item 1 of Article 44 of the Tax Benefits Framework.
In its reply, the respondent, also in summary, begins by raising the exception of lack of jurisdiction of the tribunal, considering that the arbitral action is not the proper means to assess the dismissal of requests for official review of tax assessment acts.
It considers the tribunal materially incompetent, since it is prohibited from assessing claims relating to a declaration of illegality of assessment acts that have not been preceded by recourse to the administrative remedy, pursuant to Articles 131 to 133 of the Tax Code of Procedure and Process[9], not including here the official review procedure provided for in Article 78 of the General Tax Law[10].
Failing to accept this point of view, it defends itself by objection, considering that the properties in question, by themselves, are not covered by paragraph n) of item 1 of Article 44 of the Tax Benefits Framework, given that they are not individually classified as national monuments, nor as being of public interest or municipal interest, in accordance with applicable legislation.
II - PRELIMINARY MATTERS
The tribunal was duly constituted.
The parties have legal personality and capacity, demonstrate themselves to be legitimate and are regularly represented in accordance with Articles 4 and 10, item 2 of the Tax Arbitration Legal Framework and Article 1 of Ordinance no. 112-A/2011, of 22 March.
By order of 22 January 2018, 20 February of that year was set for the meeting referred to in Article 18 of the Tax Arbitration Legal Framework.
On 24 of the same month of January, the respondent came before the court to consider said meeting unnecessary and, by order of the same date, the claimant was ordered to be notified to, if it so wishes, make a statement within 10 days.
The next day, the claimant declared that it did not object to the waiver of the said meeting and requested the setting of a time limit for the submission of written pleadings.
By order of 25/01/2018, the order of 22 January was rendered void and a period of 15 days was granted for the submission of pleadings, with successive proceedings.
On 08/02/2018, the claimant submitted its pleadings which, in essence, maintained the position already set out in the petition, further stating that the exclusion of competence provided for in paragraph a) of Article 2 of Ordinance no. 112-A/2011 relates only to self-assessed tax acts, withholding at source and payments on account that have not been preceded by recourse to administrative claim. It further emphasizes that the concrete case is not included in the said provision, since we are dealing with an assessment made administratively by the central services of the Tax and Customs Authority, without any intervention by the taxpayer.
The respondent submitted its pleadings on 22/02/2018, having in essence maintained its position, further emphasizing the non-compliance by the claimant with the provisions contained in items 5 and 6 of Article 44 of the Tax Benefits Framework.
By order of 06/03/2018, the tribunal considered the conditions to be met for issuing a decision and set today as the date therefor.
Thus, as the proceedings are not affected by nullities, it is necessary to decide.
III - REASONING
The issues to be settled, with interest for the case, are as follows:
To assess the question of lack of jurisdiction of the tribunal ratione materiae, raised by the respondent;
Should the exception be dismissed, to assess and decide whether the claim is or is not well-founded and to draw the respective legal consequences.
In case the claim is upheld, to decide whether there is or is not a place for the payment of compensatory interest in favor of the claimant relating to the Municipal Property Tax amounts unduly paid.
2 – Factual Matters
The claimant was, in the years 2011 to 2014, the owner of the properties already duly identified and on which it paid Municipal Property Tax in said years, in the total amount of € 14,987.65, as evidenced by documents contained in the administrative file attached to these proceedings.
The claimant, having been duly notified of the Municipal Property Tax assessments, requested official review thereof, and despite this, proceeded to pay them in a timely manner.
The aforementioned properties are located in an area qualified as UNESCO World Heritage (Historic Centre of the city of …).
The request for official review submitted was dismissed by order of 11/09/2017 from the Finance Director of …, by sub-delegation from the Deputy General Director of the Tax and Customs Authority.
Proof of these facts results from the documents attached to the proceedings which were not contested by the parties, as well as from the content of the administrative file attached.
3 - Legal Matters
3.1 – Exception of lack of jurisdiction of the tribunal ratione materiae
The respondent raised, in the first place, the lack of jurisdiction of the tribunal to assess the dismissal of the request for official review of the tax acts in question and, indirectly, their respective assessments, basing its position on paragraph a) of Article 2 of Ordinance 112-A/2011 of 22 March, which restricts arbitral knowledge of claims relating to the declaration of illegality of assessment acts that have been preceded by recourse to the administrative remedy, pursuant to Articles 131 to 133 of the Tax Code of Procedure and Process, not being included in said binding norm of the respondent the mechanism of official review provided for in Article 78 of the General Tax Law.
Now, having in mind that Article 2 of the Tax Arbitration Legal Framework establishes, in its item 1 paragraph a), the competence of arbitral tribunals to assess claims directed at the declaration of illegality of acts assessing taxes, self-assessed taxes, withholding at source and payments on account, with no exception of competence appearing in situations where tax assessment acts are or are not preceded by official review.
Article 2, paragraph a) of Ordinance no. 112-A/2011, as already seen, defined the binding of the Tax and Customs Authority to the jurisdiction of arbitral tribunals functioning in the Administrative Arbitration Centre, only excepting claims relating to the declaration of illegality of self-assessed acts, withholding at source and payments on account that have not been preceded by recourse to the administrative remedy provided for in Articles 131 to 133 of the Tax Code of Procedure and Process and, as is evident, this is not the case in the present proceedings which concern the Municipal Property Tax assessment practiced administratively by the respondent that were subject to a request for official review, provided for in Article 78 of the General Tax Law and which Article 115 of the Municipal Property Tax Code[11] permits and extends to other special situations provided for in its item 1, as is the case here, in which the claimant invokes the existence of grounds for the exemption of Article 44 of the Tax Benefits Framework that was not taken into account in the assessment acts at issue.
From this perspective, the tribunal considers itself competent to assess the legality of the decisions dismissing the requests for official review concerning the legality of Municipal Property Tax assessment acts, as is the case, since the same do not appear in the exceptions of paragraph a) of Article 2 of Ordinance 112-A/2011 already mentioned, thus making the exception raised by the respondent without merit.
3.2 – Assessment of whether the claim is or is not well-founded
The claimant understands that the properties already identified and located in the area of the city of …, qualified as UNESCO World Heritage, should be considered national monuments for the purposes of what is provided in paragraph n) of item 1 of Article 44 of the Tax Benefits Framework, that is, benefit from the automatic exemption from Municipal Property Tax that item 5 of said article provides, since the historic center of … was classified as a national monument and the properties inserted in it are covered by the exemption already mentioned. The historic area of … should be understood as a whole, it making no sense to classify individually each of the component properties and, when the norm refers to national monument and property individually classified as being of public interest or municipal interest, it only requires individualization in relation to these last two categories, not to properties of national interest, the legislature's intention being to dispense with individualized classification for purposes of Municipal Property Tax exemption to national monuments, only requiring it in relation to those of public or municipal interest.
For its part, the Tax and Customs Authority understands that the claimant's argument results from a mistaken interpretation of the norms applicable to the case, confusing the current concepts of classification and designation, saying that since 2001 there has been no classification called a national monument, but only classifications called national interest, public interest or municipal interest, making it impossible to affirm that the historic center of … is a national monument, in that the concept of classification called national monument refers to Decree 20985 of 1932 and is not equivalent to the concept of designation referred to in the Cultural Heritage Protection and Enhancement Framework Law[12]. Also, according to the Tax and Customs Authority, there is no UNESCO classification, but only a list, and at the same time one cannot dissociate the fiscal concept of property from the exemption, the Historic Centre of … being a plurality of properties and not a single property as defined by Article 2 of the Municipal Property Tax Code.
Lastly, it considers that the proof presented by the claimant amounts to a tourist brochure from the Municipality of …, also downplaying the case law invoked by the claimant, in that it will not have become final and considers that the interpretation made by the claimant is inconsistent with the Portuguese Constitution[13] and that it would violate the principles of tax equality, tax fairness, taxpaying capacity, local autonomy and participation in decision-making.
It is now for the tribunal to decide whether properties with the fiscal concept stipulated in Article 2 of the Municipal Property Tax Code, inserted in the historic center of … benefit from the Municipal Property Tax exemption provided for in paragraph n) of item 1 of Article 44 of the Tax Benefits Framework, which is transcribed: "n) Properties classified as national monuments and properties individually classified as being of public interest or municipal interest, pursuant to applicable legislation."
This legal norm calls upon the classification of properties referred to in Article 15 of the Cultural Heritage Protection and Enhancement Framework Law of 8 September, which is also transcribed:
"1 - Immovable property may belong to the categories of monument, ensemble or site, in the terms in which such categories are defined in international law, and movable property, among others, to the categories indicated in Title VII.
2 - Movable and immovable property may be classified as being of national interest, public interest or municipal interest.
3 - For immovable property classified as being of national interest, whether monuments, ensembles or sites, the designation 'national monument' shall be adopted and for movable property classified as being of national interest the designation 'national treasure' is created.
4 - Property is considered to be of national interest when its protection and enhancement, in whole or in part, represents a cultural value of significance for the Nation.
5 - Property is considered to be of public interest when its protection and enhancement represents a cultural value of national importance, but for which the protection regime inherent to classification as being of national interest would be disproportionate.
6 - Property is considered to be of municipal interest when its protection and enhancement, in whole or in part, represent a cultural value of significance predominant for a particular municipality.
7 - Immovable cultural property included in the World Heritage list integrates, for all purposes and in its respective category, the list of property classified as being of national interest.
8 - The existence of the categories and designations referred to in this article does not prejudice the possible relevance of others, namely when provided for in international law."
The properties in question, as already seen, are located in the Historic Centre of … as per the UNESCO World Heritage list, published by Notice DD1536 of the Ministry of Foreign Affairs of 17 February, in the Official Gazette – I Series no. 39 of the same date.
If we pay close attention to item 7 of Article 15 of the Cultural Heritage Protection and Enhancement Framework Law combined with item 3 of Article 3 of Decree-Law[14] 309/2009, property classified as being of national interest is designated a "national monument," regardless of whether we are dealing with a single building, ensemble or site, being evident that the properties that make up the ensemble or site are necessarily covered by that classification, as it could not be otherwise for fear of having an ensemble or site whose elements were classified differently. In these circumstances and, by virtue of the Cultural Heritage Protection and Enhancement Framework Law, the properties in question are today of national interest, and are therefore classified as national monuments.
The possibility of coexistence of individually classified properties, pursuant to Article 56 of the aforementioned Decree-Law 309/2009, relates to the delimitation of the protection zone of that property until publication of the classification of the ensemble or site.
We take as certain that, for there to be Municipal Property Tax exemption, there is no need for an individual classification procedure of the property as a national monument, of public or municipal interest. This results not only from the legal norms already mentioned, but also from Articles 20 and 21 of the Cultural Heritage Protection and Enhancement Framework Law which establish respectively the rights and duties of their owners, without requiring individual classification for that, contrary to what is argued by the Tax and Customs Authority, and so much so that the legislature amended paragraph g) of Article 6 of the Municipal Real Estate Transfer Tax[15] through Law 55-A/2010 of 31 December and did not do so in relation to the Municipal Property Tax, which allows us to conclude that the legislature's intention was to dispense with individualized classification for purposes of Municipal Property Tax exemption to national monuments, only requiring it in relation to those of public or municipal interest.
To note that the fiscal concept of property differs from the concept of immovable cultural property used in Cultural Heritage Law is, from the tribunal's perspective, not relevant, given the combination already made of item 7 of Article 15 of the Cultural Heritage Protection and Enhancement Framework Law and item 3 of Article 3 of Decree-Law 309/2009 and further norms mentioned above and, as is well known, the Historic Centre of … is formed by the set of properties inserted in it and individually considered not only for purposes of Municipal Property Tax, but also for purposes of rights and duties enshrined in the already mentioned Articles 20 and 21 of the Cultural Heritage Protection and Enhancement Framework Law.
The Tax and Customs Authority downplays the proof presented by the claimant by referring to "an advertising brochure from the Municipality of …" without, however, denying or calling into question the location of the properties in the historic center, which moreover has that proof in the respective property records and which the property record booklets with copies in the administrative file attached to these proceedings evidence.
Also the case law invoked by the claimant and which the respondent says did not become final, there is other law in the same sense and several are the court decisions that address this matter, all to the effect of the unnecessary nature of any individual classification of properties that are part of historic centers.
As to the inconsistency with the Constitution of the interpretation made by the claimant and also that which the tribunal is making, it is understood that there is no inconsistency with the constitutional text, firstly because of the nature of the tax benefits that are imposed by the nature of the public interest they aim to ensure and, as is well known, there are no absolute rights or principles in the Constitution, in each concrete situation, one must weigh which one should prevail in function of the yielding of others.
It should be said that the location of properties in historic centers entails limitations on the property rights of their owners, namely with burdens and charges that Article 21 of the Cultural Heritage Protection and Enhancement Framework Law well lists, so that the legislature, through the exemption it grants them, seeks to compensate for this effort of the holders in favor of the defense of the prevailing public interest with the automatic recognition of the Municipal Property Tax exemption. Thus, no violation of the text or of constitutional principles is recognized.
From this perspective and, with the properties located in the Historic Centre of …, and this being included in the UNESCO World Heritage list as an ensemble, we can only conclude that the request for official review should have been granted given that the properties are in the conditions provided for in paragraph n) of item 1 of Article 44 of the Tax Benefits Framework, with the consequent annulment of the respective Municipal Property Tax assessments as illegal.
3.3 – Reimbursement of Municipal Property Tax unduly paid and Compensatory Interest
The claimant requests reimbursement of the Municipal Property Tax unduly paid, as per documentation contained in the administrative file attached to these proceedings, plus compensatory interest.
Having in mind the provisions contained in paragraph b) of item 1 of Article 24 of the Tax Arbitration Legal Framework, which is in line with what is provided in Article 100 of the General Tax Law, applicable ex vi paragraph a) of item 1 of Article 29 of the Tax Arbitration Legal Framework, the Tax and Customs Authority is obliged to restore legality which comprises the payment of compensatory interest, if applicable.
Pursuant to item 1 of Article 43 of the General Tax Law, compensatory interest is due when it is determined, in administrative claim or judicial challenge, that there was error attributable to the tax authorities as a result of which the tax debt was paid in an amount greater than legally due.
Considering that item 5 of Article 24 of the Tax Arbitration Legal Framework provides that payment of interest is due regardless of its nature, pursuant to the terms provided in the General Tax Law and in the Tax Code of Procedure and Process, this leads us to conclude that it allows the recognition of the right to compensatory interest in the arbitral proceedings.
In the case at hand, with the assessments being affected by the defect of violation of law, a fact that is attributable to the Tax and Customs Authority which carried them out, the claimant has not only the right to reimbursement of the Municipal Property Tax unduly paid but also to compensatory interest, calculated from 29 January 2017, in relation to the Municipal Property Tax of the years 2011, 2012 and 2013 and from the date of payment of the Municipal Property Tax relating to the year 2014, as requested, calculated at the legal rate.
IV – DECISION
Thus the tribunal decides:
To declare the exception of lack of jurisdiction of the tribunal ratione materiae without merit.
To declare the request for arbitral pronouncement well-founded, with the consequent illegality of the order dismissing the request for official review of the Municipal Property Tax assessments relating to the years 2011, 2012, 2013 and 2014 and the annulment thereof.
To declare well-founded the claim for reimbursement of the Municipal Property Tax unduly paid in relation to the assessments now annulled, in the sum of € 14,987.65, plus compensatory interest calculated at the legal rate, from 29 January 2017, in relation to the Municipal Property Tax of the years 2011, 2012 and 2013 and from the date of payment of the Municipal Property Tax relating to the year 2014, until the dates of the respective reimbursements.
To fix the value of the case at € 14,987.65 in accordance with the provisions contained in Article 299, item 1, of the Civil Procedure Code[16], Article 97-A of the Tax Code of Procedure and Process, and Article 3, item 2, of the Tax Arbitration Costs Regulation[17].
To fix the court costs, pursuant to item 4 of Article 22 of the Tax Arbitration Legal Framework, in the amount of € 918.00 in accordance with the provisions in Table I referred to in Article 4 of the Tax Arbitration Costs Regulation, to be borne by the respondent.
Lisbon, 28 March 2018
Text prepared by computer, pursuant to Article 131, item 5 of the Civil Procedure Code, applicable by reference from Article 29, item 1, paragraph e) of the Tax Arbitration Legal Framework, with blank spaces and reviewed by the tribunal.
The Arbitrator
Arlindo José Francisco
[1] Acronym for Tax Identification Number for Legal Entities
[2] Acronym for Legal Framework for Tax Arbitration
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Centre
[5] Acronym for United Nations Educational, Scientific and Cultural Organization
[6] Acronym for Ministry of Foreign Affairs
[7] Acronym for Official Gazette
[8] Acronym for Tax Benefits Framework
[9] Acronym for Tax Code of Procedure and Process
[10] Acronym for General Tax Law
[11] Acronym for Municipal Property Tax Code
[12] Acronym for Cultural Heritage Protection and Enhancement Framework Law
[13] Acronym for Portuguese Constitution
[14] Acronym for Decree-Law
[15] Acronym for Municipal Real Estate Transfer Tax
[16] Acronym for Civil Procedure Code
[17] Acronym for Tax Arbitration Costs Regulation
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