Process: 682/2015-T

Date: April 22, 2016

Tax Type: IMT Selo

Source: Original CAAD Decision

Summary

This arbitration decision (Process 682/2015-T) addresses the legality of additional IMT and Stamp Duty assessments issued after tax benefits were initially granted. In December 2009, the taxpayer acquired a property through insolvency proceedings for €424,210 and received 100% exemption from both IMT and Stamp Duty under Articles 269 and 270 of the Insolvency Code (CIRE), resulting in zero tax liability. Nearly six years later, in August 2015, the Tax Authority conducted a monitoring action and determined the exemptions were improperly granted, arguing that the legal requirements were not met: the property was acquired from a natural person rather than a company, and there was no acquisition of the universality of the business establishment. Consequently, the Tax Authority issued additional assessments totaling €25,628.60 (€22,234.92 for IMT and €3,393.68 for Stamp Duty). The taxpayers challenged these assessments before the CAAD arbitration center, arguing exclusively that the right to assess had expired under the statute of limitations rules (caducidade do direito à liquidação). The Tax Authority opposed, claiming the request was inadmissible. The arbitral tribunal addressed a preliminary issue regarding the cumulation of IMT and Stamp Duty claims in a single proceeding, concluding that such cumulation is permissible under recent case law since both are taxes of similar nature levied on property transactions. This case illustrates the critical importance of statute of limitations in tax matters, the scope of tax benefits in insolvency proceedings, and the procedural rules governing combined tax claims in Portuguese tax arbitration.

Full Decision

ARBITRAL DECISION

I. Report

  1. A… and B…, with tax identification numbers … and …, respectively, married under the regime of community of property acquired during marriage, resident at Rua do…, no.…, …, …, requested the constitution of the arbitral tribunal in tax matters raising a request for arbitral pronouncement against the assessment acts of the Municipal Tax on Onerous Property Transfers (IMT) and Stamp Duty (IS), to which relates the notification effected through Official Letter no.…, of 14-09-2015, from the Tax Service of ... …, in the amounts of €22,234.92 and €3,393.68, respectively, which totals the global amount of €25,628.60. Petitioning for the annulment of the aforesaid acts and consequent reimbursement of the amounts unduly paid, the Petitioners further request recognition of their right to the corresponding compensatory interest, calculated in accordance with legal terms.

  2. The Petitioners base their request, submitted on 18-11-2015, exclusively on the expiration of the right to assess the taxes in question.

  3. In response to what was requested, the Tax and Customs Authority (AT) pronounced itself in the sense of the inadmissibility of the present request for arbitral pronouncement, maintaining in the legal order the tax acts contested and, in accordance therewith, for the dismissal of the Respondent entity.

  4. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 20-11-2015.

  5. In accordance with the provisions of subsection a) of section 2 of article 6 and subsection b) of section 1 of article 11 of Decree-Law no. 10/2011, of 20 January 2011, as amended by article 228 of Law no. 66-B/2012, of 31/12, the Ethics Council designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the assignment within the applicable period, and notified the parties of this designation on 07-01-2016.

  6. Duly notified of this designation, the parties did not manifest the will to refuse the designation of the arbitrator, in accordance with the combined provisions of article 11, section 1, subsections a) and b) of the RJAT and articles 6 and 7 of the Ethics Code.

  7. Thus, in accordance with the provisions of subsection c) of section 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the sole arbitral tribunal was constituted on 22-01-2016.

  8. Regularly constituted, the arbitral tribunal is materially competent, given the provisions of articles 2, section 1, subsection a), of the RJAT.

  9. The parties have judicial personality and capacity and have legal standing (articles 4 and 10, section 2, of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22/03).

  10. Considering the knowledge deriving from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the meeting referred to in article 18 of the RJAT.

II. Factual Matter

  1. With relevance for the assessment of the request for arbitral pronouncement, the following factual elements are highlighted, which, based on the documentary elements attached to the file, are considered proven:

11.1. On 14-12-2009, in insolvency proceedings under the number …/09… of the 3rd Civil Court of the Judicial Court of ..., the female Petitioner submitted a proposal for acquisition of an urban property intended for housing, located in Place … and …, parish of …, municipality of ..., registered in the respective real property matrix under article … .

11.2. The acquisition proposal, based on the price of €424,210.00, was accepted by the Honourable Judge, all as appears in the Minutes of Opening of Proposals (Doc. 1).

11.3. On 22-12-2009, the female Petitioner submitted at the Tax Service of ...-… the standard form 1 of the IMT, for assessment of this tax, as well as of stamp duty relating to said acquisition.

11.4. On the same date, the competent Tax Service proceeded as requested, issuing the corresponding collection document number…, from which it appears that the amounts to pay are €0.00, on the basis, expressly stated therein, of the tax benefits which the transfer enjoyed: "Transfer integrated within the scope of the settlement of the insolvency estate (Art. 270, section 2, of D-L 53/04), 100% on the taxable base" as regards IMT; and "Transfer integrated in insolvency or payment plans or within the scope of the settlement of the insolvency estate (Art. 269/d) of D-L 53/04), 100% on the taxable base)" as regards IS.

11.5. On 30-12-2009, the female Petitioner delivered to the Judicial Court of ..., to be attached to the aforesaid insolvency proceeding, proof of full payment of the price and documents relating to compliance with tax obligations related to IMT and IS issued by the Tax Service of ...-… .

11.6. On 14-01-2010, the aforementioned Court issued the Title of Transfer of the property supra identified, in favour of the female Petitioner, as per the certificate attached to the present file.

11.7. On 06-08-2015, the Tax Service of ...-…, through official letter no.…, notified the female Petitioner for purposes of exercising the right to prior hearing of the fact that in an action for monitoring the exemptions of IMT and IS referred to in articles 269 and 270 of the Insolvency and Business Recovery Code (CIRE), those Services had ascertained that the Petitioner had unduly benefited therefrom inasmuch as the transfer in question could not be recognized as having the right to said benefits. (Doc. 2)

11.8. According to the aforesaid official letter, the cited benefits can only be recognized "upon verification of certain requirements, namely that:

  • The exemption of IS (art. 269, subsection e) of CIRE) depends on the properties being acquired from a company or individual entrepreneur exercising industrial, commercial or agricultural activity and these being integrated into the assets of the respective company.

  • The exemption is not applicable when the assets are acquired by creditors of the selling company.

  • The exemption of IMT (art. 270, section 2, of CIRE), depends on the real property transferred being part of the universality of the company or establishment sold.

It is found, however, that the property(ies) were acquired from a natural person and there is no proof of purchase of the universality of the establishment or company (all assets of the insolvency estate), and consequently the right to this/these benefit(s) cannot be recognized in the assessment of IMT no. …/2009."

11.9. On 17-08-2015, the female Petitioner, in exercise of the right to prior hearing, informed that Tax Service that the acquired property constituted the sole asset of the insolvency estate, attaching a Report prepared in accordance with article 155 of CIRE. (Doc. 3)

11.9. On 14-09-2015, through official letter no. … - received by the addressee on 15 of the same month, as per the Receipt Notice attached to the file - the Tax Service of ...-… notified the female Petitioner to, within the period of 30 days, effect payment of the total amount of €25,628.60, of which €22,234.92 relates to IMT and €3,393.68 to IS.

11.10. On 12-10-2015, the aforesaid Tax Service issued the collection document no. … of the aforementioned amounts, payment of which was effected by the Petitioner the following day, by bank transfer. (Docs. 5 to 8)

  1. There are no facts relevant to the decision on the merits that have not been proven.

III. Cumulation of Claims

  1. In the present request for arbitral pronouncement, there is cumulation of the declaration of illegality and consequent annulment of assessment acts of IMT and IS. Following the most recent case law of the superior courts, it is understood that this fact does not hinder the continuation of the proceeding since we are dealing with taxes having the nature of taxes, both levied on property. On the other hand, it is found that both questioned assessments derive from the same tax fact - the onerous transfer of a real right over a real property - and are based on the same legal ground - the exclusion of that fact, with the specific contours defined in the present case, from the scope of the tax benefits enshrined in articles 269 and 270 of CIRE. Furthermore, the request for arbitral pronouncement centres on a single ground: the expiration of the right to assess.

In these terms, given the identity of the tax facts, of the court competent for the decision and of the grounds of fact and law invoked, the tribunal considers that nothing hinders, in light of articles 3 of the RJAT and 104 of the CPPT, the cumulation of claims.

IV. Substantive Law

  1. From what was expressed above, especially on the factual matter given as documentarily proven, the questions to be decided in the present proceeding centre, exclusively, on the verification of the expiration of the right to assess, invoked by the Petitioners as the sole ground of the request for declaration of illegality of the contested acts and, should the request be declared well-founded, on the recognition of the Petitioners' right to compensatory interest.

  2. In effect, the Petitioners base their request alleging, in essence that:

a) On 22-12-2009 they submitted the standard form 1 of IMT, relevant for the assessment of IMT and Stamp Duty, due by the acquisition of the urban property identified therein.

b) The Tax Service, on that same day, proceeded to assess the aforesaid taxes, "at the value of €0.00 for having been granted, by the Tax Service itself, the benefit of exemption of IMT and IS under the provisions of article 270, section 2 and 269 of DL 53/04."

c) Subsequently, on 14-09-2015, the Tax Service effected the notification of the assessments whose annulment is requested, on the ground that the requirements of the exemptions considered in the sequence of that declaration were not met.

d) And, "to correct such error, it proceeded (the Tax Service), to the additional assessment of IMT and IS".

e) Being thus in question "an error of law of the aforesaid Tax Service at the time of the first assessment, the period of expiration for the additional assessment is 4 years counted from the assessment to be corrected, as provided by article 31, section 3, of the CIMT."

f) Therefore, according to the Petitioners, "Given that the initial assessment occurred on the day 22 December 2009, the additional assessment could only have been effected until 23 December 2013, that is, within the period of 4 years counted from the initial assessment, under penalty of expiration of the right to assess"

g) As concerns Stamp Duty, the Petitioners understand that expiration of the right to assess has also occurred, on grounds identical to those explained with respect to IMT, as they understand that the reference contained in article 23, section 4, of the Stamp Duty Code, encompasses the expiration of the right to assess this tax, in the provision of Item 1.1 of the respective General Table.

h) Thus, the Petitioners conclude "On 12 October 2015 the right to assess IMT and IS relating to the acquisition by the petitioner of the property identified ... was already expired, whereby the assessment of IMT and IS carried out on 12 October 2015 should be declared untimely and illegal by violation of the provisions of article 31, section 3, of the CIMT, annulling, consequently, the respective assessments."

  1. In these terms, the Petitioners petition the Tribunal to:

a) Declare the illegality of the additional assessments of IMT and IS, in the amount of €22,234.92 and €3,393.68, respectively, with their consequent annulment;

b) Order the Respondent, Tax and Customs Authority, to refund to the Petitioners the amounts unduly assessed and paid, increased by the corresponding compensatory interest, calculated in accordance with legal terms;

c) Order the Respondent, Tax and Customs Authority, to pay the costs of the proceeding.

  1. Pronouncing itself on what has been alleged by the Petitioners, the Respondent states that the request cannot succeed, as the Petitioners labour under error as to the facts, maintaining that the assessments now questioned are configured as additional assessments of another assessment that would have been made as a consequence of valuation of the urban property which was the subject of the transfer.

  2. In effect, it is verified from the statement of the assessments contained in the notification made by the Tax Service to the Petitioner through official letter no…, of 14-09-2015, that, in obedience to the rule of article 12, section 1, of the IMT Code, applicable to IS by reference of article 9, section 1, of the respective Code, the taxable value considered therein was the price of the transaction - of an amount higher than the value resulting from the valuation which, according to the Respondent, would have been carried out - to which the corresponding legal rate was applied.

  3. On the other hand, from the aforesaid statement it is also extracted that no prior assessment is considered, nor even mentioned, but, expressly and exclusively, that which results from the non-fulfilment of the requirements of the exemptions of which the transfer benefited.

  4. The eventual existence in the tax services of any project assessment not notified to their respective recipients could not, in any case, produce effects in relation to them, as expressly derives from the provisions of article 77, section 6, of the LGT and 36, section 1, of the CPPT.

  5. It results, therefore, from the facts that in the present proceeding are given as documentarily proven, that the subject of the request are the assessments of IMT and IS effected by the competent Services of the Tax Administration on the basis of the understanding that with reference to the transfer to which they relate there were not met the legal requirements upon which access to the tax benefits in question depends.

  6. It is, therefore, on the basis of these facts that it is important to analyse the request, in the exact terms in which it is formulated, namely that at the moment in which the aforesaid assessments were effected, the respective right had already expired.

  7. It is important, thus, to make reference, albeit relatively summarily, to the legal rules relating to the institute of expiration, centred especially on the specificities which they present in the matter of IMT and IS.

On the Periods of Expiration in IMT and IS

  1. With respect to IMT, the period of expiration of the right to assess enshrined in the respective Code is different from the general period of expiration which article 45, section 1, of the LGT fixes at four years. In effect, this period, in accordance with article 35, section 1, of the IMT Code, is fixed at 8 years.

  2. There being in question a tax of single obligation, the counting of this period is initiated from the date on which the tax fact occurred, as derives from article 45, section 4, of the aforesaid law.

  3. However, whenever there are additional assessments, the period of expiration of IMT is reduced to 4 years, counted from the date of the assessment to be corrected, as provided by article 31, section 3, of the IMT Code, without, however, being able to exceed the period of 8 years referred to in that article 35, counting from the date of occurrence of the tax fact.

  4. From the foregoing, it can, in summary, be concluded that the IMT Code provides for a period of expiration of 8 years from the occurrence of the tax fact with respect to original assessments, this period being reduced to 4 years, counted from the assessment to be corrected, whenever there are additional assessments, without, however, this being able to exceed it.

  5. As to Stamp Duty relating to the onerous transfer of real rights over real property - Item 1.1 of the respective General Table – on the date of occurrence of the tax fact to which the present request for arbitral pronouncement relates was subject to the general period of expiration of 4 years provided in article 45, section 1, of the LGT, as per the wording of article 39, section 1, of the respective Code, with no exception being established, save as concerns the taxation of gratuitous transfers. From 01-01-2012, with the amendment introduced by Law no. 64-B/2011, of 30/12, this period was extended to 8 years, counted from the tax fact, equally in the case of onerous acquisition of the right of ownership over real property.

  6. In the present proceeding it is, therefore, in question to determine whether the contested tax acts should be qualified as first assessments or as additional assessments, since that qualification, as regards IMT, depends on the application of one or the other of the aforesaid periods of expiration of the right to assess. As concerns IS, the question centres only on defining the date of occurrence of the respective tax fact and consequent application of the legislation then in force.

On the Concept of Additional Assessment

  1. The expression "additional assessment" of IMT, associated with the specific period of expiration of the right to assess this tax, is used in article 31, section 2, of the respective Code, which, as worded by Law no. 64-A/2008, of 31/12, provides that "When it is verified that in the assessments an error of fact or law was committed, from which resulted prejudice to the State, as well as in cases where there is occasion for valuation, the head of the tax service where the assessment was effected or the declaration was submitted for purposes of the provisions of section 3 of article 19, shall promote the competent additional assessment."

  2. It is, therefore, with direct reference to this "additional assessment" that section 3 of the same article 31 establishes that: "The assessment may only be made until four years have elapsed counted from the assessment to be corrected (...) being reserved, in all cases, the provisions of article 35"

  3. From the text of the rules transcribed it results, thus, with crystalline clarity, that an additional assessment presupposes a prior assessment which this aims to correct. And it is precisely in that sense that thus it has come to be understood by the case law of the Superior Courts. As can be read in the decision of the STA of 17-01-2007 - proc. 909/06 - "The additional assessment, as results from the very designation, presupposes that there has been a prior assessment with respect to the same tax fact, the same taxpayer and the same period of time and that the same, through error of fact or law or any omission or inaccuracy, has determined the collection of a tax lower than the amount due.

The additional assessment is thus intended to correct or rectify a deficient assessment...".

  1. Reverting to the concrete situation to which the present request for arbitral pronouncement refers, it is found that, in the perspective of acquisition of the right of ownership over a real property which would come to be realized on 14-01-2010 with the issuance of the respective Title of Transfer, the Petitioner, on 22-12-2009, submitted at the Tax Service of ...-…, a declaration for assessment of IMT (Standard Form 1 of IMT).

  2. In face of the declaration submitted, the competent Services issued collection documents, from which it appears that the amount to collect of IMT and IS is €0.00, invoking, for such, the regime of tax benefits provided in articles 269 and 270 of CIRE.

  3. The aforesaid legal provisions establish total exemption of the aforesaid taxes with respect to acquisitions of real rights over real property made under the measures provided in that Code.

  4. Being of the nature of automatic exemptions, the effectiveness of the aforesaid benefits does not require a prior act of administrative recognition, resulting directly and immediately from the law, as expressly provided by article 5 of the EBF.

  5. However, there being in question an exemption of IMT, the respective Code determines that at a moment prior to that of the occurrence of the tax fact the interested parties are bound by the obligation to present, at any tax service or by electronic means, a declaration of official form - Standard Form 1 of IMT - for purposes of assessment of the tax that appears to be due (see, CIMT, art. 19, section 1).

  6. The obligation to present the assessment declaration is extensive to situations of exemption (CIMT, art. 19, section 3). However, this declaration does not aim at the execution of assessment, in cases where the requirements of the exemption are verified, but solely to permit the tax services to verify the requirements of the benefit of which the transfer enjoys and issue the corresponding declaration.

  7. There being in question automatic exemptions, the competence for the verification and declaration of the benefit is attributed to the tax service where the mentioned declaration is submitted (see, CIMT, art. 10, section 8, subsection d).

  8. In the present case it is verified that to the situation in question there correspond automatic exemptions of IMT and IS whose legal requirements the competent services, in accordance with the legal procedure above referred to, verified, having issued the corresponding declarations through collection documents of null value.

  9. Refraining from carrying out assessments, in face of the paralyzing effectiveness of the applicable tax benefits, the tax service included in the mentioned documents the respective basis, with indication of the applicable legal rules as well as the intensity of the benefit (100%, total exemption).

  10. Subsequently, the same services understood that they had committed error in the assessment of the situation in question which they repaired through the assessments which constitute the subject of the present request.

  11. The Petitioners intend that these assessments are configured as additional assessments in that they "come to correct an error committed in the initial assessment" and, consequently, are subject to the period of expiration of four years, counted from the assessment to be corrected.

  12. One cannot, however, accept such pretension, for the reason that the collection documents issued at null value do not translate the realization of an assessment of tax, but, solely, the certification, by the competent tax services, of the verification of the requirements of exemption of which the transfer enjoys.

  13. In effect, assessment, in the strict sense, means the application to a given taxable base of the rate of taxation which, correspondingly, falls to it in accordance with the applicable legislation.

  14. In the situation under analysis, it is verified that the competent services, proceeding in accordance with the applicable rules of the IMT and IS Codes, ascertained the taxable base - in this case, the price of acquisition - determining the corresponding rate, taking into account there being in question the acquisition of property intended for the own and permanent housing of the acquirer (see, CIMT, arts. 12, section 1 and 17, section 1, subsection a) and CIS, art. 9, section 4).

  15. However, the tax services did not apply the corresponding rate to the taxable base ascertained, that is, did not proceed to the assessment of the taxes that would be due, precisely for having considered applicable to the case the exemptions that they mention in those collection documents.

  16. Such documents, issued at null value, are intended to make proof before the entities which issue or intervene in the celebration of the acts or contracts which involve the transfer of real rights over real property that the corresponding tax obligations were complied with (CIMT, art. 49 and CIS, art. 63).

  17. No assessment of IMT or IS having been effected on the basis of the declaration timely submitted by the female Petitioner, for having been considered applicable to the transfer a total exemption of the aforesaid taxes, the assessments now contested cannot be considered "additional assessments", for the reason that they do not aim to correct prior assessments.

  18. Thus, considering there to be original assessments, the period of expiration of the right to assess, counted from the date of occurrence of the tax fact, is 8 years for IMT and 4 years for IS, in accordance with articles 35 of the CIMT and 39 of the CIS, as worded in force on the aforesaid date.

  19. Therefore, having the tax fact occurred on 14-01-2010 with the issuance of the Title of Transfer by the Judicial Court of ..., and the assessment having been effected on 15-01-2015, with the notification of the taxpayer, it is verified that the same was effected within the legal period as to IMT and after this had been exceeded as concerns IS.

V. Decision

  1. In these terms, and with the grounds exposed, the Tribunal decides:

a) To judge inadmissible the request for arbitral pronouncement as regards the Municipal Tax on Onerous Property Transfers (€22,234.92) and, consequently the assessment act contested should remain in the legal order;

b) To judge well-founded the request for arbitral pronouncement and consequently to annul the act of assessment of Stamp Duty to which refers the collection document no. …, in the amount of €3,393.68;

c) To judge well-founded the request for the ordering of the Respondent to pay compensatory interest, calculated in accordance with legal terms, relating to the assessment of Stamp Duty referred to in the preceding subsection.

Process Value: The value of the process is fixed at €25,628.60, in accordance with article 97-A, section 1, subsection a), of the CPPT, applicable by reference of article 29, section 1, subsections a) and b), of the RJAT and article 3, section 2, of the Rules of Costs in Tax Arbitration Proceedings.

Costs: Under the provisions of article 22, section 4, of the RJAT, and in accordance with Table I annexed to the Rules of Costs in Tax Arbitration Proceedings, I fix the amount of costs at €1,530.00, owed by the Petitioners and by the Respondent, in the proportion of their respective success: €1,331.10 and €198.90, respectively.

Lisbon, 22 April 2016,

The Arbitrator,

Álvaro Caneira.

Frequently Asked Questions

Automatically Created

What is the statute of limitations for IMT and Stamp Tax additional assessments in Portugal?
The statute of limitations (caducidade) for IMT and Stamp Tax additional assessments in Portugal is generally 4 years, counted from the date when the tax should have been paid or declared, pursuant to Article 45 of the General Tax Law (LGT). In cases of additional assessments following initial exemptions or benefits, the limitation period runs from the original date when the tax obligation arose. This means that after 4 years, the Tax Authority loses the right to issue additional assessments unless specific exceptions apply, such as cases involving fraud or tax evasion which may extend the limitation period.
Can IMT and Stamp Tax claims be combined in a single arbitration request before CAAD?
Yes, IMT and Stamp Tax claims can be combined in a single arbitration request before CAAD (Centro de Arbitragem Administrativa). As stated in this decision, recent Portuguese case law from superior courts permits the cumulation of these claims because both IMT and Stamp Duty are taxes of similar nature, both levied on property transactions. The arbitral tribunal has jurisdiction to decide both matters jointly in the same proceeding, provided the legal requirements for arbitration are met for each tax. This procedural efficiency allows taxpayers to challenge related tax assessments arising from the same transaction in one unified process.
What are the grounds for challenging an additional IMT liquidation by the Tax Authority?
The grounds for challenging an additional IMT assessment include: (1) expiration of the statute of limitations (caducidade do direito à liquidação), which is the primary ground invoked in this case; (2) substantive illegality, such as incorrect application of tax law, improper calculation of taxable value, or wrongful denial of exemptions or benefits; (3) procedural defects, including failure to provide prior hearing rights or improper notification; (4) incorrect factual determinations by the Tax Authority; and (5) violation of fundamental principles such as proportionality, legal certainty, or legitimate expectations. Taxpayers may challenge both the legal basis for the assessment and the amount calculated.
How does the CAAD arbitration process work for disputes involving municipal property transfer tax?
The CAAD arbitration process for IMT disputes involves several stages: (1) the taxpayer files a request for arbitration within the legal deadline (currently 90 days from notification of the contested act); (2) the Tax Authority is notified and submits a response; (3) the CAAD President accepts the request and an arbitrator is designated by the Ethics Council; (4) parties may refuse the arbitrator within 10 days; (5) the arbitral tribunal is formally constituted; (6) the tribunal may hold a hearing or decide based on written submissions if facts are sufficiently clear; and (7) a final decision is issued within 6 months from tribunal constitution. The process is faster and less formal than judicial litigation, providing specialized resolution of tax disputes.
Are taxpayers entitled to compensatory interest when an IMT or Stamp Tax assessment is annulled?
Yes, taxpayers are entitled to compensatory interest when an IMT or Stamp Tax assessment is annulled by CAAD or courts. Article 43 of the General Tax Law (LGT) establishes that when taxes are paid and subsequently the Tax Authority's assessment is declared illegal and annulled, the State must pay compensatory interest on the amounts to be refunded. The interest is calculated from the date of payment until the refund is processed, at the legal rate established annually. This compensatory interest aims to restore taxpayers to their economic position and compensate for the time value of money unduly retained by the State due to an illegal tax assessment.