Stamp Tax on Building Land (Verba 28.1 TGIS) – CAAD Arbitral Decision 723/2015-T

ARBITRATION DECISION

The Arbitrators José Pedro Carvalho (President Arbitrator), Ana Moutinho Nascimento and José Nunes Barata, designated by the Ethics Council of the Centre of Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – Report

1. The taxpayer A…, S.A., NIPC … (hereinafter "Claimant"), filed on 2 December 2015 a request for the establishment of a Collective Arbitral Tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter "LRAT"), in which the Tax and Customs Authority (hereinafter "TCA" or "Respondent") is the respondent party.

2. The Claimant seeks an arbitral decision on the illegality of the assessments for Stamp Duty (hereinafter "SD") in the total amount of € 83,407.42, alleging violation of article 1 of the Stamp Duty Code (hereinafter "SDC") and item 28.1 of the General Table of Stamp Duty (hereinafter "GTSD"), requesting the declaration of nullity of such assessments and their consequent annulment with restitution of the amounts paid by it, the payment of compensatory interest on the amounts assessed and paid, and recognition of the right to compensation for costs incurred with two unilateral mortgages provided.

3. The request for establishment of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (hereinafter TCA) on 11 December 2015.

4. Pursuant to paragraph a) of article 6(2) and paragraph b) of article 11(1) of the LRAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Ethics Council designated the arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of the task within the applicable period, and notified the parties of such designation on 27 January 2016.

5. The Collective Arbitral Tribunal was constituted on 11 February 2016; it was regularly constituted and is materially competent, in accordance with the provisions of articles 2(1)(a), 5, 6(1), and 11(1) of the LRAT (as amended by article 228 of Law No. 66-B/2012 of 31 December).

6. Pursuant to article 17(1) and (2) of the LRAT, the TCA was notified on 12 February 2016 to present its reply.

7. The TCA presented its reply on 11 March 2016, in which it requested exemption from holding the meeting referred to in article 18 of the LRAT and declared that, in this case, it would waive the presentation of arguments.

8. In that reply the TCA alleges, in summary, the total lack of merit of the Claimant's request.

9. On 18 March 2016, the Arbitral Tribunal, having verified that the Claimant was not represented by a legal representative, set a period of 10 days for the Claimant to appoint a legal representative, under penalty of the Respondent being absolved of the action.

10. The Claimant complied with what was determined in the aforementioned order of the Arbitral Tribunal on 29 March 2016, submitting a power of attorney and the legal representative assuming responsibility for all previous proceedings as their own.

11. The Arbitral Order of 3 April 2016 determined the exemption from both the meeting referred to in article 18 of the LRAT and the presentation of arguments by the parties, setting a period of 30 days for the issuance of the final decision in the case.

12. The case does not suffer from any nullities and no prior or subsequent issues, prejudicial or objections, were raised that would prevent consideration of the merits of the case, the conditions being met for a final decision to be issued.

13. The TCA proceeded with the designation of its representatives in the case and the Claimant submitted a power of attorney, with the Parties thus being duly represented.

14. The Parties have legal personality and capacity and have standing, pursuant to articles 4 and 10(2) of the LRAT and article 1 of Ministerial Order No. 112-A/2011 of 22 March.

II – Reasoning: Factual Matters

II.A. Facts with relevance to the decision that are considered proven:

a) The Claimant received the following documents, issued by the TCA, containing the Stamp Duty assessments relating to the property registry articles indicated below:

1 – Document No. 2013…, corresponding to the year 2012, in the total amount of 20,974.31 euros, relating to the property with registry article U-…, of parish … –…, Lisbon.

2 – Document No. 2013…, corresponding to the year 2012, in the total amount of 20,729.40 euros, relating to the property with registry article U…, of parish … –…, Lisbon.

3 – Documents Nos. 2014…, 1st instalment, 2014…, 2nd instalment and 2014…, 3rd instalment, corresponding to the year 2013, in the total amount of 20,974.31 euros, relating to the property with registry article U…, of parish … –…, Lisbon.

4 – Documents Nos. 2014…, 1st instalment, 2014…, 2nd instalment and 2014…, 3rd instalment, corresponding to the year 2013, in the total amount of 20,729.40 euros, relating to the property with registry article U…, of parish … –…, Lisbon.

b) These assessments were issued under item No. 28.1 of the GTSD for the transitional period provided for in article 6 of Law No. 55-A/2012 of 29 October, and for the years 2012 and 2013.

c) The tax acts corresponding to said documents were subject to administrative complaints, which were rejected, and hierarchical appeals, which at the time the request for arbitral decision was filed were under consideration.

d) The Claimant is the owner and legitimate proprietor of the properties that were the subject of the Stamp Duty assessments now in question (cf. Documents Nos. 1 and 1A attached with the request for arbitral decision).

e) The said properties, in the period to which those assessments relate, were registered in the respective property registry as "land for construction" (cf. Documents Nos. 1 and 1A attached with the request for arbitral decision).

f) The Claimant paid the following amounts relating to the assessments indicated below (cf. Documents Nos. 3, 3A, 3B and 3C attached with the request for arbitral decision):

• 1st instalment in the total amount of 7,059.45 euros, relating to registry article U… (corresponding to 2013), of which 6,991.45 euros of Stamp Duty.

• 1st instalment in the total amount of 7,144.83, relating to registry article U… (corresponding to 2013), of which 6,909.80 euros of Stamp Duty.

g) With respect to the remaining situations, enforcement proceedings have been instituted, which are suspended, since the Claimant established judicial mortgages to secure their payment.

II.B. Facts that are not considered proven.

None.

III – Reasoning: Legal Matters

III.A. Position of the Claimant

a) The Claimant contends that, since the properties in question are "land for construction", item 28.1 of the GTSD cannot be applied, because the additional taxation is provided for properties with residential use.

b) The Claimant emphasises that the use, as defined in article 41 of the Municipal Property Tax Code, depends exclusively on the use of built properties and not on properties to be built.

c) Additionally, the Claimant points out that the change in wording made to item 28.1 of the GTSD from 1 January 2014, by force of article 194 of Law No. 83-C/2013 of 31 December, is evidence of the legislature's own awareness that the previous wording was insufficient to justify a tax incidence that the assessments now contested presumably presumed to exist.

d) The Claimant invokes in its support arbitral and judicial case law.

e) Furthermore, the Claimant rejects the interpretation according to which mere "land for construction" could be understood as exhibiting a "residential use", for purposes of subsumption to the previous wording of item 28.1 of the GTSD – particularly because, as it argues, such "use" would constitute, at most, a future and uncertain reality, not a current, effective use or availability.

f) Having already paid part of the assessed tax, the Claimant finally contends its right to restitution of the amount paid, plus compensatory interest, and recognition of the right to compensation for costs incurred with two unilateral mortgages provided, as a consequence of the condemnation of the TCA in the request.

III.B. Position of the Respondent

a) In its reply, the TCA defends the position that the properties on which the contested assessments fall have the legal nature of a property with residential use, since from its deed of contents, which formed the basis of the assessments, it appears that the land for construction is used for residential purposes, a qualification attributed in the context of their respective valuations, and therefore are subject to Stamp Duty.

b) In support of this position, the TCA analyses the circumstances of the emergence of item 28 of the GTSD, by force of Law No. 55-A/2012 of 29 October, and the manner in which the definition of the concepts employed was referred (by article 67(2) of the SDC) to the Municipal Property Tax Code (MPTC), and namely to the use coefficients provided therein (particularly articles 41 and 45 of the MPTC).

c) The Respondent invokes in support of its position a court judgment, the licensing regime for urban operations (in particular article 77 of the Legal Regime for Urban Planning and Building, LRUPB) and the instruments of territorial, regional and national management, which all of them already allegedly take into account the use, residential or otherwise, of lands, well before any building or effective use.

d) Moreover, the Respondent does not fail to emphasise that the expression "residential use" meant, in the original version of item 28.1 of the GTSD, the will to specify precisely a certain type of properties for purposes of the incidence of SD, excluding all those properties that did not meet that requirement – a normative criterion for delimiting the scope of tax incidence.

e) In the Respondent's view, the Claimant's claim violates the constitutional principles of taxation of actual income, property rights, equality and justice.

f) It also argues that, in the event of success of the request for arbitral decision, compensatory interest is not owed, calculated at the rate stipulated in article 43 of the General Tax Law, from the date of payments made by the Claimant until restitution, given the absence of error attributable to the services.

g) With regard to the request for recognition by this tribunal of the right to compensation for costs incurred with two unilateral mortgages provided by the Claimant, it argues that this matter is not included in the set of norms that delimit the competence of this arbitral tribunal (article 2 of the LRAT).

h) The TCA concludes by taking the position that the present action should be judged without merit, being absolved of the request.

Let us proceed.

III.C. Framework

III.C.1. Cumulation of Claims

In the case at hand, the Claimant is the owner of the land for construction already previously identified and seeks to have considered the issue of the incidence on that land of the Stamp Duty assessments provided for in item 28.1 of the GTSD, added by article 4 of Law 55-A/2012 of 29 October and article 6 of the same Law, so that since the same factual circumstances and the same rules of law are involved, the cumulation of claims made by the Claimant is legitimate, pursuant to article 3(1) of the LRAT.

III.C.1.2 Applicable Law

III.D Issues to be Decided

III.D.1 Issues for the Tribunal to Consider

The following issues are raised before the Tribunal, in accordance with the terms described above:

i) classification of land for construction within the scope of incidence of Item No. 28.1 of the GTSD;

ii) recognition of the right to interest on the amount of tax paid;

iii) recognition of the right to compensation for guarantee provided improperly.

III.D.1.2 Consideration of the Issues for the Tribunal to Resolve

i) On the classification of land for construction within the scope of incidence of Item No. 28.1 of the GTSD

The present case concerns the definition of the scope of incidence of item No. 28.1 of the GTSD, as worded by Law No. 55-A/2012 of 29 October, more specifically to determine whether land for construction can be subsumed within the concept of urban properties "with residential use" to which the said item refers, when their respective tax base value is equal to or greater than € 1,000,000.

The question arises due to taxation under Stamp Duty of ownership, usufruct or the right of superficies of urban properties whose tax base value recorded in the property registry is equal to or greater than € 1,000,000, in which case tax is owed, at the rate of 1% on the tax base value used for purposes of the Municipal Property Tax, per property with residential use.

This issue is not new, having been considered both in arbitral jurisdiction and in the case law of the Supreme Administrative Court, consistently against the position taken by the Tax Administration.

This decision will closely follow the understanding endorsed in Awards 49/2013-T of 18 September 2013, 53/2013-T of 2 October, 231/2013-T of 3 February 2014, Case No. 7/2014-T of 3 July, 56/2014-T of 31 July, 210/2014-T of 30 July, Case No. 125/2015-T of 12 October, all from CAAD and the Award of the SAC of 9 April 2014, Case P1870/2013, to which several others of similar content have followed, available at http://www.dgsi.pt/jsta.

As stated in the Award issued in Case No. 125/2015-T, sub-paragraphs i) and ii) of paragraph f) of article 6 of Law 55-A/2012 of 29 October and item 28.1 of the GTSD, by using a term that is not used in any other tax legislation – property with residential use – gave rise to abundant litigation, which culminated in decisions by both the SAC and the Arbitral Jurisdiction, consistently in the sense that, the legislature not having defined the concept of "urban properties with residential use" and resulting from article 6 of the MPTC – subsidiarily applicable to SD provided for in the new item No. 28 of the GTSD – a clear distinction between "residential urban properties" and "land for construction", these cannot be considered, for purposes of the incidence of SD, item 28.1 of the GTSD, as worded by Law 55-A/2012 of 29 October, as urban properties with residential use, with the consequent annulment of the assessment on the grounds of error regarding the legal presuppositions on which it is based.

Since neither the Stamp Duty Code, nor Law No. 55-A/2012 of 29 October (which approved the GTSD item under consideration), nor any other tax legislation provides a legal definition of "property with residential use", it is necessary to seek the correct interpretation of this expression in the letter of the law, presuming that the legislature knew how to express itself in the most adequate manner (cf. article 9(3), final part, of the Civil Code), in its systematic integration with the norms contained in the Municipal Property Tax Code and also in the spirit of the law.

The starting point of the expression "properties with residential use" is naturally the text of Law 55-A/2012 of 29 October, and it is on the basis of this that the legislative intent must be reconstructed.

The said Law No. 55-A/2012 added Item 28 of the GTSD under consideration with the following wording:

"28 – Ownership, usufruct or the right of superficies of urban properties whose tax base value recorded in the property registry, pursuant to the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 – on the tax base value used for purposes of the Municipal Property Tax:

28.1 – Per property with residential use – 1%;

28.2 – Per property, when the taxable persons who are not individuals are resident in a country, territory or region subject to a clearly more favourable tax regime, as recorded in the list approved by order of the Minister of Finance – 7.5%."

Law No. 55-A/2012 of 29 October entered into force on 30 October 2012, in accordance with article 7(1) thereof, which determined its entry "into force on the day following its publication".

The following transitional rules were also established by Law No. 55-A/2012 of 29 October for reference to the assessment of Stamp Duty provided for in Item No. 28 of the GTSD, with relevance for the present decision:

"1 – In 2012, the following rules must be observed for reference to the assessment of Stamp Duty provided for in item No. 28 of the respective General Table:

a) The tax event occurs on 31 October 2012;

b) The taxable person of the tax is the one mentioned in article 2(4) of the Stamp Duty Code on 31 October 2012;

c) The tax base value to be used in the assessment of the tax corresponds to that resulting from the rules provided for in the Municipal Property Tax Code for reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be carried out by the end of November 2012;

e) The tax must be paid, in a single instalment, by taxable persons until 20 December 2012;

f) The applicable rates are as follows:

i. Properties with residential use evaluated pursuant to the Municipal Property Tax Code: 0.5%;

ii. Properties with residential use not yet evaluated pursuant to the Municipal Property Tax Code: 0.8%;

iii. Urban properties when the taxable persons who are not individuals are resident in a country, territory or region subject to a clearly more favourable tax regime, as recorded in the list approved by order of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of Stamp Duty provided for in item No. 28 of the respective General Table must be based on the same tax base value used for purposes of the assessment of the Municipal Property Tax to be carried out in that year."

As already advanced, neither the Stamp Duty Code nor Law No. 55-A/2012 of 29 October specifies the concept of "urban property with residential use", so in accordance with article 67 of the Stamp Duty Code, the interpretation of this concept must be sought next in the Municipal Property Tax Code.

Indeed, article 67 of the Stamp Duty Code provides that "Matters not regulated in this Code relating to item No. 28 of the General Table shall be subject to the provisions of the MPTC" (wording given by article 3 of Law No. 55-A/2012 of 29 October).

According to the Municipal Property Tax Code, more specifically article 6(1) thereof, urban properties are divided into: a) Residential; b) Commercial, industrial or for services; c) Land for construction; and d) Other.

Residential properties, commercial, industrial or for services properties are buildings or constructions licensed for such purposes or, in the absence of a licence, which are normally intended for each of these purposes (cf. article 6(2) of the MPTC). Land for construction, on the other hand, are parcels of land located within or outside an urban settlement, for which a licence or authorisation has been granted, prior communication admitted or favourable prior information issued for subdivision or building operations, and also those that have been declared as such in the acquisition deed (cf. article 6(2) of the MPTC).

Thus, "a property is classified as land for construction whenever a set of circumstances is verified, as a rule corresponding to the application of relevant norms of the legal regime governing urban buildings or the subdivision of rural properties, which, in any case, indicate the intention to build on it, except where, by force of applicable legislation, such intention is not susceptible to effective implementation" (Arbitral Decision issued in Case 49/2013-T on 18 September 2013, at www.caad.pt).

The Municipal Property Tax Code thus provides a definition of residential properties and land for construction as two different kinds of urban properties, but does not clarify what the true content of the concept "urban property with residential use" is.

However, the expression "residential use" presupposes that the property is actually used for residential purposes, which is not the case with land for construction, which as such does not yet have any actual use, whether for residence or otherwise.

As sustained in the Arbitral Decision issued in Case No. 42/2013-T on 18 October 2013, which we agree with here, "we cannot confuse a 'residential use' which implies an effective use of an urban property for that purpose, with the expectation, or potentiality, of an urban property being able to have a 'residential use'. Land for construction, not being built on, does not, by itself, satisfy any condition to be considered as a property with residential use, because, on the one hand, it does not have a licence for use for residential purposes, and on the other hand, it is not habitable (because it is simply not built on). Therefore, it does not appear to us to be sufficient for subsumption to the objective incidence norm in question that there exists the expectation of an urban property coming to have a residential use, or of having the potentiality of coming to have a residential use."

But more, "the comparison of item No. 28.1 of the GTSD with paragraph 2 of article 6 of the MPTC, which defines the concept of residential properties, clearly points to the need for an actual use. In fact, a building or construction licensed for residence or, even without a licence, but which is normally intended for residence, is, in light of article 6(2) thereof, a residential property. Therefore, given that the legislature of Law No. 55-A/2012 knew how to express its intent in adequate terms (as required by article 9(3) of the Civil Code, which presumes that the legislature knew how to express itself adequately), if it intended to refer to those properties already licensed for residence or which have residence as their normal purpose, it would certainly have used the concept of 'residential properties', which would perfectly and clearly express its intent, in light of the definition given by article 6(2) of the MPTC. Consequently, it must be presumed that the use of a different expression is intended to refer to a different reality, and therefore, in proper interpretation, 'property with residential use' cannot be a property merely licensed for residence or intended for that purpose (that is, it will not be sufficient that it be a 'residential property'), but must be a property that already has actual use for that purpose. That this is the meaning of the expression 'use' in the same context of the classification of properties that the MPTC makes is confirmed by article 3, which, regarding rural properties, refers to those 'that are used, or, in the absence of concrete use, are normally intended for use in a way that generates agricultural income', which shows that the use is concrete, actual. In fact, as is seen from the final part of this text, a property may be intended for a certain use and be or not be used for it, which shows that use is, at the level of the connection of a property to a certain use, something more intense than mere intention and which may or may not occur downstream rather than upstream of it. Moreover, the text of the law in adopting the formula 'property with residential use' instead of 'urban properties of residential use', which appears in the aforementioned 'Explanatory Memorandum', strongly points to the fact that it is required that the residential use already be realised, because only then will the property be with that use" (Arbitral Decision issued in Case 53/2013-T on 2 October 2013, at www.caad.pt).

In summary, in land for construction there is only an expectation, or potentiality, of being able, after building, to come to have a "residential use", but only when that use is realised, and never before its building, can we consider that it falls within the scope of the objective tax incidence norm in question.

This understanding, according to which "land for construction" cannot be considered, for purposes of the incidence of Stamp Duty provided in Item 28.1 (as worded by Law No. 55-A/2012), as urban properties with residential use, has also been endorsed by the tax tribunals, which have generally understood that "given that land for construction – whatever the type and purpose of the building that will be, or may be, erected on it – does not, by itself, satisfy any condition to be licensed as such or to be defined as having residence as its normal purpose, and given that the Stamp Duty incidence norm refers to urban properties with 'residential use', without any specific concept being established for this purpose, no potential future use can be extracted from it, inherent to a distinct property that may perhaps be built on the land. It is concluded therefore, in accordance with what was decided in the judgment under appeal, that, resulting from article 6 of the Municipal Property Tax Code a clear distinction between urban properties 'residential' and 'land for construction', these cannot be considered as 'properties with residential use' for purposes of the provision in item No. 28.1 of the General Table of Stamp Duty, as originally worded by Law No. 55-A/2012 of 29 October." (cf. Awards issued by the Supreme Administrative Court in cases Nos. 1870/13 and 48/14 on 9 April 2014, in cases Nos. 270/14, 271/14 and 272/14 on 23 April 2014 and in case No. 046/14 on 14 May 2014, at www.dgsi.pt).

Against the foregoing, the understanding of the Respondent Entity cannot therefore stand, that the expression used by the legislature "residential use" is broader than the expression "properties intended for residence".

"Residential use" presupposes that residence is the normal use given to the property in light of its current and actual characteristics, that is, it implies that the property is actually intended for residence (which naturally presupposes that it is a property already built), whereas in land for construction there is merely the expectation, the potentiality, of that use.

No indication is thus found in the letter of the law that the legislature sought to encompass in the expression "property with residential use" land for construction.

Finally, it is important to analyse the aim intended by the legislature and whether that aim puts at issue the conclusions reached so far.

As clearly appears from the discussion, in general, of the bill No. 96/XII (Official Journal of the Assembly of the Republic, I series, No. 9/XII/2 of 11 October 2012) the creation of special taxation on high-value properties intended for residence, which underlies the approval of the Stamp Duty Item under consideration, integrates a set of measures whose stated objective was concerned with the creation of a fairer and more equitable tax system, in which taxpayers would be called upon to contribute in accordance with their actual capacity to pay.

With this objective, it was thus proposed to create a special rate, and the State Secretary for Tax Affairs, in defending this Bill 96.XII, stated: "First, the Government proposes the creation of this additional special rate to tax residential urban properties of higher value. This is the first time in Portugal that special taxation is created on high-value properties intended for residence. This rate, which will be 0.5 to 0.8 in 2012, and 1% in 2013, will apply to houses valued at equal to or greater than 1 million euros. With the creation of this additional rate, the tax burden required of these owners will be significantly increased in 2012 and 2013.

In this way, what was proposed to the deputies and what they approved was the creation of taxation of luxury real estate property. In summary, it was aimed at broadening the tax base by creating a special rate on high-value properties intended for residence, understood as 'houses valued at equal to or greater than 1 million euros', that is, it is concluded that the reality that is sought to be taxed is 'houses', and not other realities, such as land for construction.

The concept closest to the literal content of this expression, property with residential use, is manifestly that of residential properties, defined in article 6(2) of the MPTC as encompassing buildings and constructions licensed for residential purposes or, in the absence of a licence, which are normally intended for residential purposes.

In this sense the Arbitral Decision 231/2013-T of 3 February 2014, according to which "the recognised lack of coherence of Stamp Duty is particularly exuberant in the case of item No. 28.1, hastily included outside the General State Budget, by a tax legislator without a perceivable overall tax policy, that has been implementing successive norms of tax increases as circumstances dictate from the vagaries of budget execution, the impositions of international creditors (represented by the 'troika') and the oversight of the Constitutional Court <….> In this context, in the absence of interpretive elements that ensure that the coherence of the legislative solution adopted in the said item 28.1 can be detected or whether the solution adopted was correct or incorrect (relevant for interpretive purposes in light of article 9(3) of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by article 9(3), that the legislature knew how to express its intent in adequate terms."

Moreover, the concept introduced by Law 55-A/2012, probably due to its imprecision – "a fact all the more serious as it is based on this that the scope of the objective incidence of the new taxation is determined –", had a short life, as it was abandoned when Law No. 83-C/2013 of 31 December (State Budget Law for 2014) came into force, which gave new wording to that item No. 28.1 of the General Table, and which now determines its scope of objective incidence through the use of concepts that are legally defined in article 6 of the MPTC". Not already a residential coefficient but, residential property or land for construction whose building, authorised or planned, is for residential purposes, pursuant to the Municipal Property Tax Code. And here the legal controversy as now being examined is brought to a close.

Nevertheless, the Respondent Entity seems to argue in its Reply that this understanding would violate the constitutional principles of taxation of actual income, proportionality, equality and justice in permitting non-application of the law to those intended to be taxed. It having been concluded that item No. 28.1 of the General Table did not include land for construction within its scope of incidence, the allegation made by the Respondent Entity necessarily fails.

In conclusion, as all elements of interpretation of the law point in the direction that property with residential use meant residential property, it is manifest that the assessments now contested suffer from error regarding the legal presuppositions, because all properties on which Stamp Duty was assessed pursuant to item No. 28.1 are land for construction, without any building or construction, required to fulfil that concept of residential properties.

In light of the foregoing, it is concluded that the assessment acts whose legality is contested should be annulled.

ii) On recognition of the right to interest on the value of tax paid

The Claimant further petitions for recognition of the right to compensatory interest on the amount paid.

Compensatory interest is owed when there exists error attributable to the Services. Now, "error attributable to the services that carried out the assessment is demonstrated when they proceed to claim or challenge that same assessment" (CAMPOS, Diogo Leite de, RODRIGUES, Benjamin Silva and SOUSA, Jorge Lopes de - General Tax Law Commented and Annotated, 3rd Edition, 2003, p. 199). In this manner, the Claimant is recognised to have the right to compensatory interest on the amount paid, from the date of the improper payment of the tax until the date of processing of the respective credit note, pursuant to article 43(1) of the General Tax Law and article 61(5) of the Code of Tax Procedure and Process.

iii) On recognition of the right to compensation for guarantee improperly provided

Finally, the Claimant further petitions for recognition of the right to compensation for costs incurred with the two unilateral mortgages provided.

For the Respondent Entity this matter is absolutely not included in the set of norms delimiting the competence of tax arbitral tribunals, contained in article 2 of the LRAT.

The understanding endorsed by the Respondent Entity cannot be accepted.

The arbitral decision on the merits of the claim with respect to which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, and this authority, in the exact terms of the success of the arbitral decision in favour of the taxable person and until the end of the period provided for the voluntary execution of sentences of tax tribunals must restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for this purpose, as expressly results from article 24(b) of the LRAT.

And in the same provision "the legislature made clear that the effects provided therein are 'without prejudice to the other effects provided for in the Code of Tax Procedure and Process'. It is considered in this regard that the legislature is here referring to all effects that flow from the Code of Tax Procedure and Process for the taxable person, and which are applicable after the consolidation in the legal order of a certain legal-tax situation, deriving from a final decision whether gracious or judicial." (TRINDADE, Carla Castelo – Legal Regime of Tax Arbitration – Annotated, Coimbra, 2016, p. 122).

Although the judicial challenge process is essentially a mere annulment process, compensation for improper guarantee can be awarded in it by the Respondent Entity, as results from article 171 of the Code of Tax Procedure and Process.

As advanced in the decision issued in Case No. 28/2013-T "it is unequivocal that the judicial challenge process encompasses the possibility of condemning the payment of improper guarantee and is, in principle, the appropriate procedural means to formulate such a request, which is justified for obvious reasons of procedural economy, as the right to compensation for improper guarantee depends on what is decided regarding the lawfulness or unlawfulness of the assessment act. The request for establishment of the arbitral tribunal has as a corollary that it will be in the arbitral process that the 'lawfulness of the debt being executed' will be discussed, so, as results from the express content of article 171(1) of the Code of Tax Procedure and Process, it is also the arbitral process that is appropriate to consider the request for compensation for improper guarantee."

In this manner, it is concluded – contrary to what the Respondent Entity has invoked – that this tribunal is competent to consider the request for compensation for improperly provided guarantee.

The regime for the right to compensation for improper guarantee is contained in article 53 of the General Tax Law, which establishes the following:

1. The debtor who, to suspend execution, offers a bank guarantee or equivalent shall be indemnified fully or partially for the losses resulting from its provision, if it has been maintained for a period exceeding three years in proportion to the outcome in administrative appeal, judicial challenge or opposition to execution that have as their object the guaranteed debt.

2. The period referred to in the previous number does not apply when it is verified, in administrative claim or judicial challenge, that there was error attributable to the services in the assessment of the tax.

3. The indemnification referred to in number 1 has as its maximum limit the amount resulting from the application to the guaranteed value of the rate of compensatory interest provided for in this law and can be requested in the very process of administrative claim or judicial challenge, or autonomously.

4. Indemnification for provision of improper guarantee shall be paid by deduction from the tax revenue of the year in which the payment was made."

In the case at hand, it is manifest that the error that affects the assessment acts is attributable to the Respondent Entity, as the assessments were made at its initiative and the Claimant in no way contributed to this error being committed.

Therefore, the Claimant is entitled to indemnification for the guarantee provided, with reference to the value whose annulment was determined and is not yet paid.

However, the costs that the Claimant incurred in providing the guarantee were not alleged and proven, so it is not possible to determine the indemnification to which it is entitled, which can only be carried out in execution of this decision.

IV – Decision

For these reasons, this Arbitral Tribunal decides:

a) To annul the assessment acts whose legality is contested;

b) To condemn the Respondent Entity to reimburse the amount paid and to pay compensatory interest calculated at the legal rate pursuant to articles 43 of the General Tax Law and 61 of the Code of Tax Procedure and Process;

c) To condemn the Respondent Entity to pay the Claimant compensation for improper guarantee, with reference to the value whose annulment was determined and is not yet paid, in the amount to be determined in execution of judgment.

V. Value of the Case

The value of the case is set at € 83,407.42 (eighty-three thousand four hundred seven euros and forty-two cents), pursuant to article 97-A of the Code of Tax Procedure and Process, applied ex vi article 29(1)(a) of the LRAT and article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT).

VI. Costs

Costs to be borne by the Respondent Entity, given that the present request was entirely successful in the amount of € 2,754.00 (two thousand seven hundred fifty-four euros) pursuant to Table I of the RCPAT and in compliance with articles 12(2) and 22(4), both of the LRAT.

Let it be notified.

Lisbon, 3 May 2016

The President Arbitrator

(José Pedro Carvalho)

The Member Arbitrator

(Ana Moutinho Nascimento - Rapporteur)

The Member Arbitrator

(José Nunes Barata)