Process: 744/2014-T

Date: June 3, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 744/2014-T addressed the legality of Stamp Tax assessments under Verba 28.1 of the General Stamp Tax Table (TGIS), which targets high-value residential properties. The claimant challenged Stamp Duty liquidation acts for 2012 and 2013, totaling €27,393.40, on a residential property with a tax property value (TPV) of €1,369,670.00. The taxpayer argued that Verba 28.1 violated constitutional equality principles by discriminating against owners of single high-value residential properties while exempting those owning multiple lower-value properties or non-residential properties of equivalent total value. The Portuguese Tax Authority (AT) raised a preliminary jurisdictional objection, arguing the arbitral tribunal lacked material competence to declare norms unconstitutional. The tribunal rejected this exception, affirming its jurisdiction over Stamp Tax disputes under the Legal Regime for Tax Arbitration (RJAT). The AT defended Verba 28.1 as a legitimate policy choice targeting luxury residential properties based on contributive capacity, arguing that owners of €1 million properties demonstrate greater tax-paying ability than those with multiple lower-value properties. The tribunal's decision was subsequently reformed following Constitutional Court Decision 247/2016, which was delivered on May 4, 2016. This case illustrates the procedural mechanisms available to Portuguese taxpayers to challenge Stamp Tax assessments on high-value residential properties through arbitration, the jurisdictional scope of CAAD arbitral tribunals, and the interaction between tax arbitration and constitutional review when fundamental rights issues arise in tax disputes.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A…, taxpayer no. …, resident at Street …, no. …, …, … (hereinafter referred to as the "claimant"), having been notified of Stamp Duty Assessment acts no. 2014 … and no. 2014 … (relating to the years 2012 and 2013), issued under item 28.1 of the General Table attached to the Stamp Duty Code (TGIS) – from which resulted a total amount of tax payable of €27,393.40 – and not being satisfied with the same, filed, on 28/10/2014, a request for constitution of an arbitral tribunal and arbitral award, pursuant to the provisions of art. 2, no. 1, para. a), and art. 10, nos. 1 and 2, both of Dec.-Law no. 10/2011, of 20/1 (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "LRAT"), in which the Tax and Customs Authority (TA) is requested, with a view to declaring the "illegality of Stamp Duty Assessment acts no. 2014 … and no. 2014 …", aforementioned, condemning the TA to "reimburse the Claimant for the value of Stamp Duty paid" and, further, condemning the TA to "payment [to the Claimant] of compensatory interest".

1.2. On 6/1/2015 the present Singular Arbitral Tribunal was constituted.

1.3. Pursuant to art. 17, no. 1, of the LRAT, the TA was cited as the defendant party to submit a response, pursuant to the said article, on 19/1/2015. The TA submitted its response on 6/3/2015, having argued for the total lack of merit of the claimant's request and further invoked the existence of a dilatory exception based on alleged lack of material jurisdiction of the Arbitral Tribunal.

1.4. Notified, by order dated 23/4/2015, the claimant made submissions on the said exception through its pleading of 5/5/2015.

1.5. By order of 5/5/2015, the Tribunal considered, pursuant to art. 16, para. c), of the LRAT, that the meeting provided for in art. 18 of the LRAT was dispensable and that the case was ready for decision. The date of 15/5/2015 was further set for the pronouncement of the arbitral award.

1.6. The Arbitral Tribunal was regularly constituted, is materially competent (see infra, section III of this decision), the case does not suffer from defects that would invalidate it and the Parties have legal personality and capacity, being properly constituted.

1.7. In light of the Constitutional Court Decision no. 247/2016, delivered on 4/5/2016 and which originated from the decision of the present Tribunal of 15/5/2015 (Decision which was introduced in the CAAD file on 1/6/2016), we proceed, on the present date, to reform – given the suspension of effects of the filing notice until the delivery of the Constitutional Court Decision – the prior decision, in accordance with the provisions of art. 80, no. 2, of the Constitutional Law.

II – Substantiation: Facts

2.1. The claimant alleges, in its initial petition, that: a) "the taxation achieved with [item 28.1] is manifestly contrary to the principle of equality constitutionally enshrined"; b) "item 28 of the General Table of Stamp Duty and the special taxation resulting therefrom promote differentiated treatment and unjustified inequality between taxpayers, in manifest violation of the principle of equality enshrined in article 13 of the Constitution of the Portuguese Republic"; c) "the violation of the constitutional principle of equality results, firstly, from the fact that [the] special taxation of item 28 applies solely to a portion of real property with value exceeding €1,000,000.00, i.e., to property allocated to housing [...], with the exclusion of all property of high (or very high) value that is allocated to other purposes"; d) "the taxation under item 28.1 generates [...] a manifest inequity, not being the same applied, inexplicably, to real property – owned by a single taxpayer – allocated to housing purposes which, despite individually considered having a tax property value less than €1,000,000.00, together amount to a tax property value exceeding [...] €1,000,000.00"; e) "the application of the item in question generates [...] situations in which unequal treatment is given to equal factual situations, violating the general principle of equality and the principle of contributive capacity, the presupposition and criterion of taxation"; f) "given the foregoing, it must be concluded that special taxation, in the context of stamp duty, relating to residential properties with value exceeding €1,000,000.00, introduced by Law no. 55-A/2012, violates [...] the constitutional principle of tax equality and its corollary translated in the principle of contributive capacity"; g) "it should therefore proceed, on the grounds of violation of the principles of equality and contributive capacity, with this present request for annulment of the tax assessment acts in Stamp Duty".

2.2. The claimant concludes that there should be "declared the illegality of the Stamp Duty Assessment acts sub judice, because based on unconstitutional norms", that the TA should be "condemned to reimburse the Claimant for the value of Stamp Duty paid" and, further, that it should be "condemned to payment [to the Claimant] of compensatory interest".

2.3. For its part, the TA alleges, in summary, in its defence, that: a) there exists "lack of jurisdiction of the arbitral tribunal to declare unconstitutionality of legal norms" and that, "the request being for declaration of illegality of stamp duty assessment acts [...] consequent upon the declaration of unconstitutionality of the norms invoked", from this "results [...] the absolute lack of material jurisdiction of the Arbitral Tribunal to know of the requests adduced"; b) should it be understood that there is no dilatory exception, "it is concluded that the wording given to Item 28.1 by Law 55/2012 does not violate the principle of equality constant in article 13 of the Constitution in the aspect of contributive capacity" because "the legislative option underlying Item 28.1 of the TGIS expresses a line of political orientation that intended to specifically burden urban properties with residential allocation of high value, so-called luxury properties, thus specially calling upon them to participate in the effort to guarantee the financial needs of the State and the social state through a fair distribution of the tax burden", being "all too evident that the contributive capacity of someone who onerously acquires an urban residential property with a TPV of €1,000,000.00 is not identical to that of the taxpayer who acquires ten, one hundred or one thousand urban residential properties with a TPV of €100,000.00"; c) "[regarding the exclusion from the scope of application of the norm of urban properties with different allocations (services, commerce or industry)] the Claimant suffers from error of analysis and vice of reasoning" because "the legislative option that Item 28.1 of the TGIS contains [...] makes clear the conscious purpose of not subjecting to taxation under this item properties allocated to services, industry or commerce, which is understood in light of their allocation to economic activity and the recessionary economic climate that has been occurring in Portugal, with particular severity since 2011."

2.4. The TA concludes that, considering the above cited, "the exception invoked should be judged well-founded and the Defendant absolved from the proceeding or, if thus understood, the request for arbitral award should be judged lacking in merit", since it is understood that the assessment acts "do not suffer from any illegality".

2.5. The following facts are considered proved:

i) The claimant is the owner of an urban property, registered in the cadastral matrix under article …, of the (extinct) parish of …, municipality of …, district of Lisbon, according to information from the property register, attached as Doc. 3 to the initial petition.

ii) The said property has residential allocation and a tax property value (TPV) of €1,369,670.00. In these terms, and under item 28.1 of the TGIS, the claimant was notified of Stamp Duty Assessment no. 2014 …, in the amount of €13,696.70, relating to the year 2012, and Assessment no. 2014 …, also of the same amount, relating to the year 2013 (see Docs. 1 and 2 attached to the initial petition).

iii) The claimant, although not satisfied with the said assessments, proceeded to pay them in full (as is evident from reading Docs. 4 and 5 attached to the initial petition).

2.6. There are no material facts not proved relevant to the decision of the case.

III – Preliminary Issue Regarding the Exception of Lack of Jurisdiction of the Arbitral Tribunal

In its response of 6/3/2015, the TA alleges "lack of jurisdiction of the arbitral tribunal to declare unconstitutionality of legal norms", since it understands that "the declaration of unconstitutionality of any norms is not encompassed within the scope of material jurisdiction of the Arbitral Tribunal and therefore it is prohibited for the Arbitral Tribunal to consider the alleged violation of the constitutional principle of equality of Item 28 of the TGIS". It further adds that "it follows from the request and the grounds adduced that the pretension of the Applicant consists in the declaration of unconstitutionality of the norms of articles 4 and 6 of Law no. 55-A/2012, of 29 October" and that, "the request being for declaration of illegality of the stamp duty assessment acts [...] consequent upon the declaration of unconstitutionality of the norms invoked, [...] all requests flowing from it fail."

For its part, the claimant, in its response to the said exception, alleged that it does not exist, given that "it requested that the Stamp Duty Assessment acts in question [be] declared illegal, which will necessarily depend on the prior consideration and decision, by the Arbitral Tribunal, in the specific case, of the (un)constitutionality of the norms in question". And it added that "the Claimant did not petition [...] for 'declaration of unconstitutionality or illegality with binding general force'", rather "petition[ed] [...] that [the] Arbitral Tribunal declare the illegality of the tax acts sub judice".

Since this is a preliminary issue, its analysis is warranted at this point.

Reading the initial petition, there appears to be some confusion as to the pretension of the claimant: it is true that it requests "the illegality of the assessment acts", as can be read on page 1 and as is reiterated on pages 2 (§1 and 2), 3 (§5), 5 (§15) and 13 (§56) and, once more, on page 15, in para. a) of its request ("the illegality of the tax assessment acts in Stamp Duty sub judice be declared"); but, on the other hand, it also states on page 13, §57, that "the unconstitutionality of item 28 of the General Table of Stamp Duty should be declared", and on page 15, in the heading of the request, that the "unconstitutionality of articles 4 and 6 of Law no. 55-A/2012, of 29 October, and the unconstitutionality of item 28 of the General Table of Stamp Duty" should be "declared".

It is beyond doubt (and this is recognized by the parties) that the present Arbitral Tribunal has no jurisdiction to declare the unconstitutionality of the norms referred to (or others). However, notwithstanding the occasional (and already referenced) lapses of the claimant in the formulation of its position, it remains evident, from reading the initial petition and the request made finally, that the claimant intends (and intended) that the illegality of the tax assessment acts in question here be (and be) declared – it being understood that such declaration depends on the non-application of norms on the grounds of their alleged unconstitutionality (see page 15, para. a), of the request).

Because the text of the initial petition supports this reading – and because it is, thus formulated, compatible with the material jurisdiction of Arbitral Tribunals – it is concluded that the alleged exception of lack of jurisdiction is without merit. Indeed, it is reaffirmed that Arbitral Tribunals have jurisdiction to – if they so determine – refuse the application, in the specific case, of legal norms on the grounds of their unconstitutionality or, further, to apply legal norms whose unconstitutionality has been invoked.

IV – Preliminary Issue Regarding Appeal to the Constitutional Court

From the previous judgment delivered by this Tribunal on 15/5/2015 an appeal was filed in due time to the Venerable Constitutional Court, which decided in the following terms, which are transcribed (Constitutional Court Decision no. 247/2016, of 4/5/2016 – delivered in Appeal Cases no. 572/15, to which was appended the Reclamation with no. 795/15, following its allowance –, and which became final on 19/5/2016):

"The issue of unconstitutionality which is the subject matter of this appeal has already been considered by the Constitutional Court, in Decision no. 590/15, which did not find unconstitutional the norm contained in items 28 and 28.1 of the General Table of Stamp Duty, added by article 4 of Law no. 55-A/2012, of 29 October. This jurisprudence was recently reaffirmed in Decision no. 83/2016 and has not been departed from in Decisions nos. 620/15 and 692/15, which did not find unconstitutional the norm of application contained in item 28.1 of the same Table, 'when interpreted in the sense that it includes urban residential properties in full ownership composed of parts susceptible to independent use and considered separately in the cadastral registration.

Considering the problem of unconstitutionality in light of the principles of tax equality, contributive capacity and proportionality, it was considered in the aforementioned Decision no. 590/15, to this end, the following:

'Principles of Tax Equality and Contributive Capacity

  1. (...)

The constitutional principle of tax equality, as a specific expression of the general structural principle of equality (article 13 of the Constitution), finds implementation "in the generality and uniformity of taxes. Generality means that all citizens are bound to pay taxes (...); in turn, uniformity means that the apportionment of taxes among citizens follows the same identical criterion for all" (TEIXEIRA RIBEIRO, Lessons in Public Finance, 5th edition, p. 261). And such criterion, as emphasised by CASALTA NABAIS, is found in the principle of contributive capacity: "This thus implies equal tax for those with equal contributive capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributive capacity in proportion to that difference (vertical equality)" (Tax Law, 7th edition, 2012, p. 155). As presupposition and criterion of taxation, the principle of contributive capacity "on the one hand, constituting the ratio or cause of taxation, removes the tax legislator from arbitrariness, obligating it to, in the selection and articulation of tax facts, adhere to manifestations of contributive capacity, that is, to erect as object and taxable matter of each tax a certain economic presupposition that is a manifestation of such capacity and is present in the various legal hypotheses of the respective tax" (CASALTA NABAIS, op. cit., p. 157).

Thus has the Constitutional Court stated, as exemplified by Decision no. 84/2003:

"The principle of contributive capacity expresses and makes concrete the principle of tax or fiscal equality in its aspect of "uniformity" – the duty of all to pay taxes according to the same criterion – with contributive capacity filling the unitary criterion of taxation", being understood this criterion as being that in which "the application and apportionment of taxes – of "tax taxes" more precisely – should be made according to the economic capacity or "capacity to spend" (...) of each one and not according to what each one may eventually receive in public goods or services (benefit criterion). (...) Notwithstanding the silence of the Constitution, it is the general understanding of doctrine that "contributive capacity" continues to be a basic criterion of our "Tax Constitution" being that it can (or must) be arrived at from the structural principles of the tax system formulated in articles 103 and 104 of the CRP (...)".

This Court has, however, emphasised that the principle of contributive capacity does not dispense with the concurrence of other constitutional principles. As was stated in Decision no. 711/2006, "it is clear that the "principle of contributive capacity" must be compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of legislative shaping, and certain requirements of practicability and knowability of the tax fact, equally indispensable for the fulfilment of the purposes of the tax system". And it continues: "To determine, however, the existence of a particularity sufficiently distinct to justify an inequality of legal regime, and to decide the circumstances and factors to be considered as relevant in such determination, is a task that primarily falls to the legislator, who holds the primacy of the realisation of constitutional principles and the corresponding freedom of legislative shaping. Therefore, the principle of equality presents itself fundamentally to legal operators, in the context of constitutional review, as a negative principle (...) – as a prohibition of arbitrariness".

In summary, in the synthesis of Decision no. 695/2014, "the principle of tax equality can be realised through diverse aspects: a first, is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally taxpayers in equal situations and differently those in different situations, to the extent of the difference, as assessed by contributive capacity; a last, is in the prohibition of arbitrariness, in preventing the introduction of discriminations between taxpayers that are devoid of rational foundation".

  1. The argument of the appellant places itself on this latter level, responding negatively to the question about the raison d'être of the taxation in question, fundamentally by assuming, in its view, an unsystematic and arbitrary character, on the basis that taxation of real property should be made under IRS and IMI, and for discriminating without rational foundation taxpayers with the same contributive capacity. Without reason, it is stated in advance.

  2. First of all, the inscription of the taxation in question in the context of Stamp Duty, and not in other types of taxes, does not in itself result in the infringement of any parameter of constitutionality. Even if it were to be concluded that there was the introduction of a factor of incoherence, or even of imbalance, in the system of taxation of real property, as the appellant claims, the mere lack of system of the questioned norm is not apt to determine constitutional censure (see, albeit in other fields of regulation, Decisions nos. 353/2010 and 324/2013).

Note further that the application of Stamp Duty, marked by heterogeneity, refers here, as regards essential elements of the calculation of the tax, notably as to the normative criteria defining the property value to be considered, to the regulation contained in the IMI Code, ensuring, or at least promoting, a certain degree of consonance between the various legislative bodies in the context of property taxation. Doctrine even attributes to it the condition of "additional IMI rate", directed to "discriminate properties of higher property value and subject them to a more burdensome tax regime than the others" (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 504), explaining the creation of a new fact subject to Stamp Duty, beyond the heterogeneity that marks this tax, by the need to increase the tax revenue of the State, since IMI revenue reverts to the benefit of municipalities and Stamp Duty is a State revenue (op. cit., p. 506).

Other means certainly could be conceived within the reach of the legislator, possibly through recourse to other tax types, but it is no less true that the option taken finds inscription in the broad margin of shaping of the tax legislator, being insusceptible of founding autonomous constitutional censure.

  1. Nor is found in the norm of application in question an arbitrary fiscal measure, because devoid of rational foundation. As was seen, the legislative alteration had the purpose of broadening the taxation of property, making it fall more intensely on property which, by its value substantially higher than that of the generality of urban properties with residential allocation, reveals greater indicators of wealth and, as such, is susceptible to founding the imposition of an increased contribution for the sanitation of public accounts to its holders, in realisation of the aforementioned "principle of social equity in austerity".

The appellant states that the norm in question is "iniquitous" and advances two hypothetical cases which, in its view, make manifest the violation of the principles of tax equality and contributive capacity.

15.1. The first case compares two taxpayers, one of which possesses "property valued at approximately one million two hundred and fifty thousand euros" and bears Stamp Duty by way of the norm of application of item no. 28, and another who, by "possess[ing] property valued at 20 million euros but does not have, in that total, any property with a tax property value exceeding 1 million" bears no taxation. From this it follows, it sustains, "vertical inequality" between taxpayers without justifying reason.

However, the proposed comparison does not find place, as it moves away, in the tertium comparationis chosen, from the structure of the norm in question. The taxation resulting from the norm of application housed in item no. 28 assumes the nature of a partial tax (thus, JOSÉ MARIA FERNANDES PIRES, op. cit., p. 507), taking as taxable base the urban property allocated to housing, calculating the respective tax property value per relevant legal and economic unit. It does not constitute a general tax on property, or even a tax on all real property, in terms of founding a comparison rooted in a perspective of personalisation of the tax and from a base that attends to all the property of the tax subject.

15.2. It should be noted that the Constitution does not impose on the legislator the creation of a general tax on property, assigning to taxation on property the function of contributing to equality among citizens (article 104, no. 3, of the Constitution), the legislator being free as to the solution to adopt. It may, as pointed out by CASALTA NABAIS, in pursuit of such constitutional objective, "proceed to the discrimination of patrimonies, taxing the higher ones and exempting the lower ones or adopting progressive rates" (op. cit., p. 436). And, even if one can extract from the principle of contributive capacity a model of a general tax on property with a taxable base extended to all manifestations of wealth, the obstacles of practicability that oppose it are susceptible to lead in reality to the creation of inequalities between taxpayers. As states SÉRGIO VASQUES (Contributive Capacity, Income and Property, in Fiscal Matters, 2005a, no. 23, p. 44):

"[W]here taxes of this nature have been instituted – and there are not many cases – their application has been tainted by the grossest fraud, producing thereby an inequality between taxpayers that cannot be tolerated. The equality of a tax is measured by the results of its application and when the legislator knows in advance that it cannot tax any manifestation of wealth with effective equality, it should then abstain from subjecting it to taxation.

We can therefore conclude by saying that the principle of contributive capacity possesses useful and precise content in the shaping of taxes on property but that the model to which it points, that of a tax on net global property, produces in practice breaches of equality greater than the gains it brings. When it is stated that there is no room in modern tax systems for a tax on global property alongside VAT and tax on personal income, this will certainly be true – not by force of the principle of contributive capacity, which demands it, but for reasons of practicability that are external to it."

15.3. Thus, the assessment of respect for the principle of tax equality in its material dimension needs to be referred to the unit of property allocated to housing, which entails the conclusion that in the first case there is no arbitrary discrimination between taxpayers in the uniform operation of the relevant substantive criterion, translated in the attribution to each property with residential allocation with a tax property value equal to or exceeding €1,000,000.00.

As, further, there persists an effective connection between the tax obligation and the economic presupposition selected as the object of the tax, without infringing the principle of contributive capacity, whose scope, not being excluded, is diminished in the context of taxation of property, as happens in taxation on income (thus, SÉRGIO VASQUES, Manual of Tax Law, Coimbra, 2011, p. 254). Indeed, the appellant does not dispute that the tax property value upon which the application of the tax depends is reached only by urban properties of residential vocation of higher economic significance, externalising levels of wealth corresponding to the highest standards of Portuguese society.

15.4. The second case, according to the appellant demonstrative of inequality on the horizontal level, compares the taxation imposed on it, as owner of property whose tax property value exceeds "by little" the amount of €1,000,000.00, with the non-taxation of a hypothetical taxpayer who was the owner of 10 properties, whose tax property value stood at €990,000.00.

It should be noted that the existence of distinct applicative results before very approximate values – by excess or by deficiency – of a quantitative expression stipulated normatively as the limit – positive or negative – of any legal effect is inherent to its fixation by the legislator. Whether in the definition of tax application, whether in the enactment of exemptions or tax benefits based on value criteria, it is always possible to find examples of taxpayers with differentiated treatment based on a quantitative variation of very reduced significance.

By necessity being thus, the differentiation contained in the second hypothesis placed does not show itself devoid of rational foundation, in accordance with the scope, structure and nature of the norm in question: aimed at increasing the taxation of properties with residential allocation of high value, the fiscal measure could not fail to determine, by imperative of the principle of tax legality, the concrete property value from which a special rate of Stamp Duty began to apply to such properties, which excludes, also on this point, the verification of arbitrariness on the part of the legislator.

Principle of Proportionality

  1. As regards the violation of the principle of proportionality, pointed out by the appellant in the final part of the request transcribed in point 2 as a corollary of the violation of the principles previously considered, the lack of reason of the appellant is manifest.

Indeed, the appellant sustains in allegations, albeit for purposes of another parameter, that there is not found, in the case, an adequate means-ends relationship, in that the revenue collected with this tax has "any relevant significance", the amount collected in 2012 being "necessarily scanty revenue" (see pages 16 and 17 of the allegations, at pages 301 and 302 of the record).

The reasoning takes, however, as a premise something that does not correspond to the purpose of the norm: the legislator did not aim to achieve only by this means the objective of rebalancing public accounts, admittedly difficult. It intended, as was seen, to broaden the taxable base to the wealth externalised in the property of urban properties destined for housing of high value and, in a perspective of promoting budget consolidation, as an instrument for obtaining more revenue and, correspondingly, for alleviating the effort that might fall on other sources of revenue or on the reduction of public expenditure, with a view to meeting the targets of public deficit, there is no doubt that the amounts of Stamp Duty collected by way of the application provided for in item no. 28, whatever their amount, are apt and suitable to realise the purposes of broadened apportionment of effort in a period of additional fiscal and financial sacrifices that the legislator sought to achieve. As, being a fiscal measure directed to affect more intensely the holders of real rights of enjoyment over urban properties of residential vocation and of higher value, within reach only of those with high economic strength, there are no grounds for concluding the violation of the dimensions of necessity or just measure, contained in the principle of proportionality.

  1. With the violation of the parameters of constitutionality invoked by the appellant not being verified, nor of any others, the appeal is, consequently, without merit." [End of quotation.]

"It appears that, also in the case sub judice, such jurisprudence should be reiterated".

V – Substantiation: Matters of Law

As was stated in the text of the prior decision of this Arbitral Tribunal, there were (and now remain) two issues to be decided: 1) "whether item 28.1 of the TGIS violates the principle of equality (art. 13 of the CRP) and the principle of contributive capacity"; and 2) "whether compensatory interest is owed to the claimant".

  1. Having the aforementioned Constitutional Court Decision decided, in a definitive manner, the said issue 1) – understanding "not to find unconstitutional the norm contained in item 28 and 28.1 of the General Table of Stamp Duty, added by article 4 of Law no. 55-A/2012, of 29 October", by considering that there is no violation of the mentioned principles (reiterating, to this end, the jurisprudence contained in Decision no. 590/15, also cited above) –, it falls to the present Tribunal to give effect to what was decided there, whereby it is concluded, also herein (and with the same grounds), that the claimant's allegation regarding the invoked violation of the principles of equality and contributive capacity is without merit.

  2. Taking into account the provisions of article 3, no. 3, of the CPTA, it is not justified, regarding this issue (not directly addressed by Constitutional Court Decision no. 247/2016), the promotion of new proceedings, since these would be manifestly unnecessary.

Article 43, no. 1, of the LGT states that compensatory interest is owed when it is determined, in a voluntary remedy or in judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount greater than that legally owed.

As there has not been – as follows from what was said in 1) – any error attributable to the services, it is concluded that the request for payment of compensatory interest to the claimant is without merit.

VI – Decision

In view of the foregoing, it is decided:

– To judge the request for arbitral award lacking in merit, with the Stamp Duty assessment acts impugned remaining fully in the legal order, and absolution of the required entity from the request accordingly.

– To judge the request also lacking in merit in the part relating to the recognition of the right to compensatory interest in favor of the claimant.

The value of the case is set at €27,393.40 (twenty-seven thousand three hundred ninety-three euros and forty cents), pursuant to the provisions of art. 32 of the CPTA and art. 97-A of the CPPT, applicable by force of the provisions of art. 29, no. 1, para. a) and b), of the LRAT, and art. 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

Costs to be borne by the claimant, in the amount of €1,530.00 (one thousand five hundred thirty euros), pursuant to Table I of the RCPAT, and in compliance with the provisions of articles 12, no. 2, and 22, no. 4, both of the LRAT, and with the provisions of art. 4, no. 4, of the said Regulation.

Notify.

Lisbon, 3 June 2016.

The Arbitrator,

Miguel Patrício

Document prepared by computer, pursuant to the provisions of art. 131, no. 5, of the CPC, applicable by referral of art. 29, no. 1, para. e), of the LRAT.

The text of the present decision is governed by the spelling prior to the Spelling Agreement of 1990.

ARBITRAL DECISION

I – Report

1.1. A…, taxpayer no. …, resident at Street of …, no. …, …, … (hereinafter referred to as the "claimant"), having been notified of Stamp Duty Assessment acts no. 2014 … and no. 2014 … (relating to the years 2012 and 2013), issued under item 28.1 of the General Table attached to the Stamp Duty Code (TGIS) – from which resulted a total amount of tax payable of €27,393.40 – and not being satisfied with the same, filed, on 28/10/2014, a request for constitution of an arbitral tribunal and arbitral award, pursuant to the provisions of art. 2, no. 1, para. a), and art. 10, nos. 1 and 2, both of Dec.-Law no. 10/2011, of 20/1 (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as "LRAT"), in which the Tax and Customs Authority (TA) is requested, with a view to declaring the "illegality of Stamp Duty Assessment acts no. 2014 … and no. 2014 …", aforementioned, condemning the TA to "reimburse the Claimant for the value of Stamp Duty paid" and, further, condemning the TA to "payment [to the Claimant] of compensatory interest".

1.2. On 6/1/2015 the present Singular Arbitral Tribunal was constituted.

1.3. Pursuant to art. 17, no. 1, of the LRAT, the TA was cited as the defendant party to submit a response, pursuant to the said article, on 19/1/2015. The TA submitted its response on 6/3/2015, having argued for the total lack of merit of the claimant's request and further invoked the existence of a dilatory exception based on alleged lack of material jurisdiction of the Arbitral Tribunal.

1.4. Notified, by order dated 23/4/2015, the claimant made submissions on the said exception through its pleading of 5/5/2015.

1.5. By order of 5/5/2015, the Tribunal considered, pursuant to art. 16, para. c), of the LRAT, that the meeting provided for in art. 18 of the LRAT was dispensable and that the case was ready for decision. The date of 15/5/2015 was further set for the pronouncement of the arbitral award.

1.6. The Arbitral Tribunal was regularly constituted, is materially competent (see infra, section III of this decision), the case does not suffer from defects that would invalidate it and the Parties have legal personality and capacity, being properly constituted.

II – Substantiation: Facts

2.1. The claimant alleges, in its initial petition, that: a) "the taxation achieved with [item 28.1] is manifestly contrary to the principle of equality constitutionally enshrined"; b) "item 28 of the General Table of Stamp Duty and the special taxation resulting therefrom promote differentiated treatment and unjustified inequality between taxpayers, in manifest violation of the principle of equality enshrined in article 13 of the Constitution of the Portuguese Republic"; c) "the violation of the constitutional principle of equality results, firstly, from the fact that [the] special taxation of item 28 applies solely to a portion of real property with value exceeding €1,000,000.00, i.e., to property allocated to housing [...], with the exclusion of all property of high (or very high) value that is allocated to other purposes"; d) "the taxation under item 28.1 generates [...] a manifest inequity, not being the same applied, inexplicably, to real property – owned by a single taxpayer – allocated to housing purposes which, despite individually considered having a tax property value less than €1,000,000.00, together amount to a tax property value exceeding [...] €1,000,000.00"; e) "the application of the item in question generates [...] situations in which unequal treatment is given to equal factual situations, violating the general principle of equality and the principle of contributive capacity, the presupposition and criterion of taxation"; f) "given the foregoing, it must be concluded that special taxation, in the context of stamp duty, relating to residential properties with value exceeding €1,000,000.00, introduced by Law no. 55-A/2012, violates [...] the constitutional principle of tax equality and its corollary translated in the principle of contributive capacity"; g) "it should therefore proceed, on the grounds of violation of the principles of equality and contributive capacity, with this present request for annulment of the tax assessment acts in Stamp Duty".

2.2. The claimant concludes that there should be "declared the illegality of the Stamp Duty Assessment acts sub judice, because based on unconstitutional norms", that the TA should be "condemned to reimburse the Claimant for the value of Stamp Duty paid" and, further, that it should be "condemned to payment [to the Claimant] of compensatory interest".

2.3. For its part, the TA alleges, in summary, in its defence, that: a) there exists "lack of jurisdiction of the arbitral tribunal to declare unconstitutionality of legal norms" and that, "the request being for declaration of illegality of stamp duty assessment acts [...] consequent upon the declaration of unconstitutionality of the norms invoked", from this "results [...] the absolute lack of material jurisdiction of the Arbitral Tribunal to know of the requests adduced"; b) should it be understood that there is no dilatory exception, "it is concluded that the wording given to Item 28.1 by Law 55/2012 does not violate the principle of equality constant in article 13 of the Constitution in the aspect of contributive capacity" because "the legislative option underlying Item 28.1 of the TGIS expresses a line of political orientation that intended to specifically burden urban properties with residential allocation of high value, so-called luxury properties, thus specially calling upon them to participate in the effort to guarantee the financial needs of the State and the social state through a fair distribution of the tax burden", being "all too evident that the contributive capacity of someone who onerously acquires an urban residential property with a TPV of €1,000,000.00 is not identical to that of the taxpayer who acquires ten, one hundred or one thousand urban residential properties with a TPV of €100,000.00"; c) "[regarding the exclusion from the scope of application of the norm of urban properties with different allocations (services, commerce or industry)] the Claimant suffers from error of analysis and vice of reasoning" because "the legislative option that Item 28.1 of the TGIS contains [...] makes clear the conscious purpose of not subjecting to taxation under this item properties allocated to services, industry or commerce, which is understood in light of their allocation to economic activity and the recessionary economic climate that has been occurring in Portugal, with particular severity since 2011."

2.4. The TA concludes that, considering the above cited, "the exception invoked should be judged well-founded and the Defendant absolved from the proceeding or, if thus understood, the request for arbitral award should be judged lacking in merit", since it is understood that the assessment acts "do not suffer from any illegality".

2.5. The following facts are considered proved:

i) The claimant is the owner of an urban property, registered in the cadastral matrix under article …, of the (extinct) parish of …, municipality of …, district of Lisbon, according to information from the property register, attached as Doc. 3 to the initial petition.

ii) The said property has residential allocation and a tax property value (TPV) of €1,369,670.00. In these terms, and under item 28.1 of the TGIS, the claimant was notified of Stamp Duty Assessment no. 2014 …, in the amount of €13,696.70, relating to the year 2012, and Assessment no. 2014 …, also of the same amount, relating to the year 2013 (see Docs. 1 and 2 attached to the initial petition).

iii) The claimant, although not satisfied with the said assessments, proceeded to pay them in full (as is evident from reading Docs. 4 and 5 attached to the initial petition).

2.6. There are no material facts not proved relevant to the decision of the case.

III – Preliminary Issue: Exception of Lack of Jurisdiction of the Arbitral Tribunal

In its response of 6/3/2015, the TA alleges "lack of jurisdiction of the arbitral tribunal to declare unconstitutionality of legal norms", since it understands that "the declaration of unconstitutionality of any norms is not encompassed within the scope of material jurisdiction of the Arbitral Tribunal and therefore it is prohibited for the Arbitral Tribunal to consider the alleged violation of the constitutional principle of equality of Item 28 of the TGIS". It further adds that "it follows from the request and the grounds adduced that the pretension of the Applicant consists in the declaration of unconstitutionality of the norms of articles 4 and 6 of Law no. 55-A/2012, of 29 October" and that, "the request being for declaration of illegality of the stamp duty assessment acts [...] consequent upon the declaration of unconstitutionality of the norms invoked, [...] all requests flowing from it fail."

For its part, the claimant, in its response to the said exception, alleged that it does not exist, given that "it requested that the Stamp Duty Assessment acts in question [be] declared illegal, which will necessarily depend on the prior consideration and decision, by the Arbitral Tribunal, in the specific case, of the (un)constitutionality of the norms in question". And it added that "the Claimant did not petition [...] for 'declaration of unconstitutionality or illegality with binding general force'", rather "petition[ed] [...] that [the] Arbitral Tribunal declare the illegality of the tax acts sub judice".

Since this is a preliminary issue, its analysis is warranted at this point.

Reading the initial petition, there appears to be some confusion as to the pretension of the claimant: it is true that it requests "the illegality of the assessment acts", as can be read on page 1 and as is reiterated on pages 2 (§1 and 2), 3 (§5), 5 (§15) and 13 (§56) and, once more, on page 15, in para. a) of its request ("the illegality of the tax assessment acts in Stamp Duty sub judice be declared"); but, on the other hand, it also states on page 13, §57, that "the unconstitutionality of item 28 of the General Table of Stamp Duty should be declared", and on page 15, in the heading of the request, that the "unconstitutionality of articles 4 and 6 of Law no. 55-A/2012, of 29 October, and the unconstitutionality of item 28 of the General Table of Stamp Duty" should be "declared".

It is beyond doubt (and this is recognized by the parties) that the present Arbitral Tribunal has no jurisdiction to declare the unconstitutionality of the norms referred to (or others). However, notwithstanding the occasional (and already referenced) lapses of the claimant in the formulation of its position, it remains evident, from reading the initial petition and the request made finally, that the claimant intends (and intended) that the illegality of the tax assessment acts in question here be (and be) declared – it being understood that such declaration depends on the non-application of norms on the grounds of their alleged unconstitutionality (see page 15, para. a), of the request).

Because the text of the initial petition supports this reading – and because it is, thus formulated, compatible with the material jurisdiction of Arbitral Tribunals – it is concluded that the alleged exception of lack of jurisdiction is without merit. Indeed, it is reaffirmed that Arbitral Tribunals have jurisdiction to – if they so determine – refuse the application, in the specific case, of legal norms on the grounds of their unconstitutionality or, further, to apply legal norms whose unconstitutionality has been invoked.

IV – Substantiation: Matters of Law

In the present case, there are two disputed legal issues: whether item 28.1 of the TGIS violates the principle of equality (art. 13 of the CRP) and the principle of contributive capacity [1)]; and whether compensatory interest is owed to the claimant [2)].

  1. On this specific issue diverse arbitral jurisprudence has pronounced itself (see, e.g., the Arbitral Decisions relating to cases no. 51/2013, of 7/3/2014, no. 218/2013, of 24/2/2014, no. 247/2013, of 28/7/2014, and no. 292/2014, of 2/2/2015), in uniform and general terms, with which we agree.

To this extent, we follow – as regards the invoked principle of equality – what was decided, in a similar case, in case no. 51/2013, of 7/3/2014 (supra referred to), which is cited, with due deference, in the part deemed pertinent for the present case:

"i) Equality is a value and a principle inherent to the paradigm of the Rule of Law that permeates the entire Portuguese material Constitution, which even turns out to be a component part of the very idea of Law or of Legal Order as a Legal Cosmos. But the principle of equality is directly enunciated by the Portuguese constitutional text in its art. 13, in addition to its evident refraction at the level of the principle of contributive capacity, which translates a special orientation of equality in tax matters. Thus it is important to refer this central constitutional provision of art. 13 of the CRP: – art. 13, no. 1: 'All citizens have the same social dignity and are equal before the law'; – art. 13, no. 2: 'No one may be privileged, favored, prejudiced, deprived of any right or exempted from any duty on the grounds of ancestry, sex, race, language, territory of origin, religion, political or ideological beliefs, education, economic situation, social condition or sexual orientation'.

ii) The same applies to the LGT, which also formulates the principle of equality in the context of Portuguese tax legislation, as can be observed in its art. 5: – art. 5, no. 1: 'Taxation aims to satisfy the financial needs of the State and other public entities and promotes social justice, equality of opportunity and the necessary corrections of inequalities in the distribution of wealth and income'; – art. 5, no. 2: 'Taxation respects the principles of generality, equality, legality and material justice'.

iii) The principle of equality, in a Social State, is substantively different from the principle of equality that prevailed in the period of the Liberal State, with a whole set of new dimensions and modes of action to achieve material equality and equality of opportunity. But in the matter of taxation of property – not now addressing the theoretical issue of the nature of stamp duty in the contrast between taxes on consumption or taxes on property – the very CRP establishes a central orientation in its art. 104, no. 3: 'Taxation of property shall contribute to equality among citizens'. In its simplicity, this constitutional provision, specifically established for this type of taxation, is no less than a good example of a principle of tax equality that takes into account the new dimensions of the social principle.

iv) We are inclined to believe that the provision in question, which added item no. 28 to the TGIS, is marred by material unconstitutionality for violation of the principle of equality. It is important to note that the configuration of the tax fact, which operates the distinction between various uses and allocations of the properties in question, does not appear to be justified in the name of the purpose of the fiscal measure adopted. If the concern is the taxation of higher patrimonies, what is the reason that such taxation, in the specific case of real property that the taxpayer holds, does not tax all such properties, in their multiple subdivisions? If one looks carefully, there are various categories of properties that do not manage to submit themselves to this new taxation: – non-urban properties; – urban properties that do not correspond to the specifications of items nos. 28.1 and 28.2. The rationality of not including all such uses and allocations in it is not apparent, and it is certain that if all of them were included, the tax revenue would be greater and would equal taxpayers on the basis of the same property value referred to. Even considering the difference in the economic value of rural and urban properties, or within these in their various uses and allocations, as the criterion is referred to the property value of the IMI Code, by this mechanism one would already have objectively assessed the wealth in question, being it diverse according to those different distinctions that are taken into account in the evaluation undertaken by the pertinent norms of the IMI Code.

v) With this differentiation, one even introduces a perversion of values in the Portuguese tax system, at odds with the general orientation that can be obtained from the Constitution, which is that of the greater sacrifice imposed on taxpayers who are owners of properties with an allocation or use of housing to the detriment of other allocations or uses that are not as valuable in light of constitutional values and principles, being able to invoke in that sense: – not only the value prominence of the right to housing, provided for in art. 65 of the CRP, which even being an economic and social right, offering a legal efficacy inferior to that of rights, freedoms and guarantees, does not cease to have a privileged constitutional place that emerges as a compass for, at least, avoiding discrimination in relation to other uses that do not have the same constitutional importance; – but also one cannot forget the projection of the very principle of human dignity, a guiding principle of the Portuguese constitutional order and stated at the outset in art. 1 of the CRP, which surely will imply the special valorization of the uses that citizens carry out in their spheres of life, there being here a realization of that value in the greater protection that property allocated to or intended for housing – which is human housing – should have compared to properties that have other uses or allocations.

vi) There is another reason to consider that item no. 28 of the TGIS infringes the principle of tax equality, in this case considering the constitutional prohibition of double legal taxation, which is also here a double economic taxation. Double legal taxation means that the same manifestation of wealth, which translates into the same tax fact, is taxed twice, thus meaning a negative discrimination against other taxpayers whose taxation was only carried out once over the same tax fact. Although without literal expression in the constitutional text, the prohibition of double legal taxation not only is deduced from the principle of contributive capacity, being expressed in the context of Constitutional Criminal Law through the principle non bis in idem. [...].

vii) But, what actually is this double taxation? It consists in the fact that the holding of real rights is simultaneously taxed under IMI and under Stamp Duty, which applies to the same reality, which becomes all too evident when the terms of the taxation of item no. 28 of Stamp Duty are referred to the applicable rules of IMI. We thus have two coinciding taxations in the matter of urban properties, to which two taxes apply, with their own rates: – the taxation established in art. 1 of the IMI Code; and – the taxation established in item no. 28 of the TGIS. It is not deemed pertinent as a contrary argument that the active subject of the tax legal relationship is diverse, the State in Stamp Duty and the municipalities in IMI, since only the position of the passive subject is relevant here."

In agreement with the substantiation cited, and applying it to the present case, it is concluded that also here the TA is not justified, since it is considered that the norm (item no. 28 of the TGIS) on which the assessments in question are based violates, for the reasons cited above, the constitutional principle of equality contained in art. 13 of the CRP, and accordingly, these cannot subsist.

Showing the understanding of the claimant herein to be well-founded as regards the issue referred to, it becomes unnecessary, in light of the provisions of art. 124 of the CPPT, ex vi art. 29, no. 1, of the LRAT, to determine, specifically, the allegation relating to the principle of contributive capacity.

  1. Compensatory interest is owed when it is determined, in a voluntary remedy or judicial challenge, that there has been error attributable to the services from which results payment of the tax debt in an amount greater than that legally owed (see art. 43, no. 1, of the LGT).

It is, therefore, a necessary condition for the attribution of the said interest the demonstration of the existence of error attributable to the services. To this effect, see, for example, the following judgments: "The right to compensatory interest provided for in no. 1 of art. 43 of the LGT [...] depends on it being proved in the case that this act is affected by error regarding the presuppositions of fact or law attributable to the TA." (Decision of the SAC of 30/5/2012, case 410/12); "The right to compensatory interest provided for in no. 1 of article 43 of the General Tax Law presupposes that it is determined in the case that in the assessment 'there was error attributable to the services', understood as the 'error regarding the presuppositions of fact or law attributable to the Tax Administration'" (Decision of the SAC of 10/4/2013, case 1215/12).

Now, having occurred, as follows from what is observed in 1), error attributable to the services, it is concluded that the request for payment of compensatory interest to the claimant is well-founded.

V – Decision

In view of the foregoing, it is decided:

– Not to apply the norm of item no. 28 of the TGIS, for infringing the principle of equality enshrined in the Constitution of the Republic, and in obedience to the provisions of its art. 204.

– To judge the request for arbitral award well-founded, with the consequent annulment, with all legal effects, of the impugned assessment acts, and the reimbursement of the amounts unduly paid.

– To judge the request also well-founded in the part relating to the recognition of the right to compensatory interest in favor of the claimant.

The value of the case is set at €27,393.40 (twenty-seven thousand three hundred ninety-three euros and forty cents), pursuant to the provisions of art. 32 of the CPTA and art. 97-A of the CPPT, applicable by force of the provisions of art. 29, no. 1, para. a) and b), of the LRAT, and art. 3, no. 2, of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

Costs to be borne by the defendant, in the amount of €1,530.00 (one thousand five hundred thirty euros), pursuant to Table I of the RCPAT, and in compliance with the provisions of articles 12, no. 2, and 22, no. 4, both of the LRAT, and with the provisions of art. 4, no. 4, of the said Regulation.

Notify.

Lisbon, 15 May 2015.

The Arbitrator,

Miguel Patrício

Document prepared by computer, pursuant to the provisions of art. 131, no. 5, of the CPC, applicable by referral of art. 29, no. 1, para. e), of the LRAT.

The text of the present decision is governed by the spelling prior to the Spelling Agreement of 1990.

[1] Arbitral Decision annulled by Constitutional Court Decision no. 247/2016, of 04-05-2016.

Frequently Asked Questions

Automatically Created

What is Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS) and how does it apply to property taxation?
Verba 28.1 of the Portuguese General Stamp Tax Table (TGIS) is a special taxation provision introduced by Law 55-A/2012 that applies an annual Stamp Tax to urban residential properties with a tax property value (valor patrimonial tributário) exceeding €1,000,000. This tax applies specifically to properties allocated for housing purposes and is levied annually on the property owner. The provision was designed to target high-value or 'luxury' residential properties, requiring their owners to contribute additionally to state revenues based on their enhanced contributive capacity. The tax is calculated based on the property's official cadastral value and represents a supplementary tax burden beyond the regular Municipal Property Tax (IMI).
Does the CAAD arbitral tribunal have material jurisdiction to rule on Stamp Tax (Imposto do Selo) disputes under the RJAT?
Yes, CAAD arbitral tribunals have material jurisdiction to rule on Stamp Tax (Imposto do Selo) disputes under the RJAT (Legal Regime for Tax Arbitration - Decree-Law 10/2011). In Process 744/2014-T, the Tax Authority raised a dilatory exception arguing the tribunal lacked jurisdiction to declare legal norms unconstitutional. However, the arbitral tribunal explicitly confirmed its material competence under Article 2(1)(a) and Article 10 of the RJAT to hear disputes concerning Stamp Tax liquidation acts. While arbitral tribunals cannot directly declare norms unconstitutional (a power reserved for constitutional courts), they have jurisdiction to appreciate the legality of tax assessments and apply constitutional principles when evaluating administrative acts, including the power to refuse application of unconstitutional norms with general binding effects within the specific case.
How can taxpayers challenge Stamp Tax liquidation acts on high-value residential properties in Portugal?
Taxpayers can challenge Stamp Tax liquidation acts on high-value residential properties in Portugal by filing a request for arbitration (pedido de constituição de tribunal arbitral) with CAAD (Centro de Arbitragem Administrativa) under Decree-Law 10/2011. The process involves: (1) receiving notification of the Stamp Tax assessment act under Verba 28.1 TGIS; (2) filing an arbitration request within the legal deadline, identifying the contested acts and grounds for illegality (such as constitutional violations, incorrect legal application, or factual errors); (3) constitution of a singular or collective arbitral tribunal; (4) submission of arguments and evidence; and (5) issuance of an arbitral award with binding effect. Taxpayers may base their challenge on substantive grounds including violation of constitutional principles (equality, contributive capacity), incorrect application of tax law, or procedural irregularities. The arbitration route offers a faster alternative to judicial courts for tax dispute resolution.
What was the outcome of CAAD process 744/2014-T regarding the legality of Stamp Tax assessments for 2012 and 2013?
The outcome of CAAD Process 744/2014-T was significantly influenced by Constitutional Court Decision 247/2016. The arbitral tribunal initially issued a decision on May 15, 2015, addressing the claimant's challenge to Stamp Tax assessments for 2012 and 2013 totaling €27,393.40 on a residential property valued at €1,369,670.00. The tribunal rejected the Tax Authority's jurisdictional objection, confirming its material competence to hear the case. However, following the Constitutional Court's ruling delivered on May 4, 2016 (Decision 247/2016), the arbitral tribunal reformed its original decision pursuant to Article 80(2) of the Constitutional Law, which had suspended the effects of the filing notice pending the Constitutional Court's pronouncement. The final text does not provide the complete reformed decision, but the case demonstrates the hierarchical relationship between constitutional review and tax arbitration, with arbitral awards subject to modification based on subsequent constitutional court rulings on the same legal provisions.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations are annulled by an arbitral tribunal?
Yes, taxpayers are generally entitled to compensatory interest (juros indemnizatórios) when Stamp Tax liquidations are annulled by an arbitral tribunal, provided the legal requirements are met. In Process 744/2014-T, the claimant specifically requested condemnation of the Tax Authority to payment of compensatory interest in addition to reimbursement of the Stamp Tax paid. Compensatory interest under Portuguese tax law (Article 43 of the General Tax Law - LGT) is due when the State unlawfully retains taxpayer funds, serving to compensate for the financial loss resulting from the deprivation of capital. The interest accrues from the date of payment of the unlawful tax until reimbursement, calculated at the legal rate. For a successful claim, the taxpayer must demonstrate: (1) the tax assessment was illegal and subsequently annulled; (2) the tax was paid; and (3) there was no taxpayer fault causing the unlawful payment. The arbitral tribunal has authority to order payment of compensatory interest as ancillary relief to the main annulment decision.