Summary
Full Decision
ARBITRAL DECISION
The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Dr.ª Adelaide Moura and Dr. João Marques Pinto (arbitrators members), designated by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 23-04-2019, agree as follows:
1. Report
A..., S.A., Tax ID No. ..., with registered office at Rua ..., No. ..., ...-... ..., hereinafter referred to as "Claimant", filed, pursuant to Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), a request for arbitral pronouncement with a view to the declaration of illegality and annulment of the assessment of Municipal Tax on Onerous Transfers of Real Property (IMT) of 26 October 2017, in the amount of € 682,500.00, as well as the tacit dismissal of the request for official review which it had submitted.
The respondent is the TAX AND CUSTOMS AUTHORITY.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 11-02-2019.
Pursuant to the provisions of article 6, paragraph 2, point a) and article 11, paragraph 1, point b) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories hereof, who communicated their acceptance of the assignment within the applicable time limit.
On 02-04-2019 the parties were duly notified of such designation and did not manifest the intention to refuse the designation of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, points a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.
Thus, in accordance with the provisions of article 11, paragraph 1, point c) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 23-04-2019.
The Tax and Customs Authority submitted a reply, to which it attached a decision expressly dismissing the request for official review and argued that the request should be judged unfounded.
By order of 29-05-2019 it was decided to dispense with the meeting provided for in article 18 of the RJAT and decided that the proceedings would continue with simultaneous submissions, in accordance with articles 120 of the CPPT applicable to tax arbitration proceedings by virtue of the provisions of article 29, paragraph 1, point c), of the RJAT.
The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2, paragraph 1, point a), and 10, paragraph 1, of Decree-Law No. 10/2011, of 20 January, and is competent.
The parties are duly represented and possess legal personality and capacity and have legitimacy (articles 4 and 10, paragraph 2, of the same decree and article 1 of Ordinance No. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities.
2. Factual Matters
2.1. Proven Facts
The following facts, having relevance for the decision, are considered proven:
A) The Claimant is a company engaged in the construction, administration and operation of tourism projects;
B) By deed executed on 27 October 2017, the Claimant acquired urban properties, composed of plots of land for the construction of a hotel and golf club, designated as plots E F, described in the Land Registry for ..., under No. ... of the parish of ..., and registered in the urban property register of the same parish under articles No. ... and ..., for the price of € 10,500,000.00 plus Value Added Tax (VAT) (document No. 2 attached with the request for arbitral pronouncement, the content of which is reproduced herein);
C) On such land the Claimant is installing the tourism project which will become known as Hotel B..., integrated in the Detailed Plan of the Tourism Development Hub of ... which provides for it (documents Nos. 3 and 4 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);
D) To the tourism project in which Hotel B... is inserted the Government recognized relevant public interest and conferred the status of project of national interest – PIN (documents Nos. 5 and 6 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);
E) To Hotel B... was granted prior tourism utility by order of 20-12-2017 (document No. 7 attached with the request for arbitral pronouncement, the content of which is reproduced herein);
F) On 26-10-2017, the Claimant presented at the Finance Office of ... the IMT model 1 declaration which is contained in document No. 1 attached with the request for arbitral pronouncement, the content of which is reproduced herein;
G) Based on that declaration, the Tax and Customs Authority issued the IMT assessment bearing identification number ..., in the amount of € 682,500.00, a copy of which is contained in document No. 1, attached with the request for arbitral pronouncement, the content of which is reproduced herein;
H) The recognition of prior tourism utility of the Hotel ... which the Claimant is building awaited approval by the municipal council of the respective architectural project in accordance with paragraph 1 of article 10 of Decree-Law No. 423/83, of 5 December, as the Claimant was aware of the interpretation which Tourism of Portugal I.P. then made thereof, in the sense that the attribution of prior tourism utility could only be requested on the basis of the approved project of the undertaking;
I) Such approval was subject to successive delays that led to more than two years elapsing from the date of its presentation to the Municipal Council of ... (CM), in August 2015, to the date of its approval, on 20-10-2017 (documents Nos. 8 and 9 attached with the request for arbitral pronouncement, the contents of which are reproduced herein);
J) Following the issuance of the Urbanization Works Permit No. .../2012, followed by the Reparcelation Licensing Permit No. .../2015, both by the CM of ... (documents Nos. 9A and 9B attached with the request for arbitral pronouncement, the contents of which are reproduced herein), the architectural project for the installation of Hotel B... was presented, but it took more than two years before receiving municipal approval;
K) Meanwhile, Tourism of Portugal reviewed its position, sanctioning, with effect only as of 7 December 2017, a modernized interpretation of the aforementioned article 10 that now permitted the possibility of attribution of prior tourism utility in a phase prior to the approval of the architectural project, being satisfied with merely providing proof of delivery of the same to the competent Municipal Council (document No. 10 attached with the request for arbitral pronouncement, the content of which is reproduced herein);
L) In the Official Gazette, Series II, of 15-12-2017, Order No. 11007/2017 of the State Secretary for Tourism was published, with the following content:
Office of the State Secretary for Tourism
Order No. 11007/2017
Decree-Law No. 423/83, of 5 December, which establishes the legal regime for tourism utility, provides in its article 7, paragraph 1, that the same may be attributed as prior or definitive.
Tourism utility attributed on a prior basis always has a precarious character, with its respective effects being subject to the resolutive condition of its confirmation (article 7, paragraph 4, of Decree-Law No. 423/83).
Article 10 of the same decree provides for the possibility of prior tourism utility being requested on the basis of the approved preliminary project of the undertaking, with tourism utility attributed in this case being conditional on the approval of the respective project.
Indeed, when Decree-Law No. 423/83 came into force, the preliminary project corresponded to a stage of the licensing process for tourism undertakings, to which followed the project stage, under penalty of lapse.
It was the responsibility of what was then the General Directorate for Tourism to approve both the preliminary project and the project.
With the legislative evolution recorded in licensing matters, the figure of the preliminary project ceased to be legally regulated, so a modernized interpretation of article 10 of Decree-Law No. 423/83 should be carried out, which permits equating the preliminary project stage to one of the stages of the licensing process currently provided for.
Now, if we analyze the regimes comparatively, the decision of what was then the General Directorate for Tourism on the preliminary project now corresponds to the favorable opinion of Tourism of Portugal, I.P., regarding an architectural project within a licensing process formally in progress at the competent municipal council aimed at the installation of a tourism undertaking.
Thus, considering that:
a) Article 10 of Decree-Law No. 423/83, of 5 December, provides for the possibility of prior tourism utility being attributed on the basis of the approved preliminary project, being in this case conditional on the approval of the respective project, under penalty of lapse;
b) The preliminary project corresponded to a stage of the licensing process for tourism undertakings, prior to the project stage, with no correspondence in the current legal system;
c) It is necessary to carry out a modernized interpretation of article 10 of Decree-Law No. 423/83, of 5 December, under penalty of contravening the ratio of the law, by not admitting the possibility of attribution of prior utility – by nature provisional and precarious – at a time prior to the approval of the architectural project;
d) It is important to safeguard situations in which the project is not approved, so that there is no prejudice to the State;
e) Under the aforementioned Decree-Law No. 423/83 conditions may be imposed on the attribution of utility, so a guarantee in favor of the State should be required that safeguards situations in which there is no final approval of the project, thus promoting a level of protection superior to situations in which there was an approved preliminary project:
I determine:
1 – The provision of article 10, paragraph 1, of Decree-Law No. 423/83, of 5 December, is considered fulfilled when the request for attribution of prior tourism utility is supported by the following documents:
a) Proof of submission to the competent municipal council of the architectural project of the undertaking;
b) Prior favorable opinion of Tourism of Portugal, I.P., on the aforementioned architectural project;
c) Proof of provision of security in favor of Tourism of Portugal, I.P., in the amount referred to in the following number, accompanying the validity period of the prior tourism utility, to guarantee the execution by the applicant of the appropriate steps for approval of the architectural project by the competent municipality.
2 – The amount of the security to be provided corresponds to the value of all the tax benefits to be obtained by the beneficiary for IMI purposes and, where applicable, IMT, which should be communicated to Tourism of Portugal, I.P., by the latter, accompanied by demonstration of the calculation performed.
3 – Prior tourism utility attributed in accordance with the above numbers is always conditional on the approval of the architectural project, with all tax benefits that have been attributed lapsing if the same is not approved.
4 – With proof of approval of the architectural project by the competent municipality, the security is released by Tourism of Portugal, I.P.
5 – The amount of the security provided reverts to the Tax and Customs Authority, and shall be delivered by Tourism of Portugal, I.P., to that entity, within 30 days, if the same is to be executed.
6 – This order takes effect as of the date of its signature.
7 December 2017. – The State Secretary for Tourism, Ana Manuel Jerónimo Lopes Correia Mendes Godinho.
M) Before the Municipal Council of ... approved the architectural project, Tourism of Portugal had already pronounced itself, in May 2017, in accordance with and for the purposes of article 26 of Decree-Law No. .../2008, of 7 March, issuing a favorable opinion on the architectural project for the installation of Hotel B..., and conferring on it, at the project stage, the classification of a 5-star Hotel (document No. 11 attached with the request for arbitral pronouncement, the content of which is reproduced herein);
N) At the time the architectural project was presented to the Municipal Council of ..., the understanding of Tourism of Portugal applicable was that the attribution of prior tourism utility depended on its prior approval by the same CM;
O) Only with the order of ... December 2017 of the State Secretary for Tourism did the understanding that prior tourism utility could be attributed by means of mere presentation of proof of submission of the architectural project to the competent CM become prevalent;
P) The delay in the construction of the Hotel would jeopardize the success of the Detailed Plan of the Tourism Development Hub of ...;
Q) The delays in municipal approval of the project and the concomitant delay in recognition of prior tourism utility are essentially grounded on vicissitudes to which the project was subject, resulting from objections raised by environmentalists (document No. 12 attached with the request for arbitral pronouncement, the content of which is reproduced herein);
R) The Claimant, even when it acquired the land, had the intention to construct the new Hotel B..., with the 5-star category (documents Nos. 13A to 13D attached with the request for arbitral pronouncement, the contents of which are reproduced herein);
S) The tourism undertaking has been awarded two prizes by the European Property Awards (document No. 15 attached with the request for arbitral pronouncement, the content of which is reproduced herein);
T) The Tax and Customs Authority carried out an inspection of the Claimant in which the Tax Inspection Report was drawn up which is contained in document No. 16 attached with the request for arbitral pronouncement, the content of which is reproduced herein;
U) On 6 July 2018, the Claimant filed a request for official review of the IMT assessment (document No. 1A, attached with the request for arbitral pronouncement, the content of which is reproduced herein, which also appears in the administrative file);
V) The request for official review was not decided until 11-02-2019, the date on which the Claimant filed the request for arbitral pronouncement which gave rise to the present proceedings;
W) The request for official review was subsequently dismissed by order of 21-02-2019, with reference to the grounds contained in a statement of reasoning in the administrative file, the content of which is reproduced herein, which refers, among other things, to the following:
1 – The Claimant (hereinafter referred to as R.) identified above, requests, in summary, the Official Review of the IMT assessment driven by the submission of model 1 declaration No. ..., of 26-10-2017, in the amount of € 682,500.00.
2 – Grounds of the request.
In the context of activities in the construction, administration and operation of tourism projects, on 27-12-2017, it formalized the onerous acquisition of real property assets U-... and U-..., ...., ..., intended for the installation of the tourism project, Hotel B..., of which the "tourism project in which (...) it is inserted the Government recognized relevant public interest and conferred the status of project of national interest – PIN" (cf. items 1, 2, 3, 4 and 6 of the Statement of Reasons of the Request for Review);
3 – Tourism of Portugal, IP, in August 2015 (the date on which it submitted the architectural project of the undertaking to the Municipal Council of ...), interpreted paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, in the sense of conditioning the processing of the request for attribution of prior tourism utility to the actual approval of the architectural project (cf. items 9, 17 and 21 of the Statement of Reasons of the Request for Review);
4 – The modernized interpretation of that legal provision, in the sense of the mere proof of submission to the competent municipal council of the architectural project of the undertaking (preliminary project) being sufficient as supporting documentation for the request for attribution of prior tourism utility, would come to be sanctioned by order issued by the State Secretary for Tourism and published in the Official Gazette, with effect from 07-12-2017 (cf. items 11, 13, 14 and 18 of the Statement of Reasons of the Request for Review)
5 – Based on the interpretation of Tourism of Portugal, IP referred to, R. "had to await municipal approval of the respective architectural project", which occurred in October 2017, thus verifying a delay exceeding two years in relation to the date of submission of the project to the Council of ... – August 2015 (cf. items 8, 9 and 10 of the Statement of Reasons of the Request for Review);
6 – Delay in approval of the architectural project which would not have been relevant to the speed of the process of obtaining the order qualifying prior tourism utility if, at the time of the facts, the understanding of Tourism of Portugal, IP did not contradict the ratio of the law (paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12) sanctioned by the supervisory authority, being satisfied with proof of submission of the architectural project (cf. items 15, 16, 19, 21, 22 of the Statement of Reasons of the Request for Review)
7 – The modernized understanding of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, in the version of the supervisory authority "failed to apply to the case of the claimant", but such non-application cannot prejudice the rights and legitimate expectations of R., because the condition of prior approval of the preliminary project came to be reported to the beginning of the force of Decree-Law No. 39/2008, of 7-3, corresponding to the opinion of Tourism, favorable to the architectural project in accordance with article 26 of Decree-Law No. 39/2008, of 7 March (cf. items 12, 13, 14, 15, 16, 19, 20 and 21 of the Statement of Reasons of the Request for Review);
8 – As the success of the Detailed Plan of the Tourism Development Hub of ... and the economic and financial viability of the investment would be jeopardized due to the bureaucratic delay in the construction of the Hotel (the strategic core of the project), and as "it undertook a commitment with the North American hotel chain C..." (...) "to begin work before 24 May 2018 and complete it before 24 May 2022", it acquired, on 27-10-2017, the properties intended for the installation of the identified tourism project (cf. items 24 and 25 of the Statement of Reasons);
9 – Consequently, it considers it meets the legal requirements for recognition of the benefit of IMT exemption as it cannot be imputed to it the public and notorious bureaucratic delay, based on the interpretation of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12 (cf. items 26, 27, 28, 29, 30 of the Statement of Reasons of the Request for Review);
10 – All the more so as it considers the low-density tourism undertaking of buildings and enjoyment and sustenance of environmental values, such as the use of geothermal energy, constitutes an economic instrument of recognized relevance of general interest promoting investment and employment in the interior of the Algarve where it is located, combating depopulation and asymmetries between the interior and the coast and attracting new demanding tourism markets (cf. items 31 to 36 of the Statement of Reasons of the Request for Review)
11 – Considering, thus, it is demonstrated that the acquisition in question benefits from the IMT exemption provided for in article 20 of Decree-Law No. 423/83, of 5/12, as they are intended for the installation of the Hotel to which the qualification of tourism utility was conferred (cf. items 5 and 6 of the Statement of Reasons of the Request for Review);
12 – Benefit of IMT exemption which, it argues, is not prejudiced by the initiative to drive the IMT assessment in question, nor by the concrete non-application of the modernized understanding of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12 (cf. items 7, 29, 3, 38 of the Statement of Reasons of the Request for Review);
OPINION.
1 – Unfoundedness of the Request for Official Review.
The procedure of Official Review, provided for in article 78 of the LGT, has as grounds the error (in the factual or legal assumptions or due to the services) (cf. end of paragraph 1, article 78), grave or notorious injustice (cf. paragraph 4, article 78) or duplication of collection (cf. paragraph 6, article 78, of the LGT), that is, only vices of illegality from which such acts suffer.
From the framework of the grounds driving the Official Review procedure, provided for in article 78 of the LGT, under the heading Review of Tax Acts, it clearly results from its literal element that the scope of its application is restricted exclusively to tax assessment acts establishing tax obligations.
Now, the administrative matter listed by R. (retroactive application of the modernized interpretation of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12) is not of a tax nature, as there is no question of the erroneous quantification of R.'s tax situation, and furthermore, the procedures for attribution (including the respective processing) of prior or definitive tourism utility constitute a matter outside the competences attributed to the Tax Authority.
Indeed, the cause of action does not arise from the violation or non-observance of any legal tax norm (e.g. CIMT or article 20 of Decree-Law No. 423/83, of 5/12) or the general principles of taxation provided for in article 55 of the LGT (legality, justice, equality or proportionality), in which the TA may have incurred in the act of assessment resulting from the submission of the IMT model 1 declaration No. 2017/342168, and which imports its appreciation in the context of official review - and nor does R. invoke the existence of any error in the IMT assessment that is attributable to the tax services.
This means that the interpretation of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, from the perspective of Tourism of Portugal, IP, as the reason for the delay in obtaining and publishing the order qualifying prior tourism utility attributed to the aforementioned undertaking (cf. order of tourism utility No. .../2018, published in the Official Gazette, 2nd series – No. 10 – ... of 2018), or the concrete non-application of the supervisory authority's modernized version regarding the same legal provision, do not constitute vices of illegality imputable or peculiar to the IMT assessment act questioned in these proceedings.
Official Review does not therefore constitute the appropriate procedural means to resolve the problem connected with the possible prejudicial nature arising from the concrete application of the interpretations of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, which R. invokes as the grounds for the total annulment of the IMT assessment and consequent recognition of the benefit of IMT exemption provided for in article 20 of the same decree.
2 – Order for tourism utility – production of tax effects.
Without conceding that, even were that not so, article 2 of Decree-Law No. 423/83, of 5/12, is clear: the effects of utility only occur after publication in the Official Gazette.
Whether on a prior or definitive basis, the attribution of tourism utility only produces tax effects (obtaining the tax benefits provided for in article 20 of Decree-Law No. 423/83) after the mandatory prior publication in the Official Gazette of the order (individual administrative act) of the competent supervisory authority (cf. article 2 of Decree-Law No. 423/83, of 5/12), which will document the granting of a public deed or other legally permitted form of onerous transfer of real property intended for the installation of tourism undertakings, under penalty of legal non-existence leading to the tax-legal ineffectiveness of any tax benefits recognized.
Following official publication of the order granting tourism utility, the automatic recognition of the IMT exemption and reduction to one-fifth of the Stamp Tax is also, and furthermore, conditional on the purpose for which it was granted (effective installation of the hotel establishment) and on the achievement of this purpose (opening to the public of the establishment) within the period previously fixed in the order granting tourism utility by the holder to be named in that administrative act (cf. paragraph 1 of article 20: paragraph 1 of article 31, both of Decree-Law No. 423/83).
To automatically recognize an IMT exemption and stamp tax reduction without the prior publication of the order granting tourism utility would be to confer benefits that do not result directly and immediately from the law (paragraph 1 of article 4 of the Tax Benefits Statute) so such an act would clearly constitute the granting of a benefit that does not exist in the legal tax system.
In conclusion, by reason of the absence of error attributable to the services in the assessment questioned, and as it does not constitute the appropriate procedural means for the discussion of the alleged prejudicial nature of the interpretations of the supervisory authority regarding paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, the request is voted for its total dismissal.
X) On 15-01-2018, Order No. .../2018 of the State Secretary for Tourism was published in the Official Gazette, Series II, which granted "prior tourism utility to Hotel B...".
2.2. Unproven Facts and Grounds for Establishment of Factual Matters
The proven facts are based on the documents submitted by the Claimant and on statements from the Claimant that are not contested by the Tax and Customs Authority.
There is no controversy as to the factual matters alleged by the Claimant.
3. Legal Matters
3.1. The Issue Raised and Positions of the Parties
The Claimant acquired land for the construction of a tourism undertaking, called Hotel B..., with the category of 5-star, and IMT was assessed on 26-10-2017, in the amount of € 682,500.00, following the Claimant's initiative, which paid the aforementioned amount. On 27-10-2017, it formalized the onerous acquisition of real property assets U-... and U-..., ...., ....
Article 20, paragraph 1, of Decree-Law No. 423/83, of 5 December, establishes tax benefits, consisting of the exemption from IMT ( ) and reduction to one-fifth of Stamp Tax for "acquisitions of properties or autonomous units intended for the installation of undertakings qualified as tourism utility, even if such qualification is attributed on a prior basis, provided that this remains valid and the period fixed for opening to the public of the undertaking is observed".
Article 10 of the same decree establishes that "the attribution of prior tourism utility may be requested on the basis of the approved preliminary project of the undertaking" (paragraph 1), with tourism utility attributed being conditional on the approval of the respective project (paragraph 2).
At the time the tax was assessed, prior tourism utility, even on a prior basis, had not been attributed to the aforementioned undertaking, nor had its attribution been requested.
As the Claimant explained, the recognition of prior tourism utility for Hotel B... had to await municipal approval of the respective architectural project, in accordance with paragraph 1 of article 10 of Decree-Law No. 423/83, of 5 December, as understood at that time by Tourism of Portugal I.P., which was to the effect that it was not admitted that prior tourism utility could be attributed at a time prior to the approval of the architectural project.
By order of 07-12-2017, the State Secretary for Tourism publicized a modernized interpretation of article 10, paragraph 1, of Decree-Law No. 423/83, beginning to adopt the following understanding:
"The provision of article 10, paragraph 1, of Decree-Law No. 423/83, of 5 December, is considered fulfilled when the request for attribution of prior tourism utility is supported by the following documents:
a) Proof of submission to the competent municipal council of the architectural project of the undertaking;
b) Prior favorable opinion of Tourism of Portugal, I.P., on the aforementioned architectural project;
c) Proof of provision of security in favor of Tourism of Portugal, I.P., in the amount referred to in the following number, accompanying the validity period of the prior tourism utility, to guarantee the execution by the applicant of the appropriate steps for approval of the architectural project by the competent municipality.
Following this interpretation, Tourism of Portugal, I.P., began to permit the possibility of attribution of prior tourism utility in a phase prior to the approval of the architectural project, being satisfied with merely providing proof of submission of the same to the competent Municipal Council.
Before the Municipal Council of ... approved the architectural project, Tourism of Portugal, I.P., had already pronounced itself, on 15-05-2017, in accordance with and for the purposes of article 26 of Decree-Law No. .../2008, of 7 March, issuing a favorable opinion on the architectural project for the installation of Hotel B..., and conferring on it, at the project stage, the classification of a 5-star Hotel.
The delays in municipal approval of the project and the concomitant delay in recognition of prior tourism utility were essentially grounded on the multiple vicissitudes to which the project was subject, resulting from the difficult reconciliation of diffuse interests of different public and private entities.
The Claimant requested official review of the assessment, which was not considered within the legal period, and impugned the tacit dismissal.
After the tacit dismissal was formed, an express decision of dismissal was issued.
The Claimant argues, in summary, that it had the conditions for tourism utility to be attributed to the aforementioned undertaking and that the delay in approval of the architectural project would not have been relevant to the speed of the process of obtaining the order qualifying prior tourism utility if, at the time of the facts, the understanding of Tourism of Portugal, I.P.. had been what came to be adopted in the order of the State Secretary for Tourism, which was referred to above.
The Tax and Customs Authority dismissed the request for official review by understanding, in summary, that:
– the procedures for attribution (including the respective processing) of prior or definitive tourism utility constitute a matter outside the competences attributed to the Tax Authority;
– Official Review does not constitute the appropriate procedural means to resolve the problem connected with the possible prejudicial nature arising from the concrete application of the interpretations of paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, which R. invokes as the grounds for the total annulment of the IMT assessment and consequent recognition of the benefit of IMT exemption provided for in article 20 of the same decree;
– even if this were not so, article 2 of Decree-Law No. 423/83, of 5/12, is clear: the effects of utility only occur after publication in the Official Gazette;
– to automatically recognize an IMT exemption and stamp tax reduction without the prior publication of the order granting tourism utility would be to confer benefits that do not result directly and immediately from the law (paragraph 1 of article 4 of the Tax Benefits Statute) so such an act would clearly constitute the granting of a tax benefit that does not exist in the legal tax system;
– in conclusion, by reason of the absence of error attributable to the services in the assessment questioned, and as it does not constitute the appropriate procedural means for the discussion of the alleged prejudicial nature of the interpretations of the supervisory authority regarding paragraph 1 of article 10 of Decree-Law No. 423/83, of 5/12, the request is voted for its total dismissal.
In its submissions, the Claimant argues, in summary, the following:
– the assessment was only issued because, at that time, the services did not permit attribution of prior utility at a time prior to approval of the architectural project, which the CM of ... took more than 2 years to approve;
– the delays in municipal approval of the architectural project and the concomitant delay in recognition of prior tourism utility constitute, in the proper sense, "error attributable to the services";
– the delay in establishing the modernized interpretation of the order of 7 December 2017 of the State Secretary for Tourism, which prevented the present claimant from obtaining attribution of prior utility before approval of the architectural project by the CM, in October 2017, when it acquired the land plots and began the excavation and containment work to which it was obliged, constitutes, in the proper sense, "error attributable to the services";
– the understanding prevailing within Tourism of Portugal until 7 December 2017, which prevented the claimant from already counting on attribution of prior utility at the time of acquisition, is confessedly contrary to law and therefore constitutes, in the proper sense, "error attributable to the services";
– "error attributable to the services" comprises any illegality not resulting from action by the taxpayer, which is thus considered attributable to the administration itself, independently of proof of fault of any of the persons, entities or organisms that, in a broad sense, comprise it;
– all errors in assessments that have led to collection of taxes unduly owed under law should be corrected, within the period during which review is possible;
– the request for review was the appropriate procedural means to request annulment of a tax that was only assessed for reasons not attributable to the claimant, leading to collection of € 682,500.00 in IMT which appears to be manifestly undue in light of the substantive reality duly described and proven in these proceedings;
– the claimant petitioned for annulment of the assessment "in view of grave and notorious injustice resulting from such assessment being manifestly undue in light of reality";
– the duty to act in harmony with the principle of justice, imposes that the duty of review be extended to all situations in which there is excess in assessment, so review would always be appropriate to the claim raised by the claimant even if there had been no error by the services;
– in view of the principle of justice, and with the TA not contesting that all the requisites underlying the exemption are gathered and fulfilled, annulment of the assessment now in issue must be permitted, under penalty of maintaining a clearly unjust situation, frontally violating the provisions of article 55 of the LGT;
– the grave injustice is particularly notorious when it is observed that the claimant only did not obtain utility at a date prior to approval of the architectural project by the Council, in October 2017, despite all the material requisites for its attribution having long been assembled, because at that time TP did not grant it without such municipal approval, contrary to the sense of the law as later confirmed by the same TP;
– to allow the purchase of the plots for installation of the tourism undertaking of the present claimant not to benefit from the IMT exemption, merely because at that time utility depended on municipal approval of the architectural project by the Council, but that in 2018 the acquisition of other plots for installation of another undertaking could already, merely because at that date utility no longer depends on prior approval of the architectural project by the CM, but on its mere submission, would constitute a flagrant violation of the principle of equality;
– from the concomitant observance of the principles of legality and justice it is concluded that the duty to apply the principle of tax legality is not fully met with a mere formal subordination to the norms, as it also encompasses the duty to take into account the consequences of that application, and the strict application of norms should be rejected when manifestly unjust results flow from it;
– it would be manifestly unjust to deny the exemption based on the delay – absolutely not attributable to the claimant and by a small number of days – in attribution of prior utility, when the latter had to await approval of the architectural project by the Municipal Council;
– the coupling of this delay with a tax in the amount of € 682,500.00, which would otherwise not be owed, is manifestly excessive and disproportionate, when it is observed that the temporal gap between them is minute and its reasons are understandable, already dealt with exhaustively in these proceedings;
– the acquisition of the land of these proceedings, always intended for the installation of Hotel B..., of recognized tourism utility, is covered by the IMT exemption provided for in paragraph 1 of article 20 of Decree-Law 423/83, under penalty of creating a situation of grave and notorious injustice, for reasons not attributable to the claimant, by virtue of a reading of the exemption norm that clearly disrespects the constitutional principles of legality, equality, justice and proportionality;
– tourism promoters who pay tax on the acquisition of property intended for the installation of tourism establishments are not prevented from, later, requesting restitution when tourism utility is recognized to them;
– if article 20 of Decree-Law 423/83 in its literal terms does not provide for this mechanism, it should then be understood, in the concrete case of these proceedings, as inadequate to its purpose, and violating the canons of proportionality to which ordinary law is constitutionally obliged;
– in light of all the foregoing, the purchase of the land for construction in which Hotel B... is being implanted is unequivocally exempt from IMT, so the assessment here in issue, which such exemption did not contemplate, must be annulled, in view of the grave and notorious injustice resulting from such assessment being manifestly undue in light of the substantive reality above described and demonstrated.
3.2. Admissible Grounds for Official Review
Article 78 of the LGT establishes the following, insofar as is relevant here:
1. The review of tax acts by the entity that performed them may be carried out at the initiative of the taxpayer, within the period for administrative review and on the grounds of any illegality, or at the initiative of the tax administration, within four years after assessment or at any time if the tax has not yet been paid, on the grounds of error attributable to the services.
2. Revoked.
3. The review of tax acts in accordance with paragraph 1, regardless of whether it is material or substantive error, implies the respective recognition duly grounded in accordance with paragraph 1 of the preceding article.
4. The senior official of the service may authorize, exceptionally, in the three years following that of the tax act, the review of the taxable amount ascertained on the grounds of grave or notorious injustice, provided that the error is not attributable to negligent conduct of the taxpayer.
5. For the purposes of the preceding number, only ostensible and unequivocal injustice is considered notorious and grave injustice is considered to result from manifestly excessive and disproportionate taxation as compared to reality or from which substantial prejudice to the National Treasury has resulted.
Paragraph 1 of article 78 establishes the duty on the Administration to effectuate review of tax acts, to the benefit of the taxpayer, when it detects such a situation by its own initiative or that of the taxpayer, such duty existing in relation to all taxes, as the principles of justice, equality and legality, which the tax administration must observe in the totality of its activity (article 266, paragraph 2, of the Constitution and article 55 of the LGT), impose that all errors in assessments that have led to collection of tax in an amount exceeding that which would be owed under law be officially corrected. ( )
"There is, thus, a recognition within the scope of tax law of the duty to revoke unlawful acts ( ).
This duty, however, suffers limitations, justified by the need for legal certainty, particularly when the collected revenues have been collected, which justifies the establishment of temporal limitations.
Review of the act constitutes an administrative means of correcting errors in tax assessment acts, which is admitted as a complement to the means of administrative and contentious challenge of such acts, to be raised within the respective normal periods, aimed at making it possible to remedy injustices of taxation both to the benefit of the taxpayer and the administration.
However, it is not immaterial to the taxpayer whether or not to challenge assessment acts within the respective periods, as in case of annulment in an impugnation process, judicial or administrative, any illegality may be invoked and there is entitlement to compensatory interest from the date of undue payment to the issuance of the credit note (articles 43, paragraph 1, of the LGT and 61, paragraph 3, of the CPPT), while in cases of official review of the assessment (when not made at the request of the taxpayer, within the period for administrative review, a situation that is equivalent to that of administrative application) ( ) compensatory interest is only due in accordance with article 43, paragraph 3, of the LGT and annulment may only be grounded on error attributable to the services and duplication of collection (articles 78, paragraphs 1 and 6, of the LGT).
Essentially, the regime of article 78, when the request for review is formulated beyond the periods for administrative and contentious challenge, amounts to a means of restitution of the unduly paid, with revocation and cessation for the future of the effects of the assessment act, and not an annulment means, with retroactive destruction of the effects of the act.
In this light, the procedural means of review of the tax act cannot be considered as an exceptional means to react against the consequences of an assessment act, but rather as an alternative means to the administrative and contentious means of challenge (when used at a time when these may still be utilized) or complementary to them (when the periods for utilization of the means of challenge of the assessment have already been exhausted).( )
Thus, it is concluded that official review is a means that may be used by the Claimant to obtain a declaration of the illegality of the assessment act.
However, the use of this procedural means, when the request is presented after the period for administrative review referred to in paragraph 1 of article 78 has been exhausted, is also limited as to the grounds for challenge, which cease to be "any illegality" (as occurs with requests presented within that period) to become only "error attributable to the services".
This is a regime that is justified by the old maxim "Dormientibus non sucurrit jus" which explains the preclusion of rights by failure to exercise them timely, for the benefit of the legal certainty imperative to the foundation of society in general.
"Indeed, as generally occurs with the generality of rights, the passage of time may cause their extinction, and in particular in the case of tax collection, public interest demands that, in general, there be a rapid definition of the rights of public entities, so that they can effectively program their activities and apply the collected amounts to the satisfaction of the public interests they seek to pursue.
The setting of any period for challenge of administrative decisions constitutes the determination of a point of balance between two conflicting interests, which are that of the interested party in seeing annulled the act it considers unlawful and that of the tax administration in seeing assured the stability of tax legal situations. The weight of this latter interest is accentuated with the passage of time and the setting of the legal period should correspond to the point of balance between these two interests, permitting to the interested parties the right of contentious challenge while there are no reasons of legal certainty that override it.
In the case of tax acts, the maximum limit admitted for challenge of voidable acts is that provided for administrative review, which by article 70, paragraph 1, of the CPPT, is fixed at 120 days counting from the facts referred to in article 102, paragraph 1, of the same Code". ( )
This is, it requires of those who are holders of rights the duty to take steps to ensure that they are recognized, to avoid the disturbances to legal order that the undesirable instability of administrative and tax acts causes.
This duty is explicitly affirmed in the context of administrative legal relationships in article 4 of the Regime of Liability for Non-Contractual Damages of the State and Other Public Entities, approved by Law No. 67/2007, of 31 December, by establishing that "when the culpable conduct of the injured party has contributed to the production or aggravation of the damage caused, in particular by failure to use the appropriate procedural route for elimination of the damaging legal act, it is up to the court to determine, on the basis of the gravity of the faults of both parties and the consequences that have resulted from them, whether compensation should be fully granted, reduced or even excluded". The preceding article 7 of Decree-Law No. 48051 already affirmed it too: "... the right of these to compensation will only subsist insofar as such damage cannot be imputed to the failure to lodge an appeal or negligent procedural conduct of their part in the appeal lodged".
Paragraph 4 of article 78 confirms the legislative option of penalizing loss of rights to challenge tax acts for taxpayer negligence, as even in cases of grave or notorious injustice, it only permits review if "the error is not attributable to negligent conduct of the taxpayer". ( )
The setting of the period of 120 days in article 70, paragraph 1, of the CPPT has embedded the legislative understanding that, after its passage, reasons of legal certainty that justify the establishment of preclusion of rights of annulment of tax acts already justify, in a joint weighing of the conflicting interests of the taxpayer and the tax administration, that such reasons prevail over rights of challenge.
In this light, paragraph 1 of article 78 of the LGT, combined with article 70, paragraph 1, of the CPPT, which provides for the period of 120 days for submission of administrative review, quantify temporally the duty of diligence of taxpayers, limiting the rights to contentious challenge when they do not act with the diligence there presupposed as being required.
In truth, it is because one cannot censure the taxpayer at the level of fulfillment of duties of diligence that paragraph 4 of article 70 of the CPPT provides that, in cases of subsequent document or judgment, the period of 120 days only begins to count "from the date on which it became possible for the claimant to obtain the document or know the fact", despite the requirements of legal certainty not ceasing to apply from the normal initial term applicable, determined by the facts listed in paragraph 1 of article 102 of the same Code. ( )
Thus, in the case at hand, the possibility of official review depends on the existence of an "error attributable to the services".
3.3. Question of the Existence or Non-Existence of Error Attributable to the Services
The first ground invoked in the decision dismissing the request for official review is that of the non-existence of error attributable to the services.
The Claimant argues in its submissions, in summary, that error attributable to the services existed because any illegality not resulting from action by the taxpayer, which is thus considered attributable to the administration itself, independently of proof of fault of any of the persons, entities or organisms that, in a broad sense, comprise it.
Error of the services should be understood as that which results from abnormal operation of the services as a whole, as has long been understood by case law and currently has explicit reference in articles 7, paragraphs 3 and 4, of Law No. 67/2007, of 31-12-2017, which approved the Regime of Liability for Non-Contractual Damages of the State and Other Public Entities.
However, for error attributable to the services in a tax assessment act to exist, there must naturally be an error.
In general, "the assessment of IMT is initiated by those interested, for which purpose they must present, at any tax office or by electronic means, a duly completed declaration of an official model" (article 19 of the Code of Municipal Tax on Onerous Transfers of Real Property).
That is what occurred in the case at hand, as the Claimant refers in the request for arbitral pronouncement, by saying that it initiated the assessment.
In the case at hand, no illegality is imputed to the Tax and Customs Authority in the issuance of the IMT assessment, which was made in accordance with the elements provided by the Claimant.
On the other hand, there is no error found in the assessment impugned, in particular by non-application of the exemption provided for in article 20 of Decree-Law No. 423/83, of 5 December.
In truth, as results from the express tenor of article 2 of this decree, "tourism utility is attributed by order of the Government member with supervision over the tourism sector" and "the orders granting, confirming and revoking tourism utility will be mandatorily published in the Official Gazette, only producing effects as of the date of their publication".
As results from the express tenor of these norms, to enjoy attribution of tourism utility it is not enough to fulfill the legal requirements, being essential that there be an act of attribution and, even after it has been performed, the effects only occur after publication.
This is, without publication, effects cannot be recognized even to a hypothetical act of attribution already existing and, all the more, to an act of non-existent attribution.
Therefore, the Claimant is not correct in alluding to "grave and notorious injustice resulting from such assessment being manifestly undue in light of reality", and that "all the requisites underlying the exemption are gathered and fulfilled", as the reality relevant for this purpose is not the mere existence of the requirements that permit obtaining attribution of tourism utility, but rather its effective attribution by order of the competent entity and its subsequent publication.
Thus, since no order granting tourism utility had been published when the assessment was issued, the Tax and Customs Authority could not, without violating the law, recognize to the Claimant a tax benefit that depends on the prior publication of that order.
Any administrative errors that may have prejudiced the Claimant by preventing publication of an order granting tourism utility to the undertaking prior to the assessment issued at its initiative, may be grounds for compensation on another basis, but do not dispel the finding that no order had been published, which is the condition for enjoying attribution of tourism utility.
Thus, the assessment impugned does not suffer from any error of fact or law, as it was made in accordance with what is provided for in the law, in particular as to the tax benefit in question. The Tax and Customs Authority did precisely what it should have done, in light of the Claimant's initiative to drive the assessment at a time when no order attributing tourism utility to the undertaking to which the Claimant intended to apply the property it acquired was yet in effect.
By the foregoing, it must be concluded that the requisite for official review of assessment acts, which is the existence of error attributable to the services, is not verified.
3.4. Question of the Violation of the Constitutional Principles of Legality, Equality, Justice and Proportionality
The Claimant argues that "the duty to act in harmony with the principle of justice, imposes that the duty of review be extended to all situations in which there is excess in assessment, so review would always be appropriate to the claim raised by the claimant even if there had been no error by the services".
This is, the Claimant seeks that, even without error in the assessment, review be effected, grounded in the principles of legality, equality, justice and proportionality.
First and foremost, it is to be noted that the competence of the arbitral tribunals functioning in CAAD is limited to the declaration of illegality of acts of the types referred to in article 2, paragraph 1, of the RJAT. That competence may extend, as has been understood, to the appreciation of the legality of second-degree acts, in particular those issued in a procedure for review of the tax act, insofar as they contain an act of those types.
However, it will be outside the scope of the cognition powers of the arbitral tribunals functioning in CAAD, by law not attributing such competence to them, to declare the illegality of second-degree acts grounded in autonomous vices of these, vices that are not also vices of the assessment acts they examine.
Thus, the question of violation of those principles raised by the Claimant can only be appreciated from the perspective that it is imputing to the assessment these vices of violation of the constitutional principles of legality, equality, justice and proportionality.
3.4.1. Principle of Legality
The principle of legality imposes on the organs of Public Administration the duty of "acting in obedience to the law and to the right, within the limits of the powers conferred on them and in accordance with the respective purposes" [article 3 of the Code of Administrative Procedure, subsidiarily applicable in accordance with article 2, point c), of the LGT].
By what was said, the principle of legality was not violated, rather was materialized in the assessment, not applying a norm that provides for tax benefits in a situation in which its requirements were not fulfilled, in particular the publication of the order attributing tourism utility, which had not occurred at the date of the assessment.
Therefore, the assessment impugned does not suffer from a vice for violation of this principle.
3.4.2. Principle of Equality
The principle of equality, as a principle that should govern the activity of Public Administration, article 6 of the Code of Administrative Procedure, establishes that "in its relations with individuals, Public Administration must be governed by the principle of equality, and cannot privilege, benefit, prejudice, deprive of any right or exempt from any duty anyone by reason of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, instruction, economic situation, social condition or sexual orientation".
It was not demonstrated, nor is it alleged, that the Tax and Customs Authority ever, before or after publication of the order of the State Secretary for Tourism of 07-12-2017, applied the exemption in question before the order granting tourism utility was published, so violation of this principle is not demonstrated by the assessment impugned.
On the other hand, the legal situation of one who took steps to obtain the attribution of effective tourism utility (after publication) at the time it acquired the immovable property necessary for the tourism undertaking, is not identical to that of one who did not have such diligence and did not obtain it in time to be able to enjoy the tax benefit at the time of acquisition.
3.4.3. Principle of Justice
The Claimant argues that there is "grave and notorious injustice resulting from such assessment being manifestly undue".
On the principle of justice, article 8 of the Code of Administrative Procedure establishes that "Public Administration must treat fairly all those who enter into relations with it".
In this case, justice applicable to the generality of citizens, is materialized with the application of the taxation provided for in law in a situation in which a tax event exists that evidences the contributive capacity presupposed in the provision of taxation.
Tax benefits are "measures of an exceptional character instituted for the protection of relevant extrafiscal public interests that are superior to the taxation they prevent" (article 2, paragraph 1, of the Tax Benefits Statute).
As exceptions to the principle of the generality of taxation based on the contributive capacity evidenced by the taxpayer, tax benefits are not established for reasons of justice.
In this context, the application of the taxation provided for in law to the generality of citizens in a situation in which the requirements permitting application of an exemption are not verified, does not appear as unjust treatment.
In truth, contrary to what the Claimant argues, the taxation was owed, because, at the moment the tax event occurred, the requirements for application of the exemption were not fulfilled, in particular an administrative decision published in the Official Gazette that attributed tourism utility.
Moreover, the fact that Tourism of Portugal, I.P. did not attribute tourism utility without approval of the architectural project, if it were unlawful, would not be an insuperable obstacle to the Claimant being able to obtain such attribution with use of the contentious administrative means that make possible the obtaining of full protection of the rights of persons subject to administration, independently of the understanding of administrative entities.
Thus, violation of the principle of justice by the assessment impugned is not demonstrated.
3.4.4. Principle of Proportionality
Article 7 of the CPA establishes the following, on the principle of proportionality:
Article 7
Principle of Proportionality
1 - In pursuing the public interest, Public Administration must adopt behaviors appropriate to the purposes pursued.
2 - Decisions of the Administration that conflict with subjective rights or legally protected interests of individuals may only affect those positions insofar as is necessary and in terms proportional to the objectives to be achieved.
It is not apparent how the action of the Tax and Customs Authority in issuing the assessment impugned following the presentation by the Claimant of the IMT model 1 declaration, in accordance with article 19 of the CIMT, could violate this principle, as the purpose pursued was the collection of IMT revenue that should be assessed, and it was precisely for this purpose that the Claimant presented the declaration.
In truth, it is not apparent how the Tax and Customs Authority could achieve the purpose it should pursue (to collect IMT in accordance with the declaration presented) without issuing the assessment in the precise terms in which it did.
On the other hand, the amount of tax cannot be considered excessive, in light of the value of the acquisition, which was 10,500,000.00. The IMT rate of 6.5% that was applied is even slightly higher than that applicable to the acquisition of property intended for dwelling.
Thus, violation of the principle of proportionality is not demonstrated.
3.5. Question of the Unconstitutionality of Article 20 of Decree-Law No. 423/83, of 5 December
The Claimant argues that "tourism promoters who pay tax on the acquisition of property intended for the installation of tourism establishments are not prevented from, later, requesting restitution when tourism utility is recognized to them" and that "if article 20 of Decree-Law 423/83 in its literal terms does not provide for this mechanism, it should then be understood, in the concrete case of these proceedings, as inadequate to its purpose, and violating the canons of proportionality to which ordinary law is constitutionally obliged".
As may be inferred, the unconstitutionality which the Claimant imputes to this article 20 will not imply its invalidity (if the norm is unconstitutional, there will be no normative support for the application of an exemption), but will result from non-provision in this decree of the possibility of "later, requesting restitution when tourism utility is recognized to them".
If so, the unconstitutionality which the Claimant imputes to this article 20 (or to any other norm or norms of this decree) will be an unconstitutionality by omission, which can only be considered by the Constitutional Court, in its proper procedure (article 283 of the Constitution).
By the foregoing, no knowledge is taken of this matter.
4. Decision
In these terms, the members of this Arbitral Tribunal agree to:
a) Judge the request for arbitral pronouncement unfounded;
b) Absolve the Tax and Customs Authority of the request.
5. Value of the Case
In accordance with the provisions of article 305, paragraph 2, of the CPC and 97-A, paragraph 1, point a), of the CPPT and 3, paragraph 2, of the Regulation of € 682,500.00.
6. Costs
Pursuant to article 22, paragraph 4, of the RJAT, the amount of costs is fixed at € 10,098.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.
Lisbon, 28-06-2019
The Arbitrators
(Jorge Lopes de Sousa)
(Adelaide Moura)
(João Marques Pinto)
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