Stamp Tax on Building Land (Verba 28.1 TGIS) – CAAD Ruling 130/2015-T Annuls Tax Assessments

ARBITRAL DECISION [1]

Claimants – A…, B…, C…, D…, E…, F…, G…, H…, I…, J…, K…, L…, M…, N… and O…

Respondent - Tax Authority and Customs Authority

The Arbitrator, Dr. Sílvia Oliveira, designated by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the Arbitral Tribunal, constituted on April 30, 2015, with respect to the case identified above, decided as follows:

1. REPORT

1.1. A…, taxpayer no. …, resident … …, …, in Porto, B…, taxpayer no. …, resident in … …, , in Porto, C…, taxpayer no. …, resident on Rua do … …, in Porto, D…, taxpayer no. …, resident on Rua da …, …, in Porto, E…, taxpayer no. …, resident in …, …, , in Porto, F…, taxpayer no. …, resident on Avenida …, …, in Porto, G…, taxpayer no. …, resident on Avenida …, …, in Porto, H…, taxpayer no. …, resident on Rua …, …, , , in Porto, I…, taxpayer no. …, resident on Avenida …, .., Block …, , in ..., J…, taxpayer no. …, resident on Rua …, …, Block A, Cruz Quebrada, K…, taxpayer no. …, resident on Rua …, …, , , in Porto, L…, taxpayer no. …, resident on Rua da …, …, in Porto, M…, taxpayer no. …, resident in …, …, , in Porto, N…, taxpayer no. …, resident in …, …, , in Porto and O…, taxpayer no. …, resident on Rua …, …, in Porto (hereinafter referred to as "Claimants"), submitted a request for arbitral pronouncement and constitution of a Single Arbitral Tribunal, on February 25, 2015, pursuant to the provisions of article 4 and article 10, no. 2 of Decree-Law no. 10/2011, of January 20 [Legal Regime for Arbitration in Tax Matters (LRATM)], in which the Tax Authority and Customs Authority is the Respondent (hereinafter referred to as "Respondent").

1.2. The Claimants with their request intend that:

1.2.1. "The request for arbitral pronouncement" be "declared well-founded as proven, declaring that the disputed tax acts suffer from a defect of violation of law due to error regarding the legal presuppositions";

1.2.2. "Or, should this not be considered appropriate", the provisions be "deemed unconstitutional those of sub-item i) of item f) of no. 2 of article 6 of Law no. 255-A/2012 of October 29, and of item 28.1. of the General Table of Stamp Tax (GTST), as amended by the same decree, interpreted in the sense that the stamp tax therein provided could apply to land for construction, in that there is no construction susceptible to effective residential use thereon, due to violation of nos. 2 and 3 of article 103, no. 2 of the CRP";

1.2.3. "Always with the consequent annulment of the disputed assessments, with all legal consequences, namely the reimbursement of the total amount of tax paid by the Claimants, plus compensatory interest (…)".

1.3. The request for constitution of the Arbitral Tribunal was accepted by His Excellency the President of CAAD on February 27, 2015 and automatically notified to the Respondent on the same date.

1.4. On the same date, a corrected request for arbitral pronouncement was submitted regarding its value, which was altered from EUR 52,751.50 to EUR 55,742.03 (resulting from the sum of the collection notes attached to the request and the subject matter thereof), without having any impact on the applicable arbitration rate (EUR 1,071.00).

1.5. The Claimants did not proceed with the appointment of an arbitrator, whereby, pursuant to the provisions of article 6, no. 2, item a) of the LRATM, the signatory was designated, on April 15, 2015, as arbitrator by the President of the Deontological Council of CAAD, the appointment having been accepted within the legally prescribed period and terms.

1.6. On April 15, 2015, the Parties were duly notified of this designation, having shown no intention to refuse the designation of the arbitrator, in accordance with the provisions of article 11, no. 1, items a) and b) of the LRATM, combined with articles 6 and 7 of the Code of Ethics.

1.7. Thus, in accordance with the provision of item c) of no. 1 of article 11 of the LRATM, the Arbitral Tribunal was constituted on April 30, 2015, and an arbitral order was issued on May 3, 2015 (notified to the parties on May 5, 2015), to notify the Respondent to, in accordance with the provisions of article 17, no. 1 of the LRATM, present a response within a maximum period of 30 days and, if it wished, request the production of additional evidence.

1.8. On June 5, 2015, the Respondent submitted its Response, having defended itself by challenge and concluded that:

1.8.1. "(…) the provision of item 28 of the General Table of Stamp Tax (GTST) does not constitute a violation of any constitutional command".

1.8.2. Item 28 of the GTST applies to the ownership, usufruct or right of superficies of urban real property with residential destination, whose taxable property value contained in the matrix, in accordance with the Property Tax Code, is equal to or greater than EUR 1,000,000.00, that is, it applies to the value of the property".

1.8.3. "It is a general and abstract norm, applicable indistinctly to all cases in which the material and legal presuppositions are met".

1.8.4. "The different suitability of properties (residential/services/commerce) supports the different treatment, having constituted a choice of the legislator, for political and economic reasons, to exclude from the incidence of Stamp Tax properties intended for purposes other than residential".

1.8.5. "Taxation in the context of stamp tax complies with adequacy criteria, being applied indistinctly to all holders of properties with residential destination of value exceeding EUR 1,000,000.00, applying to the wealth embodied and manifested in the value of properties", whereby it considers that the "choice of this mechanism for obtaining revenue is legitimate, which would only be open to criticism, in light of the principle of proportionality, if it resulted manifestly indefensible", "which is not the case since such measure will apply indistinctly to all holders of properties with residential destination of value exceeding EUR 1,000,000.00".

1.8.6. Thus, for the Respondent, "for all the above, the assessments in dispute constitute a correct interpretation and application of law to the facts, suffering from no defect of violation of law, whether of the CRP or of the Tax Code, and should, accordingly, be deemed the claim unfounded and the Tax Authority absolved of the request".

1.9. In these terms, the Respondent concluded by requesting that "the request for declaration of illegality and consequent annulment of the disputed assessments should be deemed unfounded, absolving the TA of the request".

1.10. On the same date, the Respondent also submitted a request seeking exemption from holding the first arbitral hearing (in accordance with the terms and for the purposes provided in article 18 of the LRATM), which was notified to the Claimants, through an arbitral order of June 5, 2015 (notified to the parties on June 8, 2015), to provide their comments within five days on its content.

1.11. Through a request submitted on June 15, 2015, the Claimants requested that the Respondent attach "to the case file a copy of the administrative file" and, "should the attachment of the administrative file be correctly done (complete and legible)" they would have "no objection to the proposed exemption from holding the hearing referred to in article 18 of the LRATM".

1.12. In these terms, by an order of this Arbitral Tribunal, dated June 15, 2015, the Respondent was notified of the content of the Claimants' request (referred to in the previous point), as well as to attach to the case file, within five days, the respective administrative file.

1.13. Following the arbitral order referred to in the previous point, the Respondent submitted, on June 23, 2015, a request seeking that "the administrative file materialized in the documents attached by the Claimants (…) be considered as attached to the case file", as it alleged "there being no other acts that embody an administrative file".

1.14. By an arbitral order of June 26, 2015 (notified to the parties on June 29, 2015), the Claimants were informed of the request referred to in the previous point, being notified to provide their comments, within five days, on its content, namely on the effective possibility of exemption from holding the hearing referred to in article 18 of the LRATM.

1.15. Through a request submitted on July 3, 2015, the Claimants came to "request that the Tax Authority" be notified with "the purpose" of rectifying "the total value of the attached assessments" (EUR 55,742.03), as well as to recognize that "the assessment notes in question have been paid".

1.16. By an arbitral order of July 3, 2015, the Respondent was notified of the request referred to in the previous point, being notified to provide comments, within five days, on its content, but it submitted nothing further on this matter to the case.

1.17. Thus, by an arbitral order dated September 3, 2015 (notified to the parties on September 4, 2015), taking into consideration:

1.17.1. The fact that there were no exceptions requiring determination;

1.17.2. The fact that the position of the Parties is fully defined in the Case File and supported by the means of proof attached by the Claimants;

It was decided by this Tribunal, in accordance with the procedural principles set forth in article 16 LRATM, of the autonomy of the arbitral tribunal in the conduct of the proceedings and in the determination of the rules to be observed [item c)], of cooperation and procedural good faith [item f)] and of the free conduct of proceedings set forth in articles 19 and 29, no. 2 of the LRATM, as well as, taking into account the principle of limitation of useless acts provided in article 130 of the Code of Civil Procedure (CCP), applicable by virtue of the provisions of article 29, no. 1, item e) of the LRATM:

1.17.3. To dispense with holding the hearing referred to in article 18 of the LRATM;

1.17.4. To dispense with the presentation of arguments;

1.17.5. To set September 21, 2015 for purposes of rendering the arbitral decision.

1.18. Finally, and in the same arbitral order, the Claimants were also warned that "until the date of rendering the arbitral decision they should proceed with payment of the subsequent arbitration rate, in accordance with the provisions of no. 3 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings and communicate this payment to CAAD" (which was done with the date of September 7, 2015).

2. GROUNDS FOR THE CLAIM

The Claimants base their request, in summary, as follows:

Regarding the coalition of claimants and joinder of claims

2.1. "The Claimants are co-owners of two plots of land for construction and intend to have the issue of the incidence upon the same of the Stamp Tax provided in item no. 28.1. of the General Table of Stamp Tax (…), added by article 4 of Law no. 55-A/2012, of October 29, as well as the application of article 6 of this same Law examined" and, given that they consider "the application of the same legal rules is in question", "in honor of the principle of procedural economy (…) the Authors present themselves in coalition as well as with joinder of claims".

2.2. The plots of land for construction of which they claim to be co-owners and which are at the origin of the request for arbitral pronouncement are the following:

2.2.1. Land "entered in the urban real property tax registry under urban article U-… of the Parish Union of …, … and … (former article U-… of the parish of …), municipality of ..." and,

2.2.2. Land "entered in the urban real property tax registry under urban article U-… of the Parish Union of …, … and … (former article U-… of the parish of …), municipality of ...".

The Tax Acts in Question

2.3. The Claimants "were notified of the assessment of Stamp Tax (…) concerning the years 2012" and "2013 (…) through the documents (..) identified that imposed upon them the payment of this tax in the following total amounts with respect to each (…) property":

2.3.1. "€ 29,366.25 on the land for construction (…) entered in the urban real property tax registry under article U-… of the Parish Union of …, … and … (…)" and,

2.3.2. "€ 26,375.75 on the land for construction (…) entered in the urban real property tax registry under article U-… of the Parish Union of …, … and … (…)".

2.4. The Claimants further note that "although the assessments were made on 30/10/2014 and 18/11/2014, with 31/12/2014 (and in some cases 22/01/2015) being set as the deadline for the voluntary payment period, the taxable events occurred on October 31, 2012, December 31, 2012 and December 31, 2013".

2.5. The Claimants "consider that the classification of the land in item no. 28.1. of the General Table of Stamp Tax is wrong and unjustified, since the land does not have the alleged residential destination they attribute to it" and "having in mind that the Claimants' properties are land for construction, we are not dealing with properties with current residential destination and therefore they are not covered by the incidence of the Stamp Tax provided in item 28.1. of the GTST, in the version in force at the time of the facts, respectively on October 31, 2012, December 31, 2012 and December 31, 2013".

2.6. Therefore, for the Claimants, "the assessments in question here translate an incorrect interpretation of item no. 28.1. of the GTST, being tainted by a defect of violation of law due to error regarding the legal presuppositions, which justifies the declaration of its illegality and respective annulment (…)".

2.7. Indeed, according to the Claimants, "item 28.1. refers to properties with residential destination", and "this concept is not even defined in any provision of the Tax Code nor is it used in the Property Tax Code (…)".

2.8. In fact, for the Claimants, "this issue has been subject to examination" by various competent courts, "(…) with great unanimity of positions", "(…) in the sense that such taxation was aimed at the taxation of luxury dwellings, that is, those whose Taxable Property Value exceeds (…) one million euros"[2].

2.9. The Claimants agree that the adoption of this measure is intended to "ensure that the tax burdens will be shared by all and not only by those who live from the income of their work".

2.10. Thus, they believe that "we are not (…) in the field of taxation of land for construction (…)" this not having been "(…) the intention of the legislator, when using the expression properties with residential destination", since "(…) a plot of land for construction is not susceptible to residential destination as such"[3].

2.11. In these terms, the Claimants conclude their request for arbitral pronouncement by petitioning that the same should be "declared well-founded as proven, declaring that the disputed tax acts suffer from a defect of violation of law due to error regarding the legal presuppositions".

2.12. "Or, should this not be considered appropriate", the provisions be "deemed unconstitutional those of sub-item i) of item f) of no. 2 of article 6 of Law no. 55-A/2012 of October 29, and of item 28.1. of the GTST, as amended by the same decree, interpreted in the sense that the stamp tax therein provided could apply to land for construction, insofar as there is no construction susceptible to effective residential use thereon (…)".

2.13. In any of the cases described in the previous points (points 2.11. and 2.12., above), "always with the consequent annulment of the disputed assessments, with all legal consequences, namely the reimbursement of the total amount of tax paid by the Claimants, plus compensatory interest (…)".

3. RESPONDENT'S RESPONSE

3.1. The Respondent responded sustaining the claim's lack of merit and invoking the following arguments:

3.2. "It is the understanding of the TA that the property on which each of the disputed assessments falls has the legal nature of property with residential destination, whereby the acts of assessment which are the subject of the present request for arbitral pronouncement should be maintained, as they constitute a correct interpretation of item 28 of the General Table, added by Law 55-A/2012, of 29/12".

3.3. Indeed, according to the Respondent, "Law no. 55-A/2012, of 29/10/2012 came to (…) add to the GTST item 28 and, with this legislative amendment, Stamp Tax would begin to apply also to the ownership, usufruct or right of superficies of urban real property whose taxable property value contained in the matrix, in accordance with the Property Tax Code is equal to or greater than EUR 1,000,000.00".

3.4. "In the absence of any definition of the concepts of urban property, land for construction and residential destination (…) it is necessary to resort to the Property Tax Code, in search of a definition that allows us to assess the possible subjection to Stamp Tax (…)" applying "(…) subsidiarily the provisions of the Property Tax Code".

3.5. "Contrary to what is advocated by the Claimants, the TA understands that the concept of properties with residential destination, for purposes of the provision in item 28 of the GTST, comprises both built properties and land for construction, starting with consideration of the literal element of the norm".

3.6. Also according to the Respondent, "the legislator does not refer to properties intended for residential use, having opted for the notion residential destination, a different and broader expression, whose meaning must be found in the need to integrate other realities beyond those identified in art. 6, no. 1, item a) of the Property Tax Code".

3.7. On the other hand, the Respondent understands that "the Municipal Master Plans establish the strategy for municipal development, municipal policy on territorial planning and urbanism and other urban policies (…)" whereby "long before the actual building of the property, it is possible to ascertain and determine the destination of the land for construction".

3.8. "Regarding the alleged violation of constitutional principles, the TA cannot fail to emphasize that the Constitution of the Republic requires that equal treatment be given to what is necessarily equal and different treatment to what is essentially different, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that do not have justification and sufficient material foundation" whereby "the TA understands that the provision of item 28 of the GTST does not constitute a violation of any constitutional command" (underlined by us).

3.9. In fact, according to the Respondent, "the measure implemented seeks to achieve maximum effectiveness as to the objective to be achieved, with minimum harm to other interests considered relevant (…)", being found "legitimate the choice of this mechanism for obtaining revenue, which would only be open to criticism, in light of the principle of proportionality, if it resulted manifestly indefensible".

3.10. Thus, the Respondent concludes that "the assessments in dispute constitute a correct interpretation and application of law to the facts, suffering from no defect of violation of law, whether of the CRP or of the Tax Code, and should, accordingly, be deemed the claim unfounded and the Tax Entity absolved of the request".

4. PRELIMINARY ASSESSMENT

4.1. The request for arbitral pronouncement is timely since it was submitted within the period provided in item a) of no. 1 of article 10 of the LRATM.

4.2. The parties have standing and capacity to sue, are legitimate as to the request for arbitral pronouncement and are duly represented, in accordance with the provisions of articles 4 and 10 of the LRATM and article 1 of Ordinance no. 112-A/2011, of March 22.

4.3. The Tribunal is regularly constituted, in accordance with article 2, no. 1, item a), articles 5 and 6, all of the LRATM and is competent to rule on the request for arbitral pronouncement formulated by the Claimants [4].

4.4. The joinder of claims and coalition of claimants here effected by the Claimants is legal and valid, in accordance with the provisions of article 3, no. 1 of the LRATM, given that the merits of the claims depend, essentially, on the examination of the same factual circumstances and the interpretation and application of the same legal principles or rules.

4.5. No exceptions requiring determination were raised.

4.6. No procedural defects are found, and thus it is now necessary to decide on the merits of the claim.

5. STATEMENT OF FACTS

5.1. Proven Facts

5.2. The following documented facts are considered proven:

5.2.1. The Claimants are co-owners of the following urban properties:

5.2.1.1. Land for construction, entered in the urban real property tax registry under article U-… of the Parish Union of …, … and … (former article U-… of the parish of …), municipality of ..., whose Taxable Property Value (TPV) amounts to EUR 1,174,650.00 (as per documents no. 1 to 51 attached to the request);

5.2.1.2. Land for construction, entered in the urban real property tax registry under article U-… of the Parish Union of …, … and … (former article U-… of the parish of …), municipality of ..., whose TPV amounts to EUR 1,055,030.00 (as per documents no. 53 to 103 attached to the request).

5.2.2. The Claimants were notified of collection documents ("Single Payment") identified below, relating to assessments of Stamp Tax, concerning the land for construction entered in the urban real property tax registry under no. U-… of the Parish Union of …, … and …, in the total amount of EUR 29,366.30:

5.2.3. The Claimants were notified of collection documents ("Single Payment") identified below, relating to assessments of Stamp Tax, concerning the land for construction entered in the urban real property tax registry under no. U-… of the Parish Union of …, … and …, in the total value of EUR 26,375.73:

5.2.4. Evidence was obtained that some of the collection documents above indicated in points 5.2.2. (nos. 8, 9, 17, 18, 20, 21, 23, 24 and 40) and 5.2.3. (nos. 60, 61, 69, 70, 72, 73, 75 and 76) were paid by the Claimants (as referenced, respectively, in footnotes no. 6, 7, 11, 12, 13, 14, 15, 16, 19, 25, 26, 30, 31, 32, 33, 34 and 35).

5.2.5. Evidence was obtained that the collection documents attached to the case file under nos. 8, 9, 17, 18, 20, 21, 23, 24, 60, 61, 69, 70, 72, 73, 75 and 76 were paid in February 2015 (various dates) and, therefore, outside the period for voluntary payment which was December 31, 2014.

5.2.6. Evidence was obtained that the collection document attached to the case file under no. 40 was paid, within the period for voluntary payment, on December 31, 2014.

5.3. Collection documents attached to the case file under nos. 26, 28, 30, 32, 34, 36, 78, 80, 82, 84, 86, 88 were not considered, having been replaced by collection documents attached to the case file under nos. 25, 27, 29, 31, 33, 35, 77, 79, 81, 83, 85, 87 (as referred to in the preamble of the request for arbitral pronouncement).

5.4. No other facts capable of affecting the decision on the merits of the claim were proven.

5.5. Unproven Facts

5.6. No evidence was obtained of copies of the Official Notes relating to the assessments of Stamp Tax which are the subject of the request, without this fact having any impact on the knowledge of the merits of the case, taking into account that copies of the respective collection documents ("Single Payment") were attached, and therefore this is not a partial challenge to the assessment act but rather its entirety. [43]

5.7. Taking into account what was stated above in point 5.2.4., it should be noted that no evidence was obtained, for the remaining collection notes (relating to Stamp Tax "Law 55-A/2012", "Year 2012" and "Year 2013"), identified through documents no. 1 to 7, 10 to 16, 18 and 19, 22, 25, 27, 29, 31, 33, 35, 37 to 39, 41 to 51 (for land for construction entered in the urban real property tax registry under no. U-… of the Parish Union of …, … and …) and documents no. 53 to 59, 62 to 68, 71, 74, 77, 79, 81, 83, 85, 87, 89 to 103 (for land for construction entered in the urban real property tax registry under no. U-… of the Parish Union of …, … and …), whether the payment of the amounts contained therein was made by the Claimants ("Single Payment"). [44]

5.8. No other facts were found to be unproven with relevance for the arbitral decision.

6. LEGAL GROUNDS

6.1. In the case, the essential question to be decided is to know what is the scope of application of item 28.1. of the GTST, as amended by Law no. 55-A/2012 of October 29, namely, to know whether land for construction should be included in that norm and, in particular, whether land for construction with TPV equal to or greater than EUR 1,000,000 falls under the category of urban properties "with residential destination", in order to determine whether the Stamp Tax assessments which are the subject of the request for Arbitral pronouncement are defective due to violation of that item no. 28.1., due to error regarding the legal presuppositions, which would justify the declaration of its illegality and respective annulment (underlined by us).

6.2. On the other hand, taking into account that not only assessments relating to the year 2012 but also assessments relating to the year 2013 (assessed in 2014) are in question, it becomes pertinent to analyze the amendments introduced with respect to item 28.1. of the GTST by the State Budget Law for 2014, as to the express introduction in the wording of the norm of the provision "land for construction intended for residential use"), as well as to ascertain whether such amendments to the wording of the law are to apply to said Stamp Tax assessments relating to the year 2013.

6.3. The response to these questions requires the analysis of the legal provisions applicable to the specific case, in order to determine what is the correct interpretation in light of the provisions of the Law and the Constitution, given that it is necessary to assess a tax incidence presupposition, carefully protected by the principle of tax legality, resulting from the provision of article 103, no. 2 of the Constitution of the Portuguese Republic (CRP).

Regarding the scope of application of item 28.1. of the GTST (as amended by Law no. 55-A/2012 of October 29)

6.4. Law no. 55-A/2012 made several amendments to the Stamp Tax Code and added item 28 to the GTST, with the following wording:

"28. Ownership, usufruct or right of superficies of urban properties whose TPV contained in the matrix, in accordance with the Property Tax Code, is equal to or greater than EUR 1,000,000.00 – on the TPV for purposes of Property Tax:

28.1 – For property with residential destination – 1%.

28.2 – (…)".

6.5. Notwithstanding the text of Law no. 55-A/2012 (in force since October 30, 2012) having not defined the concepts contained in the aforementioned item no. 28, namely the concept of "property with residential destination", if we observe the provision of article 67, no. 2, of the Stamp Tax Code (also added by the aforementioned Law), it is verified that "as to matters not regulated in this Code, concerning item 28 of the General Table, the Property Tax Code applies, subsidiarily" (underlined by us).

6.6. Now, from the reading of the Property Tax Code, we can easily ascertain that the concept of "property with residential destination" refers, naturally, to the concept of "urban property", defined in accordance with articles 2 and 4 of that Code.

6.7. Indeed, in accordance with the provision of article 2, no. 1 of the Property Tax Code, "(…) property is any portion of territory, comprising waters, plantations, buildings and constructions of any nature incorporated or situated thereon, with a permanent character, provided that it forms part of the assets of a natural or legal person and, under normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land on which they are situated, although located in a portion of territory that constitutes an integral part of assets of another person or does not have a patrimonial nature" (underlined by us).

6.8. Also in accordance with nos. 2 and 3 of the same article, "buildings or constructions, even if movable by nature, are deemed to have a permanent character when dedicated to non-transitory purposes", being presumed "the permanent character when the buildings or constructions are situated on the same site for a period exceeding one year" (underlined by us).

6.9. On the other hand, in accordance with the provision of article 4 of the Property Tax Code, "urban properties are all those that should not be classified as rural (…)".

6.10. In this context, among the various categories of "urban properties" referred to in article 6 of the Property Tax Code, "land for construction" is expressly mentioned [no. 1, item c)], further adding that no. 3 of the same article states that "land for construction is considered to be land situated within or outside an urban agglomeration, for which a building license or authorization has been granted, prior notification has been accepted or a favorable prior information has been issued for a subdivision or construction operation, and also land which has been declared as such in the acquisition title, except for land which the competent entities prohibit any of those operations, namely land located in green zones, protected areas or which, in accordance with municipal territorial planning plans, are intended for public spaces, infrastructure or facilities" (underlined by us).

6.11. As can be seen from the provisions of the Property Tax Code transcribed above, it is not possible to extract what the legislator intended to say when referring in the text of the law to "properties with residential destination", since this concept is not used in the classification of properties, nor is it found, with this terminology, in any other law.

6.12. On the other hand, given that Law no. 55-A/2012, of 29/10 has no preamble whatsoever, it is therefore not possible to extract therefrom what the true intention of the legislator was on this matter.

6.13. Thus, in the absence of exact terminological correspondence of the concept of "property with residential destination" with any other concept used in other laws, several interpretative hypotheses can be ventured, and the text of the law should be the starting point for the interpretation of that expression, since it is on the basis of it that the legislative thinking will have to be reconstructed, as follows from the provision of no. 1 of article 9 of the Civil Code, applicable by virtue of the provision of article 11, no. 1, of the General Tax Law (GTL) (underlined by us).

Regarding the interpretation of the concept of "urban property with residential destination"

6.14. Indeed, in accordance with the provision of article 9 of the Civil Code, "interpretation should not be limited to the letter of the law, but reconstruct, from the texts, the legislative thinking, taking particularly into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied", and "the interpreter cannot consider legislative thinking that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed" (underlined by us).

6.15. In these terms, it can be stated that tax laws are interpreted like any others, and the true meaning must be determined in accordance with the techniques and interpretative elements generally accepted by legal doctrine (see article 9 of the Civil Code and article 11 of the GTL) [45].

6.16. Thus, the concept closest to the literal tenor of the expression "property with residential destination" is manifestly that of "residential properties", referred to in article 6, no. 1 of the Property Tax Code (and defined in no. 2 of the same article), comprising buildings or constructions licensed for residential purposes or, in the absence of a license, that have residential purposes as their normal destination (underlined by us).

6.17. "That is, for purposes of the Property Tax Code, both properties licensed for residential use, even if they are not being used for that purpose, and, in the case of absence of a license, properties that have residential purposes as their normal destination, are residential" [46].

6.18. If it is understood that the expression "property with residential destination" coincides with that of "residential properties", it is manifest that the tax assessments underlying the collection notes analyzed will be defective due to error regarding the material and legal presuppositions, since the two properties on which the Stamp Tax was assessed under the aforementioned item no. 28.1. are land for construction, without any building or construction required to fulfill that concept of "residential properties" (underlined by us).

6.19. Therefore, if the interpretation is adopted that "property with residential destination" means "residential property", the collection notes underlying the assessments whose declaration of illegality is requested will, in fact, be illegal, as there is, in neither of the two plots of land, any building or construction.

6.20. On the other hand, it must also be taken into account that the provisions on tax incidence must be interpreted in their exact terms, without resort to analogy, making prevailing the certainty and security in their application. [47]

6.21. Finally, it will also be important to inquire into what the purpose underlying the rule of item 28.1. of the GTST is and, in obedience to the provision of article 9 of the Civil Code [48], what the circumstances were in which the norm was drafted and what the specific conditions of the time in which it is applied are.

6.22. Indeed, in this context, the legislator intended to introduce a principle of taxation on wealth demonstrated in the ownership, usufruct or right of superficies of luxury urban properties with residential destination, having considered (as a determining element of taxpaying capacity), urban properties, with residential destination, of high value (luxury), that is, of value equal to or greater than EUR 1,000,000.00, on which a special rate of Stamp Tax would (and did) apply (underlined by us).

6.23. In fact, in the preamble of the draft law that introduced, in 2012, amendments regarding item 28.1. of the GTST, the following were presented as reasons:

6.23.1. "The pursuit of the public interest, in light of the country's economic-financial situation, requires strengthening budgetary consolidation which will require, in addition to permanent activism in reducing public spending, the introduction of fiscal measures inserted in a broader set of measures to combat the budgetary deficit".

6.23.2. "These measures are fundamental to reinforce the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program (…) the Government being strongly committed to ensuring that the distribution of these sacrifices will be made by everyone and not just by those who live from the income of their work".

6.23.3. "In accordance with that objective, this act expands the taxation of capital income and property, equitably encompassing a broad range of sectors of Portuguese society".

6.23.4. "A rate in Stamp Tax is created applying to urban properties with residential destination whose taxable property value is equal to or greater than one million Euros" (underlined by us).

6.24. Thus, from this legislative motivation it results that the taxation in question aims at "an effective distribution of sacrifices", making this taxation apply to property (as opposed to labor income, already affected by other measures).

6.25. However, because this enumeration of the reasons underlying the adoption of these measures is too broad, it has brought little contribution to the interpretation of the concept of "urban property with residential destination".

6.26. And we understand that this is precisely what can also be concluded from the analysis of the discussion of draft Law no. 96/XII in the Assembly of the Republic [49], which was at the origin of the proposal for amendments, with no apparent invocation of a different interpretative purpose from the one presented here. [50]

6.27. Indeed, the justification for the measure designated as "special tax on urban residential properties of the highest value" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for residential use, thus making the new special rate apply to "houses of value equal to or greater than 1 million Euros" (underlined by us).

6.28. Now, if such logic seems to make sense when applied to a "dwelling" (whether it is a house, an autonomous unit, a portion of property with independent use or an autonomous unit) whenever the same represents, on the part of its holder, a taxpaying capacity above average (and, in that measure, likely to determine a special contribution to ensure fair distribution of the fiscal effort), it will make no sense if applied to a "plot of land for construction".

6.29. Indeed, the ownership of this type of property will not, by itself, evidence a taxpaying capacity above average, in order to legitimize a "solidarity tax" as is the case with Stamp Tax of item 28.1. of the GTST, as extensively referred to above.

6.30. In these terms, the Respondent cannot distinguish where the legislator itself understood it should not, at the risk of violating the consistency of the tax system and the principles of tax legality (article 103, no. 2 of the CRP), of justice, equality and fiscal proportionality, which are included therein.

6.31. Thus, in light of the above, and in response to the first of the questions raised above (see point 6.1.), it is concluded that Stamp Tax as referred to in item no. 28.1. of the GTST (in the version provided by Law no. 55-A/2012) cannot apply to "land for construction", and therefore the assessment acts underlying the request for arbitral pronouncement submitted by the Claimants are illegal.

Regarding the amendment introduced by the State Budget Law for 2014

6.32. As analyzed above, the concept of "property (urban) with residential destination" was not defined by the legislator, neither in the text of Law no. 55-A/2012 (which introduced it), nor in the Property Tax Code [to which no. 2 of article 67 of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis].

6.33. In fact, this is a concept which, probably due to its imprecision, had a rather short life, as it was abandoned when the State Budget Law for 2014 came into force [51] (on January 1, 2014), which gave new wording to that item no. 28.1. of the GTST, defining the scope of its objective incidence through the use of concepts that are legally defined in article 6 of the Property Tax Code [52].

6.34. This amendment, "to which the legislator did not assign interpretative character, merely makes unambiguous, for the future, that land for construction whose construction, authorized or provided for, is for residential use is covered by the scope of item 28.1. of the GTST (provided that the respective taxable property value is equal to or greater than 1 million Euros), clarifying nothing, however, with respect to past situations" (underlined by us) [53].

6.35. Now, as to these assessments, it does not unambiguously result, either from the letter or the spirit of the law, that the intention of the latter was, ab initio, to include in its objective scope of incidence land for construction (for which construction of residential buildings has been authorized or is provided for), as now results from the text of item 28.1. of the GTST (underlined by us).

6.36. In this context, it can be stated that the letter of the new law also lent itself to ambiguities, in terms of tax incidence, as it used not only a concept it did not define but also a concept that was not defined in the law to which it referred on a subsidiary basis.

6.37. And from its "spirit" (ascertainable in the statement of reasons of the draft law which is at the origin of Law no. 55-A/2012) nothing more results than the concern of raising new tax revenue, on sources of wealth "more spared" in the past by the tax legislator than labor income, in particular capital income, securities gains and property, reasons which bring no relevant contribution to the clarification of the concept of "properties (urban) with residential destination", as they take it as established, without any concern to clarify it.

6.38. Such clarification will have, however, appeared at the time of the presentation and discussion in the Assembly of the Republic of draft Law no. 96/XII – 2nd (which gave rise to Law no. 55-A/2012, of October 29), in the words of the Secretary of State for Tax Affairs, who will have expressly stated that "the Government proposes the creation of a special tax on urban residential properties of the highest value (…) being the first time that in Portugal a special taxation is created on high-value properties intended for residential use. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013 and will apply to houses of value equal to or greater than 1 million Euros" [54] (underlined by us)

6.39. Thus, from the provision in the preceding point it can be ascertained that the reality which was intended to be taxed was, after all, and in ordinary language (notwithstanding the imprecision of the law's terminology with the expression "urban properties residential"), that of "houses" and not any other realities. [55]

6.40. Thus, given that a plot of land for construction (whatever the type and purpose of the building to be, or which may be, erected thereon) does not satisfy, by itself, any condition to be, as such, licensed or to define as residential use its normal destination, and the provision of Stamp Tax incidence refers to urban properties with "residential destination" (without establishing any specific concept therefor), it cannot be extracted therefrom that it contains a future potential, inherent to a property which may possibly be built on that land.

6.41. Thus, we understand that it can be concluded that, resulting from article 6 of the Property Tax Code a clear distinction between "residential" urban properties and "land for construction", the latter cannot be considered as "urban properties with residential destination", for purposes of the provision in item no. 28.1. of the GTST [56].

Principle of Non-Retroactivity of Tax Law

6.42. Thus, and as to the possible applicability, to Stamp Tax assessments relating to the year 2013, of the amendments introduced with respect to item 28.1. by the State Budget Law for 2014 (with the express introduction in the wording of the norm of the provision "land for construction intended for residential use") it will be necessary to analyze the question of the principle of non-retroactivity of tax law, constitutionally provided for.

6.43. Indeed, in accordance with the provision of article 103 of the CRP:

6.43.1. "The tax system aims at satisfying the financial needs of the State and other public entities and a fair distribution of income and wealth.

6.43.2. Taxes are created by law, which determines the incidence, the rate, tax benefits and the guarantees of taxpayers.

6.43.3. No one can be compelled to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not made in accordance with the law" (underlined by us).

6.44. Now, in accordance with the regime provided for the assessment of Stamp Tax of item 28.1., article 3 of Law no. 55-A/2012, of October 29, in the version it gave to article 23, no. 7 of the Stamp Tax Code, states that "the tax is assessed annually, with respect to each urban property, by the central services of the Tax Authority and Customs Authority, applying, with necessary adaptations, the rules contained in the Property Tax Code" (underlined by us).

6.45. That is, "the tax is assessed annually, with respect to each municipality, by the central services of the Directorate General of Taxes, based on the taxable property values of the properties and with respect to the taxpayers contained in the matrices on December 31 of the year to which it relates" and this assessment "is carried out in the months of February and March of the following year" [57] (underlined by us)

6.46. In these terms, given that article 103, no. 3, of the CRP enshrines the prohibition of authentic (or proper) retroactivity of tax law (covering cases in which the taxable fact that the new law intends to regulate has already produced all its effects under the old law), it is not possible to admit the application of the new wording of item 28.1. of the GTST (in force since January 1, 2014) to Stamp Tax assessments concerning the year 2013, as we would be faced with the application of a new law to a prior taxable fact, thus verifying a situation of authentic retroactivity prohibited by article 103, no. 3 of the Constitution (underlined by us) [58].

6.47. In this matter, and in support of the interpretation of the constitutional provision, it is also important to mention the provision of article 12, no. 1 of the GTL, according to which "tax provisions apply to facts occurring after their entry into force, and no retroactive taxes can be created" (underlined by us).

6.48. In these terms, it is easily understood that the new wording of item 28.1. of the GTST, in force since January 1, 2014, cannot be applicable to assessments made with respect to the year 2013, as, given the above, the respective taxable fact occurred on December 31, 2013 and is, therefore, prior to the date of entry into force of that new wording.

6.49. Also in judicial matters, the Constitutional Court (CC), in its case law on tax matters (namely in Decisions (AC) no. 128/2009, of March 12 and no. 85/2010, of March 3), considered that the retroactivity enshrined in article 103, no. 3, CRP is only authentic.

6.50. Indeed, in accordance with what was argued in CC AC no. 128/2009, "it follows from this constitutional provision that any tax provision (…) will be constitutionally censured when it assumes a retroactive nature, the expression retroactivity being used here in its proper or authentic sense", that is, "it prohibits the application of a new tax law, disadvantageous, to a taxable fact occurring within the scope of the revoked tax law (the old law) and more favorable" [59] (underlined by us).

6.51. In these terms, in light of the above, both as to the fact that "land for construction" cannot be considered as "properties with residential destination", for purposes of the provision in item no. 28.1. of the GTST, in its original wording (see points 6.14. to 6.31., above), and as to the impossibility of the wording of item 28.1. of the GTST (in force from January 1, 2014) being applicable to assessments made with respect to the year 2013 (given that the taxable fact occurs on December 31, 2013, and is therefore prior to the entry into force of that new wording of item 28.1. of the GTST) (see points 6.32. to 6.50., above), it is concluded that the Stamp Tax assessments underlying the request for arbitral pronouncement are illegal.

Regarding the request for reimbursement of tax paid, plus compensatory interest

6.52. Finally, and as to the request presented by the Claimants for "reimbursement of the total amount of tax paid (…), plus compensatory interest (…)", it is important to note that, in accordance with the provision in item b), of no. 1, of article 24 of the LRATM, and in accordance with what is established there, "the arbitral decision on the merits of the claim from which no appeal or challenge may be made binds the tax administration from the end of the period provided for appeal or challenge, the latter being required to restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose" [60] (underlined by us).

6.53. In fact, in accordance with the provision of article 100 of the GTL, applicable to the case by virtue of the provision in item a), of no. 1, of article 29 of the LRATM, "the tax administration is obliged, in case of total or partial success of administrative complaints or appeals, or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, including the payment of compensatory interest, in accordance with the terms and conditions provided by law" (underlined by us).

6.54. In the situation analyzed, and following the illegality of the assessment acts in reference, there must be, by virtue of the rules already cited, a refund of the amounts that may have been paid by the Claimants, as title of the tax borne, as a way to achieve the restoration of the situation that would have existed if the illegality had not been committed.

6.55. As to the compensatory interest requested by the Claimants, it appears that, in light of what is established in article 61 of the Tax Procedure and Process Code (TPPC) and the requirements for the right to compensatory interest being met (that is, verified the existence of error attributable to the Services resulting in payment of tax debt in an amount higher than legally due, as provided in no. 1, of article 43 of the GTL), the Claimants are entitled to compensatory interest at the legal rate, calculated on the amounts paid relating to the Stamp Tax assessments underlying the request, which will be counted from the date of payment of the undue tax until the date of issuance of the respective credit note, in accordance with the provision in no. 3 of article 61 of the TPPC (above already referred to).

7. DECISION

7.1. In harmony with the provision of article 22, no. 4, of the LRATM, "the arbitral decision rendered by the arbitral tribunal includes the determination of the amount and apportionment among the Parties of the costs directly resulting from the arbitral proceedings".

7.2. In this context, the basic rule regarding responsibility for proceedings costs is that the Party that caused them should be condemned, it being understood that the losing Party causes the costs of proceedings, in the proportion to which it is losing (article 527, nos. 1 and 2 of the CCP).

7.3. In the case analyzed, taking into account the above, the principle of proportionality requires that the entire responsibility for costs be attributed to the Respondent.

7.4. In these terms, taking into account the analysis carried out, this Arbitral Tribunal decided:

7.4.1. To deem well-founded the request for arbitral pronouncement presented by the Claimants and to condemn the Respondent as to the request for declaration of illegality of the Stamp Tax assessments underlying the collection acts ("Single Payment") identified in this case, annulling, accordingly, the respective tax acts;

7.4.2. To deem well-founded the request for condemnation of the Respondent in the reimbursement of the amounts unduly paid by the Claimants, plus compensatory interest at the legal rate, counted in accordance with legal terms;

7.4.3. To condemn the Respondent in payment of the costs of this proceedings.

Value of the case: Taking into account the provision of articles 306, no. 2 of the CCP, article 97-A, no. 1 of the TPPC and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at EUR 55,742.03.

Costs of the proceedings: In accordance with the provision of Table I of the Regulation of Costs of Tax Arbitration Proceedings, the value of the costs of the Arbitral Proceedings is set at EUR 2,142.00, charged to the Respondent, in accordance with article 22, no. 4 of the LRATM.

Notice to parties.

Lisbon, September 21, 2015

The Arbitrator

Sílvia Oliveira

[1] The drafting of this decision is governed by the orthography prior to the Orthographic Agreement of 1990, except as to transcriptions made.

[2] In this context, the Claimants cite and transcribe part of the debate (conducted by the Secretary of State for Tax Affairs – Paulo Núncio), which took place in the Assembly of the Republic, in the plenary session of 10-10-2012, in which draft Law no. 96/XII (2nd) was debated, which gave rise to the legal diploma that supports the tax imposition (…) in dispute, in which the foundations of the legislative intention under examination are presented, namely that "the Government proposes the creation of a special tax to tax urban residential properties of the highest value" being the first time that "in Portugal a special taxation is created on high-value properties intended for residential use".

[3] The Claimants state that "the Tax Administration has understood that the meaning of the legislator not using the expression properties intended for residential use, but residential destination, must be found not in article 6, no. 1, item a) of the Property Tax Code but in article 45 of the Property Tax Code, because the interpretation of the expression residential destination is based on the assessment of properties", a position contradicted, according to the Claimants, not only by Arbitral Decisions (namely, nos. 53/2013-T, 158/2013-T and 288/2013-T), as well as by the Supreme Administrative Court (SAC), namely, in Decision 0317/14, of May 14.

[4] In this context, the issue was analyzed preliminarily of whether or not it is possible to challenge collection notes of Stamp Tax and not the assessments of tax underlying them. In this matter, it was concluded that when the law provides for payment of the amount of the assessment in several installments, spread over time, the annulment of the tax act will have consequences as to all of them, ending the obligation to pay or imposing the obligation to refund the amounts of tax possibly already paid by the taxpayer, as well as the restoration of the situation through the payment of compensatory interest, all at the charge of the Tax Authority. Notwithstanding the fact that tax law does not provide, neither in arbitral proceedings, nor in judicial challenge proceedings, for the annulment claim for payment of isolated tax installments (since such effect will result only from the annulment of the assessment act which consists of the quantification of the total amount to be paid and which is only and solely a single tax act), in cases in which the payment of tax is made through a "Single Payment" (as are the cases analyzed), the effects of its annulment are coincident with the effects of the annulment of the assessment itself, merging with it. Thus, it was concluded that it would be possible here to challenge the collection notes, notified as a consequence of the assessments, given that with the analysis of the grounds presented with that challenge these would be considered legal/illegal, with the consequences flowing therefrom.

[5] By reference to documents attached with the request for arbitral pronouncement.

[6] Amount paid on February 17, 2015, in accordance with payment stamp contained in document no. 8 attached to the case.

[7] Amount paid on February 17, 2015, in accordance with payment stamp contained in document no. 9 attached to the case.

[8] In this document, the payment deadline mentioned is "January/2014 – Single Payment", but this makes no sense having in mind that the assessment date indicated in the document is October 30, 2014, that is, after the payment deadline. Thus, it was understood to be a clerical error.

[9] Same as note no. 8.

[10] Same as note no. 8.

[11] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 17 attached to the case.

[12] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 18 attached to the case.

[13] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 20 attached to the case.

[14] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 21 attached to the case.

[15] Amount paid on February 20, 2015, in accordance with payment stamp contained in document no. 23 attached to the case.

[16] Amount paid on February 23, 2015, in accordance with payment stamp contained in document no. 24 attached to the case.

[17] The copy attached is a second copy of the tax collection note.

[18] Same as note no. 17.

[19] Amount paid on December 31, 2014, in accordance with copy of ATM receipt contained in document no. 40 attached to the case.

[20] The copy attached is a second copy of the tax collection note.

[21] The year to which the tax relates is not identified (2012 or 2013).

[22] Same as note no. 20.

[23] The year to which the tax relates is not identified (2012 or 2013).

[24] By reference to documents attached with the request for arbitral pronouncement.

[25] Amount paid on February 17, 2015, in accordance with payment stamp contained in document no. 60 attached to the case.

[26] Amount paid on February 17, 2015, in accordance with payment stamp contained in document no. 61 attached to the case.

[27] In this document, the payment deadline mentioned is "January/2014 – Single Payment", but this makes no sense having in mind that the assessment date is October 30, 2014, that is, after the payment deadline. Thus, it was understood to be a clerical error.

[28] Same as note no. 27.

[29] Same as note no. 27.

[30] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 69 attached to the case.

[31] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 70 attached to the case.

[32] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 72 attached to the case.

[33] Amount paid on February 19, 2015, in accordance with payment stamp contained in document no. 73 attached to the case.

[34] Amount paid on February 20, 2015, in accordance with payment stamp contained in document no. 75 attached to the case.

[35] Amount paid on February 23, 2015, in accordance with payment stamp contained in document no. 76 attached to the case.

[36] The assessment date is not indicated (the payment deadline mentioned is 31/12/2014).

[37] Same as note no. 36.

[38] The assessment date is not indicated (the payment deadline mentioned is 31/12/2014).

[39] The year to which the tax relates is not identified.

[40] The assessment date is not identified.

[41] The year to which the tax relates is not identified.

[42] The assessment date is not identified.

[43] See footnote no. 4 in this regard.

[44] Note that in the cases of collection documents nos. 28, 30, 34, 36, 80, 82, 86 and 88 (replaced by collection documents attached to the case file under nos. 27, 29, 33, 35, 79, 81, 85 and 87), not considered in accordance with point 5.3. of this arbitral decision, had payment stamps (of the respective amounts) on different dates in February 2015.

[45] In this sense, see AC TCAS Case 07648/14, of July 10.

[46] See CAAD Arbitral Decision no. 48/2013-T, of October 9.

[47] See AC TCAS Case 5320/12, of October 2, AC TCAS Case 7073/13, of December 12 and AC TCAS 2912/09, of March 27, 2014.

[48] According to this article, the interpretation of the legal provision should not be limited to the letter of the law, but reconstruct the legislative thinking, from the texts and other interpretative elements, taking into account the unity of the legal system.

[49] Available for consultation in the Diary of the Assembly of the Republic, I series, no. 9/XII/2, of October 11, 2012.

[50] As already referred to in several Arbitral Decisions...