Summary
Full Decision
ARBITRATION DECISION
A…, taxpayer no. …, resident at Street …, no. …-…, …-… Setúbal, requested the Constitution of an Arbitration Tribunal with a view to declaring the illegality of the acts of assessment of Stamp Tax (IS) for the years 2012, 2013 and 2015, in the total amount of € 37,969.80, relating to land for construction registered in the urban property register under article … of the parish of …, …, … and …, municipality of Elvas, district of Portalegre, carried out under the provision of item 28.1 of the General Table of Stamp Tax (TGIS), introduced by Law no. 55-A/2012, of 29 October, and amended by article 194º of Law no. 83-C/2013, of 31 December.
I. Grounds: Matter of Fact
I.I. Proven Facts
The Tribunal considers the following essential facts proven for the object of the claim:
a) The Claimant is the owner of land for construction registered in the urban property register under article … of the parish of …, …, … and …, municipality of Elvas, district of Portalegre.
b) The said plot of land for construction never had any approved project for construction, nor does there exist any prior communication or favorable prior information for the carrying out of subdivision or construction operations.
c) The Tax and Customs Authority (AT) assessed Stamp Tax to the Claimant, based on item 28.1 of its respective code, relating to the years 2012 (assessed in 2013), 2013 (assessed in 2014) and 2015 (assessed in 2016), concerning the said property – docs. nos. 1 to 5 attached to the Initial Petition.
d) With regard to the assessments of 2012 (assessed in 2013) and 2013 (assessed in 2014), a request for official review was made and, on 23 January 2017, the Claimant was notified by the AT that it concluded there had been no error on the part of the services and those assessments were lawful – doc. no. 6 attached to the Initial Petition.
e) The assessment of IS provided for in item 28.1 of the TGIS relating to 2014 and concerning exactly the same property was already the subject of a decision by CAAD in Arbitration Decision with process no. 312/2016-T.
I.II. Unproven Facts
There are no other facts, proven and/or unproven, essential to the object of the dispute.
I.III. Reasoning
The conviction of the Singular Tribunal was based on the documents incorporated in the case file and in the attached administrative instruction file, and from the pleadings there results no controversy of the parties as to the factual framework drawn by the Claimant.
Taking into account the revocation of part of the acts in dispute, and this Arbitration Tribunal continuing to judge only a tax act, the joinder of claims does not require acceptance, which moreover would always be granted.
II. Grounds: Matter of Law
II.I. Position of the Claimant
a) The issue subject to this challenge is reduced to the assessment of the legality of the assessment of Stamp Tax, pursuant to item 28.1 of the TGIS (General Table of Stamp Tax), relating to the years 2012, 2013, and 2015.
b) The Claimant considers that the assessment is tainted with the vice of illegality in that in the property in question "there is no concrete realization of an expectation or provision for residential building", not least because "there never existed nor does there exist any approved project for construction, nor does there exist any prior communication or favorable prior information for the carrying out of subdivision or construction operations".
II.II. Position of the Respondent
a) By email dated 7 April 2017, the AT proceeded to attach the decision to revoke the tax acts in dispute relating to the years 2012 and 2013, not doing so with respect to the tax act in dispute relating to the year 2015.
b) In its Response to the Initial Petition, the AT argues that, with respect to the assessment of stamp tax in dispute as of 2015, the Claimant has no grounds, and that, on the contrary, the basis for that assessment rests on the letter of the law and the correct interpretation and application of the relevant normative framework, as amended by Law no. 83-C/2013, of 31 December.
II.III. The Law (cont.)
The Stamp Tax Code, approved by Law no. 150/99, of 11 September, came into force in March 2000, being significantly amended by Decree-Law no. 287/2003, of 12 November, which republished it. With the reform of property taxation carried out in 2003, Stamp Tax came to be configured above all as a tax on operations which, regardless of their materialization, reveal income and wealth, applying to a "heterogeneous multiplicity of facts or acts", without "a common trait that confers identity upon them" (JOSÉ MARIA FERNANDES PIRES, Lessons on Property and Stamp Taxes, p. 453). This capacity to accommodate within itself taxes of different nature created an opening for the legislator to assign it a complementary role to other taxes.
As noted by J. SILVÉRIO DIAS MATEUS and L. CORVELO DE FREITAS (Taxes on Real Property – Stamp Tax, p. 251, Lisbon, 2005) "stamp tax is configured as a means of reaching manifestations of taxpaying capacity not covered by the incidence of any other taxes. Not having the nature of overlapping taxation, this tax tends to assume a residual function filling spaces left open by taxation of income and consumption".
Law no. 55-A/2012, of 29 October, introduced a set of amendments to the codifying statutes of three taxes – PIT, CIT and Stamp Tax – as well as to the General Tax Law, including the provision now under analysis, all guided to obtaining supplementary tax revenue and, in general, to counter budgetary imbalance. Thus, invoking the principles of social equity and fiscal justice, taxation of capital income and movable property gains was increased, measures were introduced to strengthen the fight against tax fraud and evasion, through strengthening the regime applicable to manifestations of wealth of taxpayers and transfers to and from tax havens, to which was added the introduction, within the scope of Stamp Tax, of taxation of legal situations (expression added to no. 1 of article 1 of the Stamp Tax Code), which was understood as capable of bearing increased fiscal effort, thereby distributing more equitably the sacrifice to achieve budgetary consolidation required of taxpayers.
Thus, with the addition of item no. 28 to the TGIS by article 4 of Law no. 55-A/2012, a legal situation was made subject to this tax, embodied in the ownership, usufruct or right of surface of urban property with residential purpose, whose tax patrimonial value recorded in the register, in accordance with the Code of Municipal Property Tax, is equal to or greater than €1,000,000.00, with a rate of 1%.
The wording of item 28.1 underwent subsequent amendment, by Law no. 83-C/2013, of 31 December, now expanding the incidence of Stamp Tax, at the rate of 1%, to "(…)urban property or (l)and for construction whose building, authorized or envisaged, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code" (cited).
The incidence of Stamp Tax, marked, moreover, by heterogeneity, refers, with respect to essential elements of the assessment of the tax, notably as to the normative criteria defining the patrimonial value to be considered, to the regulation contained in the Municipal Property Tax Code, ensuring, or at least promoting, a certain degree of harmony between the various legislative bodies within the scope of property taxation. Doctrine even ascribes to it the condition of an "additional Municipal Property Tax rate", directed to "discriminate properties of higher patrimonial value and subject them to a more burdensome fiscal regime than the rest" (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 504), explaining the creation of a new fact subject to Stamp Tax, beyond the heterogeneity that this tax exhibits, by the need to increase the State's tax revenue, since the Municipal Property Tax revenue reverts to the benefit of municipalities and Stamp Tax is revenue to the State (op. cit., p. 506).
The taxation arising from the rule of incidence lodged in item no. 28 assumes the nature of a partial tax (JOSÉ MARIA FERNANDES PIRES, op. cit., p. 507), taking as its tax base urban property devoted to residential purposes, calculating the respective tax patrimonial value per relevant legal and economic unit. It does not constitute a general tax on property, or even a tax on all real property, so as to found a comparison based on an approach of personalizing the tax and from a basis that takes account of all the property of the taxpayer subject.
From the joint application of no. 4 of article 2 of the Stamp Tax Code and no. 1 of article 8 of the Municipal Property Tax Code, it is concluded that the tax fact referred to in item 28.1 of the TGIS occurs on 31 December of each year. To that extent, the tax legal relationship will be fixed in accordance with the legislation in force on that same date, independently of subsequent amendments that may be in force on the date of assessment of the tax. Accordingly, the Stamp Tax of item 28.1 of the TGIS relating to the year 2015, to be assessed in 2016, should be calculated and fixed in accordance with the wording of the provision, introduced by Law no. 55-A/2012, of 29 October, as worded by the State Budget Law 2014 (Law no. 83-C/2013).
Recall the original wording of item 28 of the TGIS:
- Ownership, usufruct or right of surface of urban properties whose tax patrimonial value recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax patrimonial value used for Municipal Property Tax purposes:
28.1 Per property with residential purpose ----------------------------------------1%
28.2 Per property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable fiscal regime, listed in the list approved by order of the Minister of Finance...................................................................7.5%
This wording (original) was the subject of various disputes between the AT and taxpayers, owners of land for construction, and the Higher Administrative Court understood, for example, in the Decision delivered in process no. 048/14, of 09.04.2014, that "(...)the legislator not having defined the concept of "urban properties with residential purpose", and resulting from article 6 of the Municipal Property Tax Code (subsidiarily applicable to Stamp Tax provided for in the new item no. 28 of the General Table) a clear distinction between "residential urban properties" and "land for construction", these cannot be considered, for purposes of the incidence of Stamp Tax (Item 28.1 of the TGIS, as worded by Law no. 55-A/2012, of 29 October), as urban properties with residential purpose( (...)"
In truth, the concept of "(urban) property with residential purpose" was not defined by the legislator. Neither in Law no. 55-A/2012, which introduced it, nor in the Municipal Property Tax Code, to which no. 2 of article 67 of the Stamp Tax Code (also introduced by that Law) refers subsidiarily. And it is a concept which, probably owing to its imprecision – a fact all the more serious given that it is in accordance with it that the scope of the objective incidence of the new taxation is defined –, had a short life, in that it was abandoned upon the entry into force of the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), which gave new wording to item no. 28 of the General Table, and which now defines its scope of objective incidence through the use of concepts that are legally defined in article 6 of the Municipal Property Tax Code. This amendment – to which the legislator did not attribute an interpretative character, nor do we think it did, and the matter is not of interest for us to address –, merely makes it unambiguous for the future that land for construction whose building, authorized or envisaged, is for residential purposes is included within the scope of item 28.1 of the General Table of Stamp Tax (provided that its respective tax patrimonial value is equal to or greater than 1 million euros).
At the time of the presentation and discussion in Parliament of the respective, the State Secretary for Fiscal Affairs stated (see Parliamentary Gazette, I Series no. 9/XII – 2, of 11 October, p. 32) that: "The Government proposes the creation of a special rate on residential urban properties of higher value. It is the first time that in Portugal a special taxation has been created on high-value properties intended for residential purposes. 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" from which it appears that the reality intended to be taxed is, after all, and notwithstanding the terminological imprecision of the law, "residential (urban) properties", in common language "houses", and not other realities. The fact that it may be considered that in determining the tax patrimonial value of urban properties classified as land for construction one should take into account the purpose to which the building authorized or envisaged for it will have, for determining the respective value of the implantation area (see nos. 1 and 2 of article 45 of the Municipal Property Tax Code), does not determine that land for construction can be classified as "properties with residential purpose", since "residential purpose" always appears in the Municipal Property Tax Code referred to "buildings" or "constructions", existing, authorized or envisaged, since only these can be inhabited, which is not the case with land for construction, which does not have, in itself, conditions for such, not being capable of being used for residential purposes except if and when the construction authorized and envisaged for it is built thereon (but in that case they will no longer be "land for construction" but another species of urban property – "residential", "commercial, industrial or for services" or "other" – article 6 of the Municipal Property Tax Code).
It would be strange, moreover, if the determination of the scope of the rule of incidence of the tax of item no. 28 of the General Table of Stamp Tax were found, after all, in the rules for determining the tax patrimonial value of the Municipal Property Tax Code, and if the terminological imprecision of the legislator in the wording of that rule were, after all, elucidated and finally clarified by means of an indirect and equivocal referral to the coefficient of purpose established by the legislator in relation to built properties (article 41 of the Municipal Property Tax Code). Thus, given that land for construction – whatever the type and purpose of the building that will, or could be, erected thereon – does not by itself satisfy any condition for being so licensed or for the purpose of its normal use to be defined as residential, and referring to the rule of incidence of stamp tax to urban properties with "residential purpose", without any specific concept being established for that purpose, cannot be extracted therefrom that it contains a future potentiality, inherent in a distinct property that perhaps may come to be built on the land.
In truth, referring to urban properties, no. 1 of article 6 of the Municipal Property Tax Code distinguishes various species, dividing them into residential, commercial, industrial or for services, land for construction and other, according to the following criteria: "residential, commercial, industrial or for services" – buildings or constructions licensed for such or, in the absence of license, having as their normal purpose each of those purposes (see article 6, no. 2 of the Municipal Property Tax Code); "land for construction", land situated within or outside an urban agglomeration, for which license or authorization has been granted, prior communication admitted or favorable prior information issued for subdivision or construction operation, and also those so declared in the title of acquisition, with the exception of land on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land use plans, are devoted to spaces, infrastructure or public facilities" (see article 6, no. 3 of the Municipal Property Tax Code, as worded by Law no. 64-A/2008, of 31/12); "Other", are considered as such land situated within an urban agglomeration that are not land for construction nor are classified as rustic property, in accordance with its legal concept, and also buildings and constructions licensed, or in the absence of license, having as their normal purpose other purposes than those referred to above (see article 6, no. 4 of the Municipal Property Tax Code).
By making taxation incide on urban properties "with residential purpose", the legislator does not in fact establish, in the Stamp Tax Code, any specific concept that should be considered for that purpose, but rather refers the application of the regime of taxation of properties referred to in that Item 28 to the rules of the Municipal Property Tax Code, which establishes a clear distinction between residential properties and land for construction, the former being so classified in accordance with their municipal license, or, in the absence thereof, as a result of normal use, and the latter are defined in accordance with their legal potentiality.
In this light, land for construction – whatever the type and purpose of the building that will, or could be, erected thereon, including that intended for residential purposes – does not by itself meet the requirement provided for in items 28 and 28.1 of the TGIS (wording of Decree-Law no. 7/2015), that is, that "(...) the building "authorized or envisaged, is for residential purposes (...)".
In truth, referring to the rule of incidence of stamp tax to urban properties with residential purpose, without any specific concept being established for that purpose, cannot be extracted therefrom, as we saw previously, that it contains a future potentiality, together with others, inherent in a distinct property that perhaps may come to be built on the land.
The expression "with residential purpose" conveys, upon simple reading, an idea of real and present functionality.
On the other hand, it also cannot be accepted that the concept of "residential purpose" derives from the provision of article 45 of the Municipal Property Tax Code, since this refers to the rules applicable in determining the tax patrimonial value of land for construction, establishing that this is what results from the value of the implantation area of the building to be constructed added to the land adjacent to the implantation. In fixing the value of that area is considered a percentage, varying between 15% and 45%, of the value of buildings authorized or envisaged.
Furthermore, nothing in the law permits the conclusion that the legislator of the Stamp Tax Code intended to expand, for purposes of the incidence of this tax, to the species provided for in no. 1 of article 6 of the Municipal Property Tax Code, given that the application of a coefficient of purpose relates to one of the elements to be considered in the valuation of the land, that is, in the determination of the value of buildings authorized or envisaged.
Regardless of whether, in determining the value of buildings authorized or envisaged for land for construction, a coefficient of purpose should or should not be considered, it is admitted, for being obvious and of general knowledge, that the value of land is determinatively influenced by the type and characteristics of those buildings. However, it is a matter that goes beyond the question on which the present petition for arbitration pronouncement rests.
Under the circumstances referred to, the fact that, for a given piece of land for construction, building of property intended for residential purposes, or for any other purpose, is authorized, even if it must be considered in its valuation, does not determine any alteration in the classification of the land which, for tax purposes, continues to be considered as such.
As such, resulting from article 6 of the Municipal Property Tax Code a clear distinction between, on the one hand, residential urban properties and, on the other hand, land for construction, the latter cannot be considered, for purposes of the incidence of stamp tax, as "properties with residential purpose".
Moreover, in this sense the constant and uniform arbitration jurisprudence prior to the new wording of item 28 of the TGIS introduced by article 194 of Law no. 83-C/2013, of 31/12, has been oriented, and from this (wording) the provision that the taxation in question now applies, at the rate of 1%, to residential property or land for construction whose building, authorized or envisaged, is for residential purposes.
This amendment to the General Table of Stamp Tax, introduced by article 194 of Law no. 83-C/2013, of 31 December, in the part in which it adds to item 28.1 of the same Table, the reference to "land for construction whose building, authorized or envisaged, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code" and, consequently, determines the incidence of stamp tax, in accordance with the provisions of items 28 and 28.1, on the ownership of land for construction whose building, authorized or envisaged, is for residential purposes and whose tax patrimonial value is equal to or greater than €1,000,000.00, does not translate into a normative amendment that justifies a substantial change in the understanding that prior to the new wording of that rule had been followed by Jurisprudence.
Subsuming:
Now, in light of the evidence produced, it appears that on the land in question there was no building authorized or envisaged for residential purposes; on the contrary, it was demonstrated that such purpose could be either residential or for other purposes.
That is: being residential purposes only one of the potentialities of the constructions that might eventually be erected on the land, without demonstrating that there is concrete licensing for those purposes, results in the exclusion of the taxation of the property in the light of article 28 of the TGIS (now revoked by Law no. 42/2016 – State Budget Law for 2017 – article 210-2).
In this essential line of guidance, are, among others, the decisions delivered by Arbitration Tribunals constituted within the scope of CAAD, in processes nos. 522/2015-T, 532/2015-T, 467/2015-T (citing various decisions of the Higher Administrative Court), 578/2015-T, 642/2015-T and 551/2015-T, and, more recently, in process no. 412/2016-T on which the present decision largely relies, published on the CAAD website (www.caad.org.pt).
II.IV. Compensatory Interest
In accordance with the provision of subparagraph b) of article 24 of the Arbitration Regulation the arbitration decision on the merits of the claim to which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, such administration being obliged, in the exact terms of the merits of the arbitration decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of the sentences of tax courts, to "restore the situation that would exist if the tax act subject to the arbitration decision had not been practiced, adopting the necessary acts and operations for that purpose", which is in line with the provision of article 100 of the General Tax Law [applicable by force of the provision of subparagraph a) of no. 1 of article 29 of the Arbitration Regulation] which establishes that "the Tax Administration is obliged, in case of full or partial merits of a claim, judicial challenge or appeal in favor of the taxpayer, to the immediate and full restoration of the legality of the act or situation subject to the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision".
Although article 2, no. 1, subparagraphs a) and b), of the Arbitration Regulation uses the expression "declaration of illegality" to define the jurisdiction of the arbitration tribunals operating in CAAD, making no reference to condemnatory decisions, should be understood that the powers that in judicial challenge proceedings are attributed to tax courts are encompassed in their jurisdiction, this being the interpretation that is in harmony with the meaning of the legislative authorization on which the Government based itself to approve the Arbitration Regulation, in which it proclaims, as the first directive, that "the arbitration tax procedure must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters".
The judicial challenge process, although essentially being a process of annulment of tax acts, admits the condemnation of the Tax Administration to the payment of compensatory interest, as is apparent from article 43, no. 1, of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in amount greater than that legally owed" and from article 61, no. 4 of the Tax Procedure and Process Code (as worded by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the original wording), that "if the decision recognizing the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".
Thus, no. 5 of article 24 of the Arbitration Regulation in stating that "payment of interest is due, independently of its nature, in accordance with the terms provided in the general tax law and in the Tax Procedure and Process Code" should be understood as permitting the recognition of the right to compensatory interest in the arbitration process.
This is, or may be, the situation of the case at hand, that is, the AT will refund the tax if it has been paid – situation evidenced in the file by the collection documents attached by the Claimant –, with payment of compensatory interest, due from the date of payment – which is not evidenced in the file – to the date of processing of the credit note, in which they are included (article 61, no. 5, of the Tax Procedure and Process Code).
III. Decision
Accordingly, this Arbitration Tribunal decides:
a) To find the claim entirely meritorious;
b) To declare, consequently, the illegality of the assessment of stamp tax relating to 2015 with the collection notes nos. 2016…, 2016… and 2016…, and to order its annulment, with the legal consequences inherent thereto;
c) To condemn the Tax and Customs Authority to the restitution of the amounts paid relating to the aforesaid assessment, with compensatory interest as set forth above; and,
d) To further condemn the Tax and Customs Authority to the costs of this proceeding.
Value of the Action
The value of the action was fixed by Arbitration Order in € 12,656.60 in accordance with article 97-A, no. 1, a), of the Tax Procedure and Process Code, applicable by force of subparagraphs a) and b) of no. 1 of article 29 of the Arbitration Regulation and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
Since the arbitration tribunal was constituted, notwithstanding the revocation of part of the tax acts in dispute, there is no place for restitution of the arbitration fee, in accordance with Article 3-A of the Regulation of Costs.
Costs
Notwithstanding the reduction of the value of the action (resulting from the revocation of part of the tax acts in dispute), the value of the arbitration fee is fixed taking into consideration the initial value of the claim (€ 37,969.80), since that was the value of the assessments annulled (both by the AT and by the arbitration tribunal) and was the economic benefit of the present action. Accordingly, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, the value of costs is fixed at € 1,836, to be paid by the Respondent, since it was not the Claimant who gave rise to the action by reason of the fact that all the initially contested assessments were tainted with the vice of law.
Let notification be made.
Lisbon, 27 July 2017
The Arbitration Tribunal,
Nuno de Oliveira Garcia
(Singular Arbitrator)
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