Stamp Tax Verba 28.1 TGIS on High-Value Property: CAAD Arbitration Decision 142/2015-T

ARBITRAL DECISION

CLAIMANT: A…, LDA.

 

RESPONDENT: TAX AND CUSTOMS AUTHORITY

 

I – REPORT

A. – PARTIES

 

    A..., LDA., hereinafter referred to as the Claimant, legal entity no. …, with registered office at Avenue …, no. …, …-… …, filed a request on 27 February 2015 for the constitution of a singular arbitral tribunal in tax matters, in accordance with the provisions of Article 2, No. 1, subsection a) of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration - RJAT) and Articles 1, subsection a) and 2 of Ordinance No. 112-A/2011, of 22 March, with the purpose of resolving the dispute opposing it to the Tax and Customs Authority, which shall hereafter be referred to as the Respondent.

 

B. – CONSTITUTION OF THE TRIBUNAL

 

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 02/03/2015 and automatically notified to the Claimant and the Tax and Customs Authority on 02/03/2015, the President of the respective Deontological Council having designated the signatory as arbitrator of the Singular Arbitral Tribunal, in accordance with the provisions of Article 6, No. 1 of RJAT, a responsibility which was accepted in accordance with legally established terms.

 

2. On 23/04/2015, the Parties were notified of this designation, in accordance with the combined provisions of Article 11, No. 1, subsection b) of RJAT and Articles 6 and 7 of the Deontological Code, having manifested no intention to challenge the designation of the arbitrator.

 

3. In these circumstances, the Tribunal was constituted on 02/06/2015, in accordance with the provision of subsection c), of No. 1 of Article 11 of Decree-Law No. 10/2011, which was notified to the Parties on that date.

                                           
C. – CLAIM

 

    The Claimant seeks that the Arbitral Tribunal declare the illegality of the Stamp Tax assessment issued on 17/03/2014, relating to the year 2013, under item 28.01 of the respective General Table of Stamp Tax (TGIS), in the amount of €23,741.60, in reference to the real property of which it is the owner, located in the Municipality of …, parish of …, registered in the urban registry under no. U-…, as described in the Request for Arbitral Pronouncement, and, as a consequence,

    Determine the restitution of the tax which was paid by the Claimant, together with compensatory interest.

 

D. – PROCEDURAL COURSE

 

    Following the notification of the date of constitution of the Arbitral Tribunal on 02/06/2015, the subsequent procedural steps followed in the manner below:

    - On 04/06/2015 – The Respondent was notified to, in accordance with Nos. 1 and 2 of Article 17 of RJAT, present a response within 30 days and, if it so wished, request the production of additional evidence and remit to the Arbitral Tribunal a copy of the administrative file by electronic means;

 

    - On 10/07/2015 – The Respondent presented a Response to the Request for Arbitral Pronouncement, uploaded the administrative file to the CAAD online "Platform" and proposed the waiver of the holding of the meeting referred to in Article 18 of RJAT and the immediate consideration of the request by the Tribunal, the Claimant having been notified of all of this.

 

    - On 11/08/2015 – The Tribunal set the date of 08/09/2015, at 10:30 a.m., for the meeting provided for in Article 18 of RJAT;

 

    - On 09/09/2015 – It was not possible to hold the meeting provided for in Article 18 of RJAT, due to the absence of both parties' representatives, the Tribunal having set the date of 29/09/2015 at 10:30 a.m. for its holding;

 

    - On 29/09/2015 – The meeting provided for in Article 18 of RJAT was held, with the absence of the Respondent, from which the following resulted:

 

             - The Claimant's representative declared that it did not intend to make oral submissions;

 

            - The Tribunal ordered that the Claimant attach to the file, within 48 hours, a certificate and property record relating to the real property whose tax is in question;

 

            - The date of 19 October 2015 was set for the pronouncement of the arbitral decision;

 

    - On 05/10/2015 – The Claimant remitted the documentation referred to, as ordered by the Tribunal at the meeting of 29/09/2015, whose attachment was granted.

 

    - On 19/10/2015 – Pronouncement of the arbitral decision.

 

E. – CLAIM OF THE CLAIMANT AND ITS GROUNDS

 

To support the Request for Arbitral Pronouncement, the Claimant alleged, in summary, the following:

- The Claimant is the owner of the real property located in the Municipality of …, parish of …, registered in the urban registry under no. U-…;

- And that to this real property was assigned a taxable property value (VPT) of €2,374,160.00, which was in force in the year 2013;

- And furthermore that, in March 2014, it was notified of the document for payment of Stamp Tax, a copy of which is attached to the Request for Arbitral Pronouncement as document no. 1;

- This document concerned the Stamp Tax assessment issued on 17/03/2014, under item no. 28.1 of the General Table of Stamp Tax (TGIS), in reference to the real property identified above, in the total amount of €23,741.60;

- The Claimant proceeded with the respective payment;

- It contends that the tax assessment act for stamp tax, under item no. 28.1 TGIS, in reference to the real property identified above, is affected by a defect of error regarding the legal prerequisites and a defect of violation of law;

- The illegality arising, in its view, from the violation of the constitutional principles of tax equality and taxpaying capacity, enshrined in Articles 13 and 104 of the Constitution of the Portuguese Republic (CRP);

- It considers that the realization of the principle of tax equality necessarily depends on its adaptation to the contours of different tax species, through the adoption of distribution criteria that best suit them;

- Thus, the legislator established the principle of taxpaying capacity as the appropriate material criterion of equality for taxes, which, in its view, leaves uncovered the inequality and disproportionality that item no. 28.1 of TGIS causes among taxable persons.

- On one hand, it does not understand why taxation applies only to real property intended for residential purposes, excluding those which, although having a value exceeding €1,000,000.00, are not intended for that purpose.

- And, on the other, why taxation does not cover other real property of the taxable person intended for residential purposes, each having a value below €1,000,000.00, but which, in total, exceed that amount.

- For which reason it concludes that the assessment of this tax violates the principle of equality in that it treats taxpayers in the same situation differently, the measure of difference not being determined by actual taxpaying capacity, but based on an arbitrary legal solution lacking any rational foundation.

- It argues that the departure from the principle of taxpaying capacity would only be legitimate through the application of the principle of equivalence, in accordance with which taxes and contributions constitute commutative taxes, aiming at the compensation of administrative benefits or services of which the taxable person is the cause or beneficiary, presumptively or actually.

- Now, the principle of equivalence cannot, in its opinion, have application in the present case, as the rule contained in Article 28.1 of TGIS does not present a commutative structure, rather presenting the typical unilateral structure of taxes.

- It concludes by requesting the declaration of illegality of the assessment in question, determining the restoration of the adequate tax situation of the Claimant through the restitution of the sum of €23,741.60, together with the compensatory interest provided for in Article 43 of LGT, by virtue of Article 29 of Decree-Law No. 10/2011.

 

F. – RESPONSE OF THE RESPONDENT AND ITS GROUNDS

 

 The Respondent, duly notified for such purpose, timely presented its Response, in which it alleged, in summary, regarding the matter in question, the following:

 

- The Constitution of the Republic requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiated treatment, but only arbitrary, unreasonable discrimination, that is to say, distinctions of treatment that lack justification and sufficient material foundation.

- It understands that the provision of item no. 28.1 of TGIS does not constitute a violation of any constitutional norm.

- And that item no. 28.1 of TGIS is a general and abstract rule, applicable indifferently to all cases in which the factual and legal prerequisites are met.

- It adds that it is the different aptitude of the real properties (residential/services/commerce) that sustains the different treatment, having constituted a choice of the legislator, for political and economic reasons, to exclude from the scope of Stamp Tax real property intended for purposes other than residential ones.

- It further notes that taxation under Stamp Tax obeys criteria of adequacy, applying indifferently to all holders of real properties with residential use of a value equal to or exceeding €1,000,000.00, impacting the wealth embodied and manifested in the value of real properties.

It concludes by the lack of merit of the Claimant's claim, with the consequent dismissal of the request.

 

G. – QUESTIONS TO BE DECIDED

 

     In light of the positions taken by the Parties in accordance with the arguments presented, the following are the questions which must be considered and decided:

 

      1.– Main Question — To determine whether item no. 28.1 of TGIS suffers from unconstitutionality due to violation of the principle of tax equality and taxpaying capacity, provided for in Articles 13 and 104 of the Constitution of the Portuguese Republic;

 

     2 – Compensatory Interest – The existence, or not, of the right to compensatory interest, under Article 43 of LGT, in the event the assessment is annulled and the reimbursement of the requested amount, which would have been induly paid, is determined.

 

     3 – Responsibility for the payment of arbitral costs.

 

 

H. – PROCEDURAL PREREQUISITES

 

     1. The Arbitral Tribunal is regularly constituted and is materially competent, in accordance with the provisions of subsection a), of No. 1 of Article 2 of RJAT (Decree-Law No. 10/2011, of 20 January).

 

     2. The Parties have legal standing and capacity, are legitimized and are regularly represented, in accordance with Articles 4 and 10, No. 2 of RJAT and Article 1 of Ordinance No. 112/2011, of 22 March.

 

     3. The process is not affected by defects that compromise its validity.

 

I. – FACTS

 

I. 1 – PROVEN FACTS

     With relevance to the consideration of the questions raised, the Tribunal establishes as proven the following facts:

 

1. The Claimant is the owner of the real property located in the Municipality of …, parish of …, registered in the urban registry under no. U-….

2. To this real property was assigned a taxable property value (VPT) of €2,374,160.00, which was in force in the year 2013.

3. In March 2014, the Claimant was notified of the document for payment of Stamp Tax, a copy of which is attached to the Request for Arbitral Pronouncement as document no. 1.

4. This document concerned the Stamp Tax assessment issued on 17/03/2014, under item no. 28.1 of the General Table of Stamp Tax (TGIS), in reference to the real property identified above, in the total amount of €23,741.60.

5. The Claimant proceeded with the respective payment.

6. On 27 February 2015 the Claimant requested the constitution of a singular arbitral tribunal in tax matters.

 

I. 2 – FOUNDATION OF THE PROVEN FACTS

 

     The facts established as proven are based on the documents indicated with regard to each of them, and on the factual elements brought into the process by the Parties, to the extent that their conformity with reality was not questioned.

I. 3 – UNPROVEN FACTS

 

      There are no unproven facts with relevance to the consideration of the questions to be decided

 

 

J. – LAW

 

     With the facts established, we proceed, below, to their legal subsumption and to the determination of the Law to be applied, taking into account the questions to be decided which were stated.

 

     As to the first question to be decided,

 

 

The following is the text of item no. 28.1 of TGIS, added by Article 4 of Law No. 55-A/2012, of 29 October, applicable to the case at hand:

28 – Ownership, usufruct or right of superficies of urban real property whose taxable property value shown in the registry, in accordance with the Code of the Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the taxable property value used for purposes of IMI

 28.1 – For real property with residential use – 1%.

 

The Claimant bases its claim on the unconstitutionality of item no. 28.1 of TGIS, due to violation of the principles of tax equality and taxpaying capacity.

Analyzing the situation in question, it must be said that, as the Constitutional Court has understood, the material aspect of the principle of tax equality postulates that what is identical be treated identically, and what is different be treated differently. To that extent, the legislator, within the broad margin of freedom of regulation that it has, is not prevented from establishing different treatment for different situations, provided there exists sufficient material foundation and it is not an arbitrary or disproportionate solution.

With respect to the principle of tax equality, it was written in Decision of the Constitutional Court No. 348/97:

            "The duty of citizens to pay taxes constitutes a public obligation with constitutional basis. As such, it is subject to some rules equivalent to those of fundamental rights, namely the principles of generality and equality, that is to say, that all citizens should be subject to its payment (Article 12, No. 1), and should be subject to it in an identical measure, without any undue discrimination (Article 13, No. 2), which constitutes the principle of tax equality. This principle is relevant not only for the case of tax imposition but also for the case of tax exemptions and privileges, which cannot fail to respect it on pain of constitutionally unlawful privilege (see Gomes Canotilho and Vital Moreira, Constituição da República Portuguesa Anotada, 3rd ed., Coimbra, 1993, p. 459).

           Within the scope of tax impositions of interest here (things are not entirely identical at the level of extrafiscal purposes), their distribution must thus obey the principle of tax equality, fiscal or contributive which is realized through the generality and uniformity of taxes, and, as Teixeira Ribeiro teaches (see cited work, p. 261), 'generality means that all citizens are bound to the payment of taxes, there being among them, therefore, no distinction of class, order or caste, that is to say, of merely political nature; in turn, uniformity means that the distribution of taxes among citizens obeys the same criterion identical for all'.

           Thus, the generality of the duty to pay taxes means its universal (non-discriminatory) character, and uniformity (equality) means that the distribution of taxes among citizens must obey a criterion identical for all. And such criterion, as emphasized by José Casalta Nabais, Contratos Fiscais (Reflexões acerca da sua admissibilidade), Coimbra, 1994, p. 265 et seq., '(...) is that of taxpaying capacity (economic capacity, ability to pay, etc.), which means that taxpayers with the same taxpaying capacity should pay the same tax (horizontal equality) and taxpayers with different taxpaying capacity should pay different (qualitative and/or quantitatively) taxes (vertical equality)', it being certain that the subjective scope of this principle applies equally to individuals (natural persons) and to legal entities.

           The legislator, in the selection and articulation of taxable facts, should adhere to facts revealing taxpaying capacity 'defining as the object (taxable matter) of each tax a certain economic prerequisite which is a manifestation of that capacity and is present in the various legal hypotheses of the respective tax'.

           Taxation in accordance with the principle of taxpaying capacity will imply the existence and maintenance of an effective connection between the tax obligation and the economic prerequisite selected as the object of the tax, requiring, for this purpose, "a minimum of logical coherence of the various concrete hypotheses of tax provided for in the law with the corresponding object thereof".

This is, in sum, the prohibition of arbitrariness.

Decision No. 84/2003 of the same Court defines the principle of taxpaying capacity in the following terms:

"The principle of taxpaying capacity expresses and realizes the principle of tax equality or fiscal equality in its aspect of 'uniformity' – the duty of all to pay taxes according to the same criterion – with taxpaying capacity fulfilling the unitary criterion of taxation.

This criterion consists in that the incidence and distribution of taxes – of 'fiscal taxes' more precisely – should be made according to the economic capacity or 'capacity to spend' (in the classical Portuguese formulation, of Teixeira Ribeiro, "A justiça na tributação" in "Boletim de Ciências Económicas", vol. XXX, Coimbra 1987, no. 6, author who also refers to it as "ability to pay") of each one and not according to what each one might eventually receive in public goods or services (criterion of benefit).

 

The current Constitution of the Republic does not expressly enshrine this principle with a long tradition in Portuguese constitutional law - the Constitutional Charter of 1826 expresses it in the formula of taxation "according to the assets" of citizens and, in the Constitution of 33, Article 28 enshrines it in the obligation imposed on all citizens to contribute to public expenses "according to their assets")

 

  Notwithstanding the silence of the Constitution, it is the generalized understanding of doctrine that "taxpaying capacity" continues to be a basic criterion of our "fiscal Constitution" and that it may (or should) be reached from the structuring principles of the tax system formulated in Articles 103 and 104 of CRP (see Casalta Nabais "O dever fundamental de pagar impostos", pages 445 et seq.)".

 

To assess the reasonableness of the legal solution, it is necessary to resort to the ratio of the legal provision, the purpose that inspired the legislator.

It is important, thus, to place the rule in question in the context in which it was produced. The Country was subject to the "Memorandum of Understanding" with the International Monetary Fund (IMF), European Central Bank (ECB) and European Union (EU), which led to the introduction of measures of a fiscal nature to combat budgetary deficit.

The legislator had the need to broaden the range of taxpayers and contributions, recognizing that the effort of budgetary consolidation that was being carried out could not continue to fall, to a large extent, only on employees and pensioners, but should also tax property and capital.

Within the scope of the measures it took to accomplish this objective, Law No. 55-A/2012, of 29 October, was published, which introduced item 28.1 of TGIS.

It is read in the statement of reasons of the Bill No. 96/XII (2nd), which was at the origin of this act, that the measures introduced

            "… are fundamental to strengthen the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to meet the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not only by those who live from the income of their work. In accordance with this objective, this act extends the taxation of income from capital and property, equitably encompassing a broad set of sectors of Portuguese society.

(…)

         On the other hand, a tax rate is created under Stamp Tax applying to urban real properties with residential use whose taxable property value is equal to or greater than one million euros"

In the parliamentary discussion of this act, the Secretary of State for Tax Affairs, Paulo Núncio, took the opportunity to justify the legislative choice, underlining social equity as a priority principle of tax policy as a way to ensure fair distribution of the tax effort, expanding the tax base.

Thus, requiring an increased effort from taxpayers with higher income, it avoided that it would always be the same — employees and pensioners — who would bear the tax burden.

The act in question was based on three essential pillars: the creation of special taxation on residential urban real properties of value exceeding 1 million euros; the increase of taxation on income from capital and on capital gains; and the strengthening of the rules for combating tax fraud and evasion.

That is to say, with this Law No. 55-A/2012, it was the Government's intention to constitute a fiscal package imposed on the "wealthy" to help resolve the crisis, at the same time transmitting to the population a feeling of greater justice in the distribution of sacrifices, resulting in that taxpayers with the same spending capacity should pay the same taxes, and taxpayers with less spending capacity should pay less taxes.

It thus shows itself to be perfectly reasonable and balanced the taxation of so-called "luxury" residential real property, whose value is equal to or greater than €1,000,000.00, since, in normal circumstances, the ownership of a residential property of this value indicates, by itself, a high taxpaying capacity.

 

Thus, and in conclusion, the taxation in question applies only to real property intended for residential purposes, excluding those which, although having a value exceeding €1,000,000.00, are not intended for that purpose, and does not cover other real property of the taxable person intended for residential purposes, each having a value less than €1,000,000.00, but which in total exceed that amount, because it is a matter of taxing high-value residential real property, usually held by the more affluent, thereby protecting from greater tax collection the already much penalized income from work and pensions, as a fairer way of distributing the tax burden, in a particularly demanding context of the need for budgetary consolidation.

 

It is thus perfectly reasonable to impose on the holder of a real property considered a luxury property, of a high taxable property value (traditionally lower than market value), an additional contribution, since the increased taxation of luxury goods allows for a more balanced distribution of the tax burden, imposing a greater sacrifice on those who show greater economic availability.

 

The main claim of the Claimant thus fails.

 

 

The consideration of the second question — compensatory interest — is moot due to the failure of the main claim formulated by the Claimant.

 

 

 As to responsibility for arbitral costs, the law is explicit in imputing responsibility for the payment of costs to the party which is condemned, given the provisions of Nos. 1 and 2 of Article 527 of the Code of Civil Procedure, applicable by virtue of Article 29, No. 1, subsection e) of RJAT.

 

      Thus, responsibility for the payment of arbitral costs is that of the Claimant.

 

L. – DECISION

 

 

     In light of the foregoing, this Arbitral Tribunal decides:

 

a)     To dismiss, as lacking merit, the request for declaration of illegality of the Stamp Tax assessment relating to the year 2013, under item 28.01 of the respective TGIS, in the amount of €23,741.60, as described in the Request for Arbitral Pronouncement, as well as the request for restitution of the tax which was paid by the Claimant, together with compensatory interest.

 

b)     To condemn the Claimant to pay the costs of the present proceeding (Article 527, Nos. 1 and 2 of the Code of Civil Procedure, by virtue of Article 29, No. 1, subsection e) of RJAT).

 

 

     Value of the proceeding: In accordance with the provisions of Articles 306, No. 2 of CPC (formerly 315, No. 2) and 97-A, No. 1 of CPPT and Article 3, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €23,741.60.

 

     Costs: In accordance with No. 4 of Article 22 of RJAT, the amount of costs is fixed at €1,224.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

 

Notify the parties.

Lisbon, 19 October 2015

 

The Arbitrator

José Nunes Barata