Summary
Full Decision
Arbitral Decision
- Report
A..., SA, with registered office at... of..., ..., Shop..., ...-... ..., with the corporate identification number and registration in the Commercial Registry Office..., came to request the constitution of an Arbitral Tribunal in accordance with the corresponding Legal Regime for Tax Arbitration, for examination of the legality of the assessment of Stamp Duty, item 28.1 of the GIST, relating to the urban property registered in the property matrix under article U-... of the parish of..., Lagos, in the total amount of € 59,932.35, referring to the year 2012.
The Tax and Customs Authority is the Respondent.
The Claimant did not appoint an arbitrator, whereupon the Deontological Council appointed the undersigned, who communicated acceptance of the assignment within the applicable period.
In accordance with the provision in subsection c) of n. 1 of article 11 of the RJAT, the arbitral tribunal was constituted on 19-05-2016.
The Tax and Customs Authority submitted its response.
By order of 7 July of the current year, the holding of the meeting provided for in article 18 of the RJAT was dispensed with, as well as the submissions of the parties.
The arbitral tribunal was regularly constituted and is competent.
The parties possess legal personality and capacity, are entitled to bring proceedings and are duly represented. (articles 4 and 10, n. 2, of the same statute and article 1 of Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from any defects.
- Subject Matter of the Dispute
The issue in the case corresponds to the application of the new taxation in Stamp Duty (SD) levied on urban properties with residential use and patrimonial value equal to or exceeding one million euros, introduced in 2012 to reinforce budgetary control measures on the revenue side, in a context of a state of financial emergency.
As is well known, this taxation has raised strong doubts and considerable controversy. This is not only for specific cases of its application (e.g., vertical property ownership, building plots or its application to the year 2012), but also in general terms, for its possible unconstitutionality (see Luís Menezes Leitão, On the Taxation in Stamp Duty of Luxury Real Estate (item 28.1 GIST), in Tax Arbitration no. 1, pages 44 et seq).
Now, the Claimant comes, precisely, to contest the application of said taxation resulting from the application of the new item 28.1 of the GIST to urban properties corresponding to building plots, requesting the annulment of the said Stamp Duty assessment.
The assessment was made under the provisions of item 28.1 of the Table annexed to the Stamp Duty Code, and the Claimant understands that the legal requirements required for application of the tax provided in said item are not met, with respect to the property in question.
The Claimant argues, in sum, that the property is a building plot, and is therefore not covered by item 28.1 of the General Table of Stamp Duty, in the version given by Law no. 55-A/2012, of 29 October, in force in 2013, which establishes "For property with residential use – 1%".
To that end it cites abundant case law: decisions rendered in cases in the CAAD, including among others arbitral proceedings 48/2013, 53/2013, 144/2013 and 328/2014 and in cases submitted to the STA, including the judgment of the STA of 09-04-2014 – cases nos. 01870/13 and 048/14 and the judgment rendered on 23-04-2014, cases 0271/14, 0272/14 and 0272/14.
The Tax and Customs Authority contested, recognizing the factual circumstances invoked, but pointedly refuting the alleged defects in the act, concluding that the assessment in question constitutes a correct interpretation and application of the law to the facts, and does not suffer from the defect of violation of law, whether of the CRP or of the CIS, and therefore the claim should be declared unfounded and the Respondent Entity should be absolved of the claim.
The question in dispute thus lies in determining the scope of the concept of "residential use" with respect to building plots with patrimonial value equal to or exceeding one million euros, in the initial version of the new item 28.1 of the GIST.
- Factual Matter
3.1. Proven Facts
a) In the year 2012 the Claimant was the owner of the property that gave rise to the assessment of Stamp Duty relating to the year 2012;
b) Such property corresponds to a building plot, registered at the time under article... of the parish of... of the municipality of Lagos (...), with a patrimonial value of 11,986,465.95€, described in the Land Registry Office in the sheet .../2007... of the parish of... (...);
c) The Claimant received on 3 December 2012 the assessment of Stamp Duty, relating to the identified property, through collection notice no. 2012..., of 2012-11-07, in the amount of 59,932.35€;
d) The same was paid within the legal period;
e) The Claimant filed an administrative review of such assessment - administrative review no. ...2013... - alleging its illegality;
f) The Claimant's review came to be dismissed by order issued by the Director of Finance of...;
g) The order of dismissal was communicated to her by official letter... of 2013-02-26 from the Finance Directorate of...;
h) The Claimant did not accept that decision and filed an appeal against it to the General Director of the Tax and Customs Authority, on 1 April 2013, alleging the illegality of the Stamp Duty assessment, as in her understanding it was based on error concerning the factual assumptions, formal illegalities of the assessment and unconstitutionality of the norm of article 6 of Law no. 55-A/2012, of 29 October;
i) On 14 December 2015, the Claimant was notified of the order issued on the said appeal, by official letter... of 7 of the same month, sent by the Finance Directorate of...;
j) That Order completely dismissed the Claimant's appeal;
k) The assessment is based on item 28.1 of the GIST;
l) The present arbitral request was filed on 11 March of the current year.
3.2. Unproven Facts
There are no unproven facts with relevance to the resolution of the case.
3.3. Reasoning for Determination of Factual Matter
The proven facts are based on the submissions of the parties and the documents submitted, whose correspondence to reality is not contested.
- Legal Matter
The question that is the subject of the present action is whether building plots, on which construction of a property intended (even if partially) for residential purposes is authorized, which should be considered in the assessment of their patrimonial value, are included or not within the scope of application of n. 28.1 of the General Table of Stamp Duty (GIST), in its initial version, introduced by Law no. 55-A/2012, of 29 October.
4.1. Regime of Law no. 55-A/2012, of 29 October
Law no. 55-A/2012, of 29 October, made several amendments to the Stamp Duty Code and added item 28 to the GIST, with the following text:
28 – Ownership, usufruct or right of surface of urban properties whose patrimonial value for taxation recorded in the property matrix, in accordance with the Code for Municipal Real Estate Tax (CIMI), equals or exceeds € 1,000,000 – on the patrimonial value for taxation used for purposes of MREIT:
28.1 – For property with residential use – 1%;
28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, included in the list approved by order of the Minister of Finance – 7.5%.
In said item 28.1 and in subitems i) and ii) of subsection f) of n. 1 of article 6 of Law no. 55-A/2012, a concept was used that is not used in any other tax legislation, in these precise terms, which is that of "property with residential use".
Namely in the CIMI, which in several norms of the CIS introduced by that Law is indicated as legislation of subsidiary application with respect to the tax provided in said item n. 28 [articles 2, n. 4, 3, n. 3, subsection u), 5, subsection u), 23, n. 7, and 46 and 67 of the CIS], a concept with that designation is not used.
Law no. 83-C/2013, of 31 December, amended that item n. 28.1, giving it the following text:
28.1 - For residential property or for a building plot whose authorized or planned construction is for residential purposes, in accordance with the provisions of the MREIT Code – 1%.
4.2. Concepts of Properties Used in the CIMI
In the MREIT, the types of properties are enumerated in its articles 3 to 6 as follows:
Article 2
Concept of Property
1 – For the purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any kind incorporated or located thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in 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 located, even though located in a portion of territory that forms an integral part of a different asset or does not have a patrimonial character.
2 – Buildings or constructions, even if movable by nature, are considered to have a character of permanence when used for non-transitory purposes.
3 – A character of permanence is presumed when buildings or constructions have been located in the same place for a period exceeding one year.
4 – For purposes of this tax, each autonomous unit, under the horizontal property regime, is considered to constitute a property.
Article 3
Rustic Properties
1 – Rustic properties are lands located outside an urban cluster that are not to be classified as building plots, in accordance with n. 3 of article 6, provided that:
a) They are assigned to or, in the absence of specific assignment, have as their normal purpose a use generating agricultural income, such as are considered for purposes of personal income tax (PIT);
b) Not having the assignment indicated in the preceding subsection, they are not constructed on or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.
2 – Rustic properties also include lands located within an urban cluster, provided that, by force of a legally approved provision, they cannot be used to generate any income or can only be used to generate agricultural income and are actually so used.
3 – Also rustic properties are:
a) Buildings and constructions directly used for the production of agricultural income, when located on the lands referred to in the preceding numbers;
b) Waters and plantations in the situations to which n. 1 of article 2 refers.
4 – For purposes of this Code, urban clusters are considered, in addition to those located within legally fixed boundaries, groups with a minimum of 10 dwellings served by public roadways, their boundary being delimited by points distant 50 m from the axis of the roadways, in the transverse direction, and 20 m from the last building, in the direction of the roadways.
Article 4
Urban Properties
Urban properties are all those that should not be classified as rustic, without prejudice to the provisions of the following article.
Article 5
Mixed Properties
1 – Whenever a property has rustic and urban parts, it is classified, in its entirety, in accordance with the principal part.
2 – If neither part can be classified as principal, the property is considered mixed.
Article 6
Types of Urban Properties
1 – Urban properties are divided into:
a) Residential;
b) Commercial, industrial or service;
c) Building plots;
d) Others.
2 – Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal purpose each of these uses.
3 – Building plots are considered to be lands located inside or outside an urban cluster, for which a license or authorization for subdivision or construction has been granted, prior communication has been admitted, or favorable preliminary information for subdivision or construction operations has been issued, and also those that have been declared such in the acquisition title, except for lands in which the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal spatial planning instruments, are assigned to public spaces, infrastructure or facilities. (Wording of Law no. 64-A/08, of 31-12)
4 – The provision in subsection d) of n. 1 includes lands located within an urban cluster that are not building plots nor are covered by the provision in n. 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal purpose purposes other than those referred to in n. 2, and also those in the exception in n. 3.
4.3. Rules on Interpretation of Laws
Article 11 of the General Tax Law establishes the essential rules for interpretation of tax laws as follows:
Article 11
Interpretation
-
In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
-
Whenever in tax norms, terms specific to other branches of law are used, they should be interpreted in the same sense that they have therein, unless otherwise directly follows from the law.
-
Should doubt persist as to the meaning of the applicable scope norms, attention should be paid to the economic substance of the tax facts.
-
Gaps resulting from tax norms covered by the law reserve of the Parliament are not susceptible to analogical integration.
The general principles for interpretation of laws, to which n. 1 of article 11 of the GTL refers, are established in article 9 of the Civil Code, which provides as follows:
Article 9
Interpretation of Law
-
Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thinking, taking especially into account the unity of the legal system, the circumstances in which the law was made and the specific conditions of the time in which it is applied.
-
However, the interpreter cannot consider the legislative thinking that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.
-
In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and knew how to express his thinking in adequate terms.
4.4. Hypotheses for Interpretation of the Concept of "Property with Residential Use"
From the norms of the CIMI transcribed above, it follows that the concept of "property with residential use" is not used in the classification of properties. Nor is this concept found, with this terminology, in any other statute. Thus, given the lack of exact terminological correspondence between the concept of "property with residential use" and any other used in other statutes, several interpretative hypotheses can be considered.
As it is already settled case law[1], the starting point for interpretation of that expression "properties with residential use" will be the text of the law, in order to reconstruct on the basis of it the "legislative thinking," as required by n. 1 of article 9 of the Civil Code, applicable by virtue of the provision in article 11, n. 1, of the GTL.
4.5. Concept of "Property with Residential Use" as Referring to Residential Properties
The concept closest to the literal wording of the expression used ("property with residential use") is manifestly that of "residential properties," defined in n. 2 of article 6 of the CIMI as comprising "buildings or constructions" licensed for residential purposes or, in the absence of a license, which have residential purposes as their normal use.
If it is understood that the expression "property with residential use" coincides with that of "residential properties," it is manifest that the assessments will suffer from error as to the factual and legal assumptions, since all properties for which the Stamp Duty assessment was made under said item n. 28.1 are building plots, without any building or construction, required by that n. 2 of article 6 for satisfying that concept of "residential properties."
Therefore, if the interpretation is adopted that "property with residential use" means "residential property," the assessments whose declaration of illegality is sought will be illegal, because there is in any of the plots no building or construction.
However, the non-coincidence of the terms of the expression used in item n. 28.1 of the GIST with that which is extracted from n. 2 of article 6 of the CIMI suggests that it was not intended to use the same concept.
4.6. Concept of "Property with Residential Use" as a Distinct Concept from "Residential Properties"
The word "use" (afectação), in this context of the use of a property, has the meaning of "the action of assigning something to a determined use."([2])
"When, as is usually the case, norms (legislative formulas) bear more than one meaning, then the positive function of the text is expressed in giving stronger support to or suggesting more strongly one of the possible senses. For among the possible senses, some will correspond to the most natural and direct meaning of the expressions used, while others will only fit within the verbal framework of the norm in a forced, contrived manner. Now, in the absence of other elements that lead to the choice of the less immediate sense of the text, the interpreter should opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and especially its technical-legal meaning, assuming (not always accurate) that the legislator knew how to express his thinking correctly."([3])
Now, the relevance of the text of the law is especially emphasized in matters of interpretation of the norms governing the scope of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on assets, on acts, etc.), which leaves no appreciable margin for application of the principal interpretative criterion, which is the unity of the legal system, which requires its overall coherence.
Furthermore, the recognized lack of coherence of Stamp Duty is still particularly exuberant in the case of this item n. 28.1, included outside the State Budget for 2013, in a context of generalized tax increase, dictated by urgent and pressing budgetary reasons, by pressure from international institutional creditors (represented by the "troika") and also as a result of the Constitutional Court's oversight of successive norms designed to expand revenue and reduce public expenditure.
Thus, even if in the "Statement of Reasons" of Proposed Law no. 96/XII/2nd([4]), on which Law no. 55-A/2012 was based, reference is made to the Government's concern to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program" and its commitment "to ensure that the distribution of such sacrifices will be made by all and not just by those who live on their work income," it is manifest that the scope of item n. 28.1, by taxing at an increased rate only certain properties with residential use and not also properties which do not have such use, does not achieve that objective of equitable expansion of the tax base.
In this context, given the absence of reliable interpretative elements that permit detection of legislative coherence in the solution adopted in said item n. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of n. 3 of article 9 of the Civil Code), the content of the legal text must be the principal element of interpretation, in accordance with the presumption, imposed by that same n. 3 of article 9, that the legislator knew how to express his thinking in adequate terms.
In light of those meanings of the words "use" (afectação) and "to use" (afectar), which are "to assign a purpose to" or "to apply," the formula used in that item n. 28.1 of the GIST manifestly encompasses properties that have already been assigned to residential purposes, properties that are already applied to residential uses, so it is necessary to inquire whether it will also encompass properties that, although not yet applied to residential uses, are assigned to them, namely in a subdivision license.
To that end, it is necessary to clarify when it can be understood that a property is assigned to a residential purpose, namely whether it is when that purpose is fixed for it in a subdivision license or act of licensing or similar, or only when the actual assignment of that purpose is materialized.
From the outset, the comparison of item n. 28.1 of the GIST with n. 2 of article 6 of the CIMI, which defines the concept of residential properties, points toward the necessity of an actual assignment.
In truth, a building or construction licensed for residential purposes or, even without a license, but which has residential purposes as its normal use, is, in light of n. 2 of that article 6, a residential property, since such classification is given therein to "buildings or constructions licensed for such purposes or, in the absence of a license, which have each of these purposes as their normal use."
Therefore, on the assumption that the legislator of Law no. 55-A/2012 knew how to express his thinking in adequate terms (as article 9, n. 3, of the Civil Code requires be presumed), if it were intended to refer to those properties already licensed for residential purposes or which have residential purposes as their normal use, it would certainly have used the concept of "residential properties," which would express perfectly and clearly his thinking, in light of the definition given by that n. 2 of article 6 of the CIMI.
Consequently, it must be presumed that the use of a different expression is aimed at a different reality, so, in sound hermeneutics, "property with residential use" cannot be a property merely licensed for residential purposes or intended for that purpose (that is, it will not suffice that it be a "residential property"), but must be a property that already has actual assignment to that purpose.
What is this meaning of the expression "use" (afectação), in the same context of classification of properties that the CIMI makes, is confirmed by article 3 in which, with respect to rustic properties, reference is made to those "which are assigned to or, in the absence of concrete assignment, have as their normal purpose a use generating agricultural income," which shows that assignment is concrete, actual. In truth, as is seen from the final part of this text, a property may have as its purpose a determined use and be or not assigned to it, which shows that assignment is, at the level of connection of a property to a determined use, something more intense than mere purpose and which may or may not occur, downstream from this and not upstream from it.([5])
Moreover, the text of the law by adopting the formula "property with residential use," instead of "urban properties with residential use," which appears in said "Statement of Reasons," points strongly toward the fact that the assignment to residential purposes must already be materialized, since only then will the property be with such assignment.
In the case at hand, one is faced with a reality still more distant from residential assignment, which is that there exists no building or construction at all and, therefore, an assignment cannot be considered to exist which presupposes its existence.
Furthermore, the text of the norm does not even set out which degree of (residential) assignment is relevant for purposes of incidence of the new item: the entire property, only part of it, and, in the second possibility, will there be a minimum necessary to make relevant for purposes of taxation this merely partial "use," or will it be relevant however minimal?
Added to this is the fact that the legislative intention to confine the scope of application to "urban properties... residential" with exclusion of building plots, was expressly referred to by the Government when presenting to the Plenary of Parliament Proposed Law no. 96-XII by saying, through the voice of the State Secretary for Tax Affairs:
"First, the Government proposes the creation of a special tax to tax high-value residential urban properties. It is the first time in Portugal that a special tax on high-value properties intended for residential purposes has been created. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses with a value equal to or exceeding 1 million euros. With the creation of this additional tax, the tax burden required of these owners will be significantly increased in 2012 and in 2013."([6])
The express reference to "houses" as the target of the new tax's scope leaves no room for doubt as to the legislative intention.
On the other hand, no reference is found in the discussion of said Proposed Law to "building plots."
With respect to article 45 of the CIMI, invoked by the Respondent as the foundation of the "use" (afectação), it has no relationship to the classification of properties, merely indicating the factors to be considered in the valuation of building plots. What is considered there, by making reference to the "building to be constructed," is consideration of the purpose of the plot, which, as has been seen, is something that, in the context of the CIMI, does not imply assignment and occurs before it.
On the other hand, it is further added that Law no. 83-C/2013, of 31 December, came to confirm, at least indirectly, the interpretation that the item in question in its initial version did not encompass building plots.
In truth, if the original wording of that item n. 28.1, by speaking of "property with residential use," already intended to encompass buildings and constructions that constituted "residential properties" (in accordance with article 6, n. 2, of the CIMI), and also building plots for which residential construction was authorized or planned, it would be natural for the new wording to be given an interpretative character, similar to what Law no. 83-C/2013 does in other provisions [article 177, n. 7, with respect to subsections a) and b) of n. 3 of article 17-A of the PIT Code, and article 185, n. 1, with respect to article 3-A of the VAT Code] and is customary to do in budget laws, when it is intended that the new wordings apply to situations potentially covered by the previous wordings.
Therefore, the fact that the new wording was not given an interpretative character points toward the fact that it was intended to alter the scope of application of said item n. 28.1 of the GIST and not to maintain it, merely clarifying it.
By the foregoing, the assessment whose declaration of illegality is sought by the Claimant suffers from the defect of error as to the legal assumptions, consisting of violation of item n. 28.1 of the GIST, which justifies its annulment (article 135 of the Administrative Procedure Code).
Thus made unnecessary, the analysis of the possible unconstitutionality of the norm or of the interpretation made of it.
4.8. Compensatory Interest
The Claimant made full payment of the tax, so proceeding with the present request for annulment of the tax act, the AT should be condemned to reimburse her the tax paid wrongfully, plus also compensatory interest, calculated from the date of payment.
In fact, in the case at hand, as has equally been settled case law, it is not seen how not to impute to the AT the error from the interpretation which it itself created. It is, therefore, evident that compensatory interest is due in the terms referred to.
As the tax was effectively paid, the Claimant should be reimbursed thereof, plus compensatory interest, calculated at the legal rate from the date of payment until the processing of the credit note in which it is included.
- Operative Part
In accordance with the foregoing, it is decided that the claim is well-founded and, consequently, the assessment identified above is annulled, on the basis of the defect of violation of law, with further declaration of the right to compensatory interest calculated on the total amount expended, from the date of such expenditure, until the processing of the corresponding credit note in which it is included.
- Value of the Case
In accordance with the provision in art. 306, nos. 1 and 2, of the CPC and 97-A, n. 1, subsection a), of the PPTC and 3, n. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 59,932.35 (fifty-nine thousand nine hundred and thirty-two euros and thirty-five cents).
- Costs
In accordance with art. 22, n. 4, of the RJAT, the amount of costs is fixed at € 2,142.00 (two thousand one hundred and forty-two euros), in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, entirely charged to the Tax and Customs Authority.
Text prepared by computer, in accordance with the Code of Civil Procedure (CPC), applicable by virtue of the provision in article 29, n. 1, subsection e) of the RJAT.
Lisbon, 5-08-2016
The Arbitrator
(Jaime Carvalho Esteves)
[1] This follows, moreover, very closely, the text of the judgment rendered in Case no. 442/2014-T in which the arbitrators were Drs. Jorge Manuel Lopes de Sousa, Luís Máximo dos Santos and Jaime Carvalho Esteves.
([2]) Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Volume I, page 102.
The Houaiss Dictionary of Portuguese Language defines "use" (afectação), in a context similar to this, as "the act that assigns a purpose to public property."
The Great Dictionary of Portuguese Language, by JOSÉ PEDRO MACHADO, indicates as "to assign" and "to apply" among the meanings of "to use" (afectar).
([3]) BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.
([4]) Proposed Law no. 99/XII/2nd is available at
http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245
([5]) Other norms of the CIMI make clear that the term "use" (afectação) is used to reference situations already in existence and not merely future, even if foreseeable, as "purpose" is.
This is the case of article 9 of the CIMI, which, after establishing that "the tax is due from" "the 4th year following, inclusive, that in which a building plot passed to be recorded in the inventory of a company whose purpose is the construction of buildings for sale" or "the 3rd year following, inclusive, that in which a property passed to be recorded in the inventory of a company whose purpose is its sale" [subsections d) and e) of n. 1], determines that "for purposes of the provision in subsections d) and e) of n. 1, taxpayers must communicate to the finance service of the area where the properties are located, within 60 days counted from the verification of the fact determining its application, the assignment of the properties to those purposes." The "assignment of the properties to those purposes," in the context of this article 9, is reduced to the concrete assignment to the properties of the purpose "for sale," materialized by their recording in inventory, it being insufficient that they were constructed or acquired with a view to their sale.
([6]) Page 32 of the Parliamentary Journal of the Portuguese Republic, no. 9 of the 2nd Legislative Session of the XII Legislature, relating to the Plenary Meeting of 10-10-2012, available at
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