Summary
Full Decision
ARBITRAL DECISION
1. Report
On 01-03-2017, the public limited company A…, S.A., legal entity no. …, with registered office at …, no. …, …, …-… Lisbon, registered in the Commercial Registry Office of Lisbon under no. …, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for constitution of an arbitral tribunal with a view, immediately, to the annulment of the dismissal of the gracious appeal, and mediately, to the annulment of the tax act of assessment of Stamp Duty, item 28.1 of the General Table of Stamp Duty (TGIS), relating to the year 2015 and to the real property registered in the urban property register under article …, of the parish of …, municipality of Lisbon, described as land for construction.
The Claimant alleges that the assessment in question suffers from unconstitutionality, by violation of the following principles:
- principle of equality and the sub-principles of taxpaying capacity and taxation by actual income;
- principle of prohibition of double taxation.
The Claimant begins by stating that it cannot accept the application of item 28.1, on the grounds that it suffers from unconstitutionality, by violation of the principle of equality enshrined in articles 12 and 13 of the Constitution of the Portuguese Republic (CRP) and in article 55 of the General Tax Code (LGT). For the Claimant, the principle of equality would constitute a limit to legislative discretion, not prohibiting the establishment of distinctions, but rather prohibiting the promotion of distinctions lacking objective and rational justification.
According to the Claimant, there is no plausible justification, within the spirit of the legislator, for the negative discrimination made by item 28.1 of the TGIS with regard to land for construction with residential allocation whose tax property value (VPT) is equal to or greater than 1,000,000 €, in relation to the taxation of built residential properties that are constituted in horizontal or vertical ownership, whose autonomous fractions or individual allocation units do not exceed the VPT of 1,000,000 €, but whose total VPT is equal to or greater than that value. In this situation, there results for the owner of the land for construction, intended for housing, with a VPT exceeding 1,000,000 €, an increased taxation in relation to that to which it will be subject from the moment it has proceeded with the construction of a residential property on the land for construction.
The Claimant understands that the assessment act in question violates the aforementioned principle of equality, insofar as taxpayers with the same taxpaying capacity, namely owners of land for construction whose VPT is equal to or greater than 1,000,000 €, are taxed, not according to their wealth, but rather according to the purpose that will eventually be given to the said property. For the Claimant, the current value of wealth and/or the potential value of enrichment, provided by the unbuilt land, is not equal, but is rather necessarily inferior, to the current value of wealth and, thereby, of taxpaying capacity, real or presumably provided by built property.
The Claimant concludes that item 28.1, in the wording introduced by Law no. 83-C/2013 of 31 December, is materially unconstitutional, by breach of the principle of equality, being applied to land for construction with VPT equal to or greater than 1,000,000 € for which the authorized or anticipated construction did not include any fraction susceptible to independent use with value equal to or greater than that amount.
The Claimant refers to the decisions of CAAD no. 507/2015-T, 493/2015-T, 529-2015-T, 2/2016-T, 114/2016-T and 195/2016-T.
On the other hand, the Claimant alleges that land for construction is a factor of production for the pursuit of an economic activity, and is not an element demonstrating the wealth of its owner.
The Claimant understands that companies that develop real estate activities, as is its case, are being fiscally penalized, to the detriment of companies operating in any other sector of activity. And in this regard it refers to the decision of CAAD of proceeding no. 53/2013-T.
The Claimant further states that item 28.1 of the TGIS does not take into account the actual income from the activity developed by the companies, taxing them even if they incur losses.
The Claimant concludes that also here item 28 of the TGIS is materially unconstitutional by violation of the principle of equality, since it determines an unjustified negative discrimination of companies trading in land for construction.
The Claimant also alleges that the properties taxed by item 28.1 of the TGIS are subject to a double taxation, constitutionally inadmissible, resulting from the overlap between Stamp Duty and Municipal Property Tax (IMI).
For the Claimant, IMI is a tax that falls on properties and whose taxable event is precisely the ownership of such assets, under the terms of no. 1 of article 8 of the IMI Code. Thus, there would be double taxation of the same legal reality, taxation that is inadmissible in light of the principles and rules governing the Portuguese tax system.
Finally, the Claimant states that the illegality of the decision of the gracious appeal presented is manifest, for the same reasons attributed to the assessment act in question here.
Lastly, the Claimant requests the condemnation of the Tax Authority to reimburse the tax wrongly assessed, plus compensatory interest, pursuant to article 43 of the LGT, on the grounds that there has been an error attributable to the services.
A sole arbitrator was appointed on 27-04-2017, Suzana Fernandes da Costa.
In accordance with the provisions of article 11, no. 1, sub-paragraph c) of the RJAT, the sole arbitral tribunal was constituted on 17-05-2017.
The Tax Authority presented its reply on 08-06-2017 (within the legal period for doing so).
The Tax Authority argues that the request for declaration of illegality and consequent annulment of the disputed assessment should be judged unfounded, since the assessment in question constitutes a correct interpretation of item 28.1 of the General Table of Stamp Duty, given that the said property in question is a "land for construction whose construction, authorized or anticipated, is for housing."
With regard to the alleged unconstitutionality by violation of the principle of double taxation alleged by the Claimant, the Tax Authority states that taxation under IMI and Stamp Duty are different taxes.
As for the alleged violation of the principle of equality, the Tax Authority argues that item 28.1 of the TGIS is in accordance with the Constitution of the Portuguese Republic, with no violation of constitutionally protected principles.
As for the request for compensatory interest, the Tax Authority states that the Claimant is not entitled to said interest, since the Tax Authority made the application of the law as it is constitutionally bound to, as an executive body, with no error attributable to the services being verified.
Finally, the Tax Authority states that there is no interest and utility in holding the meeting provided for in article 18 of the RJAT, requesting its waiver as well as the waiver of the submission of arguments.
On 09-06-2017, an order was issued instructing the notification of the Claimant to, within 10 days, pronounce itself on the possibility of waiver of the meeting provided for in article 18 of the RJAT, and of the submission of arguments.
On 20-06-2017, the Claimant came to inform that it agreed with the waiver of the meeting, but that it intended to submit written arguments.
On 20-06-2017, an order was issued waiving the holding of the meeting, taking into account the position of the parties and the shelter of the provisions of articles 16 sub-paragraph c) and 19 of the RJAT, and of the principles of procedural economy and prohibition of useless acts.
In the same order, the parties were instructed to, if they wished, submit written arguments, and the date of 21-09-2017 was designated for the pronouncement of the arbitral decision.
The Claimant was also warned to, by that date, attach to the file the proof of payment of the subsequent arbitration fee.
The Claimant submitted its arguments on 29-06-2017, and the Respondent sent its arguments on 30-06-2017.
The Claimant attached the proof of payment of the subsequent arbitration fee on 11-07-2017.
The parties have legal personality and capacity and are legitimate (articles 4 and 10, no. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).
The present request for arbitral pronouncement was submitted in a timely manner, pursuant to article 10, no. 1, sub-paragraph a) of Decree-Law no. 10/2011 of 20 January.
The proceeding does not suffer from nullities and no preliminary questions were raised.
2. Statement of Facts
2.1. Proven Facts:
Having analyzed the documentary evidence produced, the following facts are considered proven and relevant for the decision of the case:
- The Claimant A…, S.A., in 2015, was the owner of the urban property registered in the register under article …, of the parish of …, municipality of Lisbon, with the tax property value of 1,393,925.30 €, described as land for construction, as confirmed in the property record attached to the arbitral request as document 5.
- The Claimant was notified of the assessment of Stamp Duty no. 2016…, relating to the year 2015, in the amount of 13,939.25 €, payable in three installments (April, July and November), relating to the aforementioned property, as per the assessment attached to the arbitral request as document 2.
- The Claimant proceeded to pay the three installments of the aforementioned assessment, as per documents 2 to 4 attached to the arbitral request.
- The Claimant submitted a gracious appeal of the aforementioned assessment, which was dismissed by an order notified to the Claimant on 10-01-2017, as per a copy of the decision attached to the arbitral request as document 1.
No other facts relevant to the decision of the case were proven.
2.2. Justification of the Proven Facts:
With regard to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the file and on the facts admitted by agreement.
3. Legal Matters:
3.1. Object and Scope of the Present Proceeding
The question to be decided in the present proceedings is whether item 28.1 of the TGIS, in the part that subjects to Stamp Duty land for construction whose construction, authorized or anticipated, is for housing, pursuant to the provisions of the IMI Code, is or is not unconstitutional by violation of the principle of equality, the sub-principles of taxpaying capacity and taxation by actual income, and by violation of the principle of prohibition of double taxation.
3.2. On the Delimitation of the Objective Scope of Application of Item 28.1 of the TGIS
It is important from the outset to list the legal rules relevant at the date of occurrence of the facts.
The subjection to Stamp Duty of properties with residential allocation resulted from the addition of item 28 to the TGIS, made by article 4 of Law no. 55-A/2012 of 29 October, which classified the following taxable events:
"28 – Ownership, usufruct or right of superficies of urban properties whose tax property value contained in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the tax property value used for IMI purposes:
- Per property with residential allocation – 1%
28.2 - Per property, when the taxpayers that are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%".
The aforementioned law also added no. 7 of article 23 of the Stamp Duty Code, which states that "in the case of the tax due for the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI". It also added no. 2 of article 67 which provides that "matters not regulated in this Code relating to item 28 of the General Table apply, subsidiarily, the CIMI".
Subsequently, article 194 of Law no. 83-C/2013 of 31 December (State Budget Law for 2014) amended the wording of item 28.1 of the TGIS, in force from 1 January 2014, with the same now providing as follows:
"28.1 – Per residential property or per land for construction whose construction, authorized or anticipated, is for housing, pursuant to the provisions of the IMI Code – 1%".
Article 2 of the IMI Code refers to the concept of property:
"1 - For the purposes of this Code, property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land on which they are implanted, although located in a fraction of territory that constitutes an integral part of a different patrimony or has no patrimonial nature.
2 - Buildings or constructions, even if movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.
3 - The character of permanence is presumed when buildings or constructions are situated at the same location for a period exceeding one year.
4 - For the purposes of this tax, each autonomous fraction, in the horizontal ownership regime, is deemed to constitute a property."
In turn, article 4 defines what urban properties are:
"Urban properties are all those that should not be classified as rural properties, without prejudice to the provisions of the following article."
Article 6 provides, in turn, that:
"1 – Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Others.
2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes.
3 – Land for construction is considered to be land situated inside or outside an urban agglomeration, for which a license or authorization has been granted, a prior notification has been admitted or favorable prior information has been issued for a subdivision or construction operation, and also those that have been so declared in the acquisition title, except for land that the competent entities prohibit any of these operations, namely those located in green zones, protected areas or that, in accordance with municipal land use plans, are intended for public spaces, infrastructure or equipment" (…).
As for the VPT of land for construction, let us see what article 45 of the IMI Code states.
"1 - The tax property value of land for construction is the sum of the value of the area of the building implantation, which is the area situated within the perimeter of fixation of the building to the soil, measured by the outer part, added to the value of the land adjacent to the implantation.
2 - The value of the implantation area varies between 15% and 45% of the value of the authorized or anticipated buildings.
3 - In fixing the percentage of the value of the land of implantation, the characteristics referred to in no. 3 of article 42 are taken into account.
4 - The value of the area adjacent to the construction is calculated pursuant to no. 4 of article 40.
5 - When the document proving constructive viability referred to in article 37 makes reference only to the PDM indexes, the expert valuers must estimate, in a substantiated manner, the respective building area, taking into account, in particular, the average building areas of the surrounding zone. (Added by Law no. 64-B/2011, of 30 December)."
3.3. On the Alleged Unconstitutionality of Item 28.1 of the TGIS, in the Part that Subjects to Stamp Duty Land for Construction whose Construction, Authorized or Anticipated, is for Housing, by Violation of the Principle of Equality, and the Sub-principles of Taxpaying Capacity and Taxation by Actual Income, and by Violation of the Principle of Prohibition of Double Taxation.
The question of unconstitutionality that is the subject matter of the present proceeding has already been analyzed by the Constitutional Court, in decisions no. 590/2015 and no. 247/2016, which did not judge unconstitutional the norm contained in items 28 and 28.1 of the TGIS, added by Law no. 55-A/2012 of 29 October. This case law has recently been reaffirmed in decisions no. 83/2016, 247/2016, 568/2016 and 692/2016 of the Constitutional Court, and confirmed also in the decisions of CAAD of proceedings no. 485/2015-T and no. 650/2016-T.
And on this point we follow the decision in decision no. 247/2016 of the Constitutional Court, in stating the following:
"Assessing the problem of unconstitutionality in light of the principles of tax equality, taxpaying capacity and proportionality, it was considered in the aforementioned Decision no. 590/15, with regard to this, as follows:
'Principles of tax equality and taxpaying capacity
12. (…).
The constitutional principle of tax equality, as a specific expression of the general structuring principle of equality (article 13 of the Constitution), finds realization "in the generality and uniformity of taxes. Generality means that all citizens are bound to pay taxes (…); in turn, uniformity means that the distribution of taxes among citizens obeys the same identical criterion for all" (TEIXEIRA RIBEIRO, Lessons in Public Finance, 5th edition, p. 261). And such criterion, as underscored by CASALTA NABAIS, is found in the principle of taxpaying capacity: "This thus implies equal tax for those with equal taxpaying capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different taxpaying capacity in proportion to this difference (vertical equality)" (Tax Law, 7th edition, 2012, p. 155). As a prerequisite and criterion of taxation, the principle of taxpaying capacity "on the one hand, constituting the ratio or cause of taxation removes the fiscal legislator from arbitrariness, obligating it to, in the selection and articulation of taxable events, abide by revelations of taxpaying capacity, that is, establish as the object and taxable matter of each tax a certain economic prerequisite that is a manifestation of this capacity and is present in the various legal hypotheses of the respective tax" (CASALTA NABAIS, op. cit., p. 157).
(…)
This Court has, however, emphasized that the principle of taxpaying capacity does not dispense with the contribution of other constitutional principles. As stated in Decision no. 711/2006, "it is clear that the 'principle of taxpaying capacity' must be reconciled with other principles with constitutional dignity, such as the principle of the Social State, the freedom of conformation of the legislator, and certain requirements of practicability and cognoscibility of the taxable event, also indispensable for the fulfillment of the purposes of the tax system". And it continues: "To ascertain, however, the existence of a particularity sufficiently distinct to justify an inequality of legal regime, and to decide on the circumstances and factors to be considered as relevant in such ascertainment, is a task that primarily falls to the legislator, who holds the primacy of the realization of constitutional principles and the corresponding freedom of conformation. For this reason, the principle of equality presents itself fundamentally to legal operators, in the context of control of constitutionality, as a negative principle (…) - as a prohibition of arbitrariness".
(…)
One can certainly conceive of other avenues available to the legislator, possibly through recourse to other tax species, but it is no less true that the option taken finds inscription in the broad margin of conformational freedom of the fiscal legislator, being incapable of founding autonomous constitutional censure.
15. Nor is found in the norm of incidence in question an arbitrary fiscal measure, because lacking rational foundation. As seen, the legislative amendment had as its purpose to broaden the taxation of patrimony, making it fall more intensely on the property that, by its value considerably superior to that of the generality of urban properties with residential allocation, reveals greater indicators of wealth and, as such, is susceptible to founding the imposition of increased contribution for the sanitation of public accounts on its holders, in realization of the aforementioned "principle of equity in austerity".
(…)
As it must necessarily be so, the differentiation involved in the second hypothesis put forward does not show itself to be lacking rational foundation, in accordance with the scope, structure and nature of the norm in analysis: aimed at increasing the taxation of properties with residential allocation of high value, the fiscal measure could not but determine, by imperative of the principle of fiscal legality, the concrete property value from which would begin to fall on such properties a special rate of Stamp Duty, which also excludes, on this point, the verification of arbitrariness on the part of the legislator".
Following the case law of the Constitutional Court aforementioned above, we will have to conclude that item 28.1 of the TGIS, in the part that subjects to Stamp Duty land for construction whose construction, authorized or anticipated, is for housing, is not unconstitutional, with no violation of the principle of equality, nor of the sub-principles of taxpaying capacity and taxation by actual income being verified.
As for the alleged unconstitutionality by violation of the principle of prohibition of double taxation, alleged by the Claimant, resulting from the overlap between Stamp Duty and Municipal Property Tax (IMI), we begin by stating that these are different taxes, with different rules of objective incidence and are different the tax creditors of each of them, as invoked by decision no. 247/2016 of the Constitutional Court. In the case of IMI the creditors of the revenues are the municipalities, and in the case of Stamp Duty it is the Central State.
According to CASALTA NABAIS, in The Fundamental Duty of Paying Taxes, Coimbra, 2009, pages 511 and 512: "tax equality, assessed by taxpaying capacity, in principle also does not prevent the existence of double (or multiple) taxation (…) legal or economic.
Indeed, the fiscal legislator is not constitutionally prevented, especially by virtue of the principle in analysis, from establishing situations of double taxation (…) since it cannot fail to enjoy broad freedom regarding the concrete configuration of the tax system. (…) Now, in any of the situations of cumulation of taxes, the legislator enjoys broad freedom, being only prevented, on the one hand, from such cumulation resulting in excessive taxation or of a confiscatory character and, on the other hand, from establishing double taxation that proves to be arbitrary as to the scope of subjects covered, by subjecting certain taxpayers to a fiscal overload and not others with identical situation in terms of taxpaying capacity".
For which reason it cannot be deemed unconstitutional the norm subject to item 28.1 of the TGIS in regard to the double taxation that it involves.
We conclude thus as in decision no. 568/2016 of the Constitutional Court, that it is not unconstitutional the norm contained in item 28.1 of the TGIS, in the wording introduced by Law no. 55-A/2012 of 29 October, and amended by Law no. 83-C/2013 of 31 December, which imposes annual taxation on the ownership of the residential property or land for construction, whose construction, authorized or anticipated, is for housing, whose tax property value is equal to or greater than 1,000,000.00 €.
Being the Claimant's property a land for construction with allocation, anticipated or authorized, for housing, the aforementioned norm should be applied, which does not suffer from the vice of unconstitutionality that is imputed to it by the Claimant.
4. On Compensatory Interest
The Claimant states that it proceeded to pay the assessment of Stamp Duty in question in the present proceedings, and requests reimbursement of the amount paid plus compensatory interest, pursuant to article 43 of the General Tax Code (LGT).
Since the declaration of unconstitutionality of item 28.1 of the TGIS is unfounded, the request for condemnation of the Tax Authority to reimburse the amount paid and for payment of compensatory interest is also unfounded.
5. Decision
In light of the foregoing, it is determined:
- To judge unfounded the request formulated by the Claimant in the present arbitral tax proceeding, regarding the illegality of the assessment of Stamp Duty no. 2016…, relating to the year 2015, in the amount of 13,939.25 €;
- To judge unfounded the request for condemnation of the Tax and Customs Authority to reimburse to the Claimant the amount of the tax paid, and for payment of compensatory interest.
6. Value of the Proceeding:
In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, sub-paragraph a) of the CPPT and 3, no. 2 of the Costs Regulation in Tax Arbitration Proceedings, the value of the action is fixed at 13,939.25 €.
7. Costs:
Pursuant to article 22, no. 4, of the RJAT, and Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at 918.00 €, due by the Claimant.
Notify.
Lisbon, 29 September 2017.
Text prepared by computer, pursuant to article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, no. 1, sub-paragraph e) of the Tax Arbitration Regime, reviewed by me.
The Arbitrator
Suzana Fernandes da Costa
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