Stamp Tax on Building Land (Verba 28.1 TGIS): Mixed-Use Plots Not Subject to Tax – CAAD 213/2017-T

ARBITRAL DECISION

I. REPORT

1. On 28 March 2017, the commercial company A…, S.A., NIPC…, with registered office at Avenue …, …, …, room…, Lisbon (hereinafter, Claimant), filed a request for the constitution of an arbitral tribunal, in accordance with the combined provisions of Articles 2, No. 1, paragraph a), and 10, Nos. 1, paragraph a), and 2, of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality of the assessment of Stamp Duty [Item 28.1 of the General Table of Stamp Duty (hereinafter, TGIS)] for the year 2014 and relating to the urban property (land for construction) registered under article… in the urban property matrix of the Union of Parishes of…, … and…, municipality and district of Porto, owned by the Claimant – subject of collection notices numbered 2015…, relating to the first installment, numbered 2015…, relating to the second installment, and numbered 2015…, relating to the third installment, each in the amount of €5,407.90 – with the total amount of tax collected being €16,223.70, following the dismissal of the administrative complaint lodged with a view to annulling that tax act.

The Claimant did not attach documents nor request the production of any other evidence.

The Respondent is the AT – Tax and Customs Authority (hereinafter, Respondent or AT).

1.1. In essence and in brief summary, the Claimant alleged the following (which we mention largely by transcription):

• The Claimant contends that the disputed Stamp Duty assessment and the subsequent acts are affected by the following defects:

a) Error in the interpretation of Item 28.1 insofar as it only burdens land for construction with exclusive allocation to housing;

b) Error in the interpretation of Item 28.1 of the TGIS, insofar as the item does not burden the productive sector;

c) Error regarding the legal prerequisites through application of a materially unconstitutional norm, based on violation of the Principle of Equality by discrimination of companies engaged in purchase for construction and resale, in relation to other companies;

d) Error regarding the legal prerequisites through application of a materially unconstitutional norm, based on violation of the Principle of Equality insofar as it subjects taxation to the ownership of land for construction relative to which the authorized or planned building does not include residential units of value equal to or greater than that.

• The urban property in question has no building or construction erected on its soil, being merely land for construction, in accordance with the description in the property record.

• According to the Plot Division License, one cannot go beyond the allocation of the land for construction to actual housing, since the authorized construction also provides for the use of the building to be constructed for commercial and/or service purposes, and furthermore, licensing by itself is not a guarantee of the completion of the work and verification of actual residential use.

• Given the literal wording of the law, we find that the rule of incidence, for land for construction, restricts the taxable event to land for construction whose authorized or planned building is for housing.

• The ownership of a property right over land for construction, even if of value exceeding EUR 1,000,000, on which no building has been erected, nor even authorized or planned, cannot be considered a manifestation of wealth subsumable under item 28.1 of the TGIS.

• In the case of item 28 of the TGIS, no operation in which the Claimant participated is being taxed, nor is an economic benefit that has entered the legal and patrimonial sphere of the Claimant being taxed.

• The principle of equality, embodied in Article 13 of the CRP, has as a corollary, in the tax domain, the principle of contributory capacity, which clearly does not occur here.

• The legislator restricted the scope of application of Item 28.1 of the TGIS, in the case of land for construction, to building authorized or planned for housing, in accordance with the provisions of the CIMI, a condition without which land, albeit for construction and of value exceeding EUR 1,000,000, cannot be subject to the application of the 1% rate provided for in item 28.1 of the TGIS, under penalty of committing an erroneous interpretation of the letter of the law.

• In the present case the prerequisites for the application of the norm are not met, because, in accordance with the information contained in the property records, the Claimant is the owner of land for construction, and furthermore, in accordance with the aforementioned license, the authorized construction also provides for the use of the building to be constructed for commercial and/or service purposes; that is, the planned building is simultaneously for housing and commerce.

• There is no doubt that the assessment subject to this application is illegal because it results from the erroneous interpretation of item 28.1 of the TGIS, insofar as it only burdens land for construction with exclusive allocation to housing, whereby the assessment errs in the interpretation of Item 28.1 of the TGIS and should consequently be annulled in accordance with Article 163, No. 1, of the CPA.

• By disregarding the restriction to residential purposes, and thus allowing the application of item 28.1 of the TGIS to buildings or constructions for commercial and service purposes, we would once again be inverting the spirit and letter of the law, insofar as, instead of taxing high-value properties and promoting equitable taxation, we would be impacting economic development and compromising its evolution in the current context.

• For which reason, it is also concluded here that the assessment subject to this application is illegal, because it results from the incorrect interpretation of item 28.1 of the TGIS, insofar as it does not burden the productive sector.

• If it is understood that the mere interpretation of Item 28.1 of the TGIS does not prevent the taxation of companies engaged in the purchase of land for construction and/or resale, then such interpretation would lead to unjustified discrimination of companies, such as the Claimant, when compared with other companies that hold in their assets land for construction of buildings intended for commerce, services or industry.

• In the case of the Claimant and companies like the Claimant, the acquisition of land for construction of future residential buildings constitutes a true condition sine qua non for the pursuit of its economic activity.

• To that extent, the acquisition of these properties does not constitute any indication of "increased" contributory capacity, being merely an indication that the Claimant exercises its ordinary activity.

• Thus, in these cases, this norm penalizes and discriminates against these companies in relation to companies engaged in other sectors of activity and which do not need, due to that fact, to hold land for construction with allocation planned or approved for housing, and this discrimination is clearly violative of the Principle of Equality established in Article 13 of the Constitution of the Portuguese Republic.

• Consequently, the disputed assessment (and the disputed act that supports it) are affected by the defect of violation of law, by consubstantiating error regarding the legal prerequisites through application of a materially unconstitutional norm, and should be annulled in accordance with Article 163, No. 1, of the CPA.

• On the other hand, it also constitutes a discrimination lacking "rational justification" to tax land for construction with residential allocation (which the Respondent attributes to the Claimant) which, albeit with a TPV exceeding EUR 1,000,000, is not intended for the construction of buildings with a TPV exceeding EUR 1,000,000.

• Above all, by contrast with the settled understanding of case law and doctrine (except administrative doctrine) that buildings with a TPV exceeding EUR 1,000,000 are not subject to taxation under item 28.1 of the TGIS when they consist of units susceptible to independent use which, individually, do not have a TPV exceeding that limit.

• The Claimant and the land for construction were negatively discriminated against, which is the reason why the disputed assessment (and the disputed act that supports it) are affected by the defect of violation of law, by consubstantiating error regarding the legal prerequisites through application of a materially unconstitutional norm, and should be annulled in accordance with Article 163, No. 1, of the CPA.

• The disputed Stamp Duty assessment should be annulled, on the grounds of violation of ordinary law and violation of constitutional law, and the amount paid by the Claimant should be reimbursed, plus compensatory interest counted until the date of issuance and processing of the respective credit note, all in accordance with Articles 43 and 100 of the LGT and Article 61 of the CPPT.

The Claimant concludes its initial pleading by petitioning as follows:

"Accordingly, and in accordance with applicable law, Your Excellency should order the constitution of an Arbitral Tribunal which shall have as its object the analysis of the legality of the Stamp Duty assessment of 20.03.2015, in the amount of EUR 16,223.70 (sixteen thousand two hundred and twenty-three euros and seventy cents), relating to the financial year 2014, as well as the formation of presumption of dismissal of the Administrative Complaint, within the scope of process no. …2016…, which was processed by the Lisbon Finance Service…, which supported that assessment, and finally, the Arbitral Tribunal should rule the claim well-founded as proven and, consequently, annul the acts that are contested.

The claim ruled well-founded as proven, the Tribunal should order the refund of the amount paid in excess, plus interest.

It is further requested that the Respondent be notified to answer, if it so wishes, as well as to attach to the proceedings the PAT."

1. The request for the constitution of an arbitral tribunal was accepted and automatically notified to the AT on 31 March 2017.

2. The Claimant did not proceed with the appointment of an arbitrator, whereby, in accordance with the provisions of No. 1 of Article 6 and paragraph a) of No. 1 of Article 11 of the RJAT, the President of the Ethics Council of the CAAD designated the undersigned as arbitrator of the singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable timeframe.

3. On 18 May 2017, the parties were duly notified of this appointment and did not manifest the will to refuse the appointment of the arbitrator, in accordance with the combined provisions of Article 11, No. 1, paragraphs b) and c), of the RJAT and Articles 6 and 7 of the Code of Ethics of the CAAD.

4. Thus, in conformity with what is provided in paragraph c) of No. 1 of Article 11 of the RJAT, the singular Arbitral Tribunal was constituted on 5 June 2017.

5. On 3 July 2017, the Respondent, duly notified for this purpose, filed its Response in which it specifically contested the arguments raised by the Claimant and concluded that the present action was unfounded, with its consequent dismissal of the claim.

The Respondent did not attach documents nor request the production of any other evidence.

On the same occasion, the Respondent attached to the proceedings the respective administrative proceedings (hereinafter, abbreviated as AP).

6.1. In essence and also briefly, it is important to extract the most relevant arguments on which the Respondent based its Response (which we mention largely by transcription):

• Urban properties that are land for construction and to which residential allocation has been attributed in the context of their respective assessments, with such allocation appearing in the respective matrices, are subject to Stamp Duty.

• The fact that in the rule of incidence – item 28.1 of the TGIS – the property has been positivized with residential allocation to the detriment of the residential property appeals to the allocation coefficient (cf. Article 41 of the CIMI) which applies indistinctly to all urban properties.

• In the assessment of land for construction the legislator wished that the methodology of assessment of urban properties in general be applied, thus taking into consideration all coefficients, namely the allocation coefficient provided for in Article 41 of the CIMI, with such legal imposition further resulting from No. 2 of Article 45 of the CIMI, by referring to the value of the buildings authorized or planned on the same land for construction.

• Well before the actual building of the property, it is possible to ascertain and determine the allocation of the land for construction.

• Given that the assessment effected was based on the applicable law, to which the Administration is bound, the tax administration aiming, in accordance with Article 55 of the LGT and following the principle embodied in Article 266, Nos. 1 and 2 of the CRP, "… the pursuit of the public interest, in respect of the rights and interests of citizens lawfully protected" and being their "… administrative bodies and agents … subordinate to the Constitution and the law …" and must "… act, in the exercise of their functions, with respect for the principles of equality, proportionality, justice, impartiality and good faith".

• The tax administration being thus bound by the principle of legality, cannot fail to give full compliance to the normative standards that the ordinary legislator created and which are in force in the legal system and also by force of the provisions of Article 55 of the LGT.

• The right to compensatory interest provided for in No. 1 of Article 43 of the LGT, derived from the judicial annulment of an assessment act, depends on having been demonstrated in the proceedings that this fact is affected by error regarding the factual or legal prerequisites imputable to the tax administration.

• The error that supports the right to compensatory interest is not any defect or illegality but that which is concretized in defective appreciation of relevant facts or in erroneous application of legal norms.

• Since, at the date of the facts, the tax administration made the application of the law in the terms to which as an executive body it is constitutionally bound, one cannot speak of error by the services in accordance with the provisions of Article 43 of the LGT.

The Respondent concludes its pleading as follows:

"Accordingly, the action should be ruled unfounded, dismissing the Tax Authority from the claim, with the legal consequences."

1. On 12 July 2017, a ruling was issued dispensing with the holding of the meeting referred to in Article 18 of the RJAT, as well as the presentation of any allegations, with 15 September 2017 being set as the deadline for the issuance of the arbitral decision.

II. SANITATION

The Arbitral Tribunal was regularly constituted and is competent.

The proceedings do not suffer from nullities.

The parties have standing and legal capacity, are duly represented and are legitimate.

There are no exceptions or any prior questions that prevent consideration of the merits and of which it is necessary to decide.

III. GROUNDS

III.1. FACTS

§1. PROVEN FACTS

The following facts are considered proven:

a) In the year 2014, the Claimant was the owner of an urban property consisting of land for construction, with an area of 3,979.65 m², located at Rua do…, … to … and …, …, … and …, Union of Parishes of…, … and…, municipality and district of Porto, registered in the respective property matrix under article…, with the taxable patrimonial value of €1,622,370.00, with the allocation coefficient for "housing" having been applied in the respective assessment. [cf. pages 36 of the AP attached to the proceedings]

b) The aforementioned urban property has no building or construction erected on its soil.

c) For the aforementioned urban property, the Porto City Council issued the Plot Division License No. ALV/…/…/DMU, within the scope of Process No. …/…/CMP, whose respective Annotation No. 1 provides for the following [cf. pages 38 of the AP attached to the proceedings]:

[annotation content would appear here]

d) The Claimant's purpose is the activities of construction and purchase and sale of properties and resale of those acquired for that purpose.

e) On 20 March 2015, the AT effected the Stamp Duty assessment in the total amount of €16,223.70, reported to the year 2014 and relating to the urban property mentioned in proven fact a). [cf. pages 33 to 35 of the AP attached to the proceedings]

f) Following that Stamp Duty assessment, the Claimant was notified of the collection notices which are discriminated hereinafter [cf. pages 33 to 35 of the AP attached to the proceedings]:

g) The aforementioned Stamp Duty assessment resulted from the application of item 28.1 of the TGIS to the referenced urban property. [cf. pages 33 to 35 of the AP attached to the proceedings]

h) The Claimant proceeded with the timely and full payment of each of the aforementioned installments relating to the aforementioned Stamp Duty assessment.

i) On 30 March 2016, the Claimant filed an administrative complaint – whose initial request is hereby fully reproduced here – which had as its object the aforementioned Stamp Duty assessment. [cf. pages 3 to 29 of the AP attached to the proceedings]

j) The aforementioned administrative complaint was registered under No. …2016…, with its respective proceedings running at the Porto Finance Service-... [cf. page 1 of the AP attached to the proceedings]

k) By ruling of 23 December 2016, from the Head of the Porto Finance Service-…, the aforementioned administrative complaint was dismissed, with the following grounds: [cf. page 53 verso of the AP attached to the proceedings]:

[dismissal grounds would appear here]

l) The Claimant was notified, by means of official letter No. 2016…, dated 23/12/2016, from the Porto Finance Service-…, sent by regular mail, of the decision of the aforementioned administrative complaint. [cf. page 54 of the AP attached to the proceedings]

m) The Illustrious Representative of the Claimant was notified, by means of official letter No. 2016…, dated 23/12/2016, from the Porto Finance Service-…, sent by registered mail with return receipt, of the decision dismissing the aforementioned administrative complaint. [cf. page 55 of the AP attached to the proceedings]

n) On 28 March 2017, the Claimant filed the request for the constitution of an arbitral tribunal that gave rise to the present proceedings. [cf. CAAD case management information system]

§2. UNPROVEN FACTS

With relevance to the assessment and decision of the case, there are no facts that have not been proven.

§3. REASONING REGARDING MATTERS OF FACT

With respect to the proven matter of fact, the conviction of the Tribunal was based on the facts raised by the Parties, whose adherence to reality was not called into question, and on the respective administrative proceedings attached to the file.

III.2. LAW

The Claimant argues the existence of several defects – without a relationship of subsidiarity being established between them – on which it bases the request for a declaration of illegality of the disputed Stamp Duty assessment and of the act dismissing the aforementioned administrative complaint.

Specifically, the Claimant invokes violation of the rule of tax incidence contained in item 28.1 of the TGIS and the unconstitutionality thereof due to violation of the principle of equality.

In this context, we shall begin with the examination of the defect of violation of the rule of tax incidence contained in item 28.1 of the TGIS, since only if and insofar as the interpretation and implementation of the regulatory solution resulting from the aforementioned item of the TGIS involves the subsumption to its legal provision of the situation sub judice will it be necessary to proceed with the examination of the indicated defect of unconstitutionality.

§1. INTERPRETATION AND DELIMITATION OF THE SCOPE OF OBJECTIVE TAX INCIDENCE OF ITEM 28.1 OF THE TGIS

At the epicenter of the disagreement that opposes the parties in this proceedings is the rule of tax incidence contained in Item 28.1 of the TGIS – in force at the date of the facts, and subsequently repealed by Article 210, No. 2, of Law No. 42/2016, of 28 December – whereby it is essential to begin by proceeding with the interpretation of this norm, with a view to ascertaining its scope and, in that way, delimit what is its field of application.

Law No. 55-A/2012, of 29 October, introduced various amendments to the Stamp Duty Code and added item 28 to the TGIS, with the following wording (cf. Article 4):

"28 — Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value contained in the matrix, in accordance with the Code of the Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 — on the taxable patrimonial value used for the purpose of IMI:

28.1 — For property with residential allocation — 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, contained in the list approved by ordinance of the Minister of Finance — 7.5%."

Subsequently, Law No. 83-C/2013, of 31 December (State Budget 2014), amended the wording of item 28.1 of the TGIS (cf. Article 194), which then came to have the following tenor (wording applicable ratione temporis to the situation sub judice):

"28.1 — For residential property or for land for construction whose building, authorized or planned, is for housing, in accordance with the provisions of the Municipal Property Tax Code — 1%"

The interpretation of the rule of incidence contained in item 28.1 of the TGIS cannot fail to be carried out based on the hermeneutical guidelines that emanate from Article 11 of the LGT and Article 9 of the Civil Code, norms which establish the following:

Article 11 [LGT]

Interpretation

1. 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.

2. Whenever, in tax norms, terms proper to other branches of law are employed, they should be interpreted in the same sense that they have there, unless otherwise directly provided by law.

3. If doubt persists regarding the meaning of the rules of incidence to be applied, the economic substance of the tax facts must be considered.

4. Gaps resulting from tax norms covered by the legislative reserve of the Assembly of the Republic are not susceptible to analogical integration.

Article 9 [Civil Code]

Interpretation of the law

1. Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

2. However, the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter.

3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and knew how to express his intent in appropriate terms.

Regarding this interpretative task, with all due respect, we appropriate here the following considerations set forth in the arbitral decision rendered in CAAD case No. 53/2013-T[1]:

"The relevance of the text of the law is especially emphasized in the matter of interpretation of rules of incidence of Stamp Duty, which are reduced to an amalgam, under a common denomination, of an incongruous collection of taxes of completely distinct natures (on income, on expenditure, on assets, on acts, etc.), which leaves no appreciable margin for application of the primary interpretative criterion, which is the unity of the legal system, which demands its overall coherence.

The recognized lack of coherence of Stamp Duty is particularly exuberant in the case of this item No. 28.1, hastily included at the margins of the General State Budget, by a fiscal legislator without perceptible overall fiscal guidance, which is successively implementing norms of fiscal aggravation as circumstances of budgetary implementation setbacks, the impositions of international institutional creditors (represented by the 'troika') and the scrutiny of the Constitutional Court dictate.

In fact, although in the 'Statement of Reasons' of Proposal of Law No. 96/XII/2nd, on which Law No. 55-A/2012 was based, reference is made to the commendable concern of the Government to 'strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to fulfill the adjustment program' and to its commitment 'to ensure that the distribution of these sacrifices will be made by everyone and not just those who live from the income of their work', it is evident, on one hand, that these reasons of equity, certainly existing, did not begin to apply in mid-2012, already existing in the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item No. 28.1, by taxing additionally the properties with residential allocation and not also the properties that do not have it, allows one to perceive that the concerns of social equity and the proclaimed intention to distribute the sacrifices among everyone, impact much more some than it does everyone.

In this context, where there are no secure interpretative elements that allow one to detect legislative coherence in the solution adopted in the aforementioned item No. 28.1 or the correctness or incorrectness of the adopted solution (relevant for interpretative purposes in light of No. 3 of Article 9 of the Civil Code), the tenor of the legal text must be the primordial element of interpretation, in conformity with the presumption, imposed by the same No. 3 of Article 9, that the legislator knew how to express its intent in appropriate terms."

That said, having analyzed the wording – both the original and the current – of Item 28.1 of the TGIS, we verify that this norm possesses a fundamentally referential character, as its relevant regulatory content depends on the normativity ad quam contained in the Municipal Property Tax Code.

In fact, both as to objective incidence, with the reference to "urban properties" and to "taxable patrimonial value contained in the matrix, in accordance with the Code of the Municipal Property Tax", and as to the fixing of the taxable matter, with the reference to "taxable patrimonial value used for the purpose of IMI", the regulatory tenor of this Item 28 of the TGIS results from the devolution – in the terms of a general reference – to the entire regulatory set found in the Municipal Property Tax Code.

Indeed, this aspect is further reinforced by No. 2 of Article 67 of the CIS, which determines that to matters not regulated in the CIS relating to Item 28 of the TGIS, the provisions of the Municipal Property Tax Code are applied, subsidiarily.

In this context, it is therefore necessary to gather the norms of the Municipal Property Tax Code that appear relevant for the understanding and, accordingly, for the application of Item 28.1 of the TGIS.

In the Municipal Property Tax Code, the concept of "property" is defined in Article 2 as follows:

1. For the purposes of this Code, property is any parcel of territory, embracing the waters, plantations, buildings and constructions of any nature incorporated or resting thereon, with a character of permanence, provided 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 circumstances above, endowed with economic autonomy in relation to the land on which they are located, although situated in a parcel of territory that constitutes an integral part of a different patrimony or does not have a 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 the buildings or constructions are situated on the same site for a period exceeding one year.

4. For the purposes of this tax, each autonomous fraction, under the horizontal property regime, is deemed to constitute a property.

Subsequently, in Articles 3 to 5 of the CIMI, the species of properties existing are enumerated, namely:

Rural Properties (Article 3):

Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, in accordance with No. 3 of Article 6, provided that:

a) They are devoted to or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income, such as are considered for the purposes of income tax on natural persons (IRS);

b) Not having the allocation indicated in the preceding paragraph, they are not built on or dispose only of buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban agglomeration, provided that, by force of a legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are actually having this allocation.

3 – Rural properties are also:

a) Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the preceding numbers;

b) Waters and plantations in the situations referred to in No. 1 of Article 2.

4 – For the purposes of this Code, urban agglomerations are considered, besides those situated within legally fixed perimeters, nuclei with a minimum of 10 housing units served by public roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transverse direction, and 20 m from the last building, in the direction of the roads.

Urban Properties (Article 4):

Urban properties are all those that should not be classified as rural, without prejudice to the provisions of the following article.

Mixed Properties (Article 5):

1. Whenever a property has both rural and urban parts, it is classified, in its entirety, according to the main part.

2. If neither of the parts can be classified as main, the property is deemed mixed.

Subsequently, in Article 6 of the CIMI, the species of urban properties are indicated:

1. Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

1. Residential, commercial, industrial or for services are buildings or constructions licensed by municipalities for such purpose or, in the absence of licensing, that have as their normal destination each of these purposes.

2. Land for construction is considered land situated within or outside an urban agglomeration for which building or construction licensing or authorization has been granted, prior notice admitted or favorable preliminary information issued for subdivision or construction operations, and also those that have thus been declared in the acquisition title, except lands where the competent entities prohibit any of such operations, particularly those located in green areas, protected areas or which, in accordance with municipal land use planning, are devoted to spaces, infrastructure or public facilities.

3. Paragraph d) of No. 1 encompasses land situated within an urban agglomeration that is not land for construction nor is encompassed by No. 2 of Article 3 and also buildings and constructions licensed by or, in the absence of licensing, that have as their normal destination purposes other than those referred to in No. 2 and also those in the exception of No. 3.

Regarding "taxable patrimonial value", Article 7 of the CIMI establishes the following:

1. The taxable patrimonial value of properties is determined in accordance with this Code.

2. The taxable patrimonial value of urban properties with parts that can be classified in more than one of the classifications of No. 1 of the preceding article is determined:

a) Should one of the parts be main and the other or others merely accessory, by application of the assessment rules of the main part, taking into account the enhancement resulting from the existence of the accessory parts;

b) Should the different parts be economically independent, each part is assessed by application of the corresponding rules, and the value of the property is the sum of the values of its parts.

1. The taxable patrimonial value of mixed properties is the sum of the values of its rural and urban parts determined by application of the corresponding rules of this Code.

Under the heading "concept of property matrices", Article 12 of the CIMI establishes the following:

1. Property matrices are records which contain, in particular, the characterization of properties, location and their taxable patrimonial value, the identity of owners and, as the case may be, of usufructuaries and superficiaries.

2. There are two matrices, one for rural property and another for urban property.

3. Each floor or part of property susceptible to independent use is considered separately in matrix registration, which also discriminates its respective taxable patrimonial value.

4. The matrices are updated annually with reference to 31 December.

5. Matrix registrations constitute, for tax purposes only, a presumption of ownership.

Still regarding property matrices, it is important to consider No. 1 of Article 13 of the CIMI, from which it follows that the registration of properties in the matrix and its updating are carried out based on a declaration presented by the taxpayer.

With respect to the determination of taxable patrimonial value, it is important to cite the following norms of the CIMI:

• Article 38 of the CIMI, headed Determination of taxable patrimonial value:

1. The determination of the taxable patrimonial value of urban properties for housing, commerce, industry and services results from the following expression:

Vt = Vc x A x Ca x Cl x Cq x Cv

where:

Vt = taxable patrimonial value;

Vc = base value of built properties;

A = gross construction area plus the area exceeding the construction site area;

Ca = allocation coefficient;

Cl = location coefficient;

Cq = quality and comfort coefficient;

Cv = age coefficient.

1. The taxable patrimonial value of urban properties determined is rounded to the nearest ten euros above.

• Article 45 of the CIMI, headed Taxable patrimonial value of land for construction:

1. The taxable patrimonial value of land for construction is the sum of the value of the building site area to be constructed, which is that situated within the perimeter fixing the building to the ground, measured by the exterior part, added to the value of the land adjacent to the site.

2. The value of the site area varies between 15% and 45% of the value of the authorized or planned buildings.

3. In fixing the percentage of the value of the land of the site, the characteristics referred to in No. 3 of Article 42 are taken into consideration.

4. The value of the area adjacent to the construction is calculated in accordance with No. 4 of Article 40.

5. When the document evidencing constructive viability referred to in Article 37 only makes reference to PDM indices, the assessor experts must estimate, with justification, the respective construction area, taking into consideration, in particular, the average construction areas of the surrounding area.

From the literal tenor of Item 28.1 of the TGIS, properties subject to this rule of tax incidence are urban properties with taxable patrimonial value equal to or greater than €1,000,000.00, which are residential properties or land for construction with building, authorized or planned, for housing.

Considering the norms of the CIMI cited above, we have that residential properties are buildings or constructions licensed by municipalities for that purpose or, in the absence of licensing, that have as their normal destination that use (Article 6, No. 2, of the CIMI); thus, residential properties are those referred to buildings or constructions, being precisely these that are subject to Item 28.1 of the TGIS.

With respect to land for construction, only those for which building authorization or provision has been made for residential purposes, in the sense resulting from the definition of residential property given in No. 2 of Article 6 of the CIMI, are encompassed in the scope of application of Item 28.1 of the TGIS; in this way, excluded from the subjection to Item 28.1 of the TGIS are land for construction relative to which building authorization or provision has been made for purposes other than residential, namely for commercial, industrial or service purposes.

The correctness of this interpretation, regarding the scope of application of Item 28.1 of the TGIS, is confirmed by the discernible ratio legis of the restriction of the field of application of the norm to residential properties – a restriction that was maintained as to allocation (housing) in the subsequent legislative amendment that came to expand the scope of application to land for construction – in the context of the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied, which Article 9, No. 1, of the Civil Code also establishes as interpretative elements.

In fact, the limitation of the application of the tax to residential properties and to land for construction for which building of housing is planned or authorized reveals the intention not to burden the productive sector and companies in general and, in that sense, it was not intended to encompass in the scope of application of the tax nor the properties devoted to services, industry or commerce, that is, properties devoted to economic activity, nor land for construction relative to which building for those other purposes is planned or authorized. Such is comprehensible in a context in which the economy was in a recessionary spiral, publicly proclaimed at the highest level, with unemployment rates reaching historical levels, with an avalanche of business closures due to economic unsustainability. Regarding the ratio legis of the introduction of Item 28 of the TGIS, see, inter alia, the decisions rendered in CAAD cases Nos. 50/2013-T, 132/2013-T, 132/2013-T, 181/2013-T, 182/2013-T, 183/2013-T, 185/2013-T, 100/2014-T, 238/2014-T, 290/2014-T, 428/2014-T, 518/2014-T, 707/2014-T and 756/2014-T.

Having in mind that situation and it being well-known and public that the revival of economic activity and the increase of exports are the ways out of the crisis, it is understood that, despite the pressing need to increase fiscal revenues, no legislative measures were taken that would hamper economic activity, namely the aggravation of the tax burden that hinders it and affects competitiveness in international terms.

Therefore, it is to be concluded that the available interpretative elements, including the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied, clearly point in the direction of it not being intended to encompass in the scope of application of Item 28.1 of the TGIS non-residential properties and land for construction relative to which building authorization or provision has been made for purposes other than housing.

To conclude this exegesis of Item 28.1 of the TGIS, it is important to mention that Articles 38 to 46 of the CIMI have no relation to the classification of urban properties, as in those norms only the factors to be weighed in their respective assessment are indicated; and specifically concerning Article 45 of the CIMI, when reference is made there to the building to be constructed, the weighing of the destination of the land is being done, which is something that, in the context of the CIMI, does not imply allocation and occurs before it (in this sense, see the decision rendered in CAAD case No. 53/2013-T).

§2. (NON-)APPLICATION OF ITEM 28.1 OF THE TGIS TO THE CASE SUB JUDICE

It is our understanding that the interpretation we have made of Item 28.1 of the TGIS is shown to be particularly peremptory in a case such as the present one in which, in the land for construction in question, building authorization was granted simultaneously for residential purposes and for other purposes, specifically for commerce and services.

In such circumstances, it is not contained in the matrix nor is a taxable patrimonial value used for the purposes of IMI of the part allocated to housing, another taxable patrimonial value of the part allocated to commerce and yet another taxable patrimonial value of the part allocated to services. In fact, what the CIMI establishes, in accordance with the cited Article 7, No. 2, paragraph b), and what appears in the matrix is that the value of the property is the sum of the values of its parts, therefore of all its parts, whatever their respective allocation.

It is important to emphasize that the CIMI only refers, as results from Article 7, No. 2, paragraph b), to the value of the property as resulting from the sum of all its parts subject to autonomous assessment, not thus legitimizing the configuration of parcel values of the property – even if these are concretely determinable – relating only to certain economically independent parts of the property – from the perspective of the application of Item 28.1 of the TGIS, those which have residential allocation – disregarding the parts with other allocations (in the present case, for commerce and services).

In light of the foregoing, without need for further considerations, it is necessary to conclude that the Stamp Duty provided for in the rule of tax incidence contained in Item 28.1 of the TGIS does not apply to the urban property in question – land for construction.

Consequently, both the act dismissing the administrative complaint No. …2016… and the disputed Stamp Duty assessment suffer from the defect of violation of law, by error regarding the factual and legal prerequisites, consubstantiated in the erroneous interpretation and application of Item 28.1 of the TGIS, which implies the declaration of its illegality and consequent annulment (Article 163, No. 1, of the CPA), which shall be decided finally.

In light of the merit of the petitioned declaration of illegality of the act dismissing the administrative complaint and the disputed Stamp Duty assessment, due to a defect that prevents the renewal of the acts, the consideration of the invoked unconstitutionality is rendered moot and unnecessary.

§3. REIMBURSEMENT OF AMOUNTS PAID AND PAYMENT OF COMPENSATORY INTEREST

The Claimant further petitions for the condemnation of the AT to reimburse the tax paid unduly, in the amount of €16,223.70, plus the respective compensatory interest.

Article 24, No. 1, paragraph b), of the RJAT provides that the arbitral decision on the merits of the claim for which no appeal or challenge lies binds the tax administration from the end of the period provided for appeal or challenge, and this must, in the exact terms of the merit of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of the sentences of the tax courts, restore the situation that existed by adopting the acts and operations necessary for that purpose, which must be understood, in conformity with the provisions of Article 100 of the LGT, applicable ex vi paragraph a) of No. 1 of Article 29 of the RJAT, as encompassing the payment of compensatory interest, in harmony, moreover, with the provisions of No. 5 of the same Article 24 of the RJAT.

Article 43, No. 1, of the LGT determines that "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was error imputable to the services resulting in payment of the tax debt in an amount greater than that legally due", with No. 5 of Article 61 of the CPPT establishing that "interest is counted from the date of the unduly paid tax until the date of processing of the respective credit note, in which they are included".

In the concrete case, it is verified that the illegality of the disputed tax assessment, by error in the factual and legal prerequisites, is imputable to the AT by, in that assessment, having proceeded with the incorrect interpretation and application of the provision contained in item 28.1 of the TGIS, whereby the Claimant is entitled, in conformity with the provisions of Article 24, No. 1, paragraph b), of the RJAT and Article 100 of the LGT, to reimbursement of the amount of tax unduly paid – €16,223.70 – and to compensatory interest, in accordance with that established in Articles 43, No. 1, of the LGT and Article 61 of the CPPT, calculated from the dates of payment of the respective installments, at the rate resulting from No. 4 of Article 43 of the LGT, until the date of processing of the respective credit note, in which they are included.

IV. DECISION

In accordance with the foregoing, this Arbitral Tribunal decides:

a) To rule the claim fully well-founded, and consequently, due to the defect of violation of law, by error regarding the factual and legal prerequisites, consubstantiated in the erroneous interpretation and application of Item 28.1 of the TGIS:

• to declare illegal the act dismissing the administrative complaint No. …2016…, with its consequent annulment;

• to declare illegal the disputed Stamp Duty assessment in the present proceedings, in the total amount of €16,223.70, relating to the year 2014 and to the urban property (land for construction) registered under article… in the urban property matrix of the Union of Parishes of…, … and …, municipality and district of Porto, with its consequent annulment;

b) To rule well-founded the claim for condemnation of the Tax and Customs Authority to reimburse the Claimant the total amount of Stamp Duty unduly paid – €16,223.70 – plus compensatory interest in accordance with the law, from the dates on which the payments of the corresponding installments were made, until the date of processing of the respective credit note, in which they are included;

c) To condemn the Tax and Customs Authority to the payment of the costs of the proceedings.

VALUE OF THE CASE

In accordance with the provisions of Articles 306, No. 2, of the CPC, 97-A, No. 1, paragraph a), of the CPPT and Article 3, No. 2, of the Regulations on Costs in Tax Arbitration Proceedings, the value of the case is fixed at €16,223.70 (sixteen thousand two hundred and twenty-three euros and seventy cents).

COSTS

In accordance with Article 22, No. 4, of the RJAT, the amount of costs is fixed at €1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I annexed to the Regulations on Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.

Lisbon, 28 July 2017.

The Arbitrator,

(Ricardo Rodrigues Pereira)

[1] All arbitral decisions referred to are available at www.caad.org.pt/tributario/decisoes.