Summary
Full Decision
ARBITRAL DECISION
The Arbitrators José Baeta de Queiroz (Presiding Arbitrator), Carla Castelo Trindade and Fernando Araújo (Adjunct Arbitrators), appointed by the Deontological Council of the Centre for Administrative Arbitration to form this present Arbitral Tribunal, hereby agree on the following:
I – REPORT
On 8 April 2016, the company A…, S.A., with registered office at Rua…, …, …, …-… …, with the NIPC … (hereinafter "Claimant") filed a request for the constitution of an arbitral tribunal, in accordance with and for the purposes of the provisions contained in Articles 2 and 10 of the Legal Framework for Arbitration in Tax Matters, approved by Decree-Law 10/2011, of 20 January (RJAT).
Through the request for constitution of the arbitral tribunal and for an arbitral ruling, the Claimant seeks the annulment of the Stamp Duty assessment act, relating to the year 2013, in the total amount of €175,823.81 (one hundred and seventy-five thousand, eight hundred and twenty-three euros and eighty-one cents), effected under Item 28 of the General Table of Stamp Duty (TGIS).
In fact, not accepting the aforementioned Stamp Duty assessment, the Claimant requested the constitution of this arbitral tribunal, formulating a request for declaration of illegality and consequent annulment of the Stamp Duty assessment act relating to the year 2013, on the grounds that:
a) Lack of notification of the assessment act and lack of factual and legal grounds, as well as lack of notification for the exercise of prior hearing;
b) Defect of violation of law inasmuch as it is construction land not covered by the scope of Item 28 of the TGIS; and
c) Unconstitutionality of the provision contained in Item 28 of the TGIS due to violation of the principle of equality and prohibition of retroactivity of tax law;
With the petition, 12 documents were attached.
As the Claimant opted for non-appointment of an arbitrator, in accordance with the provisions of subsection a) of paragraph 2 of Article 6 and subsection b) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal Counsellor José Baeta de Queiroz, Dr. Carla Castelo Trindade and Prof. Dr. Fernando Araújo, who communicated acceptance of the assignment within the proper time limit.
The parties were notified of this appointment, and no request for recusal of the appointment as arbitrator was presented by any of the members of this tribunal.
Thus, in accordance with the provisions of subsection c) of paragraph 1 and paragraph 8 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 22 June 2016.
On 6 September 2016, the Tax Authority and Customs Authority (hereinafter "Respondent" or "AT") filed a response in which it defended the maintenance of the Stamp Duty assessment act on the grounds that its application constitutes a correct interpretation of the provision contained in Item 28 of the TGIS.
Given that, in this case, none of the purposes legally entrusted to the meeting referred to in Article 18 of the RJAT were met, and taking into account the position taken by the parties in the pleadings, pursuant to the provisions of Articles 16, subsection c) and 19 of the RJAT, as well as the principles of procedural economy and prohibition of useless acts, the holding of this meeting was dispensed with, and the parties were notified to submit arguments if they wished to do so.
The parties submitted no arguments.
II. CASE MANAGEMENT
The arbitral tribunal was regularly constituted.
No exceptions were raised, nor are there any exceptions that could prevent the tribunal from adjudicating the merits of the case.
The case is free from nullities.
The AT appointed its representatives in the proceedings and the Claimant attached a power of attorney, with the parties thus being properly represented.
The parties have legal personality and capacity and are legitimate parties.
All matters having been considered, a decision must be rendered.
III. FACTS
III.1. ESTABLISHED FACTS
With respect to the factual matter, it is important to note first and foremost that the tribunal need not pronounce on everything alleged by the parties; rather, it has the duty to select the facts that are relevant to the decision and to distinguish the proven facts from the unproven facts. All as provided in Article 123, paragraph 2, of the Code of Tax Procedure and Process (CPPT) and Articles 607, paragraphs 2, 3 and 4 of the Code of Civil Procedure (CPC), applicable by virtue of Article 29, paragraph 1, subsections a) and e), of the RJAT. Thus, the facts relevant to the judgment of the case are chosen and delineated in accordance with their legal relevance, which is determined in light of the various plausible solutions to the legal question(s) at issue (cf. Article 596 of the CPC, applicable by virtue of Article 29, paragraph 1, subsection e), of the RJAT).
Now, given the positions adopted by the parties, the documentary evidence, and the Administrative Proceedings attached to the record, the following facts with relevance to the decision are considered proven:
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The Claimant is the sole owner of a property located in …, in …, with a total area of 34,683.20 m², registered in the property register of the parish of …, municipality of …, district of ..., under article…;
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The aforementioned property is described in the urban property register as construction land;
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The construction land was assessed in 2013, and a tax patrimonial value of €17,582,380.88 (seventeen million, five hundred and eighty-two thousand, three hundred and eighty euros and eighty-eight cents) was determined, resulting from the updating of the TPV by application of the updating factor;
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On 07.01.2009, the Municipality of … authorized construction on the land of a building and swimming pool, with an implantation area of 7,782.00 m² (cf. Building Permit no. …/09, attached as Document 5 to the request for arbitral ruling), with a completion period of 18 months;
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The assessment of the TPV of the land was based on the assumption that the construction to be erected would be devoted to residential use, taking into account the total construction area authorized and the intended use of the construction;
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On 30.08.2010, the then holder of the building permit (company B…, S.A.) requested from the Municipality of … an increase of double the time periods for execution of the licensed works within the scope of the construction process, under the exceptional regime for extension of time periods provided for in Article 3 of Decree-Law no. 26/2010, of 30 March (cf. Document 11 attached with the request for arbitral ruling);
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By order dated 10.09.2010, the request for extension of the period for completion of the work was granted (cf. Documents attached to the Gracious Appeal);
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Despite the extension of the time periods for its execution, the licensed work has not yet been completed and is presently suspended;
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Consequently, no occupancy permit has yet been issued for the property in this case;
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On 17.03.2014, Stamp Duty assessment no. 2013… was issued, relating to the year 2013, effected under Item 28 of the TGIS, in the total amount of €175,823.81 (one hundred and seventy-five thousand, eight hundred and twenty-three euros and eighty-one cents);
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The Claimant was notified to pay the first instalment of the Stamp Duty assessment act, through collection note no. 2014…, in the amount of €58,607.95 (fifty-eight thousand, six hundred and seven euros and ninety-five cents), with a payment deadline of 30.04.2014;
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The Claimant was also notified to pay the second instalment of the Stamp Duty assessment act, through collection note no. 2014…, in the amount of €58,607.93 (fifty-eight thousand, six hundred and seven euros and ninety-three cents), with a payment deadline of 31.07.2014 (cf. Documents 1 and 2 attached with the request for arbitral ruling);
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Due to the failure to pay the first instalment, tax enforcement proceedings no. …2014… were instituted against the Claimant;
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The Claimant was also notified to pay the third instalment of the Stamp Duty assessment act, through collection note no. 2014…, in the amount of €58,607.93 (fifty-eight thousand, six hundred and seven euros and ninety-three cents), with a payment deadline of 31.11.2014 (cf. Document 3 attached with the request for arbitral ruling);
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On 07.08.2014, the Claimant filed a gracious appeal with the Tax Service of …;
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On 24.06.2015, the Tax Service of … forwarded the gracious appeal proceedings to the Finance Directorate of ..., pursuant to Article 73 of the CPPT, as this is the competent body for its processing;
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On 17.08.2015, the Claimant was notified of the dismissal of the gracious appeal filed;
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On 18.08.2015, the Claimant filed a hierarchical appeal against the decision dismissing the gracious appeal;
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On 12.01.2016, the Claimant was notified of the decision dismissing the hierarchical appeal filed.
III.2. UNPROVEN FACTS
As stated, with respect to the factual matter established as certain, the tribunal need not pronounce on everything alleged by the parties; rather, it has the duty to select the facts that are relevant to the decision and to distinguish the proven facts from the unproven facts, as provided in Article 123, paragraph 2, of the CPPT, applicable by virtue of Article 29, paragraph 1, subsections a) and e), of the RJAT. Thus, the facts relevant to the judgment of the case were, as stated above, chosen and delineated in accordance with their legal relevance, and there is no other factuality alleged that is relevant to the proper composition of the substantive dispute.
IV. LEGAL MATTERS
Given the positions of the parties adopted in the pleadings filed, the central issue to be decided by this arbitral tribunal consists in assessing the legality of the Stamp Duty assessment act relating to the year 2013.
As the Claimant has imputed various defects to the challenged tax acts, it is necessary to determine the order in which these defects shall be examined, and the order provided in Article 124 of the CPPT, applicable by virtue of Article 29, paragraph 1, subsection a) of the RJAT, must be observed[1].
The success of any of the defects invoked by the Claimant will lead to the annulment of the tax acts. The defect of violation of law due to error regarding the factual and legal elements will be analysed first, as it will lead to the "most stable or effective protection of the injured interests" insofar as its possible success will prevent the renewal of the act, which does not occur with the annulment resulting from the other defects.
Defect of Violation of Law
The question at issue here consists in determining whether there was a defect of violation of law in applying the norm of incidence of Stamp Duty to the construction land identified above and of which the Claimant is the owner.
However, as item 28.1 of the TGIS was subject to substantial amendment upon the entry into force of the State Budget for 2014 (approved by Law no. 83-C/2013, of 31 December), it is important, first of all, to determine the law applicable to the concrete case.
Law no. 55-A/2012, of 29 October, amended Article 1 of the Stamp Duty Code (CIS), adding to the General Table of this tax (TGIS) item 28, which then provided that Stamp Duty would also apply to:
"28 – Ownership, usufruct or superficies right of urban properties whose tax patrimonial value contained in the register, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value used for purposes of IMI:
28-1 – For a property with residential dedication – 1%;
28-2 – For a property, when the taxpayers that are not individuals are residents in a country, territory or region subject to a clearly more favourable tax regime, contained in the list approved by order of the Minister of Finance – 7.5%."
Thus, with the entry into force of item 28.1, properties with residential dedication of tax patrimonial value (TPV) equal to or greater than €1,000,000.00 (one million euros) became subject to Stamp Duty, at the rate of 1%.
Consequently, in the original wording of item 28.1, this norm of incidence covered only urban properties with residential dedication of TPV equal to or greater than €1,000,000.00, and not construction land of equal value.
In other words, in the original wording of item 28.1, urban construction land, whether or not having a TPV equal to or greater than €1,000,000.00, was excluded from taxation.
However, with the entry into force of the State Budget for 2014, through Law no. 83-C/2013, of 31 December, item 28.1 came to provide that Stamp Duty applies to:
"28.1 For a residential property or for construction land, the authorized or planned construction of which is for residential purposes, in accordance with the provisions of the IMI Code – 1%"
Thus, with respect to the "construction land" at issue here, it is essential to take into account this legislative evolution, for it must be insisted that until the entry into force of the State Budget for 2014, the legislator only provided in the norm of incidence of Stamp Duty for urban properties with residential dedication. With the new wording of item 28.1, after the entry into force of the State Budget for 2014, the legislator came to expressly provide for the taxation of construction land "the authorized or planned construction of which is for residential purposes, in accordance with the provisions of the IMI Code" (emphasis ours).
With respect to the application of tax law over time, Article 12, paragraph 1, of the General Tax Law (LGT) provides that "tax norms apply to facts occurring after their entry into force", and no retroactive taxes may be created".
Thus, as decided by the Supreme Administrative Court, in judgment of 09.04.2014, in the course of proceedings no. 1870/13 (available at http://www.dgsi.pt/):
"This amendment – to which the legislator did not attribute an interpretative character, nor does it appear to us that it did – merely makes it clear for the future that construction land the authorized or planned construction of which is for residential purposes falls within the scope of item 28.1 of the General Table of Stamp Duty (provided that the respective tax patrimonial value is equal to or greater than 1 million euros), but clarifies nothing, however, with respect to past situations (assessments of (…) 2013), such as that which is at issue in the present case." [emphasis ours].
Now, in the case sub judice, the legality (or lack thereof) of the tax assessment act for Stamp Duty relating to the year 2013 is being discussed, and therefore, in light of what has been stated, there is no doubt that the law applicable to the concrete case is that contained in the original wording of item 28.1 of the TGIS, introduced by Law no. 55-A/2012, of 29 October.
On the (Non)Existence of Factual and Legal Grounds for Application of the Norm of Incidence Contained in Item 28.1 of the TGIS
As stated above, the question now at issue consists in determining whether there was a defect of violation of law in applying the norm of incidence of Stamp Duty to the construction land identified above, of which the Claimant is the owner.
Specifically, it is necessary to assess whether construction land of value equal to or greater than €1,000,000.00, whose construction is authorized for residential purposes, is or is not subject to Stamp Duty, in light of the original wording of item 28.1, which provided solely for the subjection of "properties with residential dedication".
Thus, the answer to the question raised will depend on the clarification of the concept of "property with residential dedication".
Articles 2 to 6 of the Code of Municipal Property Tax (CIMI) contain the definitions of "property" and of the various types of properties provided for. Let us then examine the provisions relevant to the solution of the case at hand:
"Article 2 – Concept of Property
1 – For purposes of this Code, property is every parcel of land, including any water, vegetation, buildings and constructions of any kind incorporated into or situated on it, of a permanent character, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as water, vegetation, buildings or constructions, under the circumstances stated above, possessing economic autonomy in relation to the land where they are situated, even though situated in a parcel of land that constitutes an integral part of different assets or does not have a patrimonial nature.
2 – Buildings or constructions, although moveable by nature, are deemed to have a permanent character when devoted to non-transitory purposes.
3 – The permanent character is presumed when buildings or constructions are situated in the same location for a period exceeding one year.
4 – For purposes of this tax, each independent fraction, under the regime of horizontal property, is deemed to constitute a property.
Article 4 – Urban Properties
Urban properties are all those that should not be classified as rustic, without prejudice to the provision 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 of the parts can be classified as principal, the property is deemed to be mixed.
Article 6 – Types of Urban Properties
1 – Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Construction land;
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 purpose each of these ends.
3 – Construction land is deemed to be land situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior communication admitted or favorable prior information issued regarding subdivision or construction operations, and also those that have been declared as such in the acquisition deed, except for land on which the competent entities prohibit any of those operations, in particular those located in green areas, protected areas or which, in accordance with municipal land use planning plans, are devoted to public spaces, infrastructure or equipment."
[emphasis ours]
As can be clearly seen, the CIMI does not use, in its classification of urban properties, the concept of "property with residential dedication". In fact, such concept has not been defined by the legislator, either in the CIMI or in any other legislative instrument.
Thus, it is necessary to undertake an interpretation of the concept, following the norms, tax and general, on the interpretation of laws, first and foremost Article 11 of the General Tax Law (LGT) and Article 9 of the Civil Code (CC):
"Article 11 – Interpretation (LGT)
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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.
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Whenever tax norms employ terms proper to other branches of law, they shall be interpreted in the same sense as they have there, unless otherwise directly provided by law.
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If doubt persists as to the meaning of the norms of incidence to be applied, regard shall be had to the economic substance of the tax facts.
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Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration".
"Article 9 – Interpretation of Law
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Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.
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However, the interpretation cannot consider legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.
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In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its thought in adequate terms".
Now, with respect to the concept of "residential dedication", the Claimant argues that "construction land is not a property devoted to residential purposes, for residential dedication presupposes a functional approach and construction land is not in itself a habitable property" (cf. Article 25 of the request for arbitral ruling), in particular because no occupancy permit has yet been issued (cf. Articles 20 to 22 of the request for arbitral ruling).
For its part, the Respondent argues that "the notion of dedication of urban property is found in the section relating to the assessment of real properties, which is understandable inasmuch as the assessment of the property (purpose) incorporates the value of the property, constituting a fact of distinction that is determining (coefficient) for purposes of assessment".
The Respondent thus develops an extensive reasoning which, in its view, allows it to frame construction land within the concept of property with residential dedication, relying in particular on the provision of Article 45 of the IMI Code, concluding that "the determination of the TPV of construction land is based on the determination of the value of the buildings authorized or planned...
In clarifying the concept of "property with residential dedication", we follow closely the decision rendered in the course of proceedings no. 42/2013-T (available at www.caad.org.pt). Thus,
"The expression 'residential dedication' does not appear to be susceptible to any meaning other than residential use, that is, urban properties that have an actual use for residential purposes, either because they are licensed for such, or because they have such normal purpose.
And we cannot confuse a 'residential dedication' which implies an actual dedication of an urban property to that end, with the expectation, or potential, of an urban property to come to have a 'residential dedication'.
Construction land, not being built, does not satisfy, by itself, any condition to be considered as property with residential dedication, inasmuch as, on the one hand, it does not have an occupancy license for residential use, and on the other hand, it is not habitable (because it is simply not built).
Therefore, it does not appear to us to be sufficient for classification within the norm of objective incidence in question that there exists the expectation of an urban property to come to have residential dedication, or to have the potential to come to have residential dedication." (emphasis ours)
Indeed, the concept of residential dedication must be traced back to something that is capable of being inhabited.
Thus, with respect specifically to construction land, what we find is merely the expectation that the same, after construction, will come to have residential dedication. Consequently, only after the realization of such dedication – i.e., only after the construction of the property intended for residential purposes – can we consider that such urban property falls within the scope of Item 28 of the TGIS.
For the reasons stated, notwithstanding that such construction land may result, in the future, in a property with residential dedication, so long as it maintains its qualification as construction land, it cannot be included within the field of incidence of Item 28 of the TGIS, in the wording in force at the time of the facts.
On the other hand, the Respondent's thesis that construction land should be classified as property with residential dedication by virtue of the provision of Article 45 of the CIMI, cannot also proceed.
Now, the Respondent argues that
"[i]n the Chapter relating to the determination of the TPV of urban properties – Articles 37 to 46 of the CIMI –, reference is made to the notion of dedication of urban property, resulting from Article 38 that the TPV of urban properties for residential use is determined by the application of a formula that integrates various factors, one of which is the dedication coefficient (Ca), provided for in Article 41 of the same Code." and that
"With respect to construction land, the TPV corresponds, in accordance with the provision of paragraph 1 of Article 45 of the CIMI, to the 'sum of the value of the implantation area of the building to be constructed, which is that situated within the perimeter of the building's fixing to the ground, measured by its exterior part, added to the value of the land adjacent to the implantation'."
We do not, however, agree with the Respondent's view that the notion of dedication of urban property results from the provision of those articles. In fact, one thing is for the legislator to determine that the TPV of construction land is determined in a particular manner; another is to extract from the norms that establish the calculation of TPV a definition of residential dedication.
On the contrary, in fact, the clarification of the concept of residential dedication must precede the determination of TPV, inasmuch as that concept is part of the norm itself.
It cannot, however, be overlooked that Article 45 of the CIMI provides for the assessment of construction land, considering as one of its elements the authorized or possible purpose, in light of urban planning constraints. However, and as decided in the course of proceedings no. 42/2013-T,
"Once again we are merely in the field of possibilities, of expectations, and that is not sufficient to alter the nature of the property, which continues to be considered as construction land, nor to support that the property in question comes to have 'residential dedication' for purposes of the objective incidence of item 28.1 of the TGIS."
Thus, this tribunal understands that, at the time of the facts, the concept of property with residential dedication, within the meaning of Item 28 of the TGIS, was equivalent, exclusively, to the concept of residential urban property, defined in Article 6, paragraph 1, subsection a) of the CIMI.
For the reasons stated, the urban property in question in this case, being construction land, cannot be covered by the concept of property with residential dedication, within the meaning of Item 28 of the TGIS, in the wording in force at the time of the tax fact, and thus no legal foundation exists for its incidence.
In summary, it is therefore concluded that the Stamp Duty assessment is illegal, due to a defect of violation of law due to error regarding the legal grounds thereof, which justifies its annulment in accordance with Article 135 of the Code of Administrative Procedure, applicable in accordance with Article 29, paragraph 1, subsection d), of the RJAT and Article 2, subsection c) of the LGT.
The claim in the request for arbitral ruling thus succeeds entirely.
Lack of Notification and Grounds and Unconstitutionality of Item No. 28 of the TGIS
As previously decided in arbitral proceedings in the course of Proceedings no. 91/2012-T: "The complete success on the defects of violation of law prejudices the examination of formal and procedural defects, as follows from the order for examination of defects provided in paragraph 2 of Article 124 of the CPPT, subsidiarily applicable by virtue of the provision in subsection a) of paragraph 1 of Article 29 of the Legal Framework for Tax Arbitration".
In fact, the establishment of an order for examination of defects is only justified by the circumstance that the possible success of the defects of priority examination renders the examination of the remaining defects unnecessary, for if it were always necessary to examine all defects, the order of their examination would be irrelevant.
For the reasons stated, the defects of violation of law succeeding, the examination of the defects of lack of notification and grounds and the defect of unconstitutionality are rendered unnecessary.
V. DECISION
The tribunal hereby decides as follows:
a) To adjudge the request for arbitral ruling to be well-founded;
b) To declare the illegality of the Stamp Duty assessment act no. 2013…, relating to the year 2013, to which correspond the collection notes nos. 2014…, 2014…, and 2014…, with the total amount of €175,823.81;
c) To annul the Stamp Duty assessment referred to above;
VI. VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at €175,823.81, in accordance with Article 97-A, paragraph 1, subsection a), of the Code of Tax Procedure and Process, applicable by virtue of subsections a) and b) of paragraph 1 of Article 29 of the Legal Framework for Tax Arbitration and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
VII. COSTS
The amount of the arbitration fee is fixed at €3,672.00 in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, inasmuch as the claim was entirely successful, in accordance with Articles 12, paragraph 2, and 22, paragraph 4, both of the Legal Framework for Tax Arbitration, and Article 4, paragraph 4, of the aforementioned Regulation.
Let notification be made.
Lisbon, 3 November 2016
The Presiding Arbitrator
(José Baeta Queiroz)
The Adjunct Arbitrator
(Carla Castelo Trindade)
The Adjunct Arbitrator
(Fernando Araújo)
(Text prepared by computer, in accordance with Article 138, paragraph 5 of the Code of Civil Procedure (CPC), applicable by reference of Article 29, paragraph 1, subsection e) of the Framework of Tax Arbitration. The wording of this decision follows the orthography prior to the Orthographic Agreement of 1990.)
[1] Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration, in Guide to Tax Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, p. 202.
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