Stamp Tax on Construction Land Under Verba 28 TGIS: CAAD Arbitration Decision 227/2013-T

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 227/2013

I – Report

1. On 30.09.2013 the Claimant, A, taxpayer identification no. …, represented by B, S.A., taxpayer identification no. …, with tax domicile in …, requested the CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to as LRAT), in which the Tax and Customs Authority is the Respondent, with a view to annulment of the following tax acts:

• Stamp duty assessment no. … relating to the real property registered in the urban property roll of the parish of … under article …, in the amount of € 13,042.50.

• Stamp duty assessment no. 2013 … relating to the real property registered in the urban property roll of the parish of … under article …, in the amount of € 13,494.70.

• Decision Dismissing the administrative complaint presented by the Claimant issued by the Chief of the Finance Service of … on 18 July 2013.

1. The request to constitute the arbitral tribunal was accepted by His Excellency, the President of the CAAD and notified to the Tax and Customs Authority. In accordance with and for the purposes of the provisions of article 6(1) of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, Dr. Marcolino Pisão Pedreiro was appointed arbitrator, who communicated his acceptance of the assignment to the Deontological Council and the Centre for Administrative Arbitration within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 28.11.2013.

1. The meeting provided for in article 18 of the LRAT took place on 5.02.2014, at 10:30 hours.

2. The grounds presented by the Claimant in support of its claim are, in summary, as follows:

• Lack of substantiation of the stamp duty assessment acts, due to the absence of reference to the reasons of fact and law that determined their issuance, in particular the nature and designation of the real properties therein better identified and the reason for their subsumption to item 28.1 of the General Table annexed to the Stamp Duty Code.

• Omission of an essential legal formality by reason of the fact that the Claimant was not notified, before the assessment, in accordance with the terms provided in article 60(1)(a) of the General Tax Law.

• Failure to address in the decision dismissing the administrative complaint issued by the Chief of the Finance Service … – …, insofar as it merely refers to the information provided by DSIMI – Directorate of Services for Real Estate Municipal Tax, without conducting a concrete analysis of the arguments invoked by the Claimant regarding the exclusion of the real properties in question from the scope of item 28.1 of the General Table annexed to Stamp Duty.

• Erroneous application of item no. 28.1 of the General Table of Stamp Duty, amended by Law no. 55-A/2012, of 29 October, given that the real properties in question are plots of land and not buildings intended for habitation, and do not fall within the definition of "urban property with residential designation" and, furthermore, the lack of building capacity of the real properties due to restrictions of the Municipal Master Plan of ….

1. The ATA – Tax and Customs Authority, called upon to respond, contested the Claimant's claim.

From the combination of its response and written submissions, its position is, in summary, as follows:

• There is no defect of lack of substantiation of the assessments carried out, nor of the decision dismissing the administrative complaint, because the substantiation of such acts proves to be sufficiently clear and coherent.

• There is no defect of omission of the right to hearing before the assessment because, in the view of the Respondent, in the case in question, the law does not impose the duty to hear the taxpayer before the assessment.

• The Respondent further contends that there is no defect of failure to address since the decision that dismissed the administrative complaint had attached to it the information from the services with the proposed decision "whereby the same detailed and assessed, circumstantially, each of the alleged defects invoked by the Claimant and, specifically as regards the information from DSIMI, it was not merely the same as transcribed in the information, but rather came in response to the analysis and the subsumption of the facts to the norms applied in the concrete case."

• The Respondent further contends that plots of land for construction, provided they are registered in the property roll with a residential designation coefficient, fall within the concept of "property with residential designation" of item 28.1 of the TGIS and that this occurs in the concrete case, and that it was incumbent upon the Respondent to request the competent change in the property roll, which it did not do, adding further that the Municipal Master Plans can always be subject to amendments and frequently are.

1. On 21.02.2014, at 14:00, the hearing of witnesses C and D, indicated by the Claimant, took place.

2. The parties submitted written submissions.

II – The Relevant Matters of Fact

1. The Tribunal considers the following facts to be proven:

2. The Claimant has been the owner, since 30 March 2002, of plots of land registered in the property roll of the parish of …, Municipality of …, under articles … and …, with tax asset values of € 1,304,250 and € 1,349,250, respectively.

The real properties in question were acquired by the Claimant from the company F…, S.A., by public deed of sale and purchase, executed on 30 March 2002, and were therein described as plots of land for urban construction.

On 21.03.2013, the Respondent assessed the Claimant for the following stamp duty:

• no. … relating to the real property registered in the urban property roll of the parish … under article …, in the amount of € 13,042.50.

• no. … relating to the real property registered in the urban property roll of the parish of … under article …, in the amount of € 13,494.70.

According to the notifications of the assessments, made to the Claimant in March 2013, these assessments were made on the basis of item 28.1 of the General Table of stamp duty and relating to the year 2012, at the rate of 1.00%.

The property roll shows that the real properties are plots of land for urban construction and that the tax asset value thereof was determined, in the aspect of the designation coefficient, based on a residential coefficient.

The real properties are located in a protection zone of the … .

The plot of land registered in the property roll of the parish … under article … is classified as "consolidated area/recreation and production green spaces" by the Municipal Master Plan of ….

The plot of land registered in the property roll of the parish of … under article … is classified as "area to consolidate/central and residential green spaces" by the Municipal Master Plan of ….

To the plot of land identified in the preceding point, no construction license or authorization, admitted prior notification, or issued favorable prior information has been granted to date for construction operations.

The Claimant presented on 15 May 2013 an administrative complaint against the assessment acts identified in 3), in which it was alleged that:

• In no part of the disputed assessment acts are the reasons of fact and law that determined their issuance explicitly or explained, in particular the designation of the real properties and the reason for their subsumption to item 28.1 of the General Table annexed to the Stamp Duty Code.

• It is not possible for the claimant to perceive the cognitive path of the services, insofar as not all necessary elements are indicated for that purpose, with the result that the assessment acts are affected by the defect of lack of substantiation, in violation of articles 77(1) of the General Tax Law and 125(1) of the Code of Administrative Procedure.

• Not having been notified as provided for in article 60(1)(a) of the General Tax Law, there is an omission of an essential formality, in accordance with article 99(d) of the CPPT, applicable ex vi article 70 of the same Code.

• The real properties held by the claimant do not have building capacity, due to the Municipal Master Plan of …, their classification as "land for construction" lacks legal basis, and they should be excluded from the tax base of Stamp Duty, to which item 28.1 of the General Table annexed to the Stamp Duty Code refers.

• Nevertheless, even if it were understood that the real properties in question are to be classified as "land for construction," they would always be excluded from the tax base of Stamp Duty by reason of the doctrinal understanding that only constructed properties intended for habitation are subject to item 28.1 of the General Table annexed to the Stamp Duty Code."

The information that forms part of the proposed decision to dismiss notified to the claimant for purposes of exercising the right to hearing contains the following:

"3. The claimant alleges lack of substantiation of the assessment act in accordance with article 77 of the General Tax Law, which requires that the decision of a procedure be always substantiated, by means of a succinct statement of the reasons of fact and law that are at its origin. However, what is at issue is an assessment that results from the direct application of a legal norm, which translates into objective elements, without any subjective or discretionary appreciation.

1. Thus, consulting the assessments notified to the claimant and attached at pages 27 and 28, it is concluded that Stamp Duty is at issue, with the identification of the taxpayer, the year of the tax to which it refers - 2012 - and the identification of the document and respective date of assessment - 21-03-2013. Also stated is the identification of the property – with the respective municipality/parish/property roll article - …- Urban … and …, the item of the General Table of Stamp Duty - 28.1 – which corresponds to the legal basis, the tax asset value and proportional share, the exempt amount - 0 -, the rate applied - 1% - and the collection. Also identified is the amount to be paid relating to the first installment and also the deadline for payment thereof – APRIL/2013 (…).

2. With regard to the alleged omission of an essential formality for not having been notified for the exercise of the right to hearing enshrined in article 60 of the LGT, within the scope of the Principle of Taxpayer Participation in decisions concerning them, this also does not apply to the case in question since the assessment act in question arises directly from the application of law. In reality, what is at issue is not the proposed decision but rather the application of the regulatory provision provided for in article 4 of Law no. 55-A/2012, of 29 October.

3. It also invokes the erroneous application of law by the tax administration referring that the regulatory provision in question is applicable to urban properties with residential designation and tax asset value equal to or greater than € 1,000,000.00, and that, in the concrete case the assessments fell upon plots of land for construction, and therefore will be outside the scope of the legal provision imposed by Law no. 55-A/2012, of 29 October, insofar as this requires "residential designation."

4. However, consulting the certificate of the tenor of the urban properties that are at the basis of the present assessments - property roll articles … and … of the parish …, municipality of … – attached at pages 47 et seq. of the case file, it is verified that the plots of land for construction are designated for residential use.

(…)

1. (…) there is information provided by DSIMI – General Directorate of Services for Real Estate Municipal Tax, which is transcribed as follows:

"The urban properties which are plots of land for construction and to which residential designation has been attributed in the context of their respective assessments, (such designation appearing in the respective property rolls) are subject to Stamp Duty.

The fact that in the norm of incidence – item 28.1 TGIS – property with residential designation has been positivized in lieu of residential property, appeals to a designation coefficient (article 41 of CIMI), which applies, indistinctly, to all urban properties.

1. Thus, it seems that the present request should not be considered (…) the present complaint should be DISMISSED (…)."

By decision issued in the administrative complaint proceeding, the Chief of the Finance Service declared agreement with the grounds of the information provided and on 18.07.2013 the proposed decision was converted into a final decision, with the grounds contained in said information.

There are no facts not proven that are of interest for the decision of the case.

1. The Tribunal's conviction regarding the decision of matters of fact was based, on the one hand, on the documents submitted by the Claimant and not contested by the Respondent as well as on the documents contained in the administrative case file, on the positions taken by the Respondent regarding the facts alleged by the Claimant and also with respect to points 7, 8 and 9 of the matters of fact in the testimony of witnesses C and D, who testified objectively and without cause for objection with respect to the duty of impartiality, demonstrating direct knowledge of the facts about which they testified, adding further that the content of their testimony was congruent and consistent with the documents contained in the case file.

III – The Applicable Law

1. As the Claimant has imputed various defects to the disputed tax acts, the order of examination thereof must be determined, and the order of article 124 of the CPPT must be observed, applicable by virtue of article 29(1)(a) of the LRAT (See Jorge Lopes de Sousa, Commentary on the Legal Regime for Arbitration in Tax Matters, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, page 202).

The merits of any of the defects invoked by the Claimant will lead to the annulment of the tax act. However, the defect of violation of law is the one that will lead to "the most stable or effective protection of the offended interests" insofar as its possible merits will prevent the renewal of the act, which does not occur with the annulment resulting from the other defects.

Accordingly, the Tribunal will first examine the defect of violation of law.

1. Item 28 of the General Table of Stamp Duty, in the version applicable at the time of the facts, established that ownership of properties with residential designation with a tax asset value equal to or greater than 1,000,000 euros is subject to stamp duty, as follows:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax asset value as stated in the property roll, in accordance with the Real Estate Municipal Tax Code (CIMI), is equal to or greater than 1,000,000 euros – on the tax asset value used for purposes of IMI:

28.1 – For property with residential designation – 1%;

28.2 – For property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, listed in the list approved by order of the Minister of Finance – 7.5%."

It has been abundantly emphasized in various arbitral decisions of the CAAD that the concept of "property with residential designation" is not used by the CIMI, nor in any other legislative instrument, specifically in proceedings 42/2013, 48/2013, 49/2013, 51/2013, 53/2013, 144/2013.

All of these arbitral decisions, although not entirely coincident in the fulfillment of the concept in question, go in the direction of requiring it, at least, the real possibility of the existing property being used for habitation and, in all of them, it was understood that plots of land for construction, even if intended for the construction of residential buildings, do not fall within the concept of "property with residential designation," as results from the following passages thereof:

Proceeding 42/2013:

"The expression 'residential designation' does not seem to be able to have any other meaning than that of 'habitation' use, that is, urban properties that have an actual use for habitation purposes, whether because they are licensed for that purpose, or because they have that normal purpose.

And we cannot confuse a 'residential designation' that implies an effective designation of an urban property to that purpose, with the expectation, or potentiality, of an urban property being able to come to have a 'residential designation.'

Proceeding 49/2013:

"The expression 'with residential designation' inculcates, in a simple reading, an idea of real and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as stated in the Respondent's response, the legislator's option for that expression was intended to integrate 'other realities beyond those identified in article 6(1)(a) of the CIMI.' Such interpretation has no legal support, in view of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law.

Indeed, if the legislator intended to encompass within the scope of incidence of the tax other realities than those resulting from the classification governed by article 6 of the CIMI, it would have said so expressly. But it does not, instead referring, in bulk, to the concepts and procedures provided for in the aforesaid Code."

Proceeding 51/2013:

"The point that matters to decide is this: is there a difference between the expression that the CIMI uses of 'residential urban property' and the expression used by article 4 of Law no. 55-A/2012, when referring to 'property with residential designation'?

We believe not, since it prevails, even though using somewhat different words, the same fundamental meaning of taxing the ownership of properties with the same purpose, the actuality or the possibility of use being for human habitation purposes, with all the consequences that legislation in general and the CIMI in particular gives it."

Proceeding 53/2013:

"(…) it should be presumed that the use of a different expression is intended to convey a distinct reality, and therefore, in good hermeneutics, 'property with residential designation' cannot be a property merely licensed for habitation or intended for that purpose (that is, it will not suffice to be a 'residential property'), and must be a property that already has actual designation for that purpose."

Proceeding 144/2013:

"we believe that, in the interpretation of the provision of item 28.1 of the TGIS, the understanding is required that residential designation of an urban property suggests that it be given that actual purpose, or that it can be directly given that purpose."

Thus, the unequivocally common point in all of these decisions, which we also endorse, is the understanding that plots of land for construction, even if intended for residential construction, are not properties with residential designation.

In fact, we understand that regardless of the reasons that may have led Law no. 55-A/2012 to use the expression "property with residential designation," instead of "residential property" contained in article 6(1)(a) of the CIMI, for subsumption to item 28.1 of the SC there cannot fail to be required, at least, the real and current potentiality (relative to the taxable event) of the property in question being used for habitation.

1. In any event, it should be added that, in the case at hand, it was also proven regarding the property registered in the property roll under article … that it is classified as "area to consolidate/central and residential green spaces" by the Municipal Master Plan of ….

Thus, regarding this property, even if a concept of "property with residential designation" were adopted that included plots of land intended for residential construction, this property would still not fall within item 28.1 of the SC.

1. Having regard to the foregoing, since item 28.1 of the SC is inapplicable to the Claimant's properties, the Claimant's request for annulment cannot fail to succeed, since the tax acts are affected by the defect of violation of law due to error in the legal presuppositions.

Thus, the examination of the other questions raised by the Claimant is prejudiced, in accordance with article 124 of the CPPT, by application of article 29(1) of the LRAT, as well as any other matter that the Tribunal could examine ex officio.

IV – Decision

1. For the reasons set forth, the Arbitral Tribunal decides:

a) To declare the non-applicability of item 28 of the General Table of Stamp Duty to the properties in question, owned by the Claimant.

b) To declare the illegality and consequent annulment of the following tax acts:

• Stamp duty assessment no. … relating to the real property registered in the urban property roll of the parish … under article ..., in the amount of € 13,042.50.

• Stamp duty assessment no. … relating to the real property registered in the urban property roll of the parish of … under article …, in the amount of € 13,494.70.

• Decision Dismissing the administrative complaint presented by the Claimant issued by the Chief of the Finance Service of …, on 18 July 2013.

Value of the action: € 26,537.20 (Twenty-six thousand five hundred and thirty-seven euros and twenty cents) in accordance with the provisions of article 315(2) of the CPC and 97-A(1)(a) of the CPPT and 3(2) of the Regulations of Costs in Arbitration Proceedings.

Costs to be borne by the Respondent, in the amount of 1,530.00 € (one thousand five hundred and thirty euros) in accordance with article 22(4) of the LRAT.

Lisbon, CAAD, 25 March 2014.

The Arbitrator

Marcolino Pisão Pedreiro