Process: 234/2015-T

Date: February 26, 2016

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision (Process 234/2015-T) addresses the challenge to a Stamp Tax assessment of €15,083.10 under item 28.1 of the General Table of Stamp Tax (TGIS). The claimant, a Portuguese company, contested the taxation of an urban residential property in Cascais with a taxable property value (VPT) of €1,508,310.00. Item 28.1 TGIS imposes annual Stamp Tax on residential properties valued at €1 million or more. The claimant argued that this provision violates constitutional principles of equality, contributive capacity, and material justice under Article 5(2) of the General Tax Law. After the complaint and hierarchical appeal were dismissed, the case proceeded to the Administrative Arbitration Center (CAAD). The Tax Authority raised a preliminary objection, arguing that the arbitral tribunal lacked jurisdiction to consider constitutional challenges, asserting that arbitral tribunals must decide according to established law without equity. The arbitral tribunal rejected this jurisdictional objection, citing that the legislative authorization for tax arbitration intended it as a full alternative to judicial proceedings. The tribunal emphasized that Article 2 of the Legal Regime of Tax Arbitration (RJAT) does not restrict arbitral tribunals from examining the conformity of ordinary laws with the Portuguese Constitution. The decision references CAAD case 366/2014-T, establishing that excluding constitutional review would be restrictive and reductive of the arbitral tribunal's competence. The tribunal confirmed its authority to analyze whether item 28.1 TGIS complies with constitutional principles, allowing the substantive challenge to proceed on its merits.

Full Decision

ARBITRAL DECISION

  1. REPORT

On 06-04-2015, the company A..., LDA, legal entity no. ..., with registered address at Avenue..., no. ..., ..., Plot..., ...., ..., ..., hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to annulling the decision dismissing the hierarchical appeal and, consequently, challenging the act of assessment of Stamp Tax dated 21-03-2013, in the amount of €15,083.10, with reference to the year 2012. The said assessment relates to item 28.1 of the General Table of Stamp Tax (TGIS) and to an urban property located in the parish of ..., municipality of Cascais, registered in the urban property registry of said parish under no. ..., designated for residential use and with a taxable property value (VPT) of €1,508,310.00.

The Claimant states that, not agreeing with the grounds for the Stamp Tax assessment, it filed a complaint which was dismissed by decision dated 04-12-2013. Dissatisfied with this decision, the Claimant filed a hierarchical appeal, which was also dismissed by decision notified to the Claimant on 07-01-2015.

The Claimant alleges that item 28.1 of the TGIS violates fundamental constitutional principles of the Portuguese tax system, such as the principle of equality and the principle of contributive capacity, and also violates the principle of material justice provided for and regulated in Article 5, no. 2 of the General Tax Law (LGT).

Finally, the Claimant requests that the Tax and Customs Authority (A.T.A.) be condemned to return the paid Stamp Tax, plus the corresponding compensatory interest in accordance with Article 43 of the LGT.

Suzana Fernandes da Costa was appointed as sole arbitrator on 02-06-2015. In accordance with the provisions of Article 11, no. 1, paragraph c) of the Legal Regime of Tax Arbitration (RJAT), the sole arbitral tribunal was constituted on 14-07-2015.

The Tax and Customs Authority submitted a response on 29-09-2015, defending the maintenance of the tax acts in question, requesting dismissal of the claim, and alleging that the Claimant's property falls squarely within the provision of item 28.1 of the TGIS which makes subjection to Stamp Tax dependent on the combination of two facts: designation for residential use and the VPT being equal to or greater than one million euros.

The A.T.A. states that the Claimant's claim has no basis within the scope of arbitral jurisdiction as provided for in Article 2, no. 1 of the RJAT. And it argues that the Arbitral Tribunal is precluded from considering the alleged violation of the constitutional principle of equality of item 28.1 of the TGIS.

With regard to the violation of constitutional principles alleged by the Claimant, the A.T.A. states that there is no violation of principles, since the rationale for the creation of item 28.1 of the TGIS was based on the principles of equity and fiscal justice, which justified the increase in the static taxation of urban residential properties of higher value. The A.T.A. concluded by stating that the assessment in question did not violate any legal provision or constitutional principle, and therefore should be maintained, as decided in the CAAD decision in case no. 366/2014.

On 13-10-2015, an order was issued scheduling the meeting provided for in Article 18 of the RJAT for 24-11-2015 at 14:00 hours.

On 24-11-2015, an order was issued cancelling the scheduled meeting due to illness of the arbitral judge, and scheduling the new date for the meeting as 05-01-2016 at 15:30 hours.

At the meeting, the distinguished representative of the Claimant and the distinguished legal counsel representing the Director-General of the Tax and Customs Authority were present.

The Claimant's representative made a statement concerning the objection raised by the Respondent in its response, arguing for its dismissal.

The Tribunal granted successive periods of 10 days to the Claimant and the Respondent, in that order, to submit their respective written arguments.

The period for rendering the decision was further extended for two months, and the date for rendering the decision was set as 26-02-2016.

Finally, the Claimant was warned that, by that date, it should make payment of the subsequent arbitration fee and notify the CAAD of such payment.

On 15-01-2016, the Claimant submitted its arguments. The Respondent, however, did not submit any arguments.

The parties possess legal personality and legal capacity and are legitimate (Articles 4 and 10, nos. 1 and 2 of the RJAT and Article 1 of Ministerial Order no. 112-A/2011 of 22 March).

The arbitral request is timely, in accordance with Article 10, no. 1, paragraph a) of Decree-Law no. 10/2011 of 20 January and Article 102, no. 1, paragraph a) of the Code of Tax Procedure and Process.

The proceedings do not suffer from any nullities and no preliminary questions were raised.

  1. ON THE OBJECTION OF LACK OF JURISDICTION OF THE ARBITRAL TRIBUNAL

The Respondent states, in its response, that the Claimant's claim is not within the scope of arbitral jurisdiction as provided for in Article 2, no. 1 of the RJAT, arguing that arbitral tribunals decide in accordance with established law, with recourse to equity being prohibited, and that the Arbitral Tribunal is precluded from considering the alleged violation of the constitutional principle of equality of item 28.1 of the TGIS.

On this matter, it is important to invoke the legislative authorization for the introduction of an arbitral regime in Tax Law, as an alternative form of jurisdictional resolution of disputes, a regime that emerged with the State Budget Law of 2010 (Law no. 3-B/2010 of 28 April), in Article 124.

The scope of tax arbitration is also evident from no. 2 of Article 124 of said law, when it states that "the tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters".

As stated in the CAAD decision in case no. 366/2014-T, while serving as an alternative procedural means to recourse to tax courts, "it would be restrictive and reductive to derive from Article 2 of the RJAT an interpretation that would immediately preclude consideration of the constitutional conformity of a given tax provision, when it is well known that such competence exists within the scope of arbitral tribunals".

Thus, since the legislator has not reduced the scope of the arbitral tribunal's competence to consider matters such as the conformity of ordinary laws with the CRP, no interpreter should make such a distinction.

The competencies of the arbitral tribunal in tax matters are found in Decree-Law no. 10/2011 of 20 January, pursuant to the legislative authorization granted by Article 124 of Law no. 3-B/2010 of 28 April (State Budget Law for 2010), as amended by Articles 228 and 229 of Law no. 66-B/2012 of 31 December.

And Article 2 of said instrument (Decree-Law no. 10/2011 of 20 January) which approved the RJAT imposes the following:

"1 – The competence of arbitral tribunals comprises the consideration of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;

b) The declaration of illegality of acts fixing the taxable matter when it does not give rise to the assessment of any tax, of acts determining the taxable matter and of acts fixing property values;

c) (Repealed)

2 – Arbitral tribunals decide in accordance with established law, with recourse to equity being prohibited."

It does not follow from this legal norm nor from the remaining norms that the RJAT has restricted the competencies of arbitral tribunals, in the sense of depriving those tribunals of the consideration of matters such as the conformity of ordinary laws with the CRP.

It should be noted that non-conformity of a given legal norm with the CRP must lead to a defect of violation of law.

Accordingly, we consider that it is not possible to interpret Article 2 of the RJAT as precluding from the scope of the arbitral tribunal's competence in tax matters the consideration of any violation of law, whether of constitutional value or of hierarchically lower value than the CRP.

On the other hand, Article 25, no. 1 of the RJAT states that "the arbitral decision on the merits of the claim submitted which terminates the arbitral proceeding is subject to appeal to the Constitutional Court in the part in which it refuses to apply any norm on the ground of its unconstitutionality or which applies a norm whose unconstitutionality has been raised".

Now, this rule would not make sense if the arbitral tribunal were precluded from having knowledge of non-conformity of legal norms with the CRP.

See also Article 204 of the CRP, whose title is "Review of Unconstitutionality", which states that "in proceedings submitted for judgment, courts cannot apply norms that infringe the provisions of the Constitution or the principles enshrined therein".

The decision of the Supreme Administrative Court of 06-03-2015 in case no. 0793/14 states the following: "such limitation of knowledge on the part of the A.T.A., which is subject to the principle of legality, as we have already seen, does not apply to courts, or to judicial bodies such as the CAAD, see the judgment of the CJEU, no. C-377/13, whose competencies are much broader, being incumbent upon them to assess the legality of acts of the administration in its various dimensions, where naturally is included that of constitutional conformity of the ordinary norms on which those same acts find their basis, see Article 204 of the CRP".

Thus, the objection raised by the Respondent in its response regarding the competence of the arbitral tribunal to consider non-conformities of tax norms with the CRP cannot be upheld.

  1. FACTS

3.1. Proven Facts:

Having analyzed the documentary evidence produced and the positions of the parties as stated in the case documents, the following facts are considered proven and relevant for the decision of the case:

The Claimant was, in 2012, owner of the urban property located in the parish of ..., municipality of Cascais, registered in the urban property registry of said parish under no. ..., designated for residential use, and with a taxable property value (VPT) of €1,508,310.00.

The Claimant was notified of Stamp Tax assessment no. 2013 ... of 21-03-2013, relating to the year 2012, in the amount of €15,083.10, relating to the urban property identified in the preceding point, payable in three installments: one by 30-04-2013, another by 31-07-2013 and another by 30-11-2013, in accordance with the assessment and collection documents attached to the arbitral request as documents 1 and 2.

The Claimant filed a complaint regarding the aforementioned Stamp Tax assessment, which was expressly dismissed.

The Claimant filed a subsequent hierarchical appeal, which was also expressly dismissed by decision notified to the Claimant on 07-01-2015, in accordance with a copy of the decision attached to the arbitral request as document 3.

The Claimant proceeded to pay the Stamp Tax shown in the collection notices attached to the arbitral request.

No other facts relevant to the decision of the case were proven.

3.2. Reasoning for the Proven Facts:

Regarding the proven facts, the arbitrator's conviction was based on the documents submitted to the file by the Claimant, namely the assessments and the property register.

  1. LEGAL MATTERS:

4.1. Object and Scope of the Present Proceedings

The issue to be decided in the present proceedings is whether the Stamp Tax assessment, issued under item 28.1 of the TGIS, violates the fundamental constitutional principles of the Portuguese tax system, such as the principle of equality and the principle of contributive capacity, and whether it also violates the principle of material justice provided for and regulated in Article 5, no. 2 of the LGT.

4.2. The Matter of the Defect of Violation of Constitutional Law – Principles of Equality and Contributive Capacity

According to the Claimant, item 28.1 of the TGIS "clearly and unequivocally violates the principles of equality and contributive capacity, enshrined in the Constitution of the Portuguese Republic (CRP), and the principle of material justice provided for in the LGT, in its Article 5, no. 2".

According to the A.T.A., however, there was no violation of constitutional principles. The Respondent argues that the rationale for the creation of item 28.1 of the TGIS was based on the principles of equity and fiscal justice. And it was these principles that justified the increase in the static taxation of urban residential properties of higher value.

Regarding the principle of equality and in the case of Stamp Tax assessments for properties with residential designation and VPT exceeding one million euros, CAAD decisions no. 4/2014-T, 366/2014-T and 517/2014-T have already pronounced on this matter.

Let us examine the legal framework of the Stamp Tax assessment at issue in these proceedings.

Law no. 55-A/2012, of 29 October, added item 28 to the General Table of Stamp Tax (TGIS), with the following wording:

"28 – Ownership, usufruct or surface right of urban properties whose taxable property value recorded in the registry, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the taxable property value used for IMI purposes:

28.1 – For property with residential designation – 1% (…)".

The principle of equality is enshrined in Article 13 of the CRP, which states the following:

"Article 13

Principle of Equality

  1. All citizens have the same social dignity and are equal before the law.

  2. No one can be privileged, benefited, harmed, deprived of any right or exempted from any duty on the grounds of ancestry, sex, race, language, territory of origin, religion, political or ideological beliefs, education, economic situation, social condition or sexual orientation."

Looking now at the legislative intent of the provision in item 28.1 TGIS and citing CAAD decision no. 50/2013-T "the legislator, when introducing this legislative innovation, considered as the determining element of contributive capacity urban properties, with residential designation, of high value (luxury), more precisely, of value equal to or greater than one million euros (€1,000,000.00), on which a special rate of stamp tax began to apply, intending to introduce a principle of taxation on wealth manifested in the ownership, usufruct or surface right of luxury urban properties with residential designation. For this reason, the criterion was the application of the new rate to urban properties with residential designation, whose VPT is equal to or greater than one million euros (€1,000,000.00). Clearly the legislator understood that this value, when attributed to a residence (house, apartment or flat with independent use) reflects a contributive capacity above average and, as such, likely to determine a special contribution to ensure fair distribution of the tax burden."

This is likewise evident from an analysis of the discussion of bill no. 96/XII in the Portuguese Parliament, available for consultation in the Parliamentary Record, Series I, no. 9/XII/2, of 11 October 2012.

The rationale for the measure designated as "special rate on urban residential properties of higher value" rests on the invocation of the principles of social equity and fiscal justice, calling for more intensive contribution from holders of properties of high value intended for residential purposes, applying the new special rate to "properties of value equal to or greater than 1 million euros".

The legislator, in item 28.1 of the TGIS, chose to tax properties with a taxable property value exceeding one million euros. In the legislator's view, this value demonstrates high contributive capacity, which would justify subjection to increased taxation compared to holders of properties of lower value.

It should be noted that, for example, for purposes of manifesting wealth, the taxable property value chosen by the legislator is considerably lower: €250,000 (Article 89-A of the General Tax Law).

This difference reveals that in item 28.1 TGIS the legislator wished to create an exceptional form of taxation applicable only to properties whose value demonstrates a contributive capacity clearly superior to the normal.

As Casalta Nabais states in Tax Law, 5th edition, p. 151 et seq., the principle of equality has inherent in it particularly "the idea of generality or universality, whereby all citizens are bound by the duty to pay taxes, and of uniformity, requiring that such duty be assessed by the same criterion – the criterion of contributive capacity. This thus implies equal tax for those with equal contributive capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributive capacity in proportion to that difference (vertical equality)".

The aforementioned author further adds that it follows from this principle "the constitutional illegality of absolute tax presumptions (…) the need for a safety valve to prevent situations of grave inequity" (cited work, p. 154).

As mentioned above, CAAD decisions no. 4/2014-T of 11-07-2014, 366/2014-T of 05-01-2015 and 517/2014-T of 20-02-2015 have already pronounced on the constitutionality of item 28.1 of the TGIS as applied to urban properties with residential designation and VPT exceeding one million euros, and decided that there was no violation of constitutional principles.

Subsequently, on 11-11-2015, the Constitutional Court pronounced on a situation similar to that of the present case, in decision no. 590/2015, case no. 542/14.

This decision states that "it should be noted that the Constitution does not require the legislator to create a general property tax, attributing to property taxation the function of contributing to equality among citizens (Article 104, no. 3 of the Constitution), with the legislator being free as to the solution to adopt. He may, as Casalta Nabais points out, in pursuit of such constitutional objective, 'proceed to discriminate among assets, taxing the highest and exempting the lowest or adopting progressive rates' (…). And, even if one can extract from the principle of contributive capacity a model of general property tax with a taxable base extended to all manifestations of wealth, the practical obstacles that stand in its way are likely to result in the creation of inequalities among taxpayers".

Regarding the principle of proportionality, the said decision concludes that "as, being a fiscal measure aimed at affecting more intensely the holders of real enjoyment rights over urban properties of residential purpose and higher value, accessible only to those possessing high economic capacity, no reasons are apparent for concluding that the dimensions of necessity or just measure contained in the principle of proportionality are being disregarded".

This decision of the Constitutional Court decides "not to find unconstitutional the norm contained in item 28 and 28.1 of the General Table of Stamp Tax, added by Article 4 of Law no. 55-A/2012, of 29 October, insofar as it imposes annual taxation on the ownership of urban properties with residential designation, whose taxable property value is equal to or greater than €1,000,000.00".

Thus, we must conclude that the principle of fiscal equality and proportionality, in the concrete situation, are not being violated. Firstly because the value chosen by the legislator covers only properties of manifestly high value, which demonstrate high contributive capacity.

Finally, the principles of equality and proportionality must be reconciled with the fundamental duty to pay taxes, with the principle of social equity and fiscal justice, it being legitimate for States, with respect for the principle of legality, to create taxes in pursuit of objectives of common interest.

There is thus, in our view, reason to conclude that the alleged unconstitutionalities alleged by the Claimant do not exist.

The foregoing necessarily implies that the act dismissing the Hierarchical Appeal filed by the Claimant against the Stamp Tax assessment that is the subject of these proceedings also suffers from the defect of violation of law, due to error as to the legal assumptions, which also leads to a declaration of its illegality and consequent annulment (cf. Article 135 of the CPA).

  1. COMPENSATORY INTEREST

The Claimant requested that the A.T.A. be condemned to return the improperly paid tax, plus compensatory interest, in accordance with Article 43 of the LGT.

Article 43, no. 1 of the LGT provides that "compensatory interest is due when it is determined, in a complaint or judicial challenge, that there was an error attributable to the tax authorities from which resulted payment of the tax debt in an amount exceeding that legally due".

Since the Claimant's claim is unfounded, consequently its request for restitution of the paid tax plus compensatory interest is unfounded.

  1. DECISION

In view of the foregoing, it is determined that the claim filed by the Claimant in the present tax arbitral proceedings is dismissed, and the challenged assessment is upheld.

  1. VALUE OF THE PROCEEDINGS:

In accordance with Article 306, no. 2 of the CPC and Article 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 action is fixed at €15,083.10.

  1. COSTS:

In accordance with Article 22, no. 4 of the RJAT, and Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, costs are fixed at €918.00, to be paid by the Claimant.

Notify.

Lisbon, 26 February 2016.

Text prepared by computer, in accordance with Article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by reference of Article 29, no. 1, paragraph e) of the Tax Arbitration Regime, reviewed by me.

The Sole Arbitrator

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

What is the Stamp Tax (Imposto de Selo) under Verba 28.1 of the TGIS for properties valued over €1 million?
Stamp Tax under Verba 28.1 of the TGIS is an annual tax levied on urban properties designated for residential use with a taxable property value (VPT) equal to or exceeding €1 million. The tax rate is applied to the property's VPT as registered in the urban property registry. In this case, a property valued at €1,508,310.00 generated a tax assessment of €15,083.10 for the year 2012. The tax applies regardless of whether the property generates income and is based solely on the combination of residential designation and the minimum VPT threshold, representing static taxation of high-value residential real estate.
Can a taxpayer challenge the constitutionality of Verba 28.1 TGIS before a CAAD arbitral tribunal?
Yes, a taxpayer can challenge the constitutionality of Verba 28.1 TGIS before a CAAD arbitral tribunal. Despite the Tax Authority's argument that arbitral tribunals lack jurisdiction over constitutional matters, the tribunal in this decision rejected that objection. The tribunal held that Article 2 of the RJAT, which states that arbitral tribunals decide according to established law, does not preclude constitutional review. Since the legislative authorization intended tax arbitration as a full alternative to judicial proceedings, and no provision explicitly restricts constitutional analysis, arbitral tribunals have competence to examine whether tax provisions conform to the Portuguese Constitution, including challenges based on equality, contributive capacity, and other constitutional principles.
Does Verba 28.1 of the TGIS violate the constitutional principles of equality and ability to pay?
The text does not provide the tribunal's final substantive ruling on whether Verba 28.1 TGIS violates constitutional principles. The claimant argued that the provision violates the principles of equality and contributive capacity because it imposes tax based solely on property value without considering actual ability to pay or income generation. The Tax Authority defended the provision, stating it was created based on principles of equity and fiscal justice to increase taxation on high-value residential properties, referencing favorable precedent in CAAD case 366/2014. The tribunal's analysis of this substantive constitutional question would require examining whether the static taxation of property ownership, without regard to income or liquidity, complies with Articles 13 and 104 of the Portuguese Constitution.
What is the procedure for contesting a Stamp Tax assessment through hierarchical appeal and tax arbitration in Portugal?
The procedure for contesting a Stamp Tax assessment in Portugal involves multiple stages: (1) Initial administrative complaint (reclamação graciosa) to the Tax Authority challenging the assessment - in this case dismissed on 04-12-2013; (2) Hierarchical appeal (recurso hierárquico) to a superior tax authority if the complaint is denied - dismissed and notified on 07-01-2015; (3) Tax arbitration at CAAD as an alternative to judicial proceedings - request filed on 06-04-2015 within the legal deadline under Article 10(1)(a) of Decree-Law 10/2011 and Article 102(1)(a) of the Tax Procedure Code. The arbitration involves constitution of an arbitral tribunal, submission of response by the Tax Authority, a procedural meeting under Article 18 RJAT, written arguments, and a final decision. Arbitration fees must be paid by specified deadlines.
Is a taxpayer entitled to compensatory interest (juros indemnizatórios) upon annulment of a Stamp Tax assessment?
Yes, under Article 43 of the General Tax Law (LGT), a taxpayer is entitled to compensatory interest (juros indemnizatórios) when a tax assessment is annulled and the tax has been paid. The claimant in this case specifically requested that the Tax Authority be ordered to return the paid Stamp Tax of €15,083.10 plus corresponding compensatory interest. Compensatory interest compensates taxpayers for the financial loss resulting from having paid tax that was unlawfully assessed. The interest accrues from the date of payment until the date of refund, calculated according to the legal rate established in Article 43 LGT, providing restitution for the State's wrongful retention of funds that should not have been collected.