Process: 254/2016-T

Date: February 15, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 254/2016-T examines whether Stamp Tax under item 28.1 of the General Stamp Tax Table (TGIS) applies to building land (terrenos para construção) valued over one million euros. The applicant, a joint-stock company, challenged a 2013 Stamp Tax assessment on urban property registered as building land with a tax asset value of €1,153,770. The company argued that building land cannot be classified as residential property under item 28.1 TGIS, as it lacks actual residential use and represents merely an expectation of future construction. Relying on Article 6(2) of the IMI Code, applied subsidiarily via Article 67(2) of the Stamp Tax Code, the applicant contended that residential properties must be buildings or constructions licensed for residential purposes or having that normal purpose. Building land, defined separately in Article 6 IMI Code as properties authorized for subdivision or construction operations, does not meet this criterion. The applicant initially filed an official review request (revisão oficiosa) under Article 78 LGT and Article 115 IMI Code, which was dismissed. The Tax Authority raised a preliminary jurisdictional defense, arguing that CAAD lacks material competence because dismissals of official review requests must be challenged through special administrative action under Article 97 CPPT, not arbitral proceedings. Substantively, the Tax Authority maintained that the assessment correctly interpreted item 28.1 TGIS and that the property qualifies as residential. The tribunal scheduled hearings to address both the jurisdictional exception and the merits, with the applicant seeking annulment of the assessment and reimbursement of tax paid plus compensatory interest.

Full Decision

ARBITRAL DECISION

Claimant/Applicant: A…, S.A.

Respondent: Tax and Customs Authority (hereinafter A.T.A.)

1. Report

On 05-05-2016, the joint-stock company A…, S.A., legal entity no. …, with registered office at Street …, No. …, …-… …, registered in the Commercial Registry Office of … under no. …, hereinafter designated as the Applicant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view, directly, to the annulment of the dismissal of the application for review of tax act issued in administrative process no. …2015…, and ultimately, to the annulment of the tax act of assessment of Stamp Tax concerning the year 2013 and concerning the urban property registered in the urban property roll under article … of the parish of …, municipality of ..., with the tax asset value of 1,153,770.00 € and described as land for construction.

The Applicant alleges that item 28 of the General Table of Stamp Tax (TGIS) added by article 4 of Law no. 55-A/2012, does not cover plots of land for construction with a tax asset value equal to or higher than one million euros, since the real estate registered in the property roll as land for construction cannot be subsumed under the concept of properties with residential purpose. Therefore, the Applicant considers that the assessment of Stamp Tax in question is devoid of legal basis.

The Applicant states that it filed an application for review of the tax act of assessment of Stamp Tax at issue in these proceedings, under article 78 of the General Tax Code (LGT) and article 115 of the Real Estate Tax Code (IMI), applicable by virtue of article 49 no. 3 of the Stamp Tax Code. The Applicant further states that this application for review of the tax act was subject to a dismissal decision.

The Applicant submits that article 67 no. 2 of the Stamp Tax Code provides for the subsidiary application of the rules of the IMI Code to the taxation provided for in item 28.1 of the General Table of Stamp Tax (TGIS). And article 6 no. 2 of the IMI Code states that residential, commercial, industrial and service properties are "buildings or constructions licensed for such purposes, or, in the absence of a license, which have as their normal purpose each of these uses". Thus, the Applicant considers that the term "residential" necessarily implies residential use, referring to urban properties that have, or can have, actual use for residential purposes, either because they are licensed for such purposes, or because they have that normal purpose.

The Applicant submits that item 28.1 of the TGIS should encompass only properties that are effectively devoted to residential purposes.

The Applicant considers that land for construction cannot be subject to the special taxation enshrined in item 28.1 of the TGIS. Firstly, because article 6 of the IMI Code states that the concept of land for construction includes urban properties "situated inside or outside an urban settlement, for which a license or authorization has been granted, a prior notice admitted, or favorable prior information issued for a land subdivision or construction operation".

For the Applicant, a property classified as land for construction does not have an effective and genuine residential purpose. There exists only and solely an expectation that they will be subject to construction works for residential or other purposes.

Thus, the Applicant concludes that the scope of item 28.1 of the TGIS cannot include properties registered as land for construction, and the assessment in question is unlawful, due to error in the factual and legal premises.

Finally, the Applicant alleges, on a subsidiary basis, that the taxation enshrined in item 28 of the TGIS is contrary to the principle of equality provided for in article 13 of the Constitution of the Portuguese Republic (CRP), and contrary to the principles of fiscal equality and contributory capacity contained in article 104 no. 3 of the CRP.

The Applicant further references the CAAD decisions in proceedings no. 43/2013-T, 240/2013-T, 12/2014-T, 231/2014-T, 370/2014-T, 499/2014-T, 529/2014-T, 569/2014-T, 135/2015-T, 367/2015-T and 619/2015-T.

The Applicant proceeded to pay the assessment of Stamp Tax at issue in these proceedings, and requests the condemnation of the Tax and Customs Authority (A.T.A.) to proceed with the reimbursement of the tax wrongfully paid, plus compensatory interest in accordance with article 43 of the LGT.

A sole arbitrator, Suzana Fernandes da Costa, was appointed on 29-06-2016.

In accordance with the provisions of article 11 no. 1, subparagraph c) of the RJAT, the singular arbitral tribunal was constituted on 15-07-2016.

The A.T.A. presented its response on 27-07-2016 (within the legal deadline for such purpose).

The A.T.A. begins by presenting a defense by exception, alleging the existence of absolute material incompetence of the Arbitral Tribunal.

The A.T.A. states that article 97 of the Code of Procedure and Tax Process (CPPT) imposes that the challenge of administrative acts in tax matters may only be done, in the tax litigation process, through judicial challenge or special administrative action, depending on whether these acts do, or do not, involve review of the legality of administrative acts of assessment.

And, in the case where there has been a summary dismissal of the application for review due to untimeliness, the procedural means to be used would be special administrative action and not an arbitral application.

Presenting a defense by way of challenge, the A.T.A. argues that the application for declaration of illegality and consequent annulment of the assessment in dispute should be judged unfounded, since the assessment at issue constitutes a correct interpretation of item 28.1 of the General Table of Stamp Tax, since the aforementioned property has the legal nature of a property with residential purpose.

The A.T.A. further concludes that there is no violation of constitutionally enshrined principles, namely the principles of fiscal equality and contributory capacity.

The A.T.A. further requested, on the same date, exemption from holding the meeting provided for in article 18 of the Tax Arbitration Regime, as well as exemption from the presentation of submissions.

On 28-07-2016 an order was issued directing notification of the Applicant to, within 10 days, comment on the A.T.A.'s request for exemption from holding the meeting provided for in article 18 of the RJAT, and exemption from the presentation of submissions. In the same order it was also stated that if the Applicant agreed with the exemption from the meeting, it would be notified to comment on the matter of exception contained in the A.T.A.'s response within 20 days. The order further provided that if the Applicant did not agree with the exemption from the meeting, it would be scheduled for discussion of the matter of exception.

Since the Applicant did not comment, on 14-10-2016 an order was issued scheduling the meeting of the arbitral tribunal for 22-11-2016, at 14:30 hours.

On 31-10-2016, the Applicant filed with the proceedings a power of attorney in favor of new counsel.

On 22-11-2016, the counsel for the Applicant, Dr. B…, and the jurists representing the Respondent, Dr. C… and Dr. D…, appeared at the meeting.

At this meeting, the tribunal directed the Respondent to attach, within 10 days, to the proceedings the draft decision notified for the purpose of prior hearing.

The tribunal further directed both parties to present written submissions within ten days, to be submitted successively.

It was also decided to extend by two months the deadline referred to in article 21 no. 1 of the Legal Regime of Arbitration in Tax Matters (RJAT), and 15-02-2017 was set as the date for the issuance of the arbitral decision.

Finally, the Applicant was cautioned that, until the date of issuance of the decision, it should proceed with payment of the subsequent arbitral fee.

On 07-12-2016, the Applicant attached to the proceedings the draft decision of the ex officio review procedure of the tax act, containing the justification of the application for review.

The Applicant submitted its submissions on 12-12-2016. And the A.T.A. presented submissions on 19-12-2016.

The parties have legal personality and capacity and are legitimate (articles 4 and 10 no. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March).

The present application for arbitral ruling was presented timely, in accordance with article 10 no. 1 subparagraph a) of Decree-Law no. 10/2011 of 20 January.

The process does not suffer from nullities and no preliminary questions were raised.

2. On the exception of incompetence of the Arbitral Tribunal

In its response, the Respondent presents a defense by exception, alleging the absolute material incompetence of the Arbitral Tribunal to review the acts of dismissal of applications for ex officio review that do not involve review of the legality of assessment acts.

The A.T.A. states that article 97 of the CPPT imposes that the challenge of administrative acts in tax matters may only be done, in the tax litigation process, through judicial challenge or special administrative action, depending on whether these acts do, or do not, involve review of the legality of administrative acts of assessment.

Thus, for the A.T.A., dismissals of applications for review of tax acts may only be challenged through judicial challenge or arbitral application when they involve review of the legality of the assessment act. And consequently, the summary dismissal of an ex officio review application of an assessment act due to untimeliness, because it does not involve review of the legality thereof, can only be subject to special administrative action, which does not fall within the competencies of CAAD.

The question that arises is whether the Arbitral Tribunal is competent to review the application for arbitral ruling filed following the summary dismissal of the application for review of the assessment due to untimeliness.

Analyzing the draft decision of dismissal of the application for review that was attached to the proceedings by the Applicant on 07-12-2016, and from which the justification of the summary dismissal of said application appears, we verified that the A.T.A. considered that the application for review was untimely. The A.T.A. understood that the application for review would have to be made within 120 days from the deadline for payment of the tax, in accordance with articles 70 and 102 of the CPPT. Given that the payment deadline ended on 30-11-2014 and the application for review was filed on 12-11-2015, the A.T.A. concluded that the application was untimely. We will not enter here into the assessment of the merits or demerits of that decision, but we will state that the A.T.A. did not review the Stamp Tax assessment in question in that procedure.

Let us analyze the competence attributed to the arbitral tribunals that operate under CAAD.

Article 2 of the RJAT provides that:

"1 — The competence of arbitral tribunals comprises the review 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 of determination of taxable matter when it does not give rise to assessment of any tax, acts of determination of collectible matter and acts of determination of tax asset values.".

In light of this legal provision, one should understand, as does Lopes de Sousa, that the competence of arbitral tribunals is restricted "to activity connected with acts of assessment of taxes, being outside their competence the review of the legality of administrative acts of dismissal, in whole or in part, or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax matters that do not involve review of the assessment act, to which subparagraph p) of no. 1 of article 97 of the CPPT refers"[1].

As stated in the CAAD decision in proceedings no. 237/2014-T, the review of the competence of the arbitral tribunal involves an assessment of the adequacy to the specific case of the procedural means of special administrative action or judicial challenge, having regard to the provisions of article 97 of the CPPT, which defines the respective fields of application by distinguishing the challenge of administrative acts in tax matters that involve review of the legality of the assessment act and the contentious remedy of dismissal, in whole or in part, or revocation of exemptions or other tax benefits, when dependent on recognition by the tax administration, as well as other administrative acts relating to tax matters that do not involve review of the legality of the assessment act, and in accordance with no. 2 of article 97, the contentious remedy of administrative acts in tax matters which do not involve review of the legality of the assessment act, of the Tax Administration, including the central government, regional governments and their members, even when undertaken by delegation, is regulated by the rules on proceedings in administrative courts.

Ordinance no. 112-A/2011, of 22 March, approved pursuant to article 4 no. 1 of the RJAT, establishes the terms of the binding of the Tax Administration to the jurisdiction of the arbitral tribunals operating under CAAD, having determined the binding of the A.T.A. to the review of claims relating to taxes, with the exceptions provided for in subparagraphs a) to d) of article 2 of that ordinance. However, in this case, the application of any of those exceptions is not at issue.

Thus, it is understood that the competence of arbitral tribunals comprises the review of the legality of acts of assessment of taxes, that is, acts by which the amount of tax to be paid is determined. However, the taxpayer may choose to proceed with direct challenge of the tax act or, alternatively, choose the administrative route and, subsequently, initiate the respective judicial challenge or application for arbitral ruling, in case of dismissal, express or implied.

In the present proceedings, the Applicant filed an application for ex officio review of the Stamp Tax assessment, concerning the year 2013, due by the application of item no. 28.1 of the TGIS, concerning the property of which it is the owner.

The application for review was dismissed, by order of the Chief of the Finance Services of ...…, dated 28-01-2016, issued in the following terms: "I concur, therefore I summarily dismiss the application in accordance with the terms and grounds contained in the draft decision duly notified. Notification shall be sent, informing the applicant that from this order may, if it wishes, pursue a hierarchical appeal, within 30 days from the notification, in accordance with no. 1 of article 66 of the Code of Procedure and Tax Process (CPPT)".

In turn, the draft decision, issued by the Chief of the Finance Services of ... …, dated 25-11-2015, states the following: "In accordance with the information and proposal below, with which I concur, I propose the summary dismissal of the application as untimely. Notification shall be sent to the applicant to, if it wishes, exercise the right of prior hearing, in writing, within 15 (fifteen) days, in accordance with article 60 of the General Tax Code".

From the foregoing it results, as understood by the CAAD decision in proceedings no. 112/2015-T, the conclusion that the A.T.A. did not review the legality of the assessment.

And as in the case of the CAAD proceedings no. 112/2015-T, the act that is at issue, which constitutes the immediate subject of the present proceedings, is the decision of dismissal, due to untimeliness, of the application for review of the tax act and not the Stamp Tax assessment.

On this matter, the CAAD decisions in proceedings no. 73/2012-T, 210/2013-T and 237/2014-T have also ruled, which considered that excluded from arbitral jurisdiction is the review of acts of dismissal of applications for ex officio review that do not involve review of the legality of assessment acts.

We are thus faced with an administrative act in tax matters which, by not reviewing or discussing the legality of the assessment act, cannot be subject to judicial challenge, in accordance with the terms provided for in subparagraph a) of no. 1 of article 97 of the CPPT and article 2 of the RJAT (see decision of the Supreme Administrative Court of 28-04-2010 in proceedings no. 0120/09), which is to say that it does not fall within the scope of the material competence of Arbitral Tribunals.

Serena Cabrita Neto and Carla Castelo Trindade, in Tax Litigation, Volume I, Almedina, 2017, state that "the act of dismissal of the application for ex officio review will always be subject to hierarchical appeal, in accordance with article 76, no. 1 of the CPPT and 80 of the LGT. It may also be subject to judicial challenge and application for constitution of an arbitral tribunal or special administrative action, depending on whether the act does or does not, respectively, involve review of the legality of assessment acts".

The decision of the Central Administrative Court of the North of 12-05-2016, in proceedings no. 01886/09.9, held that the appropriate procedural means "to react against an order of dismissal of an application for ex officio review on the ground of untimeliness of the application is special administrative action, since it does not involve review of the legality of the assessment act".

Indeed, this Arbitral Tribunal is materially incompetent to review and decide on the claim that is the subject of the dispute at issue, in accordance with article 2 no. 1 subparagraph a) and article 4 no. 1 of the RJAT and articles 1 and 2 subparagraph a) of Ordinance no. 112-A/2011 of 22-03-2011, which constitutes a dilatory exception preventing knowledge of the merits of the case, in accordance with the provisions of article 576 no. 1 and 2 of the CPC, applicable by virtue of article 2 subparagraph e) of the CPPT and article 29 no. 1 subparagraphs a) and e) of the RJAT, which prevents knowledge of the claim and the absolution of the A.T.A. from the instance, in accordance with articles 576 no. 2 and 577 subparagraph a) of the CPC, applicable by virtue of article 29 no. 1 subparagraphs a) and e) of the RJAT.

The exception of incompetence of the Arbitral Tribunal raised by the Respondent thus stands.

Thus, knowledge of the question of merits is precluded.

3. On the Applicant's request for recognition of the right to file the appropriate special administrative action

In its submissions, the Applicant "admits that the present arbitral action may not be the appropriate means to contest such decision, although in the application for ex officio review that precedes this arbitral action the Applicant did intend to contest the legality of the respective tax acts of assessment of Stamp Tax". And argues that the evident error in the form of proceedings cannot be considered as attributable to the Applicant, since the notification of the A.T.A. was silent regarding the judicial means capable of being used to contest the legality of the respective administrative decision.

The Applicant references article 24 no. 3 of the RJAT, stating that it aims to safeguard the effects of the inapplicability of the conversion regime in the field of arbitral jurisdiction, allowing the taxpayer, following the issuance of an arbitral decision of absolution from the instance, to still present the appropriate means of reaction to obtain a decision on the merits.

The Applicant concludes by requesting, following the absolution of the Respondent from the instance, the recognition of the right to file the appropriate special administrative action.

Although the Applicant was in time to request the recognition of the right to file special administrative action, it would still be inappropriate to grant the Applicant's claim.

The possibility of filing a new action is provided for in no. 3 of article 24 of the RJAT, for cases where the arbitral decision terminates the proceedings without ruling on the merits of the claim due to a fact not attributable to the taxpayer.

The Applicant bases its claim on the CAAD decision in proceedings no. 270/2015-T. However, in the present proceedings we are not faced with facts similar to those in proceedings no. 270/2015-T. In that proceedings the notification of the A.T.A. did in fact mislead the taxpayer, by informing it that from the order a judicial challenge could be made, as well as that application could be made to CAAD – Administrative Arbitration Center for the constitution of an arbitral tribunal, in accordance with subparagraph a) of no. 10 of Decree-Law no. 10/2011 of 20 January and Ordinance no. 112-A/2011 of 22 March.

Already in the present proceedings, the notification of the decision dismissing the application for review states that "from this order you may, if you wish, pursue a hierarchical appeal, within 30 days from notification, in accordance with no. 1 of article 66 of the Code of Procedure and Tax Process (CPPT)", making no reference to the arbitral application with CAAD. And the Applicant chose, naturally in a voluntary manner, not to follow the indications contained in the dismissal decision that was notified to it, not pursuing a hierarchical appeal, but instead filing an application for constitution of an arbitral tribunal with CAAD.

On the other hand, the Applicant, considering that the notification was insufficient due to the lack of indication of all available defenses, had the power to request notification of the omitted elements (available defenses), in accordance with article 37 no. 1 of the CPPT, as was decided in the decision of the Supreme Administrative Court of 08-07-2015 in proceedings no. 0389/15.

Therefore, it would still be stated that the error in the form of proceedings is attributable to the Applicant and, consequently, it should not be recognized the right to file the appropriate special administrative action.

4. Decision

In view of the foregoing, it is determined:

a) to uphold the dilatory exception of material incompetence raised by the Respondent;

b) to absolve the Respondent from the instance (articles 96 and 278 of the Code of Civil Procedure);

c) to judge consequently that knowledge of the question of merits is precluded.

5. Value of the case:

In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, subparagraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is fixed at 11,537.70 €.

6. Costs:

In accordance with article 22, no. 4, of the RJAT, and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at 918.00 €, due by the Applicant.

Notify.

Lisbon, 15 February 2017.

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by remission of article 29, no. 1, subparagraph e) of the Legal Regime of Arbitration in Tax Matters, as revised by me.

The sole arbitrator

Suzana Fernandes da Costa

[1] Jorge Lopes de Sousa, Commentary on the Legal Regime of Tax Arbitration in Guide to Tax Arbitration, Almedina, 2013, p. 105.

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto de Selo) under clause 28.1 of the TGIS apply to building land (terrenos para construção) valued over one million euros?
The applicant argues that Stamp Tax under item 28.1 TGIS should not apply to building land valued over one million euros because such land lacks actual residential purpose and cannot be classified as residential property. While the land has potential for future construction, Article 6(2) of the IMI Code (applicable via Article 67(2) Stamp Tax Code) defines residential properties as buildings or constructions licensed for or having the normal purpose of residential use, which building land does not satisfy.
Can building land be classified as housing property for purposes of Stamp Tax under Portuguese tax law?
Under the applicant's interpretation, building land cannot be classified as housing property for Stamp Tax purposes. Article 6 of the IMI Code separately defines building land as urban properties authorized for subdivision or construction operations, distinct from residential properties which must be actual buildings or constructions with residential purpose. The Tax Authority disagrees, arguing the property qualifies as residential under item 28.1 TGIS.
What is the procedure for requesting an official review (revisão oficiosa) of a Stamp Tax assessment in Portugal?
The procedure for requesting an official review (revisão oficiosa) of a Stamp Tax assessment is governed by Article 78 of the General Tax Law (LGT) and Article 115 of the IMI Code, applicable to Stamp Tax via Article 49(3) of the Stamp Tax Code. The taxpayer submits a written request to the tax authority identifying the assessment and grounds for review. In this case, the applicant's official review request was dismissed, leading to the arbitral challenge.
Does the CAAD arbitral tribunal have jurisdiction to review decisions on official tax review requests under Article 78 of the LGT?
The Tax Authority raised a jurisdictional defense arguing that CAAD lacks material competence to review dismissals of official review requests. Under Article 97 CPPT, when an official review is dismissed for procedural reasons (such as untimeliness), the proper legal remedy is special administrative action (impugnação administrativa especial), not arbitral proceedings. The tribunal scheduled hearings to address this preliminary exception before examining the substantive merits.
How does Article 6 of the IMI Code define housing, commercial, and industrial properties in relation to Stamp Tax liability?
Article 6(2) of the IMI Code defines residential, commercial, industrial and service properties as 'buildings or constructions licensed for such purposes, or, in the absence of a license, which have as their normal purpose each of these uses.' Building land is defined separately under Article 6 as urban properties for which authorization has been granted for subdivision or construction operations. These definitions apply to Stamp Tax through the subsidiary application rules in Article 67(2) of the Stamp Tax Code.