Stamp Tax on High-Value Property: VPT Reassessment and Verba 28.1 TGIS Challenge (CAAD 269/2013-T)

ARBITRATION DECISION

I. STATEMENT OF FACTS

1. A... – Branch in Portugal, bearing the collective person identification number ..., located on Rua ..., in ..., following the express dismissal issued by the Esteemed Chief of Finance, in exercise of delegated powers, on 02.08.2013, of the administrative grievance presented on 19.04.2013, against the assessment of Stamp Duty No. ..., relating to the fiscal year 2012, hereby requests, under the terms and for the purposes of the provisions of paragraph a) of No. 1 of Article 2 and Articles 15 and following, all of Decree-Law No. 10/2011, of 20 January ("Legal Framework for Tax Arbitration - LFTA"), the CONSTITUTION OF AN ARBITRAL TRIBUNAL with a view to the declaration of illegality of that tax act.

2. The Claimant requests the annulment of the tax act of assessment of Stamp Duty (hereinafter, SD), infra identified, pursuant to Item 28.1 of the General Table of Stamp Duty (hereinafter, GTSD), annexed to Law 150/99, of 11 September, which approves the Stamp Duty Code (hereinafter, SD Code), with the consequent restitution of amounts paid with interest for damages.

Position of the Parties

1. The Claimant supports the request succinctly, alleging essentially:

• The present request for arbitral pronouncement aims at the declaration of illegality of the act of assessment of SD No. ..., on the property infra, relating to the fiscal year 2012, pursuant to Item 28.1 of the GTSD annexed to the Stamp Duty Code.

• The property corresponding to the autonomous fraction designated by the letters "DI" of the urban building registered under article ..., intended for residential use, located in the Tourist Settlement ..., municipality of … (hereinafter "Property") had an assigned TRP of €1,072,609.00.

• On 09.07.2012, the then owners of the Property, B... and C..., married, presented a Form 1 declaration of MRP intended to request an update of the said TRP, which they considered manifestly excessive.

• On 31.07.2012, the Challenger acquired the Property from said owners for the value of €775,000.00.

• On that same date the respective Transfer Tax and Stamp Duty were assessed, and these taxes were levied on the TRP of the property, since this was higher than the contract value, pursuant to No. 1 of Article 12 of the Transfer Tax Code.

• On 29.10.2012, the Claimant was notified that the TRP of the Property had been updated to the amount of €453,810.00, following the update request made on 09.07.2012 by the previous owners as per document No. 3.

• As recorded in the property register of the Property, the valuation that corrected the value was performed on 31.07.2012, as per document No. 4.

• Having regard to the update that occurred, the Claimant presented an administrative grievance to obtain reimbursement of the difference between the Transfer Tax and Stamp Duty paid by it, and that which would result from the application of the rates of these taxes to the price paid in the acquisition of the Property, taking into account that the updated TRP was less than this, as per document No. 5.

• The Claimant was awaiting reimbursement of said amounts, which is why it was with surprise that it was notified, on 05.12.2012, of the statement of assessment of Stamp Duty No. ..., object of the present challenge, as per document No. 7.

• As results from that statement of assessment, the Claimant is required to pay the amount of €5,363.05, resulting from the application of the rate of 0.5% on the amount of €1,072,609.00, that is, the TRP that the Property had before the update was carried out.

• The Claimant was notified, on 04.02.2013, of the reimbursement notice No. 2012 ..., in the amount of €12,405.35 – as per document No. 9.

• Such reimbursement arose following the decision granting the request for reimbursement of Transfer Tax and Stamp Duty presented by the Claimant, following the update of the TRP (cf. documents Nos. 5 and 6).

• In the statement of calculation of the reimbursement, it is verified that the Tax Administration:

(i) Did not take into account the amount of Stamp Duty to be reimbursed mentioned above;

(ii) Effected a set-off in the amount of €5,454.19 (cf. document No. 9).

• Considering the Appellant to be of the view that the assessment of Stamp Duty No. ... was (and is) illegal, it presented, on 19.04.2013, the corresponding administrative grievance, as per document No. 14.

• The administrative grievance was dismissed by decision of the Chief of Finance Services on 02.08.2013, as per documents 15 and 16.

• The Claimant understands that the act of assessment of SD supra identified cannot proceed due to lack of substantiation as well as by virtue of erroneous interpretation of the law.

• Notwithstanding the lack of substantiation, the Claimant understands the premise underlying the said act of assessment.

• Considering that the Tax Administration made the new Stamp Duty set out in Item 28.1 of the GTSD incur by considering that, pursuant to paragraph c) of No. 1 of Article 6 of Law 55-A/2012, the TRP to be considered is that which was registered in 2011.

• Now, in 2011, this Property had a registered TRP exceeding €1 million, and it is certain that, in July 2012, this TRP was considered excessive and reduced to €453,810.00.

• Therefore, the present assessment is tainted by erroneous interpretation of the law.

• Item 28.1 of the GTSD was introduced by a Law published on 29 October 2012 – Law No. 55-A/2012.

• To avoid retroactive application of this new tax, the transitional regime provided for in the said Law established that the tax event, for 2012, occurs on 31.10.2012 (cf. paragraph a) of No. 1 of Article 6).

• The update of the TRP of the Property was requested on 09.07.2012, and the respective property register was updated with the new TRP of €453,810.00 on 31.07.2012, and this update was notified to the Challenger on 29.10.2012.

• That is, the tax event for purposes of this tax occurred on 31.10.2012, the date on which the TRP of the Property had already been updated to €453,810.00 three months prior and had already been notified to the Challenger.

• If, at the moment when the tax enters into force, it is settled that its TRP does not reach even half the value from which this tax is assessed, it shall equally be settled that the tax is not due.

• It follows from the foregoing that the fact that the Property had a TRP exceeding one million euros in 2011 does not justify the incidence of this tax on it.

• Should this not be understood, we maintain that paragraph c) of Article 6 of Law 55-A/2012 is manifestly unconstitutional, by violation of the principles of the non-retroactivity of tax law and of taxpaying capacity, insofar as it results in the incidence of this tax on a Property that, at the date of its entry into force, had a TRP that did not even reach €500,000.00.

Request of the Claimant

1. In light of the provisions of the General Tax Law and the Tax Code of Procedure and Process and the facts stated above, the Claimant understands that, concluding in the present challenge that the Challenger is correct concerning the illegality of the assessment of Stamp Duty:

(i) Reimburse the amount of €5,479.94, improperly set off;

(ii) Pay interest for damages, calculated at the rate of 4% on that value from the date on which the amount was improperly set off by the Tax Administration until the date of processing of the respective credit note.

Response of the Tax Authority

1. The Tax Authority, not having submitted a response, came to defend in its submissions the maintenance of the tax acts challenged, requesting the dismissal of the request with reaffirmation, essentially, of the arguments that substantiated the decision to maintain that act. In summary, the Respondent maintains the following arguments:

• In the present case, the tax was assessed on the basis of the taxable property value of the property registered in the matrix as of 31 December 2011, which equally served as the basis for the assessment of the Transfer Tax effected in 2012.

• The said Article 6, No. 1, paragraph c), provides that the taxable property value to be used in the assessment corresponds to that which results from the rules provided for in the Code of the Municipal Property Tax (CMPT), with reference to the year 2011.

• The general rule for the assessment of the Municipal Property Tax is that it be assessed, in relation to each municipality, on the taxable property value of properties that appear in the matrix as of 31 December of the year to which it relates.

• The fact would only constitute a violation of law if the transitional provision of Article 6, No. 1, paragraph c), of Law No. 55-A/2012 did not exist.

• According to that transitional provision, the stamp duty tax accruing on 20 October 2012 is assessed on the basis of the rules relating to the Municipal Property Tax of 2011.

• The request for property valuation made by the author of the request for arbitral pronouncement only produced effects for the Municipal Property Tax of 2012, to be assessed in 2013.

• The Respondent concludes that the assessments in dispute constitute a correct interpretation and application of the law to the facts, suffering from no vice of violation of law, whether of the Constitutional Republic or of the SD Code, and therefore, the claim should be judged not well-founded and the Respondent Entity should be absolved of the request.

PRELIMINARY EXAMINATION

1. This collective Arbitral Tribunal was duly constituted on 29-01-2014, with the arbitrators designated by the Ethics Council of CAAD, complying with the respective legal and regulatory formalities (cf. Articles 11-1/a) and b), of the LFTA and Articles 6 and 7 of the Code of Ethics of CAAD), and is competent ratione materiae, in accordance with Article 2 of the LFTA.

2. The Tax and Customs Authority was notified on 04-02-2014 for purposes of Article 17 of the LFTA and it neither sent a copy of the administrative file nor presented a defense before the tribunal.

3. By decision of the Tribunal of 08-05-2014 the meeting provided for in Article 18 of the LFTA was dispensed with and a time period was given for both parties to present successive written submissions.

4. The Tax and Customs Authority presented written submissions on 21-05-2014.

5. The Claimant did not present written submissions.

6. By decision of the tribunal given the occurrence of procedural acts the pronouncement of the judgment was postponed twice to 29 October.

7. The parties have legal personality and capacity, are legitimate and are duly represented (cf. Articles 4 and 10, No. 2 of the LFTA and Article 1 of Ordinance No. 112-A/2011, of 22 March).

8. No procedural defects were identified.

II GROUNDS

A. MATTERS OF FACT

A.1. Facts Established as Proven

1. The assessment subject to examination of legality relates to property corresponding to the autonomous fraction designated by the letters "DI" of the urban building registered under article ..., intended for residential use, located in the Tourist Settlement ..., municipality of … (hereinafter "Property") which had a TRP assigned of €1,072,609.00.

2. On 31.07.2012, the Challenger acquired the Property from the aforesaid owners for the value of €775,000.00 as per document 1.

3. On that same date the respective Transfer Tax and Stamp Duty were assessed, and these taxes were levied on the TRP of the property, since this was higher than the contract value, pursuant to No. 1 of Article 12 of the Transfer Tax Code, as per document 2.

4. On 29.10.2012, the Claimant was notified that the TRP of the Property had been updated to the amount of €453,810.00, following the update request made on 09.07.2012 by the previous owners as per document No. 3.

5. As recorded in the property register of the Property, the valuation that corrected the value was performed on 31.07.2012, according to document No. 4.

6. Having regard to the update that occurred, the Claimant presented a grievance to obtain reimbursement of the difference between the Transfer Tax and Stamp Duty paid by it, and that which would result from the application of the rates of these taxes to the price paid in the acquisition of the Property, taking into account that the updated TRP was less than this, as per document No. 5.

7. The Claimant was awaiting reimbursement of said amounts, which is why it was with surprise that it was notified, on 05.12.2012, of the statement of assessment of Stamp Duty No. ..., object of the present challenge, as per document No. 7.

8. As results from that statement of assessment, the Claimant is required to pay the amount of €5,363.05, resulting from the application of the rate of 0.5% on the amount of €1,072,609.00, that is, the TRP that the Property had before the update was carried out.

9. The Claimant was notified, on 04.02.2013, of the reimbursement notice No. 2012 ..., in the amount of €12,405.35 – as per document No. 9.

10. Such reimbursement arose following the decision granting the request for reimbursement of Transfer Tax and Stamp Duty presented by the Challenger, following the update of the TRP (cf. documents Nos. 5 and 6).

11. According to the grounds for granting of that administrative grievance, the new property valuation, in fact, produced effects from the request, that is, from the date of 9 July 2012 and not from the date when it materialized.

12. In the statement of calculation of the reimbursement, it is verified that the Tax Administration effected a set-off in the amount of €5,454.19 (cf. document No. 9).

13. Considering the Appellant to be of the view that the assessment of Stamp Duty No. ... was (and is) illegal, it presented, on 19.04.2013, the corresponding administrative grievance, as per document No. 14.

14. The administrative grievance was dismissed by decision of the Chief of Finance Services on 02.08.2013, as per documents 15 and 16.

A.2. Facts Established as Not Proven

1. With relevance for the decision, there are no facts which should be considered as not proven.

A.3. Grounds for the Matters of Fact Proven and Not Proven

1. With regard to the matters of fact, the Tribunal does not need to pronounce on everything that was alleged by the parties, it being incumbent upon it, rather, to select the facts that matter to the decision and to distinguish the proven matter from the unproven (cf. Article 123, No. 2, of the Tax Code of Procedure and Process and Article 607, No. 3 of the Code of Civil Procedure, applicable ex vi Article 29, No. 1, paragraphs a) and e), of the LFTA).

2. Thus, having regard to the positions assumed by the parties and the documentary evidence attached to the file, the facts listed above were considered proven, with relevance to the decision, being moreover consensually recognized and accepted by the parties.

B. ON THE LAW

1. A single legal issue is at issue, that of knowing whether Item 28 of the GTSD can apply to properties whose taxable property value to be considered, on the date of entry into force of Law No. 55-A/2012, of 29 October, the date on which the tax event occurs, is less than €1,000,000.00, being the value registered in the property matrix, on the date to which the determination of the taxable value refers, 31 December 2011, exceeding that same value.

2. Given that the object of the present action is the applicability of Item 28 of the General Table of Stamp Duty (GTSD), annexed to the Stamp Duty Code (SDC), added by Article 4 of Law No. 55-A/2012, of 29 October, specifically the transitional regime provided for by Article 6 No. 1 of the same law.

3. Given that the said Item 28 of the GTSD has the following wording:

28 – Ownership, usufruct or right of surface of urban properties whose taxable property value recorded in the matrix, pursuant to the Code of the Municipal Property Tax (CMPT), is equal to or exceeding €1,000,000 – on the taxable property value used for purposes of Municipal Property Tax:

28.1 – For property with residential use – 1% (…);

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

1. In the transitional provisions contained in Article 6 of that Law No. 55-A/2012, the following rules were established:

a) The tax event occurs on 31 October 2012;

b) The taxpayer subject to the tax is that mentioned in No. 4 of Article 2 of the Stamp Duty Code on the date referred to in the preceding paragraph;

c) The taxable property value to be used in the assessment of the tax corresponds to that which results from the rules provided for in the Code of the Municipal Property Tax by reference to the year 2011; (…)

f) The applicable rates are as follows:

i) Properties with residential use valued pursuant to the Code of the Municipal Property Tax: 0.5%;

ii) Properties with residential use not yet valued pursuant to the Code of the Municipal Property Tax: 0.8%;

1. From the outset, the tribunal notes that, since its entry into force, the applicability of Item 28 of the GTSD has raised enormous legal complexity and controversy, having been subject to numerous decisions of arbitral and judicial tribunals.

2. These issues are generally related to the attempt by the Tax Authority to tax, pursuant to Item 28 of the GTSD, "properties in vertical ownership" or "land for construction".

3. However, the disputed issue in this case does not relate to either of the two supra mentioned but rather to the question of whether, being the taxable property value to be considered, for purposes of assessment of Item 28 of the GTSD, the value registered in the property matrix on 31 December 2011, in the case exceeding €1,000,000.00 and the taxable property value of the property, on the date when the tax event occurred, 31 October 2012, less than that limit, whether the assessment of that Item 28 on the property lacks legal basis or not.

4. A question which does not appear to have a direct and linear framework in the norm under consideration given, on one hand, the lack of unity and conceptual identity of Stamp Duty and, on the other, the "state of financial emergency" which was at the basis of the approval of the norm in question.

5. The "Reform of Property Taxation" came to be implemented following the work of a new "Commission for the Study and Implementation of the Reform of Property Taxation" which functioned between 2002 and 2004, beginning with the amendments approved by Decree-Law No. 287/2003, of 12/11. Municipal Tax and Transfer Tax were replaced, respectively, by Municipal Property Tax and Transfer Tax. Gratuitous transfers became subject to Stamp Duty, with abolition of gratuitous transfers in favor of legal persons (included in Corporate Income Tax) and exemption of transfers in favor of spouse, descendants and ascendants. [1]

6. Already in 2003, Silvério Mateus and Corvelo de Freitas considered (at the time of the 2003 Reform) regarding Stamp Duty: "it is configured as a means of reaching manifestations of taxpaying capacity not covered by the incidence of any other taxes. Not having the nature of overlapping taxation, this tax tends to assume a residual function filling spaces left open by the taxation of income and consumption".[2]

7. The approval, in Portugal, of a tax on property, or large fortunes, which would bear on immovable and movable property and would tax the net value of property, was subject to various mentions but, having regard to the practical difficulties in determining the taxable value, the need to ensure respect for the principle of equality and taxpaying capacity and the requirement of a tax machine with extreme efficiency led the legislator always to take other options.[3]

8. In 2012, the Government submitted to Parliament the bill No. 96/XII (2nd), admitted on 26 September 2012, in whose statement of reasons, the tax measures contained in the act were inserted in a broader set of measures to combat budgetary deficit, saying: "these measures are fundamental to reinforce the principle of social equity in austerity, guaranteeing an effective sharing of the necessary sacrifices to comply with the adjustment program. The Government is strongly committed to ensuring that the sharing of those sacrifices will be made by all and not just by those who live from the income of their work. In accordance with that objective, this act expands the taxation of capital and property, covering equitably a broad set of sectors of Portuguese society".

9. Reverting to the case at hand, one should, in the first place, carry out the exegesis of the norms contained in Article 6, of Law 55-A/2012, of 29/10, applicable to the case "sub judice" (cf. Article 12, No. 1, of the Civil Code):

Article 6

(Transitional Provisions)

1- In 2012, the following rules must be observed by reference to the assessment of stamp duty provided for in Item No. 28 of the respective General Table:

a) The tax event occurs on 31 October 2012;

b) The taxpayer subject to the tax is that mentioned in No. 4 of Article 2 of the Stamp Duty Code on the date referred to in the preceding paragraph;

c) The taxable property value to be used in the assessment of the tax corresponds to that which results from the rules provided for in the Code of the Municipal Property Tax by reference to the year 2011;

d) The assessment of the tax by the Tax and Customs Authority must be effected by the end of the month of November 2012;

e) The tax must be paid, in a single installment, by the taxpayers until 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential use valued pursuant to the Code of the Municipal Property Tax: 0.5%;

ii) Properties with residential use not yet valued pursuant to the Code of the Municipal Property Tax: 0.8%;

2- In 2013, the assessment of stamp duty provided for in Item No. 28 of the respective General Table must bear on the same taxable property value used for purposes of the assessment of municipal property tax to be effected in that year.

(...)

1. First of all, it will be said that it is today settled that tax laws are interpreted as any others, and it is necessary to determine their true meaning in accordance with the techniques and interpretive elements generally accepted by doctrine (cf. Article 9 of the Civil Code; Article 11 of the General Tax Law).

2. On the other hand, note that the norms of incidence of taxes as well as those which grant exemptions or exclusions from taxation, must be interpreted in their exact terms, without recourse to analogy, making the certainty and security in their application prevail (cf. judgment of the Administrative Court of the South – 2nd Section, 2/10/2012, case 5320/12; judgment of the Administrative Court of the South – 2nd Section, 12/12/2013, case 7073/13; judgment of the Administrative Court of the South – 2nd Section, 27/3/2014, case 2912/09).

3. Let us look at the ratio legis of the creation of the said norm, in the words of the Esteemed Secretary of State for Tax Affairs in Parliament, upon presentation and discussion of the supra cited bill, which was at the origin of Law No. 55-A/2012, wherein it was considered that:

4. "The Government elected as a priority principle of its tax policy social equity. This is all the more important in times of austerity as a way to ensure just distribution of tax burden.

In the demanding period that the country is going through, during which it is obliged to comply with the program of economic and financial assistance, it becomes even more pressing to assert the principle of equity. It cannot always be the same – salaried employees and retirees – who bear the tax burden.

For the tax system to be more just it is decisive to promote the broadening of the tax base requiring increased effort from taxpayers with higher income and thereby protecting Portuguese families with lower income.

For the tax system to promote greater equality it is fundamental that the effort of budgetary consolidation be shared by all types of income covering with particular emphasis income from capital and properties of high value. This matter, it should be recalled, was extensively addressed in the judgment of the Constitutional Court." (cf. Diary of Parliament – DAR Series I, No. 9/XII/2 2012.10.11, of 11.10.2012,).

1. Continuing, the Esteemed Secretary of State for Tax Affairs in the sense that:

2. "Finally, for the tax system to be more equitable it is crucial that all be called upon to contribute according to their taxpaying capacity, conferring upon the tax administration enhanced powers to control and supervise situations of fraud and tax evasion.

In this sense, the Government presents, today, a set of measures that reinforce just and equitable distribution of the effort of adjustment by a broad and comprehensive set of sectors of Portuguese society.

This proposal has three essential pillars: the creation of special taxation on urban properties of value exceeding 1 million euros; the increase in taxation on income from capital and on capital gains and the strengthening of rules to combat fraud and tax evasion.

First, the Government proposes the creation of a special rate on the highest value residential urban properties. It is the first time in Portugal that special taxation has been created on high-value properties intended for residential use. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will bear on houses of value equal to or exceeding 1 million euros. With the creation of this additional rate the tax burden required of these owners will be significantly increased in 2012 and 2013."

1. It thus appears clearly from the intervention of the Esteemed Secretary of State for Tax Affairs that the intention of the Government was to create, with the norm of Item No. 28 of the GTSD, a taxation on high-value properties that would present themselves as representative of enhanced taxpaying capacity.

2. It seems to us to follow here the thesis also defended in Process 50/2014 – T, that "the legislator in introducing this legislative innovation considered as the determinant element of taxpaying capacity urban properties, with residential use, of high value (luxury), more precisely, of value equal to or exceeding €1,000,000.00 on which it went on to impose a special rate of stamp tax, intending to introduce a principle of taxation on the wealth externalized in the ownership, usufruct or right of surface of urban properties of luxury with residential use. Therefore, the criterion was the application of the new rate to urban properties with residential use, whose TRP is equal to or exceeding €1,000,000.00". (...) "The substantiation of the measure designated as 'special rate on the highest value residential urban properties' is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for residential use, imposing the new special rate on 'houses of value equal to or exceeding 1 million euros. Clearly the legislator understood that this value, when attributed to a residence (house, autonomous fraction or apartment with independent use) translates enhanced taxpaying capacity and, as such, susceptible of determining a special contribution to ensure just distribution of tax burden.

3. In light of the ratio legis which we were able to determine in the interpretation of Article 6 of Law No. 55-A/2012, of 29 October, let us see whether in the case all the requirements of the tax incidence norm that constitute the tax event are met and that trigger, then, the tax act of assessment of SD.

4. In fact, the tax act always has at its base a concrete factual situation, which is provided for abstractly and typically in the tax law as generating the right to the tax. That factual and concrete situation is defined as the tax event, which only exists once all the legal requirements for such are met.

5. The tax norms that contemplate the tax event are those relating to actual incidence, which define its objective elements. Only with the performance of the tax event does the tax obligation arise. The existence of the tax event constitutes, therefore, a condition "sine qua non" of the fixation of the taxable matter and of the assessment effected. (cf. Alberto Xavier, Concept and Nature of the Tax Act, p. 324; Nuno de Sá Gomes, Manual of Tax Law, II, Notebooks of Science and Technical Tax, 1996, p. 57; A. José de Sousa and J. da Silva Paixão, Annotated and Commented Tax Code of Procedure, 3rd edition, 1997, p. 269) and (cf. judgment of the Administrative Court of the South – 2nd Section, 26/2/2013, case 5713/12; judgment of the Administrative Court of the South – 2nd Section, 12/12/2013, case 7073/13; judgment of the Administrative Court of the South – 2nd Section, 12/6/2014, case 6726/13).

6. The provisions of the SDC, in the form given by Law No. 55-A/2012, both in Article 4, No. 6 ("In the situations provided for in Item 28 of the General Table, the tax is due whenever the properties are situated in Portuguese territory"), and in Article 23, No. 7 ("Being the tax due for the situations provided for in Item No. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CMPT Code"), combined with Article 1 of the CMPT Code, seem to establish the property itself as the tax event (the situation that triggers taxation).

7. But the tax event relates not to any property but rather to properties with a TRP exceeding €1,000,000.00, pursuant to the CMPT Code, that is, only to properties that reach the value provided for in Item 28 of the Stamp Duty General Table determined according to the rules of the Code of the Municipal Property Tax.

8. In fact, the norm under exegesis, Item No. 28, added to the General Table of Stamp Duty (G.T.S.D.) by Article 4 of Law 55-A/2012, of 29/10, subjects to the incidence of stamp tax, among other things, ownership of urban properties whose taxable property value recorded in the matrix, calculated pursuant to the Code of the Municipal Property Tax (CMPT), is equal to or exceeding €1,000,000.00, on such value imposing the rate of 1% (or less in 2012, pursuant to the transitional provision of Article 6 supra mentioned).

9. For its part, from the examination of the transitional law norm contained in Article 6, No. 1 of Law 55-A/2012, of 29/10, it must be concluded, among other things, that in relation to the year 2012, the tax event is considered to have occurred on 31 October 2012.

10. But this transitional law norm is not capable of broadening the scope of the general incidence norm, which elects as the tax event the ownership of property, at a given date, provided that the property has a taxable property value recorded in the matrix, pursuant to the CMPT Code, equal to or exceeding €1,000,000.00.

11. The imperatives of tax revenue collection, as well as of meeting targets relating to the plan for budgetary adjustment led to the approval of this new tax, with specific rules, in the first year of effectiveness, which anticipate the tax event, as against the general rule in force in subsequent years.

12. An attempt was made, with this transitional regime, to repel any allegations of violation of the principles of the prohibition of retroactivity of tax law as well as of security and legitimate reliance.

13. Now these principles, if they are not infringed by the incidence norm provided for in Item 28, do not however permit the application of the same to situations that do not meet all of its tax requirements.

14. The determination of the taxable value of the property by recourse to the TRP of the property on 31 December 2011 is an expedient to which the legislator had recourse to make this new tax norm executable at the moment of its entry into force and not a form of broadening of its material scope of application.

15. Therefore, the ownership, usufruct or right of surface on the property that has a taxable property value recorded in the matrix, pursuant to the CMPT Code, equal to or exceeding €1,000,000.00, constitute requirements of tax incidence, through the application of Item 28 of the GTSD.

16. Now, according to the best tax doctrine, should be considered as tax incidence norms all the norms that establish the complex of requirements of whose combination results the birth of the tax obligation, encompassing the norms that determine the active and passive subject, the taxable matter, and the tax rate (cf. SOARES MARTINEZ, in "Tax Law", 7th edition, p. 126).

17. These requirements must be met on the date of entry into force of the tax incidence norm – 31 October 2012 – in the present case and of the occurrence of the tax event included in the field of application of the tax incidence norm.

18. It is the properties with those characteristics supra mentioned that allow the fulfillment of the requirements and the ratio of the tax incidence norm corresponding to Item 28 of the SDC, precisely because it is these that reveal the taxpaying capacity that the tax incidence norm intends to reach.

19. It is the holders of properties that meet said requirements, on this same date of entry into force of the norm, that reveal the taxpaying capacity necessary to correspond to the tax contribution effort that the legislator understood to impose on other classes of taxpayers.

20. Thus, it is to be concluded that the interpretive elements available, including the "circumstances in which the law was elaborated and the specific conditions of the time when it is applied", point clearly in the direction of the intention to encompass in the scope of incidence of Item No. 28.1 situations of properties that have a TRP, on the date of entry into force of that norm, exceeding €1,000,000.00 because it is these that reveal "high value" or the due "taxpaying capacity".

21. For this reason, we understand that the assessment whose declaration of illegality is requested is tainted with a vice of violation of that Item No. 28.1 GTSD, by error as to the requirements of law, which justifies the declaration of its illegality and consequent annulment.

22. As regards interest for damages, as already decided in the Arbitral Judgment delivered in process No. 14/2012-T, of 29 June 2012, included in the competencies of tax arbitral tribunals are the condemning pronouncements that in a process of judicial challenge are admitted to state tax tribunals, and equally admissible is the recognition of the right to interest for damages in the arbitral process.

23. As a consequence of the substantive illegality of the assessment of SD object of the present action, the Claimant paid tax that was not due, imposing not only its respective reimbursement, pursuant to Articles 24, No. 1, paragraph b) of the LFTA and 100 of the General Tax Law, as well as the payment of interest for damages as the respective constitutive conditions are met, in accordance with the provisions of Articles 43 of the General Tax Law and 61 of the Tax Code of Procedure and Process, calculated on the amount paid in excess and counted from the dates of payments effected until full restitution.

III DECISION

This Arbitral Tribunal hereby decides:

a) To judge wholly the request for arbitral pronouncement well-founded and, in consequence, to annul the tax act challenged;

b) To condemn the Tax Authority to refund the tax paid by the Claimant, in the amount of €5,479.94

c) To condemn the Tax Authority to the payment of interest for damages, calculated pursuant to the legal terms, until the date of refund of the tax

d) To condemn the Tax Authority in the costs of the process, in the amount of €612.00

D. Value of the Process

The value of the process is fixed at €5,479.94, pursuant to Article 97-A, No. 1, a), of the Code of Procedure and Process for Tax, applicable by force of paragraphs a) and b) of No. 1 of Article 29 of the LFTA and of No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Processes.

E. Costs

The value of the arbitration fee is fixed at €612.00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Processes, to be paid by the Tax Authority, once the request was wholly well-founded, pursuant to Articles 12, No. 2, and 22, No. 4, both of the LFTA, and Article 4, No. 4, of the cited Regulation.

Let notification be made.

The writing of the present arbitral judgment is governed by the old orthography.

Lisbon

29 October 2014

The Arbitrator

(Ana Teixeira de Sousa)

[1] This option will have increased the lack of identity and unity conceptual of Stamp Duty. Cf. José M. Fernandes Pires, "Lessons on Property and Stamp Taxes", Almedina, 2013, 2nd edition, p. 429. This author notes how, even before the Reform of Property, "the multiplicity of facts to which Stamp Duty applies does not allow it to be integrated in a classification according to its nature" (on the evolution of the nature of stamp tax, note 314, pp. 427 and 428) and how, although systematized in the same Code, it is a set of taxes. In its original version, Article 1, No. 1 of the Stamp Duty Code provided that "Stamp Duty bears on all acts, contracts, documents, titles, books, papers and other facts provided for in the General Table"; from the reform of property (2003), "Stamp Duty bears on all acts, contracts, documents, titles, books, papers, and other facts provided for in the General Table, including gratuitous transfers of property" and, currently, "Stamp Duty bears on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table, including gratuitous transfers of property".

[2] In "Taxes on Immovable Property. Stamp Duty. Annotated and Commented, Engifisco, Lisbon, 2005, p. 251, citation in José Maria Pires, op. cit. note 314.

[3] In the Report of the Group for the Study of Tax Policy, Competitiveness, Efficiency and Justice of the Tax System, it is recalled that the wording of Article 104, No. 3, of the Constitutional Republic seems to embrace the need that taxation on property not be limited to immovable property or, in other formulation, not discriminate between this and the remaining property.

From the presentation and brief commentary on the work of the subgroup on "Property Taxation", the coordinators of the Working Group of 2009 further wrote, namely: "It is in this context that the question of the taxation of movable property and the tax treatment of large fortunes arises, recurring themes, especially in times of greater difficulties of public finances. The holders of greater property are thus usually pointed out as needing to contribute their fair share to public revenues. The aphorism "tax the rich" has, as is known, a long history in tax debate. More difficult is to design a system of taxation that ensures horizontal equality and that is administratively viable, for it is known that the taxation of money of residents deposited abroad or of property not subject to registration, such as jewelry or works of art, is of very difficult achievement. The question that arises is whether and when it will be opportune to introduce such taxation. On this point, it is well to remember that, if the objective of equity is one of the known pillars of tax theory (for this reason, as was said, capital gains should be subject to taxation), other objectives, such as efficiency and international competitiveness of tax systems, have gained much greater emphasis lately. The international mobility of forms of movable wealth in search of more favorable tax treatment has been, as is known, a factor that has moderated its taxation and burdened immovable factors. It is further noted that known international experiences of the introduction of tax on large fortunes, such as the French, did not have consequences worthy of note in tax revenue, were a source of strong controversy and are today questioned by large sectors of doctrine. For these reasons, the Subgroup points, in this matter, to the taxation of large fortunes being carried out especially in the course of income generation, using the mechanisms of rates or reduction of tax benefits, to increase the effective taxation of those earning higher income, advising against, at this time, the introduction of generalized taxation of property.