Stamp Tax on Building Land (Verba 28.1 TGIS): CAAD Arbitration Decision 27/2014-T

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 27/2014 – T

Subject: Stamp Duty; Item 28 of the General Table of Stamp Duty

The arbitrators Dr. Jorge Manuel Lopes de Sousa (President Arbitrator), Dr. José Nunes Barata and Professor Jorge Bacelar Gouveia, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 17-03-2014, hereby decide as follows:

1. Report

A, legal entity no. ... (hereinafter "A"), B, legal entity no. ... (hereinafter "B"), C, legal entity no. ... (hereinafter "C") and D, legal entity no. ... (hereinafter "D"), companies with registered office in …, came on 13-01-2014, in accordance with the terms and for the purposes set out in paragraph a) of section 1 of article 2, section 1 of article 3 and article 10, all of Decree-Law No. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter designated only as "RJAT"), to request the constitution of a collective arbitral tribunal.

The Tax and Customs Authority is the respondent.

The Claimants impugn and seek the total annulment of the decisions denying the gracious complaints no. ..., no. ..., no. ... and no. ... and of Stamp Duty assessments in the global amount of € 239,816.45, of which they are liable parties (hereinafter identified).

The Claimants further seek that compensation interest be ordered due to the improper payment of Stamp Duty assessed pursuant to the contested assessment acts.

The Claimants opted for non-appointment of an arbitrator.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 14-01-2014 and notified to the Tax and Customs Authority on 15-01-2014.

Pursuant to paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal Councillor Jorge Lopes de Sousa, Dr. José Nunes Barata and Professor Jorge Bacelar Gouveia, who communicated acceptance of the appointment within the applicable timeframe.

On 27-02-2014 the parties were duly notified of this appointment and manifested no intention to challenge the appointment of the arbitrators, in accordance with article 11, section 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of paragraph c) of section 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012 of 31 December, the collective arbitral tribunal was constituted on 17-03-2014.

The Tax and Customs Authority filed a response in which it argued that the request for a declaration of illegality and annulment of the assessments should be judged without merit.

The parties did not request the conduct of evidence proceedings and declared that they waived the holding of the meeting provided for in article 18 of the RJAT and arguments.

The Arbitral Tribunal was properly constituted and is competent.

The parties possess legal personality and capacity and are legitimate (arts. 4 and 10, section 2, of the same instrument and art. 1 of Order No. 112-A/2011 of 22 March).

The case is free from nullities.

2. Subject Matter of the Dispute

The Claimants were notified of the Stamp Duty assessments referred to above, which were based on the application of item no. 28 of the General Table of Stamp Duty (TGIS) and impugned them through gracious complaints, which were subsequently denied.

The assessments were made pursuant to item 28 of the Table attached to the Stamp Duty Code, as worded in 2013.

The Claimants contend, in summary, that this provision does not apply to properties that are land for construction, as is the case with those to which it was applied.

The Tax and Customs Authority opposed, requesting that the action be judged without merit, on the ground, in summary, that that provision covers land for construction to which residential use has been assigned in the context of their respective evaluations.

3. Factual Matters

3.1. Established Facts

a) The Claimants are the owners of the following properties:

(i) Land for construction located in … or …, registered in the urban property register under article ... of the parish of ..., municipality of ... (hereinafter "Land 1"), owned by Claimant A

(ii) Land for construction located in ... or..., registered in the urban property register under article … of the parish of ..., municipality of ... (hereinafter "Land 2"), owned by Claimant B

(iii) Land for construction located in ... or ... ..., registered in the urban property register under article … of the parish of ..., municipality of ... (hereinafter "Land 3"), owned by Claimant C and

(iv) Land for construction located in ... or ..., registered in the urban property register under article ... of the parish of ..., municipality of ... (hereinafter "Land 4"), owned by Claimant D (Urban Property Certificates for each of the properties referred to ("Property Certificates"), which were attached to the request for arbitral decision as document no. 1, the contents of which are hereby reproduced);

b) The Property Certificates state that the "Type of property" for each of the Lands referred to is "Land for Construction";

c) The Lands, in their entirety, are assigned the following tax asset values ("TAV") as of the date of the facts:

(i) Land 1 — € 6,054,456.48;

(ii) Land 2 — € 5,938,029.89;

(iii) Land 3 — € 6,001,234.70 and

(iv) Land 4 — € 5,987,923.99.

d) The Claimants were notified of the following Stamp Duty assessment acts:

(i) A — assessment no. 2013 ..., of 22.03.2013, in the amount of € 20,181.52, corresponding to the first instalment of 2013, with payment deadline by the end of April;

(ii) B — assessment no. 2013 ..., of 22.03.2013, in the amount of € 19,793.44, corresponding to the first instalment of 2013, with payment deadline by the end of April;

(iii) C — assessment no. 2013 ..., of 22.03.2013, in the amount of € 20,004.13, corresponding to the first instalment of 2013, with payment deadline by the end of April;

(iv) D — assessment no. 2013 ..., of 22.03.2013, in the amount of € 19,959.76, corresponding to the first instalment of 2013, with payment deadline by the end of April (document no. 2, attached with the request for arbitral decision, the contents of which are hereby reproduced);

e) The Claimants were also notified of the assessments for the second and third instalments of Stamp Duty relating to 2013 and the same properties, as follows:

(i) A — assessment no. 2013 ..., of 22.03.2013, in the amount of € 20,181.52, corresponding to the second instalment of 2013, with payment deadline by the end of July;

(ii) B — assessment no. 2013 ..., of 22.03.2013, in the amount of € 19,793.43, corresponding to the second instalment of 2013, with payment deadline by the end of July;

(iii) C — assessment no. 2013 ..., of 22.03.2013, in the amount of € 20,004.11, corresponding to the second instalment of 2013, with payment deadline by the end of July;

(iv) D — assessment no. 2013 ..., of 22.03.2013, in the amount of € 19,959.74, corresponding to the second instalment of 2013, with payment deadline by the end of July;

(v) A — assessment no. 2013 ..., of 22.03.2013, in the amount of € 20,181.52, corresponding to the third instalment of 2013, with payment deadline by the end of November; ( [1] )

(vi) B — assessment no. 2013 ..., of 22.03.2013, in the amount of € 19,793.43, corresponding to the third instalment of 2013, with payment deadline by the end of November;

(vii) C — assessment no. 2013 ..., of 22.03.2013, in the amount of € 20,004.11, corresponding to the third instalment of 2013, with payment deadline by the end of November;

(viii) D — assessment no. 2013 ..., of 22.03.2013, in the amount of € 19,959.74, corresponding to the third instalment of 2013, with payment deadline by the end of November;

f) In total, considering the Stamp Duty assessments made in 2013, the same yielded a tax amount payable of € 239,816.45, corresponding to 1% of the TAV of each of the construction land owned by the Claimants, as described:

(i) A — € 60,544.56;

(ii) B — € 59,380.30;

(iii) C — € 60,012.35 and

(iv) D — € 59,879.24.

g) The Claimants paid the amounts of Stamp Duty assessed by the Tax and Customs Authority corresponding to the first and second instalments, as follows:

(i) A paid on 19-04-2013 the sum of € 20,181.52 relating to assessment no. 2013 ... (document no. 4, page 2);

(ii) B paid on 29-04-2013 the sum of € 19,793.44 relating to assessment no. 2013 ... (document no. 4, page 1);

(iii) C paid on 29-04-2013 the sum of € 20,004.13 relating to assessment no. 2013 ... (document no. 4, page 4);

(iv) D paid on 29-04-2013 the sum of € 19,959.76 relating to assessment no. 2013 ... (document no. 4, page 3);

(v) A paid on 24-07-2013 the sum of € 20,181.52 relating to assessment no. 2013 ... (document no. 4, page 7);

(vi) B paid on 24-07-2013 the sum of € 19,793.43 relating to assessment no. 2013 ... (document no. 4, page 5);

(vii) C paid on 24-07-2013 the sum of € 20,004.11 relating to assessment no. 2013 ... (document no. 4, page 6);

(viii) D paid on 29-04-2013 the sum of € 19,959.76 relating to assessment no. 2013 ... (document no. 4, page 8);

(document no. 4 attached with the request for arbitral decision, the contents of which are hereby reproduced and no challenge of this fact by the Tax and Customs Authority);

h) The Claimants filed gracious complaints against the assessment acts referred to (document no. 5 attached with the request for arbitral decision, the contents of which are hereby reproduced);

i) Those gracious complaints were, however, denied, based on the information contained in document no. 5 attached with the request for arbitral decision, the contents of which are hereby reproduced, which contains, inter alia, the following:

Regarding the gracious complaint filed by A:

The claimant alleges that the property is a plot of land for construction, has no residential use assignment and legitimately one can only consider that an assignment to residential use exists after construction has been erected. However, pursuant to article 6 of the Municipal Property Tax Code (CIMI), a plot of land for construction is unequivocally an urban property, with its tax asset value determined in accordance with the rules provided for in article 45 of that Code, and it is necessary to consider the characteristics of the property or properties to be constructed and the use assignment that has been attributed to them.

From the consultation made of the details of the evaluation of the property, specifically the elements relating to the land for construction, it appears that in the description of the evaluation it is listed as being a plot of land intended for construction of a multi-family residential building with commercial and services use with 20 floors, including 2 basements for parking, referring to an alteration to subdivision permit no. 1/1986, and therefore the use assignment — Residential — was considered in the calculation of the tax asset value, with application of the use coefficient (UC) equal to 1.00, that is, the equivalent to use for residential purposes, as provided for in article 41 of the CIMI (doc. pages 40 to 42 of the file). It should also be noted that the claimant was notified on 2006-05-04 of that evaluation, through office no. 2248375 of 2006-04-18, and did not request, in accordance with article 76 of the CIMI, a second evaluation of the property in question (doc. no. 41 and 42 of the file).

In this manner, it does not fall within gracious complaint proceedings to evaluate the identification of the use assignment of the property, that is, to evaluate whether there is an error in the property register based on the ground of error in the use assignment. Consequently, given the foregoing, the Stamp Duty assessments now complained of complied with the elements considered for purposes of registration in the property register, and therefore in my view the claimant's claim cannot be upheld.

Regarding the gracious complaint filed by B:

Article 6 of the Municipal Property Tax Code (CIMI) classifies "land for construction" as urban properties.

On the other hand, article 41 of the CIMI provides that the use coefficient depends on the type of use and sets the coefficient at 1.00 for properties used for residential purposes.

However, as provided for in article 45 of the CIMI, the evaluation of "land for construction" is conducted considering the characteristics of the building to be constructed.

Thus, the provision of sub-paragraph i) of paragraph f) of section 1 of article 6 of Law No. 55-A/2012 of 29 October was complied with.

Regarding the gracious complaint filed by D:

• By Law 55-A/2012 of 29 October, item 28 was added to the General Table of Stamp Duty, which subjects to taxation the ownership, usufruct or right of superficies of urban properties whose tax asset value contained in the property register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000. Item 28.1 further provides that when properties are assigned "residential use" they shall be taxed at 1% on the tax asset value used for purposes of Municipal Property Tax;

• Article 6 of the aforementioned Law 55-A/2012 provides as a transition that in 2012 the taxable event occurs on 31 October 2012, the liable party to the tax is that mentioned in section 4 of article 2 of the Stamp Duty Code on that date, the tax asset value to be used in the assessment of the tax corresponds to what results from the rules provided in the CIMI by reference to 2011, assessment must be made by the end of November 2012 and paid in a single instalment by 20 December 2012, with the rate applicable being 0.5% for properties with "residential use" evaluated in accordance with the CIMI Code;

• Article 6 of the CIMI considers that land for construction is classified as urban properties;

• Thus, given that we are in the presence of an urban property with a tax asset value exceeding 1,000,000.00 €, to which "Residential use" was assigned in the evaluation process, which on 31/10/2012 already belonged to the claimant, and based on existing legislation, the claim cannot be accepted because there was no illegality of the taxable event.

Given the foregoing, the Stamp Duty assessment now complained of complied with the elements considered for purposes of registration in the property register.

In this manner, it does not fall within gracious complaint proceedings to evaluate the identification of the use assignment of the property, that is, to evaluate whether there is an error in the property register based on the ground of error in the use assignment, since, given that the property was evaluated in accordance with article 45 of the CIMI, the resulting tax asset value was notified to the claimant who did not request a second evaluation.

j) The Claimants were notified of the decisions denying the gracious complaints by means of communications issued on 15-10-2013 (B), 18-10-2013 (A), 22-10-2013 (D) and 22-11-2013 (C) (document no. 5 attached with the request for arbitral decision, the contents of which are hereby reproduced);

k) On 13-01-2014, the Claimants filed the request for constitution of the arbitral tribunal that gave rise to the present case.

3.2. Unproven Facts

There are no facts with relevance to the assessment of the merits of the case that have not been proven.

3.3. Basis for Determination of Factual Matters

The established facts are based on the documents indicated for each of the points, whose correspondence to reality is not disputed.

4. Legal Matters

The question which is the subject of the present action is whether land for construction, to which "residential use" was assigned in the evaluation process, falls within the scope of item 28.1 of the General Table of Stamp Duty (TGIS), in its original wording.

4.1. Framework of Law No. 55-A/2012 of 29 October

Law No. 55-A/2012 of 29 October made several amendments to the Stamp Duty Code and added item 28 to the TGIS, with the following wording:

28 – Ownership, usufruct or right of superficies of urban properties whose tax asset value contained in the property register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax asset value used for purposes of Municipal Property Tax:

28.1 – For property with residential use – 1%;

28.2 – For property, when the liable parties who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax system, contained in the list approved by order of the Minister of Finance – 7.5%.

In the transitional provisions contained in article 6 of that Law No. 55-A/2012, the following rules were established concerning the assessment of the tax provided for in that item:

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 taxable event occurs on 31 October 2012;

b) The liable party to the tax is that mentioned in section 4 of article 2 of the Stamp Duty Code on the date referred to in the preceding paragraph;

c) The tax asset value to be used in the assessment of the tax corresponds to what results from the rules provided for in the Municipal Property Tax Code by reference to 2011;

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

e) The tax must be paid, in a single instalment, by the liable parties by 20 December 2012;

f) The applicable rates are as follows:

i) Properties with residential use evaluated in accordance with the Municipal Property Tax Code: 0.5%;

ii) Properties with residential use not yet evaluated in accordance with the Municipal Property Tax Code: 0.8%;

iii) Urban properties when the liable parties who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax system, contained in the list approved by order of the Minister of Finance: 7.5%.

2 – In 2013, the assessment of the stamp duty provided for in item no. 28 of the respective General Table must be based on the same tax asset value used for purposes of assessment of municipal property tax to be conducted in that year.

3 – The failure to deliver, in whole or in part, within the prescribed timeframe, of the sums assessed as stamp duty constitutes a tax violation, punished in accordance with the law.

In the aforementioned item 28.1 and in sub-paragraphs i) and ii) of paragraph f) of section 1 of Law No. 55-A/2012, a concept was used that is not used in any other tax legislation, in these precise terms, which is that of "property with residential use".

Specifically in the CIMI, which in several provisions of the Stamp Duty Code introduced by that Law is indicated as a diploma of subsidiary application in relation to the tax provided for in the aforementioned item no. 28 [articles 2, section 4, 3, section 3, paragraph u), 5, paragraph u), 23, section 7, and 46 and 67 of the Stamp Duty Code], a concept with that designation is not used.

Law No. 83-C/2013 of 31 December amended that item no. 28.1, giving it the following wording:

28.1 - For residential property or for land for construction the erection of which, authorized or planned, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code – 1%

4.2. Concepts of Properties Used in the CIMI

In the Municipal Property Tax Code, the species of properties are enumerated in articles 3 to 6 as follows:

Article 2

Concept of Property

1 – For purposes of this Code, property is any portion of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or situated therein, with a permanent character, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances referred to, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature.

2 – Buildings or constructions, although movable by nature, are considered to have a permanent character when devoted to non-transitory purposes.

3 – The permanent character is presumed when buildings or constructions are situated in the same location for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction in a horizontal property regime is considered as constituting a property.

Article 3

Rustic Properties

1 – Rustic properties are land situated outside an urban agglomeration that cannot be classified as land for construction, in accordance with section 3 of article 6, provided that:

a) They are devoted or, in the absence of concrete use assignment, have as normal destination a use generating agricultural income, as such are considered for purposes of personal income tax (IRS);

b) Not having the use assignment indicated in the preceding paragraph, they are not built on or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Also rustic properties are land situated within an urban agglomeration, provided that by virtue of a legally approved provision, they cannot have a use generating any income or may only have a use generating agricultural income and are actually having this use assignment.

3 – Also rustic properties are:

a) Buildings and constructions directly devoted to the generation of agricultural income, when situated on the land referred to in the preceding sections;

b) Waters and plantations in the situations referred to in section 1 of article 2.

4 – For purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, nuclei with a minimum of 10 dwelling units served by public roads, with their perimeter delimited by points distanced 50 m from the axis of the roads, in the transverse direction, and 20 m from the last building, in the direction of the roads.

Article 4

Urban Properties

Urban properties are all those that should not be classified as rustic, without prejudice to the provision of the following article.

Article 5

Mixed Properties

1 – Whenever a property has rustic and urban parts it is classified, in its entirety, in accordance with the main part.

2 – If neither part can be classified as main, the property is deemed to be mixed.

Article 6

Species of Urban Properties

1 – Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of a licence, that have each of these purposes as their normal destination.

3 – Land for construction is considered to be land situated within or outside an urban agglomeration, for which a licence or authorization has been granted, prior notification admitted or favourable prior information issued for a subdivision or construction operation, and also those that have been declared as such in the title of acquisition, excepting land in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal spatial planning plans, are devoted to public spaces, infrastructure or equipment. (Amendment by Law No. 64-A/08 of 31-12)

4 – Included in the provision of paragraph d) of section 1 are land situated within an urban agglomeration that are not land for construction nor are covered by the provision of section 2 of article 3 and also buildings and constructions licensed or, in the absence of a licence, that have as their normal destination other purposes than those referred to in section 2 and also those in the exception of section 3.

4.3. Rules on Interpretation of Laws

Article 11 of the General Tax Code establishes the essential rules for interpretation of tax laws as follows:

Article 11

Interpretation

1. In determining the meaning of tax provisions and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

2. Whenever, in tax provisions, terms peculiar to other branches of law are used, they must be interpreted in the same sense as they have therein, unless otherwise directly provided by law.

3. If doubts persist as to the meaning of the applicable provisions on the scope of taxation, regard must be had to the economic substance of the tax facts.

4. Gaps resulting from tax provisions covered by the reservation of law of the Assembly of the Republic are not susceptible to analogical integration.

The general principles of interpretation of laws, to which section 1 of article 11 of the General Tax Code refers, are established in article 9 of the Civil Code, which establishes the following:

Article 9

Interpretation of Law

1. Interpretation should not be limited to the letter of the law, but should reconstruct from the text the legislative intent, having in particular regard to the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

2. However, the interpreter cannot consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express his intent in adequate terms.

4.4. Hypotheses of Interpretation of the Concept of "Property with Residential Use"

As can be seen from the provisions of the CIMI transcribed, the concept of "property with residential use" is not used in the classification of properties.

Neither is this concept, with this terminology, found in any other statute.

Thus, in the absence of exact terminological correspondence of the concept of "property with residential use" with any other used in other statutes, several interpretive hypotheses may be put forward.

The starting point for the interpretation of that expression "properties with residential use" is, naturally, the text of the law, and it is on the basis of this that the "legislative intent" must be reconstructed, as required by section 1 of article 9 of the Civil Code, applicable by virtue of the provision of article 11, section 1, of the General Tax Code.

4.5. Concept of "Property with Residential Use" as Referring to Residential Properties

The concept closest to the literal wording of this expression used is manifestly that of "residential properties", defined in section 2 of article 6 of the CIMI as encompassing "buildings or constructions" licensed for residential purposes or, in the absence of a licence, that have residential purposes as their normal destination.

If it is understood that the expression "property with residential use" coincides with that of "residential properties", it is manifest that the assessments will be vitiated by error as to factual and legal presuppositions, since all properties in respect of which Stamp Duty was assessed under the aforementioned item no. 28.1 are land for construction, without any building or construction, required by that section 2 of article 6 to satisfy that concept of "residential properties".

For this reason, if the interpretation is adopted that "property with residential use" means "residential property", the assessments whose declaration of illegality is sought will be illegal, because there is no building or construction in any of the properties.

However, the non-coincidence of the terms of the expression used in item no. 28.1 of the TGIS with that extracted from section 2 of article 6 of the CIMI points to the fact that it was not intended to use the same concept.

4.6. Concept of "Property with Residential Use" as a Concept Distinct from "Residential Properties"

The word "use assignment", in this context of the use of a property, has the meaning of "act of designating something for a particular use". ( [2] )

"When, as is normally the case, legal provisions (legislative formulations) admit more than one meaning, then the positive function of the text is translated as giving stronger support to or suggesting more strongly one of the possible meanings. For among the possible meanings, some will correspond to the more natural and direct meaning of the expressions used, whereas others will only fit within the verbal framework of the provision in a forced, contrived manner. Now, in the absence of other elements that would lead to the election of the less immediate meaning of the text, the interpreter should choose in principle that meaning which best and most directly corresponds to the natural meaning of the verbal expressions used, and specifically to their technical-legal meaning, assuming (not always accurate) that the legislator knew how to express his intent with correctness". ( [3] )

The relevance of the text of the law is especially emphasized in the interpretation of the scope provisions of Stamp Duty, which are reduced to an amalgamation, under a common denomination, of an incongruous collection of taxes of completely distinct natures (on income, on expenditure, on patrimony, on acts, etc.), which leaves no appreciable margin for application of the primary interpretive criterion, which is the unity of the legal system, which demands its overall coherence.

The acknowledged lack of coherence of Stamp Duty is particularly exuberant in the case of this item no. 28.1, hastily included outside the General State Budget, by a fiscal legislator without perceptible overall fiscal orientation, who is successively implementing provisions for fiscal aggravation as the consequences of budgetary execution setbacks, the impositions of international institutional creditors (represented by the "troika") and the oversight of the Constitutional Court.

In truth, although in the "Statement of Reasons" of the Bill No. 96/XII/2nd. ( [4] ), on which Law No. 55-A/2012 was based, a reference is made to the laudable concern of the Government to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment programme" and its commitment "to ensure that the distribution of these sacrifices will be made by all and not just by those who live on the income from their work", it is manifest, on the one hand, that those reasons of equity, certainly existing, did not begin to be valid in mid-2012, already existing at the beginning of the year, when the General State Budget came into force, and on the other hand, that the scope of item no. 28.1, by additionally taxing properties with residential use and not also properties that do not have it, reveals that the concerns of social equity and the proclaimed intention of distributing sacrifices among all affects much more some than properly all.

In this context, in the absence of sure interpretive elements that would allow detecting legislative coherence in the solution adopted in the aforementioned item no. 28.1 or the correctness or incorrectness of the solution adopted (relevant for interpretive purposes in light of section 3 of article 9 of the Civil Code), the content of the legal text must be the primary element of interpretation, in accordance with the presumption, imposed by that same section 3 of article 9, that the legislator knew how to express his intent in adequate terms.

In light of those meanings of the words "use assignment" and "to assign", which are "to give destination" or "to apply", the formula used in that item no. 28.1 of the TGIS manifestly encompasses properties that have already been designated for residential purposes, properties that are already devoted to residential purposes, and therefore it is necessary to inquire whether it will also encompass properties that, although not yet devoted to residential purposes, are designated for those purposes.

To this end, it will be necessary to clarify when it can be understood that a property is designated for a residential purpose, specifically whether it is when this destination is fixed in a subdivision permit or licensing act or similar, or only when the actual attribution of that destination is concretized.

First and foremost, the comparison of item no. 28.1 of the TGIS with section 2 of article 6 of the CIMI, which defines the concept of residential properties, points to the fact that an actual use assignment is necessary.

In truth, a building or construction licensed for residential purposes or, even without a licence, that has residential purposes as its normal destination, is, in light of section 2 of that article 6, a residential property, as that provision classifies as such "buildings or constructions licensed for such or, in the absence of a licence, that have each of these purposes as their normal destination".

For this reason, on the assumption that the legislator of Law No. 55-A/2012 knew how to express his intent in adequate terms (as required by article 9, section 3, of the Civil Code to be presumed), if it was intended to refer to those properties already licensed for residential purposes or that have residential purposes as their normal destination, it would certainly have used the concept of "residential properties", which would express perfectly and clearly his intent, in light of the definition given by that section 2 of article 6 of the CIMI.

Consequently, it must be presumed that the use of a different expression is aimed at a distinct reality, and therefore, in good hermeneutics, "property with residential use" cannot be a property merely licensed for residential purposes or intended for that purpose (that is, it will not be sufficient that it be a "residential property"), but must be a property that already has actual designation for that purpose.

This is confirmed to be the meaning of the expression "use assignment", in the same context of property classification that the CIMI makes, by article 3, in which, with respect to rustic properties, reference is made to those "devoted or, in the absence of concrete use assignment, have as their normal destination a use generating agricultural income", which shows that use assignment is concrete, actual. In truth, as can be seen from the final part of this text, a property may have as its destination a particular use and be or not be devoted to it, which shows that use assignment is, at the level of the connection of a property to a particular use, something more intense than mere destination and may or may not occur, downstream from it and not upstream. ( [5] )

Furthermore, the text of the law by adopting the formula "property with residential use", instead of "urban properties of residential use assignment", which appears in the aforementioned "Statement of Reasons", points strongly to the fact that the use assignment must already be concretized, for only thus will the property be with that use assignment.

In the case at hand, one is dealing with a reality even more distant from residential use assignment, which is that there is not even any building or construction and, therefore, a use assignment that presupposes its existence cannot be considered to exist.

On the other hand, the legislative intention of not extending the scope of taxation to land for construction was expressly referred to by the Government when presenting to the Plenary of the Assembly of the Republic the Bill No. 96-XII, saying, through the voice of the Secretary of State for Tax Affairs:

"First, the Government proposes the creation of a special rate to tax high-value urban residential properties. It is the first time that in Portugal a special taxation on high-value properties intended for residential use has been created. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses valued at or above 1 million euros. With the creation of this additional tax, the fiscal burden required of these property owners will be significantly increased in 2012 and 2013". ( [6] )

The express reference to "houses" as the target of the incidence of the new tax leaves no room for doubt about the legislative intent.

On the other hand, there is found in the discussion of the aforementioned Bill no reference to "land for construction".

With regard to article 45 of the CIMI, it has no relation to the classification of properties, merely indicating the factors to be considered in the evaluation of land for construction. What is considered there, in making reference to the "building to be constructed", is the consideration of the destination of the land, which, as has been seen, is something that, in the context of the CIMI, does not imply use assignment and occurs before it.

Law No. 83-C/2013 of 31 December, contrary to what the Tax and Customs Authority argues, was not intended to clarify the logical element underlying the original wording of item no. 28.1, but came instead to confirm, indirectly, the interpretation that it did not encompass land for construction.

In truth, if the original wording of that item no. 28.1, when speaking of "property with residential use" already intended to encompass the buildings and constructions that constituted "residential properties" (in accordance with article 6, section 2, of the CIMI), and land for construction for which residential construction was authorized or planned, it would be natural to attribute to the new wording an interpretive nature, similarly to what the same Law No. 83-C/2013 does in other provisions [article 177, section 7, concerning paragraphs a) and b) of section 3 of article 17-A of the Personal Income Tax Code, and article 185, section 1, concerning article 3-A of the Value Added Tax Code] and is usual to do in budget laws, when it is intended that the new wordings apply to situations potentially encompassed by the previous wordings.

For this reason, the fact that no interpretive nature was attributed to the new wording points to the fact that it was intended to alter the scope of taxation of the aforementioned item no. 28.1 of the TGIS and not maintain it, clarifying it.

For the foregoing reasons, the contested assessments and the decisions on the gracious complaints that upheld them are vitiated by a defect of error as to the presuppositions of law, embodied in violation of item no. 28.1 of the TGIS, which justifies their annulment (article 135 of the Administrative Procedure Code). ( [7] )

5. Compensation Interest

The Claimants paid, each one, the respective first and second instalments and seek to receive compensation interest.

5.1. Admissibility of Recognition of the Right and Condemnation to Pay Compensation Interest in Arbitral Proceedings

In accordance with the provision of paragraph b) of art. 24 of the RJAT, the arbitral decision on the merits of the claim to which no appeal or challenge applies binds the tax administration from the expiry of the deadline provided for appeal or challenge, and this, in the exact terms of the merits of the arbitral decision in favor of the liable party and until the expiry of the deadline provided for spontaneous execution of the decisions of tax court decisions, must "restore the situation that would have existed if the tax act that is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the purpose", which is in keeping with the provision of art. 100 of the General Tax Code [applicable by virtue of the provision of paragraph a) of section 1 of art. 29 of the RJAT] which establishes that "the tax administration is obliged, in case of total or partial upholding of a gracious complaint, judicial challenge or appeal in favor of the liable party, to the immediate and full restoration of the legality of the act or situation subject to the litigation, including the payment of compensation interest, if applicable, from the expiry of the deadline for execution of the decision".

Although art. 2, section 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating at CAAD, making no reference to condemnatory decisions, it should be understood that the powers that are attributed to tax courts in judicial challenge proceedings are included in their competencies, and this is the interpretation that is in keeping with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it is proclaimed, as the first directive, 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".

The judicial challenge process, although being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration in the payment of compensation interest, as is apparent from art. 43, section 1, of the General Tax Code, in which it is established that "compensation interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due" and art. 61, section 4 of the Code of Tax Procedure and Process (as amended by Law No. 55-A/2010 of 31 December, to which corresponds section 2 in the original wording), which provides that "if the decision recognizing the right to compensation interest is judicial, the deadline for payment is counted from the beginning of the deadline for its spontaneous execution".

Thus, section 5 of art. 24 of the RJAT, when saying that "payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process", must be understood as allowing recognition of the right to compensation interest in the arbitral process.

In the case at hand, it is clear that the requests for compensation interest must be upheld, in light of the aforementioned section 1 of article 43 of the General Tax Code, since the assessments and the gracious complaints are annulled and the error from which they suffer is attributable to the Tax Administration.

6. Decision

Therefore, this Arbitral Tribunal hereby decides to:

a) Judge the request for arbitral decision to be well-founded;

b) Annul the Stamp Duty assessments no.:

– 2013 ..., of 22.03.2013, in the amount of € 20,181.52;

– 2013 ..., of 22.03.2013, in the amount of € 19,793.44;

– 2013 ..., of 22.03.2013, in the amount of € 20,004.13;

– 2013 ..., of 22.03.2013, in the amount of € 19,959.76;

– 2013 ..., of 22.03.2013, in the amount of € 20,181.52;

– 2013 ..., of 22.03.2013, in the amount of € 19,793.43;

– 2013 ..., of 22.03.2013, in the amount of € 20,004.11;

– 2013 ..., of 22.03.2013, in the amount of € 19,959.74;

– 2013 ..., of 22.03.2013, in the amount of € 20,181.52;

– 2013 ..., of 22.03.2013, in the amount of € 19,793.43;

– 2013 ..., of 22.03.2013, in the amount of € 20,004.11;

– 2013 ..., of 22.03.2013, in the amount of € 19,959.74.

c) Annul the decisions denying the gracious complaints no. ..., no. ..., no. ... and no. ...;

d) Judge the request for compensation interest to be well-founded and condemn the Tax and Customs Authority to pay to the Claimants compensation interest, at the legal rate, from the dates on which each of the payments was made until the date of full reimbursement of the respective amount, calculated as follows:

– as to A from 19-04-2013 on the amount of € 20,181.52 and from 24-07-2013 on the amount of € 20,181.52;

– as to B from 29-04-2013 on the amount of € 19,793.44 and from 24-07-2013 on the amount of € 19,793.44;

– as to C from 29-04-2013 on the amount of € 20,004.13 and from 24-07-2013 on the amount of € 20,004.11;

– as to D from 29-04-2013 on the amount of € 19,959.76 and from 24-07-2013 on the amount of € 19,959.76.

7. Value of the Case

In accordance with the provision of art. 315, section 2, of the Code of Civil Procedure and 97-A, section 1, paragraph a), of the Code of Tax Procedure and Process and 3, section 2, of the Regulation on Costs in Tax Arbitration Proceedings, the value of the case is set at € 239,816.45.

8. Costs

Pursuant to art. 22, section 4, of the RJAT, the amount of costs is set at € 4,284.00, in accordance with Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.

Lisbon, 14 May 2014

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(José Nunes Barata)

(Jorge Bacelar Gouveia)

( [1] ) The Claimant did not attach to the request for arbitral decision a copy of the assessment relating to the third instalment for Claimant A, but through the gracious complaint, it is confirmed that an assessment no. 2013 …, in the amount of € 20,181.52 was made with respect to this party (pages 5 of document no. 5 attached with the request for arbitral decision) and this fact is not questioned by the Tax and Customs Authority.

( [2] ) Dictionary of Contemporary Portuguese Language of the Academy of Sciences of Lisbon, Volume I, page 102.

The Houaiss Dictionary of the Portuguese Language defines "use assignment", in a context close to this, as "act that gives destination to a public good".

The Great Dictionary of the Portuguese Language by JOSÉ PEDRO MACHADO indicates "to designate" and "to apply" among the meanings of "to assign".

( [3] ) BAPTISTA MACHADO, Introduction to Law and Legitimizing Discourse, page 182.

( [4] ) Bill No. 99/XII/2nd. is available at:

http://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=37245

( [5] ) Other provisions of the CIMI clarify that the term "use assignment" is used to reference situations already existing and not merely future ones, even if foreseeable, such as "destination".

This is the case with article 9 of the CIMI, which, after establishing that "the tax is due from" "the 4th year following, inclusive, that in which land for construction came to appear in the inventory of a company whose object is the construction of buildings for sale" or "from the 3rd year following, inclusive, that in which a property came to appear in the inventory of a company whose object is its sale" [paragraphs d) and e) of section 1], provides that "for purposes of the provisions of paragraphs d) and e) of section 1, the liable parties must communicate to the tax service of the area of the situation of the properties, within the period of 60 days counted from the verification of the fact determining its application, the use assignment of the properties for those purposes".

The "use assignment of the properties for those purposes", in the context of this article 9, is reduced to the concrete attribution to the properties of the purpose "for sale", materialized by its inventorization, not being sufficient that they have been constructed or acquired having in view their sale.

( [6] ) Page 32 of the Journal of the Assembly of the Republic, no. 9 of the 2nd. Legislative Session of the XII Legislature, relating to the Plenary Session of 10-10-2012, available at:

http://app.parlamento.pt/darpages/dardoc.aspx?doc=6148523063446f764c324679626d56304c334e706447567a4c31684a5355786c5a79394551564a4a4c305242556b6c42636e463161585a764c7a497577716f6f6c4d6a42545a584e7a77364e764a5449775447566e61584e7359585270646d4576524546534c556b744d4441354c6e426b5a673d3d&nome=DAR-I-009.pdf

( [7] ) The Supreme Administrative Court has been deciding in this sense, as can be seen from the judgments of 09-04-2014, issued in cases no. 01870/13 and 048/14, and of 23-04-2014, issued in cases no. 0271/14, 0270/14 and 0272/14, available at http://www.dgsi.pt/jsta.nsf/2eae0bd4de5026e80256b480065970d?CreateDocument.