Summary
Full Decision
ARBITRAL DECISION
I. REPORT
A..., holding the unique registration and identification number for legal entities ..., represented by its management company "B..., S.A.", hereinafter referred to as the Claimant, filed an application for the establishment of an arbitral tribunal in tax matters and a request for an arbitral ruling, pursuant to the provisions of articles 2, no. 1 (a) and 10, no. 1 (a), both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as LFATM), requesting the annulment of 3 tax acts assessing Stamp Duty (IS) relating to the year 2012, in the total amount of € 217,469.80.
To substantiate its application, it alleges, in summary:
a) Entry 28.1 of the General Table of Stamp Duty (GTSD) annexed to the Stamp Duty Code (SDC), as amended by Law no. 55-A/2012, of 29 October, only provides for the taxation of immovable property with residential use;
b) The taxation of construction land is not provided for in the aforementioned entry;
c) For tax purposes, construction land constitutes a species of immovable property completely distinct from immovable property classified as residential;
d) Neither the letter nor the spirit of the law permits the equalization of construction land to immovable property with residential use, for the purpose of its taxation through the application of entry 28.1 of the GTSD annexed to the SDC;
e) The treatment of construction land as "immovable property with residential use" for the purposes of its subsumption to IS, through the application of entry 28.1 of the GTSD, annexed to the SDC, as amended by Law no. 55-A/2012, of 29 October, is unlawful;
f) The assessments in question are unlawful, by violation of the provision of article 1 of the SDC and entry 28.1 of the GTSD and unconstitutional, by violation of articles 103 and 104 of the Constitution of the Portuguese Republic.
The Claimant attached 15 documents and listed one witness.
In the request for arbitral ruling, the Claimant opted not to appoint an arbitrator, wherefore, pursuant to the provision of article 6, no. 2 (a) of the LFATM, the signatories were appointed by the Deontological Council of the Center for Administrative Arbitration, the appointment having been accepted in the manner legally provided for.
The arbitral tribunal was constituted on 29 May 2014.
Duly notified pursuant to the provision of article 17 of the LFATM, the Respondent filed a reply, invoking in summary that, for the purposes of the application of entry 28.1 of the GTSD annexed to the IS, construction land is comparable to immovable property with residential use.
It concludes by requesting the dismissal of the application and, consequently, the maintenance of the assessment acts in question.
The Respondent attached no documents nor listed any witnesses.
The Respondent attached to the case file a copy of the administrative proceedings, although, upon analysis of its contents, it appears not to correspond to the assessments in question in the present case.
The meeting referred to in article 18 of the LFATM, as well as the production of the witness evidence requested, was dispensed with, without opposition from the parties, given the fact that, on one hand, no matters susceptible to discussion in said meeting were raised and, on the other hand, the case file contained all the documentary elements necessary and sufficient to decide on the law.
No written submissions were presented.
II. PRELIMINARY MATTER:
The Arbitral Tribunal was regularly constituted and is materially competent.
The parties have legal standing and capacity and are entitled to bring proceedings, with no defects in legal representation.
There are no nullities that invalidate the proceedings.
The application for establishment of the Arbitral Tribunal was presented within the period provided for in article 10, no. 1 (a) of the LFATM, calculated from the date on which the tacit dismissal of the gracious complaint submitted by the Claimant is presumed due to non-compliance with the 4-month period for conclusion of the procedure provided for in article 57, no. 1 of the General Tax Law, and is therefore timely.
There are no nullities, exceptions, or preliminary questions that prevent the tribunal from ruling on the merits and which the tribunal is obliged to raise ex officio.
III. ISSUES TO BE DECIDED:
In the present case there is only one issue to be decided, which is whether, for the purposes of the application of entry 28.1 of the GTSD annexed to the SDC, as amended by Law no. 55-A/2012, of 29 October, construction land is considered as immovable property with residential use.
IV. FACTUAL FINDINGS:
a. PROVEN FACTS:
With relevance for the decision on the merits, the following facts were proven:
a) The Claimant is the owner and legitimate proprietor of the urban immovable property located at Avenue ..., near no. ..., parish of ..., municipality of Lisbon, described in the Land Registry Office of Lisbon under number ... and registered in the urban property tax matrix under article ... (former article ... of the parish of ...);
b) The immovable property referred to in a) above is construction land, with a tax patrimonial value of € 21,746,980.00;
c) On 20/04/2007, the Claimant submitted the declaration of Form 1 of the IMI [Municipal Property Tax], with the reason "1st transfer during the IMI regime";
d) As a consequence of the Form 1 IMI declaration submitted, the immovable property referred to in a) above was subject to assessment, notice of which was given to the Claimant on 10/10/2007;
e) To the immovable property in question, assessed as construction land, was assigned the tax patrimonial value of € 21,746,980.00;
f) By application submitted on 26/10/2007, supplemented by application of 15/11/2007, the Claimant requested a second assessment of the property;
g) By letter dated 13/01/2014, the Tax Authority notified the Claimant of the second assessment requested, which maintained unchanged the tax patrimonial value originally assigned;
h) The Claimant was notified of the assessments challenged, relating to the first, second and third installments of IS, entry 28.1 of the GTSD, relating to the year 2012;
i) By application submitted on 19/08/2013, the Claimant filed a gracious complaint, requesting the annulment of the amount of the collection assessed as IS, including the first two assessment notices issued;
j) To the present date the gracious complaint filed has not been subject to any decision;
k) By contract executed on 20/02/1996, the former owner of the immovable property referred to in a) – "C..., S.A." – granted to "D..., S.A." the right to construct, establish and operate a parking garage at ground level, over the entirety of the immovable property in question in the present case, the contents of which is as set out in document number 5, attached with the gracious complaint attached to the case file with the initial petition under number 13;
l) The contract referred to in k) above is in force.
b. UNPROVEN FACTS:
With relevance for the case, there is no factuality left unproven.
c. REASONING REGARDING THE FACTUAL FINDINGS:
The tribunal's conviction regarding the facts found as proven, and unproven, was based on the documentary evidence indicated in relation to each point, attached by the Claimant, whose authenticity and correspondence to reality were not disputed by the Respondent.
V. LAW:
The Claimant invokes that construction land cannot be considered, for the purposes of subjection to IS, as immovable property with residential use.
According to the Claimant, the provision of entry 28.1 of the GTSD annexed to the SDC does not permit any extensive interpretation, such that construction land could be equalized to immovable property with residential use, and entry 28.1 is therefore not applicable thereto.
For its part, the Respondent argues that the immovable property on which the assessments challenged rest has the legal nature of immovable property with residential use, with no unlawfulness or unconstitutionality occurring.
As to the objective scope, article 1, no. 1 of the SDC provides that stamp duty applies to all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table.
Article 4 of Law 55-A/2012, of 29 October, added to the GTSD, annexed to the SDC, approved by Law no. 150/99, of 11 September, entry no. 28, with the following wording:
"28 — Ownership, usufruct or right of superficies of urban immovable property whose tax patrimonial value contained in the registry, in accordance with the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 — on the tax patrimonial value used for the purpose of IMI:
28.1 — For immovable property with residential use — 1%;
28.2 — For immovable property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance — 7.5%."
Pursuant to the provision of article 6 of the cited Law, in the year 2012, the tax patrimonial value to be considered for the purpose of assessing Stamp Duty corresponds to that resulting from the rules provided for in the MPTC, by reference to the year 2011.
It further results from the transitional provisions provided for in the aforementioned article 6 that, in the year 2012, the rate of Stamp Duty applicable shall be, in the case of immovable property with residential use assessed in accordance with the MPTC, of 0.5%.
That said,
In entry 28.1 of the GTSD and in article 6 of Law 55-A/2012, of 29 October, an innovative concept was used, which is not used by any other tax legislation: the concept of immovable property with residential use.
Neither in the MPTC, indicated by the cited Law 55-A/2012 as a diploma of subsidiary application with respect to the tax introduced by the addition of entry 28 to the GTSD, is any such defined concept used.
In fact, the MPTC defines the concept of immovable property, and defines the various types of immovable property and identifies the species of urban immovable property.
Thus,
Pursuant to article 2 of the MPTC, "immovable property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or situated thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value".
Immovable property is divided into rural (article 3), urban (article 4) or mixed (article 5), with urban immovable property being subdivided into 4 species: residential; commercial, industrial or for services; construction land and others (article 6).
No. 2 of article 6 of the MPTC clarifies that "residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes".
For its part, no. 3 of the same article provides that construction land is considered to be "land situated within or outside an urban agglomeration, for which authorization or permission has been granted, prior notification admitted or favorable prior information issued of a subdivision or construction operation, and also those which have been declared as such in the title of acquisition".
Combining the indicated provisions, it is evident that there is, in none of the indicated norms, any reference to immovable property with residential use.
Therefore, in order to determine what constitutes immovable property with residential use, an exercise of interpretation must be undertaken, resorting to the general rules of legal hermeneutics contained in article 9 of the Civil Code.
Thus, the interpretive activity must begin with the analysis of the letter of the law, which constitutes the limit of interpretation, and an interpretation that does not have in the letter of the law a minimum of verbal correspondence, however imperfectly expressed, cannot be considered.
Now, as it results from the legal provisions already cited, the concept of immovable property with residential use is absolutely innovative in the SDC, not existing in any other tax law.
The closest concept is that of "residential immovable property", defined in article 6, no. 2 of the MPTC as being the building or construction licensed for such purpose or, in the absence of a license, which has as its normal destination this purpose.
The truth, however, is that the legislator, in entry 28.1 of the GTSD annexed to the SDC did not use the expression "residential immovable property" but rather "immovable property with residential use".
Therefore, starting from the principle – which is taken as certain – that the legislator knew how to express itself in adequate terms, it cannot be defended that these distinct expressions have the same meaning. Instead, and through the application of the principles enshrined in nos. 2 and 3 of article 9 of the Civil Code, it must necessarily be held that, by using distinct expressions, the legislator intended to encompass different realities.
Let us consider, then, the word "use" (afectação), a noun derived from the verb "to assign" (afectar).
This concept has been extensively analyzed by various and learned case law handed down by this arbitral center[1], and we shall dispense with dissecting such concept, accepting and defending that it consists in the action of designating something for a particular use.
Thus, immovable property with "residential use" will be that which is designated for residential purposes.
Indeed, the same conclusion is reached through the reconstruction of legislative intent, taking into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied, as required by the aforementioned article 9 of the Civil Code.
First and foremost, it is important to note that the introduction of this entry 28 in the GTSD occurred at a time when, there being an absolute need to address the crisis that had set in, it was necessary to collect as much revenue as possible, which was intended to be achieved, namely, through the taxation of so-called "luxury" real property.
The intention, therefore, with the introduction of the taxation provided for in entry 28 of the GTSD, was to tax wealth, externalized in the ownership, usufruct or right of superficies of urban immovable property "of luxury", with residential use.
That only immovable property with residential use are included in this new taxation results clearly from the Explanatory Memorandum of the Bill no. 96/XII, in which it is stated that, in order to strengthen the "principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment program", the legal diploma to be approved "extends the taxation of capital and property income, equitably encompassing a broad set of sectors of Portuguese society."
Thus, it can still be read in the aforementioned Explanatory Memorandum that is "created a rate under Stamp Duty applying to urban immovable property of residential use whose tax patrimonial value is equal to or greater than one million euros" (emphasis ours).
Already in the course of the general discussion of the aforementioned Bill, it can be read:
"In the first place, the Government proposes the creation of a special rate to tax urban residential immovable property of higher value. 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 with a value equal to or greater than 1 million euros" (emphasis ours).
There can be no doubt, therefore, that the intention of the legislator was to tax houses, urban residential immovable property, properties intended for residential use, that is, immovable property that are already actually designated for residential purposes.
Given that the concept of "immovable property with residential use" is established as immovable property actually designated for, devoted to residential use, it is now important to analyze the actual scope of such concept. In other words, it is necessary to verify whether such residential use, for the purpose of the application of the provision of entry 28.1 of the GTSD, must be present or may be future, that is, whether it will encompass only immovable property that are already actually devoted to residential use or also immovable property that, as is the case with the immovable property in this case, being construction land, do not yet have any defined use.
The distinction assumes particular importance if we note that construction land may be intended to construct, in the future, one or more residences, and that, by including in the concept of "residential use" future uses that may come to be given to the immovable property, it could be argued that entry 28.1 of the GTSD applies to construction land.
Analyzed in the literal terms of entry 28.1 of the GTSD it appears evident that its application should be ruled out for immovable property whose use is unknown, since these, manifestly and from any point of view, cannot be considered designated for residential purposes.
That is, if the use of the immovable property in question is not known, it could just as well be designated for residential use as for commerce, industry or services, and it is certain that entry 28.1 only applies to immovable property with residential use and not to immovable property with any other use, namely economic.
In the case at hand, after analyzing the proven facts, it appears that the immovable property in question does not yet have any known use, and it is therefore evident that entry 28.1 of the GTSD is not to be applied.
Indeed, even though the use of the immovable property in question does not appear in the case file and, for all purposes, must be considered unknown, the truth is that it results from the proven facts – proven facts k) and l) – that the immovable property was subject to a contract by which a third party was granted the right to operate a parking garage. Thus, if any use can be glimpsed, that use will certainly be economic and not residential.
Furthermore, it will always be said that, even if the immovable property in this case already had a known use, although not actual, and that use were residential, it would still not be encompassed by the application of entry 28.1 of the GTSD.
This is because, from the combination of the norms contained in entry 28.1 of the GTSD and article 6, no. 2 of the MPTC, it results, without any margin for doubt, that the use must be actual and not merely future or probable.
In summary, construction land whose use is unknown, as is the case with the immovable property in this case, cannot be considered as immovable property with residential use for the purpose of the application of entry 28.1 of the GTSD annexed to the SDC.
Nor should it be said, as the Respondent argues, that the legal identity, for the purposes of the application of entry 28.1 of the GTSD, between construction land and immovable property with residential use results clearly from the fact that the legislator determined the application to construction land of the methodology for the assessment of immovable property in general.
It is true that article 45 of the MPTC determines the application to construction land of the same assessment methods applicable to immovable property in general.
However, it cannot be overlooked that such identity is limited to the assessment methodology and not to its classification.
As regards assessment, there is no doubt that the legislator mandates the application of the same rules to both construction land and residential immovable property.
But as regards the classification of immovable property, nothing in the law or in the general legislative intent permits us to conclude that such identity exists.
Indeed, as in our view correctly stated in a judgment handed down by the Supreme Court of Justice, "it would be strange, indeed, if the determination of the scope of the tax incidence norm of entry no. 28 of the General Table of Stamp Duty were found, in the final analysis, in the norms for the determination of the tax patrimonial value of the Municipal Property Tax Code, and that the terminological imprecision of the legislator in the drafting of that rule were, after all, elucidated and finally clarified by way of an indirect and equivocal reference to the use coefficient established by the legislator in relation to built immovable property (article 41 of the Municipal Property Tax Code)[2].
Therefore, and following closely the case law already established by this arbitral center[3], it must be concluded that "the interpretive elements available, including the «circumstances in which the law was drafted and the specific conditions of the time in which it is applied», clearly point to the fact that it was not intended to encompass within the scope of incidence of entry no. 28.1 situations of immovable property that are not yet devoted to residential use, namely construction land held by companies", as is the case in this case.
But it is not only the case law of this arbitral tribunal that has ruled in this sense. In judgments handed down very recently, the Supreme Administrative Court decided that "as the legislator has not defined the concept of "immovable property (urban) with residential use", and as a clear distinction results from article 6 of the Municipal Property Tax Code – subsidiarily applicable to Stamp Duty provided for in the new entry no. 28 of the General Table – between "urban residential immovable property" and "construction land", the latter cannot be considered, for the purposes of the incidence of Stamp Duty (Entry 28.1 of the GTSD, as amended by Law no. 55-A/2012, of 29 October), as urban immovable property with residential use[4].
And that this is the case results clearly from the fact that, in the last amendment made to entry 28.1 of the GTSD annexed to the SDC, by Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, construction land was expressly included therein. Note, however, that even with this amendment, not all construction land becomes subject to taxation through the application of entry 28.1 of the GTSD annexed to the SDC, but only construction land for which the building, authorized or planned, is for residential purposes.
As the aforementioned 2014 State Budget Law is not any law of interpretation, it seems evident that, if the legislator felt the need to include construction land in entry 28.1, it is because previously such land was not included therein, all the more so when such land, as is the case in this case, does not yet have any defined use, and it is unknown whether or not it will be devoted to residential use.
Any other interpretation of entry 28.1 of the GTSD annexed to the SDC, as amended by Law no. 55-A/2012, of 29 October, has no legal basis whatsoever and cannot be defended.
It is thus verified that the assessments in question in the present case are clearly unlawful, in that they have no legal basis or support.
In addition to being unlawful, the assessments in question are also clearly in violation of the constitutional provision contained in article 103 of the Constitution of the Portuguese Republic.
In fact, no. 2 of article 103 of the Fundamental Law provides:
"Taxes are created by law, which determines the incidence, the rate, tax benefits and taxpayer safeguards".
Providing, for its part, no. 3 of the same article:
"No one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not made in accordance with the law".
Thus, as construction land does not appear in entry 28.1 of the GTSD annexed to the SDC, as amended by Law no. 55-A/2012, of 29 October, nor can it be classified, for this purpose, as immovable property with residential use, it seems evident that there is no law that determines the incidence of entry 28.1 of the GTSD over construction land.
And, as there is no law that determines such incidence, it is clear that its assessment was not effected in accordance with the law, and consequently, the taxpayer is not obliged to pay such tax.
Note, to this end, that no. 4 of article 11 of the General Tax Law expressly prohibits the filling of any gaps in tax norms through analogy, and it is not possible, therefore, even if one considers there to be a gap in the GTSD, to apply to construction land the regime provided for immovable property with residential use.
Indeed, although no. 4 of the aforementioned provision only expressly refers to the prohibition of filling gaps through analogy, it should be understood, as has been defended by the most informed doctrine, that this norm prohibits the filling of gaps by any means[5].
In fact, as defended by LEITE CAMPOS, BENJAMIM SILVA RODRIGUES and JORGE LOPES DE SOUSA[6], "analogy is the preferred means of filling gaps (art. 10 of the Civil Code), and therefore, by a fortiori, it must be concluded that the possibility of using other means is excluded".
In view of all that has been set out, it seems evident that the equalization between construction land and immovable property with residential use, for the purpose of the application of entry 28.1 of the GTSD annexed to the SDC, as amended by Law no. 55-A/2012, of 29 October, has no legal basis, this equalization and the consequent assessment of stamp duty through the application of this entry being in flagrant opposition to the Fundamental Law, which determines that taxes are created by law, and no one may be obliged to pay taxes whose assessment is not made in accordance with the law.
In any case, even if the aforementioned entry 28 were to apply – which, as we have seen, it does not – it would still be said that, as results from the transitional provisions provided for in article 6 of Law 55-A/2012, of 29 October, in the year 2012, the rate to be applied would be 0.5% and not the rate actually applied by the Respondent, of 1%.
Wherefore, as there is no legal basis for the assessments effected, their annulment in toto is necessary.
VI. DISPOSITIF:
Given the foregoing, the tribunal orders that the application for declaration of unlawfulness of the acts assessing Stamp Duty in the total amount of € 217,469.80 be granted, with the consequent annulment thereof.
The case value is fixed at € 217,469.80, pursuant to article 97-A, no. 1 (a), of the Tax Procedural and Process Code, applicable by virtue of subsections a) and b) of no. 1 of article 29 of the LFATM and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
The arbitration fee is fixed at € 4,284.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, pursuant to articles 12, no. 2 and 22, no. 4, both of the LFATM, and article 4, no. 4, of the aforementioned Regulation, to be paid by the Respondent as the losing party.
Register and notify.
Lisbon, 16 September 2014.
The arbitral tribunal,
Jorge Lino Ribeiro Alves de Sousa (President)
Álvaro Caneira
Alberto Amorim Pereira
Text prepared by computer, pursuant to no. 5 of article 131 of the Code of Civil Procedure, applicable by reference of subsection e) of no. 1 of article 29 of Decree-Law 10/2011, of 20/01.
The drafting of this decision follows the spelling prior to the New Orthographic Agreement of 1990.
[1] See, among others, decisions rendered in the context of proceedings 48/2013-T; 50/2013-T and 132/2013-T, all available at www.caad.org.pt.
[2] Judgment of 09/04/2014, case no. 1870/13, available at www.dgsi.pt.
[3] Case no. 53/2013-T, available at www.caad.org.pt.
[4] Judgments of 23/04/2014, case no. 0272/14, and 09/04/2014, cases nos. 1870/13, already cited, and 48/14, all at www.dgsi.pt.
[5] See CASALTA NABAIS, Tax Law, 2nd Edition, page 216, cited by LEITE CAMPOS, BENJAMIM SILVA RODRIGUES and JORGE LOPES DE SOUSA, General Tax Law Annotated and Commented, Encontro da Escrita Publishing, 4th Edition, 2012, page 124.
[6] Op. and loc. cit.
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