CAAD Case 294/2016-T: Stamp Tax on Construction Land Over €1M – Reformed Decision After Constitutional Court Ruling

ARBITRAL DECISION

The Arbitrator Raquel Franco, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the singular arbitral tribunal constituted on 01 August 2016, following the decision of the Constitutional Court of 02.10.2018, which decided to grant the appeal filed by the Tax and Customs Authority against the decision rendered on 06.02.2017, ruling that the norm contained in Item 28.1 of the General Stamp Tax Table, approved by Law No. 55-A/2012, of 29 October and amended by Law No. 83-C/2013, of 31 December, is not unconstitutional, in the part in which it imposes annual taxation on the ownership of land for construction whose authorized or envisaged building is for dwelling, whose tax asset value is equal to or exceeding € 1,000,000.00, hereby amends the previously rendered decision, which is now as follows:

REPORT

1. On 05-05-2016, the company "A..., S.A", Tax Number..., filed a request for constitution of a singular arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to simply as LRAT), in which the Tax and Customs Authority (TA) is the Respondent.

2. The request for constitution of the Arbitral Tribunal was accepted by the Distinguished President of CAAD and automatically notified to the TA on 06-06-2016.

3. Pursuant to paragraph (a) of Article 6(2) and paragraph (b) of Article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

4. On 20-07-2016 the parties were duly notified of such designation and did not express any intention to refuse the arbitrator's designation pursuant to the combined provisions of Article 11(1), paragraphs (a) and (b) of the LRAT and Articles 6 and 7 of the Deontological Code.

5. Thus, pursuant to paragraph (c) of Article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 01-08-2016.

6. The Tribunal rendered a decision on the case on 06.02.2017, with the case being filed on 07.02.2017.

7. The Tax and Customs Authority and the Public Prosecutor's Office filed appeals of the decision to the Constitutional Court on 09.02.2017 and 10.02.2017 respectively (the first being from the Public Prosecutor's Office), and the court a quo rendered a ruling on 13.02.2017.

8. The summary decision of the Constitutional Court was received and notified on 29.10.2018.

9. In the present case, the Claimant seeks that the Arbitral Tribunal declare the illegality of an act of stamp tax assessment practiced under Item 28.1 of the General Stamp Tax Table (GSTT), relating to the year 2015, in the total amount of € 21,151.10, with reference to the urban property (land for construction) registered under Article U-... in the urban property registry of the parish of..., in Porto.

10. The grounds presented by the Claimant are as follows:

• A... is a joint-stock company whose object is real estate promotion and management and purchase for resale or leasing of real property;

• In the context of its activity, it intended to allocate the land for construction that gave rise to the assessment that is the subject of the present case to the construction of buildings to be constituted in horizontal property, for subsequent sale of units through a real estate promotion activity;

• The property that was subject to assessment is not a dwelling; it is land for construction, that is to say, although it has the aptitude for dwellings to be constructed thereon, it is not, in itself, a property susceptible of being inhabited;

• Neither does A... allocate it, in the state in which it is found, to the dwelling of anyone whatsoever, nor is it in conditions to be inhabited, since it is land;

• On the land in question only buildings intended for dwelling will not be constructed, which can be deduced from its substantial gross dependent area – 1,768.50m2;

• The property constitutes a mere raw material of A...'s productive process, with a view to the production of new goods. It is therefore a factor of production;

• Thus, even if it is concluded that ownership of the property is an indication of A...'s contributive capacity, it is not the contributive capacity that the legislator intended to reach through the annotation of Items 28 and 28.1 to the GSTT, as that would be to tax productive investment instead of taxing luxury goods;

• With the amendment made by Law No. 83-C/2013, of 31 December, to Item 28.1 of the GSTT, the legislator now treats differently the owners of land for construction with building, authorized or envisaged, for dwelling, and the owners of land for construction, with building, authorized or envisaged, for commerce or services. This unequal treatment is arbitrary since, regardless of the purpose of the building, subsequent and eventual, intended by each owner, there is no difference in the allocation that each one currently gives to their land;

• All tax acts must respect the criterion of contributive capacity, which provides the basis for assessing compliance with the equality principle that emanates from Article 13 of the Constitution (CRP);

• If the legislator aims at the contributive capacity revealed by the holding of land for construction, it cannot tax those intended for the construction of buildings for dwelling and spare those intended for the construction of buildings for commerce or services, since it is not possible to find differences in the contributive capacity of taxpayers revealed by "intentions" or "forecasts" relating to the exploitation of assets with equal potential;

• The unequal taxation is especially reprehensible when companies are involved that hold real property as raw materials of their productive process, since taxation should not discriminate between activities, under penalty of violating, in addition to the principle of equality, the principle of tax neutrality that flows from Article 81(e) of the CRP and finds expression in Article 7(3) of the General Tax Law;

• Thus, the norm on which the taxation in the present case is based is unconstitutional and the impugned stamp tax assessment is illegal.

1. The Respondent replied to the Claimant's claim by contesting and presenting the following arguments:

• The notion of allocation of urban property is found in the section relating to the valuation of real property, which is well understood because the valuation of the property (purpose) incorporates value to the property, constituting a determining distinguishing fact (coefficient) for purposes of valuation.

• As results from the expression "…value of authorized buildings", contained in Article 45(2) of the Code of Real Estate Tax (CRET), the legislator chose to determine the application of the methodology for valuing properties in general to the valuation of land for construction, and consequently the allocation coefficient provided for in Article 41 of the CRET is applicable thereto.

• Thus, for purposes of determining the tax asset value (TAV) of land for construction, the application of the allocation coefficient in the context of valuation is clear, so that its consideration for purposes of applying Item 28.1 of the GSTT cannot be ignored, the following reasoning being valid in this sense:

a. In the application of law to specific cases, it is important to determine the exact meaning and scope of the norm, so that the rule it contains is revealed, an indispensable condition for it to be applied, in accordance with the provisions of Article 9 of the Civil Code, by virtue of Article 11 of the General Tax Law.

b. Article 67(2) of the Stamp Tax Code mandates the subsidiary application of the provisions of the CRET.

c. The allocation of the property (aptitude or purpose) is a coefficient that contributes to the valuation of the property, in the determination of tax asset value, applicable to land for construction;

d. Item 28.1 GSTT itself refers to the expression "properties with residential allocation", calling for a classification that overlaps with the categories provided for in Article 6(1) of the CRET.

• Thus, contrary to what the Claimant argues, the TA understands that the concept of "properties with residential allocation", for purposes of Item 28.1 of the GSTT, comprises both constructed properties and land for construction, from the outset based on the literal element of the norm.

• Note that the legislator does not refer to "properties intended for dwelling", having chosen the notion "residential allocation", a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in paragraph (a) of Article 6(1) of the CRET.

• In fact, Item 28.1 of the GSTT concerns taxation of patrimony, without specifically targeting companies, as it comprises all classes of taxable persons who are holders of the real rights mentioned with respect to the residential properties in question, regardless of whether they assume a business character or not, covering thus, in addition to companies, foundations, associations, natural persons, in short any entity that is a holder of real rights over urban residential properties with a tax asset value equal to or exceeding €1,000,000.

• Furthermore, it should be said that the fact that the properties on which the impugned assessment fell are investment assets, allocated to real estate operations habitually developed by the owner, not affecting the revealed contributive capacity, will determine that taxation under Item No. 28.1 of the GSTT is susceptible to some mitigation in the business context, both because it constitutes a cost of activity and through the possibility of passing on (in prices) that, to a greater or lesser degree, always exists even in taxes on business income.

• The choice of this revenue-raising mechanism is therefore legitimate, which would only be reprehensible, in light of the principle of proportionality, if it resulted in being manifestly indefensible.

II. CLARIFICATION OF PROCEDURAL ISSUES

1. The Tribunal is competent and regularly constituted pursuant to Articles 2(1)(a), 5, and 6, all of the LRAT.

2. The parties have legal personality and capacity, are legitimate and legally represented, pursuant to Articles 4 and 10 of the LRAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

3. The case does not suffer from defects that would invalidate it.

III. FACTS

Before proceeding to the examination of legal issues, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence attached to the file and taking into account the facts alleged, is established as follows:

III.1. Proven Facts

• A... is a joint-stock company whose object is real estate promotion and management and purchase for resale or leasing of real property;

• A... is the owner of the urban property classified as land for construction registered under Article U-... of the parish of..., Porto;

• In its respective urban property tax card, the type of location coefficient applicable to the property is that of dwelling;

• The Tax and Customs Authority issued a stamp tax assessment relating to the year 2015 and the property in question, in the amount of € 21,151.10, to which was assigned number 2016....

III.2. Unproven Facts

There are no facts relevant to the decision that have been declared as unproven.

IV. MATTER TO BE DECIDED

The essential question at issue in the present case is to determine whether the norm contained in Item 28.1 of the GSTT, insofar as it subjects to taxation residential properties and land for construction whose authorized or envisaged building is for dwelling, constitutes an unconstitutionality by violation of the principle of contributive capacity arising from the equality principle provided in Article 13 of the Constitution.

V. LEGAL REASONING

The first question raised by the Claimant concerns the alleged violation of the principle of equality, provided in Article 13 of the Constitution, in the aspect of tax equality, by the interpretation of the norm provided in Item 28.1 of the GSTT under which it applies to land for construction for which the construction of residential units of value exceeding € 1,000,000.00 is not envisaged.

It was on this question that the Constitutional Court's decision focused, which, by reference to the grounds contained in Judgment No. 378/2018, of 04 July, ruled that the norm contained in Item 28.1 of the General Stamp Tax Table, approved by Law No. 55-A/2012, of 29 October and amended by Law No. 83-C/2013, of 31 December, is not unconstitutional, insofar as it imposes annual taxation on the ownership of land for construction whose authorized or envisaged building is for dwelling, whose tax asset value is equal to or exceeding € 1,000,000.

Thus, it is necessary to decide the question of unconstitutionality raised by the Claimant against its interests, that is, not granting merit to the argument raised in the exact terms contained in the Constitutional Court Judgment No. 378/2018, to which the summary decision rendered in the present case refers.

Regarding the question, also raised by the Claimant, of whether, in the present case, the assessment act was based on an illegal application of the norm contained in Item 28.1 of the GSTT because what is at issue is not "land for construction whose authorized or envisaged building is for dwelling", to the extent that the land will not give rise only to buildings intended for dwelling but also to buildings intended for other purposes, it is necessary to analyze.

The norm on which the taxation is based is the norm resulting from the amendment introduced by Law No. 83-C/2013, of 31 December, to Item 28 of the GSTT. The legislative text places the taxation on "land for construction, whose authorized or envisaged building is for dwelling" and whose tax asset value is equal to or exceeding € 1,000,000. In the present case, it is not disputed that the tax asset value of the land triggers the taxation. What is at issue is whether the coexistence of more than one allocation envisaged for the buildings to be constructed – dwelling and others – is by itself capable of excluding the scope of the norm.

Now, while we do not contest that this could, in theory, be considered as one of the possible interpretations of the regulatory statement in question, we understand that it should not be, for a set of reasons, the interpretation to be adopted based on the interpretive criteria established in Article 9 of the Civil Code, namely: (i) the letter of the law; and (ii) reconstitution, from the texts, of the legislative intent, taking especially into account (ii1) the unity of the legal system, (ii2) the circumstances in which the law was drafted and (ii3) the specific conditions of the time in which it is applied.

Indeed, as regards the literal element, the norm does not refer only to land whose building, present or future, is exclusively residential. The norm only requires that there come to exist a building allocated to dwelling. That is, the element "building for dwelling" does not appear in the normative text in exclusive terms, which does not allow us to safely exclude from the scope of the norm cases such as the present one, in which, alongside residential building, there may come to exist others.

As regards the reconstitution 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, these lead us to the same conclusion. Recall the context of financial difficulties of the Portuguese State in which the norm was drafted, the need to increase fiscal revenues and the resort to this form of "extraordinary" taxation as a means of financial aid to the State by those taxpayers who were understood to be in conditions more privileged to do so. It is true that, in the amendment made through the State Budget for 2014, there was a desire to adjust taxation under Item 28.1, in particular in light of the problems raised by the previous wording. But its grounds did not change, nor did the perspective change that whoever was, broadly speaking, owner of residential properties or that could come to be residential properties of value exceeding € 1,000,000 should be called upon to aid the State through this form of taxation. The introduction of explicit reference to land for construction aimed to address the interpretive doubts that had arisen regarding its inclusion, or not, in the original scope of the norm. That is, it aimed to eliminate doubts that land for construction of value equal to or exceeding € 1,000,000 that could come to give rise to dwellings should be taxed in the same way as already-constructed buildings. It does not appear to us, therefore, in light also of this element, that the legislator intended to exclude land for construction that would permit the coexistence of buildings for dwelling and for services.

Thus, there are no reasons to consider the taxation occurring in the present case to be unconstitutional or illegal, whereby the impugned acts should remain in the legal order.

VI. DECISION

In conformity with what is set out above, it is decided to rule the request for arbitral pronouncement unfounded and, consequently, the impugned stamp tax assessment shall remain in the legal order.

Value: in conformity with the provisions of Article 32 of the Code of Administrative Procedure and Article 97-A of the Code of Tax Procedure, applicable by virtue of the provisions of Article 29(1), paragraphs (a) and (b), of the LRAT, and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 21,151.10.

Costs: pursuant to the provisions of Article 22(4) of the LRAT and pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00, to be borne entirely by the Claimant pursuant to Articles 12(2) and 22(4), both of the LRAT, and Article 4(4) of the said Regulation.

Let it be registered and notified.

Lisbon, 16 January 2019

The Arbitrator,

Raquel Franco

ARBITRAL DECISION

The Arbitrator Raquel Franco, designated by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the singular arbitral tribunal constituted on 01 August 2016, decides as follows:

REPORT

1. On 05-05-2016, the company "A..., S.A", Tax Number..., filed a request for constitution of a singular arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to simply as LRAT), in which the Tax and Customs Authority (TA) is the Respondent.

2. The request for constitution of the Arbitral Tribunal was accepted by the Distinguished President of CAAD and automatically notified to the TA on 06-06-2016.

3. Pursuant to paragraph (a) of Article 6(2) and paragraph (b) of Article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

4. On 20-07-2016 the parties were duly notified of such designation and did not express any intention to refuse the arbitrator's designation pursuant to the combined provisions of Article 11(1), paragraphs (a) and (b) of the LRAT and Articles 6 and 7 of the Deontological Code.

5. Thus, pursuant to paragraph (c) of Article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 01-08-2016.

6. In the present case, the Claimant seeks that the Arbitral Tribunal declare the illegality of an act of stamp tax assessment practiced under Item 28.1 of the General Stamp Tax Table (GSTT), relating to the year 2015, in the total amount of € 21,151.10, with reference to the urban property (land for construction) registered under Article U-... in the urban property registry of the parish of..., in Porto.

7. The grounds presented by the Claimant are as follows:

• A... is a joint-stock company whose object is real estate promotion and management and purchase for resale or leasing of real property;

• In the context of its activity, it intended to allocate the land for construction that gave rise to the assessment that is the subject of the present case to the construction of buildings to be constituted in horizontal property, for subsequent sale of units through a real estate promotion activity;

• The property that was subject to assessment is not a dwelling; it is land for construction, that is to say, although it has the aptitude for dwellings to be constructed thereon, it is not, in itself, a property susceptible of being inhabited;

• Neither does A... allocate it, in the state in which it is found, to the dwelling of anyone whatsoever, nor is it in conditions to be inhabited, since it is land;

• On the land in question only buildings intended for dwelling will not be constructed, which can be deduced from its substantial gross dependent area – 1,768.50m2;

• The property constitutes a mere raw material of A...'s productive process, with a view to the production of new goods. It is therefore a factor of production;

• Thus, even if it is concluded that ownership of the property is an indication of A...'s contributive capacity, it is not the contributive capacity that the legislator intended to reach through the annotation of Items 28 and 28.1 to the GSTT, as that would be to tax productive investment instead of taxing luxury goods;

• With the amendment made by Law No. 83-C/2013, of 31 December, to Item 28.1 of the GSTT, the legislator now treats differently the owners of land for construction with building, authorized or envisaged, for dwelling, and the owners of land for construction, with building, authorized or envisaged, for commerce or services. This unequal treatment is arbitrary since, regardless of the purpose of the building, subsequent and eventual, intended by each owner, there is no difference in the allocation that each one currently gives to their land;

• All tax acts must respect the criterion of contributive capacity, which provides the basis for assessing compliance with the equality principle that emanates from Article 13 of the Constitution (CRP);

• If the legislator aims at the contributive capacity revealed by the holding of land for construction, it cannot tax those intended for the construction of buildings for dwelling and spare those intended for the construction of buildings for commerce or services, since it is not possible to find differences in the contributive capacity of taxpayers revealed by "intentions" or "forecasts" relating to the exploitation of assets with equal potential;

• The unequal taxation is especially reprehensible when companies are involved that hold real property as raw materials of their productive process, since taxation should not discriminate between activities, under penalty of violating, in addition to the principle of equality, the principle of tax neutrality that flows from Article 81(e) of the CRP and finds expression in Article 7(3) of the General Tax Law;

• Thus, the norm on which the taxation in the present case is based is unconstitutional and the impugned stamp tax assessment is illegal.

1. The Respondent replied to the Claimant's claim by contesting and presenting the following arguments:

• The notion of allocation of urban property is found in the section relating to the valuation of real property, which is well understood because the valuation of the property (purpose) incorporates value to the property, constituting a determining distinguishing fact (coefficient) for purposes of valuation.

• As results from the expression "…value of authorized buildings", contained in Article 45(2) of the Code of Real Estate Tax (CRET), the legislator chose to determine the application of the methodology for valuing properties in general to the valuation of land for construction, and consequently the allocation coefficient provided for in Article 41 of the CRET is applicable thereto.

• Thus, for purposes of determining the tax asset value (TAV) of land for construction, the application of the allocation coefficient in the context of valuation is clear, so that its consideration for purposes of applying Item 28.1 of the GSTT cannot be ignored, the following reasoning being valid in this sense:

a. In the application of law to specific cases, it is important to determine the exact meaning and scope of the norm, so that the rule it contains is revealed, an indispensable condition for it to be applied, in accordance with the provisions of Article 9 of the Civil Code, by virtue of Article 11 of the General Tax Law.

b. Article 67(2) of the Stamp Tax Code mandates the subsidiary application of the provisions of the CRET.

c. The allocation of the property (aptitude or purpose) is a coefficient that contributes to the valuation of the property, in the determination of tax asset value, applicable to land for construction;

d. Item 28.1 GSTT itself refers to the expression "properties with residential allocation", calling for a classification that overlaps with the categories provided for in Article 6(1) of the CRET.

• Thus, contrary to what the Claimant argues, the TA understands that the concept of "properties with residential allocation", for purposes of Item 28.1 of the GSTT, comprises both constructed properties and land for construction, from the outset based on the literal element of the norm.

• Note that the legislator does not refer to "properties intended for dwelling", having chosen the notion "residential allocation", a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in paragraph (a) of Article 6(1) of the CRET.

• In fact, Item 28.1 of the GSTT concerns taxation of patrimony, without specifically targeting companies, as it comprises all classes of taxable persons who are holders of the real rights mentioned with respect to the residential properties in question, regardless of whether they assume a business character or not, covering thus, in addition to companies, foundations, associations, natural persons, in short any entity that is a holder of real rights over urban residential properties with a tax asset value equal to or exceeding €1,000,000.

• Furthermore, it should be said that the fact that the properties on which the impugned assessment fell are investment assets, allocated to real estate operations habitually developed by the owner, not affecting the revealed contributive capacity, will determine that taxation under Item No. 28.1 of the GSTT is susceptible to some mitigation in the business context, both because it constitutes a cost of activity and through the possibility of passing on (in prices) that, to a greater or lesser degree, always exists even in taxes on business income.

• The choice of this revenue-raising mechanism is therefore legitimate, which would only be reprehensible, in light of the principle of proportionality, if it resulted in being manifestly indefensible.

II. CLARIFICATION OF PROCEDURAL ISSUES

1. The Tribunal is competent and regularly constituted pursuant to Articles 2(1)(a), 5, and 6, all of the LRAT.

2. The parties have legal personality and capacity, are legitimate and legally represented, pursuant to Articles 4 and 10 of the LRAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

3. The case does not suffer from defects that would invalidate it.

III. FACTS

Before proceeding to the examination of legal issues, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence attached to the file and taking into account the facts alleged, is established as follows:

III.1. Proven Facts

• A... is a joint-stock company whose object is real estate promotion and management and purchase for resale or leasing of real property;

• A... is the owner of the urban property classified as land for construction registered under Article U-... of the parish of..., Porto;

• In its respective urban property tax card, the type of location coefficient applicable to the property is that of dwelling;

• The Tax and Customs Authority issued a stamp tax assessment relating to the year 2015 and the property in question, in the amount of € 21,151.10, to which was assigned number 2016....

III.2. Unproven Facts

There are no facts relevant to the decision that have been declared as unproven.

IV. MATTER TO BE DECIDED

The essential question at issue in the present case is to determine whether the norm contained in Item 28.1 of the GSTT, insofar as it subjects to taxation residential properties and land for construction whose authorized or envisaged building is for dwelling, constitutes an unconstitutionality by violation of the principle of contributive capacity arising from the equality principle provided in Article 13 of the Constitution.

V. LEGAL REASONING

Item 28 of the GSTT provided, at the date of the facts, as follows:

1. Ownership, usufruct or right of superficies of urban properties whose tax asset value contained in the register, under the terms of the Code of Municipal Real Property Tax (CRET), is equal to or exceeding (euros) 1,000,000 - on the tax asset value used for the purposes of MRPT: (Added by Article 4 of Law No. 55-A/2012 of 29 October)

28.1. Per residential property or per land for construction whose authorized or envisaged building is for dwelling, pursuant to the provisions of the MRPT Code (As amended by Law No. 83-C/2013 of 31 December) - 1%

According to Item 28.1 of the GSTT, in its original wording, ownership, usufruct and right of superficies over urban properties with residential allocation whose tax asset value contained in the register, under the terms of the MRPT Code, was equal to or exceeding € 1,000,000 were subject to that tax. Later, with the amendment that occurred in 2013 and which had an effect on the fiscal years 2014 and following – in particular for the fiscal year 2015, to which the impugned assessment relates – land for construction whose authorized or envisaged building is for dwelling, under the terms of the MRPT Code, also became subject to taxation at the rate of 1%.

Within the ambit of validity of that earlier wording of Item 28.1 of the GSTT, it was concluded in various tax arbitration proceedings that the expression "residential allocation", contained in the text of the norm then in force, referred to a "use" for residential purposes, that is, to urban properties that had an actual use for residential purposes (cf., in particular, proceedings 42/2013-T, 48/2013-T, 49/2013-T, 53/2013-T, 75/2013-T, 144/2013-T and 158/2013-T).

Law No. 55-A/2012, of 29 October, introduced a set of amendments to the codifying provisions of three taxes – Personal Income Tax, Corporate Income Tax and Stamp Tax – as well as to the General Tax Law, including the norm contained in Item 28.1 of the GSTT, all of which were guided by the obtaining of supplementary fiscal revenue and, in general, by countering the extreme budgetary imbalance then being experienced by the country. Measures were introduced to strengthen the fight against tax fraud and evasion and a tax was created, within the Stamp Tax, on legal situations (expression added to Article 1(1) of the Stamp Tax Code), which were understood to be demonstrative of the capacity of their holders to bear an additional tax burden, thereby distributing more equitably the sacrifice to achieve the budgetary consolidation required of taxpayers. This is what results from the statement of reasons of Bill No. 96/XII/2nd, which was the origin of the aforementioned Law No. 55-A/2012:

"The pursuit of the public interest, in light of the country's economic and financial situation, demands an effort of consolidation that will require, in addition to permanent activism in reducing public expenditure, the introduction of fiscal measures inserted in a broader set of measures to combat the budgetary deficit.

These measures are fundamental to reinforcing the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to meet the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices will be made by all and not just those who live from the income of their work. In accordance with this aim, this statute broadens the taxation of capital income and property, equitably covering a broad set of sectors of Portuguese society.

In these terms, the taxation of capital income and equity gains will be increased, with the respective rates changing from 25% to 26.5% in Personal Income Tax. The taxation rates applicable to income obtained from, or transferred to, tax havens are also increased to 35%.

On the other hand, a rate is created in the Stamp Tax applying to urban properties with residential allocation whose tax asset value is equal to or exceeding one million euros.

Finally, this statute introduces a measure to strengthen the fight against tax fraud and evasion, through the strengthening of the regime applicable to manifestations of wealth of taxable persons (Personal Income Tax) and to transfers to and from tax havens. First, the operation of Personal Income Tax assessment based on manifestations of wealth is strengthened, reducing the differential from 50% to 30% between manifestations of wealth and income declared for Personal Income Tax purposes. On the other hand, transfers to and from tax havens made between accounts of the taxable person, not declared under the law, now become a manifestation of wealth and, as such, subject to Personal Income Tax taxation by indirect methods."

The mere extension of a scope norm to situations for which it was not initially conceived carries the risk of subjecting to the same taxation regime situations that are in themselves distinct and that would therefore merit differentiation in taxation. In the case of Item 28.1 of the GSTT, if the taxation of luxury real property with residential allocation may be considered constitutional precisely because, as there is actual use of the same by the respective owners, this situation reveals materially relevant conduct from the point of view of assessing the owner's wealth, the same cannot be said in the case of the taxation of land for construction, in which, as long as there are no constructions capable of being used for dwelling and licensed as such by the competent authorities, the land itself is, objectively, prevented from having such allocation. Now, something totally different from the actual use of a property for dwelling is the expectation, or potentiality, of an urban property being able to have a "residential allocation" – and it is precisely this expectation that characterizes land for construction. In fact, land for construction, because it is not built, does not satisfy, by itself, any condition to be considered as properties "with allocation" (whatever it may be). In them there exists nothing more than the expectation, or potentiality, of a property being able, after its construction, to have an "allocation". Consequently, only when this "allocation" is concretized, which will never occur before its construction, can we consider that the land for construction comes to present some similarity with the urban property, notably by permitting its holder to derive some benefit therefrom.

In the words of JOSÉ MARIA FERNANDES PIRES, "the value of land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with determined characteristics and with determined value." (cf. "Lessons on Taxes on Patrimony and Stamp Tax", Almedina, 2010, p. 101). Land for construction, despite its classification as urban property for purposes of MRPT, is characterized mainly by its constructive viability, which gives its owner nothing more than the possibility of constructing thereon a property with the characteristics permitted by the applicable urban planning instruments.

In this way, if it is true that the holder of land for construction of value exceeding € 1,000,000.00 has in his legal sphere an asset of high value, it is also true that his situation is different from that of the owner of a property with residential allocation, who actually benefits from the property of which he is the holder. One might say, in this regard, that the fact that the owner of the property with residential allocation can derive income from the property while the owner of the land for construction cannot is not relevant in this context because it is taxation of patrimony and not of income. However, it is not true that this is irrelevant. On one hand, in the case of the owner of the residential property who does not lease the property but enjoys it directly, the value of the patrimony of both is the same, but we still have two totally distinct situations: that of an owner who enjoys a luxury dwelling, on the one hand, and that of the owner of land for construction, who enjoys nothing. One might further say that the owner of land for construction can sell the property of which he is the owner and realize income that way and that this possibility justifies taxation under stamp tax. It is true that he can. However, this income will already be taxed under Personal Income Tax or Corporate Income Tax, as the case may be. Furthermore, the owner of the rustic property of value equal to or exceeding 1 million euros can also sell the property and is not therefore taxed under Item 28.1 of the GSTT.

It is undeniable that what the legislator intended, when creating Item 28.1 of the GSTT, was to tax luxury residential properties; however, we believe that, in introducing land for construction within the scope of application of the norm, the original regime was distorted, extending it to situations totally distinct from those which it initially aimed at. The amendment introduced in Item 28.1 of the GSTT in 2014 has, moreover, the virtue of clarifying the distinction between the reality "residential property" and the reality "land for construction", demonstrating that one and the other are not the same.

The extension of the scope norm to land for construction whose authorized or envisaged building is for dwelling was not accompanied by a distinction relating to the value of the constructed building, which is why, by applying the general norms, even when the authorized or envisaged construction for the land is dwelling in several units, it is the tax asset value of the land, the only one that exists before the construction is concretized and that is "used for the purposes of MRPT", that is relevant for assessing the applicability of the tax.

This circumstance raises questions of constitutionality of the norm in question, which are analyzed here in a manner very similar to that contained in the judgment rendered within the context of proceeding 507/2015-T. Thus, in synthetic terms:

• the tax asset value of land for construction is the sum of the value of the building implantation area, which is that situated within the perimeter of fixing the building to the ground, measured by the external part, added to the value of the land adjacent to the implantation", and "the value of the implantation area varies between 15% and 45% of the value of authorized or envisaged buildings" (Article 45(1) and (2) of the CRET).

• in relation to land for construction for which only building with residential units of value less than € 1,000,000.00 is envisaged or authorized, the justification of the high contributive capacity revealed by the holding of such patrimony does not hold because the fact that the land has value equal to or exceeding that amount does not allow identification of a taxable person with contributive capacity at the level of "highest standards of Portuguese society".

• the holding of rights over land for construction of units susceptible of independent use even reveals less contributive capacity than that revealed by the holding of rights over the already-constructed property, which is why there cannot be found a rational justification for taxing the holding of rights over the land, when this has value equal to or exceeding € 1,000,000.00, and not taxing the holding of rights of the same taxable person over the already-constructed property, when all units have values less than that amount.

• there is lacking rational justification to tax on the basis of hypothetical high contributive capacity situations in which there is holding of rights over land for construction in which exclusively buildings are authorized or envisaged constituted by units of individual value less than € 1,000,000.00 and not to apply the same taxation to situations in which in the land these buildings have already been constructed, with enormous increase of the tax asset value of the construction, given that "the value of the implantation area varies between 15% and 45% of the value of authorized or envisaged buildings".

• as for land for construction intended for construction of autonomous dwellings of value equal to or exceeding € 1,000,000.00, the holding of rights over land with this purpose reveals, by itself, a situation of wealth, at the level of "highest standards of Portuguese society".

Item 28.1 of the GSTT, insofar as it relates to land for construction, makes no distinction based on the value of the authorized or envisaged dwellings, which is why it must be concluded that it only makes its application depend on the tax asset value of the land itself. Given this, it must be concluded that the norm of Item 28.1 of the GSTT, in the wording introduced by Law No. 83-C/2013, of 31 December, is materially unconstitutional, by violation of the principle of equality, set out generically in Article 13 of the Constitution, as it applies to land for construction of tax asset value equal to or exceeding € 1,000,000.00 for which the authorized or envisaged construction does not include any unit susceptible of independent use with value equal to or exceeding that amount.

Additionally, in the case here under analysis, the land has no authorization, design or forecast for construction intended for dwelling. In this respect, note is made of what is mentioned in the Arbitral Decision rendered in proceeding No. 467/2015-T, of 4/2/2016:

"The essential question that, [in the context of the new wording of Item 28.1 of the GSTT, as given by Article 194 of Law No. 83-C/2013, of 31/12,] arises, is to know whether, making use of the words of the now Claimant, 'without [...] that forecast or expectation of 'building for dwelling' [...] concretized', one can accept the application of the Stamp Tax here under analysis [...]. To respond to the said question, it appears as particularly useful to ponder the following:

'With respect to land for construction, whether or not located within an urban agglomeration, as defined in Article 3/4 of this statute [CRET], should, as such, be considered land in relation to which has been granted: - permit for subdivision operation; - building permit; - authorization for subdivision operation; - authorization for construction; - favorable prior notification communication for subdivision operation or construction admitted; issued favorable prior information for subdivision operation or construction, as well as; - those that have been so declared in the title of acquisition, having to take into account that, also for that effect, only the title of acquisition with the form required by civil law should be relevant, that is, the public deed or the authenticated private document referred to in Article 875 of the Civil Code.' [See ANTÓNIO SANTOS ROCHA / EDUARDO JOSÉ MARTINS BRÁS – Taxation of Patrimony. MRPT-MRPT and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44]." [End of quotation.]

Now, in light of what is set out above, it is concluded that the property now in question cannot, at the date of the facts, be subject to Stamp Tax under Item 28.1 of the GSTT (in its current wording).

By virtue of the material unconstitutionality from which the norm contained in Item 28.1 of the GSTT suffers, in the wording introduced by Law No. 83-C/2013, of 31 December, by violation of the constitutional principle of equality, the assessment that is the subject of the present case is defective due to violation of law, embodied in error regarding legal presuppositions, which justifies its annulment pursuant to Article 163(1) of the Code of Administrative Procedure, applicable by virtue of Article 2(d) of the Code of Tax Procedure and, pursuant to Article 24(1)(b) of the LRAT and Article 100 of the General Tax Law, the restitution of the tax improperly paid.

Furthermore, the non-fulfillment, in the present case, of a legal presupposition of applicability implies the annulment of the assessment act here impugned.

VI. DECISION

In conformity with what is set out above, it is decided to rule the request for arbitral pronouncement well-founded and, consequently, to declare the illegality of the impugned stamp tax assessment, with the consequent annulment.

Value: in conformity with the provisions of Article 32 of the Code of Administrative Procedure and Article 97-A of the Code of Tax Procedure, applicable by virtue of the provisions of Article 29(1), paragraphs (a) and (b), of the LRAT, and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 21,151.10.

Costs: pursuant to the provisions of Article 22(4) of the LRAT and pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 1,224.00, to be borne entirely by the Respondent pursuant to Articles 12(2) and 22(4), both of the LRAT, and Article 4(4) of the said Regulation.

Let it be registered and notified.

Lisbon, 6 February 2017

The Arbitrator,

Raquel Franco