Stamp Tax on Building Land Under Verba 28.1 TGIS: Arbitral Tribunal Competence Ruling (CAAD 322/2015-T)

ARBITRAL DECISION

The arbitrators Fernanda Maçãs (presiding arbitrator), Hélder Faustino and Francisco Carvalho Furtado (arbitrator members), appointed by the Deontological Council of CAAD to form the Arbitral Tribunal, constituted on 10-08-2015, agree on the following:

I. REPORT

1. The Claimant A…, Lda., legal entity no.…, with registered office at Av…, …, in Lisbon, having been notified of the rejection of the request for ex officio review of Stamp Tax ("IS") assessments relating to the year 2012, under Item no. 28.1 of the General Stamp Tax Schedule ("General Schedule"), amended by Law no. 55-A/2012, of 29 October, in the total amount of € 68,444.49, hereby presents, pursuant to item a), of no. 1 of article 2 and item a) of no. 1 of article 10 of Decree-Law no. 10/2011, of 20 January ("Legal Framework for Tax Arbitration", hereinafter "LFTA") a request for arbitral pronouncement with a view to annulling those acts.

2. The Respondent is the Tax and Customs Authority (AT).

3. The claim subject of the request for arbitral pronouncement consists of the annulment of those acts, together with the condemnation of AT to refund the tax unduly paid.

3.1. The Claimant petitions:
a) the declaration of illegality and the consequent annulment of the IS assessments, relating to the year 2012 (tax facts verified on 31 October 2012 and 31 December 2012); and

b) the condemnation of AT to refund the tax unduly paid.

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to AT.

4.1. The Claimant did not proceed to appoint an arbitrator, whereby, in accordance with the provisions of item a) of no. 2 of article 6 and item b) of no. 1 of article 11 of the LFTA, the President of the Deontological Council appointed the signatories as arbitrators of the collective Arbitral Tribunal, who communicated acceptance of their appointment within the deadline.

4.2. On 24-07-2015, the parties were notified of the appointment of the arbitrators and raised no objections.

4.2. In accordance with the provisions of item c) of no. 1 of article 11 of the LFTA, the collective Arbitral Tribunal was constituted on 10-08-2015.

4.3. In these terms, the Arbitral Tribunal is regularly constituted to appreciate and decide the subject-matter of the proceedings.

1. To support the request for arbitral pronouncement, the Claimant alleges, in summary, the following:

a) Item no. 28 of the General Schedule, in the version in force until 31 December 2013, only subjected to IS:

· immovable property with residential use: 0.5% for tax facts verified on 31 October 2012 and 1% in the case of tax facts verified on 31 December 2012 and 31 December 2013 (Item no. 28.1 of the General Schedule);

· immovable property whose owners are not natural persons and are resident in a country, territory or region subject to a clearly more favourable tax regime contained in the list approved by Order of the Minister of Finance: 7.5% (Item no. 28.1 of the General Schedule).

b) Being faced with "land for construction", the assessments in question have no legal basis;

c) The Code of the Municipal Property Tax ("IMI") clearly distinguishes urban immovable property "land for construction" from urban immovable property residential, commercial or industrial, there being no fiscal type of urban immovable property designated "land for construction" with residential use;

d) In accordance with the IMI Code, urban immovable property either are residential or are land for construction;

e) The immovable property in question was classified as "land for construction";

f) The residential destination appears only mentioned in the context of the type of location coefficient;

g) In this measure, "land for construction", although being considered urban immovable property, cannot be considered assigned to any purpose other than construction;

h) Considering that Item 28.1 of the General Schedule clearly establishes the incidence of IS on immovable property with residential use, "land for construction" is not covered by this rule of incidence, whereby the assessments made are marred by illegality;

i) In effect, "land for construction" cannot be considered assigned to residential use, since it neither constitutes nor possesses the characteristics of a habitable immovable property;

j) On the other hand, a building permit is not a guarantee that the construction will materialize, being merely a permit to carry out the construction;

k) It happens that it may never occur, the respective assignment not being verified;

l) A mere building permit for immovable property intended for residence is therefore not sufficient to conclude that the land is assigned to residence;

m) Moreover, at the time of issuance of the permit, there is no existing building susceptible of assignment, susceptible of being used for residence;

n) Now, the classification of urban immovable property depends on its assignment.

o) The legislator was quite clear in identifying the different types of urban immovable property classified according to their respective assignment, namely: (i) residential, (ii) commercial, industrial or for services, (iii) land for construction and (iv) others;

p) However, the concept of assignment of immovable property, for purposes of the IMI Code, only appears within the scope of the rules for valuation of immovable property, where adjustment coefficients, assignment and location are fixed based on the type of use / destination thereof;

q) In this measure, AT cannot, needing to fictionalise an assignment for purposes of valuation of immovable property, consider with residential assignment those immovable property in whose valuation the said assignment was considered;

r) This interpretation of Item no. 28.1 of the General Schedule is contrary to the law and its spirit, inasmuch as it cannot have been the intention of the legislator, in amending the said Item, to tax land for construction;

s) In fact, the amendment of the said Item, as announced by the Government, constitutes yet another measure of taxation of manifestations of wealth, with emphasis on the so-called "luxury homes";

t) In this measure, it cannot have been the intention of the legislator to penalise, among others, the civil construction sector, which is the largest holder of land for construction;

u) It is thus to be concluded that land for construction constitutes an autonomous type of urban immovable property, not susceptible of assignment to something other than construction itself, whereby it must be concluded that the IS assessments are illegal.

1. AT presented a reply, defending itself by exception and by impugnation, alleging, in summary, the following:

By exception:

a) The Claimant does not impugn the tax assessment act, but rather the payment of the instalments contained in the collection notes no. 2013 …, no. 2013…, no. 2013 … and no. 2013…;

b) The subject-matter of the proceedings is the annulment not of a tax act, but rather of those collection notes;

c) This matter is not contained in the norm that delimits the competence of arbitral tribunals, namely, in article 2 of the LFTA;

d) The request for arbitral pronouncement exceeds the competence of the Arbitral Tribunal, this tribunal being incompetent to appreciate the legality of a mere collection note;

e) The Claimant impugns the instalments relating to the payment of a unit value of tax;

f) The IS to which Item no. 28.1 of the General Schedule refers is assessed annually, the payment in instalments not going beyond a technique of collection of the assessed tax;

g) There being a single assessment and its payment being carried out in instalments, it is not permitted to impugn one or some of the instalments or collection document in that partial value;

h) By the foregoing, the collection documents are not impugnable per se;

i) The Arbitral Tribunal does not have competence to appreciate the claims relating to decisions of the ex officio review procedure, whereby the deadline for filing the request for arbitral pronouncement cannot be counted, as the Claimant argues, from the notification of the decision rejecting the ex officio review request;

j) In this measure, the right to file the present request for arbitral pronouncement has long since lapsed;

By impugnation:

a) It is AT's understanding that the immovable property in question in the present proceedings has the legal nature of immovable property with residential use;

b) In the absence of any definition of the concepts of urban immovable property, land for construction and residential use, in the context of IS, recourse must be made to the provisions of the IMI Code, namely, to the provisions of articles 2 and 6 of that Code;

c) The notion of assignment of urban immovable property is founded in the part relating to the valuation of immovable property;

d) The assignment of the immovable property (aptitude or purpose) is a coefficient that contributes to the valuation of the immovable property, in the determination of the tax patrimonial value, applicable to land for construction;

e) The concept of "immovable property with residential use", for purposes of the provisions of Item no. 28 of the General Schedule, comprises both constructed immovable property and land for construction;

f) The legislator does not refer to "immovable property intended for residence", having instead opted for the notion of "residential use";

g) Item no. 28 of the General Schedule applies to the ownership, usufruct or surface right of urban immovable property with residential use, whose tax patrimonial value contained in the registry, in accordance with the IMI Code, is equal to or greater than € 1,000,000.00, that is, it applies to the value of the immovable property;

h) The impugned tax acts did not violate any legal or constitutional provision, and should be maintained in the legal order.

1. In reply to the exceptions raised by AT, the Claimant alleged that it requested the appreciation of the legality of the IS assessments as a whole, reference to the payment of the instalments being made only in the description of the facts, also requesting the condemnation of AT as a litigant in bad faith. Having exercised the right to be heard, AT concluded that the condemnation for bad faith litigation should be judged to be unfounded.

2. Proof production not having been requested, it was decided to dispense with the meeting provided for in article 18 of the LFTA, with 09-02-2016 being designated as the deadline for issuing the arbitral decision.

3. The Parties presented no allegations.

4. The Respondent further requested the attachment to the record of Judgment of the Constitutional Court no. 590/2015 of 11 November 2015, pursuant to which the Constitutional Court understood not to declare unconstitutional the norm of Item no. 28.1 of the General Schedule, amended by article 4 of Law no. 55-A/20121, of 29 October, insofar as it imposes annual taxation on the ownership of urban immovable property with residential use, whose tax patrimonial value is equal to or greater than € 1,000,000.00.

5. The Claimant did not oppose the application presented by AT, defending, however, that the said Judgment is not relevant to the proceedings.

II. SANEAMENT (PROCEDURAL SANITATION)

10.1. The parties have legal personality and capacity, demonstrate standing and are regularly represented (articles 4 and no. 2 of article 10 of the LFTA and article 1 of Order no. 112-A/2011, of 22 March).

10.2. The tribunal is competent, as will be analysed below, and is regularly constituted.

10.3. The proceedings do not suffer from nullities.

10.5. There are no other circumstances that prevent knowledge of the merits of the case.

III. QUESTIONS TO BE DECIDED

In the present proceedings the questions to be decided are:

a) To know of the exception of incompetence of the Arbitral Tribunal;

b) To know of the exception of non-impugnability of the collection notes;

c) To know the exception of lapse of the right of action;

d) To determine whether Item no. 28.1 of the General Schedule, in the version in force at the date of the facts, is applicable to "land for construction"; and,

e) To know of the request for condemnation of the Respondent as a litigant in bad faith.

IV. MERITS

IV.1. Factual Matters

1. Proven Facts

11.1. With relevance to the appreciation and decision of the questions raised, the following facts are given as established and proven:

a) The Claimant is the owner of an urban immovable property registered in the urban property registry, in the parish of…, district and municipality of Lisbon, under the registry article …, corresponding to the former registry article … of the extinct parish of…;

b) The immovable property in question has a tax patrimonial value of € 4,618,611.85, is registered in the registry as "land for construction" and has been assigned a location coefficient corresponding to residence;

c) On 14-07-2013, AT assessed, under Item no. 28.1 of the General Schedule, IS on the said immovable property, for the year 2012 (tax fact verified on 31 October 2012), in the total amount of € 22,258.37;

d) On 31-12-2013, the Claimant paid the mentioned assessment, in a single instalment, through the Unified Collection Document ("DUC") no.…;

e) On 22-03-2013, AT further assessed, under Item no. 28.1 of the General Schedule, IS on the said immovable property, for the year 2012 (tax fact verified on 31 December 2012), in the total amount of € 46,186.12;

f) The Claimant was notified of the three instalments to be paid of the IS assessed by AT, corresponding to the collection documents no. 2013 …, no. 2013… and no. 2013 …, in the amount(s) of € 15,395.38, € 15,395.37 and € 15,395.37, respectively;

g) On 30-04-2013, the Claimant paid the collection note relating to the 1st instalment, through DUC no.…;

h) On 31-07-2013, the Claimant paid the collection note relating to the 2nd instalment, through DUC no.…;

i) On 29-11-2013, the Claimant paid the collection note relating to the 3rd instalment, through DUC no.…;

j) Not agreeing with the mentioned IS assessments, the Claimant presented, on 29-08-2014, a request for ex officio review of the same, requesting their annulment and the consequent refund of the tax paid;

k) On 09-09-2014, by decision of the Directorate of Services for Municipal Property Tax, Stamp Tax, Unique Circulation Tax and Special Contributions (Directorate of Services for IMT), the ex officio review request in question was divided into several distinct proceedings which were sent for appreciation by the Finance Services of the area of location of the immovable property;

l) By Official Notice of 25-03-2015, the Claimant was notified of the draft rejection of the ex officio review request in question and notified to exercise the right to be heard;

m) The Claimant did not exercise the competent right to be heard, subsequently being notified, by Official Notice of 21-04-2015, of the rejection of the ex officio review request;

f) On 21-05-2015, the Claimant presented the request for arbitral pronouncement which gave rise to the present proceedings.

11.2. Grounds for the Factual Matters

The proven factuality was based on the documents attached to the request for arbitral pronouncement and in the administrative proceedings, with no controversy regarding them.

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

IV.2. Legal Matters

On the Matters of Exception

Although AT distinguishes the exceptions invoked, it is found that the facts invoked to support one and the other are the same, whereby they will be appreciated simultaneously here.

Thus,

AT bases its claim, with regard to the exception of incompetence of the Arbitral Tribunal, on the fact that a tax act was not impugned, but rather the payment of the Stamp Tax instalments embodied in the collection notes indicated above.

The subject-matter of proceedings corresponds, thus, in AT's view, not to the annulment of a tax act, but rather of collection notes for the payment of the 1st, 2nd and 3rd instalments.

Now, according to AT, this matter is not subsumed within the scope of competence of tax arbitral tribunals, provided for in article 2 of the LFTA, exceeding, thus, the subject of the request for arbitral pronouncement the scope of competence of the Arbitral Tribunal.

In turn, as to the non-impugnability, AT argues that, since Stamp Tax is assessed annually and consists of a single tax act, the law does not permit the impugnation per se of the collection documents.

In reply to the exceptions raised, the Claimant rebuts, on one hand, alleging that the subject of the request is the act of assessment of Stamp Tax and not the collection notes and, on the other hand, invoking to impugn the acts of assessment of Stamp Tax as a whole and not some or any of its instalments, reason for which it concludes for the unfoundedness of both exceptions invoked.

Let us see.

Article 2, no. 1, item a) of the LFTA establishes that Arbitral Tribunals are competent to appreciate claims for declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account.

In turn, as to the binding nature of AT to the jurisdiction of arbitral tribunals, article 4, no. 1 of the LFTA provides that this depends on an order of the members of the Government responsible for the areas of finance and justice.

In this measure, the competence of the arbitral instance is thus delimited, by the order binding AT to the jurisdiction of the Centre for Administrative Arbitration. [1]

Pursuant to article 2 of the said Order, the General Directorate of Taxes and the General Directorate of Customs and Special Consumption Taxes (current AT) bind themselves to the jurisdiction of arbitral tribunals functioning at CAAD that have as their subject-matter the appreciation of claims relating to taxes whose administration is entrusted to them, in accordance with no. 1 of article 2 of the LFTA, in which are expressly included claims for declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account.

It is concluded, thus, that the tax arbitral proceedings have as their subject-matter, mediately or immediately, the tax act of assessment, as an act of determination of the amount of tax to be paid (collection), by application of a rate to the taxable matter.

Now, the appreciation of the exception raised depends, therefore, on the question of whether the Claimant impugns the act of assessment of Stamp Tax or whether, on the contrary, it merely impugns each of the Stamp Tax instalments per se.

In cases where the tax must be paid in instalments, the assessment is notified to the taxpayer together with the notification to pay each of the instalments, being able to be impugned only as a whole and not instalment by instalment. [2]

In this respect, José Casalta Nabais argues that "Assessment lato sensu, that is, as the set of all operations intended to determine the amount of tax, comprises: 1) Subjective assessment intended to determine or identify the taxpayer or person subject to the tax legal relationship, 2) Objective assessment through which the taxable or tax matter is determined and, likewise, the rate to be applied is determined, in case of plurality of rates, 3) Assessment stricto sensu translated in the determination of the collection through application of the rate to the taxable or tax matter, and 4) the (possible) deductions from the collection.". [3]

For each tax fact there will be, in principle, a single assessment, by which the collection to be paid will be determined.

Article 23, no. 7 of the Stamp Tax Code further provides that "in the case of tax due for the situations provided for in item no. 28 of the General Schedule, the tax is assessed annually (…)" applying, with the necessary adaptations, the rules contained in the IMI Code".

In the same sense, article 44, no. 5 of the Stamp Tax Code establishes that "if there is assessment of the tax to which item no. 28 of the General Schedule refers, the tax is paid at the times, terms and conditions defined in article 120 of the IMI Code".

That is, in light of the provisions of no. 2 of article 113 of the IMI Code, "the assessment (…) is carried out in the months of February and March of the following year", the tax being paid, in three instalments, in the months of April, July and November, respectively, depending on its amount. [4]

In sum, from the combination of the legal provisions referred to above it is possible to conclude that Stamp Tax is assessed annually, payment in instalments being no more than a technique of collection of the tax and not a partial payment thereof. [5]

Accordingly, the assessment is only one and only it constitutes an injurious act, susceptible of being impugned.

That said,

From the analysis of the request for arbitral pronouncement it results that the Claimant requests the constitution of the Arbitral Tribunal with a view to "(…) the annulment of IS assessments (…)", petitioning, ultimately, the declaration of "(…) illegality and the consequent annulment of the IS assessments, made in 2013 (…)".

That is, it requests the declaration of illegality of the tax acts of assessment of Stamp Tax, to which correspond the respective payment instalments.

From all the foregoing it results that, contrary to what AT states, the subject-matter of the request for arbitral pronouncement is the tax act of assessment and not each of the Stamp Tax instalments individually considered.

So much so that the Claimant itself, in the delimitation of the subject-matter of the arbitral action, circumscribes the institution of the respective proceedings to the annulment of the acts of assessment of IS relating to the year 2012, indicating as the value of the economic utility of the request the overall value of the assessment in the amount of € 68,444.49.

Thus, although the Claimant associates the tax act of assessment to the Stamp Tax instalments, proceeding to their attachment and identification, the fact is that it does not circumscribe the subject-matter of the request for arbitral pronouncement to any of the Stamp Tax instalments in particular, but rather to the assessment of Stamp Tax considered as a whole.

Thus collapses the argumentation invoked by AT regarding the incompetence of the arbitral tribunal, as well as the non-impugnability of the acts, whereby it is judged unfounded the verification of the exceptions in question.

Finally, it is important to allude to the exception invoked by the Respondent, of lapse of the right of action. The Respondent considers that, in light of article 2, no. 1, item b), of the LFTA the Arbitral Tribunal lacks competence to know the claims relating to decisions taken in the ex officio review procedure. On this presupposition, the initial date of the deadline for filing the request for arbitral pronouncement would not correspond to the date of notification of the decision of the ex officio review issued. It does not appear, however, that the Respondent is correct.

The competence of arbitral tribunals in tax matters is doubly limited, both by the LFTA (article 2, no. 1) and by Order no. 112-A/2011, of 22 March. Having analysed the legal provisions of both instruments, no limitation to the competence of the Tribunal to "appreciate claims relating to decisions of the ex officio review procedure" is apparent. But more, from the Legislative Authorization Law (Law 3-B/2010, of 28 April), which underlies the LFTA, results an equation of competencies between the process of judicial impugnation and the arbitral process. This equation is apparent in article 124, no. 2 of the said Legislative Authorization Law in which it is determined that "The tax arbitral proceedings must constitute a judicial means alternative to the process of judicial impugnation and the action for recognition of a right or legitimate interest in tax matters.". Now, if there are no doubts that judicial impugnation is a procedurally suitable means for knowledge of the legality of tax assessment acts following the issue of a decision in the ex officio review procedure, so too will be the request for arbitral pronouncement, by virtue of the said equation.

In this same sense Jorge Lopes de Sousa argues that the acts which decide gracious complaints and hierarchical appeals of decisions on gracious complaints will be, in this context, "The acts of the second and third degrees, respectively, in which the legality of acts of assessment can be appreciated, which are acts of the first degree. The same may be said with respect to acts proceeding to the review of acts of assessment of taxes, within the scope of article 78 of the General Tax Law". (Sousa, Jorge Lopes de; Guide to Tax Arbitration, 2013, CAAD, Almedina, p. 121)

In face of the foregoing, the exception in question is judged unfounded.

On the Merits

The central question to be decided concerns the interpretation of the rule of incidence contained in Item no. 28 of the General Schedule, in the version in force at the date of the facts, namely whether the same includes in its provision realities characterizable as "land for construction".

Let us see:

Item no. 28 of the General Schedule was amended by Law no. 55-A/2012, of 29 October, determining the incidence of this tax on "28 — Ownership, usufruct or surface right of urban immovable property whose tax patrimonial value contained in the registry, in accordance with the IMI Code, is equal to or greater than € 1,000,000 — on the tax patrimonial value used for purposes of IMI: 28.1. - For immovable property with residential use - 1 %;".

The Stamp Tax Code was also amended by Law no. 55-A/2012, of 29 October, establishing that no. 2 of article 67 "To matters not regulated in this Code relating to item no. 28 of the General Schedule, the provisions of the IMI Code are applied, subsidiarily".

In view of the legal interpretations in conflict and, as well, the relevant legal norms, it is important, first, to verify the existence of a legal definition of immovable property with residential use. From the analysis, both of the Stamp Tax Code and of the respective General Schedule it is found that the legislator did not circumscribe the concept of "immovable property with residential use". Thus, and in view of the reference contained in article 67, no. 2 of the Stamp Tax Code, it is important to verify whether the said concept is contained in the IMI Code.

Article 4 of the IMI Code, under the heading "Urban Immovable Property", defines them as being "all those that should not be classified as rural".

The legal concept of Urban Immovable Property (which finds reality to be defined by exclusion) is detailed in article 6 of the IMI Code in the following terms:

a) From no. 1, it results that urban immovable property is divided into residential, commercial, industrial or for services, land for construction and, residually, others;

b) No. 2 provides that urban immovable property 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;

c) No. 3 provides that land for construction shall be "land situated within or outside an urban agglomeration, for which a permit or authorization has been granted, prior notification admitted or favorable prior information issued for subdivision or construction operations, and also those which have thus been declared in the acquisition title, except for land in which the competent entities prohibit any such operations, namely those located in green zones, protected areas or which, in accordance with the municipal land planning plans, are assigned to spaces, infrastructure or public facilities".

d) No. 4 determines that the immovable property "others" are land situated within an urban agglomeration which are not land for construction nor are classified as rural immovable property and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than residential, commercial, industrial or services purposes and also land in which the competent entities prohibit any such operations, namely those located in green zones, protected areas or which, in accordance with the municipal land planning plans, are assigned to spaces, infrastructure or public facilities.

In view of what is stated above, it is necessary to conclude that the IMI Code also does not contain a specific definition of "immovable property with residential use".

In this framework it is important, therefore, to appeal to the norms of legal hermeneutics in order to determine the meaning and scope of the legal norm in question – Item 28 of the General Schedule.

Article 11, no. 1, of the General Tax Law determines that "In the determination of the meaning of tax norms and in the qualification of the facts to which they apply the general rules and principles of interpretation and application of laws are observed."

Thus, and in line with article 9, no. 1 of the Civil Code, pursuant to which "Interpretation shall not be limited to the letter of the law, but shall reconstruct from the texts the legislative thought, taking especially into account 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", it is important to promote the analysis of the possible interpretative elements, namely the grammatical and the logical (Pires de Lima and Antunes Varela "Fundamental Notions of Civil Law I", 5th revised and enlarged edition, Coimbra Publisher, 1961, p. 150).

From the grammatical element it results that the legislator used, in Item no. 28 of the General Schedule, the expression "immovable property with residential use". Now, the choice that the legislator made by the use, in the expression in question, suggests that what is in question are residential immovable property, as defined in article 6, no. 2 of the IMI Code, that is, those which are licensed as such or are intended for that purpose, because only these could have a true "residential use". In effect, having regard to the possible meanings of the word "use", which would be "to give destination" or "to apply", the wording of Item no. 28.1 of the General Schedule manifestly covers only immovable property to which destination has already been given for residence, immovable property which is already "applied" to residential purposes. Moreover, in the case of land for construction, reality cannot even be fitted within residential use given that there is not even a building or construction and, therefore, an existing use cannot be considered which presupposes its existence.

Another interpretative element to be taken into consideration will be, as referred to, the logical element, which integrates in itself three distinct categories of aspects or "sub-elements" to consider: the rational aspect or element, the systematic and, lastly, the historical, from whose set the ratio legis will emerge.

The ratio legis of Item no. 28 of the General Schedule seems to emerge with clarity from the statements of the Secretary of State for Tax Affairs in presenting to the Plenary of the Parliament the Draft Law 96-XII and in which he stated:

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

The use of the word "homes" by the Secretary of State for Tax Affairs as the target of the incidence of the new tax leaves no room for doubt as to legislative intention – it was a matter of constructed works, the only ones, moreover, that can be used (applied) for residential purposes.

On the other hand, no reference to "land for construction" is found in the discussion of the said Draft Law.

In the same way, the legislative amendment introduced with the Law that approved the State Budget for the year 2014, to which no interpretative character was given, constitutes an argument in favour of the understanding that, in the original version of Item no. 28 of the General Schedule, the concept of "immovable property with residential use" did not integrate land for construction.

If this were not the case, the legislator would not have had need to indicate that, in addition to "residential immovable property" – which will be no more than the "immovable property with residential use", provided for in article 6, no. 1, item a) and no. 2 of the IMI Code – land for construction also begins to be covered by that rule of incidence.

For all the foregoing we adopt the understanding that the completion of the legal concept of "immovable property with residential use", provided for in Item no. 28.1 of the General Schedule (in the version in force at the date of occurrence of the facts and analysis), implies the effective use of urban immovable property for that purpose, being underlying the creation of that concept the correspondence with the concept of "urban residential immovable property" and not, as the Respondent argues, with the concept of immovable property whose tax patrimonial value is determined in accordance with a location coefficient corresponding to use for residence, an interpretation which does not seem to have any legal correspondence.

In this measure, contrary to what the Respondent claims, land for construction does not integrate the expression "immovable property with residential use", provided for in the version in force at the date of the facts, insofar as they do not possess a use permit for residence and are not, even, built. We conclude, therefore, that the concept of "immovable property with residential use", provided for in Item 28.1 of the General Schedule, corresponds to the concept of "urban residential immovable property", provided for in article 6, no. 1, item a) and no. 2 of the IMI Code where the realities characterizable as land for construction are not integrated.

Thus, it is necessary to declare the illegality the act of assessment of Stamp Tax in question, annulling it, for error as to the legal presuppositions.

On Procedural Bad Faith

The Claimant argues, in the context of the last application offered by it, that the respondent entity should be condemned as a litigant in bad faith.

In exercise of the right to be heard, AT invokes that such claim lacks foundation.

It must be decided.

The regime of litigation obeys, in the tax context, a special regime, essentially contained in art. 104 of the General Tax Law, pursuant to which:

"1 - Without prejudice to the exemption from costs, the tax authority may be condemned in a pecuniary penalty to be quantified in accordance with the rules on bad faith litigation in case of acting in court against the tenor of binding information previously given to interested parties or its conduct in the proceedings diverges from that habitually adopted in identical situations.

2 - The taxpayer may be condemned in a fine for bad faith litigation, in accordance with general law."

The rules, of a special nature, thus relevant in this domain, respect exclusively to the now respondent entity.

It will, however, be incumbent on the Taxpayer to allege and prove the factuality capable of concretizing the content of the norm in question (no. 1 of the said art. 104 of the General Tax Law).

In the present action, however, the Claimant did not enunciate, nor did it prove, the existence of any binding information, of different meaning, which the Tax and Customs Authority had previously given to interested parties, nor did it invoke identical situations in which that authority had adopted conduct different from that which it adopted in the proceedings under analysis.

The said Taxpayer invokes, differently, by appeal to general law, that the Respondent entity is "attempting to make use of procedural means of defence in a manifestly reprehensible manner, in order to achieve an illegal objective impeding the discovery of truth and hindering the action of justice".

Such allegation reproduces the content of the first part of item d), of no. 2 of art. 542 of the Civil Procedure Code (governing the regime of liability in case of bad faith).

The possibility of effective liability of a procedural party on the basis of the enunciated type of grounds, is not, however, sufficed, (in general terms), with mere invocation of legal concepts or with literal reproduction of the law. It presupposes, instead, that facts materializing such normative concepts be invoked and that proof of them be made.

However, the Claimant did not succeed in fulfilling these burdens, the factuality it invokes not fitting within the scope of the hypothesis contained in the norm. In effect, from the factual circumstances which the Taxpayer invokes (invocation, by the Respondent, of the incompetence of CAAD and the non-impugnability of the acts subject-matter of the proceedings, as well as defence of the understanding that land for construction was covered by Item 28.1 of the General Schedule of Stamp Tax, prior to the amendment by Law no. 83-C/2013, of 31/12/2013), it results only that the Respondent supports a position divergent from that advocated by the Claimant and the merits of which have already been appreciated in the preceding points of the present judgment. From it, however, the manifestly reprehensible use of procedural means cannot be extracted, nor the intention to pursue an illegal objective, to impede discovery of truth or to hinder the action of justice.

The claim formulated by the Claimant thus lacks foundation.

In these terms, the Tribunal judges unfounded the application, formulated by the Claimant, regarding the condemnation of the Respondent as a litigant in bad faith, the Respondent being absolved of such application.

V. DECISION

The present Arbitral Tribunal hereby agrees to judge:

a) Unfounded the exceptions invoked by the Respondent;

b) Substantiated the application formulated by the Claimant, declaring the illegality and annulling the act of assessment of Stamp Tax in question (with the consequent right to refund of the amount unduly paid);

c) Unfounded the application for condemnation of the Respondent as a litigant in bad faith.

VI. VALUE OF THE PROCEEDINGS

In harmony with the provisions of no. 2 of article 306 and no. 2 of article 297, both of the Civil Procedure Code, item a) of no. 1 of article 97-A of the Code of Tax Procedure and Process and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings is valued at € 68,444.49 (sixty-eight thousand, four hundred and forty-four euros and forty-nine cents).

VII. COSTS

In accordance with the provisions of no. 4 of article 22, no. 2 of article 12, both of the LFTA, in article 2, no. 1 of article 3 and nos. 1 to 4 of article 4 of the Regulation of Costs in Tax Arbitration Proceedings, as well as in Table I annexed to this instrument, the overall value of costs is fixed at € 2,448.00 (two thousand, four hundred and forty-eight euros), to be paid by the Claimant and by the Respondent in the proportion of the failure which is fixed at 5% for the Claimant and 95% for the Respondent.

Lisbon, 28 January 2016.

The arbitrators,

Fernanda Maçãs
(Presiding Arbitrator)

Hélder Faustino (Reporter)
(Arbitrator Member)

Francisco Carvalho Furtado (Reporter)
(Arbitrator Member)

Document prepared by computer, in accordance with the provisions of no. 5 of article 131 of the Civil Procedure Code, applicable by reference of item e) of no. 1 of article 29 of the LFTA.

The wording of the present decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] See Order no. 112-A/2011, of 22 March.

[2] See arbitral decision issued in the context of proceedings no. 27/2015-T, available at www.caad.org.pt.

[3] See "Tax Law", 3rd Edition, Almedina, 2005, p. 318 by virtue of the arbitral decision issued in the context of proceedings no. 736/2014-T, available at www.caad.org.pt.

[4] See item c) of no. 1 of article 120 of the IMI Code.

[5] In this sense, see the arbitral decision issued in the context of proceedings no. 408/2014-T, available at www.caad.org.pt.