Stamp Tax on Building Land (Verba 28.1 TGIS) - CAAD Arbitration Decision 335/2017-T

ARBITRAL DECISION

I. REPORT

A…, S.A., holder of Company Identification Number …, with registered office at Avenue …, No. …, …-… Lisbon (hereinafter referred to as the Claimant), filed on 19/05/2017 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 Framework for Tax Arbitration, hereinafter referred to only as RJAT), in which the Tax and Customs Authority is the Respondent (hereinafter referred to as the Respondent or AT). The arbitral request has as its object the challenge of the rejection of the administrative review claim presented for annulment of the Stamp Duty assessment, by application of item 28.1 of the General Table of Stamp Duty (TGIS), on the urban property described as building land, identified in the case file.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 22/05/2017 and, on the same date, was notified to the Tax and Customs Authority. Pursuant to the provisions of paragraph (a) of Article 6(2) and paragraph (b) of Article 11(1) of the RJAT, the Deontological Council appointed as arbitrator of the singular arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable deadline and notified the parties of such appointment. The parties accepted the appointment of the designated arbitrator, whereby, in accordance with paragraph (c) of Article 11(1) of the RJAT, the arbitral tribunal was constituted on 26-07-2017.

On 28-07-2017 an arbitral order was issued, pursuant to Article 17 of the RJAT, and accordingly the AT was notified to submit its Response. On 29-09-2017 the AT submitted the administrative file (PA) and on 03-10-2017 its response, which is hereby considered fully reproduced herein. On 24-10-2017 an arbitral order was issued, notifying and setting a deadline for the Claimant to pronounce itself on the possibility of waiving the holding of the hearing provided for in Article 18 of the RJAT, as requested by the Respondent in Article 53 of its Response. Upon expiry of the deadline the Claimant made no statement, whereby the tribunal, considering the request by the AT, the implicit consent of the Claimant, the absence of witness testimony to be produced, and the finding that the question to be decided is exclusively one of law, issued an arbitral order on 15-11-2017 which waived the holding of the hearing provided for in Article 18 of the RJAT, notified the parties to submit written submissions within equal and successive periods of 15 days, payment of the subsequent arbitral fee, the proceedings continuing toward final decision.

The Claimant submitted its submissions to the case file on 24-11-2017 and the Respondent on 7-12-2017. With its submissions the Claimant also attached a copy of the arbitral decision rendered in case No. 112/2016 of 11-09-2016, rendered on identical factual and legal issues.

On 08-01-2018 an arbitral order was issued with the following tenor:

"Considering that the submissions presented by the parties are joined to the case file and the period of judicial recess has elapsed and in accordance with the arbitral order of 15/11/2017, the issuance of the arbitral decision is set for the date of 20-01-2018."

It should be noted that, pursuant to the provisions of Article 21 of the RJAT, the arbitral decision must be issued within six months after the commencement of the proceedings, that is, after the constitution of the arbitral tribunal (which in the present case occurred on 26-07-2017), considering that, where there are judicial recess period(s), the parties benefit from the suspension of the respective deadlines, which must be taken into account by the arbitral tribunal.

The Claimant requests the declaration of illegality of the Stamp Duty assessment No. 2016…, issued with reference to the year 2015 and the property identified in the case file, which gave rise to three single collection documents (DUC) attached as documents 2, 3 and 4 to the arbitral request, corresponding to three installments of Stamp Duty assessed at €4,260.34 each, which results in the total annual amount of €12,781.00, which it paid, as evidenced by the receipts attached to the case file (Docs. 2 to 4 attached to the arbitral request).

The amount of stamp duty (IS) assessed and challenged in the present arbitral request relates to the year 2015 and concerns the urban property registered in the urban property matrix under article U-…, of the Parish of …, Municipality of Guimarães, designated as "building land," as appears from the property record book, attached to the case file by the Respondent, appended to its submissions. The purpose of possible buildings to be erected may be housing, commerce and services, as results from the building license permit attached as document No. 5 to the arbitral request, which has been expired since 25/05/2010. Despite this, it is found that the property described, as its current nature reveals, consists of a parcel of "building land," with constructive capacity, susceptible to different allocations to housing, commerce and services.

The tax assessment was issued in application of item No. 28.1 of the General Table of Stamp Duty and Article 6 of Law No. 55-A/2012, of 29 October, as amended by Law 83-C/2013 of 31 December (State Budget Law for 2014), which provides for Stamp Duty taxation of the "Ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00 – on the tax patrimonial value used for purposes of Municipal Property Tax (IMI).

28.1 – For residential property or for building land whose authorized or planned construction is for housing, pursuant to the provisions of the Municipal Property Tax Code" (emphasis added)

The Claimant requests the declaration of illegality of this assessment, claims the annulment of the tax act and respective collection notices relating to the three installments processed, with all legal consequences, including the ordering of the AT to pay compensatory interest. It supports its request, in summary, by alleging that the norm in question has its scope of application delimited to building land whose construction, authorized or planned, is for housing and whose tax patrimonial value exceeds €1,000,000.00. Accordingly, the Claimant alleges that it is imperative to demonstrate that the factual reality subject to taxation corresponds to building land whose construction, authorized or planned, is for housing and not for another purpose, such as buildings, authorized or planned, for services, commerce and/or other purposes. From the permit issued and expired since 2010 it resulted that the buildings authorized for the land in question could be destined for housing, commerce and services, the specific construction remaining dependent on the will of the Claimant at the time of construction. Thus, at the time of the tax event (2015) it could not be considered that the land would have a building erected on it with exclusively residential allocation. On the other hand, as the building license issued in 2007 had expired, the AT assessed a mere building land without demonstrating that the building to be erected thereon in the future would be for housing and that, to that extent, the legal requirements for Stamp Duty taxation would be met. To that extent, the legal requirements for Stamp Duty are not satisfied, whereby the challenged assessment is illegal. Subsidiarily, the Claimant invokes the material unconstitutionality of item 28.1 of the TGIS for violation of the principles of tax equality and taxpaying capacity.

In the response presented, the Respondent contests the grounds invoked by the Claimant, defending the legality of the challenged assessment and the constitutional conformity of item 28.1 of the TGIS which, for that reason, merits no objection. It understands that the assessment is legal in as much as it results expressly from the letter of the law, by virtue of the amendment introduced by the State Budget Law for 2014, which also building land, if it meets the legally provided conditions, is subject to the incidence of stamp duty, as of 01-01-2014. Position which it reiterates in its written submissions.

It concludes for the total lack of merit of the arbitral pronouncement request deduced by the Claimant.

It falls to decide.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of Articles 2(1)(a) and 30(1) of the RJAT.

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

The proceedings are not affected by any nullities.

II. FACTUAL MATTERS

Facts Considered Proven

1. The Claimant, in the year 2015, was the owner of building land, located in the parish of … – Municipality of Guimarães, registered in the urban property matrix under article U-…, with a tax patrimonial value of €1,278,100.00, as results from the content of documents Nos. 1 to 5, attached to the arbitral request, from the land registry certificate attached to the case file by the AT with its submissions;

2. For the property in question, described in the matrix as "building land," a Building License Permit No. …/07 was issued in May 2007 which authorized the construction of a building intended for housing, commerce and services.

3. The Permit expired on 25-05-2010;

4. At the date of the tax event (year 2015) the urban property in question consisted of a parcel of building land, with allocation intended for the construction of collective housing, commerce and services (cf. document No. 4, attached to the arbitral request);

5. On 05-04-2016 the AT proceeded to assess Stamp Duty item 28.1 of the TGIS, with reference to the property indicated and to the year 2015, in the total amount of €12,781.00, with payment split into three installments of €4,260.34 each, which the Claimant paid, respectively, on 13-04-2016, 06-07-2016 and 04-11-2016, as results from documents Nos. 2, 3 and 4 attached to the arbitral request.

6. The stamp duty assessment (IS) challenged was effected under item 28.1 of the General Table of Stamp Duty, relating to the year 2015, with reference to the property above described.

7. The Claimant filed an administrative review claim, which proceeded under case number …2016…, on which a decision of rejection was issued by official notice of 24-03-2017, notified to the Claimant on 27-03-2017, as appears from Doc. No. 1 attached to the arbitral request.

8. On 19-05-2017, the Claimant filed the request for constitution of the arbitral tribunal, as appears from the CAAD computer system;

Facts Not Proven

There are no facts not proven to consider, with relevance to the final decision.

Grounds for the Facts Considered Proven

The facts proven rest on the documentary evidence attached to the case file by the Claimant, as specified in each point of the factual matter considered proven, whose authenticity and correspondence to reality were not contested. In addition, all the settled facts were also confirmed by the content of the response and submissions presented by the AT and corroborated by the content of the Administrative File attached to the case file.

III. LEGAL MATTERS

The issue which is the object of the present arbitral request is whether the request for arbitral pronouncement concerns the interpretation of item 28.1 of the TGIS, in the version of item 28 of the TGIS introduced by Law No. 83-C/2013, of 31 December, and its application in concreto to the land of which the Claimant is the owner, above described.

The said norm, in the version introduced by the State Budget Law for 2014, in effect at the time of the tax event, delimits the scope of application in the following terms:

"28. Ownership, usufruct or surface right of urban properties whose tax patrimonial value appearing in the matrix, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than (euro) 1,000,000 - on the tax patrimonial value used for the purposes of Municipal Property Tax (IMI):

28.1 - For residential property or for building land whose construction, authorized or planned, is for housing, pursuant to the provisions of the Municipal Property Tax Code: 1%

28.2 - For property, when the passive subjects that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, appearing in the list approved by order of the Minister of Finance: 7.5%"

To ascertain the legal issue it is important to take into account the legislative evolution that has occurred in this matter.

The legislative amendment introduced by Law No. 83-C/2013 came to respond to the controversy arising from the introduction of item 28 of the CIS, which gave rise to extensive arbitral case law, as well as from our superior courts, both establishing the understanding that the initial version of said norm would not include the figure of "building land."

With the State Budget Law for 2014 the legislator came to broaden the objective scope of the tax, coming to encompass building land, in relation to which construction for housing has been authorized or is planned.

The legislator, confronted with the extensive controversy generated by the application of this item, consciously chose to tax only the building land which is intended for the construction of residential buildings, excluding other types of buildings or constructions, intended for commerce, services or social facilities. This was, clearly, an express and unequivocally assumed option by the legislator, as results from the letter and the rationale of the norm, in its new formulation. The same conclusion is drawn from the analysis of the historical element, which is extensively dealt with in the numerous arbitral case law produced on this matter, to which we adhere. In particular, as mentioned in the arbitral decision in case No. 525/2015-T, whether or not to tax building land is a matter of legislative policy that must be respected and which, unless we are mistaken, does not in itself evidence violation of constitutional principles, as the Claimant subsidiarily invokes. That said, it is beyond doubt that the new formulation introduced by the State Budget Law for 2014 is not so broad as to permit taxation of all building land. The legislator restricted the scope of application to building land "whose construction, authorized or planned, is for housing"

There are, thus, expressly excluded from taxation, from the outset, building land whose planned or authorized buildings are intended for commercial, industrial, services or social facilities purposes. To this requirement is added another which is evidenced by the letter of the law, which refers only to those which are authorized or licensed for that purpose.

In this regard, and without entering into needless repetition, we fully adhere to the arbitral case law on this matter, in particular to that set forth in the decision rendered in Case No. 112/2016, relating to the same issue under discussion in the present case. Thus, it can be read in the cited decision the following:

"It happens that, as the Claimant points out, it was left undemonstrated and unproven that, at the date of the occurrence of the tax event (…), there would be a valid authorization or plan that the buildings to be erected on the said land would be intended for housing.

The permit which would have justified the registration of the property in the matrix as "building land" was already expired, therefore it could not – as the Respondent might intend – serve as proof that the construction to be carried out on the land in question was, at that date, intended for housing. At one time the land would have had such purpose, but it was left undemonstrated that that would be its destination on 31-12-2014, the date of the occurrence of the tax event.

As mentioned in the arbitral decision rendered in case 578/2015-T, whose content we subscribe to, 'In summary, it appears clear, in the case under treatment, that the incidence of the tax to building land cannot be materialized by the mere registration thereof, as such, in the matrix, but rather, and in a decisive manner, by the verification of the effective potentiality of building on the said land (which must be ascertained in casu and revealed by the existence of the documents above described). That is to say, in other words, that the incidence of the tax, for the purposes of item 28.1, is only materialized by the verification of "effective allocation," to use the apt expression of JOSÉ MANUEL FERNANDES PIRES'."

Returning to the case before us, it is true that the AT did not demonstrate that there was an effective allocation to housing, to which is added the circumstance that the Claimant proved that the constructive capacity of the land is diverse (housing, commerce and services) and that, at the time of the event (2015) the land was not even properly authorized/licensed for the purpose, by virtue of the expiration of the Permit mentioned in point (c) of the settled factual matter.

There is thus lacking the verification of an essential prerequisite for purposes of incidence and taxation, and this prerequisite cannot be presumed solely from the content of the registration of the property in the matrix, as results from the documentary evidence attached to the case file.

In addition, according to the permit, already expired, attached by the Claimant, the building whose construction was, at one time, authorized by the municipality of Guimarães was intended for collective housing, commerce and services. From this document (Doc. No. 5 attached to the arbitral request) it results unequivocally that the building to be constructed would not, even, have exclusive residential allocation.

In this conformity, in the case before us, the factual and legal prerequisites provided for in the law are not met. In other words, it is a situation not provided for in the letter of the law, nor in the rationale of the tax incidence norm.

As was well decided in case 112/2017 – T: "in light of the principle of legality, material truth, justice and impartiality that govern the conduct of the Tax Authority, it would be incumbent upon it to demonstrate and prove (i) whether, in the case in question, there would be any construction authorization or plan in effect, (ii) whether that construction was intended exclusively for housing and (iii) in case the authorized allocation is mixed, what the apportionment of the tax patrimonial value of the land would be based on the different allocations. None of this was done by the Tax Authority."

From all the foregoing and without need for further elaboration, it is concluded that the Stamp Duty of the year 2015 was assessed with reference to the land identified despite there being no, at the date of the tax event, any authorization or plan in effect that the construction to be carried out thereon would be intended for housing and the extent or proportion of that allocation relative to the total tax patrimonial value in case of a mixed-use building.

There is thus lacking one of the essential prerequisites of Stamp Duty incidence, which implies the invalidity of the decision rejecting the administrative review claim as well as the underlying stamp duty assessment, challenged in the present case. Whereby, both are tainted with illegality, by violation of law, and should be annulled, with the other legal consequences.

In these terms, it is necessary to annul the challenged assessment, on the grounds of violation of law by error concerning the factual and legal prerequisites, rendering moot, as unnecessary, the examination of the alleged material unconstitutionality of item 28.1 of the TGIS.

As to the Claimant's Request for Compensatory Interest:

Article 43(1) of the General Tax Law (LGT) provides that compensatory interest is due when it is determined that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due.

In the case, the errors affecting the acts now annulled are attributable to the Tax and Customs Authority, which carried them out on its own initiative, contrary to what is provided for in the law.

The Claimant thus has the right to be reimbursed for the amount improperly paid (pursuant to Article 100 of the LGT and Article 24(1) of the RJAT) and, further, to be indemnified for the improper payment through payment of compensatory interest by the Respondent, from the date of payment of the amount, until reimbursement, at the statutory default rate, pursuant to Article 43(1) and (4) and Article 35(10) of the LGT, Article 559 of the Civil Code and Order No. 291/2003, of 8 April.

IV - DECISION

In these terms, this Arbitral Tribunal decides:

1. To uphold the arbitral request filed and, in consequence, to annul the tax acts rejecting the administrative review claim and the Stamp Duty assessment relating to the year 2015, object of the arbitral request, above identified, in the total amount of €12,781.00.

2. To order the Respondent to reimburse the amount improperly paid by the Claimant in compliance with the acts now annulled, plus compensatory interest, in the terms fixed above, until the date of issuance of the respective credit note.

3. To order the Respondent to pay the costs of the proceedings.

Value of the case: Pursuant to the provisions of Article 306(2) of the Code of Civil Procedure and Article 97-A(1)(a) of the Tax Procedure Code and Article 3(2) of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at €12,781.00, corresponding to the value of the assessment challenged.

Costs: Pursuant to Article 22(4) of the RJAT, the amount of costs is fixed at €918.00, in accordance with Table I appended to the Costs Regulation in Tax Arbitration Proceedings, to be borne by the losing party.

Be registered and notified.

Lisbon, 19-01-2018

The Arbitral Tribunal

(Maria do Rosário Anjos – Sole Arbitrator)