Stamp Tax on Building Land Under Verba 28 TGIS – CAAD Arbitration 347/2015-T

ARBITRAL DECISION

I – Report

1. On 1 June 2015, A..., a collective entity no..., with registered office at..., no..., 2nd floor, ...-... Lisbon, represented by B..., SA, a collective entity no..., and with registered office at the same address, hereby submits, under the provisions of article 10, no. 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Tax Arbitration (RJAT), and of articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, a request for the establishment of an arbitral tribunal with a view to declaring the illegality of the Stamp Tax assessment act performed pursuant to Item no. 28 of the General Table of Stamp Tax, in the amount of €9,122.50 (nine thousand one hundred and twenty-two euros and fifty cents) relating to the property with matrix article..., of the parish of..., municipality of Lisbon. It submitted, in addition to the power of attorney and proof of payment of the initial arbitration fee, seven documents.

2. In the Request for Arbitral Opinion, the Claimant chose not to designate an arbitrator.

3. Pursuant to no. 1 of article 6 of the RJAT, by decision of the President of the Deontological Council, the undersigned was designated as sole arbitrator, having accepted the office within the legally stipulated period.

4. The arbitral tribunal was established on 12 August 2015.

5. Notified in accordance with and for the purposes of article 17 of the RJAT, the Tax and Customs Authority (AT) submitted, on 25 September 2015, its Response and attached the administrative file.

6. The meeting provided for in article 18 of the RJAT being dispensed with, by agreement of the parties, the Claimant and Respondent submitted their arguments on 11 November and 24 November 2015, respectively, with the Tribunal designating 5 February 2016 for final decision.

7. The Request for Arbitral Opinion

In the Request for Arbitral Opinion, the Claimant states, in summary (our responsibility):

• It has procedural standing for the present request, made following the dismissal of a hierarchical appeal and gracious claim previously submitted, and which concerns the tax assessment act no. 2011...referred to in the collection notice no. 2013..., whose illegality it requests the tribunal to declare.

• It does not agree with the Stamp Tax assessment effected under item 28.1 of the GTST, relating to the transitional period provided for in article 6 of Law no. 55-A/2012, of 29/10, which resulted in a collection of €9,122.50, insofar as the property in question, with the article... of the parish of..., is described in the register as building land and not as a property with residential designation.

• Building lands only became subsumed under item 28 of the GTST as from 1 January 2014, following the amendment to item 28.1 introduced by art. 194 of Law no. 83-C/2013, of 31/12, the legislator recognizing that the scope of taxation did not previously encompass building lands.

• The amendment introduced by the 2014 State Budget cannot have retroactive application because it is innovative, since from the letter of the law in force at the time of the facts it could not be inferred that residential designation comprised properties other than those which are, in the property register, allocated to residential use.

• Law no. 55-A/2012, of 29/10, which added item 28 with effect from 30 October 2012, clarified nowhere what properties with residential designation are, adding a no. 2 to art. 67 of the Stamp Tax Code and mandating the subsidiary application of the Municipal Property Tax Code.

• Verifying the classification of properties in the CIMI, it follows that urban residential properties and building lands are two different classes of properties, the same Code not defining what properties with residential designation are.

• However, given the provisions of art. 6 of the CIMI, it cannot be said that building lands have residential designation insofar as that designation must be effective and not merely potential and future, on pain of taxing future and uncertain realities or even taxing a non-existent taxable fact.

• Not even the grant of a building permit can be an indicator of residential designation, both because in most cases the authorized construction also provides for use for commercial or service purposes, and because the permit is not in itself a guarantee of the realization of the construction, of an effective residential use.

• Nor with the grant of a building license – when there already exists a firm commitment to build something – can it be said that a property has residential designation because it is not possible to live in it, it does not have the characteristics necessary for human habitation.

• As regards the fact that in calculating the taxable property value of building lands reference is made to the allocation coefficient (residence, services, etc.) as mere potential and future allocations, this constitutes only a mere indicator used by the legislator to calculate the value of building lands, not authorizing their subsumption under the provision of item 28.1 of the GTST as property with residential designation, which can only occur with the submission of the form 1 of the Municipal Property Tax communicating the completion of the works.

• The statement of reasons for Law no. 55-A/2012, as well as the statements of the State Secretary for Tax Affairs in the presentation of the bill proposal to the National Assembly, confirms the legislative intention not to extend the scope of the same to building lands.

• This same interpretation was followed in arbitral and judicial decisions.

• With a view to suspending the tax enforcement proceedings instituted for non-payment of the assessed tax, it provided a bank guarantee – the cost of which will be ascertained with accuracy only at the moment it becomes possible to release the guarantee, but which it estimates to have amounted so far to €605.02 – whereby it has the right to indemnification corresponding to the total of the costs incurred with the bank guarantee plus interest at the legal interest rate, calculated on such costs from the date they were incurred until the date the guarantee is authorized to be released.

1. The Response

The Respondent states, in summary (our responsibility):

As a preliminary matter, it raises the exception of non-timely submission of the request:

• The Claimant impugns the tax assessment act and not the act of dismissal of the administrative challenge to the act, limiting itself to merely alluding to and identifying the act without formulating any request aimed at annulling what was decided at that stage, whereby, the final date for payment of the tax having occurred on 31-12-2013 and the request for establishment of the arbitral tribunal having been submitted on 01-06-2015, this shows itself to be non-timely, and the Respondent should be absolved of the proceedings.

As to the legality of the assessment:

• With the legislative amendment introduced by Law no. 55-A/2012, of 29/10/2012, in article 1 of the STDC, and the addition of item 28 to the GTST, Stamp Tax became applicable also to the ownership, usufruct or right of superficies of urban properties whose taxable property value contained in the register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000.00.

• In the absence of any definition of the concepts of urban property, building land and residential designation in Stamp Tax law, recourse must be had to the CIMI, mandated to be applied subsidiarily by art. 67, no. 2, of the Stamp Tax Code.

• Account must be taken of the concept of property in no. 1 of article 2 of the CIMI, as well as the provisions of article 6, no. 1 of the CIMI, on the types of urban properties existing (integrating in this concept building lands);

• The mere establishment of a right of potential construction increases the value of the immovable property in question; therefore the notion of designation of the urban property is based on the valuation of the immovables, in accordance with art. 45, no. 2, of the CIMI which requires account to be taken of the "…value of authorized buildings", being therefore applicable the allocation coefficient provided for in art. 41 of the CIMI.

• Thus, if for purposes of determining the taxable property value of building lands the application of the allocation coefficient is clear, it cannot be ignored in considering its application for purposes of applying item 28 of the GTST.

• The legislator does not refer to "properties intended for housing" but to "residential designation" whose meaning must be found not in art. 6, no. 1, letter a) of the CIMI but in art. 45 of the CIMI, which distinguishes the part of the land where the building to be constructed will be located and the area of free land - once the amount of the first part is determined, the value determined is reduced to a percentage between 15% and 45% as provided for in no. 2 of that provision, by virtue of the construction not yet being carried out.

• The value of the land adjacent to the area of implantation is determined in the same manner as the value of the area of free land and the area of excess land are determined for any urban immovable.

• Taking into account the urbanization and building regime, the Building and Land Use Law and Municipal Master Plans, it is possible, before the effective construction of the property, to ascertain and determine the designation of the building land.

• Although Law 83-C/2013, of 31/12, makes no reference to the nature of the normative amendment effected, its interpretative character results from the use of the legal concepts provided for in no. 1 of article 6 of the CIMI, in particular in letters a) and c), since they reinforce the understanding that the notion of "properties with residential designation" was intended to encompass not only residential properties but also another reality, namely building lands.

• Even if the request for declaration of illegality succeeded, the Respondent fails, as to the request for indemnification for wrongfully provided guarantee, to prove the charges it concretely incurred.

1. Subject Matter of the Request

The legal question raised in the present request for review of the legality of the Stamp Tax assessment relating to the year 2012 consists in determining whether building land should be considered a "property with residential designation" for purposes of applying item 28.1 of the General Table of Stamp Tax, as worded by Law no. 55-A/2012, of 29 October.

As a preliminary matter, the invoked non-timely submission of the Request must be decided, which shall be done following the establishment of the facts.

1. Dismissal of Objections

The arbitral tribunal is substantively competent, pursuant to the provisions of articles 2, no. 1, letter a) of the Legal Framework for Tax Arbitration.

The parties possess legal personality and capacity and have standing in accordance with articles 4 and no. 2 of article 10 of the Legal Framework for Tax Arbitration (RJAT), and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any defect preventing the review of the merits of the case, whereby the conditions are met for the rendering of the arbitral decision.

II – Reasoning

1. Established Facts

11.1. The Claimant, A..., is owner of the property with matrix article... (former article...) located on Rua..., municipality of Lisbon, parish of... (article 7 of the Request, 31 of the Response).

11.2. In the respective urban property booklet the property referred to in the preceding number is designated as "building land", with the following areas: total land area 3,380.0000 m²; building implantation area, 1,260.0000 m²; gross construction area, 5,339.0000 m²; dependent gross area, 1,237.5000 m² (doc. no. 4 attached with the Request for Opinion and PA, doc. 6).

11.3. In 2012, as the taxable property value of the property described in the preceding number, the amount of €1,824,500.00 was determined (doc. no. 4 attached with the Request for Opinion and PA, doc. 6).

11.4. The Claimant was notified of the Stamp Tax assessment, dated 26 July 2013, through a document numbered 2013..., for payment until 31 December 2013, which identified as the basis for the assessment letters f) and i) of no. 1 of article 6 of Law no. 55/2012, and a tax amount payable of €9,122.50, by application of the rate of 0.50 to the Property Value of €1,824,500.00 (Document no. 1 attached with the Request).

11.5. On 31 January 2014, the Claimant submitted a gracious claim of the assessment which was processed with the number ...2014..., subject of a draft decision notified for prior hearing by official letter no..., of 6 August 2014, converted into a final decision by dispatch of 16 September 2014 and notified by official letter no..., of 18-09-2014, of the Finance Directorate of Lisbon (article 3 of the Request, Document 2 attached with the Request and PA document 2).

11.6. Filed, on 22 October 2014, a hierarchical appeal of the decision referred to in the preceding number, this was processed with the number ...2014..., being, under opinion of the Finance Directorate of Lisbon and information of 24-02-2015, dismissed by the Director of Service of the Municipal Property Tax, Stamp Tax, Vehicle Tax and Special Contributions, by dispatch of 26 February 2015, subject to notification to the Claimant through the official letter of the Finance Directorate of Lisbon no..., of 10 March 2015, where it was informed that "should you not agree with the decision, given the provisions of no. 2 of article 76 of the CPPT, combined with the body of no. 1 of article 102 and letter e) of no. 1 of the same article of the CPPT, you may, within three months, counting from the date of receipt of the receipt notice, submit judicial challenge against that decision, in accordance with the provisions of articles 99 and following of the CPPT" (doc. no. 1 attached with the Request and PA, documents 2, 3 and 4).

11.7. The Claimant did not pay the assessed tax, subject of review in the present proceedings, having been instituted tax enforcement proceedings (no. ...2014...) by the Finance Service of Lisbon... (articles 54 and 55 of the Request, PA, doc. 5, fls. 20).

11.8. The Claimant subscribed, on 29 April 2014, a bank guarantee up to the limit of €165,000.00 to guarantee and secure possible payments in eleven tax enforcement proceedings relating to Stamp Tax for the year 2012, among them the proceedings no. ...2014... (art. 55 of the Request and Doc. no. 5 attached with the Request).

1. Non-Established Facts

There are no non-established facts of relevance for the decision of the case.

1. Basis of Proof

The establishment of the facts was made on the basis of the facts alleged by the parties and not contested, as well as the documentation attached to the proceedings, including the administrative file.

1. Legal Review

14.1. The Exception – Non-timely Submission of the Request/Forfeiture of the Right of Action

14.1.1. Arguments of the Parties on the Matter

In its Response, the Respondent submits that, by application of articles 10 of the RJAT and 102, nos. 1 and 2, of the CPPT, the Claimant should have submitted the Request for Arbitral Opinion within 90 days counted from the end of the voluntary payment period of the tax obligation (31-12-2013). Because, it considers, although the tax act was administratively challenged, it is not sufficient to allude to the fact and to the dismissal that occurred - the Claimant should have specified before the tribunal a request aimed at annulling what was decided at that stage. Not having done so, the Request submitted on 1 June 2015 is non-timely. In support of its thesis it cites various arbitral decisions rendered within the scope of the CAAD.

The Claimant responded to the exception, in arguments, submitting that, precisely, what it intends is the declaration of illegality of the tax assessment act. Such request not only does not prevent the declaration of illegality of the decisions of the gracious claim and the hierarchical appeal, a result that is "less" compared to the illegality of the assessment act which cannot cease to be the subject of the Request for Opinion. It invokes jurisprudence to this effect and the principle of effective judicial protection (articles 20 and 268 of the Constitution of the Portuguese Republic).

The Respondent, in arguments, maintained the position defended in the Response and attached a decision rendered in proc. 346/2015-T, also citing other decisions rendered within the scope of the CAAD.

14.1.2. Analysis of the Question

It appears that, at the end of the Request, the Claimant requests the declaration of illegality and annulment of the Stamp Tax assessment act relating to 2012. But, in article 1 of the Request for establishment of the arbitral tribunal, it justifies the Request by saying "Pursuant to articles 2, no. 1, letter a) and 10, no. 1, letter a), both of the RJAT, arbitral tribunals have competence to declare the illegality of acts of assessment of taxes and, as well, of the total or partial dismissal of gracious claims and hierarchical appeals". And, in article 3 of the Request, it stresses that "it requests that the Tribunal declare the illegality of the Stamp Tax assessment hereby identified, issued under item 28.1 of the GTST (...), following the dismissal of a hierarchical appeal (...) and a gracious claim (...)".

And it attached documentation of the administrative procedure where it is verified that the Respondent, rejecting the arguments invoked in the claim and hierarchical appeal, reaffirmed the position it had founded the assessment act upon (Docs. 1 and 2 attached with the Request).

As we have defended in other proceedings (for example, 165/2015-T), we believe that what is intended with the frequently cited jurisprudential understanding, settled and reiterated, that "the judicial challenge that follows a gracious claim decision submitted against an assessment act has as its immediate subject the decision act of the claim and as its mediate subject the assessment act itself, as is, moreover, extracted from letter c) of no. 1 of article 97 of the CPPT" (for all, Decision of the STA of 20 May 2015, in proc. no. 01021/14), is fundamentally intended to defend that "once the dismissal of the claim is annulled due to procedural defect thereof, it is incumbent on the tribunal to review the remaining defects attributed to the assessment act, since the tribunal is competent to review, in such challenge, both the dismissal of the claim and the defects attributed to the assessment" (the aforementioned decision and which cites other decisions of the STA, of 16.06.2004, in proc. no. 01877/03, of 28.10.2009, in proc. no. 0595/09, of 18.05.2011, in proc. no. 0156/11, of 16.11.2011, in proc. no. 0723/11, of 18.06.2014, in proc. no. 01942/13).

That is, it is intended to state that in judicial challenge the tribunal's competence extends beyond the review of the illegality of the assessment, to the review of the defects of the administrative decision itself (of second degree) that reviewed the legality of the act of first degree. But, even though beginning by attacking the illegality of the act of second degree (or third), the last decision which may even have its own illegalities, "the real subject of the challenge is the assessment act and not the act that decided the claim, whereby it is the defects of the former and not of that dispatch that are truly at issue (…)."" (Decision of the STA of 18 May 2011, proc. no. 0156/11).

On the other hand, with respect to arbitral proceedings, account must be taken of the fact that "the competence of arbitral tribunals is limited to the declaration of illegality of assessment acts encompassing only the acts of dismissal of second degree acts (claims or hierarchical appeals) that actually reviewed the legality of first degree acts" (Jorge Lopes de Sousa, Guide to Tax Arbitration, Almedina, 2013, p. 120 to 123)[1].

In the present case, the legality of the assessment was reviewed and confirmed by administrative acts of second and third degree, the Claimant is dissatisfied and comes to submit a Request for arbitral review having as its subject a claim defined pursuant to article 2 of the RJAT. It invokes the illegality of a tax act (whose legality was reviewed and confirmed in the administrative challenge procedure maintaining the defense of its illegality) and that the same was poorly resolved with the dismissal of the claim.

Even if it is admitted that the Claimant could have formulated its claim more perfectly, we believe that a decision of forfeiture of the right of action would not take into account the application of the principles "pro actione" and "in dubio pro favoritate instanciae", in accordance with article 7 of the Administrative Procedure Code, [2] and the constitutional guarantee of the right to effective judicial protection (arts. 20, no. 1 and 268, no. 4, of the Constitution of the Portuguese Republic).

Thus, taking into account the date of notification of the final decision of the hierarchical appeal, the present Request for establishment of an Arbitral Tribunal, submitted on 1 June 2015, does not appear to be non-timely given the provisions of letter a) of no. 1 of article 10 of the RJAT, whereby the review of the legality of the assessment shall proceed.

14.2. Application of Item 28 of the General Table of Stamp Tax (GTST) to Building Lands

Item 28 of the General Table of Stamp Tax annexed to the Stamp Tax Code (STC) was added by article 4 of Law no. 55-A/2012, of 29 October, with the following content:

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

28.1 – For a property with residential designation – 1%;

28.2 – For a property, where the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%."

Pursuant to the amendments to the Stamp Tax Code introduced by article 3 of Law no. 55-A/2012, of 29/10, the Stamp Tax provided for in item 28 of the GTST applies to a legal situation (no. 1 of article 1 and no. 4 of article 2 of the STC), in which the respective taxpayers are those referred to in article 8 of the CIMI (no. 4 of article 2 of the STC), to whom the burden of the tax falls (letter u) of no. 3 of article 3 of the STC).

Item 28.1 encompasses "properties with residential designation" but this concept does not appear defined in any provision of the Stamp Tax Code, nor is it used in the CIMI, the law to which article 67, no. 2, of the Stamp Tax Code expressly refers when matters not regulated in the Stamp Tax Code regarding item 28 of the GTST are at issue.

This matter has been subject of review in a very large number of proceedings, both in arbitral tribunals[3] and in administrative and tax courts, there being already an appreciable quantity of decisions rendered at the highest level [4] (Contentious Tax Section of the STA), with great uniformity of positions.

In agreement with the review that has been undertaken, we reproduce some excerpts of decisions and repeat argument already used in earlier proceedings with our intervention.

In summary, the Claimant submits that item 28 of the GTST when referring to properties with residential designation encompasses "constructed properties" – properties to which the destination for housing has already been given - and not "building lands" – which may perhaps one day, if it arrives, come to be allocated to that specific purpose. And the AT considers that the meaning of the legislator's not using the expression "properties intended for housing" but "residential designation" must be found not in article 6, no. 1, letter a) of the CIMI but in art. 45 of the CIMI, through interpretation of the expression "residential designation", a notion that is based on the valuation of immovables. Article 45, no. 2, of the CIMI when it requires account to be taken of the "…value of authorized buildings", refers to the allocation coefficient provided for in art. 41 of the CIMI, which would have to be taken into account for purposes of applying item 28 of the GTST.

In analyzing precisely this type of argument, it was said in the arbitral decision rendered in proc. 53/2013-T: "With respect to article 45 of the CIMI, it has no relationship with the classification of properties, merely indicating the factors to be weighed in the valuation of building lands. What is weighed there, in making reference to the «building to be constructed» is the destination of the land, which, as was seen, is something that, in the context of the CIMI, does not imply designation and occurs prior to it."[5]

Also the arbitral decisions nos. 158/2013-T and 288/2013-T rejected the AT's thesis regarding the application of the methodology of valuation of properties in general to building lands, and which makes applicable to such immovables the allocation coefficient provided for in article 41 of the CIMI, in the following manner: «It is true that the CIMI determines the application, to the valuation of building lands, of the valuation methodology applicable to constructed buildings, incorporating for such purposes, in the value of the land, the estimated value of the building to be constructed; and that this value is determined, in turn, by the type of designation foreseen for the properties to be built. Put in simpler terms, the law (CIMI) says that to determine the taxable property value of building lands, one incorporates into it a part of the estimated value of the buildings to be constructed; and to estimate the value of the buildings to be constructed, one takes account of the designation foreseen for them. Contrary to what the AT maintains, it results precisely from the letter of these provisions the inapplicability of the concept of "designation" to building lands. The designation that is taken into account, for purposes of valuation, even of building lands, is always and only the designation of the buildings to be constructed. The designation foreseen for the buildings to be constructed influences the taxable property value of building lands, but nothing more. From the provision regarding the determination of the value of immovables which determines that, in the value of building lands there is incorporated the estimated value of the buildings to be constructed, which, in turn, is influenced by the future designation of the same buildings, it cannot be inferred that the designation in question is a designation of the lands themselves, and this for two reasons: The first, because this interpretation would be contrary to the very letter of the provisions which order account to be taken, in the valuation of building lands, of the designation of the buildings to be constructed; And the second, because the manner in which the law orders a certain patrimonial reality to be valued cannot be determinative of the nature or the legal qualification of that same reality, having regard, above all, to the principle of typicality of tax scope provisions. The fact that the law orders the same valuation methodology that is applied to another different reality to be applied to one patrimonial reality does not cause the first reality to come to share the nature of the second. Thus, if it is true that the value of authorized or foreseen buildings influences the actual value of building lands, and for that reason that value should be reflected in the taxable property value of the same lands, from this it does not follow that a land comes to have residential designation by virtue of being foreseen the construction, on it, of residential properties, this distinction being extracted clearly from the very provisions regarding the valuation of properties in the CIMI.»

The AT's argument has also been rejected by the Supreme Administrative Court, with reasoning such as that contained in the Decision of 14-05-2014, rendered in proc. no. 0317/14 (Reporter Isabel Marques da Silva): «From the letter of the law nothing unequivocal follows, moreover, since it itself, in using a concept which it did not define and which was also not found defined in the law to which it referred on a subsidiary basis, unnecessarily lent itself to ambiguities, in a matter – of tax scope – in which certainty and legal security should also be paramount concerns of the legislator. And from its "spirit", ascertainable in the statement of reasons of the bill proposal that is the origin of Law no. 55-A/2012 (Bill Proposal no. 96/XII – 2nd, Records of the National Assembly, series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more follows than the concern to raise new tax revenue, on sources of wealth "more spared" in the past from the tax authority's reach than labor income, in particular capital income, stock market gains and property ownership, reasons which make no relevant contribution to the clarification of the concept of "(urban) properties with residential designation", since they take it as established, without any concern to clarify it. Such clarification did, however, arise - as reported in the Arbitral Decision rendered on 12 December 2013, in process no. 144/2013-T, available in the CAAD database -, upon the presentation and discussion in the National Assembly of that bill proposal, in the words of the State Secretary for Tax Affairs, who is reported to have expressly referred, as is gathered from the Records of the National Assembly (Series I no. 9/XII – 2, of 11 October, p. 32) that: «The Government proposes the creation of a special tax on urban residential properties of the highest value. It is the first time that in Portugal a special tax has been created on properties of high value intended for housing. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and shall apply to houses with value equal to or greater than 1 million euros" (underlined emphasis), from which it follows that the reality to be taxed had in view is, after all, and notwithstanding the imprecision in the law's terminology, "(urban) residential properties", in common speech "houses", and not other realities. The fact that it can be considered that in determining the taxable property value of urban properties classified as building lands account should be taken of the designation that the authorized or foreseen construction for them will have for determining the respective value of the implantation area (cf. nos. 1 and 2 of article 45 of the CIMI), does not determine that building lands can be classified as "properties with residential designation", since "residential designation" always appears in the Municipal Property Tax Code referred to "buildings" or "constructions", existing, authorized or foreseen, since only these can be inhabited, which is not the case with building lands, which do not have, in themselves, conditions for such, being unsuitable for use for housing unless and until the construction authorized and foreseen for them is built on them (but in that case they will no longer be "building lands" but another type of urban properties – "residential", "commercial, industrial or for services" or "other" – article 6 of the CIMI)". It would be strange, moreover, if the determination of the scope of the objective scope of tax provision of item no. 28 of the General Table of Stamp Tax were, after all, found in the provisions regarding the determination of the taxable property value of the Municipal Property Tax Code, and that the imprecision in the legislator's terminology in the drafting of that rule were, after all, clarified and finally explained by way of an indirect and ambiguous reference to the allocation coefficient established by the legislator in relation to constructed properties (article 41 of the Municipal Property Tax Code). Thus, given that a building land – whatever the type and purpose of the construction that will be, or may be, erected on it – does not satisfy, of itself, any condition to be licensed as such or for one to be able to define as being housing its normal destination, and referring the scope provision of Stamp Tax to urban properties with "residential designation", without any specific concept being established for that purpose, cannot be extracted from it that within it there is contained a future potentiality, inherent to a different property that may perhaps one day be built on the land. It is concluded therefore, in conformity with what was decided in the judgment under appeal that, resulting from article 6 of the Municipal Property Tax Code a clear distinction between urban properties "residential" and "building lands", the latter cannot be considered as "properties with residential designation" for purposes of what is provided in item no. 28.1 of the General Table of Stamp Tax, in its original wording, which was given to it by Law no. 55-A/2012, of 29 October.»

The present tribunal subscribes to the analyses contained in the excerpts of the decisions reproduced above.

This interpretation is confirmed by the amendment, by the State Budget Law for 2014 (Law no. 83-C/2013, of 31 December), of the wording of item 28.1, which now reads: «For a residential property or for building land whose construction, authorized or foreseen, is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code ».

This amendment in wording means that it was intended to change the text to encompass what before was not found included in it. Indeed, if someone had previously wanted to encompass the reality defended by the AT, such desire not only found no expression in the letter of the law but was contradicted by the historical element, through the account of parliamentary proceedings.

The statements of the SEAF transcribed above are proof thereof: the legislator when introducing this legislative innovation considered that the expression of determinant capacity to contribute were urban properties with residential designation of high value (luxury), more rigorously, of value equal to or greater than €1,000,000.00 on which a special tax rate of stamp tax began to apply, intending to introduce a principle of taxation on wealth expressed in the ownership, usufruct or right of superficies of luxury urban properties with residential designation.

For this reason, the criterion used was the application of the new rate to urban properties with residential designation, whose TPV is equal to or greater than €1,000,000.00". (...)[6] "The basis for the measure designated "special tax on urban residential properties of the highest value" is founded on the invocation of the principles of social equity and tax justice, calling to contribute in a more intense manner the holders of property of high value intended for housing, causing the new special rate to apply to "houses with value equal to or greater than 1 million euros. Clearly the legislator understood that this value, when attributed to a residence (house, autonomous unit or apartment with independent use) translates a capacity to contribute above average and, as such, likely to determine a special contribution to ensure fair distribution of the tax burden."

Now, if the legislator revealed, clearly, the intention to tax luxury houses allocated to housing, it is not possible to extract from the letter of the law, as worded in 2012, the interpretation that maintains that the taxation encompasses building lands for constructions, even if allocated to housing.

Citing once again the Decision of the STA rendered in appeal no. 317/14: "residential designation" always appears in the Municipal Property Tax Code referred to "buildings" or "constructions", existing, authorized or foreseen, since only these can be inhabited, which is not the case with building lands, which do not have, in themselves, conditions for such, being unsuitable for use for housing unless and until the construction authorized and foreseen for them is built on them (but in that case they will no longer be "building lands" but another type of urban properties – "residential", "commercial, industrial or for services" or "other" – article 6 of the CIMI)".

Therefore, the wording given to item 28.1 with the 2014 State Budget is clearly innovative, with no question arising regarding its application to earlier years.

14.3. Conclusion

Given that the Claimant's property is classified as building land, it does not constitute a property with actual residential designation, whereby Stamp Tax provided for in item 28.1 of the GTST, as worded at the time of the facts, does not apply to that property.

For this reason, the assessment whose declaration of illegality is requested is vitiated by a defect of violation of that item no. 28.1, due to error regarding the legal basis, which justifies the declaration of its illegality and annulment (article 135 of the Administrative Procedure Code).

1. Wrongfully Provided Guarantee

The Claimant requests condemnation to indemnification for wrongful provision of bank guarantee, provided with a view to suspending the tax enforcement proceedings instituted for non-payment of the assessed tax, acknowledging that the cost is not easy to determine at this moment.

In the facts it was proved the existence of a bank guarantee provided for a group of eleven proceedings, including proceedings no. ... 2014... instituted for collection of the tax subject of the present proceedings (established facts, 11.7 and 11.8.).

It follows from nos. 1 to 3 of article 53 of the General Tax Law (with heading "guarantee in case of wrongful provision") that in case it is verified, in a gracious claim or challenge, that there was error attributable to the services in the assessment of the tax, the debtor who offered bank guarantee or equivalent to suspend enforcement shall be indemnified totally or partially for the damages resulting from its provision in proportion to the success in judicial challenge that has as its subject the guaranteed debt, this having as its maximum limit the amount resulting from the application to the amount guaranteed of the indemnification interest rate provided for in the General Tax Law.

On the matter article 171 of the Tax Procedure and Process Code provides: "Indemnification in case of bank guarantee or equivalent wrongfully provided shall be requested in the proceedings in which the legality of the enforceable debt is disputed".

In the case of the present proceedings, it was concluded that the interpretation by the services of the Respondent was not correct in taxing the situation in accordance with item 28.1 of the GTST, and it is also settled that arbitral tribunals are competent to apply art. 53 of the General Tax Law [7], whereby the Claimant's right to be indemnified for the cost of provision of guarantee is recognized [8].

But there being no elements that permit determining the amount of the indemnification, the condemnation shall have to be effected with reference to what shall come to be assessed in execution of the present decision (article 609 of the Civil Procedure Code of 2013 and article 565 of the Civil Code).

1. Decision

In accordance with and on the basis of the reasoning set out, the arbitral tribunal decides:

a) To find the Request for Arbitral Opinion well-founded with the consequent annulment of the Stamp Tax assessment impugned in the amount of €9,122.50, with all legal consequences, in particular the annulment of the acts of dismissal of the gracious claim and the hierarchical appeal.

b) To find the Request for indemnification for wrongfully provided guarantee well-founded, condemning the Respondent to indemnification to be determined in execution of what is hereby decided.

1. Value of the Proceedings

In accordance with the provisions of nos. 1 and 2 of article 306 of the Civil Procedure Code, in letter a) of no. 1 of art. 97-A of the Tax Procedure and Process Code and also no. 2 of art. 3 of the Regulations of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €9,122.50 (nine thousand one hundred and twenty-two euros and fifty cents).

1. Costs

For the purposes of the provisions of no. 2 of art. 12 and no. 4 of art. 22 of the Legal Framework for Tax Arbitration and no. 4 of art. 4 of the Regulations of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €918.00, in accordance with Table I annexed to said Regulations, to be borne entirely by the Respondent.

Lisbon, 5 February 2016

The Arbitrator

Maria Manuela Roseiro

[1] That is, the decisions of dismissal of gracious claims cannot be reviewed in themselves, in particular those that did not review the merits of the assessment act that is the subject of the claim, since what is permitted through challenging the decision of the gracious claim is to review the legality of the underlying assessment act (...) and not the gracious claim decision itself that did not review the merits of the taxpayer's claim" (Jorge Lopes de Sousa, ibidem, p. 125). Differently from what occurs in tax judicial proceedings in which, resulting from article 97 of the CPPT the rule of distinction between judicial challenge and special administrative action (formerly contentious appeal) depending on whether or not the administrative act challenged involves the review of the legality of administrative assessment acts, it has been understood that the special provision of no. 2 of art. 102 allows it to be inferred that judicial challenge is always usable in case of dismissal of a gracious claim Jorge Lopes de Sousa, Tax Arbitration, p. 124 and Annotated CPPT, vol. II, p. 149.

[2] Cf. for example, arbitral decision rendered in proceedings 282/2013-T.

[3] Within the scope of the CAAD many decisions have been rendered, with more than a hundred already published (CAAD website, tax jurisprudence).

[4] Cf. published at www.dgsi.pt, decisions of the STA (Contentious Tax Section), in 2014: 9 April (proceedings nos. 1870/13 and 48/14); 23 April (proceedings nos. 270/14; 271/14; 272/14); 14 May (proceedings nos. 1871/13, 46/14; 55/14; 274/14; 317/14); 28 May (proceedings nos. 395/14; 396/14 and 425/14); 2 July (proc. 467/14); 9 July (proc. 674/14); 29 October (529/14) and 2015: 14 January (541/14); 15 April (1481/14, 699/14, 764/14, 1481/14); 2 May (1312/14 and 1387/14); 22 April (279/15 and 347/15); 29 April (21/15); 27 May (387/15); 17 June (1479/14); 8 July (573/15); 9 September (1338/15); 28 October (1148/15).

[5] The same decision also concluded that "it must be presumed that the use of a different expression has in view a different reality, whereby, in good legal interpretation, «property with residential designation», cannot be a property merely licensed for housing or intended for that purpose (that is, it will not be sufficient that it be a «residential property»), having to be a property that already has actual designation to that purpose." And "That this is the sense of the expression «designation», in the same context of classification of properties that the CIMI makes, is confirmed by article 3 in which, with respect to rustic properties, reference is made to those which «are allocated or, in the absence of concrete allocation, have as their normal destination a use generating agricultural income», which shows that allocation is concrete, actual. In fact, as is seen by the final part of this text, a property may have as its destination a certain use and be or not be allocated to it, which shows that allocation is, at the level of the connection of a property to a certain use, something more intense than mere destination and which may or may not occur, downstream from this and not upstream from it.

[6] Arbitral decision in proc. 219/2013-T and decisions cited therein (proc. 48/2013-T and 50/2013-T).

[7] Citing other CAAD decisions (e.g. proceedings 1/2013-T and 420/2015-T): «The request for establishment of an arbitral tribunal and for Arbitral Opinion has as its corollary that it is in the arbitral proceedings that the legality of the enforceable debt will be discussed, whereby, as results from the express tenor of that no. 1 of the aforementioned art. 171 of the CPPT, it is also the arbitral proceedings that is appropriate to review the request for indemnification for wrongfully provided guarantee. Moreover, the accumulation of requests relating to the same tax act is implicitly presupposed in art. 3 of the RJAT, when speaking of «accumulation of requests even though relating to different acts», which allows it to be perceived that the accumulation of requests is also possible relating to the same tax act and the requests for indemnification for indemnification interest and for condemnation for wrongfully provided guarantee are susceptible of being encompassed by that formula, whereby an interpretation to this effect has, at the very least, the minimum verbal correspondence required by no. 2 of art. 9 of the Civil Code.»

[8] Taking into account, however, that: "The right to indemnification for wrongful provision of guarantee does not, in any situation, include the right to indemnification interest and/or default interest, in accordance with articles 43 and 102 of the General Tax Law, being limited, only, to the value corresponding to the charges effectively incurred with the provision of the same, still with the limit provided for in no. 3 of the aforementioned article 53 of the General Tax Law. (cf. Decision of the STA of 30 March 2012, in proc. 013/11).