IMI Property Classification: Urban Property Valued as 'Other Purposes' in CAAD Case 348/2015-T

ARBITRAL DECISION

I - REPORT

1. On 1 June 2015, the company A..., SA, with the NIPC..., with registered office at Avenue ... no. ...-... Floor, ...-... LISBON, applied for the constitution of a collective arbitral tribunal, pursuant to the provisions of Articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "RJAT"), for challenging the act of determination of the tax property value of IMI, relating to the urban property located in the Parish of..., Municipality of Leiria, described with the property registration number.... In summary, in its application the Claimant seeks the ruling of the Arbitral Tribunal in order to declare the illegality of the act of determination of the tax property value under IMI.

2. The application for constitution of the arbitral tribunal was accepted by the Most Excellent President of CAAD, on 02-06-2015, and immediately notified to the Tax and Customs Authority (hereinafter referred to as "ATA" or "Respondent"). In the arbitral ruling application, the Claimant chose not to appoint an arbitrator.

Pursuant to subsection a) of paragraph 2 of Article 6 and subsection b) of paragraph 1 of Article 11 of RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrator of the sole arbitral tribunal the undersigned, who, within the applicable time period, communicated acceptance of the assignment.

The parties were notified on 27-07-2015 of the appointment of the arbitrator, and did not express any intention to challenge the appointment, pursuant to the combined provisions of Article 11, paragraph 1, subsections a) and b) of RJAT and Articles 6 and 7 of the Deontological Code.

1. In accordance with the provisions of subsection c) of paragraph 1 of Article 11 of RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Collective Arbitral Tribunal was constituted on 11-08-2015 and on 14-08-2015 the Respondent was duly notified of the order of the Arbitral Tribunal for the purposes of the provision of Article 17 of RJAT.

2. The Respondent submitted its Response and the respective administrative file (AF) on 25-09-2015. On 29-09-2015 the Claimant filed two decisions of the TCASUL (Central Administrative Court of the South), which are attached to the file. On 5-10-2015 an arbitral order was issued, by which the parties were invited to make submissions on the possibility of dispensing with the hearing provided for in Article 18 of RJAT and the submission of pleadings. On 9-10-2015 the Claimant made submissions dispensing with the holding of the hearing and submission of pleadings, and the Respondent expressed the same position by application filed on 09-10-2015.

In accordance therewith, an arbitral order was issued on 15-10-2015 dispensing with the holding of the hearing and submission of pleadings, with the case proceeding to final decision, the time limit for pronouncement of which was set until 30-12-2015.

1. On 21-12-2015 the Claimant filed arbitral decision no. 271/2015-T, of 18-12-2015. The time limit for pronouncement of the Arbitral Decision was extended by a further ten days, in accordance with the arbitral order issued on 29-12-2015.

2. The position of the Claimant, in accordance with the provisions of its application for the constitution of the Arbitral Tribunal, is, in summary, as follows:

The object of the arbitral application aims at the annulment of the act of determination of the property value of the urban property with property registration number ..., located in the Parish of..., Municipality of Leiria, which classified it as property for "other purposes" and the repetition of the evaluation procedure, to be carried out on the basis of the classification of the property as "commercial" and consequent application of the formula provided for in Article 38 of CIMI.

As justification for the application filed, the Claimant invokes the existence of errors of law in the act of determination of the tax property value, both in the first evaluation and in the second. Both were based on incorrect premises that classified the property as "other" and not as "commercial".

The Claimant further alleges that even in the case of a property classified as "other" Article 38 of CIMI was applicable. Furthermore, the construction cost used is arbitrary and disorderly.

As for the legal grounds, the Claimant invokes violation of CIMI, a thesis which it corroborates by reference to case law of CAAD and the Central Administrative Court of the South.

Thus, from the Claimant's perspective, a service station, such as the one at issue in the present case, constitutes a property for "commercial" or "service" purposes and not "other", as reflected in the challenged act, which should be annulled.

1. The position of the Respondent ATA is, in essence, that set out in the act of determination of the tax property value, whose legality it defends, with the arguments contained in the Response, which is hereby reproduced in full for all legal purposes.

From the respondent's perspective, a fuel service station, with its buildings and structures licensed for that purpose, which is the operation of the service station, is a property not intended for residential, commercial, industrial or service purposes, and therefore should be classified as property for other purposes. In the evaluations carried out, the applicable law and the Manual for Evaluation of Urban Properties were applied, and the legal basis for the evaluation rests on the provisions of Article 36, paragraph 2 of CIMI, rather than the provisions of Article 38 of the same code, on the grounds that it is a property to which the classification of urban property for "other" purposes, as to its intended use, must be applied.

It contends that the challenged act embodies the correct interpretation and application of law to the facts, and does not suffer from any defect of breach of law. Consequently, the application filed by the Claimant for the arbitral ruling should be ruled unfounded and the Respondent Entity should be absolved thereof.

II - PRELIMINARY MATTERS

1. The arbitral tribunal is materially competent and is duly constituted, pursuant to the provisions of Articles 2, paragraph 1, subsection a), 5, paragraph 2, and 6, paragraph 1 of RJAT.

The parties have legal personality and capacity, are legitimate parties and are duly represented, pursuant to the provisions of Articles 4 and 10 of RJAT and Article 1 of Regulatory Order no. 112-A/2011 of 22 March.

The proceedings do not contain any defects that would invalidate them.

The Tribunal considers that nothing prevents, in light of the provisions of Articles 3 of RJAT and 104 of CPPT, the joinder of claims that has occurred in the present case.

In these terms, there is no impediment to the examination of the merits of the case.

III - FINDINGS OF FACT

A) Proved Facts

1. Based on the documentary evidence submitted with the file, the following facts are found to be proved:

a. The Claimant submitted a Form 1 statement, requesting evaluation of the urban property no..., located in the parish of..., municipality of Leiria;

b. From this evaluation resulted a tax property value of €710,230.00;

c. The Claimant filed an application for a second evaluation, disagreeing with the classification of the urban property as "other" and the consequent determination of the property value on the basis of the method provided in paragraph 2 of Article 46 of CIMI;

d. From this second evaluation resulted a tax property value of €591,120.00, which was notified to the Claimant on 04-05-2015;

e. In the evaluation commission it was decided that a service station/fuel service station constitutes a property classified as "other", maintaining the classification underlying the first evaluation;

f. The difference in value assigned by the second evaluation resulted from the alteration of certain cost values per square meter and the consideration of the support building and the totality of the areas of the constructions/floors;

g. The Claimant's representative on the evaluation commission filed a dissenting opinion;

h. The property at issue in the present case is a fuel service station in which there is also a convenience store for the sale of beverages and food products and other similar products;

i. It is licensed for the exercise of commercial activity, which consists of the sale of fuel, beverages and food products, as evidenced by the license of use filed with the case by the Claimant as document no. 7;

j. The property consists of a building and equipment typical of fuel supply and car wash activities;

k. The property also has a convenience store;

l. Following the notification of 04-05-2015, referred to above in subsection d), the Claimant filed the present arbitral application in which it seeks the annulment of the act of determination of the tax property value of the urban property and the consequent repetition of the evaluation procedure to be carried out on the basis of the classification of the property as commercial and application of the formula provided in Article 38 of CIMI.

1. The facts stated as proved are based on the documentary evidence presented in the file by the Claimant and the Respondent in the respective AF, as well as on the consideration of facts accepted by the parties in the pleadings that form part of the present case.

B) Unproved Facts

1. There are no facts relevant to the decision that have not been proved.

IV - LEGAL MATTERS

1. With the facts established, it is necessary to address the legal issue in dispute in the present case, which corresponds, in summary, to the question of illegality raised by the Claimant in the present arbitral application. A decision must be rendered.

2. The issue which is the subject of the present arbitral proceedings consists of determining whether the property or land described constitutes a property for "commercial" or "service" purposes, as provided in subsection b) of Article 6 of CIMI, or whether, as the Respondent ATA contends, it falls within the category of "other", as provided in subsection d) of CIMI.

Let us therefore examine whether the Claimant is correct when it alleges the illegality of the evaluations of the property described in the file, which were based on the premise that this is a property that should be classified in the category or type of "other".

1. In accordance with the provisions of Article 2 of CIMI, the concept of "property" is based on three elements, namely:

1. A physical element which consists of a parcel of land, encompassing waters, plantations, buildings and structures of any nature incorporated therein or situated thereon, with a character of permanence;

2. A legal element, which requires that the physical reality (property) be part of the patrimony of a natural or legal person;

3. An element of an economic nature, which is translated into the requirement of economic value under normal circumstances.

In light of what has been set out and the facts found to be proved, there is no doubt that the property at issue in the case meets the elements necessary to be considered a property for tax purposes. Furthermore, from the description of the property in question, there is also no doubt that it is an urban property, a classification recognized and accepted by the parties. It therefore remains to determine what type of urban property we should classify it as, and it is precisely at this point that the source of the dispute underlying the present proceedings lies.

Thus, the issue to be decided in the present case is whether the property in question constitutes a property for "commercial" or "service" purposes, as provided in subsection b) of Article 6 of CIMI, or whether, on the contrary, it falls within the category of "other", as provided in subsection d) of CIMI.

1. In accordance with Article 6 of CIMI:

"1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other".

Paragraph 2 of the same article adds that:

"2 - Residential, commercial, industrial or for services are buildings or structures licensed for such purposes or, in the absence of a license, that have as their normal intended use each of these purposes."

In turn, and in accordance with paragraph 4 of the same article:

"4 - Falling within the provision of subsection d) of paragraph 1 are lands situated within an urban agglomeration that are not land for construction nor are covered by the provisions of paragraph 2 of Article 3, as well as buildings and structures licensed or, in the absence of a license, that have as their normal intended use other purposes than those referred to in paragraph 2 and also those of the exception in paragraph 3."

According to the legal definition, commercial properties or properties intended for services are buildings or structures licensed for such purposes.

1. It is evident from the evidence submitted with the file that a license of use was issued for the property to which the evaluations now under analysis refer, pursuant to which the property is intended for the exercise of commercial activity, embodied in the sale of fuel, beverages and food products. (see Document no. 7, attached to the Arbitral Application)

This licensing, contained in the valid license of use, whose authenticity was not even questioned, permits the conclusion that the property in question falls within the provision of subsection b) of Article 6 of CIMI, being a property for commercial purposes.

This understanding is, moreover, supported by legal doctrine[1] and the case law of our superior courts and CAAD.[2]

Thus, in order for properties to be classified as residential, commercial, industrial or for service purposes, regard must be had to the respective license of use, as results from the very letter of the law in Article 6, paragraph 2 of CIMI.

However, it should be noted that, even if no valid license existed, it would be concluded that both a fuel service station and a service station and/or a convenience store are commercial establishments where commercial acts are carried out.[3]

As is known, there are two categories of commercial acts: objective and subjective commercial acts. In the first category we include acts and legal transactions that are typical and objectively commercial, such as, for example, commercial sale and purchase or the purchase of goods and products for resale. Therefore, in this category we can include the acts carried out by the Claimant, namely, the activity of retail sale of fuel, car washing or the sale of food and beverage goods are objective commercial acts. As for the second category, these are considered (subjective commercial acts) all those that are characterized by being carried out by a merchant and that do not have an exclusively personal nature. Being the Claimant a commercial company, it assumes the status of merchant with the legal consequences resulting therefrom.[4]

1. Therefore, the acts carried out by the Claimant, namely retail sale of fuel, food and beverage goods, are commercial acts and the property under consideration in the present case has as its sole destination or purpose to enable the practice of this commercial activity.

It is thus an evident and notorious fact that the operations carried out on the property at issue in the present case constitute, without room for doubt, the practice of commercial acts, and there is no apparent basis on which we could consider such property as falling within the category of "other".

As is rightly stated in the Decision of TCAS, of 10-07-2015, delivered in case no. 06810/13, "urban properties to be classified as 'other' are those lands situated within an urban agglomeration that are not for construction, nor are covered by the provisions of paragraph 2 of Article 3, as well as buildings and structures licensed or, in the absence of a license, that have as their normal intended use other purposes than those referred to in paragraph 2 and also those of the exception in paragraph 3. In classifying urban property as belonging to the category 'other', the legislator adopted a residual criterion (…)"

1. Considering all of the foregoing, it must be concluded that, in the case under consideration, there is no basis for classifying the property in question under subsection d) of Article 6 of CIMI.

In light of the legal framework set out above, and considering the rules on the interpretation of legal norms, particularly those resulting from Article 11 of the General Tax Law (LGT), it is necessary to conclude that the general principles of interpretation of laws, to which paragraph 1 of Article 11 of LGT refers, are established in Article 9 of the Civil Code, which provides as follows:

"1. Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied.

1. However, the interpreter cannot take into account legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

2. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express its intent in adequate terms."

3. Now, the letter of the law is clear and its ratio legis also leaves no doubt as to the absence of any valid basis for the classification of the property as "other" for the purposes of evaluation and determination of its tax property value.

Therefore, the second evaluation carried out, here challenged, was in error as to the factual and, especially, legal premises, having as its premise the erroneous classification of the property, considering it as "other" when it should have considered it as "commercial" property. This is an error in the classification of the type of property being evaluated, which tainted the result thereof, since it followed evaluation criteria inappropriate to the nature of the property.

Therefore, the challenged act suffers from a defect of breach of law due to error as to the factual and legal premises underlying it.

Having decided this issue, the choice of evaluation method for the category "other" appears inappropriate. The urban property for commercial purposes should be evaluated in accordance with the rules of Article 38 of CIMI.

In accordance therewith, the present arbitral application is well-founded with the consequent annulment of the challenged act.

The examination of the other issues raised by the parties appears to be prejudiced in light of the decision of the fundamental issue of classification of the property at issue in the present case.

V - DECISION

In light of the foregoing, this Arbitral Tribunal decides:

To rule that the arbitral application is well-founded in its entirety and accordingly:

A) To declare the illegality of the challenged evaluation act, with the consequent annulment of the act of determination of the property value.

B) To order the repetition of the evaluation procedure in accordance with the correct classification of the property as described above and with all legal consequences, in particular as regards the application of the evaluation criteria legally provided for properties intended for commercial purposes, as provided in Article 38, paragraph 1 of CIMI.

VALUE OF PROCEEDINGS: In accordance with the provisions of Article 315, paragraphs 2 and 3 of CPC, Article 97-A, paragraph 1, subsection a), of CPPT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €2,216.70, pursuant to the provisions of Article 97-A, paragraph 1, subsection a) of CPPT, applicable by virtue of subsection a) of paragraph 1 of Article 29 of RCPAT, to be borne by the Respondent ATA.

COSTS: In accordance with the provisions of paragraph 4 of Article 22 of RJAT and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €612.00 to be borne by the Respondent Tax and Customs Authority.

Let it be registered and notified.

Lisbon, 4 January 2016

Sole Arbitrator,

Prof. Dr. Maria do Rosário Anjos