Stamp Tax on Building Land: CAAD Rules on Verba 28.1 TGIS Application to Urban Plots (2015)

Arbitral Decision

I – Report

1. On 4 July 2016, A… BRANCH IN PORTUGAL, with NIPC…, with registered office at Rua …, no…, …-… …, requested the constitution of an Arbitral Tribunal and submitted the following Request for Arbitral Opinion, with a view to the declaration of illegality and consequent annulment of the Stamp Tax assessment acts, item 28.1 of the TGIS, relating to the year 2015, with a collection of € 9,876.60 (nine thousand eight hundred and seventy-six euros and sixty cents), relating to an urban property registered in the matrix under article U-…, of the Union of Parishes of … and … (indication corrected to article U-…, of the same parish, following an interpellation by the Respondent of 30 September), requesting reimbursement of the amounts paid as stamp tax, item 28.1 of the TGIS, and the respective default interest and indemnification interest. In addition to the power of attorney and proof of payment of the initial arbitration fee, it attached four documents (and another, attached on 30 September) all relating to the property with article number … .

2. In the Request for Arbitral Opinion, the Claimant chose not to appoint an arbitrator, and therefore, pursuant to paragraph 1 of article 6 of the RJAT, by decision of the President of the Deontological Council, the undersigned was appointed as sole arbitrator, who accepted the office within the legally prescribed period.

3. The parties were notified of this appointment and expressed no desire to refuse it, with the arbitral tribunal being constituted on 21 September 2016.

4. The Response from the Tax and Customs Authority (AT or Respondent), following the grant of an extension of the respective period, was submitted on 9 November 2016, raising an exception, followed by the submission of motions by both parties on 22 November, 24 November, and 7 December 2016.

5. In accordance with the positions of the parties, the Tribunal decided to dispense with the meeting provided for in article 18 of the RJAT but not with written submissions, which were presented on 11 and 24 January 2017, respectively. It was indicated that the arbitral decision would be handed down by 21 March 2017.

6. The Request for Opinion

The Claimant argues, in summary (our responsibility):

• Is a co-owner of an urban property - located at Rua … and … described in the Registry of Real Property of … under no… of the Union of Parishes of … and … and registered in the competent urban real estate matrix with article…

• Following a request for prior information regarding the use intended or authorized by the Municipal Master Plan, the Municipal Chamber of … responded that the area in which the land in question is located, lot no… of the subdivision permit no…, is intended for the predominant location of residential activities, complemented with other activities, namely commercial, equipment, services, business, and industrial activities, provided that they do not create incompatibility with residential activity;

• The land in question was subject to assessment of Stamp Tax in accordance with Item 28.1 of the TGIS in the amount of 9,876.60 euros - which incurs an error as to the assumptions.

• In the application of the aforementioned item 28.1, with the wording introduced by Law no. 83-C/2013, of 31 December, account must be taken of the provisions of articles 6, no. 1 and no. 3, 45, and 38 of the CIMI: for purposes of determining the VPT of building plots it is clear that the application of the allocation coefficient applies – taking into account whether we are dealing with housing, commerce, services, or industry – and the value of the building footprint area is determined according to the value of the authorized or intended buildings.

• In the concept of "building plot whose building, authorized or intended, is for housing, in accordance with the provisions of the Real Estate Tax Code" contained in Item 28.1, the legislator omitted cases of subdivision operations in which buildings are approved with units allocated to various purposes.

• In the present situation, it cannot be asserted that they are allocated to housing, because they may be intended, jointly or separately, for many other purposes (commerce, services, industry, covered parking, etc.), which neither the text nor the intent of the substantive rule of incidence contemplate, and it is certain that the substantive rule of incidence typifies as the generating fact, in the case of the same building plots, the authorized or intended building solely for housing, in accordance with the Real Estate Tax Code.

• This was the understanding in the arbitral decision in case no. 480/2015-T.

• In fact, the legislator may have intended to subject only to tax houses whose construction is approved or intended in accordance with the Real Estate Tax Code, to the extent that it intended to reach luxury properties, and building plots are not luxury goods, but mere legal expectations, nor legitimizing a solidarity tax.

• Building plots for construction may have significant value due to their area, but once built, the allocation to each unit will be of value less than 1,000,000 euros.

• There is a violation of the constitutional principles of equality in taxation, contributory capacity, and legality because the contributory capacity of the claimant arises from the actual exercise of its activity [that is, promotion and sale of real estate properties whether for housing, services, commerce, or (open) parking] being taxable in accordance with the norms of the Corporate Income Tax Code, while the holding of a building plot by a real estate company, even if intended for construction of residential buildings, does not evidence any special contributory capacity.

• The assessment act challenged also suffers from illegality due to lack of reasoning because the Tax Authority was obliged to substantiate that we are dealing with a plot "whose authorized or intended building is for housing," but it did not do so.

• The Stamp Tax assessment acts should be annulled, ordering reimbursement of the Stamp Tax paid, plus the respective indemnification interest

1. The Response

The Respondent replied, in summary (our responsibility):

By exception

• The Claimant intends that in the face of the assessment the evaluation and qualification of the property be examined, elements consolidated in the property record and whose periods of challenge through procedures provided for in the CPPT are long since expired,

• It is an administrative act in tax matters not subject to review through judicial challenge (paragraph a) of no. 1 of article 97 of the CPPT), so the arbitral tribunal is incompetent to decide on the matter (article 2 of the RJAT), determining the acquittal of the Respondent Entity from the proceedings (articles 576, no. 1 and 577, paragraph a) of the CPC, applicable ex vi article 29, no. 1, paragraph e) of the RJAT).

By way of challenge

• For application of Stamp Tax (item 28.1 of the TGIS) created by Law no. 55-A/2012, of 29/10, account must be taken of the application of the norms of the CIMI (article 67, no. 2, of the CIS), namely articles 2, no. 1, 6, no. 1, 45, and 37, and that item 28.1 TGIS itself, in the wording given by Law no. 83-C/2013, of 31 December, contains a definition of building plot that overlaps with the types provided for in no. 1 of art. 6 of the CIMI.

• The determination of the VPT of building plots (with application of nos. 1 and 2 of art. 45 of the CIMI) is made on the basis of the subdivision permit, or in the absence thereof, of the building license permit, approved project, prior notification, favorable prior information, or document evidencing constructive viability (art. 37, no. 3, of the CIMI), that is, the evaluation of the building plot necessarily takes into account the authorized building area and the use to be given to such building, the characteristics of the urban property to be built on it, the allocation of authorized buildings (article 38).

• The document submitted by the Claimant issued by the competent municipal authority states that the property in question is located in a predominantly residential area (the other activities provided for will always be a complement to this), which confirms that it is included in the definition of building plot for purposes of item 28.1 of the TGIS, in the wording given by Law 83-C/2013.

• Given that the building permit for the carrying out of urban development operations should contain, among other elements, the number of lots and an indication of the location area, purpose, building footprint area, construction area, number of floors, number of units of each of the lots, with specification of units intended for cost-controlled housing, where provided, in accordance with paragraph a) of art. 77 of the Legal Framework for Urban Development and Building (RJUE), and that the Municipal Master Plans establish the strategy for municipal development, municipal policy for land use and urbanism, and other urban policies, it is possible to ascertain and determine the allocation of the building plot long before the actual building of the property.

• The assessment under review embodies a correct interpretation and application of item 28.1 of the TGIS, in the wording of Law no. 83-C/2013, which expressly prescribes building plots as an objective element of incidence of the norm, as in a similar situation was decided in the arbitral decision in proc. 483/2016.

• As for the lack of reasoning, it is clear that the AT considered that the urban property in question was subsumable under the concept of "building plot with residential allocation" and that for that reason it taxed the Claimant, in its capacity as owner of that property, in stamp tax under item 28.1 of the TGIS.

• The reasoning appears clarifying as to the cognitive and evaluative process followed by the AT in deciding as it did, especially if we take into account that it is a mass act, all in accordance with the law and jurisprudence on the matter, so it is considered that the burden of reasoning has been fulfilled.

• As for the invocation of unconstitutionality of the norm applied to the assessment for not including commercial, industrial, or services properties, it does not hold, and account must be taken of the context in which the policy choices were made (need to revive economic activity and increase exports), and the application of the constitutional principles of equality and proportionality cannot disregard the legislator's right of economic discretion, as has been decided by the Constitutional Court.

• Default interest is not due because the assessment does not result from error by the services and flows from the application of the law.

1. Response to the exception and Arguments

Regarding the exception, the Claimant replied that it was not challenging the result of the evaluation, but rather, with respect to the land in question, that although the housing coefficient used in its respective evaluation is justified by the fact that it is a residential area, it is not exclusively allocated to housing in accordance with the Real Estate Tax Code. For even though there is authorization to build on it buildings intended for housing, it is also allocated to commerce, services, equipment, and industry[1].

In the arguments, the parties reproduced the same type of argumentation used in the Request and in the Response.

1. Questions to be Decided

In addition to the examination of the question raised by the Respondent regarding the tribunal's competence to review the evaluation and property registration, the illegalities which the Claimant attributes to the assessment, considering them susceptible to leading to the annulment of the tax act, require legal examination of the following questions:

• Applicability of item 28.1 of the TGIS to building plots when the authorized building is not intended exclusively for housing;

• Constitutionality of the aforementioned item 28.1 of the TGIS, insofar as it subjects to taxation building plots "whose authorized or intended building is for housing, in accordance with the Real Estate Tax Code";

• Compliance by the challenged act with the duty to provide reasoning enshrined in the law and in the Constitution.

1. Adjudication

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

The question raised regarding incompetence of the tribunal will be subject to analysis after the establishment of the facts.

The proceedings do not suffer from any nullity.

Deciding:

II Grounds

1. Established Facts

On the basis of the documentation submitted by the parties, the following facts are considered established:

11.1. The Claimant is an owner, in co-ownership, of half of a property described as a building plot, currently described under article U-… in the urban real estate matrix of the Union of Parishes of … and … described in the Registry of Real Property of … under no… .

11.2. The same land previously had article number … (corresponding to the former articles…, … and …, all of the council and parish of …, district of Porto), (cf. Documents 1, 2, and 3, attached to the file by the Respondent on 24/11/2016).

11.3. On 28 December 2011, the Claimant and the co-owner submitted an IMI form 1 declaration relating to the land in question, incorporating the three article numbers referred to in the preceding paragraph and indicating the following areas in m2: total land 1,038.76,0000; building footprint 904.0000, gross construction area 7,951.0000, and gross dependent area 1,808.0000 (Doc. 3 attached on 24/11/2016).

11.4. The assessment sheet no. … (provisional article…) was then prepared, determining for the land classified as an urban building plot a tax property value of € 2,454,890 (Doc. 4 attached by the AT to the file on 24/11/2016). In a supplementary sheet, residential allocation was mentioned (doc. 2 attached to the file on 24/11/2016).

11.5. During the year 2015, the services of the Municipal Chamber of … communicated to the co-owner of the Claimant, in response to a request for information, the following: "In response to the request, I must inform you that the land in question, lot no… of the subdivision permit no…, is located, in accordance with the PDM and the Urban Planning Plan of …, in a predominantly residential area. It is intended for the predominant location of residential activities, complemented with other activities, namely commercial, equipment, services, business, and industrial activities, provided that they do not create conditions of incompatibility with residential activity in accordance with the law. The predominant typology of buildings is collective housing, however, other typologies are admitted, provided that, in the case of mixed buildings, separate entrances and accesses to housing are guaranteed, and also the existence of commerce on ground floors" (art. 7 of the Request and Doc. no. 4 attached with the Request).

11.6. On 4 January 2016, the Claimant and the company co-owner of the same land submitted an IMI form 1 declaration relating to the land with matrix … of the Union of Parishes of … and … described in the Registry of Real Property of … under no…, the following areas being indicated in m2: total land 1,038.76,0000; building footprint 904.0000, gross construction area 7,951.0000, and gross dependent area 1,808.0000.

11.7. This communication gave rise to assessment sheet no…, determining a tax property value of € 1,975,320.00, noting that the evaluation, dated 2 January 2016, took into account data in accordance with the subdivision permit no…/91 and amendment …/15 (Documents nos. 1, 2, 3, and 4 attached with the Response).

11.8. The Claimant was notified of a Stamp Tax assessment, dated 5 April 2016, relating to 2015 (document no. 2016…), effected by applying the rate of 1% provided in item 28.1 of the TGIS, on the property referred to in the preceding numbers, applied to the VPT of € 1,975,320.00, amounting to the collection of € 9,876.60 for the holder of the share of ½, having paid meanwhile at least two installments of € 3,292.20 each (Doc. no. 1 attached with the Request and doc. attached to the file on 30/9/2016).

11.9. On 4 July 2016, the Claimant filed the present request for constitution of the Arbitral Tribunal.

1. Facts Not Considered Established

There are no facts with relevance to the arbitral decision that have not been given as established.

1. Legal Assessment

13.1. The preliminary question - object of the Request and competence of the tribunal

The Respondent argues that the Request for Arbitral Opinion has as its object the evaluation of the property, an act which it considers consolidated in the legal order and which, moreover, concerns a matter not covered by the competence of tax arbitral tribunals.

From the analysis of the reasoning contained in the Request and the arguments of the Claimant, it does not appear that the latter intends to alter the evaluation of the building plot (indeed, it may have achieved this in ways that we are unaware of, but this process is not under discussion in the proceedings).

What the Claimant intends to argue is that: a) item 28.1 does not include in its incidence building plots that are not intended exclusively for housing construction; b) item 28.1 suffers from unconstitutionality by applying to the holding of building plots by companies that use them as an asset necessary to the activity taxed by profit, in accordance with the Corporate Income Tax Code.

Thus, it is considered that the Respondent is wrong regarding the exception raised, the arbitral tribunal being materially competent, in accordance with the provisions of articles 2, no. 1, para. a), of the RJAT.

13.2. The legality of the assessment

13.2.1. The application of item 28 of the General Schedule of Stamp Tax

At issue is the application of item no. 28 of the General Schedule of Stamp Tax, annexed to the Stamp Tax Code (CIS). This item was added by article 4 of Law no. 55-A/2012, of 29 October, then with the following content:

"28 – Ownership, usufruct, or right of superficies of urban properties whose tax property value recorded in the matrix, in accordance with the Real Estate Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the tax property value for purposes of the Real Estate Tax:

28-1 – For residential property – 1%.

28.2 -………………………………………………………"

According 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 TGIS applies to a legal situation (no. 1 of article 1 and no. 4 of article 2 of the CIS), of which the respective taxpayers are those referred to in article 8 of the CIMI (no. 4 of art. 2 of the CIS), to whom falls the burden of the tax (subparagraph u) of no. 3 of article 3 of the CIS).

The CIS, in the wording given by Law no. 55-A/2012, both in article 4, no. 6 ("In the situations provided for in item 28 of the General Schedule, the tax is due whenever the properties are located in Portuguese territory"), and in article 23, no. 7 ("In the case of tax due for the situations provided for in item no. 28 of the General Schedule, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in the CIMI"), in conjunction with art. 1 of the CIMI, considers the property itself as the tax event (the situation that triggers taxation) provided it reaches the value provided for in item 28 of the General Schedule of Stamp Tax, regardless of the number of taxpayers, possessors (as owners, usufructuaries, or superficiaries) of the assets in question.

Its application by the tax administration to building plots gave rise, in a generalized manner[2], to doubt as to whether such real estate – building plots – could be subsumed under the concept of "residential properties" and therefore included in the scope of the objective incidence of item 28.1 of the TGIS annexed to the CIS, in case the respective VPT is equal to or greater than € 1,000,000.

Noting that neither Law no. 55-A/2012, of 29/10, nor the Stamp Tax Code defines "urban residential property," one sought, given the reference in no. 2 of article 67 of the CIS, the definition of that concept within the scope of the CIMI, taking into account the provisions of its respective articles 4 (definition of urban properties) and 6 (types of urban properties). From the analysis of nos. 2 and 3 of this article 6, it was concluded that the CIMI also does not contain a specific definition of what "urban residential properties" are, which would denote a deficient legislative technique through the use, in norms of tax incidence, of concepts that are not legally defined.

Various analyses converged on the interpretation that the expression "residential allocation" could not have any meaning other than "residential use," that is, urban properties that have actual use for residential purposes, whether because they are licensed for such use or because they have that normal destination, which is not the case with building plots that, not being built, do not satisfy, in themselves, any condition to be considered as residential properties, since they do not even possess a use license for housing, nor are they habitable, since they are not even built. In building plots there exists only the expectation, or potentiality, of an urban property being able, after construction, to have a "residential allocation," but only when the "residential allocation" is concretized, and never before its construction, does the urban property fall within the scope of the objective substantive rule of tax incidence in question[3].

Thus, the decisions then handed down within the scope of the CAAD were to the effect that, resulting from the Real Estate Tax Code a clear distinction between "residential" urban properties and "building plots," the latter could not be considered, for purposes of incidence described in item 28 of the TGIS, as "residential properties."

Also the jurisprudence of the STA was in that sense, citing, for all, the Decision handed down on 15 February 2017, in proc. 277/2016, which, reviewing an appeal of a judgment that had annulled a Stamp Tax assessment for 2012, concludes: "(…) in accordance with what was decided in the judgment under review that, resulting from article 6 of the Real Estate Tax Code a clear distinction between "residential" urban properties and "building plots," the latter cannot be considered as "residential properties" for purposes of item no. 28.1 of the General Schedule of Stamp Tax, in its original wording, as given to it by Law no. 55-A/2012, of 29 October"

This situation led to the legislative amendment introduced by article 194 of Law no. 83-C/2013, of 31/12 (which approved the State Budget for 2014), whereby item 28.1 of the TGIS came to provide "For residential property or for building plot whose authorized or intended building is for housing, in accordance with the provisions of the Real Estate Tax Code."

With that wording, in effect at the time of the assessment that is the object of this proceeding, it becomes unequivocal that building plots whose authorized or intended building is for housing are included within the scope of item 28.1 of the General Schedule of Stamp Tax provided that the respective tax property value is of a value equal to or greater than 1 million euros) (in this sense, compare Decision of the STA no. 01870/13, of 09-04-2014, Reporter, Isabel Marques da Silva).

We thus have that the current wording of items 28 and 28.1 of the TGIS objectively encompasses building plots for which the construction of residential buildings has been authorized or is intended.

As for the concept of building plot, article 6, no. 3, of the CIMI provides that these are considered to be "(…) land situated within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operations has been granted, prior notification has been admitted, or favorable prior information has been issued, and also those that have been declared as such in the acquisition title, with the exception of land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are allocated to public spaces, infrastructure, or facilities."

According to the facts considered established, the land in question, qualified in the matrix and property record as a building plot, constitutes "lot no. … of the subdivision permit no…," "with amendment …/15" (11.6.), whereby it is undoubtedly a building plot.

As for the application of the segment of the norm "whose authorized or intended building is for housing, in accordance with the provisions of the Real Estate Tax Code," we believe the interpretation resulting from the different numbers of article 6 of the CIMI to be pertinent: although in the classification contained in no. 1 no distinction is made, as regards building plots (subparagraph c) and no. 3), between those intended for construction for housing or other types of buildings, in no. 2, regarding the distinction between the types of residential, commercial, industrial, or services properties, it gives relevance to their respective licensing or, in the absence of a license, the respective normal destination emerges as the relevant criterion.

In the case, we know from prior information from the Municipal Chamber of … attached to the file by the Claimant, that in accordance with the Municipal Master Plan (PDM) and the Urban Planning Plan of …, the property is located "in a predominantly residential area" and "is intended for the predominant location of residential activities, complemented with other activities, namely commercial, equipment, services, business, and industrial activities, provided that they do not create conditions of incompatibility with residential activity in accordance with the law."

And as for the assumption that it is "intended or authorized building," we also agree with the interpretation adopted in the arbitral decision handed down in case no. 483/2015-T - "the building should be considered authorized when a building license was requested from the competent services and that license was granted." In the case, the license is not mentioned, but there is a subdivision permit that consists of an urbanization license for an urban area with a view to the construction of buildings. That permit, which implies an intention to construct, is requested by the interested parties, who will submit to the permitted conditions which, in the case, we know to be fundamentally intended for housing ("predominantly residential area"; "collective housing typology").

One can thus say that the Claimant is the holder of a building plot whose buildings are for housing (even though they may not be exclusively for that purpose). Item 28.1, in the wording already in effect at the time of the assessment under examination in the proceedings, encompasses the taxation of building plots of value greater than one million euros when there is provision for building, regardless of its future realization, and does not require that it be exclusively for housing.

As decided in case 483/2015-T, this tribunal also considers it should reject the thesis of the Claimant to the effect that plots where buildings with functions other than residential are intended are not covered by the substantive rule of incidence, and rather should take into account that "a building plot for residential construction with a VPT equal to or greater than 1,000,000 euros is intended, in principle, for the construction of collective urban buildings and that collective urban buildings are never exclusively residential, being always complemented with units for commercial or services purposes."

Now, it is not credible that, such being the normal situation, the legislator intended in item 28.1 to limit the scope of incidence of the tax to exclusively residential buildings. The norm would then have no useful effect, which is prohibited by no. 3 of art. 9 of the Civil Code (CC). That is, one agrees that "(…) seeking to reconstruct the legislative intent from the texts, taking into account the circumstances under which the law was made and the conditions specific to the time in which it is applied, as prescribed, regarding the interpretation of the law, in no. 1 of art. 9 of the CC, one must conclude that the legislator intended that building plots be taxed for which the construction of buildings that are, predominantly, for housing is intended." (in Arbitral Decision case 483/2015-T, emphasis ours).

In the present case, in which the prior information afforded to us clearly states that services, commerce, and equipment activities are complementary to the residential activity, being admissible only insofar as they are not incompatible therewith, it becomes evident that the non-residential part (services, commercial, equipment, and industrial) has a place only complementary to the residential part in the buildings to be constructed on the land in question.

That is, the property in question in the proceedings is a building plot "whose authorized or intended building is for housing," insofar as it is predominantly for housing.

And we also reject the possibility of depriving any useful effect from the statement of the SEAF, when discussing in the Assembly of the Republic the Bill Proposal that gave rise to the norm under discussion, regarding the intent to tax "luxury homes." That justification referred to the text of the norm originally relating to "residential property" (now "residential property") and not extending to building plots (as confirmed then by abundant jurisprudence already cited).

With the amendments introduced by the State Budget for 2014, building plots whose authorized or intended building is for housing, and not only houses of tax property value equal to or greater than 1,000,000 euros, came to be included within the scope of item 28.1 of the TGIS. The legislator altered the scope of the norm, extending taxation to building plots, of value also equal to or greater than 1,000,000 euros, and it is certain that their value derives from the purpose, predominantly, of buildings for housing but without requiring that be exclusively the destination of the buildings.

Thus, it is concluded that in the specific case of the proceedings the necessary factual and legal requirements for the application of item 28.1 of the TGIS were met, whereby the invocation of illegality, on grounds of "error as to the assumptions," of the Stamp Tax assessment act item 28.1, relating to the year 2015, relating to a "building plot" with attributed VPT of € 1,975,320.00, is not valid.

13.2.2. On the unconstitutionality of item 28 of the General Schedule of Stamp Tax

The thesis of the Claimant is that the incidence of item 28 of the TGIS on its situation is not justified because its contributory capacity should not be measured by investment assets but rather by the results obtained through the calculation of profits under the Corporate Income Tax.

Although not expressly enshrined in the CRP, it is the understanding of doctrine and jurisprudence that the principle of contributory capacity flows from the constitutional principle of equality (article 13 of the CRP), as set out namely in Judgments numbers 348/97 and 84/03 of the Constitutional Court.[4]

In the Portuguese tax legal system the law makes explicit that contributory capacity is revealed "through income or its use and through assets" (art. 4, no. 1 of the General Tax Law (LGT)). The characterization of the most important taxes in the tax system, reflected in article 104 of the CRP, distinguishes taxes on income (individuals and companies), assets, and consumption. Taking into account the doctrinal distinction between personal and real taxes, which attends to the internal structure of taxes and their adequacy to the economic power of the taxpayer, one could say that the personalization of the tax is largely impractical in taxes on consumption, is more easily realized under the Personal Income Tax, and traditionally falls halfway with taxes on assets[5].

Articles 104 of the CRP and 4 of the LGT, as well as article 103 of the CRP, validate the conclusion that the Portuguese tax system considers that "assets" reveal contributory capacity (wealth possessed) and is therefore susceptible to being taxed from the standpoint of that constitutional principle[6][7].

The advantages and difficulties of wealth taxation are often analyzed and the subject of controversy given the difficulties it faces[8]. For example, the Commission for Fiscal Development and Reform in its conclusions in 1996 suggested that periodic taxation of net wealth would not be justified as an end in itself but as an instrument for correcting insufficiencies revealed in income taxation, to be taken into account together with other proposals presented to that effect. During the "Wealth Tax Reform," whose work took place between 2002 and 2004, Local Property Tax and Stamp Duty on Property Transfers were replaced, respectively, by the Real Estate Tax and the Real Estate Transfer Tax, and gratuitous transfers became subject to Stamp Tax.

It should be noted that Stamp Tax has been considered a "means of reaching manifestations of contributory capacity not covered by the incidence of any other taxes. Not having the nature of overlapping taxation, this tax tends to assume a residual function, filling spaces left open by income and consumption taxation".[9]

Item 28.1 of the TGIS introduced by Law no. 55-A/2012, of 29 October, contains precisely a substantive rule of incidence on assets - "the ownership, usufruct, or right of superficies of urban properties." As also analyzed in decision 483/2015, "it is the mere holding of the property in the assets of the taxpayer, and not the income that derives from it (as opposed to what occurred under Local Property Tax), that constitutes, in the case of item 28.1 of the TGIS, the tax event."

The aforementioned Law no. 55-A/2012 resulted from bill proposal no. 96/XII (2nd), presented by the Government to the Assembly of the Republic and there admitted on 26 September 2012. In its statement of reasons, the fiscal measures contained in the diploma were inserted in a broader set of measures to combat the budget deficit, stating: "these measures are fundamental to reinforce the principle of social equity in austerity, guaranteeing an effective distribution of the sacrifices necessary to meet the adjustment program. The Government is strongly committed to ensuring that the distribution of these sacrifices is made by all and not only by those who live on the income of their work. In accordance with that objective, this diploma extends the taxation of capital and property, equitably covering a broad set of sectors of Portuguese society."

The fiscal measures, presented as a package, were the increase in the taxation of capital income and securities gains and the creation of a tax rate under stamp tax applying to urban properties of residential allocation whose tax property value is equal to or greater than one million euros[10].

It was already recalled above that, in the discussion of the bill proposal, it was affirmed regarding item 28 of the TGIS that the intention was to tax luxury homes, and that the text of the law approved by the Assembly of the Republic - Law no. 55-A/2012 – came to be the object, by tax arbitral and fiscal tribunals, of a generalized refusal of the interpretation, made then by the Tax Authority, that the norm covered the taxation of building plots.

It is quite possible – given the context of financial requirements imposed - that there was such an intention on the part of the political authority but it was expressed inadequately. Moreover, in the legislative work only the intent to tax homes, and luxury homes, was then expressed.

But Law no. 83-C/2013, of 31 December came to alter the text encompassing objectively in its scope of incidence building plots.

Let us now expressly address the Claimant's thesis that the ownership of a company asset intended for its functioning is not susceptible to revealing its contributory capacity, and that this can only be assessed by the production of gains. Once again citing the decision of case 483/2015, it was recalled there that the Real Estate Tax (Real Estate Tax) is different from its predecessors Local Property Tax of 1963 and Local Tax of 1988 in that it is based on taxation not based on the income of the properties but on their respective market value. However, it is noted that there are aspects that make it difficult to defend that in all cases the Real Estate Tax is based on the principle of contributory capacity taxation (e.g., it applies both to vacation homes or investment properties as to permanent housing and, regarding the latter, it applies both to a home worth 100,000 euros and to a home worth 1,000,000 euros). And, as regards companies, although subparagraph d) of no. 1 of art. 9 of the CIMI provides for special treatment for properties that are part of the current assets of a company, not burdening with tax the production costs of companies whose main factor of production is building plots, properties are not exempt from the Real Estate Tax in which other companies have their factories, offices, or commercial establishments installed. In the case of these other companies, it is verified that the Real Estate Tax burdens their respective production costs, which thus are reflected in final prices. "Therefore, it must be concluded that the taxation of assets in the Portuguese tax system does not exclude the taxation of real estate that are part of company assets and that serve to carry out its purpose. And therefore, the legislator takes the ownership of these assets as a manifestation of contributory capacity."

Let us see what happens with item 28.1 of the TGIS. As recalled above, it began by affirming the legislator's intention to tax more heavily assets constituted by properties of value exceeding one million euros, explaining that these were luxury homes[11]. But, from 2014, item 28.1 of the TGIS came to include building plots of value equal to or greater than one million euros, whose authorized or intended building is for housing. Without anything telling us that these are plots intended for luxury housing, nor excluding that the norm covers assets that are part of company assets.

Once again we coincide with the analysis done in case 483/2015:

"The ultimate question that arises is whether it is possible to identify in this situation a manifestation of contributory capacity. Admitting that in the Portuguese tax system, the rule is taxation, not exclusion, of the taxation of business real estate assets, and that therefore our legislator considers that there is contributory capacity there, it does not seem defensible to assert that a manifestation of contributory capacity is totally absent in the case of a building plot, with VPT equal to or greater than one million euros, belonging to a company. The fact that the legislator has limited taxation to plots whose authorized or intended building is for housing appears to be a legitimate choice of the legislator. The Constitutional Court, which has emphasized that the principle of contributory capacity must be made compatible with other constitutional principles, includes among these other constitutional principles the legislator's freedom of discretion (judgment TC no. 590/2015). In judgment no. 711/2006, the Court states: 'To ascertain, however, the existence of a particularism sufficiently distinct to justify an inequality of legal regime, and to decide the circumstances and factors to be considered relevant in that ascertainment, is a task that primarily falls to the legislator, who holds primacy in implementing constitutional principles and the corresponding freedom of discretion. For this reason, the principle of equality presents itself fundamentally to legal operators, when reviewing constitutionality, as a negative principle (…) - as a prohibition of arbitrariness.'

"It does not appear that in the case of item 28.1 of the TGIS there is a situation of arbitrariness. On the one hand, the legislator understood that it should exclude from taxation building plots for construction intended for non-residential purposes, i.e., economic and social equipment activities, and on the other, targeted those plots that by their location and classification at the level of territorial planning instruments are those that are subject to greater speculative appreciation, which are precisely those intended for predominantly residential buildings."[12]

Thus, the present arbitral tribunal concludes – as in the arbitral decision we have been citing – that there is no violation of constitutional principles of contributory capacity and equality in taxation, the assessment not suffering, also in that regard, from illegality.

13.2.3. On the lack of reasoning of the tax act

The Claimant further considers the assessment flawed due to lack of reasoning because the Respondent did not invoke, as it should, that we are dealing with "a building plot whose authorized or intended building is for housing, in accordance with the provisions of the CIMI" and that such lack violates articles 268 of the CRP, 123 of the CPA, 77 of the LGT.

After citing abundant jurisprudence, concludes that the reasoning is non-existent (art. 154 of the Request) while at the same time imputing various insufficiencies to it, stating that it was not mentioned that the plots have building intended. It also invokes error in the qualification of the property (164 of the Request).

The other reason for the imputed lack of reasoning consists in the AT's failure to explain why it "assessed Stamp Tax on building plots with the various types of allocations authorized, when it is certain that the enabling norm contains taxation in the field of building plots whose authorized building is only for housing in accordance with the Real Estate Tax Code." (art. 165 of the Request). And it considers that the assessment should have contained sufficient reasons for the assessment, as decided in the STA judgment of 19/09/2012 (proc. no. 0659/12).

Beginning with this latter argument, it will be said that the Claimant drew a parallel with a situation quite different from its own – in the case decided in proc. 659/12, it was a situation of Real Estate Tax assessment in which the taxpayer had not been notified of the determination of the taxable matter (such as the VPT was found) and such ignorance was maintained in the notification of the tax assessment. In the present case, when responding to the exception raised by the Respondent, the Claimant stated that it was not challenging the evaluation, but the interpretation of the concept of building plot included in item 28.1.

As for the imputation of lack of explanation as to the assessment of Stamp Tax "on building plots with the various types of authorized allocations, when it is certain that the enabling norm contains taxation in the field of building plots whose authorized building is only for housing in accordance with the Real Estate Tax Code," it constitutes not properly an accusation of lack of reasoning but disagreement with the reasoning, a manifestation of divergence in the interpretation of the law.

Analyzing now the assessment act in light of the applicable norms from the CRP, LGT, and CPPT, and taking into account that it is a situation of mass acts practice, it is considered that the requirements provided for, in particular in article 77, no. 2 of the LGT - reasoning provided summarily, containing the applicable legal provisions (item 28.1 of the TGIS), the qualification and quantification of the tax events (building plot and VPT) and the operations for determining the taxable matter (assessment by applying the 1% rate to the VPT, taking into account the quota) and the Stamp Tax owed (collection and installment to be paid) [cf. paragraph f) of the established facts].

Besides, the Claimant showed knowledge of the reasoning by attacking it with arguments that revealed understanding of the reasoning followed by the interpretation underlying the assessment. And, if it had considered the reasoning insufficient, the law (art. 37, no.1, of the CPPT) provides that the facility be used to request "the notification of the requirements that have been omitted or the passing of a certificate containing them," with suspension of the defense period.

Thus, having considered all this, the invocation of a vice of lack of reasoning of the assessment also does not hold.

And, there being no illegality of the assessment, the request for reimbursement of tax paid also does not hold, as does the request for indemnification interest.

1. Decision

With the grounds set out, the decision is as follows:

a) To judge the invocation by the Respondent of incompetence of the Arbitral Tribunal not well-founded;

b) To judge the request for declaration of illegality, on grounds of error as to assumptions and lack of reasoning, not well-founded;

c) To judge the invocation of application of an unconstitutional norm not well-founded;

d) To judge the request for reimbursement of tax paid and indemnification interest not well-founded;

e) To condemn the Claimant to costs.

1. Value of the Proceeding

In accordance with the provisions of no. 2 of article 315 of the CPC, in subparagraph a) of no. 1 of article 97-A of the CPPT and also no. 2 of article 3 of the Costs Regulation in Tax Arbitration Proceedings, the proceeding is valued at € 9,876.60 (nine thousand eight hundred and seventy-six euros and sixty cents).

1. Costs

For the purposes of the provision in no. 2 of article 12 and in no. 4 of article 22 of the RJAT and no. 4 of article 4 of the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at € 918.00 (nine hundred and eighteen euros), in accordance with Table I annexed to the aforementioned Regulation, to be borne entirely by the Respondent.

Lisbon, 16 March 2017.

The Arbitrator

Manuela Roseiro

[1] The Claimant considers that the conclusion drawn by the AT cannot be conceived, based on the documents it attached, that the Claimant intends in these proceedings the challenge of the evaluation of the property in question carried out on 02.02.2016, following a request for evaluation whose receipt date occurred on 04.01.2016, when we are dealing with the challenge of a stamp tax assessment whose tax event occurred in 2015. [It will be observed, however, that the present assessment, relating to 2015, is based on the evaluation values referred to as made in 2016].

[2] Hundreds of arbitral decisions and many decisions of administrative and tax tribunals were issued, in particular at the highest level by the Tax Litigation Section of the STA.

[3] Article 45 of the CIMI would not allow the qualification of building plots as "residential properties" because it is a norm that aims at the evaluation of building plots, considering as one of its elements the authorized or possible destination, depending on urbanistic conditions, being only a potentiality, an expectation, and not being sufficient to alter the nature of the property, which continues to be considered as a building plot, nor to support that the property in question comes to have a "residential allocation" for purposes of the objective incidence of item 28.1 of the TGIS. The decision handed down in case 49/2013-T considered that the circumstance that for a given building plot the construction of a property intended for housing, or for any other purpose, is authorized, although should be considered in its evaluation, does not determine any alteration in the classification of the plot which, for tax purposes, continues to be a building plot.

[4] Judgments recalled in the Arbitral Decision handed down in Case no. 483/2015, in a situation similar to that in the present proceedings.

[5] Sérgio Vasques, Manual of Tax Law, Almedina, 2013, pp. 193 to 195.

[6] Casalta Nabais, in "The Fundamental Duty to Pay Taxes," Almedina, 1998, pp. 482 and 483. The author considers that the criterion of contributory capacity does not result in any exclusion of taxes on assets or capital (contrary to what is sustained by some authors, both those who reduce the applicability of the principle to manifestations of wealth that embody increases in productive sources, excluding manifestations of wealth that are part of the productive sources themselves, as well as those who limit the manifestations of capacity to net income, understanding that assets only contribute to the formation of contributory capacity insofar as they produce or may produce income if used with normal diligence). The Author further states that, even when one defends the existence of restrictions on ordinary and effective taxation of assets, derived from the recognition and protection of private property (as a social right and structuring principle of the constitutional economic order, based on a market economy), the objections will be more difficult in situations in which there is a need to meet abnormal financial needs (ibidem, p. 483 and note 838).

[7] Sérgio Vasques, in "Contributory Capacity, Income, and Assets" (Review of Tax Law Forum, Belo Horizonte, year 2, no. 11, pp. 23-61, Sep/Oct, 2004), observes how the taxation of assets is closely linked to the historical formation of taxes on income. In land-based economies there is the impossibility of directly reaching income, resorting to the taxation of assets, first land assets (land, housing), then mobile assets, represented by manifestations of fortune (horses, carriages, slaves). As the transition is made from a land-based economy to economies based on commerce and industry, the relative importance of mobile wealth is accentuated and the tax system shifts from assets to income, first in the form of sectional taxation (taxes of a real structure, largely based on estimates or presumptions), later, with the increasing effectiveness of state administrations, taxation on income becomes global and universal. The defense of the continuation of asset taxation came to be based on the principle of contributory capacity (source of reserve, special contributory capacity, and progressivity) (Contributory Capacity, Income, and Assets, ibidem., pp. 43 to 46). Subsequent crisis of progressivity and the breakdown of association between the principle of contributory capacity and asset taxation produced a crisis in the legitimation of asset taxation (idem, ibidem, p. 46 and ff.).

[8] Very synthetically referred to in our arbitral decision of 2 May 2014, in case 219/2013-T and which in part we again recall here.

[9] Silvério Mateus and Corvelo de Freitas In "Taxes on Real Estate Assets. Stamp Tax. Annotated and Commented, Engifisco, Lisbon, 2005, p. 251, citation in José Maria Pires, op.cit. note 314.

[10] In the Opinion of the Committee on Budget, Finance and Public Administration (DAR II series A, no. 11/XII2 2012.10.04) it is said: "the measures follow the identification of deviations in the budget execution of the current year, which made the initial targets impossible to achieve without additional choices. The measures thus appear as a solution to compensate, even if only partially, the identified deviations and ensure that Portugal does not fail to meet the budget consolidation targets to which it has committed."

[11] It was stated in Judgment no. 590/2015 of the TC: "[T]he fiscal measure in question is not found in the substantive rule of incidence to be arbitrary, because deprived of rational basis. As was seen, the legislative amendment aimed to extend the taxation of assets, making it bear more intensely on property which, by its value considerably higher than that of the generality of urban properties with residential allocation, reveals greater indicators of wealth and, as such, is susceptible of founding the imposition of increased contribution for the remedy of public accounts on its holders, in realization of the aforementioned 'principle of social equity in austerity.'"

[12] Arbitral Decision no. 483/2015-T.