Stamp Duty on High-Value Property (Verba 28.1 TGIS) – Equality Principle Challenge | CAAD 366/2014-T

ARBITRAL DECISION

Claimant: A... (hereinafter "Claimant")

Respondent: Tax and Customs Authority (hereinafter "AT" and "Respondent")

1. Report

A..., taxpayer no. ..., resident at Rua …, Cascais, hereinafter referred to as Claimant, submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to annulment of the tax assessment act for item no. 28.1 of the General Table of Stamp Duty (TGIS), in the total amount of € 10,258.50 (which is divided into collection notices no. 2013 ..., 2013 ... and 2013 ...), of the urban property in full ownership located at Rua ..., no. 14, Cascais, union of parishes of Estoril and Cascais, municipality of Cascais, registered in the urban property matrix under article ... (former article ...) of said parish.

The Claimant bases the illegality of the tax assessment act on the following defects:

a) Defect of violation of constitutional law – violation of article 13 of the Constitution of the Portuguese Republic – Principle of equality, aspect of contributory capacity;

b) Defect of violation of constitutional law – violation of article 13 of the Constitution of the Portuguese Republic – Principle of equality, aspect of tax system coherence.

The Tax and Customs Authority, in turn, argued that:

a) The Claimant's claim does not aim at the declaration of illegality of any assessment act, but rather the non-application of item 28.1 of the TGIS due to alleged unconstitutionality.

b) The incompetence of this Arbitral Tribunal to rule on eventual unconstitutionalities, insofar as arbitral tribunals can only decide according to established law, being precluded from resorting to equity.

c) There exists no arbitrary discriminatory treatment in the case of subjection of the urban property supra identified to Stamp Duty, item 28.1, basing its response on 19.05.2014, arguing that the request for declaration of illegality and consequent annulment of the disputed assessments should be judged unfounded, and arguing that the patrimonial value relevant for the purposes of tax incidence is the total patrimonial value of the urban property and not the patrimonial value of each of the parts that compose it, even if they are susceptible to independent use.

The sole arbitrator was designated on 23.06.2014.

In compliance with the provision of article 11, no. 1, letter c) of the RJAT, the single arbitral tribunal was constituted on 08.07.2014.

The meeting of the arbitral tribunal was scheduled for 14.11.2014 at 14:50 hours.

On that occasion, the Claimant had the opportunity to pronounce on the exceptions invoked by the AT, arguing in summary the lack of merit of the same, defending the competence of arbitral tribunals in a similar manner to the competence attributed to administrative and tax courts, and also the fact that it had challenged by means of the present request for arbitral ruling the illegality in concreto of a tax assessment act (assessment).

The Claimant and Respondent agreed that the allegations could take place in written form, with the deadline running simultaneously, the tribunal having determined that the allegations be produced in writing within twenty days, for which purpose they were immediately notified.

At this meeting, 5 January 2015 was also fixed as the date for the issuance of the arbitral decision.

1. Sanitation

The parties have standing and legal capacity and are legitimate (articles 4 and 10, no. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March), the request for arbitral ruling having been presented in a timely manner. The case does not suffer from nullities.

However, before anything else, it is necessary to analyze the exceptions raised by the Respondent.

First, the AT invoked that the Claimant would not intend the recognition of the illegality of any assessment act.

Now, given the content of such request for arbitral ruling, namely its first page, it results sufficiently evidenced the clear and enlightened identification of the tax assessment act subject to the present arbitral ruling, as well as at the end, when presenting the request, the Claimant petitions the annulment of the Stamp Duty assessment (divided into three collection notices), such procedure being in full compliance with letter a) of no. 1 of article 2 of Decree-Law no. 10/2011 of 20 January, in use of the legislative authorization granted by article 124 of Law no. 3-B/2010 of 28 April (State Budget for 2010), insofar as "the competence of arbitral tribunals comprises the appreciation of the following claims:

a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account"

Being in question, as it is, in the present case the appreciation relative to the illegality in concreto of Stamp Duty assessment and the concomitant annulment of that same tax assessment act, there exists, by virtue of this exception invoked by the Respondent, no grounds for the tribunal to refrain from ruling on the request formulated by the Claimant, thus the invoked exception is unfounded.

Likewise, the Respondent anchored its defense by exception, sustained on the argument that it would be prohibited for this arbitral tribunal to rule on the eventual unconstitutionality of tax norms, such as that invoked by the Tax Authority to subject to taxation the property of which the Claimant is the owner, through item 28.1 of the TGIS of the Stamp Duty Code.

In this respect, it is important, first and foremost, to invoke the legislative authorization for the introduction of an arbitral regime in Tax Law, as an alternative form of jurisdictional resolution of conflicts, a regime that emerged with the State Budget Law/2010 (Law 3-B/2010 of 28 April) - article 124.

The scope of tax arbitration is also inferred from no. 2 of article 124 of said law, when it states that "the tax arbitral procedure must constitute an alternative procedural means to judicial challenge proceedings and to actions for the recognition of a right or legitimate interest in tax matters."

While an alternative procedural means to recourse to tax tribunals and with no normative provision expressly prohibiting such appreciation as to the conformity of ordinary laws with the Constitution, it would be restrictive and reductive to derive from article 2 of the RJAT an interpretation that from the outset would exclude such possibility of appreciation of the constitutional conformity of a given tax norm, when it is well known that such competence exists within the scope of tax tribunals.

Now, the legislator not having expressly distinguished, in this case not having proceeded to the reduction of the scope of the competence of the arbitral tribunal to appreciate matters such as the conformity of ordinary laws with the Constitution of the Portuguese Republic, the interpreter should not proceed to that same distinction, in this case, that reduction, when the specificities of the arbitral tribunal in tax matters derive from Decree-Law no. 10/2011 of 20 January, in use of the legislative authorization granted by article 124 of Law no. 3-B/2010 of 28 April [State Budget for 2010], in the version introduced by articles 228 and 229 of Law no. 66-B/2012 of 31 December [State Budget for 2013] – hereinafter designated as "RJAT" - whence if there exists the alleged limitation argued by the Respondent, it should always derive expressly from this same diploma, which does not occur, much less from article 2 of said legal diploma.

Even because, the non-conformity of a given legal norm with the Fundamental Law (Constitution of the Portuguese Republic) cannot fail to be traced to a defect of violation of law, which in these cases would mean a violation of the Fundamental Law of the State, that is of the constitutional norms, in which are determined the general principles of political organization and of the national legal system and through which are enshrined the fundamental rights and duties of citizens, occupying the constitutional norms contained in the Constitution of the Portuguese Republic (CRP) the top of the pyramid of the hierarchy of laws.

From what has been set forth, it is not equitable that the non-conformity of a law hierarchically inferior to the fundamental law contained in the CRP could fail to generate a defect of violation of law, precisely with respect to the hierarchically superior law of the national legal system, as the Respondent seems to intend, insofar as it seeks to exclude from the competence of arbitral tribunals in tax matters eventual violations with respect to the Portuguese Fundamental Law, as if such non-conformities with the Portuguese fundamental law should not be traced to a defect of violation of law and in consequence thereof, could not result in the illegality of the tax assessment acts subject to the present case.

Thus, it does not appear possible to interpret article 2 of the RJAT as excluding from the scope of the competence of the arbitral tribunal in tax matters the appreciation relative to any defect of violation of law, whether it be of constitutional value or of value hierarchically inferior to the Constitution of the Portuguese Republic.

Furthermore and finally, from the very RJAT itself is drawn a conclusion contrary to the supposed lack of competence of the arbitral tribunal to rule on eventual non-conformities of law with the Constitution of the Portuguese Republic.

This is because, under the terms of no. 1 of article 25 of the RJAT: "The arbitral decision on the merits of the claim filed that terminates the arbitral procedure is subject to appeal to the Constitutional Court in the part in which it refuses the application of any norm on the ground of its unconstitutionality or that applies a norm whose unconstitutionality has been raised."

Now, if the arbitral tribunal in tax matters were prohibited from ruling on the non-conformity of legal norms with the Constitution, it could never be understood that the legislator had provided in the cited normative provision that the arbitral decision in tax matters could give rise to direct appeal to the Constitutional Court, whenever, for example, that arbitral decision refused the application of a given norm on the ground of its unconstitutionality.

Whence, in light of the reasoning vented hereby, the exception raised by the Respondent as to the incompetence of this arbitral tribunal for knowledge of the eventual non-conformities of tax norms with the Constitution of the Portuguese Republic cannot also fail to be unfounded.

Having appreciated the exceptions raised by the Respondent in the sense of their lack of merit, nothing prevents the tribunal from ruling on the merits of the request for arbitral ruling formulated by the Claimant.

1. Factual Matters

3.1. Proven Facts:

Having analyzed the documentary evidence produced, the following facts are considered proven and of interest for the decision of the case:

1. The Claimant is the owner of the urban property located at Rua ..., no. 14, Cascais, union of parishes of Estoril and Cascais, municipality of Cascais, registered in the urban property matrix under article ... (former article ...) of said parish.

2. The property has residential allocation and is held in full ownership without floors or divisions susceptible to independent use, having two storeys and nine rooms.

3. The Claimant was notified of the Stamp Duty assessment of 2012, in the total amount of € 10,258.50, which is divided into collection notices with numbers 2013 ..., 2013 ... and 2013 ..., in the amount of €3,419.50, each.

4. The tax patrimonial value of the urban property identified in 1. is € 1,025,850.35, being subject to taxation by the application of item 28.1 of the TGIS at the rate of 1%.

5. The collection notices identified in point 3 were subject to payment on 22.04.2013, 13.07.2013 and 17.11.2013, respectively.

6. The Claimant submitted a gracious complaint, which was expressly dismissed.

7. The Claimant submitted a Hierarchical Appeal on 4 December 2013.

8. The Hierarchical Appeal not having been subject to decision, the Claimant submitted on 05.05.2014 the request for arbitral ruling that gave rise to the present case.

9. The Claimant proceeded on 25.11.2014 to the payment of the subsequent court fee.

No other facts with relevance for the decision of the case were proven.

3.2. Reasoning of the Proven Factual Matters:

With regard to the proven facts, the conviction of the arbitrator was based on the documentary evidence attached to the case.

1. Legal Matters:

4.1. Object and Scope of the Present Procedure

The question to be decided in the present case is whether item 28.1 of the General Table of Stamp Duty (TGIS), relating to Stamp Duty of 2012, in the case of properties not constituted in horizontal property ownership, applies to the sum of the tax patrimonial value attributed to the different parts or floors (total VPT), or rather to the tax patrimonial value of each part of the property with independent economic use.

The request for arbitral ruling has as its object the declaration of illegality of the stamp tax assessment act in the amount of € 10,258.50 divided under the collection documents supra identified, effected under the provision of item 28.1 of the TGIS, relating to the year 2012, in the total amount of € 10,258.50, on the ground of violation of the principle of equality contained in article 13 of the Constitution of the Portuguese Republic, in its aspects of contributory capacity, as well as in its aspect of tax system coherence. Additionally, the Claimant petitions the reimbursement of the allegedly unduly paid stamp tax and the payment of indemnity interest.

4.2. Question of the Defect of Violation of Constitutional Law – Violation of Article 13 of the Constitution of the Portuguese Republic – Principle of Equality, Aspect of Contributory Capacity

In summary, the Claimant argues that item 28.1 of the TGIS violates article 13 of the Constitution of the Portuguese Republic, in the aspect of contributory capacity insofar as, and we quote a passage from its allegations: "With the present tax (IS) it is intended to tax the ownership, usufruct or right of superficies of property with exclusively residential allocation, whose tax patrimonial value (hereinafter VPT) is equal to or greater than 1,000,000 EUR (one million euros), as is the case of the Claimant who is the owner of the property better identified in letter a) of the proven facts.

Now, in terms of contributory capacity related to patrimony, a taxpayer who holds 10 properties with residential allocation, each with a VPT of 100,000.00 EUR is in an objectively comparable situation with the Claimant.

Both have equal contributory capacity with respect to patrimony (1,000,000.00 EUR)."

As well as the Claimant further argues that this same non-conformity with the CRP results equally from the fact that the legislator only provides for the subjection to this stamp duty of urban properties allocated to housing and not other urban properties with different allocations (services, commerce and industry) and of identical VPT.

According to the Tax Authority, the non-application of item 28.1 of the TGIS in the case of the present proceedings would lead to a violation of the principle of formal legality established in no. 2 of article 103 of the CRP.

Now and with due respect for the position of the Respondent, such constitutional normative provision does not appear to be a sufficient legal anchor to, on its own, exclude the alleged unconstitutionality, for if it were, it would mean that the appreciation of the constitutional conformity of tax incidence norms could only take place at the formal level, that is, as to the compliance with the legislative process that flows from the provision and legal requirement of no. 2 of article 103 of the CRP, which has no legal basis, given that any legal norm can be subject to confrontation as to its substantive conformity with the normative text of the Constitution of the Portuguese Republic.

Let us then see the legal framework for the Stamp Duty assessment in question:

Law no. 55-A/2012 of 29 October added item 28.1 to the General Table of Stamp Duty (TGIS), with the following wording:

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

28.1 – For property with residential allocation – 1% (…);

In turn, article 13 of the Constitution of the Portuguese Republic provides as follows:

Article 13

(Principle of Equality)

1. All citizens have the same social dignity and are equal before the law.

2. No one may be privileged, benefited, prejudiced, deprived of any right or exempted from any duty by reason of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, education, economic situation, social condition or sexual orientation."

The introduction in the tax legal order of the present item 28.1 of the TGIS had as a relevant factor the manifestation of contributory capacity related to urban properties with residential allocation, of high value (luxury), more precisely, of value equal to or greater than €1,000,000.00, upon which Stamp Duty began to apply.

The legislator thus intended to introduce a principle of taxation on the wealth exteriorized in the ownership, usufruct or right of superficies over any and all urban properties with residential allocation, the legislative criterion having applied such stamp tax to urban properties with residential allocation, whose VPT is equal to or greater than €1,000,000.00.

Such conclusion can be drawn from the analysis of the discussion of bill no. 96/XII in the Assembly of the Republic, available for consultation in the Assembly of the Republic Journal, I series, no. 9/XII/2 of 11 October 2012.

The justification for the measure designated as "special tax on high-value residential urban properties" is based on the invocation of the principles of social equity and fiscal justice, calling to contribute in a more intense manner the holders of properties of high value intended for housing, making the new special tax apply to "houses of value equal to or greater than 1 million euros."

In this way, it appears clear that the legislator understood that this value (one million euros or greater, per urban property with residential allocation), when imputed to a residence translates a contributory capacity above the average and, as such, capable of determining a special contribution to ensure just sharing of the fiscal burden.

But equally evident, it translates a legislative choice option that sought to specifically burden urban properties with residential allocation of high segment, premium or also commonly called luxury properties.

Note that, regardless of more or less subjective conceptions about the concept of luxury dwellings, high segment or expressions of equivalent meaning, it is certain that the tax patrimonial value is, since the reform of property taxation in 2003, measured on the basis of objective elements, such as area, location, comfort level, among others.

Which is to say that, and regardless of ideological considerations that can be made on such policy choice, the legislator had a concrete and defined objective: to subject to Stamp Duty taxation urban properties with residential allocation of highest value, which in practice was translated into fixing a threshold measurable through VPT: value equal to or greater than € 1,000,000.00.

And it is from this finding that the question relating to the violation of the principle of equality in its material aspect concerning contributory capacity should be appreciated.

As has been uniformly asserted both by doctrine and by jurisprudence (of the Constitutional Court itself), the principle of equality implies that unequal treatment be given to that which is not equal.

In this respect, the Central Administrative Court South pronounced itself, in decision of 14.11.2013, in the scope of process 6971/13, according to which:

"The principle of equality is one of the structuring principles of the Portuguese constitutional system, finding generic recognition in article 13 of the C.R.P.

The most recent decisions of the Constitutional Court, in the aspect that interests us here, correctly point out that the principle of equality requires that equal treatment be given to that which is necessarily equal and different treatment to that which is essentially different, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that do not have justification and sufficient material basis (cfr. J. J. Gomes Canotilho and Vital Moreira, Constitution of the Portuguese Republic annotated, 4th. Edition, 1st. Volume, Coimbra Editora, 2007, p. 341; decision Constitutional Court 232/2003 of 13/5/2003; decision Constitutional Court 45/2010 of 3/2/2010)."

Now, with due respect for the reasoning followed by the Claimant, this departs from a presupposition of equality in the comparison made with respect to who may be the holder of ten residential urban properties with a summed value equal to or greater than € 1,000,000.00, which is not in fact fulfilled.

This is because, in the hypothetical formulation of comparison, one is not even before the holding, whether by title of ownership, usufruct or right of superficies of a single urban residential property whose VPT equals or exceeds € 1,000,000.00.

Which vitiates from the outset any judgment of comparability on the basis of equality, such as the exercise carried out by the Claimant.

Being that, moreover, as set forth above, the legislative intent appears clear in the sense of making an additional taxation effort fall on a residential real estate reality of high value in achieving the objectives of the tax system, in the unfavorable economic juncture that the country was experiencing.

And to assess such high value, the legislator equipped itself with an objective criterion: urban property with residential allocation of tax patrimonial value equal to or greater than € 1,000,000.00.

Being that and here no less relevant, the fixing of such VPT is effected on the basis of objective elements that influence the value of properties and further taking into account increasing and decreasing factors (such as those contained in the tables of article 43 of the CIMI) provided for by law, not only of general application but uniform, which permit with a high degree of confidence to exclude any assessment of subjective nature in the evaluation of the property in question.

However and not losing sight of the hypothesis equated by the Claimant and used to give substance to its comparative reasoning and conclusion, and particularly because the emphasis of the violation of the principle of equality is placed on the aspect of contributory capacity, one cannot fail to observe that on the same quantum of income often falls a distinct level of taxation depending on the nature or the form underlying its origin, without such necessarily signifying any violation of the principle of equality, in any of its aspects.

The same happening, moreover, with taxes on patrimony, see the case of IMT, in which the acquisition of property with residential allocation, depending on the greater or lesser tax patrimonial value of that property, is subject to a greater or lesser (and could even be zero) effective IMT rate, depending on the greater or lesser VPT of the property subject to transmission.

Returning to the comparison erected by the Claimant as apparent demonstration of the violation of the principle of equality, in its aspect of contributory capacity, one cannot fail to state that the contributory capacity of someone who onerosely acquires an urban residential property with a VPT of € 1,000,000.00 is not identical to that of the taxpayer who acquires ten urban residential properties with a VPT of € 100,000.00.

First, because of the relevant financial burden that results from the fiscal component that such or such acquisitions (respectively) entail at the level of IMT (example of onerous acquisition).

That is, while the acquisition of each of the 10 properties with VPT of € 100,000.00 would entail subjection to an IMT rate of less than 1% of that same VPT, already in the case of the onerous acquisition of a property with a VPT of € 1,000,000.00 the effective IMT rate would be exponentially higher than the rate of properties with VPT of € 100,000.00.

Whence, the comparison that has been serving as the basis for the Claimant's argumentation does not lead, as follows from the above example, to a conclusion according to which contributory capacity is identical in both situations.

Rather to the contrary, it suffices that the acquisition of that real estate portfolio be subject to tax, for one easily to conclude that the base contributory capacity of the Claimant is superior to one who acquires ten urban residential properties with a VPT of € 100,000.00.

We conclude and second, in the wake of what Sérgio Vasques does, in Contributory Capacity, Income and Patrimony, published in the Tax Law Forum Magazine, September/October 2004, page 27, according to which: "In truth, a tax cannot be said to correspond with the principle of contributory capacity simply by applying to wealth but only when it applies to wealth in a determined way.

In what way? In a way that reflects the general economic force of the taxpayer, the resources of his personal and family life left available to him for the payment of the tax. The tax should only begin where this economic force begins, operating capacity as a presupposition of taxation, and should end where it also ends, serving, then contributory capacity as a limit to the tax."

Now, it does not appear absolutely indifferent to be the owner (usufructuary or holder of a right of superficies) of an urban residential property with a VPT of € 1,000,000.00 or of ten properties with a VPT of € 1,000,000.00 each.

And from this question stems, in our perspective, another error concerning the presuppositions of the reasoning expended by the Claimant, which results from the fact that it appears to center item 28.1 of the TGIS in the sense that through this it intends to tax the entirety of a whole real estate portfolio in the holding of the same taxpayer, when, in truth, it does not appear to be the object of such item of the TGIS, much less the legislative objective underlying it.

That is, with due respect for different understanding, item 28.1 of the TGIS does not intend to make general taxation fall on the entire real estate portfolio of each of the taxpayers, for if it did, then from the outset the wording of the precept would have to be diametrically different from the existing one, and furthermore, it would always appear that such taxation should take place in the context of a tax with the nature of taxation on patrimony and not via Stamp Duty, for in this mooted hypothesis, nothing more would be than before a true tax on patrimony.

To the contrary, item 28.1 of the TGIS and in our understanding, the objective defined by the legislator for this, was to subject to taxation each and every residential property of higher value, belonging to a said premium segment or said luxury.

But such taxation on urban residential properties of said high value could not be carried out without resorting to evaluation criteria that stem from the endogenous characteristics of those same urban residential properties.

Reason for which the legislator erected the concept of tax patrimonial value as a determination concept for the evaluation of each of those urban residential properties, having as minimum basis for such taxation through item 28.1 always that the VPT be equal to or greater than one million euros.

Thus, any comparative exercise of urban residential properties that do not even reach that threshold or parameter of objective comparability of one million euros are not in our view apt for such reasoning, insofar as the legislative purpose appears to be clearly to subject to taxation each and every urban residential property that, by its characteristics (location, construction areas, location and comfort indices) exceed the threshold of one million euros objectively defined by the legislator.

Making fall on these latter, by reason of their differentiating characteristics, densified in their VPT, an additional fiscal burden effort on the part of their holder.

In any event, it does not appear that by the mere fact of a taxpayer being the holder of ten urban properties with residential allocation with a VPT of € 100,000.00 each, necessarily has a contributory capacity identical to that of the taxpayer who is the holder of an urban residential property with a VPT of € 1,000,000.00 (being that as already mentioned it is not the intent of the norm to tax the entirety of the residential real estate portfolio).

First, because and as the Claimant well emphasizes, in the hypothesis of the holder of a property of VPT equal to or greater than € 1,000,000.00, this person does not have the same degree of flexibility to monetize that same patrimony, for if he directs it to his own housing, he will lose the possibility of renting it out.

To the contrary, the holder of ten residential properties with a VPT of € 1,000,000.00 each could more easily do so, insofar as he could allocate a large part of those properties to rental, for example, keeping only one for his own housing.

Although, apparently, this flexibility could bring advantages in the hypothetical case brought to bear by the Claimant, such analysis will have to be carried out in an integrated manner with respect to what are the objectives pursued by the tax system, with constitutional basis.

And from that integrated analysis one cannot fail to perceive that that same greater flexibility that exists before a real estate portfolio of ten dwellings will always have superior economic appetite, insofar as it will generate, in case of rental, a financial return (taxable) in the sphere of its owner, but more relevantly, it will represent an effective contribution in terms of the collection of tax revenues by the State for the achievement of the objectives of the Portuguese tax system that are contained in no. 1 of article 103 of the CRP, which will more hardly occur in the case of the taxpayer who is merely the holder of an urban property with a VPT of € 1,000,000.00, as the Claimant herself ends up recognizing.

Adding further, that it is well known that since the financial crisis of 2008, access to credit whereby the acquisition of a home with recourse to credit decreased markedly, due not only to greater bank stringency in its granting, but equally due to the high cost of money which led to exclude from this market a relevant segment of the population.

Now, also from this point of view, the taxation of item 28.1 of the TGIS on the reality of the Claimant and not on the hypothesis conjectured by this one, is capable of finding substance in a housing policy choice that since then tends to privilege rental.

And as the Claimant concedes, the flexibility and thus the probability and appetite for placing urban residential properties in the rental market is substantially higher in the case of the holder of various (for example, 10) urban residential properties, when compared with the holder of only one urban residential property (with a VPT of € 1,000,000.00, for example).

Whence, the legislative measure in question embodied in item 28.1 of the TGIS is also from this point of view capable of generating in the economy and society a reorientation of residential real estate investment toward the rental market, thus meeting the known needs for residential rental existing and being thus an invaluable instrument for filling the lack of supply in that same market.

Therefore, also from the point of view of the choices of political power, the subjection to taxation of the tax reality brought by item 28.1 of the TGIS encloses a choice and universal and rational option, based on criteria of objectivity and uniformity, which make it possible to exclude any idea of arbitrariness in the distinctions made by the legislator.

Thus, the hypothetical comparison carried out by the Claimant, apart from not departing from a similar factual basis, is further vitiated by a defect of reasoning that appears to presuppose that in either case, the contributory capacity would necessarily be equal, which was not, in our view, demonstrated.

The legislative choice that underlies item 28.1 of the TGIS translates a line of political orientation that sought to specifically burden urban properties with residential allocation of high value, premium or also commonly called luxury, thus calling them especially to participate in the effort of ensuring the financial needs of the State and Social State through just sharing of the fiscal burden.

Now, as follows from decision no. 306/10, handed down by the Constitutional Court on 14/7/2010, published in the Official Journal, 2nd Series, no. 186 of 23/9/2010, "On the other hand, the Court has also considered that the principle of contributory capacity must be compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of legislative configuration, and certain requirements of practicability and cognoscibility of the tax fact, equally indispensable for the fulfillment of the purposes of the tax system (the cited Decision no. 142/04).

The Constitutional Court has thus been moving away from a merely negative control of tax equality, moving to adopt the principle of contributory capacity as a criterion adequate to the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an adjunct element in the verification of the constitutional validity of normative solutions in the tax field, particularly when these are dictated by considerations of legislative policy related to the rationalization of the system.

In short, the principle of tax equality can be implemented through diverse aspects: a first, lies in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating in the same way taxpayers who are in equal situations and in different ways those who are in different situations, to the extent of the difference, to be assessed by contributory capacity; a last, lies in the prohibition of arbitrariness, in precluding the introduction of discriminations between taxpayers that are devoid of rational basis (cfr. Rogério Fernandes Ferreira/Sérgio Vasques, op. cit., p. 974)."

Now, it is in light of the jurisprudence just cited that we cannot fail to conclude that there does not exist in the wording of item 28.1 relative to the case of the present proceedings, any violation of the principle of equality contained in article 13, in the aspect of contributory capacity, for although the solution could possibly from the political-legislative point of view be otherwise, that wording and solution ensures compliance with the principle of equality in all its aspects.

Being that specifically in the matter of contributory capacity it clearly stands out that the solution adopted treats distinctly different residential realities on the basis of an objective and rational criterion (tax patrimonial value of each urban residential property) calling only upon urban residential properties that by their own characteristics have a higher VPT (equal to or greater than € 1,000,000.00) to pay such item and preserving the other properties of value below that from this additional contribution to the fiscal burden.

The Claimant further bases the unconstitutionality of item 28.1 against the principle of equality in its aspect of contributory capacity, on the fact that only urban properties with residential allocation are subject to such taxation in the context of Stamp Duty, unlike what happens with urban properties with different allocations (services, commerce or industry).

In this respect and as and in accordance with the reiterated and uniform sense of the jurisprudence of the Constitutional Court: "only can be censured, on the ground of lesion of the principle of equality, the regime choices made by the ordinary legislator in those cases in which it is proven that they result in differences of treatment among persons that do not find justification in reasonable, perceptible or intelligible grounds, taking into account the constitutional purposes that, with the measure of the difference, are pursued" (Decision of the Constitutional Court no. 47/2010).

The legislative choice that item 28.1 of the TGIS encloses, in the sense of limiting taxation in Stamp Duty to «properties with residential allocation» allows to perceive the conscious purpose of not subjecting to taxation of this item, properties with allocation to services, industry or commerce, which is understood in light of its allocation to economic activity and to the recessive economic climate that has been experienced in Portugal, with particular gravity since 2011.

In an extremely adverse economic context as has been notoriously observed in recent years notorious, with the high rates of unemployment existing and with the closure and insolvency of many companies in light of their economic-financial precariousness, subjection to such item could function as a detonator with strongly destructive effects on the already fragile business fabric and consequently no less harmful to employment and social cohesion.

The legislative choice of only subjecting to taxation urban properties with residential allocation fits, in our view and equally, in a fundamental policy choice, with substance of rationality and objective justification at the level of the choices that lie with the legislator, without there resulting therefrom a gratuitous or arbitrary overload.

That is, in any case the value of contributory capacity, notwithstanding its greater relevance for the assessment of the principle of equality in tax matters, does not represent a constitutionally absolute value, wherefore it cannot fail to be weighed and assessed having also in mind the objectives of the tax system with identical constitutional recognition and the rationality and justifiability of the political-legislative choices that in the framework of the concrete existing economic context better defend and accommodate just sharing of fiscal burdens, with a view to just sharing of wealth and facing the financial needs of the State (Social).

In light of what has been said, we cannot fail to conclude that no censure deserves the wording of item 28.1 of the TGIS relative to the provision of the principle of equality, in its aspect of contributory capacity.

4.3. Defect of Violation of Constitutional Law – Violation of Article 13 of the Constitution of the Portuguese Republic – Principle of Equality, Aspect of Tax System Coherence – Multiple Taxation – and Offense to No. 3 of Article 104 of the Constitution of the Portuguese Republic

The Claimant argues in support of the supra identified non-conformity with the Constitution, in summary, the following:

"For a situation of internal double taxation to exist, it will be necessary to meet two requirements: (i) identity of the tax fact and (ii) plurality of norms.

The doctrine has been tracing the first of these requirements to the so-called "rule of four identities," according to which for identity of the tax fact to exist it will be necessary that there be (i) identity of object; (ii) identity of subject; (iii) identity of tax period and (iv) identity of the nature of the tax."

Further arguing that such framing of item 28.1 of the TGIS also entails a violation of no. 3 of article 104 of the CRP, anchoring itself in the example to which we already referred in point 4.2.

We agree on this particular with the Claimant when this refers that the existing identity of tax, one would be before a situation of duplication of collection and not so much internal double taxation.

But we can no longer do so in the matter of identity of nature of the taxes (IMI and Stamp Duty).

Let us see, the IMI - Real Estate Municipal Tax – is a tax which, as its own name suggests applies to real estate reality, applying to the tax patrimonial value of properties (rural and urban) located in national territory.

It is a municipal tax, whose revenue reverts to the respective municipalities where the properties are located and not to the central State, as happens in the case of Stamp Duty.

Thus, relative to the IMI, one can assert, without shadow of doubt, that one is before a tax that applies solely and exclusively to real estate patrimony, thus being classified by virtue of its nature as a tax on patrimony.

But the same, however, does not happen with Stamp Duty and for such conclusion it suffices to note the legislative preamble of Decree-Law no. 287/2003 of 12 November, according to which: "The present decree-law proceeds to reform property taxation, approving the new Codes of the Real Estate Municipal Tax (CIMI) and the Municipal Tax on Onerous Transfers of Real Estate (CIMT) and proceeding to alterations of various tax legislation connected with the same reform."

It thus follows from the passage of the preamble cited, a clear separation by the legislator between what should be considered as taxation on patrimony, unfolded in the taxes that apply to it (IMI and IMT) and on the other hand, the tax legislation that connects with that same taxation, the legislator including the Stamp Duty Code in this second group.

And such dissociation of Stamp Duty with respect to the so-called taxes on patrimony of which the IMI and the IMT are part, results not only from the preamble, but also from article 1 of said legal diploma: "The present diploma aims to proceed to the reform of property taxation, as well as to the alteration of the Code of Personal Income Tax (CIRS), the Code of Corporate Income Tax (CIRC), the Stamp Duty Code (CIS), the Tax Benefits Statute (EBF) and the Notarial Code (CN)."

It thus also follows from article 1 of DL 287/2013 of 12 November that the legislator does not integrate Stamp Duty within the scope of taxes on patrimony, clearly separating between taxes that by their nature tax patrimony – IMI and IMT – and on the other hand, the other taxes that do not have in taxation on patrimony their essential matrix, where PIT, CIT and Stamp Duty are included.

Now, attentive to the provision of article 9 of the Civil Code and in support of the guiding principles as to the interpretation of legal norms, it does not appear possible to conclude in the sense of identity as to the nature of the IMI and Stamp Duty.

It is not overlooked, however, that Stamp Duty has undergone profound alterations, especially since the reform effected in 2000 and deepened with DL 287/2013 of 18 November, in the sense of transforming a tax on documents into a tax on operations which, regardless of the form in which they are embodied, are revelatory of income or wealth.

In similar sense, concluded the Central Administrative Court South, within the scope of process 07648/14, of 10.07.2014, according to which: "With Law 150/99 of 11/9, and subsequent reform of patrimony (cfr. dec.law 287/2003 of 12/11), Stamp Duty changed its essential nature as a tax on documents, coming to assert itself as a true tax applying to operations which, regardless of the form of their materialization, reveal income or wealth."

But as is understood, such incidence of item 28.1 of the TGIS on urban properties with residential allocation of VPT greater than or equal to € 1,000,000.00 does not alter the nature of Stamp Duty to a tax on patrimony (which continues to tax documents), being rather and only a manifestation of the aforesaid assertion of this tax as a tax on operations which, in one way or another externalized, may materialize income or wealth.

By the foregoing and not forgetting also the different objectives and destinations of each of these tax revenues – IMI and Stamp Duty – and without need of assessment of the first three indices of assessment invoked by the Claimant (given the cumulative character of the four indices to make eventual duplication of taxation operate) it is not possible to reach an identical basis as to the nature and eventual overlap between these two taxes, to the contrary of what the Claimant contends, reason for which that same alleged non-conformity of item 28.1 of the TGIS with the principle of equality contained in article 13 of the CRP, in its aspect of tax system coherence (multiple taxation) cannot proceed.

By the grounds already set forth, the formulated non-conformity of item 28.1 of the TGIS with the provision of no. 3 of article 104 of the CRP is equally prejudiced, in the just measure that Stamp Duty is not configurable as a tax on patrimony, but rather, in the words of the law and in the dichotomy that there manifests itself relative to the IMI, as a tax on operations.

4.4. Regarding Reimbursement to the Claimant of the Stamp Duty Paid, plus Payment of Indemnity Interest

In light of all that has been expended and concluded in points 4.2 and 4.3, no judgment of illegality having been issued on the tax assessment act subject to the present arbitral ruling, the appreciation as to reimbursement of the Stamp Duty paid by application of item 28.1 of the TGIS and also the payment of eventual indemnity interest is prejudiced.

1. DECISION:

As a consequence and in consequence of the foregoing, this arbitral tribunal judges:

a) Totally unfounded, as not proven, the exceptions invoked by the Respondent;

b) Totally unfounded, as not proven, the request for declaration of illegality of the tax assessment act – Stamp Duty assessment of 2012, item 28.1 of the TGIS - formulated by the Claimant and subject of these proceedings;

c) Prejudiced, in light of the lack of merit contained in the foregoing letter, the appreciation of the requests formulated as to reimbursement of the Stamp Duty paid and payment of indemnity interest by the Respondent;

Value of the case: € 10,258.50 – articles 97-A of the CPPT, 12 of the RJAT (DL 10/2011), 3-2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs in accordance with Table I of the RCPTA, calculated based on the aforesaid value of the claim, charged to the claimant - articles 4-1 of the RCPTA and 6-2/a) and 22-4 of the RJAT.

Let this arbitral decision be notified to the parties and, in due course, let the case be filed.

Lisbon, 5 January 2015

The sole arbitrator

Luís Ricardo Farinha Sequeira

Text elaborated by computer, in accordance with article 138, no. 5 of the Civil Procedure Code (CPC), applicable by referral from article 29, no. 1, letter e) of the Tax Arbitration Regime, with blank verses and revised by me.