ARBITRAL DECISION

I. REPORT

1. A..., Lda., a company with registered office at ..., registered entity number ..., filed a request with the Administrative Tax Arbitration Center (CAAD) on May 9, 2014, for the constitution of an arbitral tribunal in tax matters, pursuant to the provisions of Article 10, nos. 1 and 2 of Decree-Law No. 10/2011, of January 20 (Legal Regime for Tax Arbitration "RJAT"), in which the Tax and Customs Authority (AT) is the respondent, with a view to the declaration of illegality and consequent annulment of the stamp tax assessment corresponding to document no. 2014..., of March 18, 2014, in the amount of €12,910.50 (twelve thousand, nine hundred and ten euros and fifty cents).

2. The claimant opted not to appoint an arbitrator.

3. The request for constitution of an arbitral tribunal was accepted by the President of CAAD on May 13, 2014, and automatically notified to AT on May 14, 2014.

4. The signatory was designated by the President of the Deontological Board of CAAD as arbitrator of a sole arbitral tribunal, in accordance with the provisions of Article 6 of RJAT.

5. The signatory communicated acceptance of the appointment to the President of the Deontological Board of CAAD within the legal deadline, in accordance with the provisions of Article 4 of CAAD's Code of Deontology.

6. The parties were notified of the designation of the signatory on June 30, 2014, in accordance with Article 11, no. 1, paragraphs a) and b) of RJAT, and did not object thereto.

7. The sole arbitral tribunal was thus properly constituted on July 15, 2014, in accordance with the provisions of paragraph c) of Article 11, no. 1 of RJAT.

8. AT was notified, by arbitral order of July 21, 2014, to submit its response within 30 days (this period being suspended during the judicial recess, as provided in Article 17-A of RJAT).

9. AT submitted its response on September 30, 2014, also requesting waiver of the meeting referred to in Article 18 of RJAT.

10. By arbitral order of October 9, 2014, the claimant was ordered to be notified to pronounce on the waiver of that meeting, and the claimant indicated on October 15, 2014, that it did not object to such waiver.

11. The arbitral tribunal has material jurisdiction, in accordance with Article 2, no. 1, paragraph a) of RJAT.

12. The parties have standing and legal capacity and are legitimate parties (Articles 4 and 10, no. 2 of RJAT and Article 1 of Regulation No. 112-A/2011, of March 22).

13. The proceeding does not suffer from any defects that would invalidate it.

II. REQUEST OF THE CLAIMANT

1. The claimant seeks the declaration of illegality and consequent annulment of the stamp tax assessment no. 2014..., of March 18, 2014, in the amount of €12,910.50 (twelve thousand, nine hundred and ten euros and fifty cents).

III. FACTUAL MATTERS

1. With relevance to the appraisal of the claimant's request, the following facts are considered proven, based on the documents attached to the file and not contested by the respondent:

a. The claimant acquired, by deed executed on February 1, 2012, the urban property, consisting of a plot of land intended for construction, lot no. ..., located in ..., parish of ..., municipality of ..., registered in the register under article ... and described in the Land Registry Office of ... under number ....

b. The urban property in question is described in the register as land for construction.

c. The property has a taxable property value of €1,291,050.00 (one million, two hundred and ninety-one thousand and fifty euros).

d. In the evaluation data contained in the property register, the property has "location coefficient type" of residential.

e. It can be inferred from the file that there is no construction on the identified property.

f. The claimant was notified of the collection document relating to the first installment of Stamp Tax (IS) relating to item 28.1 of the General Schedule of Stamp Tax Items (TGIS), for the year 2013, with number 2014 ..., of March 18, 2014, in the amount of €4,303.50.

g. The collection document identified in the preceding paragraph establishes as the total amount of the levy €12,910.50.

1. There are no other facts with relevance to the proceeding that are not considered proven.

2. The conviction about the facts deemed proven was based on the documentary evidence indicated, submitted by the claimant, whose authenticity and correspondence to reality were not questioned by the respondent.

IV. LEGAL MATTERS

1. The claimant considers, in summary, that the identified assessment is unlawful, to the extent that item 28.1 of TGIS does not cover land for construction, as these do not have residential use:

2. It indicates that item 28.1 of TGIS (added by Article 4 of Law No. 55-A/2012, of October 29, and with the wording in effect until December 31, 2013) prescribes the subjection to tax of "properties with residential use," and that the concept of "property with residential use" is not clarified by any legal provision, being an indeterminate and original concept, whose content must be defined by resort to its literal meaning.

3. "Land intended for construction" are those located within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operation has been granted, and also those that have been declared as such in the acquisition deed (Article 6, no. 3 of the Municipal Property Tax Code (CIMI)). These are, therefore, properties still without definitive construction (merely provided with a building permit or subject to a subdivision operation).

4. From which it is concluded that land intended for construction does not have, at present (and may not have in the future) a residential use: everything depends on what is to be built on it, thus depending on its application or dedication to a residential purpose.

5. The legislative preparatory work that preceded the approval of Law No. 55-A/2012, of October 29, points to the fact that the legislature's intention was to tax specifically properties with constructed buildings - and not land intended for construction.

6. It cites decisions rendered within CAAD itself to the effect that "since the urban property in question is land for construction, the same does not fall within the scope of the objective rule of application of item 28.1 of TGIS, which renders unlawful the assessment that is the subject of the present arbitral proceeding (...)."

7. Law No. 83-C/2013, of December 31, amended the wording of item no. 28.1 of TGIS. But as it came into force on January 1, 2014, it does not apply to a taxable fact occurring in 2013.

8. The new wording of item 28.1 (from 2014 onwards) does not legitimate an extensive interpretation of its previous wording (in effect from October 2012), which permits including in this what the legislature now expressly intended.

9. Now, the rule expressly refers to "residential property," a concept that has obvious affinities with the concept of "property with residential use" and that exhausted the content of item 28.1 of 2012. But it also refers to "land for construction whose building is for residential purposes" which was not contained, explicitly or implicitly, in the preceding rule.

10. It is thus evident that the new rule (introduced by Law No. 83-C/2013 of December 31) encompasses something that was not contained in the 2012 rule: land for construction. And if it was not contained, then it is because that was the will of the legislature.

11. It further cites case law of the Supreme Administrative Court, in which reference is made to the amendment of the rule's wording: "to which the legislature did not give an interpretative character, nor does it appear to us that it did – it only makes clear for the future that land for construction whose building, authorized or intended, is for residential purposes is included within the scope of item 28.1(...), but clarifies nothing regarding past situations (assessments from 2012 and 2013), such as the one at issue in the present case."(...) "It is thus concluded that, resulting from Article 6 of the Municipal Property Tax Code a clear distinction between urban properties 'residential' and 'land for construction', the latter cannot be considered (...) 'as properties with residential use' for the purposes of the provision in item 28.1 (...) in its original wording".

12. For its part, the respondent maintains, in summary, that all requirements for the application of item 28.1 of TGIS to the specific case are met and that the assessment notified to the claimant is therefore lawful:

13. As a preliminary matter, it indicates that the request for arbitral decision has as its object the annulment of the Stamp Tax assessment identified in the request for arbitral decision, in the amount of €12,910.50, although the act in question is, in fact, the collection document no. 2014 ..., in the amount of €4,303.50, relating to the 1st installment - and therefore the appraisal of the request cannot exceed this act, and consequently, the subsequent installments should be subject to an independent request.

14. It is the position of AT that the property on which the disputed assessment is levied has the legal nature of a property with residential use, whereby the assessment act that is the subject of the present request for arbitral decision should be upheld, as it constitutes correct interpretation of Item 28 of TGIS, added by Law No. 55-A/2012, of October 29.

15. In the absence of any definition of the concepts of urban property, land for construction, and residential use in stamp tax, recourse must be had to CIMI to find a definition that allows ascertaining possible subjection to stamp tax, in accordance with the provision of Article 67, no. 2 of the Stamp Tax Code (CIS) in the wording given by Law No. 55-A/2012, of October 29.

16. According to the said legal provision, to matters not regulated in the Code, relating to item no. 28 of TGIS, the provision of CIMI applies subsidiarily.

17. Article 2, no. 1 of CIMI provides that "property is any fraction of territory, including water, plantations, buildings and constructions of any nature incorporated therein or erected thereon, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances has economic value, as well as water, plantations, buildings or constructions, in the aforementioned circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a fraction of territory that constitutes an integral part of a diverse patrimony or does not have a patrimonial nature."

18. For its part, Article 6, no. 1 of CIMI provides regarding the types of urban properties existing, integrating in this concept land for construction, that is, "land located within or outside an urban agglomeration, for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those that have been declared as such in the acquisition deed, except for land in which the competent entities prohibit any of those operations..."

19. The notion of use of urban property is based on the part relating to the appraisal of immovables, since the appraisal of the immovable (purpose) incorporates value to the immovable, constituting a fact of distinction that is determinative (coefficient) for purposes of appraisal.

20. As results from the expression "...value of authorized buildings," contained in Article 45, no. 2 of CIMI, the legislature opted to determine the application of the appraisal methodology of properties in general to the appraisal of land for construction, and consequently the use coefficient provided in Article 41 of CIMI is applicable to them.

21. Thus, for purposes of determining the taxable property value of land for construction, the application of the use coefficient in the appraisal is clear, and its consideration for purposes of application of item 28 of TGIS cannot be ignored, because:

a. In the application of law to specific cases it is important to determine the exact meaning and scope of the rule, so that the rule contained in it is revealed, a condition essential for it to be applied, in accordance with the provision of Article 9 of the Civil Code, pursuant to Article 11 of the General Tax Law;

b. Article 67, no. 2 of CIS orders the application of the provision of CIMI subsidiarily;

c. The use of the immovable (aptitude or purpose) is a coefficient that contributes to the appraisal of the immovable, in the determination of the taxable property value, applicable to land for construction;

d. Item 28 TGIS itself refers to the expression "properties with residential use," appealing to a classification that overlaps the types provided in no. 1 of Article 6 of CIMI.

1. AT believes that the concept of "properties with residential use," for purposes of the provision in item 28 of TGIS, comprises both constructed properties and land for construction, immediately in view of the literal element of the rule.

2. The legislature does not refer to "properties intended for residential purposes," having opted for the notion "residential use" - an expression different and broader, whose meaning must be found in the need to integrate other realities beyond those identified in Article 6, no. 1, paragraph a) of CIMI.

3. The mere creation of a right of potential construction immediately increases the value of the immovable in question, hence the rule contained in Article 45 of CIMI which orders the separation of the two parts of the land.

4. With regard to the legal regime for urbanization and construction, it should be noted that the same has as its presupposition buildings already constructed.

5. It cannot be ignored that the license permit for the performance of urbanization operations should contain, among other elements, the number of lots and an indication of the location area, purpose, area of implantation, building area, number of floors and number of units of each of the lots, with specification of units intended for housing at controlled costs, when planned, in accordance with paragraph a) of Article 77 of the Legal Regime for Urbanization and Construction (RJUE);

6. And further that Article 77 of RJUE contains mandatory specifications, particularly for permits for subdivision operations or urbanization works, and for construction works.

7. Municipal Master Plans also establish the strategy for municipal development, the municipal policy for land management and urbanism and other urban policies. It integrates and articulates the orientations established by territorial management instruments of national and regional scope and establishes the model for spatial organization of municipal territory.

8. In these terms, well before the actual construction of the property, it is possible to ascertain and determine the use of the land for construction.

9. The respondent further advocates for the constitutionality of the rule at issue, stating, among others, that it is a general and abstract rule, applicable uniformly to all cases in which the factual and legal conditions are met, and that it seeks to attain a maximum of effectiveness as to the objective to be reached, with the minimum of injury to other interests considered relevant.

V. QUESTIONS TO BE DECIDED

1. Considering the facts and legal matters contained in the request for arbitral decision presented by the claimant, as well as in the response of the respondent, the question to be decided by this arbitral tribunal is whether land for construction should be considered, for purposes of the incidence of Stamp Tax, regarding item 28.1 of TGIS, in the wording of Law No. 55-A/2012, of October 29, as properties with residential use.

VI. APPRAISAL

1. The question at issue has already been considered on several occasions by the Supreme Administrative Court (see, by way of example, the recent Decisions of September 24 and July 9, 2014) and by arbitral case law (particularly within the scope of cases 42/2013-T, of October 18, 2013; 48/2013-T, of October 9, 2013; 49/2013-T, of September 18, 2013; 53/2013-T, of October 2, 2013; 75/2013-T, of November 1, 2013; 144/2013-T, of December 12, 2013; 158/2013-T, of February 10, 2014; 308/2013-T, of April 28, 2014; 310/2013, of April 22, 2014 and 202/2014-T, of October 16, 2014).

2. The cited case law decided, in all cases, against the position of the respondent, decisions that, it is indicated from now on, this arbitral tribunal follows, as will be detailed.

3. For the appraisal of the question at issue it is important, first and foremost, to analyze Article 4 of Law No. 55-A/2012, of October 29, which added to TGIS, annexed to CIS, item no. 28, with the following wording:

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

28.1 — For property with residential use — 1 %;

28.2 — For property, when the taxable persons who are not natural persons are residents in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by order of the Minister of Finance — 7.5%."

1. The legislative text in question introduced a concept not used in any other tax provision – that of property with residential use – nor defined it.

2. To understand its content, the concepts of property contained in CIMI (Articles 2 to 6) should thus be consulted – under the provision of Article 67, no. 2 of CIS, according to which, to matters not regulated in CIS relating to item no. 28 of TGIS, the provision of CIMI is applied subsidiarily.

3. And such interpretation should always be conducted in accordance with the provisions of Article 11 of the General Tax Law (LGT) and Article 9 of the Civil Code, to which it refers.

4. Article 11 of LGT establishes that:

5. In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

6. Whenever tax rules employ terms specific to other branches of law, they should be interpreted in the same sense as they have there, unless otherwise directly provided for by law.

7. Should doubt persist regarding the meaning of the applicable rules of incidence, account should be taken of the economic substance of the taxable facts.

8. Gaps resulting from tax rules covered by the legislative reserve of the National Assembly are not susceptible to analogical integration.

9. For its part, Article 9 of the Civil Code indicates that:

10. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drafted, and the specific conditions of the time in which it is applied.

11. However, the interpreter cannot consider legislative intent that does not have in the letter of the law a minimum of verbal correspondence, however imperfectly expressed.

12. In fixing the meaning and scope of the law, the interpreter will presume that the legislature adopted the most sound solutions and knew how to express its intent in appropriate terms.

13. From the analysis of the concepts contained in the indicated articles of CIMI (2 to 6), it is found that there is no correspondence of any one with that established in item 28.1 of TGIS (property with residential use).

14. In fact, CIMI clearly differentiates between residential properties and land for construction. The former are classified according to the respective municipal license or, failing that, their normal use; the latter are defined according to their legal potentiality.

15. The licensing or normal use of a property whose destination is residential refer, naturally, to constructed properties that meet the characteristics required for such licensing or use.

16. But land for construction – regardless of the potentiality of construction, or the moment at which that potentiality is assessed, contrary to what the respondent states – will have no aptitude to be licensed for residential purposes, or to define this purpose as its normal destination.

17. Now, if the tax rule in question does not define, of itself, the concept of residential use, it is not possible to extract, under the aforementioned rules, and without more, that within its scope falls any potentiality whatsoever of a building that may be constructed on land for construction – it comprises only actual residential construction.

18. And contrary to what the respondent alleges, the rule cannot be interpreted to mean that the legislature's choice with the expression "residential use" was to overlap the types contained in Article 6 of CIMI.

19. The rules under which the interpreter must conduct the activity of interpretation of legal rules, as detailed above, confer no legal support for such an interpretation.

20. If such were the legislature's choice, it would certainly have expressly indicated the same.

21. Now, presuming that the legislature knew how to express its intent in an appropriate manner, we find, on the contrary, an express reference to the concepts contained in CIMI (which the respondent itself acknowledges), and not to other realities not contained therein.

22. Additionally, this arbitral tribunal also does not agree with the respondent's position, according to which the meaning of residential use should be extracted from the provision of Article 45 of CIMI.

23. Article 45 of CIMI relates to the rules applicable in determining the property value of land for construction, establishing that this is what results from the value of the building implantation area to be constructed added to the land adjacent to the implantation. In fixing the value of that area, a percentage, variable between 15% and 45%, of the value of authorized or intended buildings is considered.

24. The respondent states that in this fixing of value the coefficients applicable in determining the taxable property value are used, specifically the "residential" use coefficient, and that this should also be a determining element for purposes of applying item 28.1 of TGIS in question.

25. As clearly elucidating this point, cite the provision of the Supreme Administrative Court Decision of July 9, 2014, with which full agreement is expressed:

"The fact that it may be considered that in determining the taxable property value of urban properties classified as land for construction one should take into account the use that will have the building authorized or intended for it for determination of the respective value of the implantation area (cfr. nos. 1 and 2 of Article 45 of CIMI) does not determine that land for construction can be classified as 'properties with residential use,' since residential use always appears in the Municipal Property Tax Code referred to 'buildings' or 'constructions,' existing, authorized or intended, since only these can be inhabited, which is not the case with land for construction, which does not have, in itself, conditions for such, not being susceptible of being used for residential purposes unless and until a construction authorized and intended for it is built thereon (but in that case they would no longer be 'land for construction' but another type of urban property – 'residential,' 'commercial, industrial or for services' or 'other' – Article 6 of CIMI).

It would be strange, moreover, if the determination of the scope of the tax rule of incidence of item no. 28 of the General Schedule of Stamp Tax Items were found, in the end, in the rules for determining the taxable property value of the Municipal Property Tax Code, and that the terminological imprecision of the legislature in drafting that rule was, in fact, elucidated and finally clarified through an indirect and equivocal reference to the use coefficient established by the legislature in relation to constructed properties (Article 41 of the Municipal Property Tax Code)."

1. It should also be noted that Law No. 83-C/2013, of December 31, amended the wording of the rule in question, with item 28.1 of TGIS now providing: "for residential property or for land for construction whose building, authorized or intended, is for residential purposes."

2. It is the understanding of this arbitral tribunal that the new rule only applies for the future (from January 1, 2014), and that no interpretative character could be drawn from it – if it were the case – regarding the wording in effect until then and now under consideration.

3. If there were an intention to confer an interpretative nature on the rule, this would have been expressly indicated by the legislature.

4. The jurisprudential practice has been unanimous, constant, and settled as to the understanding to be conferred on the rule in question, so that, in truth, there was no rule that needed authentic interpretation.

5. Thus, the legislature, with the amendment introduced in 2013, merely sought to clearly include a new reality subject to item 28.1 of TGIS, in addition to manifestly residential properties (land for construction, not contained in the previous wording).

6. Finally, in order to reinforce the understanding that has been delineated, the reconstruction of the legislative intent that presided over the approval of the wording of item 28.1 of TGIS in 2012 is sought:

7. On one hand, from the statement of reasons contained in Legislative Proposal No. 96/XII – 2nd, of September 21, 2012 (which gave rise to the aforementioned Law No. 55-A/2012), nothing emerges that permits clarifying the concept of property with residential use.

8. On the other hand, and as contained in the Journal of the National Assembly, I Series, no. 9/XII, 2nd legislative session, of October 11, 2012, the Secretary of State for Tax Matters presented this legislative innovation in the following terms:

"This proposal has three essential pillars: the creation of special taxation on urban properties valued above 1 million euros; the increase in taxation on capital income and on securities gains; and strengthening of rules to combat tax fraud and evasion.

First, the Government proposes the creation of a special tax to tax high-value residential urban properties. This is the first time that Portugal has created special taxation on high-value properties intended for residential purposes. This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to houses valued at or above 1 million euros." (underlined in original)

1. From the foregoing it emerges that it is not possible, by virtue of the cited legal rules, to infer that land for construction may be subsumed in the expression "properties with residential use." On the contrary.

2. The respondent further presents argument to demonstrate that the rule in question does not violate any constitutional provision. However, considering that such evaluation was not the object of the request for arbitral decision presented by the claimant, it will not, consequently, be appraised by the arbitral tribunal, as it exceeds the scope of the request.

3. The respondent also indicates, as set forth in paragraph 30 above, that the appraisal of the request cannot exceed the collection act of the first installment, and that consequently, the subsequent installments should be subject to an independent request.

4. Under the provisions of Articles 23, no. 7 and 44, no. 5 of CIS, to the assessment and payment of the tax referred to in item 28 of TGIS, the terms of assessment and payment of tax contained in CIMI will apply.

5. In accordance with Article 113 of CIMI, the tax is assessed annually, in the months of February and March of the year following that to which the tax pertains, and will be paid (cfr. Article 120, no. 1, paragraph a) of CIMI) in three installments when its amount exceeds €500.00.

6. The claimant presents with its request the tax assessment note relating to item 28 of TGIS, which also contains the data for collection of the first installment, in compliance with the rule indicated above.

7. It should be noted, moreover, that the document itself issued by AT contains the indication that "you may claim or contest the assessment in accordance with the terms and deadlines established in Articles 70 and 102 of the Tax Procedure Code" (underlined in original).

8. It is through the document identified that the claimant has, for the first time, knowledge of the assessment.

9. Accordingly, it will be the appropriate document to be contested or claimed, for the entirety of the assessment value.

10. The installments in which the tax should be paid necessarily result from this value thus determined and notified to the taxpayer.

11. Now, to impose on the claimant the independent contestation of each installment is not, in the understanding of this arbitral tribunal, compatible with the principles of proportionality, fairness, and expedition, contained in Article 55 of LGT, or with the principle of efficiency.

12. Once the illegality of the tax assessment applied to the specific case is determined, all collection notes issued under such assessment should subsequently be annulled.

VII. DECISION

In these terms, and based on the grounds set forth, the arbitral tribunal decides to render judgment in favor of the request for arbitral decision, with the consequent annulment of the stamp tax assessment of item 28 of TGIS, in the amount of €12,910.50 and collection notes issued under the same.

Value of the case: €12,910.50 (twelve thousand, nine hundred and ten euros and fifty cents)

Costs: Under the provision of Article 22 of RJAT, and under the terms of Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the value of costs is fixed at €918.00 (nine hundred and eighteen euros), to be borne by the respondent.

Lisbon, December 3, 2014

The Arbitrator

Ana Pedrosa Augusto