Stamp Tax on Properties Over €1M: CAAD Arbitral Decision 383/2017-T on Clause 28.1 TGIS

Arbitral Award

I – Report

The taxpayer company "A…, S.A.", with Tax Identification Number … (hereinafter "Applicant"), filed on 22 June 2017 a request for constitution of a Collective Arbitral Tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter "RJAT"), in which the Tax and Customs Authority (hereinafter "TA" or "Respondent") is respondent.

The Applicant hereby requests, in the form of cumulative claims, an arbitral determination regarding the illegality of the decision dismissing the ex officio revision within the scope of the administrative ex officio revision procedure no. …2016…, and consequent annulment of the tax assessments issued under Stamp Tax (hereinafter "ST") pursuant to article 1(1) of the Stamp Tax Code (hereinafter "STC") and item 28.1 of the General Table of Stamp Tax (hereinafter "GTST"), relating to the year 2014 and to real properties of which the Applicant was then the owner, and formalized in assessments nos. 2015…, 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015…; 2015… in the total amount of €492,225.75.

In accordance with the provisions of subsection a) of article 6(2) and subsection b) of article 11(1) of the RJAT, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated the arbitrators of the Collective Arbitral Tribunal, who communicated acceptance of the assignment within the applicable period, and notified the parties of that designation on 23 June 2017.

The Collective Arbitral Tribunal was constituted on 29 August 2017; it was properly constituted and is materially competent, in accordance with the provisions of articles 2(1/a), 5, 6(1), and 11(1) of the RJAT (with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December).

In accordance with article 17(1 and 2) of the RJAT, the TA was notified on 30 August 2017 to submit its response.

The TA filed its Response on 3 October 2016.

In that response the TA argues, in summary, for the total rejection of the Applicant's claim.

The Arbitral Order of 6 October 2017 dispensed with the holding of the meeting referred to in article 18 of the RJAT, as well as with the submission of arguments by the parties.

The Arbitral Order of 26 November 2016 determined the filing by the Respondent of new evidentiary elements necessary for the clarification of the truth and for determination on the merits of the case, elements whose existence was already indicated with respect to the procedure for determination of the patrimonial status of the real properties to which the assessments subject to litigation relate, including among those elements:

Model Declaration 1 of the IMI that served as the basis for the assessment of the real properties, in force at the time of the tax events underlying the assessments in question;

Any annexes referred to in article 37(3) of the IMI Code and relating to such assessment;

The corresponding assessment sheet prepared by the expert appraiser;

The notification of the assessment result;

Information from the competent Finance Service relating to other relevant aspects.

The Respondent sent the requested elements.

Notified of this, the Applicant chose not to comment on the filing of the elements presented by the Respondent, as determined by the Tribunal.

The deadline referred to in article 21(1) of the RJAT was extended, in accordance with article 21(2) of the same.

By order of 27-03-2018, the aforementioned documentation appeared to be essential for a proper decision of the case.

Taking into account that in arbitral proceeding 481/2016T there were items of evidence within the knowledge of both parties, and that the facts proven there are public knowledge through publication of the decision referring to them on the CAAD website, in accordance with the aforementioned article 412(2) of the Code of Civil Procedure, as well as articles 16(c and e) and 29(1/e and 2) of the RJAT, it was determined that the following documents existing in the aforementioned proceeding 481/2016T of the CAAD be filed in these proceedings:

"Evaluation Process art.º … - … 1.pdf";

"Evaluation Process art.º … - … 2.pdf";

"Evaluation Process art.º … - … 3.pdf";

"Evaluation Process art.º … - … 4.pdf";

"Evaluation Process art.º … - … 5.pdf";

"SF … Model 1 IMI 1.pdf".

The parties were granted a period of 5 days to exercise their right to be heard with respect to the filing of the aforementioned documentation.

The proceedings do not suffer from any nullities and no further preliminary or subsequent questions, prejudicial or of exception, subsist which would prevent determination of the merits of the case, the conditions for issuance of a final decision thus being met.

The TA proceeded to designate its representatives in the proceedings and the Applicant filed a power of attorney, with the parties thus being properly represented.

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

II – Legal Grounds: Statement of Facts

II.A. Facts Found to Be Proved and Relevant to the Decision

The Applicant is a joint-stock company whose principal activity is banking.

The Applicant, in the course of its activity, owns various real properties, including lands for construction.

The Applicant was notified of the following assessments relating to the year 2014 (and corresponding to apportionment of ST into three installments):

The ST assessments were issued with reference to the following 26 real properties of which the Applicant was the owner in 2014:

Urban real property ("land for construction") with cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article…, of the parish of …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article…, of the parish of …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article…, of the parish of …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article …, of the union of parishes of …, … and …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article …, of the union of parishes of …, … and …, municipality of … and district of Lisbon

Urban real property ("land for construction") with cadastral article …, of the union of parishes of … and …, municipality of … and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality and district of Porto

Urban real property ("land for construction") with cadastral article…, of the parish of …, municipality and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Porto

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Setúbal

Urban real property ("land for construction") with cadastral article …, of the union of parishes of … and …, municipality of … and district of Setúbal

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of …. and district of Setúbal

Urban real property ("land for construction") with cadastral article …, of the union of parishes of … and …, municipality of … and district of Viana do Castelo

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Setúbal

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Setúbal

Urban real property ("land for construction") with cadastral article …, of the union of parishes of … and …, municipality of … and district of Setúbal

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Faro

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Faro

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality of … and district of Faro

Urban real property ("land for construction") with cadastral article …, of the parish of …, municipality and district of Lisbon

In the Property Registration Books of each of the 26 real properties there was recorded in 2014 the item "Type of Localization Coefficient: Residential"

In the "Data for Evaluation of the Property" in each of the matrices of the 26 real properties there was recorded in 2014 the item "Use: Residential".

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot … of development license …/2001 of the Municipal Council of …, which authorized the construction of a building intended for residential use, with four stories and with a construction area of 845m².

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot … of development license …/2001 of the Municipal Council of …, which authorized the construction of a building intended for residential use, with four stories and with a construction area of 845m².

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot … of development license …/2001 of the Municipal Council of …, which authorized the construction of a building intended for residential use, with four stories and with a construction area of 845m².

The urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Porto (former cadastral article …), corresponds to lot … of development license …/2004 of the Municipal Council of …, which authorized the construction of a building intended for "Equipment", with ground floor plus 2 stories and with a construction area of 1000.9 m².

The urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Setúbal (former cadastral articles …, … and …), corresponds to lot … of development license …/…/1985 of the Municipal Council of …, which authorized the construction of 3 buildings intended for residential use, with four stories and with a total construction area (polygon base) common basement of 1398.2222 m².

The urban real property with cadastral article …, of the union of parishes of …, … and …, municipality of … and district of Lisbon (former cadastral article…), was subject to the certificate of constructive viability …/2008 of the Municipal Council of …, which certified that the same had as construction parameters a maximum construction area of 2,957.85m², a gross construction area of 6,609.80 m² intended for residential use, 1584.50 m² intended for Commercial Services and 5,800.00 m² intended for parking.

The urban real property with cadastral article …, of the union of parishes of …, … and …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot 25 of development license …/2007 of the Municipal Council of …, which authorized the construction of a building with fifteen stories intended for collective residential use and one intended for commerce, and with a maximum construction area of 3170.00m².

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …), corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with seven stories above threshold level, with a construction area above ground of 3,445.00 m², of which 2,830 m² intended for residential use and 615 m² intended for commerce.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot… of development license 935/2008 of the Municipal Council of Porto, which authorized the construction of a building with eight stories above threshold level, with a construction area above ground of 3,630.00 m² intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article…) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with eight stories above threshold level, with a construction area above ground of 3,651.00 m², of which 3,510.00 m² are intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with eight stories above threshold level, with a construction area above ground of 3,006.00 m², intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article…) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with seven stories above threshold level, with a construction area above ground of 3,682.00 m² intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with seven stories above threshold level, with a construction area above ground of 3,664.00 m², intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral articles …, …, … and …), was the subject of particular works licensing approved by the Municipal Council of …, which authorized the construction of a residential building block (Block 3) consisting of basement, ground floor, first floor and attic, with a total area of 5,792.25 m².

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral articles …, …, … and …), was the subject of particular works licensing approved by the Municipal Council of …, which authorized the construction of a residential building block (Block 2) consisting of basement, ground floor, first floor and attic, with a total area of 6,130.10 m².

The urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Setúbal (former cadastral article …), was subject to constructive viability information issued on 18-05-2004 by the Municipal Council of …, which determined that the same had constructive viability for a residential building with two sections, with the larger having a maximum of 8 stories and the smaller with a maximum of four.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Faro (former cadastral article …), corresponds to lot … of development license …/2005 of the Municipal Council of …, which authorized the construction of an area of 2,250.00 m² intended for residential use and of 200.00 m² intended for Industry/Services.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Faro (former cadastral article…), corresponds to lot … of development license …/2005 of the Municipal Council of …, which authorized the construction of an area of 2,400.00 m² intended for residential use and of 50.00 m² intended for Industry/Services.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Faro (former cadastral article …) corresponds to lot …, later renumbered as lot…, of development license …/2005 of the Municipal Council of …, which authorized the construction of an area of 3,550.00 m² intended for residential use and of 50.00 m² intended for Industry/Services.

The urban real property with cadastral article …, of the parish of …, municipality and district of Lisbon corresponds to lot …, of the development license to which process no. …/… /TERM/2005 of the Municipal Council of Lisbon relates, which authorized the construction of an area of 4,209m² intended for residential use and commerce, with 3 stories above ground, comprising 21 units.

The assessments resulted from the application of article 1(1) of the STC, combined with item 28.1 of the GTST and with article 6 of Law no. 55-A/2012, of 29 October.

The Applicant paid the ST on 29 April 2016 (1st installment), 27 July 2016 (2nd installment) and 7 November 2016 (3rd installment).

The Applicant filed a request for ex officio revision no. …2016…, in accordance with article 78 of the General Tax Law, on 22-09-2016, on the grounds of violation of law, due to errors in the factual and legal premises.

The Applicant was notified by the Large Taxpayers Unit (LTU) of the Draft Decision in which rejection was proposed for, if so desired, to exercise the right of participation in the form of prior hearing.

The Applicant did not add new facts, and accordingly the draft decision became a final decision, the request for ex officio revision being rejected.

The rejection decision contains the following:

II.B. Facts Found Not to Be Proved

That, with respect to the urban real property with cadastral article …, of the parish of …, municipality of … and district of Porto (former cadastral articles … and …), there existed, on the date of the tax event, a development license, a construction license, an approved project, prior communication, prior favorable information or evidence of constructive viability, which provided for residential construction as a possible construction.

That, with respect to the urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral article …), there existed, on the date of the tax event, a development license, a construction license, an approved project, prior communication, prior favorable information or evidence of constructive viability, which provided for residential construction as a possible construction.

That, with respect to the urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral articles …, … and …), there existed, on the date of the tax event, a development license, a construction license, an approved project, prior communication, prior favorable information or evidence of constructive viability, which provided for residential construction as a possible construction.

That, with respect to the urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Viana do Castelo (former cadastral article …), there existed, on the date of the tax event, a development license, a construction license, an approved project, prior communication, prior favorable information or evidence of constructive viability, which provided for residential construction as a possible construction.

That, with respect to the urban real property with cadastral article …, of the union of parishes of … of … and …, municipality of … and district of Lisbon (former cadastral article…), there existed, on the date of the tax event, a development license, a construction license, an approved project, prior communication, prior favorable information or evidence of constructive viability, which provided for residential construction as a possible construction.

That, with respect to the urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon (former cadastral article …), there existed, on the date of the tax event, a development license, a construction license, an approved project, prior communication, prior favorable information or evidence of constructive viability, which provided for residential construction as a possible construction.

II.C – Grounds for Facts Proved and Not Proved

With respect to the statement of facts, the Tribunal is not required to pronounce on everything alleged by the parties; rather, it is its duty to select the facts that matter for the decision and distinguish between what is proved and what is not proved (see article 123(2) of the Tax Procedure Code and article 607(3) of the Code of Civil Procedure, applicable under article 29(1/a and e) of the RJAT).

Accordingly, the facts pertinent to the judgment of the case are chosen and delineated according to their legal relevance, which is established in light of the various plausible solutions of the legal question(s) (see former article 511(1) of the Code of Civil Procedure, corresponding to the current article 596, applicable under article 29(1/e) of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110(7) of the Tax Procedure Code, the documentary evidence and the administrative proceedings file joined to the record, the facts listed above were found to be proved as being relevant to the decision.

In particular, the facts contained in points 7) to 26) of the statement of facts result from the documentation filed by the Respondent, following the arbitral order dated 20/12/2016, and from the documentation filed ex officio by the Tribunal on 27/03/2018, which comprises the documents referred to in the points in question, authorizing construction for residential purposes.

The facts found not to be proved are due to the absence or insufficiency of evidence relating to them.

Indeed, notwithstanding the above-mentioned orders of 20/12/2016 and 27/03/2018, no documentation was made available that would permit a contrary conclusion with respect to the real properties to which the facts found not to be proved refer.

Specifically, with respect to the property to which the fact found not to be proved in point 1) refers, only the assessment sheet for the property in question was made available to this Tribunal, which does not permit a conclusion, with the necessary certainty, regarding the existence of any of the documents referred to in the point in question, as well as their content.

With respect to the property to which the fact found not to be proved in point 2) refers, an opinion issued by the Municipal Council of … was made available, with an indication of the characterization framework defined by the Master Plan, which expressly states that it does not constitute any legal obligation for future licensing requests, and accordingly does not correspond to any of the types of documents referred to in the point in question.

With respect to the property to which the fact found not to be proved in point 3) refers, only proof of the declaration for registration in the matrix of the property in question was made available to this Tribunal, which does not permit a conclusion, with the necessary certainty, regarding the existence of any of the documents referred to in the point in question, as well as their content.

With respect to the property to which the fact found not to be proved in point 4) refers, only the assessment sheet for the property in question was made available to this Tribunal, which does not permit a conclusion, with the necessary certainty, regarding the existence of any of the documents referred to in the point in question, as well as their content.

With respect to the property to which the fact found not to be proved in point 5) refers, a certificate issued by the Municipal Council of… was made available, with the mention that urban occupation of the property in question was authorized, with a gross construction area above ground of 20,566.00 m², but without any indication of any specific purpose, and accordingly does not correspond to any of the types of documents referred to in the point in question.

With respect to the property to which the fact found not to be proved in point 6) refers, only a plan containing a project for an urban development intended for residential use was presented, but without any mention or element that might correspond to a document related to any of the types of documents referred to in the point in question, and accordingly it is not possible, beyond any reasonable doubt, to find it proved that such a document exists.

III – Legal Grounds: Questions of Law

III.A. Position of the Applicant

The Applicant begins by arguing that the objective scope of item 28.1 of the GTST cannot encompass real properties that, while recorded in the matrix as "land for construction," cannot be subsumed under the concept of "real properties with residential use," the concept that integrates the legal provision.

Analyzing the context of the introduction of item 28 of the GTST, the Applicant emphasizes that even after the amendments introduced by Law no. 83-C/2013, of 31 December, which entered into force on 1 January 2014, taxation continues to be limited to situations in which actual construction on the land has been authorized or provided for, and such construction is intended for "residential use."

Accordingly, it argues, it will not be enough that the mere registration of a real property in the matrix identifies it as "land for construction," being further necessary that, case by case and concretely, it be determined whether use "for residential purposes" is provided for or authorized, which will result from examination of the administrative licensing/authorization process.

Since the right to construct is not inherent in the right of ownership, there must exist, and be valid, the referenced licensing or authorization documentation for it to be possible to conclude the existence concretely of a "land for construction" susceptible of being subsumed in the provision of item 28.1 of the GTST; that is, that on the land there was provided for or authorized, concretely, construction intended or provided for residential use – it not being enough that such construction remain at the level of possibilities, and merely one of the possibilities of use of the land.

The Applicant argues that the real properties in question did not have, in 2014, construction authorized or provided for residential use, the assessment having been based only on the mere content of the registration of those lands in the respective matrix, and accordingly concludes that such ST assessment was illegal due to errors in the factual and legal premises.

Attending further to the "ratio legis" of item 28.1 of the GTST (that of introducing a "solidarity tax" supported by "taxpaying capacities" above the average), the Applicant notes, in the alternative, that the ownership of those properties does not represent an increased taxpaying capacity, since those real properties are not regarded by the Applicant as investment assets, since they normally enter its patrimony as payment in kind and are intended for resale with the objective of settling the debts of defaulting customers.

Also in the alternative, and for purposes of application of article 204 of the Constitution, the Applicant argues the unconstitutionality of item 28.1 of the GTST when applied to "land for construction," for violating both the principle of equality and the principle of tax equality and taxpaying capacity, provided respectively in articles 13 and 104(3) of the Constitution, with direct corollaries in norms such as articles 5 and 55 of the General Tax Law, and further constituting a double taxation of the same tax event.

Specifically, the Applicant argues that item 28.1 of the GTST unjustifiably discriminates against the residential purpose, within the possible uses of high-value real property patrimony, and against concentration of real property patrimony in favor of its dispersal – and unjustifiably discriminates because it introduces inequalities not founded on the exclusive consideration of taxpaying capacity.

The Applicant considers that item 28.1 of the GTST is further unconstitutional in that it determines double taxation of the ownership of real rights of some – and only some – taxpayers, in that it imposes ST on realities already taxed under the IMI.

Moreover, the Applicant considers that the principle of equality is violated by item 28.1 of the GTST in that it requires consideration of the tax patrimonial value of the lands, disregarding the tax patrimonial value of the residential buildings that might effectively be constructed on those lands.

On the other hand, the Applicant draws attention to the circumstance that the jurisprudence of the Constitutional Court, which pronounced on the non-unconstitutionality of the norm contained in item 28.1 of the GTST, relates exclusively to "residential properties," and accordingly is not applicable to the case "sub iudice," in which there are only "lands for construction" – a situation which the Applicant considers to be entirely distinct, again because, prior to a procedural specification via administrative channels, lands for construction cannot correspond to "residential use" authorized or provided for in them.

The Applicant argues that it fully paid the amounts assessed, and accordingly requests reimbursement and the award of compensatory interest, as such payment was undue and an error attributable to the services is identifiable, in accordance with article 24(1/b and 5) of the RJAT, articles 43 and 100 of the General Tax Law and article 61 of the Tax Procedure Code.

III.B. Position of the Respondent

In its Response, the Respondent argues that the disputed assessments are legal and that there was no error by the services in subjecting the real properties in question to the norm of Item 28.1 of the GTST.

The Respondent recalls that in accordance with article 6(3) of the IMI Code, applicable by virtue of article 67(2) of the Stamp Tax Code, lands for construction are "lands situated inside or outside an urban area, for which a license or authorization has been granted, or for which prior notice has been admitted or prior favorable information issued for a development operation or construction operation, as well as those which have been so at title of acquisition, with it to be noted that, also for that purpose, only the title of acquisition with the form required by civil law should be relevant, that is to say, the public deed or the authenticated private document referred to in article 875 of the Civil Code", and accordingly one cannot fail to take into account the data contained in the Property Registration Books for purposes of application of item 28.1 of the GTST.

And it further recalls that in the assessment of a land for construction, necessary account is taken of the area to be constructed and of the use to be given to the construction that will occur, that is to say, the value of the land depends on the value of the building that may come to be constructed on it (as results from article 38 of the IMI Code).

The Respondent takes the view that the Applicant has not demonstrated how and to what extent the assessment act under dispute violates the constitutional principle of equality, in the aspect of taxpaying capacity.

And it proceeds to explain that the economic premise of the manifestation of taxpaying capacity that was chosen for the norm of item 28.1 of the GTST, in conditions of necessity for extraordinary revenue collection measures, is constitutionally valid, both because it falls within the reasonable freedom of legislative discretion, and because it is based on a necessary discrimination of patrimony, which extends to differentiated treatment of situations that are different – and objectively so, that is to say, independently of who the owner of the properties is.

In its view, the legislator rationally and objectively chose a determined premise of fact as the basis of incidence: the setting of a tax patrimonial value of €1,000,000.00, based on elements that enhance and reduce as contained in the tables of article 43 of the IMI Code.

It considers, accordingly, that this is a rational, justified, objective and coherent legislative choice.

The Respondent takes the view, accordingly, that item 28.1 of the GTST does not incur any arbitrariness or in any way violates the principle of tax equality in the aspect of taxpaying capacity.

III.C. Questions to Be Decided

III.C.1 – On the Merits

The sole question to be settled in the present proceedings of arbitral tax proceedings relates to the application of item 28.1 of the table annexed to the STC (General Table of Stamp Tax) to the lands intended for construction discussed above.

The matter at hand, accordingly, concerns the definition of the scope of application of item no. 28.1 of the GTST, in the wording given by Law no. 83-C/2013, of 31 December, more specifically to determine whether the lands for construction in question in the present proceeding can be subsumed in the concept of "land for construction whose authorized or intended construction is for residential purposes, in accordance with the provisions of the IMI Code" which that item refers to, taking into account that the respective tax patrimonial values are equal to or greater than €1,000,000.00.

The question arises by virtue of taxation under stamp tax of the ownership, usufruct or right of superficies of urban real properties whose tax patrimonial value recorded in the matrix is equal to or greater than €1,000,000, in which case tax is due at the rate of 1% on the tax patrimonial value used for purposes of IMI, per property with residential use.

This question is not new, having been the subject of appreciation both in arbitral jurisdiction and in the jurisprudence of the Supreme Administrative Court; and that, within the scope of the wording of the STC given by Law no. 55-A/2012, of 29 October, the decisions handed down were always in a sense contrary to that sought by the Tax Administration.

The situation sub iudice, however, takes place within a differentiated legal framework, in that the facts should be assessed in light of the wording of the STC introduced by the State Budget for 2014, Law no. 83-C/2013, of 31 December (article 194, under the heading - Amendment to the General Table of Stamp Tax), in accordance with which item 28.1 of the General Table of Stamp Tax, annexed to the Stamp Tax Code, approved by Law no. 150/99, of 11 September, came to have the following wording:

"28.1 — For a residential property or for land for construction whose authorized or intended construction is for residential use, in accordance with the provisions of the IMI Code — 1%".

Within this new legal framework, decisions have already been handed down in arbitral proceedings, also in a sense unfavorable to that sustained by the TA.

The referred jurisprudence is based on the understanding that the following should be considered as fulfilling the premises of the new item 28.1 of the GTST:

"with respect to lands for construction, whether or not located within an urban area, as defined in article 3(4) of this legal instrument [IMI Code], they should, as such, be considered the lands with respect to which has been granted: - license for a development operation; - license for construction; - authorization for a development operation; - authorization for construction; - favorable prior notice admitted for a development operation or construction operation; issued favorable prior information for a development operation or construction operation, as well as; - those which have been so declared on the acquisition title, with it to be noted that, also for that purpose, only the acquisition title with the form required by civil law should be relevant, that is to say, the public deed or authenticated private document referred to in article 875 CC" [see ANTÓNIO SANTOS ROCHA / EDUARDO JOSÉ MARTINS BRÁS – Taxation of Patrimony. IMI-IMT and Stamp Tax (Annotated and Commented). Coimbra, Almedina, 2015, p. 44]."

Also in the award handed down in arbitral proceeding 142/2016T, already cited, which likewise concluded in favor of the claim there formulated, the following can be read:

"There is no indication in these norms of the GTST and IMI Code of what should be understood by 'intended construction,' but, taking into account the documents required for evaluation of lands for construction, indicated in article 37(3) of the IMI Code, it is concluded that one can only speak of authorized or intended construction when the 'building to be constructed,' to which article 45(1) refers, is defined in a development license or construction license, or approved project, or prior communication, or favorable prior information or evidence of constructive viability".

This Tribunal fully subscribes to the understanding of the referred awards, regarding what, in light of the new wording of the STC, should be understood by "land for construction whose authorized or intended construction is for residential use, in accordance with the provisions of the IMI Code".

Indeed, in accordance with the IMI Code, lands for construction, which, in accordance with article 6(1/c) of such Code, constitute a type of urban property, may have as their intended use residential use, as results from article 41, also of the IMI Code, such intended use which, as further results expressly from article 45(5) of the IMI Code, will be determined based on the elements to which article 37 of the same Code refers, article 37(3) of this stating that:

"With respect to lands for construction, a photocopy of the development license should be submitted, which should be replaced, if no development exists, by a photocopy of the construction license, approved project, prior communication, favorable prior information or evidence of constructive viability".

The reference in item 28.1 of the GTST under analysis should thus be read as remitting to the material content of what, in light of the IMI Code, is "land for construction whose authorized or intended construction is for residential use," not being sufficient the mere formality of the TA – rightly or wrongly – in application of the norms of that Code (IMI Code), having qualified for matrix purposes a given property as having such intended use, since if that were the legislator's intention, within the presumption of reasonableness that underlies it, it would certainly have used the expression "land whose localization coefficient type used for purposes of determination of tax patrimonial value is residential use," or another similar expression.

It is concluded accordingly, as in the jurisprudence cited above, that there should be considered as "land for construction whose authorized or intended construction is for residential use, in accordance with the provisions of the IMI Code," those lands in which the "building to be constructed" is defined as intended for residential use in a development license or construction license, or approved project, or prior communication, or favorable prior information or evidence of constructive viability.

Now, in the case, it was not found that there existed, on the date of the tax event, a development license or construction license, or approved project, or prior communication, or favorable prior information or evidence of constructive viability, which provided for residential use as a possible construction, with respect to the following lands to which the ST assessments referred to in the present arbitral action relate:

Urban real property with cadastral article …, of the parish of …, municipality of … and district of Porto (former cadastral articles … and …);

Urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral article …);

Urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral articles …, …and …);

Urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon (former cadastral article …);

Urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon (former cadastral article …);

Urban real property with cadastral article…, of the union of parishes of … and …, municipality of … and district of Viana do Castelo (former cadastral article …).

As for the urban real property with cadastral article…, of the union of parishes of … and …, municipality of … and district of Porto (former cadastral article …), it was found that it corresponds to lot … of development license …/2004 of the Municipal Council of …, which authorized the construction of a building intended for "Equipment," with ground floor plus 2 stories and with a construction area of 1000.9 m². Accordingly, it is not possible to conclude that the "building to be constructed" on the lands in question was defined in any of those documents considered relevant, as being intended for residential use.

This does not preclude what has just been concluded by the circumstance that, in 2014, in the respective property registration book of the properties in question, there was recorded as "Type of localization coefficient" the mention "Residential," since such mention might be due to an error, as would certainly be the case with cadastral article …, of the union of parishes of … and …, municipality of … and district of Porto (former cadastral article …), or to some other circumstance that was not found, and it is certain that no elements were presented that substantially support such mention, notwithstanding that it was expressly made available to the Respondent, in deference to the duty of establishing material truth, the opportunity to do so.

In light of the foregoing, it cannot be considered demonstrated that, with respect to the lands referred to, the same are a "land for construction whose authorized or intended construction is for residential use, in accordance with the provisions of the IMI Code," the provision of item 28.1 of the Table annexed to the STC, in its applicable wording, not being filled with respect to them, and accordingly the tax acts under challenge that have them as their object will suffer from errors regarding the factual premises, and consequent error of law, and accordingly should be annulled, with the arbitral claim succeeding in that respect.

As for the following properties to which ST assessments referred to in the present arbitral action relate, it was found that:

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot … of development license …/2001 of the Municipal Council of …, which authorized the construction of a building intended for residential use, with four stories and with a construction area of 845m².

The urban real property with cadastral article…, of the parish of …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot … of development license …/2001 of the Municipal Council of …, which authorized the construction of a building intended for residential use, with four stories and with a construction area of 845m².

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Lisbon (former cadastral article …), corresponds to lot … of development license …/2001 of the Municipal Council of …, which authorized the construction of a building intended for residential use, with four stories and with a construction area of 845m².

The urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Setúbal (former cadastral articles …, … and …), corresponds to lot 1 of development license …/… /1985 of the Municipal Council of …, which authorized the construction of 3 buildings intended for residential use, with four stories and with a total construction area (polygon base) common basement of 1398.2222 m².

The urban real property with cadastral article …, of the union of parishes of …, … and …, municipality of … and district of Lisbon (former cadastral article …), was subject to the certificate of constructive viability …/2008 of the Municipal Council of …, which certified that the same had as construction parameters a maximum construction area of 2,957.85m², a gross construction area of 6,609.80 m² intended for residential use, 1584.50 m² intended for Commercial Services and 5,800.00 m² intended for parking.

The urban real property with cadastral article …, of the union of parishes of …, … and …, municipality of … and district of Lisbon (former cadastral article…), corresponds to lot … of development license …/2007 of the Municipal Council of …, which authorized the construction of a building with fifteen stories intended for collective residential use and one intended for commerce, and with a maximum construction area of 3170.00m².

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article…), corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with seven stories above threshold level, with a construction area above ground of 3,445.00 m², of which 2,830 m² intended for residential use and 615 m² intended for commerce.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with eight stories above threshold level, with a construction area above ground of 3,630.00 m² intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with eight stories above threshold level, with a construction area above ground of 3,651.00 m², of which 3,510.00 m² are intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with eight stories above threshold level, with a construction area above ground of 3,006.00 m², intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article …) corresponds to lot… of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with seven stories above threshold level, with a construction area above ground of 3,682.00 m² intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality and district of Porto (former cadastral article…) corresponds to lot … of development license …/2008 of the Municipal Council of Porto, which authorized the construction of a building with seven stories above threshold level, with a construction area above ground of 3,664.00 m², intended for residential use.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral articles…, …, … and …), was the subject of particular works licensing approved by the Municipal Council of …, which authorized the construction of a residential building block (Block 3) consisting of basement, ground floor, first floor and attic, with a total area of 5,792.25 m².

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Setúbal (former cadastral articles…, …, … and …), was the subject of particular works licensing approved by the Municipal Council of …, which authorized the construction of a residential building block (Block 2) consisting of basement, ground floor, first floor and attic, with a total area of 6,130.10 m².

The urban real property with cadastral article …, of the union of parishes of … and …, municipality of … and district of Setúbal (former cadastral article …), was subject to constructive viability information issued on 18-05-2004 by the Municipal Council of …, which determined that the same had constructive viability for a residential building with two sections, with the larger having a maximum of 8 stories and the smaller with a maximum of four.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Faro (former cadastral article …), corresponds to lot … of development license …/2005 of the Municipal Council of …, which authorized the construction of an area of 2,250.00 m² intended for residential use and of 200.00 m² intended for Industry/Services.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Faro (former cadastral article …), corresponds to lot … of development license …/2005 of the Municipal Council of …, which authorized the construction of an area of 2,400.00 m² intended for residential use and of 50.00 m² intended for Industry/Services.

The urban real property with cadastral article …, of the parish of …, municipality of … and district of Faro (former cadastral article …) corresponds to lot …, later renumbered as lot …, of development license …/2005 of the Municipal Council of …, which authorized the construction of an area of 3,550.00 m² intended for residential use and of 50.00 m² intended for Industry/Services.

The urban real property with cadastral article …, of the parish of …, municipality and district of Lisbon corresponds to lot …, of the development license to which process no. …/… /TERM/2005 of the Municipal Council of Lisbon relates, which authorized the construction of an area of 4,209m² intended for residential use and commerce, with 3 stories above ground, comprising 21 units.

Accordingly, no doubts persist that the "building to be constructed" on the lands in question is defined in a development license or construction license, or approved project, or prior communication, or favorable prior information or evidence of constructive viability, as being intended for residential use.

In light of the foregoing, such lands must be considered as "land for construction whose authorized or intended construction is for residential use, in accordance with the provisions of the IMI Code," the provision of item 28.1 of the Table annexed to the STC, in its applicable wording, being filled with respect to them, there being nothing to censure in the tax acts under challenge that had them as their object; and accordingly the arbitral claim should fail in that respect.

This is not precluded by what has just been concluded by the circumstance that the documents referred to above were issued in the legal sphere of former owners of the properties, first because the same has no support in any legal norm that would confer relevance on it, and second because the administrative acts to which the documents in question refer embodied the lifting of restrictions on the content of real rights (specifically the right to construct), and are accordingly titled by the owner of the property, which in the case was the Applicant, and it is further certain that it was the Applicant that benefited, on the dates of the tax events, from the appreciation of the properties resulting from the constructive aptitude guaranteed by the administrative acts recognizing such, appreciation which was notoriously not unrelated to the contractual relationships whose development culminated in the Applicant's acquisition of the properties taxed, and which is independent of the effective subjective intention of the owner to build or not.

Nor is the Applicant's allegation that the properties in question are not in its patrimony because they are subject to its habitual activity subscribed to: and this because the acquisition of assets securing credit granted for them, as the Applicant refers, to be "(re)sold, so that it is reimbursed for the amounts of the debts incurred by defaulting customers" cannot fail to be considered a normal consequence of banking activity, and the holding of real properties by a credit institution, even if destined for resale to reimburse the credit of defaulting debtors, denote exactly the same taxpaying capacity of any other holder of real properties, especially one that destines them for resale, and it is further certain that the Applicant, like any other economic operator, will not refrain, in resale, from the increase in value resulting from the constructive aptitude of the properties, nor from any other appreciation that, for any reason, may come to be incorporated in the properties.

Accordingly, no unconstitutionality is discerned, designedly with respect to violation of the principles of equality, tax equality and taxpaying capacity, provided respectively in articles 13 and 104(3) of the Constitution, to the contrary of what was alleged by the Applicant.

The Constitutional Court has pronounced on diverse occasions on the principle of tax equality, having stated, for example, in Award no. 590/2015, that:

"The constitutional principle of tax equality, as a specific expression of the general structuring principle of equality (article 13 of the Constitution), finds concretization 'in the generality and uniformity of taxes. Generality means that all citizens are bound to payment of taxes (…); in turn, uniformity means that the distribution of taxes among citizens obeys the same identical criterion for all' (Teixeira Ribeiro, Lectures on Public Finance, 5th ed., p. 261). And such criterion, as Casalta Nabais emphasizes, is found in the principle of taxpaying capacity: 'This thus implies equal tax for those who have equal taxpaying capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those who have different taxpaying capacity in proportion to that difference (vertical equality)' (Tax Law, 7th ed., 2012, p. 155). As a premise and criterion of taxation, the principle of taxpaying capacity 'on the one hand, constituting the ratio or cause of taxation, distances the fiscal legislator from arbitrariness, obligating him that in the selection and articulation of the tax events, he adhere to revelations of taxpaying capacity, that is, he makes into the object and taxable matter of each tax a determined economic premise that is a manifestation of that capacity and is present in the diverse legal hypotheses of the respective tax' (Casalta Nabais, ob. cit., p. 157). '"

This has been affirmed by the Constitutional Court, another example being Award no. 84/2003, where one reads that:

"The principle of taxpaying capacity expresses and concretizes the principle of tax equality or tax equality in its 'uniformity' aspect – the duty of all to pay taxes according to the same criterion – the taxpaying capacity filling the unitary criterion of taxation", understanding that criterion as being that in which "the incidence and distribution of taxes – of 'fiscal taxes' more precisely – should be made according to the economic capacity or 'capacity to spend' (…) of each and not according to what each might eventually receive in public goods or services (benefit criterion). (…) Notwithstanding the silence of the Constitution, it is generalized doctrine understanding that 'taxpaying capacity' continues to be a basic criterion of our 'fiscal Constitution' and that it can (or should) be reached from the structuring principles of the fiscal system formulated in articles 103 and 104 of the Constitution (…)"."

This Tribunal has, however, emphasized that the principle of taxpaying capacity does not dispense with the concurrence of other constitutional principles. As was stated in Award no. 711/2006, "it is clear that the 'principle of taxpaying capacity' has to be made compatible with other principles with constitutional dignity, such as the principle of the Social State, the freedom of legislative discretion, and certain requirements of practicability and cognoscibility of the tax event, indispensable also for fulfillment of the purposes of the fiscal system". And it continues: "To ascertain, however, the existence of a particularism sufficiently distinct to justify an inequality of legal regime, and to decide on the circumstances and factors to be considered as relevant in such ascertainment, is a task that primarily falls to the legislator, who holds the primacy of concretization of constitutional principles and the corresponding freedom of discretion. For that reason, the principle of equality presents itself fundamentally to legal operators, in the context of control of constitutionality, as a negative principle (…) - as a prohibition of arbitrariness".

In sum, in the synthesis of Award no. 695/2014, "the principle of tax equality may be concretized through diverse aspects: a first, is 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 identically taxpayers who are in identical situations and differently those who are in different situations, in the measure of the difference, to be assessed by taxpaying capacity; a final one, is in the prohibition of arbitrariness, in proscribing the introduction of discriminations among taxpayers that are devoid of rational foundation"."

Indeed, it not appearing arbitrary that, in a period of crisis, the State, according to the policy choices of those who direct it, would require those owning real properties with a determined intended use and above a determined value to contribute more prominently, no double taxation being verified, but rather an additional and exceptional taxation, similar, with respect to better opinion maintained, for example, to the IRS surtax, it is concluded that no violation of any constitutional norm occurs, designedly those indicated by the Applicant, in the taxation in question.

As for the request for compensatory interest formulated by the Applicant, article 43(1) of the General Tax Law establishes that compensatory interest is due when it is determined that there has been error attributable to the services as a result of which the tax debt is paid in an amount greater than legally owed.

In the case, the error affecting the annulled assessments is attributable to the Tax and Customs Authority, which performed the assessment act on its own initiative, without the necessary factual and legal support.

The Applicant has accordingly the right to be reimbursed of the amount paid (in accordance with the provisions of articles 100 of the General Tax Law and 24(1) of the RJAT) by virtue of the acts annulled and, further, to be indemnified for the undue payment through the payment of compensatory interest, by the Respondent, from the date of payment of the amount, until reimbursement, at the supplementary legal rate, in accordance with articles 43(1 and 4) and 35(10) of the General Tax Law, article 559 of the Civil Code and Regulation no. 291/2003, of 8 April.

IV. Decision

In light of all the foregoing, it is decided to judge the arbitral claim formulated in the present proceedings as partially granted and, in consequence:

a) Annul the following assessments, in the total amount of €189,341.64:

i) relating to cadastral article …, of the parish of …, municipality of … and district of Porto:

ii) relating to cadastral article …, of the parish of …, municipality of … and district of Setúbal:

iii) relating to cadastral article …, of the parish of …, municipality of … and district of Setúbal:

iv) relating to cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon:

v) relating to cadastral article …, of the union of parishes of … and …, municipality of … and district of Lisbon:

vi) relating to cadastral article …, of the union of parishes of … and …, municipality of … and district of Viana do Castelo:

vii) relating to cadastral article …, of the union of parishes of … and …, municipality of … and district of Porto:

b) Condemn the Respondent to restitution of the amounts unduly paid by virtue of the assessments now annulled, as well as to payment of the corresponding compensatory interest, from the date of undue payment of the amount, until its reimbursement, in accordance with the terms determined above.

c) Judge the arbitral claim with respect to the remaining assessments as unsuccessful;

d) Condemn the parties in the costs of the proceedings in proportion to their respective loss, fixing at 61.534% the portion chargeable to the Applicant and 38.466% the portion chargeable to the Respondent.

V. Value of the Proceedings

The value of the proceedings is set at €492,225.75, in accordance with article 97-A of the Tax Procedure Code, applicable under article 29(1/a) of the RJAT and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

VI. Costs

The arbitration fee is set at €7,650.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the parties in proportion to their respective loss as set out above, that is to say, €4,707.35 chargeable to the Applicant and €2,942.65 chargeable to the Respondent, since the claim was partially granted, in accordance with articles 12(2) and 22(4), both of the RJAT, and article 4(4) of the cited Regulation.

Lisbon, 20 April 2018

The Arbitrators

José Pedro Carvalho
(President)

Arl