Summary
Full Decision
ARBITRAL DECISION
1. Report
A, with registered office at …, legal entity no. …, has applied for the constitution of an Arbitral Tribunal in accordance with the corresponding Legal Framework for Tax Arbitration, for appraisal of the legality of the Stamp Tax assessments with nos. 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ... and 2014 ....
The respondent is the Tax and Customs Authority.
The application for constitution of the arbitral tribunal was submitted on 21-05-2014, accepted by the President of CAAD on the 23rd of that same month and notified to the Tax and Customs Authority on the subsequent day 26.
In accordance with the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of RJAT, the Deontological Council designated the undersigned as sole arbitrator, who communicated acceptance of the assignment within the applicable period.
In conformity with the provision of subparagraph c) of no. 1 of article 11 of RJAT, the sole arbitral tribunal was constituted on 25-07-2014.
The Tax and Customs Authority submitted its response.
Following a suggestion by the Tax and Customs Authority and by order of 13-11-2014, it was decided to dispense with the holding of the meeting provided for in article 18 of RJAT, as well as the arguments of the parties.
The arbitral tribunal was duly constituted and is competent.
The parties have legal personality and capacity, are legitimate and are duly represented. (arts. 4 and 10, no. 2, of the same instrument and art. 1 of Ordinance no. 112-A/2011, of 22 March).
The case is free of nullities.
2. Subject Matter of the Dispute
The issue in the present case concerns the application of the new taxation in Stamp Tax levied on urban properties with residential use and taxable patrimonial value equal to or greater than one million euros, introduced in 2012 to reinforce budget control measures on the revenue side, within a context of financial emergency.
As is well known, this taxation has raised serious doubts and considerable contestation. This is the case not only for specific instances of its application (e.g., vertical ownership, land for construction or its application to the year 2012), but also in general terms, due to its possible unconstitutionality (see Luís Menezes Leitão, On the Taxation of Luxury Real Estate in Stamp Tax (item 28.1 GIST), in Tax Arbitration no. 1, pp. 44 et seq.).
The Claimant contests precisely the application of said taxation resulting from the application of the new item 28.1 of the GIST to urban properties corresponding to land for construction, requesting the annulment of the Stamp Tax assessment acts referred to above and described in detail below, corresponding to the first instalment of the tax due under the new item, in the total amount of € 43,011.13 and with final payment deadline of 30 April 2014, as it contends that the legal requirements for the application of the tax provided for in that item to the properties in question have not been met.
The Claimant argues, in summary, that the properties referred to are land for construction and are therefore not covered by item 28.1 of the General Table of Stamp Tax, in the wording given by Law no. 55-A/2012, of 29 October, in force in 2013, which establishes "For property with residential use – 1%".
The Claimant further argues, in the alternative and regarding the matriculation entry U-... of the parish of ..., that the assessment is unlawful since on 31-12-2013 horizontal ownership had already been established and said entry eliminated.
The Tax and Customs Authority (AT) contested, arguing in summary that the Stamp Tax assessments identified in the application for arbitral opinion concern land for construction of residential housing, which gives them the characteristic of properties with the legal nature of properties with residential use, and therefore the assessment acts subject to the application for arbitral opinion should be upheld, as they embody a correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29 December. In effect, for the Respondent, the application of art. 9 of the Civil Code, by virtue of Art. 11 of the General Tax Law and of Art. 45, no. 2 of CIMI, this by virtue of art. 67, no. 2 of CIS, lead to the understanding that the use corresponds to a concurrent coefficient for the evaluation of land for construction (enhancing its value) and that item 28 of GIST calls for a classification that overlays the species provided for in art. 6, no. 1 of CIMI, from which results the inclusion of properties such as those in the present case within the normative provision of the item in question.
The Tax and Customs Authority further argues that its interpretation of the said item is in conformity with the Constitution, namely with the constitutional principles of equality (e.g., in the aspect of non-discrimination) and proportionality.
The Respondent did not rule on the alternative request regarding the said matriculation entry U-....
3. Factual Matters
3.1. Proven Facts
a) In the year 2013 the Claimant was owner of the properties which gave rise to the Stamp Tax assessments with nos. 2014 ..., 2014 ..., 2014 ..., 2014 ..., 2014 ... and 2014 ...;
b) Such properties corresponded to land for construction;
c) The assessments referred to are based on item 28.1 of GIST, are dated 17 April 2013 and have April of that same year as the final payment deadline, having been notified to the Claimant by the Tax and Customs Authority before the end of April 2014;
d) Such assessments, in the part corresponding to the first instalment, amount to the total sum of € 43,011.13 in tax;
e) On 21-05-2014, the Claimant submitted the application for arbitral opinion which gave rise to the present case.
3.2. Unproven Facts
It was not proved that on 31-12-2013 the matriculation entry U-... of the parish of ... had been eliminated, namely by virtue of horizontal ownership having already been established, due to absence of documentary proof.
3.3. Justification of the Determination of Factual Matters
The proven facts are based on the arguments of the parties and on the documents offered, whose correspondence to reality is not disputed.
4. Legal Matters
The question at issue in the present action is whether land for construction, on which construction of a property intended for residential purposes is authorized and must be considered in the evaluation of its taxable patrimonial value, falls within the scope of item 28.1 of the General Table of Stamp Tax (GIST), in its initial wording, introduced by Law no. 55-A/2012, of 29 October.
4.1. Regime of Law no. 55-A/2012, of 29 October
Law no. 55-A/2012, of 29 October, made several amendments to the Stamp Tax Code and added item 28 to GIST, with the following wording:
28 – Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value recorded in the land register, pursuant to the Municipal Property Tax Code (CIMI), is equal to or greater than € 1,000,000 – on the taxable patrimonial value used for purposes of IMI:
28.1 – For property with residential use – 1%;
28.2 – For property, when the taxpayers who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, listed in the schedule approved by ordinance of the Minister of Finance – 7.5%.
In the said item 28.1 and in sub-items i) and ii) of subparagraph f) of no. 1 of article 6 of Law no. 55-A/2012, the concept of "property with residential use" is used, which is not used in any other tax legislation in these precise terms. In particular, in CIMI, which in several norms of CIS introduced by that Law is indicated as the applicable regulation subsidiary to the tax provided for in the said item no. 28 [articles 2, no. 4, 3, no. 3, subparagraph u), 5, subparagraph u), 23, no. 7, and 46 and 67 of CIS], such a concept with that designation is not used.
Law no. 83-C/2013, of 31 December, amended that item no. 28.1, giving it the following wording:
28.1 - For residential property or for land for construction whose authorized or foreseen construction is for residential purposes, in accordance with the provisions of the Municipal Property Tax Code – 1%.
4.2. Concepts of Properties Used in CIMI
In IMI, the species of properties are enumerated in its articles 3 to 6 as follows:
Article 2
Concept of Property
1 – For purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated therein or resting thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, under the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory that constitutes an integral part of diverse assets or does not have a patrimonial nature.
2 – Buildings or constructions, although mobile by nature, are considered as having a character of permanence when devoted to non-transitory purposes.
3 – The character of permanence is presumed when the buildings or constructions are located in the same place for a period exceeding one year.
4 – For purposes of this tax, each autonomous unit, under the horizontal ownership regime, is considered to constitute a property.
Article 3
Rural Properties
1 – Rural properties are lands situated outside an urban agglomeration that are not to be classified as land for construction, in accordance with no. 3 of article 6, provided that:
a) They are devoted or, in the absence of concrete use, have as their normal destination a use generating agricultural income, as such are considered for purposes of income tax on natural persons (IRS);
b) Not having the use indicated in the preceding subparagraph, they are not constructed or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.
2 – Also rural properties are lands situated within an urban agglomeration, provided that, by force of legally approved provision, they cannot have a use generating any income or can only have a use generating agricultural income and are in fact having this use.
3 – Also rural properties are:
a) Buildings and constructions directly devoted to the production of agricultural income, when situated on the lands referred to in the preceding numbers;
b) Waters and plantations in the situations referred to in no. 1 of article 2.
4 – For purposes of this Code, urban agglomerations are considered, in addition to those situated within legally fixed perimeters, clusters with a minimum of 10 dwellings served by streets of public use, with their perimeter delimited by points distanced 50 m from the axis of streets, in the transverse direction, and 20 m from the last building, in the direction of the streets.
Article 4
Urban Properties
Urban properties are all those that are not to be classified as rural, without prejudice to the provisions of the following article.
Article 5
Mixed Properties
1 – Whenever a property has rural and urban parts it is classified, in its entirety, in accordance with the main part.
2 – If neither of the parts can be classified as main, the property is considered mixed.
Article 6
Species of Urban Properties
1 – Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Other.
2 – Residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of a licence, which have as their normal destination each of these purposes.
3 – Land for construction is considered to be land situated within or outside an urban agglomeration for which a licence or authorization has been granted, prior notice admitted or favorable prior information issued for subdivision or construction operations, and also those which have been declared as such in the acquisition deed, excepting lands where the competent entities prohibit any of those operations, namely those located in green spaces, protected areas or which, in accordance with municipal land planning plans, are devoted to public spaces, infrastructure or facilities. (Wording of Law no. 64-A/08, of 31-12)
4 – Lands situated within an urban agglomeration that are not land for construction nor are covered by the provision of no. 2 of article 3, as well as buildings and constructions licensed or, in the absence of a licence, which have as their normal destination other purposes than those referred to in no. 2 and also those of the exception of no. 3, come within the provision of subparagraph d) of no. 1.
4.3. Norms on Interpretation of Laws
Article 11 of the General Tax Law establishes the essential rules for interpretation of tax laws as follows:
Article 11
Interpretation
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In determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.
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Whenever tax norms employ terms proper to other branches of law, they must be interpreted in the same sense as they have therein, unless something else results directly from the law.
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If doubt persists as to the meaning of the applicable tax norms, account must be taken of the economic substance of the tax facts.
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Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not susceptible of analogical integration.
The general principles of interpretation of laws, to which no. 1 of article 11 of LGT refers, are established in article 9 of the Civil Code, which establishes the following:
Article 9
Interpretation of Law
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Interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, having especially in account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time at which it is applied.
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However, the legislative intent that has no minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, cannot be considered by the interpreter.
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In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most suitable solutions and knew how to express his intent in adequate terms.
4.4. Hypotheses of Interpretation of the Concept of "Property with Residential Use"
From the norms of CIMI transcribed above, it follows that the concept of "property with residential use" is not used in the classification of properties. Nor is this concept found, with this terminology, in any other statute. Thus, given the lack of exact terminological correspondence between the concept of "property with residential use" and any other used in other statutes, several interpretative hypotheses may be ventured.
As is already settled jurisprudence, the starting point for interpretation of the expression "properties with residential use" shall be the text of the law, in order to reconstruct from it the "legislative intent", as required by no. 1 of article 9 of the Civil Code, applicable by virtue of the provision in article 11, no. 1, of LGT.
4.5. Concept of "Property with Residential Use" as Referring to Residential Properties
The concept closest to the literal tenor of the expression used ("property with residential use") is manifestly that of "residential properties", defined in no. 2 of article 6 of CIMI as covering "buildings or constructions" licensed for residential purposes or, in the absence of a licence, which have as their normal destination residential purposes.
If it is understood that the expression "property with residential use" coincides with that of "residential properties", it is manifest that the assessments will be marred by error in the factual and legal grounds, since all properties relative to which Stamp Tax was assessed under the said item no. 28.1 are land for construction, without any building or construction, required by that no. 2 of article 6 to satisfy that concept of "residential properties".
Therefore, if the interpretation is adopted that "property with residential use" means "residential property", the assessments whose declaration of illegality is requested will be illegal, because there is no building or construction on any of the lands.
However, the non-coincidence of the terms of the expression used in item no. 28.1 of GIST with that which is extracted from no. 2 of article 6 of CIMI may point towards the conclusion that it was not intended to use the same concept.
4.6. Concept of "Property with Residential Use" as a Concept Distinct from "Residential Properties"
The word "use," in this context of the use of a property, has the meaning of "action of destining something to a determined use."
"When, as is the rule, norms (legislative formulas) admit more than one meaning, the positive function of the text is translated into giving stronger support to or suggesting more strongly one of the possible meanings. For among the possible meanings, some will correspond to the more natural and direct meaning of the expressions used, while others can only fit within the verbal framework of the norm in a forced, artificial manner. Now, in the absence of other elements that induce the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning which better and more immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, in the assumption (not always accurate) that the legislator knew how to express correctly his intent."
Now, the relevance of the text of the law is especially emphasized in the matter of interpretation of norms concerning the scope of Stamp Tax, which are reducible to an amalgam, under a common denomination, of an incongruous set of taxes of completely distinct natures (on income, on expenditure, on assets, on acts, etc.), which leaves no appreciable margin for application of the principal interpretative criterion, which is the unity of the legal system, which requires the overall coherence thereof.
Furthermore, the recognized lack of systemic coherence of Stamp Tax is particularly evident in the case of this item no. 28.1, included outside the State Budget for 2013, within a context of generalized tax increases, dictated by urgent and imperious budgetary reasons, by the pressure of international institutional creditors (represented by the "troika") and also in consequence of the review by the Constitutional Court of successive norms designed to broaden revenue and reduce public expenditure. This resulted in a large set of tax amendments, all tending towards the material and swift increase of tax revenue, but in some cases, as in the present case, with reduced or nil alignment with the architecture of the national tax system (let us think of the state additional tax rate, or the surtax, for example).
Thus, although in the "Statement of Reasons" of Bill no. 96/XII/2nd (Parliament), on which Law no. 55-A/2012 was based, reference is made to the Government's concern to "strengthen the principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary for compliance with the adjustment programme" and its commitment "to ensure that the distribution of these sacrifices will be made by all and not just by those who live on income from their work", it is manifest that the scope of item no. 28.1, by taxing at an increased rate only certain properties with residential use and not also properties that do not have such use, does not achieve that objective of equitable broadening of the tax base, as it rests on only one aspect of the property component.
In this context, as there are no safe interpretative elements that permit detecting systemic coherence or the correctness or incorrectness of the solution adopted (relevant for interpretative purposes in light of no. 3 of article 9 of the Civil Code), the text of the law (i.e., of the item in question) must be the primary element of interpretation, in conformity with the presumption, imposed by the same no. 3 of article 9, that the legislator knew how to express his intent in adequate terms.
In light of those meanings of the words "use" and "used," which are "to destine" or "to apply," the formula used in that item no. 28.1 of GIST manifestly encompasses properties which have already been given the destination of residential use, properties which are already applied to residential purposes, and it is therefore necessary to inquire whether it will also encompass properties which, although not yet applied to residential purposes, are destined for those purposes, in particular under a subdivision licence.
To this end, it must be clarified when it can be understood that a property is devoted to a residential purpose, in particular whether it is when that destination is fixed for it in a subdivision licence or act of licensing or similar, or only when the effective attribution of that destination is realized.
From the outset, the comparison of item no. 28.1 of GIST with no. 2 of article 6 of CIMI, which defines the concept of residential properties, points towards the necessity of an effective use.
In truth, a building or construction licensed for residential purposes or, even without licence, but which has as its normal destination residential purposes, is, in light of no. 2 of that article 6, a residential property, as such classification is given to "buildings or constructions licensed for such or, in the absence of a licence, which have as their normal destination each of these purposes".
Therefore, on the assumption that the legislator of Law no. 55-A/2012 knew how to express his intent in adequate terms (as article 9, no. 3, of the Civil Code requires that it be presumed), if he intended to refer to those properties already licensed for residential purposes or which have residential use as their normal destination, he would certainly have used the concept of "residential properties", which would express perfectly and clearly his intent, in light of the definition given by that no. 2 of article 6 of CIMI.
Consequently, it should be presumed that the use of a different expression is intended to apply to a distinct reality, and therefore, in good hermeneutics, "property with residential use" cannot be a property merely licensed for residential purposes or destined for that purpose (that is, it will not suffice that it be a "residential property"), but must be a property which has already effective use for that purpose.
That this is the meaning of the expression "use," in the same context of the classification of properties made by CIMI, is confirmed by article 3, in which, regarding rural properties, reference is made to those which "are devoted or, in the absence of concrete use, have as their normal destination a use generating agricultural income," which shows that use is concrete, effective. In truth, as is seen from the final part of this text, a property may have as its destination a certain use and be or not be devoted to it, which shows that use is, at the level of the connection of a property to a certain use, something more intense than mere destination and which may or may not occur, downstream of this and not upstream of it.
Furthermore, the text of the law by adopting the formula "property with residential use," rather than "urban properties of residential use," which appears in the said "Statement of Reasons," points strongly towards the conclusion that it is required that residential use already be realized, since only then will the property be with that use.
In the case at hand, we are dealing with a reality even more distant from residential use, which is that there exists no building or construction whatsoever and, therefore, an use that presupposes its existence cannot be considered to exist.
Moreover, if it were understood differently, there would still remain the question of extracting from the normative text what level of (residential) use would be relevant for purposes of the new item's scope of application: the entire property, only part of it, and, in the second possibility, whether there would be a necessary minimum to make relevant that merely partial "use" for tax purposes, or would it always be relevant however minimal it might be?
Furthermore, the legislative intent to confine the scope of application to "urban properties… residential" to the exclusion of land for construction was expressly stated by the Government when presenting Bill 96-XII to the Plenary of the Assembly of the Republic, saying, through the voice of the Secretary of State for Tax Affairs:
"First, the Government proposes the creation of a special rate to tax high-value urban residential properties. This is the first time that Portugal has created a 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 properties valued at equal to or greater than 1 million euros. With the creation of this additional rate, the tax burden required of these owners will be significantly increased in 2012 and 2013."
The express reference to "houses" as the target of the new tax's scope of application leaves no room for doubt as to the legislative intent.
On the other hand, there is no reference in the discussion of the said Bill to "land for construction".
Regarding article 45 of CIMI, invoked by the Respondent where the foundation for "use" is found, it has no relation to the classification of properties, only indicating the factors to be considered in the evaluation of land for construction. What is considered there, by referring to the "building to be constructed" is the consideration of the destination of the land, which, as has been seen, is something which, in the context of CIMI, does not imply use and occurs before it.
Furthermore, it must also be noted that Law no. 83-C/2013, of 31 December, came to confirm, at least indirectly, the interpretation that the item in question in its initial wording did not encompass land for construction.
In truth, if the original wording of that item no. 28.1, by speaking of "property with residential use," already intended to encompass buildings and constructions which constituted "residential properties" (under article 6, no. 2, of CIMI), and also land for construction for which residential construction was authorized or foreseen, it would be natural to attribute to the new wording an interpretative nature, similar to what the same Law no. 83-C/2013 does in other provisions [article 177, no. 7, regarding subparagraphs a) and b) of no. 3 of article 17-A of the IRS Code, and article 185, no. 1, regarding article 3-A of the Value Added Tax Code] and is usual practice in budgetary laws, when it is intended that the new wordings apply to situations potentially covered by the previous wordings.
Therefore, the fact that no interpretative nature was attributed to the new wording points towards the conclusion that it was intended to alter the scope of application of the said item no. 28.1 of GIST and not to maintain it, merely clarifying it.
Based on the foregoing, the assessments whose declaration of illegality is requested by the Claimant are marred by the defect of error in the legal grounds, consisting in violation of item no. 28.1 of GIST, which justifies their annulment (article 135 of the Administrative Procedure Code).
5. Judgment
In accordance with the foregoing, it is decided to uphold the claim and, consequently, to annul the assessment acts identified above, on the ground of violation of law.
6. Value of the Case
In accordance with the provision of art. 306, nos. 1 and 2, of CPC and 97-A, no. 1, subparagraph a), of CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 43,011.13.
7. Costs
In accordance with art. 22, no. 4, of RJAT, the amount of costs is fixed at € 2,142.00 (two thousand, one hundred and forty-two euros), in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, entirely charged to the Tax and Customs Authority.
Text prepared by computer, in accordance with the Civil Procedure Code (CPC), applicable by referral of article 29, no. 1, subparagraph e) of RJAT, governed by the orthography prior to the Orthographic Agreement of 1990, with blank lines and revised by the undersigned arbitrator.
Lisbon, 22-01-2015
The Arbitrator
(Jaime Carvalho Esteves)
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