Stamp Tax on Building Land Without Housing Use: CAAD Ruling 415/2016-T Annuls Assessment Under Clause 28.1 TGIS

ARBITRAL DECISION

1. REPORT

1.1

A..., S.A., collective entity no...., with registered office at Rua dos..., no...., in Lisbon, on 22.07.2016, pursuant to articles 2, no. 1, paragraph a), and 10, nos. 1 and 2 of Decree-Law no. 10/2011, of 20 January, and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, requested the constitution of the arbitral tribunal.

1.2

The Respondent in these proceedings is the TAX AND CUSTOMS AUTHORITY.

1.3

The Deontological Council of the Administrative Arbitration Center (CAAD) designated the undersigned to constitute the Singular Arbitral Tribunal, of which it notified the parties.

1.4

On 04.10.2016, the Claimant requested the objective modification of the claim and the expansion of the scope of the request in order to include in the arbitral ruling the second installment of the stamp duty assessment in dispute, of which it had meanwhile been notified.

1.5

The Tribunal was constituted on 18 October 2016.

1.6

The request for arbitral ruling concerns the legality of the Stamp Duty assessment of item 28.1 of the General Table of Stamp Duty for the year 2015, in the amount of 23,299.90€, issued on 05.04.2016, relating to the property situated at Avenue ... and Street ..., lot no...., parish of ..., municipality of Lisbon, described in the ... Registry Office of Real Property Registration of Lisbon, under no. .../..., and registered in the urban property matrix of the respective parish under article ....º, with the patrimonial value for tax purposes, fixed on 27.02.2013, of 2,329,990.00€, the matter under consideration being whether item 28.1 of the General Table of Stamp Duty (TGIS) applies to properties without residential use allocation, namely land for construction.

Very briefly:

The Claimant manifests its disagreement with the rejection order and with the stamp duty assessment in dispute, based fundamentally on the fact that the property on which the tax is imposed is not a residential property, but rather unconstucted land for construction, incapable of being inhabited and, therefore, without any "use allocation", namely, the "residential" one that is required by the rule of incidence, and thus does not fall within the provision of item no. 28.1 of TGIS.

It therefore objects to the decision and to the act of assessment in dispute insofar as they are based on the incorrect relevance of the "residential use allocation" of the property.

It understands, moreover, that the rule of incidence of item 28.1 of TGIS "clearly violates the principles of equality before public charges, just distribution of income and wealth, as well as proportionality (see articles 13, 18, 103/1, 104 and 266 of CRP)" and, likewise, "the principles of trust and legal certainty (see articles 2, 9 and 18 of CRP)" and, finally, "the provisions of articles 103 and 165/1/i) of CRP".

It further alleges that the Respondent omitted the proceedings required for prior hearing of the taxpayer under articles 45 of CPPT, 60 of LGT and 12 and 121 et seq. of NCPA and, moreover, that, because "the assessment sub judice does not mention the applicable legal rules, the facts to which they are applied and the calculation justifying the conjectural values and other criteria that were only conclusively indicated", the act in dispute suffers from the manifest defect of lack of factual and legal reasoning, which, in its view, makes it illegal, an illegality that adds to the invoked "non-existence of tax fact".

Wherefore it concludes that the decision and the stamp duty assessment in dispute are voidable, for being illegal, requesting the respective annulment, as well as that of the collection notices issued in the meantime, and furthermore the reimbursement of the amounts already paid plus indemnitary interest calculated until the date of reimbursement.

1.7

The TAX AND CUSTOMS AUTHORITY responded on 04.11.2016 and submitted documents.

Once more, very briefly:

As a "preliminary matter", the Respondent invoked the "impossibility" of the Arbitral Tribunal ruling on the unconstitutionality of the rule contained in item 28.1 of TGIS, as, in its view, "the Arbitral Tribunal not having competence for abstract review of the constitutionality of rules (matter constitutionally reserved to the Constitutional Court, paragraph a) of article 281 of CRP)" which, in its view, leads to the impropriety of the means or to the material incompetence of the tribunal to consider the "thema decidendum". Thus, it concludes, there should be a finding of the impossibility of the present arbitral tribunal deciding the present dispute, whether we consider we are dealing with the exception of material incompetence of the arbitral tribunal or with a dilatory exception of impropriety of means, from which, it understands, follows the absolution of the Respondent Entity from the action, in accordance with the combined provisions of article 278 of CPC, article 2 of RJAT, 2 of the Ordinance binding to CAAD and 4, no. 2, paragraph a), of ETAF ex vi article 29 of RJAT.

By exception, the Respondent further defended itself alleging the incompetence of this Tribunal to rule in the terms and for the purposes that the Claimant intends, when what that party intends is, in its view, that in the face of the assessment the valuation of the property in question be reviewed.

The Respondent defended itself, moreover, by objection, arguing for the maintenance in the legal order of the impugned act, understanding that the property has residential use allocation, evidenced by the fact that the property in question was evaluated according to the new rules of CIMI, and as a consequence it was confirmed that it was land for construction, intended for housing, which the Claimant did not call into question within the term and means available to it, having already precluded that right.

It alleges, briefly, that consulting the Certificate of the Content of the urban property that is the basis of the present assessment, it is verified that the land for construction is allocated to housing and that urban properties, which are land for construction and to which residential use allocation has been assigned in the context of their respective valuations, appearing such allocation in their respective matrices, are subject to Stamp Duty.

It understands that the classification of residential, commercial, industrial or service properties depends on their respective licensing, or in the absence thereof on the normal purpose for the end in question and not on their allocation (cf. no. 2 of article 6 of CIMI).

It argues that the alteration introduced with the State Budget for 2014, Law no. 83-C/2013, of 31 December, to item 28.1 of the General Table of Stamp Duty, which now reads: "28.1 — For residential property or for land for construction whose building, authorized or intended, is for housing, in accordance with the provisions of the Real Estate Tax Code — 1%" is merely an interpretation or definition of the underlying logical element of the explanatory statement that served as the basis for Bill no. 96/XII and which has been difficult to grasp, as appears to be the case in the present matter.

It concludes by adducing arguments in the sense of the conformity with CRP of the rule of incidence in dispute.

1.8

The Respondent did not submit the administrative file to the record, alleging, in this regard, that "it is composed solely of the disputed assessments, and it is certain that those were not subject to any prior ex officio phase".

1.9

The Tribunal issued, on 29.11.2016, an order to the effect of refusing to examine the witness evidence produced by the Claimant and of it appearing unnecessary the gathering of the arbitral tribunal provided for in article 18 of RJAT, and inviting the parties to submit arguments.

1.10

Notified, the parties did not object.

1.11

The Claimant submitted arguments on 09.12.2016, responding to the exceptions invoked by the Respondent.

1.12

The Respondent, on 19.12.2016, submitted its arguments, in which it maintained the positions already stated.

2. PRELIMINARY RULINGS

The Tribunal was regularly constituted.

The parties have legal personality and capacity, show themselves to be properly interested and are regularly represented.

The proceedings do not suffer from any defects that would invalidate it.

The competence of this Tribunal to consider the matters that were submitted for its consideration was put in issue by the Claimant, wherefore it is necessary, before anything else, to decide on these exceptions.

Thus, the Respondent alleges:

a) The incompetence of the Tribunal to decide on the invoked unconstitutionality of the rule contained in item 28.1 of TGIS;

b) The incompetence of the Arbitral Tribunal "to rule in the terms and for the purposes that the Claimant intends, when what that party intends is that in the face of the assessment the valuation of the property in question be reviewed", "being outside the material competences of the Arbitral Tribunal, the review and/or analysis of acts of valuation and property registration", which, it understands, constitutes a dilatory exception that affects the knowledge of the merits of the case, and should determine the absolution of the Respondent Entity from the action, taking into account the provisions of articles 576, no. 1 and 577, paragraph a) of CPC, applicable ex vi article 29, no. 1, paragraph e) of RJAT.

These are procedural matters of priority knowledge, in accordance with no. 1 of article 608 of the Civil Procedure Code, of subsidiary application to tax arbitral proceedings, ex vi the provision of article 29, no. 1, paragraph e), of RJAT.

Let us see, then.

a)

Under the heading "Consideration of unconstitutionality", article 204 of CRP provides that "In disputes submitted to judgment, courts cannot apply rules that violate the provisions of the Constitution or the principles enshrined in it".

Thus, this rule imposes the duty to examine the normative acts possibly applicable to a specific case, which translates into the guarantee of a judicial decision in conformity with the Constitution.

A system of diffuse review of the constitutionality of rules is thus established, within the competence of the courts (of all courts – including arbitral courts, which have in article 209, no. 2 of CRP explicit constitutional support) [1].

Wherefore this invoked exception of incompetence of the Arbitral Tribunal is deemed unfounded.

b)

With respect to the second of the invoked exceptions, it appears evident to the Tribunal that what is not at issue in these proceedings is the review of the acts of valuation of the property in question or any of the elements of that valuation.

The matter sub judice is, manifestly, to know whether the property thus valued satisfies the rule of incidence and, therefore, whether the stamp duty assessment is or is not legal. What is at issue is, in particular, as will be seen, the relevance of the registration in the field "type of location coefficient: housing" in satisfying the rule of incidence contained in item 28.1 of TGIS.

Wherefore, without need for further consideration, also on this matter the invoked exception of incompetence of the Arbitral Tribunal is deemed unfounded.

3. FACTUAL MATTERS

With relevance for the decision on the merits, the Tribunal considers the following facts to be proved:

1. The present claimant is a commercial company whose purpose is "the purchase and sale of properties, purchase of properties for resale, planning and development of urbanizations and respective constructions; civil construction industry, private works and public works; participation in companies with the same purpose or related purposes"

2. The present claimant is the owner of the property situated at Avenue ... and Street ..., lot no...., parish of ..., municipality of Lisbon, described in the ... Registry Office of Real Property Registration of Lisbon, under no. .../..., with an area of 1,386.25 m2;

3. The property in question is registered in the urban property matrix of the parish of ..., under article ....º and is described in the matrix as "parcel of land for urban construction";

4. In the valuation of the property a "type of location coefficient: housing" was applied;

5. The property has the patrimonial value for tax purposes, determined on 27.02.2013, of 2,329,990.00€;

6. On 05.04.2016, the Tax and Customs Authority proceeded to the assessment of Stamp Duty of item 28.1 of TGIS amended by Law no. 55-A/2012, with reference to the property described in 1., which received the number 2016…, in the total amount of 23,299.90€ and issued the collection notice relating to the first of the three installments, in the amount of 7,766.63€;

7. The Respondent, pending the request for arbitral ruling, issued the collection notice relating to the second of those installments of tax resulting from that assessment, in the amount of 7,766.63€.

Facts Not Proved

With relevance for the consideration of the merits of the case, it was not proved that on the property in question any construction had been authorized, designed or intended, in particular, intended for housing, a fact whose proof was incumbent on the Respondent, as it constitutes an essential fact for integration in the rule of incidence and the fact that tax is actually payable and is, therefore, constitutive of the right to assess it.

No other facts with relevance for the consideration of the merits of the case were alleged by the parties that were not proved.

Grounds for the Decision on Factual Matters

The conviction regarding factual matters was based on the allegations of the Claimant and the Respondent not contradicted by the opposing party, sustained by documentary evidence submitted by both the Claimant and the Respondent, the authenticity and correspondence to reality of which were also not called into question.

4. LEGAL MATTERS - QUESTIONS TO BE DECIDED

In the opinion of the Tribunal, the following are the matters on which it is incumbent to decide:

A) For the purpose of applying the aforementioned item, whether the property in question, land for construction, without authorized or intended construction, is covered by the rule of incidence;

B) Whether item 28.1 of TGIS, in the wording introduced by Law no. 83-C/2013, of 13 December, is unconstitutional for violation of the principles of equality before public charges, just distribution of income and wealth, as well as proportionality (see articles 13, 18, 103/1, 104 and 266 of CRP)" and, likewise, "the principles of trust and legal certainty (see articles 2, 9 and 18 of CRP)" and, finally, "the provisions of articles 103 and 165/1/i) of CRP, and should, in that case, be refused the respective application, which would remove legal support for the assessment act which, for being illegal, would have to be annulled.

It is necessary to decide:

A) Whether the property is covered by the rule of incidence:

The subjection to Stamp Duty of properties with residential use allocation resulted from the addition of Item no. 28 to TGIS, effected by article 4 of Law 55-A/2012, of 29 October, which typified the following tax facts:

"28 – Ownership, usufruct or right of superficies of urban properties whose patrimonial value for tax purposes contained in the matrix, in accordance with the Real Estate Tax Code (CIMI), is equal to or greater than € 1,000,000.00 – on the patrimonial value for tax purposes used for purposes of Real Estate Tax:

28.1 – For property with residential use allocation – 1%

28.2 – For property, when the taxpayers that are not natural persons are resident in a country, territory or region subject to a clearly more favorable tax regime, contained in the list approved by ordinance of the Minister of Finance – 7.5%".

The Law also added to the Stamp Duty Code no. 7 of article 23, concerning the assessment of Stamp Duty: "in the case of tax due by the situations provided for in item no. 28 of the General Table, the tax is assessed annually, in relation to each urban property, by the central services of the Tax and Customs Authority, applying, with the necessary adaptations, the rules contained in CIMI", and article 67, no. 2 which provides that "to matters not regulated in this Code relating to item 28 of the General Table, CIMI applies, subsidiarily".

Law no. 83-C/2013, of 31 December altered the wording of the rule, which now reads as follows: "28.1 For residential property or for land for construction whose building, authorized or intended, is for housing, in accordance with the provisions of the Real Estate Tax Code".

In articles 2 to 6 of the Real Estate Tax Code, the species of properties are enumerated as follows:

"Article 2 - Concept of property

1 – For purposes of this Code, property is any plot of territory, including waters, plantations, buildings and constructions of any nature incorporated or built thereon, with a character of permanence, provided that it is part of the patrimony of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the circumstances above, endowed with economic autonomy in relation to the land where they are located, although situated in a plot of territory that constitutes an integral part of a different patrimony or does not have a patrimonial nature.

2 – Buildings or constructions, even if moveable by nature, are deemed to have a character of permanence when dedicated to non-transitory purposes.

3 – The character of permanence is presumed when buildings or constructions have been on the same site for a period exceeding one year.

4 – For purposes of this tax, each autonomous fraction, in the horizontal property regime, is deemed to constitute a property."

"Article 3 - Rural properties

1 – Rural properties are lands situated outside an urban center that are not to be classified as land for construction, in accordance with no. 3 of article 6, provided that:

a) they are dedicated or, in the absence of concrete allocation, have as normal purpose a use generating agricultural income, such as are considered for purposes of income tax on natural persons (IRS);

b) Not having the allocation indicated in the preceding paragraph, they are not built or have only buildings or constructions of an accessory character, without economic autonomy and of reduced value.

2 – Rural properties are also lands situated within an urban center, provided that, by virtue of a legally approved provision, they cannot have use generating any income or can only have use generating agricultural income and are in fact having this allocation.

3 – The following are also rural properties:

a) Buildings and constructions directly dedicated to the production of agricultural income, when situated on the lands referred to in the preceding paragraphs;

b) Waters and plantations in the situations referred to in no. 1 of article 2.

4 – For purposes of this Code, urban centers are considered, in addition to those situated within legally fixed perimeters, centers with a minimum of 10 units served by streets for public use, with their perimeter delimited by points distanced 50 m from the axis of the streets, in the transverse sense, 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 part can be classified as main, the property is deemed to be mixed."

"Article 6 - Species of urban properties

1 – Urban properties are divided into:

a) Residential;

b) Commercial, industrial or service;

c) Land for construction;

d) Others.

2 – Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of license, which have as normal purpose each of these uses.

3 – Land for construction is deemed to be land situated inside or outside an urban center, for which a license or authorization has been granted, admitted prior communication or issued favorable prior information of a subdivision or construction operation, and also those that have thus been declared in the acquisition title, excepting lands where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are designated for public spaces, infrastructure or equipment.

4 – Falls under the provision of paragraph d) of no. 1 land situated within an urban center that is not land for construction nor is covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of license, which have as normal purpose purposes other than those referred to in no. 2 and also those in the exception of no. 3."

It is within this legal framework that it is necessary to consider the legal qualification of the property on which the tax in dispute was imposed.

There is no doubt that the property is "land for construction". It is a qualification that was not put in issue by either of the parties and which results from the content of the respective property certificate and from the comparison of the cited articles 2, 4 and 6 of CIMI applicable by express reference of the rule of incidence applied.

That rule is item 28.1 of TGIS which, let us recall, provides as follows: "28.1 For residential property or for land for construction whose building, authorized or intended, is for housing, in accordance with the provisions of the Real Estate Tax Code".

It is necessary, therefore, for satisfaction of the rule of incidence, that the property be residential or, if not, be land for construction and that construction intended for housing has been authorized or is intended.

It must be said that, in that case, the wording adopted by the legislature was unfortunate and does not make clear whether the construction must be exclusively for housing and, if not, whether the tax base is intended to correspond to the patrimonial value of the property, or only to the part intended for housing (the respective determination not appearing to us to be viable). The Tribunal is not unaware of the context in which the rule was produced, but not even in a context of urgency is the legislature exempt from observing the Constitutional provisions, in particular, the principle of legality in the sense of clearly typifying the tax facts that are subject to tax.

No. 2 of article 5 of CIMI clarifies what it means by "residential" properties for purposes of paragraph a) of no. 1, classifying as such buildings licensed for housing or which in the absence of license, have that normal use, is not referring to land for construction, but to buildings already constructed which will be residential when that is the use licensed by the planning authority or when, in the absence of license, that is their normal use. The criterion of "normal use" in the absence of license cannot be extrapolated with the objective of guessing at buildings that may come to be made on land for construction, species of property provided for in paragraph d) of no. 1 of the same article, as the Respondent seems to intend.

It is true that in the valuation of the land the Tax Authority used the location coefficient of the housing type, and the taxpayer could, in fact, have reacted against the application of this coefficient, and it was not demonstrated that it did.

However, that is not the criterion adopted by the legislature either in CIMI or in the Stamp Duty Code. The legislature did not attribute to the use of that coefficient any relevance in the qualification of the property, solely in its respective valuation.

Item 28.1 of TGIS appears to us - in that part, at least - perfectly clear: subject to tax are, in addition to residential properties (those of paragraph a) of number 1 and no. 2 of article 5 of CIMI), land for construction (i.e., the species of property provided for in paragraph d) of no. 1 of the same article of CIMI), provided that construction intended for housing has been authorized or is intended (being only left to define whether it is total or partial and, in the latter case, what is the value considered for purposes of subjection to taxation).

Now, it was not proved that the land for construction in question had authorization, design or intention of construction intended for housing, so as to be subject to Stamp Duty under the terms of Item no. 28.1 of TGIS.

Proof that was incumbent on the Respondent and should moreover be contained in the reasoning of the assessment act, which was not submitted to the record. The Respondent, moreover, did not come to submit the administrative file alleging it does not exist, which may point to the non-existence of the very reasoning for the assessment. The defect arising therefrom was, however, not expressly argued, although the Claimant touched on it when alleging the lack of prior hearing, which leads to the illegality of the assessment.

Notwithstanding this, it appears to us, therefore, evident that the property, land for construction in respect of which it was not proved to have authorization or intention of construction intended for housing, does not satisfy the rule of incidence of the tax that served as the basis for the assessment.

Wherefore, without need for further consideration and on this ground, the assessment act is considered voidable, for being illegal, because item 28.1 of TGIS is not applicable to the property on which it was imposed.

The consideration of the other defects pointed out by the Claimant is rendered unnecessary, in particular, that of lack of prior hearing and that of the invoked unconstitutionality of the rule.

As to the Value of the Case:

The request for arbitral ruling concerns the legality of the assessment of Stamp Duty of item 28.1 of the General Table of Stamp Duty for the year 2015, in the amount of 23,299.90€, issued on 05.04.2016, relating to the property situated at Avenue ... and Street ..., lot no...., parish of..., municipality of Lisbon, described in the ... Registry Office of Real Property Registration of Lisbon, under no. .../... and registered in the urban property matrix of the respective parish under article ....º, with the patrimonial value for tax purposes, fixed on 27.02.2013, of 2,329,990.00€, the matter under consideration being whether item 28.1 of the General Table of Stamp Duty (TGIS) applies to properties without residential use allocation, namely land for construction.

In fact, despite the value attributed to the case by the Claimant, it is evident from its argumentation that what it intended with the request for arbitral ruling was the declaration of illegality of the stamp duty assessment relating to the property already identified and for the year 2015, whose value, of 23,990.90€, was, in accordance with applicable law, charged in three successive and equal installments.

It cannot, therefore, fail to be this the value of the case, which, thus, in accordance with the provisions of articles 3, no. 1, paragraph a) and no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of CPPT and 306 of CPC, goes forward corrected to coincide with that of the assessment in dispute, with the consequent legal implications, in particular in terms of procedural costs.

5. DECISION

In these terms and with the reasoning above, it is decided:

To find the claim of the Claimant to be wholly well-founded and, in consequence, to annul the stamp duty assessment act in dispute, the Respondent being obliged, as a result of the annulment, to refund to the Claimant the amounts already paid by it plus the respective indemnitary interest, in accordance with article 43, no. 1, of the General Tax Law (LGT), from the date of payment of each of the installments and until effective and complete reimbursement.

To fix the value of the case at 23,990.90€ (twenty-three thousand, nine hundred and ninety euros and ninety cents) in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of CPPT and 306 of CPC.

To fix the amount of costs at 1,224.00€ (one thousand two hundred and twenty-four euros) under article 22, no. 4 of RJAT and of Table I annexed to RCPAT, charged to the Respondent, in accordance with the provisions of articles 12, no. 2 of RJAT and 4, no. 4 of RCPAT and 527 of CPC.

Let it be notified.

Lisbon, 10 January 2017,

The Arbitrator,

(Eva Dias Costa)

Text prepared by computer, in accordance with article 131, no. 5 of the Civil Procedure Code, applicable by reference of article 29, no. 1, paragraph e) of RJAT.

[1] Cf. GOMES CANOTILHO and VITAL MOREIRA, Constitution of the Portuguese Republic Annotated, 3rd ed., Coimbra Editora, Coimbra, 1993, p. 797) and, in the same sense, JORGE MIRANDA, Manual of Constitutional Law, Volume VI, 4th ed., Coimbra Editora, Coimbra, 2013, p. 246.